Archive for 'Tax'
What are fringe benefits?
Employees may opt to make an agreement with their employers that provides them with fringe benefit ‘payments’ in a form other than salary or wages.
There are various types of fringe benefits:
- Employees being able to use work car for private use
- Discounted loans
- Paying an employee’s gym membership
- Providing entertainment (e.g. tickets to concerts)
- Reimbursing expenses (e.g. school fees)
- Giving benefits under a salary sacrifice scheme
What is fringe benefits tax?
Employers pay FBT on certain benefits they provide to their employees or employees’ families. FBT will apply even if the benefits are provided by a third party through an arrangement with the employer.
Employers are required to self-assess their FBT liability for the FBT year – which spans from 1 April to 31 March. It is calculated separately to income tax based on the taxable value of the benefit provided.
Usually, employers are able to claim tax deduction for the cost of providing fringe benefits and for the FBT paid. Employers will generally also be able to claim GST credits for the items they provided as fringe benefits.
Employers are able to reduce their FBT liability by providing benefits that are income tax deductible. They may also consider an agreement in which the employee contributes to the cost of the fringe benefit. Finally, providing a cash bonus can also help reduce FBT liability.
The Budget seeks to address various shortcomings in the superannuation system
Unintended multiple accounts
One of the consequences of changing employers is the creation of multiple accounts. These result in unnecessary fees, and reduce retirement savings. Under the Budget, the proposal is that individual’s super is ‘stapled’ to them. Stapling means that the individual keeps their super fund when they change jobs. The employer will pay super to the attached fund, and only change if the individual selects to.
Paying too much
Super fees are being paid on unused accounts, causing an erosion of retirement savings. ‘YourSuper’ allows comparison between fees and payments across different super funds so that individuals are able to make informed decisions about their super.
Not all super funds perform equally. This can lead to an inequitable retirement result for individuals.MySuper products will now undergo an annual performance test to level the playing field. Funds will be required to notify their members if they are deemed to be underperforming and if they fail the test twice consecutively, they will not be able to accept new members until their performance improves. This will give members more information and the opportunity to choose what they can do if their fund is underperforming.
Lack of accountability and transparency
Currently, members are not informed about how their money is being invested, and whether it is being invested appropriately. Through this initiative, super trustees will be required to provide members with key information regarding how they manage and spend their money ahead of Annual Members’ Meetings. They are also required to comply with a new duty to act and must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests. This increase in transparency and accountability will allow members to make decisions regarding their super before it’s too late.
The government recognises that despite support to get through the COVID-19 outbreak, not all businesses are going to remain viable.
Many small businesses will have significantly increased levels of debt in order to remain in business during the COVID-19 pandemic. The government is introducing a number of permanent and temporary measures to expand the availability of insolvency practitioners to deal with this expected increase in the number of businesses seeking to restructure or liquidate.
The package of reforms features three key elements:
Currently, requirements around voluntary administration in Australia are more suited to large, complex company insolvencies. The new debt restructuring process will adopt a ‘debtor possession model’ where the business can continue to trade under the control of its owners, while a debt restructuring plan is developed and voted on by creditors.
The costs of liquidation can consume all or almost all of the remaining value of a small business, leaving little for creditors. Under the government’s new process, regulatory obligations will be simplified, so that they are commensurate to the asset base, complexity and risk profile of an eligible small business.
Temporary Relief Measures Extended
The government announced a further extension of relief measures to 31 December 2020. The
temporary increase in the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000; and a temporary increase in the time companies have to respond to statutory demands they receive from 21 days to 6 months. In addition there is a temporary relief for directors from any personal liability for trading while insolvent, with respect to any debts incurred in the ordinary course of the companies business.
The temporary gives businesses needed breathing space to and highlights the importance of working with financial professionals as soon as required, ensuring that your small business has the best chance of success.
The Budget highlights the government’s commitment to getting people back in jobs and upskilling Australians.
The JobTrainer Fund which falls under the JobMaker Plan will support up to 340,700 free or low-fee training places in areas needed to help upskill and retrain job seekers and young people.
The government will provide exemptions for employer-provided retraining activities from business’ fringe benefits tax and is also consulting on updating the current rules to allow individuals to deduct training costs from their income which relates to their future employment.
The Boosting Apprenticeship Commencements Wage Subsidy will boost the number of new apprenticeships and traineeships. This will support up to 100,000 new apprentices and trainees by paying a 50 per cent wage subsidy. Businesses will receive the subsidy up to a cap of $7,000 per quarter, for commencing apprentices and trainees until 30 September 2021.
