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2011

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AJML ACCOUNTANTS UPDATE – ARPIL 2011 FBT Employers

Fringe Benefit —
For You as Employers

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages, such as giving benefits under a salary sacrifice arrangement with an employee.
FBT (Fringe Benefit Tax) is paid by you as an employer.

FBT AND ENTERTAINMENT

The provision of entertainment may give rise to a number of different types of fringe benefit, depending on the circumstances under which you provide the entertainment. The different types of fringe benefit that may arise are:

  • a meal entertainment fringe benefit where fringe benefits are provided by way of, or in connection with, food or drink
  • an expense payment fringe benefit – for example, the cost of theatre tickets purchased by an employee that you reimburse
  • a residual fringe benefit – for example, providing accommodation or transport

HOW TO IDENTIFY WHETHER THE PROVISION OF FOOD OR DRINK IS ENTERTAINMENT?

In order to determine when food or drink provided to a person results in entertainment, you need to examine the circumstances surrounding that provision of the food or drink. You need to look at the following.

DOSE AN EXEMPTION APPLY?

An exemption applies to the provision of food or drink in the following circumstances.

Property exemption
Food and drink consumed on business premises

Example:
An employer provided drinks and a buffet meal for 10 employees and their spouses on business premises. The cost was $500. The cost of the entertainment provided to employees was $250; this is exempt from FBT. The cost related to entertainment of the associates ($250) is not exempt from FBT.

Minor benefits exemption
Depending on the standard of entertainment provided, the benefit may qualify for the minor benefits exemption

TAXABLE VALUE OF FOOD OR DRINK THAT IS ENTERTAINMENT

Generally, when you provide entertainment to both employees and non-employees (for example, clients), only the part of the entertainment that relates to employees and their associates is subject to FBT.

The taxable value of the food or drink, and the associated accommodation or travel, is calculated using the respective valuation rule according to whether the benefit is an expense payment, property, residual or tax-exempt body entertainment fringe benefit.

If you can’t easily determine the actual expenditure, you can use a ‘per head’ basis of apportionment.

You may elect to value the food, drink and associated accommodation or travel as ‘meal entertainment’. If you make this election, you can’t use the per head basis of apportionment and

the taxable value is calculated under the meal entertainment valuation rules, explained below.

Example:
An employee entertained two of her employer’s clients by taking them to lunch at a restaurant. The meal cost $150. The employee paid for the meal by charging it to her employer’s credit card account (that is, the meal was paid for by the employer). The meal provided to the employee is a property fringe benefit. Using a per head apportionment, the taxable value of the fringe benefit is one-third of the total cost of the meal (that is, $50).

Example:
An employee takes several of his employer’s clients on a sightseeing tour of local attractions. The employer pays the total cost of the trip directly to the tour agent. Providing the trip to the employee is a residual fringe benefit, the taxable value of the fringe benefit is the cost of one ticket for the trip.

Example:
An employee entertained two of his employer’s clients by taking them to lunch. The meals cost $50 each. The employee paid a total of $150 for the meals out of his own pocket. His employer later reimbursed him for the cost of the meals. This reimbursement gives rise to an expense payment fringe benefit.

AJML ACCOUNTANTS UPDATE – JUNE 2011 CGT Part 2

Capital Gains Tax (CGT) – Part 2

There are more than 40 different types of CGT events so a brief explanation of the most common ones is noted as follows:

EVENT A1: DISPOSAL OF CGT ASSET

This is the most common CGT event. It occurs where there is a change of ownership of a CGT asset. Consequently, there would not be a change of ownership where an asset is destroyed (CGT event C1 would apply); or there is merely a change in the trustee of a trust (but no change in beneficiary ownership).

The time of event A1 is the date of contract if a contract exists or when the change of ownership occurs if there are no contracts.

EVENT C1-C3: THE END OF A CGT ASSET

C1: Loss or destruction of CGT asset, the time of event is when the taxpayer first received compensation for the loss/destruction or, if no compensation is received, when the loss is discovered or the destruction occurred.

