April 2022 Newsletter
FBT Year-End Checklist
March 31 marks the end of the 2021/2022 fringe benefits tax (FBT) year which commenced 1 April 2021. It’s time now for employers and their advisors to turn their attention to instances where non-cash benefits have been provided to employees, and also where private expenses have been paid on their behalf.
Although it will generally fall to your accountant to prepare the FBT return, it may not always be apparent to them from your software file or other records, all of the instances where you have provided employees and their associates (e.g. spouse) with a potential fringe benefit. To assist you in bringing these potential benefits to the attention of your accountant, following is a general checklist (non-exhaustive):
Did you provide or make available a car that your business (or an associate of the business) owned or leased, to an employee or their associate for private purposes?
Exemptions include minor, infrequent and irregular non-work-related use by an employee of certain commercial vehicles.
Did you as an employer reimburse expenses of an employee in relation to a car they owned or leased?
Exemptions include where the business compensates the employee on a cents per km basis for estimated travel and where the car has not been used for private purposes.
Did your business provide a loan to an employee or their associate?
Exemptions include where the loan is strictly related to meeting an employment expense (which must be incurred within sixth months of the loan being made).
Exemptions also include loans made by private companies to employees who are also shareholders but the loan is Division 7A compliant.
Did your business release an employee or their associate from paying an outstanding debt?
An exemption applies where the debt in question is genuinely written off as a bad debt (as distinct from waived for employment or personal reasons)
Did your business or an associated entity provide an employee or their associate with the right to use accommodation by lease or licence?
The benefit may be exempt in the event that it relates to a remote area.
Living away from home allowance (LAFHA)
Did you pay an employee an allowance to compensate them for private non-deductible expenses because they are required to live away from their usual place of residence for work?
Strict exemption conditions can apply which your Trumans accountant can walk you through.
Did your business reimburse an employee or pay a third-party expense of theirs?
Exemptions include where the expense would have been otherwise deductible to the employee because it was work-related.
Did you pay for an employee’s car parking expenses or provide them with a car park during the year?
Various exemptions apply including where the benefit is for a disabled person, or provided by small businesses or certain non-profit employers, or the minor benefit exemption applies.
Did your business provide an employee or associate (or in some cases third-parties with entertainment by way of food, drink or accommodation in connection with this?
Did your business provide an employee or their associate with a corporate box, a boat or plane for the purpose of providing entertainment, or other premises for the purpose of providing entertainment? ♦
Keeping good business records is important for a number of reasons. It assists you to:
comply with your tax and superannuation obligations
gain a greater insight into the financial health of your business, enabling you to make informed decisions
manage your cashflow
demonstrate your financial position to prospective lenders, and also potential buyers of your business.
Broadly, the ATO requires that:
you keep most records for five years from when you obtained the records, or completed the transactions or acts that they relate to – whichever is the later
you be able to show the ATO your records if they ask for them
your records must be in English or be able to be easily converted to English.
The ATO is reminding business owners that you can keep your records (paper/hard copies) digitally. The ATO accepts images of business paper records saved on a digital storage medium, provided the digital copies are true and clear reproductions of the original paper records and meet the standard record keeping requirements.
Once you have saved an image of your original paper records, you don’t have to keep the paper records unless a particular law or regulation requires you to.
However, if you enter information (for example, supplier information, date, amount and GST) from digital or paper records into your accounting software, you still need to keep a copy of the actual record, either digitally or on paper. Some accounting software packages may do both your accounting as well as your record keeping.
If you use cloud storage, either through your accounting software or through a separate service provider, eg, Google Drive, Microsoft Onedrive or Dropbox, ensure:
the record storage meets the record-keeping requirements
you download a complete copy of any records stored in the cloud before you change software provider and lose access to them.
Regardless of your E-Invoicing software or system, your business is responsible for determining the best option for storing business transaction data.
ensure that your process meets the record-keeping requirements
discuss your options with your software provider
talk to Trumans, if necessary.
