The Newsletter
Tax Legislation Update in an Easy-to-Read Format
BRITISH WAITRESS WINS HIGH COURT DISCRIMINATION BATTLE OVER AUSTRALIA’S ‘BACKPACKER TAX’
On 3.11.2021, an English backpacker who worked as a waitress in Sydney has won her battle over the so-called backpacker tax in the High Court.
British national Catherine Addy argued a tax imposed on her as a backpacker discriminated against her on the basis of her nationality when she was made to pay tax at a different rate to Australian residents.
Under an agreement between Britain and Australia, backpackers paid a flat rate. Foreign nationals in Australia on 417 and 462 visas are subject to a 15 per cent tax on income and are not eligible for the tax-free threshold.
The tax was introduced in 2017 and applies to 417 and 462 visas holders, which allows travellers between 18 and 31 to travel to Australia for a working holiday.
Ms Addy worked as a waitress in two Sydney hotels earning $26,576 between January 2017 and May 2017, when she left Australia.
Ms Addy challenged the decision to tax her a flat rate of 15 per cent under the backpacker tax, instead of as a resident of Australia, who would have access to the tax-free threshold.
Ms Addy argued this was contrary to the international “double tax” agreement Australia has with Britain and a number of other nations.
That agreement prohibits discrimination on the basis of nationality by stating foreign nationals should not be taxed in a more “burdensome” way than locals in a similar position.
The High Court agreed, saying:
“In the present case, the application of the ordinary taxation laws – the basis of the charge and the method of assessment in relation to the taxable income of Australian nationals and nationals of the United Kingdom in the same circumstances – was the same, but the tax rate was not,” the unanimous judgement said.
“The tax rate was more onerous for Ms Addy, a national of the United Kingdom, than it was for an Australian national in the same circumstances – doing the same work, earning the same income, under the same ordinary taxation laws.”
The ruling effectively clears the way for thousands of other foreign workers who were similarly taxed to request a review.
In noting the decision, the ATO maintains this decision is only relevant where the working holidaymaker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany, or Israel.
Working holidaymakers who may potentially be affected by this decision are encouraged to check the ATO website for updated guidance prior to lodging or amending a return or lodging an objection.
Employers should continue to follow rates in the published withholding tables for working holidaymakers until the ATO provides further guidance.
The taxpayer’s individual circumstances determine a working holidaymaker’s residency status for tax purposes. Most working holidaymakers will be non-residents consistent with their purpose of being in Australia to have a holiday and working to support that holiday.
SUPERANNUATION PORTFOLIO HOLDINGS DISCLOSURE
In a major boost to superannuation transparency, Australians will have access to information about how superannuation funds invest their money following the finalisation of new regulations dealing with portfolio holdings disclosure by superannuation funds.
Under the requirements, superannuation funds must disclose information about their investments’ identity, value, and weightings. Members will be able to clearly see how much of their retirement savings are being invested by superannuation funds across a range of asset classes and derivatives.
This information will make it easier for members to compare products and identify the most suitable fund.
Reviews of the superannuation system have found that superannuation portfolio disclosure is unduly opaque and does not meet global best practices. Requiring the disclosure of portfolio holdings would provide greater transparency and allow members to understand where their superannuation is invested.
Under the regulations, superannuation funds will be required to first report their holdings by 31 March 2022, with portfolio holdings disclosure to occur every six months thereafter. The Government will closely monitor these disclosures and consider further refinements where necessary.
While undertaking consultation on this measure, it has become apparent that some superannuation funds have large exposures to derivatives.
Given Australia’s superannuation funds have now become a systemically important part of our financial system. It is timely to ensure policymakers and regulators have a sound understanding of the extent and nature of the use of derivatives and any implications for the operation of our financial system that could arise from these exposures.
Therefore, the Treasurer has asked the Council of Financial Regulators (CFR) to prepare a report on this matter, drawing upon the information-gathering powers of the Australian Prudential Regulation Authority and the input of relevant experts from across the CFR, including the Reserve Bank of Australia.
WORKING FROM HOME TEMPORARY SHORTCUT METHOD EXTENDED
Due to the continued extenuating circumstances of COVID-19 and lockdowns since 1 July, the 80 cents per hour temporary shortcut method to calculate working from home deductions has been extended to 30 June 2022. The existing fixed-rate method (52 cents per hour) and the actual cost method are still available options for taxpayers to use.
INCOME TAX: VALUE OF GOODS TAKEN FROM STOCK FOR PRIVATE USE FOR THE 2021-22 INCOME YEAR
The Commissioner has released Taxation Determination TD 2021/8. This Determination provides an update of amounts that the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers in named industries.
Schedule for the value of goods taken from trading stock
The Schedule for the value of goods taken from trading stock for private use in the 2021-22 income year is:
| TYPE OF BUSINESS | AMOUNT (EXCLUDING GST) FOR ADULT/CHILD OVER 16 YEARS | AMOUNT (EXCLUDING GST) FOR CHILD 4 to 16 YEARS OLD |
| Bakery | $1,350 | $675 |
| Butcher | $920 | $460 |
| Restaurant/café (licensed) | $4,640 | $1,830 |
| Restaurant/café (unlicensed) | $3,660 | $1,830 |
| Caterer | $3,870 | $1,935 |
| Delicatessen | $3,660 | $1,830 |
| Fruiterer/greengrocer | $960 | $480 |
| Takeaway food shop | $3,790 | $1,895 |
| Mixed business (includes milk bar, general store and convenience store) | $4,590 | $2,295 |
RE-CONTRIBUTION OF COVID-19 EARLY RELEASE SUPER AMOUNTS
Individuals can now re-contribute amounts they withdrew under the program without them counting towards their non-concessional contributions cap. These contributions can be made between 1 July 2021 and 30 June 2030.
