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January 2003 Newsletter

If you are using MYOB and would like your customers to pay you electronically, you may wish to visit http://www.myob.com.au/payment_services and find out about the Customer Payments Service from MYOB.  This will allow you to use the BPay facility to collect money from your customers.

Have you loaned your company money?  An important issue with this widespread application is the upcoming change in tax treatment of "at call loans" under the debt/equity rules.  The current transitional arrangements which treat at call loans entered into on or after 21 February 2001 as debt instruments was to end on 31 December 2002.  A further extension was given, and as from 30 June 2004, the usual tests to determine what is debt and equity will generally apply, with the possibility that many standard "at call loans" will be treated as equity for tax purposes.

The ATO fact sheet states that if a taxpayer wants an "at call loan" to be treated as a debt instrument, the shareholder and the company would enter into a loan facility agreement making all monies outstanding from time to time between the taxpayer and the company to fall due and be repayable on a date not more than 10 years from the time the loan is made.  The extension has meant that this issue has to be resolved by the end of the next taxation year.  However, it will apply retrospectively to loans entered into after the 21 February 2001.

If you are an employer who is registered for GST, you may be entitled to input tax credits for payments that you make to reimburse your employees (and their associates) for their expenses.

You can claim input tax credits if you have relevant documents (such as receipts or tax invoices issued to your employee) that the employee gives you to substantiate their claims for reimbursement and if the payments meet the requirements of the GST legislation.

That being:

• your employee's expense is directly related to their activities as your employee or the reimbursement is an expense payment benefit on which Fringe Benefits Tax has been paid;
• the supply of the thing acquired by your employee is a taxable supply; and
• your employee is not entitled to an input tax credit for the expense.

If you are entitled to an input tax credit you can claim it in your activity statement once your employee gives you a tax invoice or receipt for the expense (you need to have a tax invoice if the expense is more than $55).

You are not entitled to an input tax credit where:

• you reimburse non-deductible expenses, such as the portion of expenses relating to entertaining clients;
• you reimburse expenses that relate to input taxed supplies that you make in the course of your business; or
• you pay your employee an allowance.

It is therefore more tax effective to reimburse employees for expenses that are eligible to claim as an input tax credit, than it is to pay them an allowance, as you are entitled to claim the input tax credit on a reimbursement.

Superannuation regulators, APRA and the ATO have warned of a possible breach of the Superannuation Industry (Supervision) Act 1993 (SIS ACT) for investments made by superannuation funds using their existing equity holdings in an instalment warrant.  If you have a superannuation fund that has invested in an instalment warrant prior to 16 December 2002, provided the transaction is finalised within 12 months of that date, no action will be taken by the regulators.  No further investments of this type should be undertaken.  The ATO has taken the view that the security over the in-built portion of the instalment warrant amounts to placing a charge over fund assets and breaches the regulations.  If you are unsure as to whether a particular type of investment will breach the investment rules, you should consult your Wearne & Co partner prior to signing any agreements.  The Fund can be heavily penalised for not complying with the regulations.