As the ATO point out, there are many advantages to keeping your records digitally. If, for example, you use a commercially-available software package, it may help you:
keep track of business income, expenses and assets as well as calculate depreciation
streamline your accounting practices and save time so you can focus on your business
automatically calculate wages, tax, super and other amounts, including
develop summaries and reports for GST, income tax, fringe benefits tax (FBT) and taxable payments reporting system (TPRS), as required
be prepared to lodge your tax and super obligations, including your tax return, business activity statements (BAS) and taxable payments annual report (TPAR) if you are a business that is required to
send some information to the ATO online (if the package meets ATO requirements), for example, your activity statement
meet your legal Single Touch Payroll (STP) reporting obligations
back up records using cloud storage to keep your records safe from flood, fire or theft. ♦
ATO’s New Crackdown on Discretionary Trusts
The ATO has just updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, there is a potential that the ATO may take an unfavourable view on what were previously understood to be legitimate arrangements.
For many reasons, including legal tax minimisation and asset protection, many business owners operate their affairs through a trust structure. While trust structures are certainly legitimate, over the years the ATO has become increasingly sceptical of the motivations behind the use of trusts which it believes in many cases are motivated chiefly by tax minimisation. In February 2022, the ATO updated its guidance directly focusing on how trusts distribute income, and to whom! Consequently practices which may have once been previously accepted may now not be. This may result in higher taxes for family groups in particular – both going forward, and potentially retrospectively.
The ATO is chiefly targeting arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s new Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.
Released at the same time, the ATO’s new draft ruling states that for the new guidance to potentially apply, one or more of the parties to the agreement must have entered into it for a purpose (not necessarily a sole, dominant purpose) of securing a tax benefit. This sets the bar quite low and may capture a number of arrangements.
Assessing the Risk
The ATO released an accompanying guideline providing taxpayers with a risk assessment framework for them to work through with their accountants to assess the level of risk involved in current and past distribution arrangements. In the guideline, the ATO has provided a number of examples of high-risk arrangements that are actually quite common and include:
Arrangements where the presently entitled beneficiary lends or gifts some or all of their entitlement to another party and there is a tax benefit obtained under the arrangement
Arrangements where trust income is returned to the trust by the corporate beneficiary in the form of assessable income and the trust obtains a tax benefit
Arrangements where the presently entitled beneficiary is issued units by the trustee (or related trust) and the amount owed for the units is set-off against the beneficiary’s entitlement
Arrangements where the share of net income included in a beneficiary’s assessable income is significantly more than the beneficiary’s entitlement
Arrangements where the presently entitled beneficiary has losses.
For arrangements that fall into the high-risk category, the ATO advises that it will conduct further analysis on the facts and circumstances of the arrangement as a matter of priority. If further analysis confirms the facts and circumstances of your arrangement are high risk, they may proceed to audit where appropriate.
The ATO’s new ruling and guidelines are still in draft form, and are expected to be finalised soon. Once finalised, they are intended to apply both prospectively and retrospectively. However, for entitlements conferred before 1 July 2022, the ATO has indicated it will stand by any administrative position reflected in its prior website guidance before the new material was released.
If you have any concerns about your trust distributions and exposed risk to Section 100A, you should contact your Trumans Manager or Partner for a discussion based on your personal circumstances. ♦
Uber and other ride-sourcing facilitators have become increasingly popular over recent years. From a driver’s standpoint, there are a number of tax issues potentially in play. See the following article for the tax implications from a rider’s perspective.
Income from a driver’s ride-sourcing activities must be declared in their tax return irrespective of the amount they earn, and irrespective of whether they have another job. The amount to be declared is the full fare (including or “grossed-up” by the facilitator’s fee, less GST). The full fare amount must be declared in a Driver’s personal tax return (or in an entity’s return if they are operating through a company, trust etc.).