COVID-19 re-contribution amounts are not a new type of contribution. They are a personal contribution that will be excluded from an individual’s non-concessional contribution cap.
Individuals can make COVID-19 re-contribution amounts to any fund of their choice where the fund rules allow.
Individuals can use the approved form to make a COVID-19 re-contribution. You can choose to design your own Notice of re-contribution of COVID-19 early release amounts approved form for your members, as outlined in the CRT Alert 008/2021.
Further details are available on the ATO’s webpage.
AIRPORTS AND CAR PARKING BENEFITS – THE SAGA CONTINUES
Commissioner of Taxation vs Virgin Australia Regional Airlines Pty Limited [2021 FCAFC 209]
The Full Federal Court has upheld the Commissioner’s appeal in relation to the existence of taxable car parking fringe benefits in situations where the taxpayer-provided car parking spaces to aircrew employees at their “Home Base” airport.
The key elements of the definition of car parking fringe benefits in section 39A FBT Act that were relevant were:
- Did the employee have a primary place of employment on the day that the employer-provided the benefit?
- If so, where was the primary place of employment on that day?
- Was the car parked in the vicinity of that primary place of employment?
Subsection 136(1) of the FBT Act defines the “primary place of employment” to include:
“Business premises of the employer…where those premises are”.
(c) the sole or primary place of employment of the employee: or (d) otherwise the sole or primary place from which the employee performs duties of their employment”.
The FBT Act states that business premises can include an aeroplane.
Paragraph 39A(1)(g) of the FBT Act provides that a car parking fringe benefit can only arise on a day where the employee has used the car to travel between the place of residence and the primary place of employment.
Therefore, days in the middle of the employee’s Tour of Duty would not give rise to car parking fringe benefits.
This decision has implications for entities that have employees travel on work.
THE TAXATION IMPLICATIONS OF OVERSEAS RECEIPTS
If you receive money (or assets) from overseas, it’s important to understand your tax obligations.
There are a number of payments made from overseas that may need to be included in your assessable income, such as distributions from foreign trusts and, in some cases, overseas pensions; it is possible you may not identify the amount (or asset) you’ve received as a trust distribution but see it as a gift or loan from a family member.
Questions you need to ask and understand include
- Who paid the money or transferred the asset? For example, is the amount (or asset) from a foreign trust directly or has it been received indirectly from a foreign trust through another entity or person.
- Are you a beneficiary of the foreign trust?
- What the money represents. For example, is it payment for services, a gift, a distribution, or a loan?
Any amount (or value of an asset) received by an Australian beneficiary from a foreign trust, either directly or indirectly, may need to be included as assessable income in the income year that it is received.
If you are not sure of the source or precise nature of the receipt, you should discuss this with your professional advisor.
This is now an area of ATO focus. Of course, genuine gifts or inheritances are not assessable. The ATO is now taking note of large overseas transfers, and further on down the line, you may be asked to provide documentary evidence of the source of the payments made to you.
REPORTED TRANSACTIONS IN ATO ONLINE
It is possible the ATO holds more information on you than you may think.
The Reported transactions service in ATO online platforms allows you and your tax agent to view third party data that they hold on taxable payments, government grants and business transactions received through payment systems.
Accessing reported transactions
These records give you transparency about the data that has been provided to the ATO about your business transactions and can help you meet your tax obligations.
While most businesses do the right thing, some businesses are deliberately not reporting or under-reporting business income to the ATO. This contributes to the shadow economy. It is estimated that small businesses operating in the shadow economy cost the community more than $6.7 billion in unpaid tax every year.
After the ATO receives and processes the information, the data is available to view. You and your tax agent will be able to view and filter on the current year plus the previous three years of data and download it in either CSV or HTML format.
You can access the Reported Transactions service through ATO Online platforms, such as Online services for business. If you are a sole trader, you have a choice of using Online services for individuals or Online services for business. The ATO is also making the data available for tax agents of small businesses through Online services for tax agents (OFSA).
This information may help you meet your tax obligations. However, you should cross-check the information against your business records to ensure it is complete and correct.
ATO information may be incomplete because:
- an organisation has not supplied data yet
- ATO processing has not been completed
- the ATO has received data that could not be matched to you with high confidence
- the data did not pass all validation processing checks
- the transaction date is the date the payer made the payment. If you report on an accrual basis, you’ll need to consider when the work was done rather than when the payment was received.
If you or your tax agent need to dispute the data, you can send the ATO a message with the details by accessing the ‘contact us’ link on ATO the page.
Reported transaction payment types
Use the information below to understand the different payment types available in the Reported Transactions service and the description of data fields in your data download report.
The main categories the ATO holds information are:
- Taxable payments
- Government grants and payments
- Business transaction through payment systems
This is all part of ATO data matching, and more detailed information is on the ATO website.
FRINGE BENEFITS TAX AND CHRISTMAS PARTIES
The FBT year ends on 31.3.2022, and in its focus on the “tax gap”, the ATO will be giving FBT compliance special attention. ATO guidance below will help you correctly complete the 2022 FBT annual return.
Christmas parties
There is no separate fringe benefits tax (FBT) category for Christmas parties, and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees, and their associates (spouses and children) may attract FBT.
Implications for taxpaying body
If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether FBT implications are arising from a Christmas party.
Exempt property benefits
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefits exemption is only available for employees, not associates.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be minor and exempt if the party cost for each associate is less than $300.The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
Where a Christmas gift is provided to an employee at a Christmas party that the employer also provides, the benefits are associated benefits. Still, each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT and are not income tax-deductible.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt unless it is a minor benefit.
