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Super guarantee opt-out for high income earners now law

From 1 January 2020, eligible individuals with multiple employers can apply to opt-out of receiving super guarantee (‘SG’) from some of their employers, to help them avoid unintentionally going over the concessional contributions cap.

If appropriate for them, they should submit the relevant ATO form to apply for an SG employer shortfall exemption certificate, which releases one or more of their employers from their SG obligations for up to four quarters in one financial year.

The measure only became law on 2 October 2019, so to give eligible employees time to make an application, the ATO will accept applications for the 2019/20 financial year as follows:

  • third quarter commencing 1 January 2020 — lodge on or before 18 November 2019; and
  • fourth quarter commencing 1 April 2020 — lodge on or before 31 January 2020.

A separate application is required for each financial
year.

SMSs for SMSFs!

In the interests of protecting SMSF members and their retirement savings from fraud and misconduct, the ATO has announced it will send out an email and/or a text message via an SMS when changes (including updates to the SMSF financial details or member information) are made.

Accordingly, the ATO has urged all SMSF members to ensure they update their contact details either:

  • online at abr.gov.au (with an AUSkey or an ABN linked to their myGov account);
  • through their registered tax agent;
  • by phoning 13 10 20 (for authorised contacts of the relevant SMSF); or
  • by lodging the paper form (NAT 3036).

The ATO has urged SMSF members who are concerned about notified changes to first speak with the other trustees of the SMSF or the authorised

Super Lookup ‘status’ will change if SMSF annual returns are late

The ATO considers the lodgment of an SMSF’s annual return on time to be a fundamental part of an SMSF trustee’s obligations.

Consequently, from 1 October 2019, if an SMSF is more than two weeks overdue on any annual return lodgment due date and hasn’t requested a lodgment deferral, the ATO will change their status on Super Fund Lookup (‘SFLU’) to ‘Regulation details removed’ until any overdue lodgments have been brought up to date.

Having a status of ‘Regulation details removed’ means APRA funds won’t roll over any member benefits to the SMSF and employers won’t make any super guarantee (‘SG’) contribution payments for members to the SMSF.

The ATO says it is taking this approach because “non-lodgment combined with disengagement indicates that retirement savings may be at risk”.

While the fund’s status is ‘Regulation details removed’, members should alert their employer to make any SG payments into the employer’s default super fund or a fund of the member’s choice until the SFLU status.

Christmas Parties & Gifts 2019

Year-end (and other) staff parties

Editor: With the well earned December/January holiday season on the way, many employers will
be planning to reward staff with a celebratory party or event. However, there are important issues to
consider, including the possible FBT and income tax implications of providing ‘entertainment’ (including
Christmas parties) to staff and clients.

FBT and ‘entertainment’

Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the ‘actual method’ or the ’50/50 method’, rather than the ’12-week method’.

Using the actual method

Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients). Such expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT and not tax-deductible.

Using the 50/50 method

Rather than apportion meal entertainment expenditure on the basis of actual attendance by employees, etc., many employers choose to use the more simple 50/50 method.

Under this method (irrespective of where the party is held or who attends) 50% of the total expenditure is subject to FBT and 50% is tax-deductible.

However, the following traps must be considered:

    • even if the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT;
    • the minor benefits exemption* cannot apply; and
    • the general taxi travel exemption (for travel to or from the employer’s premises) also cannot apply.

(*) Minor benefit exemption

The minor benefits exemption provides an exemption from FBT for most benefits of ‘less than $300’ that are provided to employees and their associates (e.g., family) on an infrequent and irregular basis.

The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and a gift) are not added together when applying this $300 threshold.

However, entertainment expenditure that is FBTexempt is also not deductible.

Editor: ‘Less than’ $300 means no more than $299.99! A $300 gift to an employee will be caught
for FBT, whereas a $299 gift may be exempt.

Example: Christmas party

An employer holds a Christmas party for its employees and their spouses – 40 attendees in all.
The cost of food and drink per person is $250 and no other benefits are provided.

If the actual method is used:

  • For all 40 employees and their spouses – no FBT is payable (i.e., by applying for the minor benefits exemption), however, the party expenditure is not tax-deductible.

If the 50/50 method is used:

  • The total expenditure is $10,000, so $5,000 (i.e., 50%) is liable to FBT and tax-deductible.

Christmas gifts

Editor: With the holiday season approaching, many employers and businesses want to reward
their staff and loyal clients/customers/suppliers. Again, it is important to understand how gifts to
staff and clients, etc., are handled ‘tax-wise’

Gifts that are not considered to be entertainment

These generally include a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers or a pen set, etc.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible; and
  • gifts to clients, suppliers, etc. – no FBT, and tax-deductible.

Gifts that are considered to be entertainment These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible (unless they are exempt from FBT); and
  • gifts to clients, suppliers, etc. – no FBT and not tax-deductible.

Non-entertainment gifts at functions

Editor: What if a Christmas party is held at a restaurant at a cost of less than $300 for each
person attending, and employees are given a gift or a gift voucher (for their spouse) to the value of
$150?

The actual method used for meal entertainment Under the actual method no FBT is payable, because the cost of each separate benefit (being the expenditure on the Christmas party and the gift respectively) is less than $300 (i.e., the benefits are not aggregated).

No deduction is allowed for the food and drinks expenditure, but the cost of each gift is tax-deductible.

50/50 method used for meal entertainment Where the 50/50 method is adopted:

  • 50% of the total cost of food and drink is liable to FBT and tax-deductible; and

in relation to the gifts:

  • the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and
  • as the gifts are not entertainment, the cost is tax-deductible.

Editor: We understand that this can all be somewhat bewildering, so if you would like a little help, just
contact our office.

September 2019 News

Capital allowances: Effective life reviews

The ATO has started a review of the assets used in the following industries, with a view to making new effective life determinations (and to ensure that their effective life determinations cover all assets commonly used by these industries, and reflect current industry practices and expectations):

Read More

Tax cuts become law

The Government has announced that more than 10 million Australians will receive immediate tax relief following the passage of legislation through the Parliament.

The Bill increases the top threshold for the 19% tax rate from $41,000 to $45,000 and increases the low-income tax offset from $645 to $700 in 2022/23.

In combination with the legislated removal of the 37% tax bracket in 2024/25, the Government “is delivering structural reform to the tax system” by reducing the 32.5% tax rate to 30%.

Together, these tax relief measures are intended to create a flatter and better tax system that will reportedly ensure that 94% of Australians will face a marginal tax rate no higher than 30% in 2024/25.

Ref: Prime Minister’s media release, 4 July 2019