C2: Cancellation and surrender of a CGT asset, usually related to the extinction of an intangible asset. For example:

  • Redeemed or cancelled share
  • Realized, discharged debt
  • Expired contract
  • Abandoned or forfeited lease
  • Exercised option

The time is when the taxpayer enters into the contract which results in the ending of the asset, or when the asset ends.

C3: End of an option to acquire shares, occurs when the option ends because it is cancelled, released/abandoned or not exercised by due date.

The time of the event is when the option ends.

CAPITAL PROCEEDS

Capital proceeds from a CGT event are the total of the money the taxpayer has received, or is entitled to receive, plus the market value of any property the taxpayer received, or is entitled to receive, in respect of the CGT event occurring (s116-20(5)). If the capital proceeds are in a foreign currency, then the taxpayer is required to determine the Australian equivalent at the time of the CGT event (s960-50).

Modifications to capital proceeds

  1. Market value substitution rule applies if the client didn’t receive arms length value of the asset. Hence the market value of the capital gains asset will be used in this case.
  2. Apportionment rule applies if a payment relates to more than one CGT event or part of the CGT event. Hence the capital proceeds will be apportioned.
  3. Non-receipt rule applies after reasonable steps are taken and still couldn’t pay the outstanding amount on the sale of the CGT asset.
  4. Repaid rule applies when the capital proceeds are reduced by any non-deductible amount a taxpayer has to repay.
  5. Assumption of liability rule applies if the purchaser of the CGT assets also has to pay a liability to the seller. The capital proceeds will then be equal to the liability and the cash received.
  6. Misappropriation rule applies if a related party to the seller (employee or agent, for example)
    misappropriates all or parts of the proceeds. Hence the proceeds will be reduced by those amounts until recovered.

COST BASE

There are five elements of the cost base of a CGT asset (s100-25):

  1. Purchase price of the asset
  2. Incidental costs of asset that are not deductible, example:
    • Agent, accountant, legal fees
    • Transfer costs
    • Stamp duty
    • Advertising
    • Borrowing expense, example loan application and mortgage discharge fees
  3. Cost of owning the asset only if asset is acquired after 20 August 1991. For example,
    • Interest on loan
    • Cost of maintaining asset
    • Rates or land tax
  4. Capital expenditure to increase or preserve the asset’s value. Does not include capital expenditure related to goodwill.
  5. Capital expenditure incurred to establish, preserve or defend title to the asset.

AJML ACCOUNTANTS UPDATE – JULY 2011 CGT Part 3

Capital Gains Tax (CGT) – Part 3

CAPITAL LOSSES

A capital loss arises from a CGT event if the capital proceeds are less than the asset’s reduced cost base.

Net capital loss incurred when the taxpayer incurred a capital loss in the year and did not offset the capital loss. A capital loss cannot be claimed as a deduction against assessable income. It can be used to offset capital gains and the balance to be carried forward indefinitely. Two exceptions are:

  • Collectable capital loss can only offset collectable gains
  • Capital losses of a company are subject to continuity of ownership and control test, or same business test.

CGT 12 MONTHS RULE

To qualify for the CGT discount, taxpayer must possess the asset for at least 12 months, excluding day of acquisition and day of CGT event.

The CGT discount for individuals is 50%, for complying superannuation funds is 33.33% and for trusts is 50%. There are no CGT discounts available for companies.