Example
A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer, and wine.
| Employer implications | |
| The implications for the employer in this situation would be as follows. | |
| If… | Then… |
| current employees only attend | · there are no FBT implications as it is an exempt property benefit. |
| current employees and their associates attend at a cost of $180 per head | · for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefits exemption could also apply*
· for associates – there are no FBT implications as the minor benefits exemption applies.*
|
| current employees, their associates and some clients attend at a cost of $365 per head | · for employees – there are no FBT implications as it is an exempt property benefit
· for associates – a taxable fringe benefit will arise as the value is equal to or more than $300 · for clients – there is no FBT payable and no income tax deduction.
|
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
Example
Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks, and entertainment.
| Employer implications | |
| The implications for the employer in this situation would be as follows. | |
| If… | Then… |
| current employees only attend at a cost of $195 per head | there are no FBT implications as the minor benefits exemption applies.* |
| current employees and their associates attend at a cost of $180 per head | there are no FBT implications as the minor benefits exemption applies.* |
| current employees, their associates and clients attend at a cost of $365 per head | · for employees – a taxable fringe benefit will arise
· for associates – a taxable fringe benefit will arise, and · for clients – there is no FBT payable and the cost of providing the entertainment is not income tax-deductible.
|
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Implications for tax-exempt body
If you are a tax-exempt body, the following explanations may help determine the FBT implications arising from a Christmas party.
Gifts provided to employees at a Christmas party
A Christmas gift or hamper provided to an employee that meets the minor benefits exemption rule conditions and is less than $300 will not attract any FBT.
Christmas party held on business premises
The exempt property benefits (property benefits provided on your business premises) would not apply as the tax-exempt body entertainment provisions would apply.
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.
For tax-exempt body entertainment fringe benefits, the minor benefits exemption is only available in the following circumstances:
- – Where the provision of entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal other than light refreshments; or
- – A function is held on your business premises solely to recognise your employee’s special achievements in a matter relating to their employment.
Example
A tax-exempt organisation decides to run a Christmas morning tea for its sponsors. Employees attend as well. There would be no FBT implications as the minor entertainment benefit provided to the employees is incidental to entertaining the sponsors, and only light refreshments are provided.
Christmas party held off business premises
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply. The example immediately above will apply in these circumstances.
Further guidance
Taxation ruling TR 97/17 sets out the ATO view on parties with examples. Paras 27 and 43-56 cover parties on your business premises, and Paras 57-62 are specific to parties held at a restaurant, function centre, or similar venue.
Taxation Determination 94/55 sets out the ATO view in relation to gifts.
TAX TIP – MAKE THE MOST OF THE MINOR AND INFREQUENT BENEFIT EXEMPTION
The $300 minor and infrequent benefit exemption applies separately on a per-benefit basis (e.g., the minor benefits exemption can apply if a present worth $270 is provided to an employee and another present worth $280 is provided to the employee’s spouse). The annual Christmas party held outside of the employer’s premises, such as at a restaurant, often amounts to less than $300 per person.
As outlined above, the amount of FBT payable can be influenced by:
- When the party will be held (i.e., for the minor and infrequent benefit exemption, the cost of the benefit provided must be less than $300 per head and not provided regularly or frequently).
- Where the party will be held (i.e., for the property fringe benefit exemption to apply, the food and drink must be provided and consumed by current employees on the employer’s premises on a business day).
- For whom the party will be held (i.e., the tax consequences are different depending on whether the benefits are provided to employees, their associates, or clients).
COMMON ENTERTAINMENT SCENARIOS
Example 1 – Christmas party on the business premises – cost is less than $300
- A company holds a Christmas lunch on its business premises on a working day. Employees, their partners, and clients attend. Food and drink are provided at the party, and the company provides taxi travel home. The cost per head is $125.
Entertainment is being provided
- A party for employees, associates and clients is entertainment because the function’s purpose is for people attending to enjoy themselves.
Employees – exemption applies
- Food and drink – the food or drink provided to employees are exempt from FBT because it’s provided and consumed on a working day on the business premises.
- Taxi travel is exempt from FBT because there is a specific FBT exemption for taxi travel provided to an employee directly to or from the workplace.
Associates – exemption applies
- Food, drink, and taxi travel: The food, drink and taxi travel provided to the employees’ partners (associates) is exempt from FBT because of the minor benefits exemption.
Clients – no FBT
- Clients’ food, drink, and taxi travel: There is no FBT on benefits provided to clients.
Income tax and GST credits
- The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.
Example 2 – Gym membership
- A conveyancing firm pays a one-year gym membership costing $480 per person for the company’s director and each employee.
Entertainment is being provided
- Paying for employees to have membership of a gym provides recreation entertainment.
Director – no exemption
- The company will have to pay FBT on the gym membership provided to the director because they’re an employee of the company. The minor benefits exemption doesn’t apply because the gym membership cost is $480 per employee.
Other employees – no exemption
- The company would have to pay FBT on the gym membership provided to its other employees. The minor benefits exemption doesn’t apply because the gym membership cost is $480 per employee.
Income tax and GST credits
- The employer can claim an income tax deduction and GST credits for the gym membership cost for its employees and the FBT paid.
Example 3 – Holiday given as reward – cost is $300 or more
- A computer manufacturer offers a reward to employees of Home Office, a retail computer store.
- The retailer agrees that the manufacturer can offer a reward to its employees.
- If an employee sells 200 computers in a month, they will receive a holiday consisting of two nights’ accommodation at the coast and two tickets to the aquarium, including a swimming-with-sharks experience.
- The total value of each holiday package is $600.
Entertainment is being provided
- Providing employees with a holiday and tickets to the aquarium is recreation entertainment.