Expenses (less GST) incurred by drivers in operating their ride-souring activities are deductible. However, not all expenses will be deductible and may need to be reduced/apportioned to take account of any private use of the vehicle. The following common expenses are not deductible – fines (e.g. speeding or parking), cost of own meals and drinks during shifts, and clothing except if either compulsory or noncompulsory clothing that is unique and distinctive to the Facilitator you drive for.
In instances where a vehicle is being claimed in the driver’s personal tax return, the costs will be claimed using either of the following methods:
Cents per Kilometre
Whereby you claim a set number of cents per kilometre travelled (currently 72 cents). The advantage of this method is very little record keeping is required. You only need to be able explain how you arrived at your calculation – you do not need any documentary evidence in the way of receipts or log books etc. Even where you travel more than 5,000 kilometres, you may still elect to use this method (and save the hassle on the record-keeping requirements that are required under the logbook method) by capping your claim at 5,000 kilometres. In summary, this method can be appealing to Drivers who:
Have travelled less than 5,000 business kilometres
Have older vehicles (therefore depreciation and interest costs are low)
Have not kept, or do not wish to keep, records of kilometres travelled. This method incorporates all car expenses including petrol, servicing, depreciation, etc. You can make no further car expense claim.
Under this method, your claim is based on the business use percentage of each car expense, which is determined by a logbook that must have been kept for a minimum 12-week period.
This logbook must be updated every five years or where there has been a change to the percentage of business use (by more than 10%). To ease the record-keeping burden, check out one of the innumerable logbook ‘apps’ on the market, either from the App Store or Google Play as the case may be.
In summary, under this method you can claim all expenses that relate to the operation of the car, at your percentage of business use, as established from your logbook. This method generally gives the best result where the vehicle has substantial business use. Drivers can calculate their claim and determine which method provides the largest deduction, by using the ATO’s Work-related car expenses calculator on its website.
Uber drivers generally speaking will always be ‘carrying on an enterprise’, and therefore should register for an ABN. The only instance where it’s conceivable that a driver would not be carrying on an enterprise would be where they are an employee of the facilitator. This is rare, however.
Under general GST law, you are only required to register for where you are carrying on an enterprise and your annual turnover is $75,000 or more. However, where your enterprise involves providing ‘taxi travel’ you must register for GST irrespective of the level of turnover. The ATO adopts a broad interpretation of ‘taxi’ to include cars made available for public hire to transport passengers in return for a fare (but not including trucks and bike courier services). The Federal Court has confirmed this interpretation. Drivers therefore generally must register for, and charge, GST as soon as they commence operating.
The same principles apply as per taxi fares. Where the fare is business-related, for example you are travelling from your office to a client’s premises, the fare will be deductible in full. However, where the travel is personal the fare is not deductible. This includes travel between home and work. That is, rips between your home and regular place of work can't be claimed even if you:
live a long way from your regular place of work
work outside normal business hours – for example, shift work or overtime
do minor work-related tasks – for example, picking up the mail on the way to your regular place of work or home
go between your home and your regular place of work more than once a day
are on call – for example, you are on stand-by duty and your employer contacts you at home to come into work
have no public transport near where you work
do some work at home.
To evidence the deduction, the Rider will need documentation. The good news is that Uber, and we suspect other facilitators, will provide you with sufficient documentation to substantiate your deduction. You obtain this by logging back into their ‘app’ after the ride.
To claim GST on a fare, the trip must be business-related (see earlier), and the Rider must be in possession of a valid Tax Invoice. For quite a number of fares however, a Tax Invoice will not be required as the total fare may be less than $82.50 (including GST). Where this is the case, any of a Tax Invoice, a docket, an invoice, or a receipt will suffice and can form the basis for your GST claim.
The question then arises, what actual documentation does Uber or the Driver provide you with at the conclusion of the ride? In the vast majority of cases, the Driver will not provide you with any documentation (e.g. invoice etc.). Rather, after the ride, if you visit Uber’s ‘app’ they will on behalf of the Driver provide you with a tax invoice if the driver is registered for GST. Tax Invoices are provided by Uber even where the fare is below $82.50. We can confirm that the standard Uber-provided Tax Invoices are in full compliance with the ATO’s requirements. You will need to check the documentation of other facilitators for compliance.