MAINTAINING RECORDS
Where a taxpayer elects to maintain records of the CGT assets, the taxpayer must keep in English:

  • Date of acquisition and all related costs
  • Date CGT event occurred and all related costs
  • Capital proceeds received or deemed to be received

ROLLOVER RELIEF
Rollover relief is available where an individual, trustee or all partners in a partnership transfer CGT asset/s into a wholly-owned company. It is also available if the taxpayer receives money or other CGT asset as compensation for the involuntary disposal of a CGT asset owned by the taxpayer that is:

  • Compulsorily acquired by Australian government
  • Wholly or partly lost or destroyed
  • Disposed of to an entity under threat of compulsory acquisition
  • Land compulsorily subject to mining lease and disposed of to the lessee
  • Expired lease granted by Australian government agency that is not renewed

SAME ASSET ROLLOVER EVENTS
This is available where:

  • CGT asset transferred to spouse or former spouse due to court order or maintenance agreement approved by court resulting from marriage breakdown after 13 December 2006.
  • Changes to trust deed of complying approved deposit fund, superannuation fund or from 1 April 2003, a fund that accepts workers entitlement contribution.

SMALL BUSINESS RELIEF
To help small business, Division 152 provides four concessions that may reduce CGT where special conditions are met.
The basic conditions are:

  • Capital gain would have resulted from CGT event occurring in relation to a post-CGT acquired asset owned or created by the entity
  • Entity is a small business entity for the income year of the events

The asset has to be an active asset which is one that the entity owns and uses, or holds ready for use, in carrying on a business. It includes intangible assets like goodwill.
To satisfy the active assets test, the CGT asset must have been an active asset for half the relevant period.
The four available small business concessions are:

  • 15 year exemption – if the small business has been owned at least 15 years prior to the CGT event, disregard capital gains
  • 50 percent reduction – after applying capital losses and CGT discount, deduct another 50 percent off capital gains
  • Retirement exemption – if the proceed of the sale is used for retirement, taxpayer may claim maximum of $500,000 lifetime limit of exempt CGT after applying small business 50 percent reduction
  • Small business rollover – to satisfy, taxpayer must replace /improve active asset equal to the amount of the capital gain within the replacement period, and the replacement/improved asset must be active asset at the end of the replacement period (s152-410).

AJML ACCOUNTANTS UPDATE – AUGUST 2011 Federal Budget 2011-2012

Federal Budget 2011-2012

Please note some Budget items announced below are not law which will not take effect until they received Royal Assent.

PERSONAL TAX RATES

There are no changes to the tax rates, but there is the introduction of the Flood Levy which applies to individuals with income over $50,000.

MINORS

Minors are no longer entitled to low income tax offset on unearned income.

DEPENDENT SPOUSE REBATE

The Government announced it will phase out the tax offset for dependent spouses aged less than 40 (ie born on or after 1 July 1971) “to help encourage more Australians into paid employment”. This change will mean taxpayers with a dependent spouse aged less than 40 years will no longer be eligible for the dependent spouse tax offset (DSTO) from 1 July 2011.

Exceptions: The change will not affect taxpayers whose dependent spouse is a carer, who is an invalid, or permanently unable to work; and taxpayers with children (eligible for Family Tax Benefit B), or eligible for the zone, overseas forces or overseas civilian tax offsets. Dependent spouses with children are not affected by this measure because they receive Family Tax Benefit B.

HECS DISCOUNTS

The discount available for students electing to pay their student contribution up-front will be reduced from 20% to 10%.

The bonus on voluntary payments to the ATO over $500 will be reduced from 10% to 5%.

SMALL BUSINESSES

These tax reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies.

This new proposal is in addition to the Government existing tax reforms for small businesses to be introduced in 2012-13 that allow:

  • an immediate write-off of all assets valued at under $5,000 (up from $1,000 presently)
  • a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30 per cent); and
  • a reduction in company tax rate to 29 per cent for incorporated small businesses.

The small business company tax rate will drop to 29% from the 2012-13 year.

SELF-EDUCATION DEDUCTION AGAINST YOUTH ALLOWANCE PAYMENTS DENIED

From the 1 July 2011, the tax law will be amended to disallow self-education expenses against all Government assistance payments. The change is being introduced in response to the 2010 High Court decision in FC of T v Anstis 2010 ATC.

However, individuals who receive Youth Allowance (Student) will be able to claim a deduction for expenses incurred in gaining their payment for the 2010/11 income year.