Economic security for women is also being prioritised under the Budget. Several initiatives will work to support the increase of women’s workforce participation and improvement of earning potential. They include initiatives to support women’s leadership and development and increasing opportunities for women in science, technology, engineering and mathematics (STEM), business and male-dominated industries.
The Budget seeks to promote tax reform and simplification in an effort to support business investment and help reduce the personal income tax burden.
Businesses are encouraged to invest with the introduction of temporary full expensing. Businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the first year they are used or installed ready for use, from now till end of June 2022. Costs of improvements to these eligible depreciable assets can also be deducted. Through the reduction of after-tax costs of eligible expenses, full expensing supports businesses that are investing and helping stimulate the economy. Eligible new or second-hand assets acquired under the enhanced $150,000 instant asset write-off by the end of this year will receive an additional 6 months (30th June 2021) to use or install those assets.
Temporary loss carry-back will provide businesses the opportunity to offset tax losses. Companies with a turnover of up to $5 billion will be able to offset tax losses against previous profits on which tax has been paid to generate a refund. Any losses incurred from 2019-20, 2020-21, 2021-22 may be carried back against profits made during, or after 2018-19. To receive this support, applications to receive a tax refund may be lodged during the 2020-21 or 2021-22 tax returns.
Measures have been taken to expand and modernise the tax treaty network. This involves eliminating double taxation in an effort to attract foreign workers, simplify taxing rights between Australia and other countries and boost foreign investment in Australia. The initiative reduces tax barriers to prioritise reinstating Australia’s treaties with important partners to relieve economic burden. The Research and Development Tax Incentive (R&DTI) will ensure businesses of every size are receiving the support they require in these areas.
Changes have been made to recordkeeping provision as the government maintains its efforts to cut down red tape. Businesses will no longer need complete prescribed records, instead they will be able to use existing corporate records to reduce the time and manpower spent on recordkeeping.
Both low and middle income earners will also be receiving tax relief in the coming years. The government has brought forward their plans for tax cuts to make sure that families are keeping more of what they earn. Taxpayers will be receiving relief of up to $2.745 for singles and $5,490 for dual income families. The provision of a simpler tax system and lower taxes, which will be implemented in 3 stages, has increased the threshold of the 32.5% tax bracket from $90,000 to $120,000. Tax relief to individuals is expected to encourage spending and stimulate the economy.
Job losses have been extensive during the COVID-19 pandemic and the JobMaker Hiring Credit will give businesses incentives to take on additional employees aged between 16 and 35 years old.
Eligible employers will receive $200 a week for each new employee aged between 16 and 29. For new eligible employees aged 30 to 35, they’ll receive $100 a week. Businesses and employees will need to satisfy specific eligibility requirements.
For an employer to be eligible they must have an Australian Business Number and be up to date with their tax lodgement obligations, registered for Pay As You Go (PAYG), and be reporting through Single Touch Payroll. Employers will not be eligible if they are also claiming JobKeeper Payment.
To receive the JobMaker Hiring Credit, employers must also meet additionality criteria, requiring an increase in the:
- business’ total employee headcount from 30 September 2020; and
- payroll of the business for the reporting period, as compared to the three months to 30 September 2020.
The JobMaker Hiring Credit will be available to employers for each new job they create over the next 12 months for which they hire an eligible young person. The employee must work at least 20 paid hours per week on average and may be employed on a permanent, casual or fixed term basis. The employee must also have received the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one of the three months preceding the time of hiring.
The JobMaker Hiring Credit will start on 7 October 2020. The Hiring Credit will be claimed quarterly in arrears by the employer from the Australian Tax Office (ATO) from 1 February 2021. Employers will need to report to the ATO quarterly that they meet the eligibility criteria.
Registrations will be open for eligible employers through ATO online services from 7 December 2020.
Determining where to invest requires multiple factors to be taken into consideration. One such factor may be tax efficiency. The tax charged on income from a tax-effective investment is less than the individual’s marginal tax rate.
The government provides incentives to save through Super, which make it one of the most tax-effective investments. Contributing to your super and salary sacrifice is only taxed at 15% if yearly income is under $250,000 (30% if over $250,000 which is still tax-effective). The maximum tax that can be charged on investment income in super is 15%, and 10% on capital gains. This is lower than marginal rates at which taxation occurs for most individuals.