Employees – no exemption
- No exemption applies to the accommodation and tickets given to the employee who meets the sales target. The minor benefits exemption doesn’t apply in this case because the value of the holiday package is $600.
FBT liability – retailer
- The retailer, as the employer, would pay the FBT in this case as the benefits are being provided under an agreement with the manufacturer.
Income tax and GST credits
- The retailer can claim an income tax deduction for the FBT paid.
- The manufacturer can claim an income tax deduction and GST credits for the cost of purchasing the accommodation and tickets.
Example 4 – Golf Day for employees, associates, and clients – cost is $320 per person
Paul, an employee, takes several clients and his partner to a corporate golf day paid for by his employer. The event is not held on a working day, and Paul has been provided with taxi vouchers to escort his clients to and from the event. His taxi trips didn’t start or end at the workplace.
Entertainment is being provided
Entertainment is being provided as attending a golf day is a social event, and therefore its purpose is entertainment related.
Employees – no exemption
The food, drink and taxi travel are not exempt from FBT. The minor benefits exemption doesn’t apply because the cost per person is $320. A taxi travel exemption doesn’t apply as Pauls’ trip did not begin or end at the workplace.
Associates – no exemption
The food, drink and taxi travel are not exempt from FBT. The minor benefits exemption doesn’t apply because the value of the benefit is $320.
Income tax and GST credits
The employer is entitled to an income tax deduction and GST credit for the cost of providing the benefit to employees and their associates and the FBT paid.
Clients – no FBT payable
There is no FBT payable on the food or drink and taxi travel provided to clients.
Income tax and GST credits
The employer can’t claim an income tax deduction or GST credits for food or drink provided to the clients.
Example 5 – Celebration afternoon tea on the business premises – cost is $25 per head
Anjelica is getting married. To celebrate, her employer holds an afternoon tea on the business premises and invites Anjelica’s associates, work colleagues and clients.
Entertainment is being provided
The afternoon tea provided to employees, associates and clients in this situation is a social event and is therefore entertainment.
Employees – exemption applies
The exemption for food and drink provided and consumed on business premises on a working day applies to the employees.
Associates – exemption applies
The food and drink provided to the employee’s associates are exempt from FBT because of the minor benefits exemption. That is, the cost of the activity is less than $300 per employee and, considering the five factors, it would be unreasonable to treat the benefit as a fringe benefit.
Clients – no FBT
There is no FBT on benefits provided to clients.
Income tax and GST credits
The employer can’t claim an income tax deduction or GST credits for food or drink provided to the employees, their associates or clients.
Example 6 – Business planning day
An insurance company organises a planning day for their managers at a conference centre. Morning and afternoon tea and a three-course lunch (excluding alcohol) are provided at a cost of $125 per head.
Entertainment is not being provided
Providing light meals is not considered entertainment. Although the lunch provided in this situation is work-related, the three-course meal would be elaborate and therefore considered to be entertainment.
Employees – exemption applies
The exemption for food and drink provided and consumed on the employer’s premises on a workday doesn’t apply. However, the minor benefits exemption applies as the cost of the activity is less than $300 per employee and, considering the other factors, it would be unreasonable to treat the benefit as a fringe benefit.
Income tax and GST credits
As the minor benefits exemption applies, the employer can’t claim an income tax deduction or GST credits for food or drink provided.
EXTENDING SUPPORT FOR SMALL AND MEDIUM-SIZED BUSINESSES
With a view to assisting Australia’s small business-led recovery from the COVID-19 pandemic, the Federal Government has extended the SME Recovery Loan Scheme by a further six months to 30 June 2022.
Around 80,000 loans worth approximately $7.3 billion have been written since the scheme commenced in March 2020.
As with the existing scheme, SMEs dealing with the economic impacts of COVID-19 with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.
With the economy showing signs of a strong rebound as restrictions ease, the Government has reduced its loan guarantee from 80 per cent to 50 per cent, helping drive a private sector-led recovery.
Other key features of the SME Recovery Loan Scheme include:
- Lenders can offer borrowers a repayment holiday of up to 24 months.
- Loans can be used for a broad range of business purposes, including to support investment.
- Loans may be used to refinance any pre-existing debt of an eligible borrower.
- Loans can be either unsecured or secured (excluding residential property).
Extension of the scheme will complement other investment incentives, which allow for the full and immediate expensing of the cost of eligible assets.
Further information can be found on the Treasury website.
COVID-19 VACCINATION INCENTIVES AND REWARDS – YOUR TAX AND SUPER OBLIGATIONS
If you give your employees incentives or rewards for getting their COVID-19 vaccination, you need to consider any tax and super obligations. These tax and super obligations also apply to incentives or rewards offered for a COVID-19 booster dose.
The tax and super consequences differ depending on whether you give your employees a cash payment, paid leave, transport to and from the vaccination, or other non-cash benefits.
The tax consequences are different depending on whether the incentive or reward is available exclusively to employees, or more generally, to clients or the public.
Cash payment for getting the vaccine
If you give your employees a cash payment for getting vaccinated (for example, a $200 payment), you need to:
- report the payment via Single Touch Payroll (STP) as part of the employee’s salary or wages
- withhold tax from the amount under pay as you go (PAYG) withholding, and
- include the amount in your employee’s ordinary time earnings for the purpose of determining your super contributions for your employee.
If you have already made a cash payment and did not withhold tax, you should contact the ATO straight away so that they can consider the remission of any applicable failure-to-withhold penalties.
If you have not made super contributions, you need to ensure you make them no later than 28 days after the end of the quarter in which the cash payment was made; otherwise, you may be liable for the super guarantee charge.
Paid leave
If you give your employees paid leave to get their COVID-19 vaccination or additional paid leave to recover from any COVID-19 vaccination side effects, your employee earns salary or wages while they are on paid leave.
