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Newsletter November 2004

With Christmas getting closer you may be considering providing Christmas gifts and/or a social function to your employees as a reward for their efforts.  Fringe benefits Tax (FBT) can effectively double the cost of your generosity if thought is not given to the type of benefit provided. 

The cost to an employer of providing Christmas party and gifts are generally subject to FBT where the benefit directly provides entertainment by way of food, drink or recreation.  Examples of such benefits include a holiday, tickets to a sporting event and the cost of a night out at a restaurant.

Exemptions under the Actual Method

Employers that use the actual method (not 50/50 method) in calculating meal entertainment for FBT can claim an exemption for minor benefits if they are provided infrequently and irregularly, and the value of the benefit is less than $100 within a year.  Examples are:

1. Christmas parties are exempt from FBT if the total value of the benefit provided to the employee and any family members attending is less than $100 per employee.  Expenditure incurred will be treated as not subject to FBT, and not tax deductible.
   
2. Christmas parties held on the employer's premises are exempt from FBT irrespective of the total value per head per employee.  Expenditure incurred will be treated as not subject to FBT, and not tax deductible.

Exemptions Available to all Employers

1. Inexpensive Christmas gifts of food or drink that will be consumed by the employees at home (e.g. a bottle of champagne or a hamper of food) are not to be regarded as being the provision of entertainment.  Expenditure incurred on such gifts will be treated as an allowable income tax deduction for the employer and not subject to FBT.
   
2. An exemption for $500 per annum is available for in-house benefits provided to employees and their associates.  This applies to goods and services which the employer sells or supplies to a third party in the ordinary course of business.  As a general rule for FBT purposes the value of any in-house benefit is calculated at 75% of the employer's normal selling price.

In the recent Federal election, the Coalition Government promised to pursue full exemption from unfair dismissal laws for small business employers.

According to its "Small Business, Big Future" election policy document the Coalition Government is seeking to protect small business from new redundancy obligations by legislating to ensure that businesses with fewer than 15 employees are not required to make redundancy payments. This will not, however, prevent small businesses from reaching agreements with employees which include severance payments.

With the Government set to control the Senate from July 2005, passing this legislation is almost certain.

However, it's estimated that some 700,000 businesses with 15 staff or less who operate under state regulations will not be covered by this legislation as they don't operate as a constitutional corporation.

For a look at the Government's policy on this area go to http://www.liberal.org.au and click on Election Policies where you'll find the "Small Business, Big Future" document.

From 1 January 2005, the land tax threshold is to be abolished, and the current single marginal rate of 1.7% is to be replaced with the following marginal rate scale:

• A land value of less than $400,000 will pay a land tax rate of 0.4%.
• A land value of between $400,001 and $500,000 will pay a land tax rate of $1,600 plus 0.6% on the value of land above $400,000.
• A land value above $500,000 will pay a land tax rate of $2,200 plus 1.4% on the value of land above $500,000.

The provision of relief from land tax where the amount of tax owed is less than $100.  This gives an effective threshold of $25,000.

The effect of the land tax changes is that all properties other than principal place of residence and primary production properties will need to be registered for land tax.

Please notify us immediately if you have any properties that are required to be registered so that an initial land tax return can be lodged and the property be assessed for land tax as at 31 December 2004.