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The work Christmas party

It’s not quite Christmas time yet, but most businesses will be soon heading into Christmas parties. One of the perennial questions is if and how fringe benefits tax applies to these activities.

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.

While such social functions may result in FBT, income tax and GST outcomes, these are covered under the existing relevant legislation. The provision of “entertainment” at Christmas therefore mirrors the tax treatment such benefits will receive at other times of the year.

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 (more below) – cannot be claimed as an income tax deduction. Note that the costs of entertaining clients are not subject to FBT and provide no income tax deductions nor GST credits.

There is what is known as a property benefit exemption where 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 employees. The property benefit exemption is only available for employees, not associates.

There is also the minor benefits exemption. Broadly, a minor benefit is one where it:

  • has a notional taxable value of less than $300 (inclusive of GST)
  • is provided on an “infrequent” or “irregular” basis, and
  • is not a reward for services.

Note that other benefits (such as gifts) provided at a Christmas party may be considered as separate minor benefits in addition to meals provided (referred to as an “associated benefit”). In such cases, the $300 threshold generally applies separately to each benefit provided.

Entertainment benefits

Say for example a company holds a Christmas lunch on its business premises on a working day. Employees, their partners and clients attend. Food and drink is provided at the party and the company provides taxi travel home from the party. The cost per head is $125.

Providing a party for employees, associates and clients is entertainment, because the purpose of the function is for people attending to enjoy themselves. There can be exemptions for this, but these may vary according to the recipient.

Employees Does an exemption apply?
  • Food and drink: The food or drink provided to employees is exempt from FBT because it is provided and consumed on a working day on the business premises.
  • Taxi travel: The 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/clients Does an exemption apply?
  • 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 food drink and taxi travel: There is no FBT on benefits provided to clients

Note that the employer could not claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates or clients (although there ls some scope using the “50/50 split method” – ask us about this possibility).

For taxi travel to or from a Christmas function, employers should be mindful that:

  • where the employer pays for an employee’s taxi travel home from the Christmas party and the party is held on the business premises, no FBT will apply.
  • where the party is held off premises and the employer pays· for a taxi to the venue and then also pays for the employee to take a taxi home, only the first trip will be FBT exempt. The second trip may be exempt under the minor benefits exemption if the employer has adopted .to value its meal entertainment on an actual basis.
  • the exemption does not apply to taxi travel provided to “associates” of employees (for example family members).

If other forms of transportation are provided to or from the venue, such as bus travel, then such costs will form part of the total entertainment expenditure and be subject to FBT. A minor benefit exemption for this benefit may be available if the threshold is not breached.

What’s under the tree?

Gifts provided to employees or their associates will typically constitute a property fringe benefit and therefore are subject to FBT unless the minor benefit exemption applies. Gifts, and indeed all benefits associated with the Christmas function, should be considered separately to the Christmas party considering the minor benefits exemption.

For example, the cost of gifts such as bottles of wine and hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits. Gifts provided to clients are outside of the FBT rules (but may be deductible, see below – also note that deductibility may still apply even if the gift is a “minor benefit”).

The income tax deductibility and entitlement to input tax credits (ITC) for the cost of the gifts depends on whether they are considered to be “entertainment”. For example, an unopened bottle of spirits is deemed to be a property benefit (the entertainment starts after the cap is unscrewed). Again, in most cases the entitlement to an ITC for expenses incurred for the employer mirrors the income tax implications 􀃘 so an ITC is only available to the extent that the expense incurred is

Regarding a business providing a gift a client, even a former client, the ATO confirms that such outgoings are generally deductible as they are being made for the purposes of producing future assessable income. However, the outgoing is not deductible where it is of a capital nature, relates to the gaining of exempt or non­assessable non-exempt income, or some other provision of the income tax law prevents it from being deductible.

TaxBox Accountants – Craigieburn VIC 0423 288 166

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The top 7 things a new homebuyer needs to know

www.taxbox.com.au

Buying your first home? Here are 7 things you need to know.

Bigger deposit, better position

While some lenders can offer low-deposit loans for less than 5 percent of the purchase price, saving around 20 percent can offer you big benefits:

  • Access to a wider pool of lenders and products
  • You need to borrow less money overall
  • It’s a clear sign to potential lenders that you’re good at managing money.

If you’ve saved less than 20 per cent there are lenders who can help, but deposits of that size may require Lenders Mortgage Insurance (LMI). This adds more fees and another layer of assessment of your suitability because LMI providers are separate businesses and often have quite strict rules.

Know your credit rating

Lenders use your credit rating to judge whether your circumstances are suitable for a loan. Some non-bank lenders will review your financial situation as a whole, so your credit rating’s not always the defining factor when you apply for a loan. But it does matter. Credit scores are closely linked to the success of home loan applications, so understanding what makes up and affects your credit rating is important for any homebuyer. Get hold of a copy of your personal credit file and review your own credit rating – including any defaults listed against your name. There can be mistakes on your report – if you pick up on them you can request they get altered.

You can easily get a free credit score online. You can Google it or check the Australian Government’s Money Smart Website for quick links

Work out what your bottom line looks like

You probably know where you want to buy and how much you want to pay; now it’s time to work out how much you can reasonably borrow. You’ll need to take the various home loan fees into account, like stamp duty, legal fees or Lender Protection Fees (LPF). You should also think about your current situation, your income and expenses, any dependents (kids or parents), and any lifestyle changes you can see coming up  – like a job change or starting a family. Think about what’s likely to happen in the near future – as well as how it is right now.

If the home loan doesn’t fit, don’t sign up for it

There are more things to consider with a home loan than just the interest rate. There are redraw and offset facilities, refinance costs, repayment flexibility, fixed or variable interest rates, loan terms and fees to consider. Make sure you research the loan options available and examine them all.

Research, research, research

Did we mention research? Often the difference between a diamond in the rough and a dodgy deal is simply the buyer’s level of market knowledge. The more you know about the property market and where you want to buy, the better. Look at average prices over the last decade, whether it’s near to shops, schools and transport, potential rental returns, etc. You want to be sure the area has what you need in terms of both lifestyle now and future growth opportunity.

Potential investment

Speaking of growth opportunity, remember that sometimes the best locations for property growth are not the ‘hot’ suburbs but the suburbs next door. These often provide a cheaper entry point and greater potential for development.

Likewise, a brand new or newly renovated property will generally charge a premium for the look. An existing, lived-in home may not look as pretty, but it can be much better value and let’s you add your own personality to it.

If you don’t have the finance, don’t make a bid  

There’s no cooling-off period at auctions, once you’ve made an accepted bid that’s it. Buyers without finance approval can find themselves in serious strife if they sign a sale contract.

Stay on the safe side, make sure you hold a letter of finance approval from your lender. That way you can negotiate your purchase price without worry.

If you’re a first home buyer ready to enter the market, keep these hot tips in mind. They can help you be a savvy home buyer.

If you’d like more information talk to us today on 0423 288 166.

Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 0423 288 166

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Essential tax updates

Expenses associated with holding vacant land will be denied from 1 july 2019.

Will not be able to be carried forward for use in later income years.

May form part of the cost base of the asset for CGT purposes.

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