You should withhold tax under PAYG withholding and make super contributions on the amount as you usually would.
Transport to and from the vaccination
If you provide or pay for an employee’s transport to get their COVID-19 vaccination, there is generally no fringe benefits tax (FBT) payable. The travel is associated with work-related preventative health care and is exempt from FBT.
Other non-cash benefits
Other non-cash benefits you provide to your employees may be subject to FBT. Non-cash benefits could include:
- goods and services
- vouchers and gift cards, or
- points in a reward scheme.
The FBT treatment of these benefits will depend on their specific terms and conditions, and the benefits may be subject to FBT unless an exemption or reduction applies.
The fringe benefits you provide may also need to be included in your employee’s reportable fringe benefits amount and reported on your employee’s income statement.
Benefits that you provide to the general public
You may be providing free or discounted goods, services, vouchers, gift cards or reward points to everyone that has had their COVID-19 vaccination. This could be offered to the public at large or to all members of a club (for example, if the employer is an automobile club).
If such benefits are provided to people who have been vaccinated (and not just to employees), no FBT will apply to benefits provided to employees as the benefit is not provided in respect of the employee’s employment.
Exemption for minor benefits
You may provide a non-cash benefit that qualifies for the minor benefits exemption. A benefit that has a value of less than $300 may be exempt from FBT as a minor benefit if it would be unreasonable to treat it as a fringe benefit after considering the following five criteria:
- the benefit is provided infrequently and irregularly
- the value of the minor benefit and other similar or identical benefits is low
- the total value of the minor benefit and other benefits provided in connection with it is low
- it is difficult to calculate the taxable value of the benefit and any associated benefits, and
- the benefit is provided as a result of an unexpected event.
There are exclusions where the minor benefits exemption does not apply, such as for in-house fringe benefits and minor entertainment benefits provided to employees of income tax-exempt organisations.
Reduction in taxable value for in-house fringe benefits
You may be entitled to a reduction in FBT where you provide a non-cash benefit that qualifies as an in-house fringe benefit. Broadly, in-house fringe benefits are identical or similar to the benefits you provide to customers in the ordinary course of business. Giving one or more in-house fringe benefits to an employee during the FBT year can reduce the aggregate of the taxable values of the in-house fringe benefits by $1,000 if the benefits are not provided under a salary packaging arrangement.
Entries in a draw to win prizes
If you offer a prize draw exclusively to your employees, there are no FBT consequences when the entry to the draw is given to the employee because you do not know which employee will receive a benefit. However, FBT may apply when the winner receives their prize unless an exemption (such as the minor benefits exemption) or a reduction (such as the in-house benefits reduction) applies.
No FBT applies if you make a prize draw, including the prize, available generally to the public or people who have been vaccinated and not just to employees.
Examples
The following are some examples of COVID-19 vaccination incentives and rewards given by employers to their employees and the tax treatment that arises.
Example 1 – employer gives employee goods
A shoe store gives each employee who receives both of their COVID-19 vaccinations shoes of their choice up to the value of $300. An employee, Dominic receives both of his vaccinations and gets two pairs of shoes with a total retail value of $300.
The shoes are in-house property benefits, and the store does not give their employees any other in-house benefits during the FBT year. The employer is within the $1,000 aggregate threshold for in-house benefits provided to Dominic, and the other requirements relating to the concession are met. The taxable value of the fringe benefit is reduced to nil, and the store has no FBT obligation in respect of those benefits.
Example 2 – employee receives a cash payment
Miranda’s employer is offering all of its employees a $200 payment for getting both of their COVID-19 vaccinations. Miranda receives an extra $200 in her fortnightly pay, and her employer reports this as salary and wages on her income statement at the end of the income year.
The amount is also included in Miranda’s ordinary time earnings for super guarantee purposes.
Example 3 – free goods available to the public
Food Co offers customers who have received both of their COVID-19 vaccinations a free meal. This offer is available to the general public, including Food Co’s employees.
No FBT arises if free meals are provided to Food Co employees under this promotion because they are not provided in respect of their employment with Food Co, as the promotion is available to all vaccinated customers.
GUIDANCE FOR ALLOCATION OF PROFESSIONAL FIRM PROFIT AND INCOME
In December, the ATO finalised Practical Compliance Guideline PCG 2021/4 Allocation of professional firm profits – ATO compliance approach, which applies from 1 July 2022. It sets out their compliance approach to the allocation of profits or income from professional firms in the assessable income of the individual professional practitioner (IPP).
This ATO summary outlines the key issues
The old guidelines were suspended after the ATO identified they were being misinterpreted. The ATO found that professional firm arrangements, where Part IVA applies, were precluded due to being low risk under the suspended guidelines.
Following this, the ATO engaged with the public, peak professional bodies, and an external working group to understand the commercial, structural, and operational issues affecting professional firms. The key changes resulting from this consultation include:
- additional examples featuring a wider variety of arrangements and structures used by IPPs
- confirming that being high risk doesn’t automatically result in audit or application of the anti-avoidance provision Part IVA
- a change in the benchmark percentages used in the Risk Assessment Framework to determine whether an arrangement is low, medium, or high risk
- a revised application date of 1 July 2022
- a two-year transitional period until 1 July 2024 for arrangements that were low risk under the suspended guidelines but moderate or high risk under the new PCG.
There are two ‘gateways’ that need to be passed and a risk assessment framework the ATO uses to assess the compliance risks of an IPPs arrangement. IPPs need to assess their eligibility to apply these guidelines annually. They can use this framework to:
- self-assess their level of risk, using a risk assessment framework and Schedule
- understand the level of engagement they can expect from the ATO
- decide whether to seek professional advice or contact the ATO to discuss their self-assessment of the arrangement if they determine its moderate or high risk
- support their application for binding advice if they wish to obtain certainty.