Another relevant tax issue for Riders is ABN Withholding. Under this regime, if a supplier of a good or service does not provide an ABN and the total payment for that good or service is more than $75 (excluding GST), the recipient generally has to withhold the top rate of tax (currently 45%) from the payment and pay it instead to the ATO. Having withheld from the payment, the recipient of the supply must then complete a PAYG payment summary - withholding where ABN not quoted and give it to the supplier at the same time the net amount is paid to them or as soon as possible after. However there are various exceptions that apply. In the absence of one of these exceptions applying, this then raises the question of whether the rider would be liable for penalties for failing to withhold.
The reality is that under a typical ride-sourcing model (and certainly with Uber), the Rider is not in a position to withhold the 45% penalty as the payment they make for the fare is in the form of a direct debit of the Rider’s credit card. Therefore, it would be very difficult to imagine the ATO penalising Riders for not withholding when, in a physical sense, they have no ability to do so. ♦
Are you an employee thinking of putting some of your pre-tax income into superannuation to boost your retirement savings? This is known as salary sacrifice, and the good news is that it can benefit you and your employer.
What is salary sacrifice?
An effective salary sacrifice agreement (SSA) involves you as an employee, agreeing in writing to forgo part of your future entitlement to salary or wages in return for your employer providing you with benefits of a similar value, such as increased employer superannuation contributions.
Contributions made through a SSA into superannuation are made with pre-tax dollars and do not form part of your assessable income.
This means salary sacrifice contributions are not taxed at your marginal tax rate (MTR) and will instead be subject to superannuation contributions tax of up to 15% when received by your superannuation fund and will count toward your concessional contributions (CC) cap.
The CC cap is a limit to how much you can contribute to superannuation. The combined total of your employer superannuation guarantee (SG) and salary sacrificed contributions must not be more than $27,500 per financial year. Note that there are other, very rare types of contributions that also contribute towards your CC cap.
For most people, the 15% contributions tax will be lower than their MTR. You benefit because you pay less tax while boosting your retirement savings.
Your employer also benefits because salary sacrifice contributions are tax deductible to them and there is no limit to the amount of their contribution/deduction.
However, this is not the case for employees. Salary sacrifice contributions in excess of your CC cap will be included in your assessable income and taxed at your MTR. You will however be entitled to a 15% non-refundable tax offset to compensate for the tax paid by the superannuation fund on the same excess contribution.
Warning – Division 293 tax on higher income earners
If you earn more than $250,000 pa in income, you will pay an additional 15% tax on your CCs.
For many impacted people however, CCs are still worthwhile as even though they pay 30% tax on CCs, this is still less than the top MTR of 47% (including Medicare levy) that applies to high income earners who are liable for Division 293 tax.
The additional Division 293 tax is administered by the ATO who will work out if you need to pay the tax based on information in your tax return and data the ATO receives from your superannuation fund(s).
The benefits of salary sacrifice
Disciplined approach to saving – individuals who struggle to save may benefit from salary sacrificing as contributions are deducted directly from pre-tax income. This automatic process can help you build your superannuation over the long-term and save for retirement.
Tax saving is immediate – because contributions are made from pre-tax salary, the personal tax benefit is derived ‘up-front’. This means the saving goes straight to your superannuation fund and you can benefit from compounding returns on the tax saving amount (presuming the return is positive) throughout the year.
Dollar cost averaging – salary sacrifice allows you to buy into the market at regular intervals and, therefore, reduce the risk of market timing.
Easy to administer once established – you do not need to claim a deduction in your tax return or lodge a notice of intent form with your superannuation fund when salary sacrificing, unlike personal deductible contributions.
Employer matching arrangements – salary sacrifice may also be attractive if your employer offers generous matching arrangements to their employees, for example, an additional 1% employer contribution for each 1% of salary sacrificed.