For each of the years 2006/07 to 2009/10, the Commissioner has determined that he will administer the law to allow eligible taxpayers to receive an automatic deduction of $550 or make potentially higher claims if the relevant self-education expenses can be substantiated.

SUPERANNUATION: ALTERNATIVE FOR EXCESSIVE CONCESSIONAL CONTRIBUTIONS UP TO $10,000

This measure will apply in respect of 2011-12 or later years, and only for the first year, commencing from 2011-12, in which a breach occurs.

The Government will provide eligible individuals who breach the concessional contributions cap by up to $10,000 (non-indexed) with a one-off option to request that these excess contributions be refunded to them. This new refund option will only apply to first time breaches from 1 July 2011, and only for the first year, commencing from 2011-12, in which a breach occurs

AJML ACCOUNTANTS UPDATE – SEPTEMBER 2011 National Rental Affordability Scheme

National Rental Affordability Scheme (NRAS)

NRAS started on the 1 July 2008 and is designed to encourage large-scale investment in affordable housing. The NRAS offers tax and cash incentives to providers of new dwellings on the condition that they are rented to low and moderate income households at 20% below market rates.

The Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) is responsible for administering and implementing the scheme.

WHAT ARE THE INCENTIVES?

The NRAS offers annual incentives for a period of ten years. The incentive compromises:

  • A Federal Government contribution in the form of a refundable tax offset or payment to the value of $6,000 per dwelling per year in the first year of operation of the scheme
  • A state or territory contribution in the form of direct financial support or an in-kind contribution to the value of at least $2,000 per dwelling per year in the first year of operation of the scheme.
  • There are no capital gains tax consequences for providing incentives or other benefits under the NRAS.

The scheme will be indexed in line with the rental component of the consumer price index.

The incentives are paid The Federal Government contribution or incentive is paid in the form of refundable tax offsets for complying investors who can claim their entitlement to the tax offset using one of the following methods:

  • in their annual tax return
  • by lodging a short-form application if they are an income tax exempt entity who would not ordinarily lodge a tax return
  • The state and territory contributions you receive in cash or in-kind for participating in the NRAS are non-assessable and non-exempt for tax purposes. This means they are not included in your assessable income.

WHO IS ENTITLED TO THE NRAS TAX OFFSET IN THEIR ANNUAL TAX RETURN?

Depending on their circumstances, the following entities are entiled to claim the NRAS:

  • Individuals
  • corporate tax entities
  • Super funds
  • A partnership or trust that is a party to a non-entity joint venture

DWELLING OWNERS INVESTING UNDER A HEAD LEASE AGREEMENT

The ATO is aware of certain NRAS arrangements where a dwelling owner leases their dwelling to a housing provider under a head lease and that housing provider subleases the dwelling to eligible NRAS tenants for at least 20% below market value rent. A housing provider in this context is an approved participant under the NRAS scheme and includes charitable housing organizations.

Example:

Madeline is a business woman who has decided to participate in NRAS.

Madeline plans to build 20 rental dwellings of appropriate standard to

meet the requirements to participate in the NRAS. Madeline applies under the NRAS and receives an allocation.

Once the dwellings are complete, Madeline, through her real estate agent, finds eligible NRAS tenants to whom she rents the dwellings at 20% below market value. Madeline complies with all the requirements set out by FaHCSIA and lodges her first statement of compliance on 13 May 2010.

On 30 June 2010, Madeline receives an NRAS tax offset certificate from the Housing Secretary. The certificate is for the NRAS year 1 May 2009-30 April 2010.

As Madeline is participating in NRAS as an individual and she has received a tax offset certificate, she is entitled to claim under section 380-5 of the Income Tax Assessment Act 1997

AJML ACCOUNTANTS UPDATE – OCTOBER 2011 GST and import of goods

GST and Import of Goods

The import of goods means buying goods or services from another country to Australia.

ARE THEY TAXABLE OR NOT?