CRACKDOWN ON BLACK ECONOMY EXPECTED TO REAP $1.2 BILLION IN EXTRA REVENUE
One significant item missed in the Mid-Year Economic and Fiscal Outlook (MYEFO) was the extension of funding of an additional $111 million to take tax dodgers.
Since the 2018-19 federal budget, the Government allocated extra money for the ATO to tighten scrutiny around personal income tax returns and the shadow economy. ATO estimates indicate there is up to $11 billion a year in missing taxes due to economic activity outside the law.
The ATO will continue to target the overclaiming of deductions, including work-related expenses. In 2018-19, the latest year for which data is available, almost 8.9 million Australians claimed work-related expenses at an average of $2331 per person.
The following will attract ATO scrutiny:
- Investors who did not pay the right amount of capital gains or income tax on rental properties.
- Tax agents who encourage their clients towards illegal behaviour.
- Omitted income from overseas.
- Trust distributions not taken up in the individual tax returns.
Since 2018, the ATO has raised almost $3 billion in tax liabilities by assessing undeclared income and targeting operations that have failed to lodge tax returns.
The ATO will continue to target the digital shadow economy, with the ATO willing to apply penalties where a business is found to use banned “electronic sales suppression tools”.
The ATO is unclear pressure collect more tax with the Budget Deficit expected to reach $100 billion.
bO2 READERS’ QUESTIONS AND ANSWERS….
Question 1
Subject: Benefits That Attract FBT?
We are a charity registered with ACNC and income tax-exempt. Would you advise which of the following benefits would attract FBT?
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I believe seeking the above advice is a free service included in the annual membership subscription.
Answer
As you are a registered charity, you may be eligible for the FBT rebate up to $30,000 of the taxable benefit of fringe benefits supplied to each employee.
This will be apparent from employee salary packages as in these situations, it is normal for employees to take full advantage of these concessions.
Please refer to our comments below regarding your questions.
| BENEFIT | YES/NO |
| Gym membership
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YES |
| Community service day off or well-being day off
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NO |
| Flu vaccinations
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NO |
| Rostered days off
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NO |
| Higher super contribution by employer
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NO |
| Paid health cover or contribution to health cover
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YES |
| Car parking
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NO |
| Concessional leave
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NO |
| Christmas lunch in a restaurant
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NO- if under $300 per employee (minor and infrequent benefits) |
Question 2
Subject: Trust Distribution of Discount Capital Gain
Could you advise on the information to be provided in the Trust tax return for a non-resident individual who will receive a discount capital gain from property sold in Australia by a resident Trust?
And what forms, if any, are required to pay any Australian tax liability, how the tax calculation is determined and who is required to prepare, pay, and lodge to the ATO?
Answer
ATO view is that a capital gain of a discretionary trust to which a non-resident is specifically or presently entitled, whether from TAP or non-TAP, is subject to tax in Australia.
The acronym TAP stands for Taxable Australian Property.
Note that non-residents do not get the 50% discount on assets bought after 8.5.2012, and where a CGT event happens after 8.5.2012, the discount is apportioned.
Income retains its character as it flows through a trust.
Generally, it is the Trustee who is responsible for the payment of tax.
Refer to page 7 of our annual publication for tax scales.
Question 3
Subject: Costs as a Tax Deduction?
We have a client who employed a new worker from Queensland to work in her Outback Hotel. The client paid the costs for the flight ticket and hotel isolation. Can our client claim these costs as a tax deduction?
Answer
The employee can’t claim a deduction for removal or relocation costs incurred to transfer or relocate for work purposes.
This is the case even if relocating is a condition of employment the employee takes up in:
- A transfer in existing employment
- New employment with a different employer
Removal and relocation expenses never have a sufficient connection to earning employment income. They are expenses incurred to start earning employment income and are private or domestic expenses.
If the employee receives an allowance from the employer to cover some of the costs of relocating, they must declare the allowance as assessable income in their tax return.
Question 4
Subject: Private Company Ceasing Operation
Australian private company is wholly owned by an overseas company (only shareholder is the overseas company – 100% ordinary shares).
This Australian private company will be ceasing the operation in December. The business got a loss, so there is no need to pay company tax.
This company wants to lodge the company tax return in January / February and deregister the business in ASIC by February or earlier.
Australian Company Pty Ltd was established with one shareholder (overseas company). For example, ordinary shares of 10,000 @ $10 were accounted. This means that the overseas company paid $100,000 to the Australian company.
Accounting entry for the above was:
DR bank CR Issued capital $100,0000
A year later, the remaining balance was $50,000 in the business bank account when the business is ceased. The Australian company will transfer $50k to Shareholder (Overseas company).
My questions are:
(1) Tax software for FY2022 company tax return is only available in late June 2022. Would you please advise how to lodge the FY2022 company tax return earlier before the end of the financial period in the above circumstance?
(2) When can we deregister the business (Pty Ltd) in ASIC? Should we wait until the company tax return is lodged in our circumstance (no need to pay for company tax)?
(3) Is there anything the business needs to do when ceasing in Australia? Please note that GST & PAYG will be cancelled earlier.
(4) After the FY2022 financial accounts are finalised (before the company tax return is lodged), the remaining fund in the business bank account must be transferred back to the overseas company. The overseas company (only shareholder) provided the initial capital fund, and no income was ever incurred.
Would you please advise the accounting entry for this transfer? Example: Cr Bank Dr Capital Fund
Is there anything we need to be aware of about this transfer?
