Monthly Tax Update - December 2023

04THDEC 2023

ATO's lodgment penalty amnesty is about to end

The ATO is remitting failure to lodge penalties for eligible small businesses.  Businesses which have not yet taken advantage of the ATO's lodgment penalty amnesty only have until 31 December 2023 to do so.

Businesses must meet the following criteria in order to be eligible for the amnesty:

• had an annual turnover under $10 million when the original lodgment was due;
• have overdue income tax returns, business activity statements or FBT returns that were due between 1 December 2019 and 28 February 2022; and
• lodge between 1 June and 31 December 2023.

When taxpayers lodge their eligible income tax returns, business activity statements and FBT returns, failure to lodge penalties will be remitted without the need to apply.

The amnesty does not apply to privately owned groups or individuals controlling over $5 million of net wealth.

Directors who bring their company lodgments up to date can also have penalties remitted and, if they are reliant on company lodgments to finalise their own tax affairs, any failure to lodge penalties will be remitted.  This also applies to eligible lodgments made between 1 June and 31 December 2023.

 

Notice of officeholder data-matching program

The ATO will acquire officeholder data from ASIC, the Office of the Registrar of Indigenous Corporations and the Australian Charities and Not-for-profits Commission for the 2024 and 2025 income years, including details such as:

• their name, address and date of birth;
• email address and contact phone number;
• organisation class, type and status, and state of incorporation; and
• officeholder type, role type, and officeholder role start and end dates.

The ATO estimates that records relating to approximately 11 million individuals will be obtained.

This program aims to (among other things) enable the Australian Business Registry Services to increase uptake of the director ID, and better utilise registry data to combat unlawful activity.

 

ATO warning regarding prohibited SMSF loans

Loans to members continue to be the highest reported contravention of the superannuation laws that the ATO sees in auditor contravention reports.

SMSF trustees should remember that they cannot loan money or provide other forms of financial assistance to a member or relative, and if they do, they can incur a penalty of up to $18,780.  They may also be disqualified as a trustee.

SMSF trustees also cannot loan money to a related party, such as a business, where the value of the loan exceeds 5% of the value of the fund's total assets, as this is a prohibited 'in-house asset' investment.

If the SMSF's in-house assets exceed 5% of the total value of its assets at the end of the financial year, the trustee must prepare a plan to reduce their in-house assets to less than 5%, which must be implemented by the end of the following financial year.

If a trustee has made a prohibited loan from their SMSF, the loan must be repaid as soon as possible.

 

Don't forget the two further 'boosts'!

Although the 'Technology Investment Boost' has come to an end (it provided a bonus deduction for eligible expenditure incurred until 30 June 2023), it is important to remember that there are two further 'boosts' providing bonus deductions for small businesses, and both apply to eligible expenditure incurred up until 30 June 2024.

The Skills and Training Boost provides small or medium businesses with a bonus 20% deduction for eligible expenditure incurred on external training for employees, to support such businesses to train and upskill their employees.

This boost applies to eligible expenditure incurred from 29 March 2022 until 30 June 2024.

The Small Business Energy Incentive (Boost) is designed to support small business electrification and more efficient energy use, and will apply to eligible expenditure incurred between 1 July 2023 and 30 June 2024 (once the relevant legislation is passed).

This boost provides small or medium businesses with a bonus 20% deduction for the cost of:

• eligible depreciating assets; and/or
• eligible improvements incurred in relation to existing depreciating assets,
• that support electrification or energy efficiency.

To be eligible for either of the above 'boosts', a business taxpayer must satisfy a number of conditions.

 

Claiming deductions in relation to a holiday home

Taxpayers should remember that they can only claim deductions for holiday home expenses to the extent they are incurred for the purpose of gaining or producing rental income.

They need to consider the following in determining whether the deductions they wish to claim are valid rental deductions:

• How many days during the income year did they use or block out the property for their own use?  Taxpayers cannot claim deductions for the periods the property was used or blocked out by them.
• How and where did they advertise the property for rent, and is the rent in line with market values?  If they only used obscure means of advertising, or put unreasonable restrictions or conditions in the advertisement, they may not be entitled to claim deductions.
• Will any restrictions, or the general condition of the property, reduce interest from potential holiday makers?  If their property is not in a tenantable condition, they may not be entitled to claim deductions.

• Has the taxpayer or their family or friends used the property?  Taxpayers cannot claim for periods of private use or when the property is kept vacant for personal reasons.
• Is any part of the property off limits to tenants?  When taxpayers claim deductions, they should ensure they calculate and apportion deductions in relation to the part of the property that is available for rent.

 

Reminder of December 2023 Quarter Superannuation Guarantee ('SG')

Employers are reminded that, in relation to their SG obligations for the quarter ending 31 December 2023, the due date is 28 January 2024.

If the correct amount of SG is not paid by an employer on time, they will be liable to pay the SG charge, which includes a penalty and interest component.

The SG rate is 11% for the 2024 income year.

 

Christmas Parties 2023

Year-end (and other) staff parties

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 benefit exemption* cannot apply;
• the general taxi travel exemption (for travel to or from the employer's premises) also cannot apply.

Minor benefit exemption

The minor benefit 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 FBT-exempt is also not deductible.

'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., if the minor benefit exemption is available), 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 2023

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.

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