GST is payable on most goods imported into Australia. However, if you are a GST-registered business or organization and you import goods in carrying on your enterprise, you may be able to claim a GST credit for any GST you pay on the importation.

The Australia Customs Service (Customer) collects GST on taxable importations. GST is 10% of the value of a taxable importation.

The value of a taxable importation is the sum of:

  • the customs value of the goods
  • any customs duty payable
  • the amount paid or payable to transport the goods to Australia
  • the insurance cost for that transport, and
  • Any wine equalization tax payable.

Example:

Jane Doe imported $100,000 worth of I phone accessories from America, and was charged the following:

  • Customs Duty $20,000
  • Freight $1,000
  • Insurance $800

So the total cost of payment on the importation of the goods for Jane Doe would be:

  • Customs Duty: $20,000
  • Freight: $1,000
  • Insurance: $800
  • I phone accessories: $100,000
  • Subtotal: $121,800
  • GST on purchases: $12,180
  • Total purchases: $133,980

IF I HAVE TO PAY GST ON MY IMPORTED GOODS, HOW AND WHERE DO I PAY FOR THEM?

Generally, the GST on the goods is paid to the Customs before the goods are released from the Customs.

The good news is, some imported goods are GST free, and they are:

  • goods that are GST free or input-taxed within Australia
  • goods that qualify for certain customs duty concessions, which includes but are not limited to the following:
    1. Goods imported by overseas travelers not in excess of the duty free allowance, which are the amount of goods you are allowed to carried onboard onto a plane or ship in hand luggage, including tobacco and alcohol.
    2. goods returned to Australia in an unaltered condition
    3. goods returned after repair or replacement under warranty
    4. global product safety recall goods
    5. goods imported for repair or industrial processing, then exported
    6. certain bequeathed goods (passed on goods in will), including goods donated by person, company or organization established outside Australia to a company established inside Australia for performing humanitarian natured work
    7. trophies, medals etc
    8. low value goods which has a customs duty and taxes of $50 or less and has a customs value of less than $1,000

Some examples for the above GST free goods are:

  • 2.275 litres of alcohol carried onboard a plane
  • Frozen vegetables
  • Returned plasma television bought on eBay Australia

WHEN CAN I CLAIM THE GST BACK?

You can claim GST credits if all the following three rules apply:

  • you imported the goods solely to carry on your business
  • the importation is a taxable importation, that means, it’s not a tax-free importation as discussed above, and
  • You are registered for GST.

You can only claim the GST credits after you paid the GST for the goods to the customs as discussed above, and then claim the GST credits in your BAS. You claim the GST in the quarter or period that you paid the GST on importation.

You will need evidence of importation before you can claim a GST credit, otherwise you cannot claim GST credit on the importation of the goods.

AJML ACCOUNTANTS UPDATE – NOVEMBER 2011 GST and export of goods

GST and Export of Goods
 

The export of goods means selling goods or services to another country.
 

ARE THEY TAXABLE OR NOT?

In general terms, the income derived from the sale of goods from Australia to anywhere in the world by GST registered entities are subject to income tax, and GST applies to the sale of most goods and services because Australian entities are assessed on income gained from all over the world. But the export of goods by Australian registered entities that are registered for GST are GST free if the goods are exported from Australia before, or within 60 days of, one of the two followings:

  1. The day the supplier receives any money related to the supply
  2. If an invoice was given on an earlier day, the day that the supplier gives the invoice.

Example
John Doe exported the goods from Australia to Japan, and the goods are paid on the 30 June 2010, then if John Doe shipped out the goods from before 30 June 2010 to 29 August 2010, then the export of the goods is GST free. However, if John Doe sent out an invoice dated the 15 June 2010, and then John Doe must ship out the goods before 13 August 2010 to satisfy the condition. The Commissioner of Taxation may extend this amount of time if requested.