Answer
(1) You can lodge a paper tax return (using 2021 stationery) to establish there is no company tax debt. Companies operate under self-assessment, so do not expect an “assessment” to issue.
(2) To be able to fill out ASIC form 6010 to deregister the company, the following requirements must be fulfilled:
- All members of the company agree to deregister
- The company is not conducting business
- The company assets are worth less than $1,000
- The company has no outstanding liabilities (e.g., debts)
- The company is not involved in any legal proceedings
- The company has paid all fees and penalties payable to ASIC
The Director(s) signing form 6010 must clearly understand the above, as ASIC will take action against the Director if aggrieved creditors later emerge, and the document was signed on the basis of falsehoods.
If there are assets to deal with, then a members’ voluntary liquidation is recommended.
We recommend that the tax return be lodged to establish no tax liability.
(3) In addition, cancel the ABN.
Also, if the company holds an Australian Financial Services Licence (AFSL) or an Australian Credit Licence (ACL), they should be cancelled first.
(4) Assuming there was only nominal share capital issued, then the entry will be:
Dr Loan Holding Company xxxx
Cr Cash at bank xxxx
Question 5
Subject: GST On Sale of Goodwill…
A query relating to GST on sale of goodwill…
Client A has a business of IT/Software consulting/licence sales…and currently owes software Supplier B $180,000 for licences sold to customers.
Supplier B has decided to cease providing licences to Client A and has offered $180,000 in compensation…and suggested that Client A keep the $180,000 rather than pay Supplier B.
Is the $180,000 “compensation” subject to GST?
My thoughts are:
Had Client A remitted the $180,000 to Supplier B, they would have claimed a GST credit of $16,363.
Conversely, if the $180,000 compensation is subject to GST, this would be offset against the $16,363 credit to be claimed on the amount payable to Supplier B…Thus, the transaction is potentially GST neutral.
Supplier B has also offered a further compensation amount of USD 13,000 (approx AUD 18,140)…which I assume may be subject to GST of $1,649.
In summary, they’ve agreed to pay my client USD 134k…but are aware of an amount of USD 102k owing by my client for outstanding invoices…which they are not going to chase in lieu of part payment of the exit fee. In addition, there’s a further USD 18k that they’re going to “forgive”….and payment of USD 13k to my client…in total = USD 134k as compensation for terminating their contract.
Answer
Company B is simply not going to enforce payment of the debt.
It is an act of commercial goodwill – not a sale of goodwill.
You can’t claim input tax credits on transactions that don’t take place.
The same applies to the USD 13k.
The precise commercial relationship between Company A and Company B has not been properly explained.
This goes beyond the nature of our advice on tax technical matters.
When the term “pro forma invoices” is used.. it is concerning as the transactions may be contrived.
Question 6
Subject: UPE – Dividends
Further to my conversation about UPE’S, what is the time frame for these dividends to be paid?
I was under the impression that the payment had to take place within five years. Maybe I am wrong?
Answer
There is no 5-year requirement for the dividends.
The real issue is the UPE between the discretionary trust and the company.
You have a year to convert the UPE into a Division 7A loan and ensure a complying loan agreement is in place.
Interest must be paid (currently 4.52%), and if unsecured, the loan must be paid out within 7 years.
At the relevant time, this may involve the company paying dividends.
Question 7
Subject: Testamentary Trust – Distributions
Details
A client has passed away. Will states cash distributions to the client’s two sisters and the balance to be left to the client’s son as a testamentary trust.
Cash distributions to sisters have been paid. Trust has not been set up as yet per the Lawyer.
Assets of the estate include:
- 3 Motor Vehicles
- BMW
- Jaguar
- Aston Martin – this has been sold with proceeds being added to the estate
- Cash
The client’s son would like an interim distribution paid to consist of Cash ($20,000), and the BMW transferred to him before Christmas. The Executor has agreed to the distribution and will sign VicRoads transfer documents relating to the vehicle.
Our question relates to the tax treatment/implications of the above-mentioned interim distribution? Are there tax consequences for the beneficiary given the Testamentary Trust has yet to be formally established? Or are there tax consequences for the estate itself?
Answer
We need to be clear on what a testamentary trust is… it is a trust created by the terms and conditions of the Will.
So, the trust is already in existence, and its operations are as defined in the Will.
There may be some confusion here, but the Lawyer can clear things up for you.
If the Executor has agreed to the payment of $20k and the transfer of the BMW, then it is probable he is also the Trustee of the Testamentary Trust and that the transfer of these assets complies with the terms and conditions set out in the Will.
We do not think there are tax implications as these are transfers of capital and not distributions of income.
Income earnt by the Deceased Estate and the ongoing Testamentary Trust will be subject to income tax.
Question 8
Subject: Stamp duty concession
My client received a $7,000 first homeowners grant (FHOG) on his first principal place of resident property purchase in 2010. This property was purchased for $700,000, and full stamp duty was paid as there was no stamp duty concession at the time for first-time buyers (just the FHOG grant). Since this time, he has married, and his wife owns no property in her name and is looking to purchase a property for 600k solely in her own name. She is a permanent resident (not an Australian passport holder). Is she eligible to receive the first home buyer duty concession?
https://www.sro.vic.gov.au/first-home-owner/apply-first-home-buyer-duty-reduction
The SRO website outlines – “you will not be entitled to the first home buyer duty benefits if you or your partner has previously received the benefit of the exemption or concession.”
As my client did not receive the stamp duty concession but did receive the FHOG in 2010, will his spouse still be eligible for the stamp duty concession?
The SRO website outlines the first home buyer duty exemption or concession may be available if:
You enter into a contract of sale to buy your first home on or after 1 July 2017.
