Print Newsletter

Newsletter December 2010

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).

The provision of a gift to an employee at Christmas time may be a minor FBT benefit that is an exempt benefit where the value of the gift is less than $300.

Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt fringe benefits.

Eligible employees with a child born or adopted on or after 1 January 2011 can take 18 weeks of paid parental leave at the national minimum wage, which is currently $570 a week before tax. Full time, part time, casual, seasonal, contract and self-employed workers may be eligible.

From 1 July 2011, employers must provide parental leave pay to their eligible employees who have been with their business for at least 12 months before the expected date of birth or adoption of their child.

An employer’s role in the scheme can start earlier if the employer and employee agree. Employers can get ready by registering now for Centrelink business online services.

The Family Assistance Office will give employers funds to provide parental leave pay to their employees. They will also contact employers to start this process. Employers don’t need to change their employee’s usual pay cycle, set up special bank accounts or report back to the Family Assistance Office. They just have to provide the parental leave pay to their employee with the usual tax deducted. Employers will not need to make super contributions on parental leave pay. Also, parental leave payments do not constitute ‘wages’ for the purposes of calculating;

• payroll tax liabilities
• workers compensation premium liabilities.

Caps apply to contributions made to your superannuation fund in a financial year. Any super contributed over a cap amount is subject to extra tax. The cap amount and how much extra tax you pay once you exceed it depend upon whether the contributions are:

• Concessional – these contributions are sometimes known as ‘pre-tax’ contributions. They include employer contributions (including salary sacrifice amounts) and personal contributions made by a self-employed person that are allowed as a tax deduction. Concessional contributions are included in the assessable income of the super fund.
• Non-concessional – these contributions are sometimes known as ‘after-tax’ contributions. These include personal contributions that are not allowed as income tax deductions, which are not included in the super fund’s assessable income.

The concessional contributions cap for the 2010–11 financial year is $25,000 if you are under 50 years old on 30 June of the financial year, and the transitional contributions cap is $50,000 if you are 50 years old or over on 30 June 2011. Contributions over the cap amount are subject to 31.5% tax. This tax is called the excess concessional contributions tax. Any excess concessional contributions also count as non-concessional contributions.

For the 2010–11 financial year, the non-concessional contributions cap is $150,000 per person (those under 65 years old can bring forward two years of contributions, giving them a cap of $450,000 over three years). If you are 65 years old or over on 1 July of the financial year, you cannot access the bring-forward provisions. Your non-concessional contributions cap is $150,000. Excess non-concessional contributions tax is payable on excess non-concessional contributions at a rate of 46.5%

Your superannuation fund is required to report your contributions to the Australian Taxation Office (ATO) each year. The ATO uses this information, as well as information from your own income tax return to work out if you have exceeded the contribution limits.

All the staff at Wearne & Co wish you a Merry Christmas and a safe and happy new year. The offices of Wearne & Co will be closed over the Christmas break and will be re-opening Monday 17 January 2011.