If the payment is made by instalments, the export of the goods are GST free if the goods are exported from Australia before, or within 60 days after, one of the two following:

  1. The day the supplier receives any money related to the final installment of the supply
  2. If an invoice was given on an earlier day in relation to the final installment, the day that the supplier gives the invoice.

Using the above example, if John Doe received any money related to the first installment on the 30 January 2010 but received the last installment of the goods on 30 June 2010, and then John Doe must ship out the goods by 29 August 2010 to qualify for the GST free export of goods. If the invoice related to the first installment of the export of the goods on 15 January 2010, but the invoice in regards to the last installment is issued out dating the 15 June 2010, then the shipping of the goods must be made before the 13 August 2010. As above, the Commissioner of Taxation may extend this amount of time if requested.

GST Act 1999 subsection 38-185 (3) clearly stated that there are no limits on the above two matters. Any exported supplies are assumed as exported goods from Australia if:

  1. The entity that receives the goods are not registered or required to be registered for GST in Australia. The supplier will also satisfy this condition if at the time of supply, the supplier has reasonable grounds to believe that the customer is not required to be registered.
  2. The entity exports the goods from Australia.
  3. The goods have been entered export are within the meaning of export in section 113 of the Customs Act 1901, which stated that if the goods are not being carried onboard as hand luggage by person, they are mostly exported goods, excluding ship or aircraft goods.
    The goods have not been altered in any way apart from changes
  4. related to packaging for exporting, after supplying the goods for export.
  5. There are sufficient documentary evidence to show that the goods are exported

However, if the goods are to be re-imported into Australia, then they are not GST free.

DOCUMENTARY EVIDENCE OF EXPORT

The following are suitable documentary evidence of export as obtained from the ATO website:

The supplier must maintain sufficient documentary evidence of the exportation of the goods by the entity/exporter of the supply. Sufficient documentary evidence may include a combination of the following:

  • A copy of the bill of lading, which is evidence of a contract of carriage as well as proof of delivery of the goods on board a vessel
  • A copy of the airway bill
  • Evidence from the Australian Customs Service that the goods were exported, and
  • Evidence from the customs authority of the country to which the goods were exported that the goods arrived in that country from Australia.

Federal Budget 2011-2012 -Centrelink

Family Tax Benefit, Baby Bonus and related changes

From 1 January 2012, the new maximum rate of FTB Part A for 16-17 year olds in high school will be increased from the current $52.64 per fortnight to $214.06 per fortnight, an increase of around $4,200 per year. For 18-19 year olds in school, the rate will be $3,741 per year. This will align with the 13-15 year old rate and ensure assistance for families does not drop when children turn 16. The increases to FTB Part A will only be available for families where their teenager is in fulltime secondary study, or equivalent.

From 1 January 2012, the Government will lower the maximum age of eligibility for FTB – Part A from 24 to 21. This will bring FTB-Part A into line with the reduction in the Youth Allowance age of independence to 22 from 1 January 2012.

The primary income limit for the following payments will stay the same as the 2010-11 financial year:
FTB Part B,
dependency tax offset,
Baby Bonus eligibility
Paid Parental leave

The annual end of year FTB supplements will be held at the current levels for the next 3 years. The FTB supplements will be fixed at the current 2010-11 levels of $726.35 per annum per child for FTB Pt A and $354.05 per annum for FTB Pt B until 1 July 2014.

Youth Allowance will continue to be available for 16 to 19 year olds who are independent, away from home or not in full time secondary study, and for people aged 19 years and older. All Youth Allowance recipients aged 16 to 19 on 1 January 2012 will have the option to remain on Youth Allowance.
Deferral of Paid Paternity Leave start date

The Government is to defer the implementation of Paid Paternity Leave by 6 months, from 1 July 2012 until 1 January 2013. The measure will provide eligible working fathers, and other partners who are providing full-time care or sharing the child’s care, with 2 weeks paternity leave paid at a rate equivalent to the national minimum wage for children born on or after 1 January 2013.

