ASG News - Tax / View / Clue
What's new for FBT In 2017?
There have been a number of developments with respect to employers calculating their FBT liability for the 2017 FBT year. We have highlighted the most significant changes for the 2017 FBT year in this month’s newsletter.
1. Valuing meal entertainment and Entertainment facility leasing expenses (EFLEs) under a salary packaging arrangement from 1 April 2016
Under the FBT reforms, from 1 April 2016, all FBT-taxable employers will be required to value all salary packaged meal entertainment and EFLE benefit under the actual method. This means that employers will be unable to apply the 50/50 split method or the 12-week register method under a salary packaging arrangement.
It is also important to note that employers who provide employees with salary-packaged meal entertainment or EFLEs will generally be unable to apply key FBT exemptions. More specifically, an employer is not able to apply the minor benefit exemption or the property benefit exemption in relation to benefits provided to an employee under a salary sacrifice agreement. The inability of an employer to claim these two key FBT exemptions effectively means that employers will broadly be subject to FBT with respect to all salary packaged meal entertainment and EFLEs provided to an employee on or after 1 April 2016.
Put simply, the savings in net disposable income that employees could traditionally enjoy by salary packaging meal entertainment with their employer who valued meal entertainment under the 50/50 split or the 12-week register methods are no longer available from 1 April 2016.
2. Fringe benefits tax changes for work-related devices
From 1 April 2016, small businesses will not incur a fringe benefits tax (FBT) liability if they provide their employees multiple work-related portable electronic devices that have similar functions. These include devices that are primarily used for work, such as laptops, tablets, calculators, GPS navigation receivers and mobile phones. This benefit may be in addition to or part of the employee’s salary or wages package.
3. Changes to the reportable fringe benefit rules effective from 1 April 2016
Under these changes, the Government has amended the definition of an “excluded benefit” (also known as a non-reportable benefit) to ensure that the following benefits become reportable from 1 April 2016:
The provision of meal entertainment under a salary packaging arrangement.
A benefit that is partly or wholly attributable to EFLEs and is provided
under a salary packaging arrangement.As such, employers will now need to include salary packaged meal entertainment and EFLEs when determining whether an employee has a reportable fringe benefit amount for the 2017 FBT year. It is important to note that non-salary packaged meal entertainment or EFLEs remain non-reportable for payment summary purposes.
4. ATO Audit Focus – FBT Exposure
The ATO can and do use information disclosed by businesses in their income tax returns to identify cases for review from an FBT perspective. In particular, the ATO may take a closer look at an employer if their disclosure in their income tax returns reveals that an FBT return may be required but no FBT return has been lodged. For example, if the income tax return discloses items such as motor vehicle expenses, contractor expenses, fringe benefit employee contributions and superannuation expenses, these labels may prompt an ATO FBT review.
As 31 March is fast approaching, we will soon send out our FBT package to facilitate the preparation and lodgement of 2017 FBT returns. Should you have any queries, please feel free to contact us
ATO data regarding Super Guarantee non-compliance
The ATO has provided some information about Superannuation Guarantee (SG) non-compliance in its recent submission to a Senate inquiry into the impact of the non-payment of the Superannuation Guarantee.
In addition to marketing and education activities to re-enforce the need for employers to meet their SG obligations, the ATO conducts audits and reviews to ascertain SG non-compliance, with 70% of cases stemming from employee notifications (the remaining 30% of cases are actioned from ATO-initiated strategies).
On average, the ATO receives reports from employees which relate to approximately 15,000 employers each year, although the ATO finds that nearly 30% of these employers have in fact paid the required SG to their employee.
However, an SG shortfall is identified in the remaining 10,000 cases (this represents approximately 1% of the estimated 880,000
employers who make SG payments).
The top four industries from which reports are received by the ATO are from:
Accommodation and Food Services;
These four industries represent approximately 50% of the audits and reviews undertaken.
The ATO also noted that the proposed Single Touch Payroll ('STP') will help overcome certain limitations in the data currently provided to the ATO (as well as simplify taxation and superannuation interactions for employers, by aligning the reporting and payment of PAYG withholding and SG with a business’s natural process of paying their employees).
Use of STP is mandated for businesses with 20 or more employees from 1 July 2018, and a pilot program will be undertaken in 2017 to identify the nature of STP benefits for small businesses.
Ride-sourcing is 'taxi travel'
In a recent case, the Federal Court has agreed with the ATO that 'ride-sourcing' (such as that provided using Uber) is 'taxi travel' within the meaning of the GST law.
The ATO has advised people who are taking up ride-sourcing to earn income should:
have an Australian business number (ABN);
register for GST, regardless of how much they earn, and pay GST on the full fare received from passengers for each trip they provide;
lodge activity statements; and include income from ride-sourcing in their income tax returns.
Drivers are also entitled to claim income tax deductions and GST credits (for GST paid) on expenses apportioned to the ride-sourcing services they have supplied.
The ATO warns that they can match people who provide ride-sourcing through data-matching, and will continue to write to them to explain their tax obligations.
Making 'intangible' capital improvements to pre-CGT assets
The ATO has confirmed that, if intangible capital improvements are made to a pre-CGT asset, they can be a 'separate CGT asset' from that pre-CGT asset if the relevant requirements are satisfied.
The result of this is that, while the disposal of the pre-CGT asset itself will be exempt from CGT, the improvements which are treated as a separate, post-CGT asset could still give rise to CGT.
A farmer, holding pre-CGT land, obtains council approval to rezone and subdivide the land.
Those improvements may be separate CGT assets from the land, so if the land is sold with those improvements (the council approval), there may be some CGT (even though the land itself is exempt).
Diverting personal services income to SMSFs
The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert their personal services income to an SMSF, so that the income is taxed concessionally (or exempt from tax) in the fund, rather than being subject to tax at the individual’s marginal tax rate.
These arrangements normally involve the individual's income being paid to another entity (e.g., a company) which then makes distributions to the SMSF as a 'return on investment' (e.g., dividends, where the SMSF holds shares in the relevant company).
The ATO advises any people that have entered into such an arrangement to contact the ATO by 30 April 2017, so they can work with them to resolve any issues in a timely manner, and minimise the impact on the individual and the fund.
Individuals and trustees who are not currently subject to ATO compliance action, and who come forward will have administrative penalties remitted in full (although interest may still be payable on any tax collected later than it should have been).
No overtime meal allowance, no overtime meal deduction
An employee construction project manager/supervisor was denied deductions for overtime meal expenses, as he was not paid an overtime meal allowance under an industrial agreement (award).
The taxpayer often worked at nights and on weekends during the relevant income years, and so additional amounts were negotiated and ‘rolled into’ his salary to cover the fact that he was expected to work additional hours, and also to cover any out-of-pocket expenses associated with such overtime.
However, the taxpayer’s salary was not paid under an award, which was simply used as a starting point in annual remuneration negotiations (and he was paid the same amount each week, regardless of hours worked or expenses incurred).
Therefore, the AAT agreed with the ATO, finding that the taxpayer had received no overtime meal allowance under the relevant industrial award.
As no deduction is claimable under the income tax law for overtime meal expenses unless an appropriate award overtime meal allowance is paid, the Tribunal swiftly dismissed the taxpayer’s appeal, and also affirmed the 25% administrative penalty.
Important: Clients should not act solely on the basis of the material contained in Cents & Sensibility. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Cents & Sensibility is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Please contact us if you wish to discuss how the points raised in this edition specifically affect you.
The ASG Team
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Tax / View / Clue