Tip – consider the carry forward rules
You may be eligible to make large CCs in a year without exceeding your CC cap under the carry forward CC rules. These rules allow certain individuals to make extra CCs in excess of the general concessional cap by utilising any unused concessional cap amounts from the previous five financial years (commencing from 1 July 2018).
To be eligible to make carry forward CCs in a year, you must have:
A total superannuation balance (TSB) of less than $500,000 at the end of 30 June in the previous financial year, and
Unused CC cap amounts for one or more of the previous five financial years in which the extra CCs are made.
The key issues to consider
SSA may be ineffective – where your employer offers salary sacrifice, the arrangement must be in place before you have actually earned the entitlement. This means only income that relates to future employment and entitlements can be salary sacrificed into superannuation. This is known as an ‘effective’ SSA. With any bonus payments, the arrangement needs to be made before a decision to pay the bonus has been made. This applies even when the bonus won’t be paid until some time in the future.
No control over when a salary sacrifice contribution will be made – all SSA should be documented and signed by you and your employer in writing. It should also include details outlining the amount to be salary sacrificed and frequency of contributions. This is because superannuation legislation does not specify the contribution frequency required for salary sacrifice contributions, unlike SG contributions.
Employer may not offer salary sacrifice to employees – although most employers will offer SSA to their employees, it is not compulsory for an employer to offer salary sacrifice to their staff. Further, due to the paperwork involved and changes to the pay system, some employers may restrict their employees to one salary sacrifice negotiation per year, which can make it hard if the employee changes their mind if things change from month to month.
Potential for excess CCs – once established, salary sacrifice should not be a ‘set and forget’ strategy. For example, your salary may increase/decrease, or the CC cap may change. Therefore, it is important to track the contributions regularly if aiming to maximise, and also stay within, the CC cap. ♦
Small business lifetime cap
Are you a small business owner selling your business or disposing of an active business asset? If so, did you know you might be able to disregard some or all of any capital gain by putting the proceeds into superannuation?
Lifetime CGT cap
If you are a small business owner and want to sell your business or dispose of an active asset, you may be eligible to disregard some or all of the capital gain resulting from the disposal under the small business CGT concessions.
In addition, you may be able to contribute some or all of the sale proceeds to superannuation and elect for the contributions to count towards the lifetime CGT cap.
The lifetime CGT cap for 2021/22 is $1.615 million (indexed annually) and operates separately from the non-concessional contribution (NCC) and concessional contribution (CC) caps, allowing you to get more money into superannuation.
Amounts that qualify under the lifetime CGT cap
Although there are four small business CGT concessions, only two are relevant for superannuation contributions. Amongst other eligibility criteria that must be met, you must generally have aggregated business turnover of less than $2 million or have net assets of less than $6 million.
The two small business concessions that count against the lifetime CGT cap for retirement purposes include:
The 15-year CGT exemption, and
The retirement exemption.
The 15-year exemption
The 15-year exemption counts towards the lifetime CGT cap before other small business CGT concessions are applied. The exemption allows the capital gain received from the sale or disposal of an active business asset to be disregarded if it has been owned by the small business for at least 15 years.
This means you may be able to use the entire lifetime CGT cap of $1.615 million as this amount can include all proceeds from the sale of active business assets.
However, if you are claiming this concession, you must be older than 55 at the time of the sale or disposal and the amount received must be in connection with your retirement.
If the 15-year exemption does not apply, you can consider other available CGT small business concessions (ie, the 50% active asset reduction, the CGT rollover exemption, and/or the 50% general CGT discount for individual taxpayers).
The retirement exemption
This concession can exempt a capital gain on a business asset, up to a lifetime limit of $500,000 (non-indexed) per qualifying individual.
If you wish to contribute more of the sale proceeds, it must be done as CC or NCC, assuming you’re eligible to contribute to superannuation.
Note, there is no requirement for you to retire despite the name of this concession. Upon meeting certain conditions, even an individual under the age of 55 could be eligible for this tax concession.