Currently:
any parent who started receiving Parenting Payment after July 2006 moves off this payment and onto Newstart Allowance when their youngest child turns eight years old (for single parents) or six years old (if the parent is partnered).
Parents who have been receiving Parenting Payment since before July 2006 cease to be eligible for this payment when their youngest child turns 16.

Proposed:
As of 1 July 2011, any new children born to these recipients will be treated the same as children whose parents started receiving Parenting Payment from July 2006.
From 1 January 2013, eligibility will cease when their youngest child turns 12 or 13 in 2013, or 12 in subsequent years. Parents whose youngest child is 13 years old before 1 January 2013 are not affected by these changes.

The majority of affected parents will be eligible for Newstart Allowance and will continue to have participation requirements.

Changes for the unemployed

Jobseekers who have been on income support for at least two years are classified as ‘very long term unemployed’. Assistance to them will be in the form of tougher obligations and a new wage subsidy of up to $5700 to support employment of them.
From 1 July 2012, Learn or Earn requirements will be extended to unemployed 21 year olds who do not have a Year 12 or equivalent qualification. This means they will need to participate in education and training full-time, or participate in study, training and other approved activities until they attain Year 12 or equivalent. Other approved activities include paid work, participation in approved programs, voluntary work or Work for the Dole activities.
To encourage young people to take up work, all Youth Allowance (other) recipients will from 1 July 2012 be able to keep more of what they earn, with the income free level to be increased from $62 a fortnight to $143 a fortnight. Further, the Working Credit limit will be increased three and a half fold from $1000 to $3500.
Currently persons turning 21 are eligible for Newstart Allowance. From 1 July 2012, Youth Allowance (other) will be extended to 21 year olds. This measure will remove the incentive for them to be on unemployment benefits rather than studying full-time. 21 year olds who are on Newstart Allowance, or who have applied for it, by 1 July 2012 will not be affected by the change.

New service delivery

People will be able to access Centrelink, Medicare and Child Support services through a single website www.humanservices.gov.au and phone number (13 24 68).

AJML UPDATE – JANUARY 2011 Your path to prosperity

Your path to prosperity

  1. Success requires learning and practice. Suppose you were interested in becoming proficient in self-defense. You might start by reading several excellent books on martial arts. Will you now be ready to fearlessly tread the mean streets after dark? Of course not. Imagine this scenario. As a malevolent arm snakes around your neck from the rear and a hard and cold object prods you in the rids, you bravely reach into your hip pocket to locate your well-worn copy of ‘Everyone’s Guide to Self-Defense.’ You try to flip through the pages you gasp for breath. Chapter seven, you recall, describes suitable response to attacks from behind. Unfortunately, by that time the sad outcome of the unpleasant encounter will be difficult to change. It would not even have helped much had you memorized the contents of the book. The only way to improve your confidence on the streets in a meaningful way is to attend classes regularly and practice the moves until they become second nature to you. That way, when attacked, your body will automatically respond in mere milliseconds. You will react instantly, powerfully, and effectively because you bypassed the slow logic centers of your brain.
  2. How does one become a better negotiator? In much the same three-phase method that one becomes better at judo, better at omelet cooking, and better at writing poetry: (1) learn; (2) understand; (3) practice. Phase one is learning the techniques. Phase two is understanding those principles that lie behind the techniques. Understanding how those techniques work provides assurance that that they will work. Gaining confidence in the ultimate effectiveness of those techniques is important because it helps to provide the motivation to keep going with phase three. Phase three is doggedly and determinedly practicing, not only to become proficient in the technique, but also to become a different person.
  3. Believe in the Dignity and Morality of Business. If your chosen means of contributing to the world, and incidentally providing for your needs and desires, is immortal, then you must stop doing it because it will inevitably taint your entire existence. If your life is bifurcated into the work arena and the social arena with the two never meeting, not even in your own mind, then that is one of the first repair jobs you should undertake. Step one in the process of increasing your income is to begin wrapping around these two related notions: (1) you are in business, and (2) the occupation of business is moral, noble, and worthy.