Employees should ensure that contributions are not above $25,000, as this is the cap on concessional contributions. Additional tax needs to be paid on any amount claimed higher than the cap.
Insurance companies offer insurance bonds as long term investment options. Earnings in an investment bond are taxed at 30% (Corporate tax rate), which makes them tax-effective for those whose marginal tax rate is above 30%. They are further tax-effective if one is looking to invest for over 10 years. This is because although withdrawals can be made during the 10 years, if no withdrawals are made, no further tax is payable.
The ATO warns against tax-driven schemes, which offer tax concessions for investing in certain assets that provide income in the future as these may be high risk or part of a scam. Investing in superannuation or insurance bonds are safe and reliable methods which don’t pose these concerns.
In its efforts to boost the economy, the Federal Government is considering bringing the planned income tax cuts forward. The intention behind these cuts is to boost the economy by boosting consumption.
Initially, income tax cuts were to take place in three stages, the first of which has already been rolled out. The following stages aim to facilitate a reduction in tax for individuals earning from $90,000 to $200,000 over the next 4 years at the cost of billions of dollars to the Parliamentary Budget.
There has been criticism of the government’s suggestion that these stages be moved forward because they are unlikely to have the desired effect. Rather than boosting consumption, beneficiaries of this plan are likely to keep the additional money in the bank. This is because these plans are directed at high-income earners who will not need to spend the money on necessities, that low-income earners would.
Additionally, the uncertainty of the current climate which the government is relying on to justify this change may be the very reason that people save their money rather than spend it.
Critics of this change are suggesting that focus should be placed on ‘Social Spending’. An example of this could be an increase in pension – which pensioners are a lot more likely to reinvest into the economy.
The Government has introduced additional changes to JobKeeper to help more businesses qualify for the relief payments.
One of the key changes was moving the relevant date of employment for an eligible employee from 1 March to 1 July 2020, to extend employee eligibility. This allows those who were full time employees on or before 1 July 2020 and employees who became long-term casual workers between 1 March to 1 July 2020 to be eligible for JobKeeper. This will increase the amount of employees that are eligible under the current JobKeeper Scheme, and will also expand the eligibility criteria under JobKeeper 2.1.
Businesses originally needed to show that they have met the decline in turnover test in the June, September and December 2020 quarters to receive JobKeeper payments. To qualify for the first phase of the JobKeeper Extension (28 September 2020 to 3 January 2021) businesses need to show that they have had a decline in turnover only for the September 2020 quarter, in comparison to the previous year.
To qualify for the second phase of JobKeeper Extension (4 January 2021 to 28 March 2021) businesses need to show that they had a decline in turnover for the December 2020 quarter only to be eligible for payments.
This change can be particularly useful to businesses that may not have met the decline in turnover test in the June or September quarter, but suffer significantly in the December quarter.
The improved accessibility to JobKeeper payments comes from the impacts of economic downfalls in Victoria. It is predicted that more than 80 percent of these payments will flow towards assisting Victorian businesses and employees.
Transferring the ownership of assets from one party to another may attract CGT. However, in the event that a change in ownership occurs due to the breakdown of a relationship, you may be eligible for a rollover of the asset.
A rollover allows taxpayers to defer or disregard a capital gain or loss that would normally arise on a CGT event. Specifically, a same asset rollover can occur when an individual transfers assets to their ex-spouse, as the transferee already has an involvement with the asset. The spouse who receives the asset will make the capital gain or loss when they dispose of the asset in future. They will also receive the cost base of the asset (the cost of the asset at the time of its initial purchase), as well as expenses incurred when acquiring, holding and disposing of the asset.
The rollover applies to CGT events that occur as a result of:
- An order of a court or a court order made by consent under the Family Law Act 1975 (foreign laws with similar logistics may also apply).
- A court order under a state, territory, or foreign law relating to the breakdown of a relationship.
- A binding financial agreement, or a corresponding written agreement.
Separating couples transferring assets in accordance with a binding financial agreement will not require court intervention, however, for rollover to apply, the following must be true at the time of transfer:
- the involved spouses are separated,
- there is no reasonable expectation of cohabitation resuming,
- the transfer of assets occurred for reasons directly related to the breakdown of the relationship. For example, the transfer may not be directly connected to the separation if the spouses already agreed to the transfer before the breakdown of their relationship.
Couples with informal or private agreements related to the transfer of assets will not be eligible for a rollover, and CGT will apply to these ownership transfers. The parties cannot choose whether or not the rollover applies to their situation.