Your home has a dutiable value of:
$600,000 or less to receive the first home buyer duty exemption,
$600,001 to $750,000 to receive the first home buyer duty concession.
All the purchasers of the property meet the First Homeowner Grant eligibility criteria, and
at least one purchaser satisfies the residency requirement.
The exemption or concession is only available to you once. If you or your partner has received the benefit of this exemption or concession previously, you cannot receive it again.
All criteria above will be met, but we are looking for clarity on the final point.
Also, if my client’s spouse was to purchase the property in her name but the loan to purchase the property is in my client’s name, can interest be deducted as an expense?
Answer
The answer would appear to be no… more so as it would appear that there is no intention for the wife to live in the property given the enquiry about the deductibility of interest.
If there is any doubt, there is no harm in outlining the situation to SRO VIC to seek an answer.
In the event the husband’s name goes on the loan, and the loan proceeds are used 100% to purchase an income-producing property, then under the “use” test… there shouldn’t be an issue in claiming the interest.
Question 9
Subject: Franking Credits
The company has excess franking credits accumulated from payment of tax at a 30% income tax rate and has not previously paid dividends.
What franking credit would be applied to a fully franked dividend paid in the 2022 financial year?
Answer
We assume your company is a base rate entity with a turnover of less than $50 million.
As of 1 July 2021, the company tax rate for base rate entities is 25%, and this is the franking credit percentage you apply to dividends.
While it may not seem fair, the fact that higher rates of company tax have been paid in the past is irrelevant.
Question 10
Subject: Minimum ABP Drawdowns For 2021/2022 Year
Your recent article suggests that the previous halving in the normal ABP pension drawdown by 50% has NOT been extended to apply for the 2021/ 2022 year.
Please confirm urgently as other practitioners, and I have been advising their superannuation clients that the previous reductions continued for the current year.
Answer
This certainly was not our intention – in May 2021, the concession of halving the normal ABP was definitely extended into the year ending 30 June 2022.
Please proceed as usual, and we will note this in our next issue.
Also, refer to pages 1 and 17 of our Superannuation Bonus Issue #0114, where we clearly state…
“The temporary reduction in minimum pension drawdown rates continues into 2021/22.”
Question 11
Subject: Carry Back Losses
I intend to “carry back” current year losses and apply them against a profit made by my client in his company in the year 2020.
l have detailed the steps in this process already or about to be taken and would be obliged if you would comment on your agreement or otherwise:
- Company tax return for 2020 lodged
- Company tax return for 2021 to be lodged
- After the company tax return for year end 2021 is assessed, the loss for the year will be applied to an amendment for the year end 2020. This should complete the process.
Answer
The first two steps are correct. We assume the 2020 income tax liability has been paid.
Before you submit the 2021 income tax return, you should review label P & M at item 8, item 13 and the refundable tax offset in the calculation statement.
Your third step is incorrect. The refundable tax offset will be issued on your income tax account after the 2021 income tax return is assessed. No amendment is involved. The ‘carrying back’ of tax losses to reduce a prior year profit is notional and, therefore, does not alter the income tax liability for the year to which the loss is carried back.
Question 12
Subject: – Work Place Vaccination
We have an employee that does not have Covid -19 Vaccination – by choice.
Also, an employee that does not have Covid-19 Vaccination – Doctor certificate.
They are required to go to sites where ‘jabs’ are necessary.
What do we do? Do you have letters to issue?
Are we able to terminate? What is the course of action?
Answer
Do you have access to or have already acquired a written policy on mandated vaccinations in your workplace?
A business should have a COVID 19 Policy along with a Covid safety plan.
A discussion needs to be had and recorded with the employee about the mandatory vaccination requirements.
Suppose the employee again refuses to get vaccinated as per the government guidelines. In that case, the business has an obligation to look for suitable alternative work, i.e., work from home or other duties that do not require them to be in contact with anyone.
If none of this is possible, the employee should be warned that they will be terminated as they cannot meet the inherent requirements of the role, which are to be double vaccinated or have an exemption.
Question 13
Subject: bO2: Questions for DIV7A Loan
Could you please look into the following scenario for a company?
Small private company client has franking credit balances of $401,635.59 as at 30.06.2021.
Div 7A loan agreement in place as at 30.06.2020
Div7A 18 balances $210,088.51
Div7A 19 balances $75,382.40
Div 7A 20 balances $7,044.89
In FY2021, we have calculated below minimum repayment and interest & principal
- Div7A 2018:
- – Principal $3,8392.93
- – Interest $9,490.07
- – Minimum repayment $47,883.00
- Div7A 2019:
- – Principal $11,218.53
- – Interest $3,405.47
- – Minimum repayment $14,624.00
- Div7A 2020:
- – Principal $1,196.00
- – Interest $318.43
- – Minimum repayment $877.57
My questions are:
- There are minimum repayments from DIV 7A loans FY18-FY20. The total is $63,703.00. What will be the journal entry for recording these minimum repayments and dividends?
- Is the above dividend an unfranked dividend or franked dividend?
- If this is a franked dividend, what will be the formula for calculating franking credit out of the company franking account? Any workpaper for this?
- Since the company tax rates were higher from previous years, e.g., 27.5% in FY2020, when we calculate the franking credit in FY2021 from the franking account, should we use 27.5% or 26%?
Answer
Please refer to the ATO’s Division 7a calculation tool as we cannot confirm your calculation. Answers to your questions are as follows:
- Dr Dividends (Minimum Annual Repayment)
Cr 2018 or 2019 or 2020 loans
Cr Division 7a Interest
- Can be either franked or unfranked dividends. Based on your franking account balance and amount of minimum repayments, it is best to frank the dividends.
- Franking credits for 2021FY = Dividends x 2.6 ÷ 7.4
- 26%