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Newsletter December 2009

The cost of providing a Christmas party is tax deductible only to the extent that it is subject to Fringe Benefits Tax (FBT). Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) or not declared on an annual FBT return cannot be claimed as a tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.

If an entity is not using the 50:50 method of recording entertainment costs, the 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 current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party, if not otherwise exempt under the minor benefits exemption.

If an entity is not using the 50:50 method of recording entertainment costs, the provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.

If not using the 50:50 method, the costs of entertaining clients are not subject to FBT and are not income tax deductible. This also means that GST input tax credits cannot be claimed.

If using the 50:50 method of recording entertainment costs, the cost of the Christmas party is treated the same as regular entertainment costs, with 50% of the cost deductible (with GST being claimed), and 50% is non-deductible (with no GST input tax credits being claimed).

Following the 2009/10 Budget, the Government is getting closer in its proposal to tighten the application of the non-commercial loss rules in relation to individuals with an adjusted taxable income of $250,000 or more. And individual’s ‘adjusted taxable income’ comprises an individual’s taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses.

Therefore, if an individual has an adjustable taxable income of $250,000 or more, losses from non-commercial business activities are quarantined.

Losses from non-commercial business activities are also quarantined if an individual has an adjustable taxable income of less than $250,000 but fails to satisfy one of the following four objective tests;

1. Assessable income test – the assessable income for that year from the activity must be at least $20,000.
2. Real property test – the cost of real property used on a continuing basis must be at least $55,000.
3. Other assets test – the total value of other assets, other than motor vehicles, must be at least $100,000.
4. Profits test – the activity must have resulted in taxable income in at least three out of the last five income years.

As announced in the 2009/10 Budget, the current program of R&D tax deductions will be abolished and replaced with R&D tax credits. A consultation paper has been released by the government and contains a number of the proposed changes to the current system.

The new R&D Tax Credit system is a broad-based and market driven incentive package.  The two core components of the package are:

• a 45 per cent refundable tax credit (the equivalent to a 150% concession) for companies with a turnover of less than $20 million per annum;
• a 40 per cent standard tax credit (the equivalent of a 133% deduction) for all other companies. This can be carried forward where a company’s income tax liability is zero.

An interim measure, prior to the introduction of the R&D Tax Credit, will increase the R&D expenditure cap for the R&D Tax Concession Offset from $1 million to
$2 million for 2009-10. This demonstrates increased Government support for eligible small companies.

First home buyers in NSW who qualify for the First Home Owner Grant and are buying or building a new home will be eligible for an additional payment known as the NSW New Home Buyers Supplement.

The $3,000 New Home Buyers Supplement is in addition to the $7,000 First Home Owner Grant and the Australian Government’s First Home Owner Boost. With the NSW New Home Buyers Supplement Scheme, first home buyers of new homes will receive maximum benefits of up to $17,000 for contracts made between 1 October 2009 and 31 December 2009.

Applicants for the NSW New Home Buyer Supplement must meet the same eligibility criteria as those for the First Home Owner Grant. You must be building a new home or purchasing a newly constructed home and must have entered into a contract.

Each day the ASIC receives unclaimed money. The common causes of the unclaimed money may include changes of address, forgotten funds, or employment changes.

The ASIC unclaimed money database allows you to search directly for unclaimed money held in a name and refers you to the appropriate institution to claim, or enables you to download claim forms to lodge with the ASIC.

The ASIC database can be found at www.asic.gov.au

All the Partners and staff at Wearne & Co wish you a Merry Christmas and a safe and Happy New Year.

The offices of Wearne & Co will be closed from Thursday 24 December 2009 and will be re-opening Monday 18 January 2010.