There are important conditions that must be met to use the small business CGT concessions and the lifetime CGT cap. Therefore, it is worthwhile checking with Trumans to confirm whether you meet the basic eligibility requirements.
As well as considering your personal circumstances and objectives, your Trumans adviser can also help explain:
The timing rules which determine when a contribution must be made if it is to be applied against the lifetime CGT cap, as the rules vary depending on whether the active asset is owned individually or by a company or trust.
The paperwork that must be provided to your superannuation fund if you want it to count towards the lifetime CGT cap. ♦
Thinking about easing into retirement and maintaining your lifestyle? The transition to retirement (TTR) strategy can help you achieve this and help you access some of your superannuation while you keep working.
How the TTR strategy works
If you've reached your preservation age (between 55 and 60) and are still working, setting up a TTR pension could provide you with greater financial flexibility by enabling you to withdraw up to 10% of your superannuation each financial year while continuing to work.
You can start a TTR pension by transferring some of your superannuation to an account-based pension (ABP), which is a regular income stream bought with money from your superannuation fund.
However, you should keep some money in your superannuation fund to continue to receive your employer’s compulsory superannuation guarantee (SG) contributions, or any other voluntary contributions you wish to make to your fund.
There are two main TTR strategies that can be used to help you:
Supplement your income if you reduce your work hours, or
Boost your superannuation and save on tax while you keep working full time.
Using a TTR strategy to reduce your work hours
If you want to reduce your work hours and ease into retirement, a TTR strategy can top up your income.
Some of the main advantages of this strategy include:
Ease into retirement – you can start easing into retirement without retiring completely.
You continue to receive SG contributions – these contributions help to replace the money you take out as pension payments.
You pay less tax on income (discussed below).
Using a TTR strategy to reduce your tax
By setting up a TTR pension, you could choose to work less, or continue working the same hours while salary sacrificing or making personal, deductible contributions into superannuation.
In both cases, you could use the income from your TTR pension to supplement any reduction in your take-home pay.
Some of the main advantages of this strategy include:
Boost your superannuation – a TTR pension can be used with salary sacrificing to top up your superannuation as you approach retirement.
Save tax – you pay 15% tax on salary sacrificed contributions which is likely to be lower than your marginal tax rate (MTR).
You pay less tax on income (discussed below).
How much can be withdrawn from my TTR pension?
You must draw a minimum of 4% with a maximum of 10% of your TTR pension balance at the start of each financial year. This means you can choose pension payments anywhere between your minimum and maximum payment limit each year.
But note that a TTR pension doesn’t allow you to withdraw your superannuation as a lump sum. This can generally only be done once you’ve reached your preservation age and met certain conditions of release, such as retirement.
How are TTR pensions taxed?
If you are 55 to 59, the taxable amount of your income from a TTR pension is taxed at your MTR, less a 15% tax offset.
Once you turn 60, your TTR pension payments are tax free.
Investment earnings of a TTR pension are subject to the same maximum 15% tax rate as superannuation accumulation funds.
What happens when I decide to permanently retire?
Once you reach age 65 or advise your superannuation fund that you’ve retired permanently, your TTR pension will automatically convert to an ABP.
Although a TTR pension has the same rules as an ABP, it does have the following additional restrictions:
Lump sum withdrawals are generally not permitted, and
A 10% maximum income stream payment restriction applies each financial year.
Thus, a TTR pension converting to an ABP may have more advantages/flexibility as it will continue to give you a regular income in retirement and you won’t be limited to what you can withdraw, even though there are annual minimum withdrawal amounts that must be made each year.
You should speak with Trumans before deciding if a TTR strategy is right for you as it could help you understand the possible benefits and implications for your particular circumstances. ♦
All Newsletter material is of a general nature only and is not personal financial or investment advice. It does not take into account one individual’s particular objectives and circumstances.
No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional adviser.
To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this Newsletter (including Trumans Chartered Accountants, each of its partners, managers and staff members or Taxpayers Australia Incorporated, each of its directors, councillors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information.