If you feel really good about your profession, you sweep others along with you on the waves of your enthusiasm for what you do. You will become known for telling entertaining accounts of amusing incidents in your professional life. Stories about events in your business day can inspire others, and they will be moved by poignant interactions you relate. These natural and positive aspects of your public persona flow inevitably from feeling pride and passion for your work.

People’s bodies perform better when their brains and souls are on board with the program. This is why most people choose doctors in whom they have confidence. A patient’s recovery is directly linked to how much confidence that patient has in his or her medical advisers. It is almost as if your body knows what is in your mind and responds accordingly. Helping your mind to know and believe that what you do professionally is good, noble, and worthwhile in itself helps to fuel your energies and propel your efforts.

AJML UPDATE – FEBRUARY 2011 Fringe Benefit Tax – general

Fringe Benefit Tax — General

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages. According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. A benefit that is not provided in respect of employment is not a fringe benefit. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:

  • allows an employee to use a work car for private purposes
  • gives an employee a cheap loan
  • pays an employee’s gym membership
  • reimburses an expense incurred by an employee, such as school fees
  • gives benefits under a salary sacrifice arrangement with an employee.

WHO PAYS THE TAX?

FBT is paid by the employer. This is the case regardless of whether the employer actually provides the benefit or it is provided by an associate or under an arrangement with a third party. This tax is payable whether or not the employer are liable to pay other taxes such as income tax.
If the employer is an international organization and provide benefits to employees in Australia, these benefits are subject to FBT in Australia (but note that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand which currently include FBT). The employer may claim an income tax deduction for the cost of providing fringe benefits and the amount of FBT he pays.

TYPES OF FRINGE BENEFITS

So that specific valuation rules can be used, fringe benefits have been categorized into 13 different types.

  • Car fringe benefit
  • Debt waiver fringe benefit
  • Loan fringe benefit
  • Expense payment fringe benefit
  • Housing fringe benefit
  • Living away from home allowance fringe benefit
  • Airline transport fringe benefit
  • Board fringe benefit
  • Entertainment
  • Tax-exempt body entertainment fringe benefit
  • Car parking fringe benefit
  • Property fringe benefit
  • Residual fringe benefit

REPORTABLE FRINGE BENEFITS

If an employee receives certain fringe benefits with a total taxable value of more than $1,000 in an FBT year (1 April to 31 March), you must report the grossed-up taxable value of the benefits on their payment summary for the corresponding income year (1 July to 30 June) as reportable fringe benefits amount.

THE GST CONSEQUENCES OF PROVIDING FRINGE BENEFITS

  • GST (input tax) credits
  • GST on employee contributions

The contribution or payment is the price of that supply, therefore one-eleventh of that amount is the GST payable by the employer.

The example below demonstrates how the GST is paid by the employer:
A hardware retailer provides their employee, with a car benefit, the FBT value of which is $7,000. Derek pays $5,500 to his employer on 15 April 2006, and $1,000 in petrol costs and $500 car insurance during the year ending 31 March 2007. Because the total employee contribution of $7,000 equals the FBT value of $7,000, the

FBT taxable value of the benefit is zero. As Derek has contributed $5,500 directly to his employer, the employer is liable for GST of one-eleventh of $5,500, that is, $500. Derek’s payments of $1,500 to third parties are not a contribution for the supply of the benefit for GST purposes and his
employer does not have to remit on-eleven of this contribution.

SALARY SACRIFICE

It is a special fringe benefit in the form of an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.
A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging. The types of benefits employers generally provided in salary sacrifice arrangements include employer superannuation, fringe benefits and exempt benefits.

Requirements for an effective salary sacrifice arrangement:

  • It must be an arrangement between the employer and employee before services;
  • There should be no access to the sacrificed salary. Any benefit entitlements that are provided by way of cash payments of benefits may form part of normal salary or wages.

AJML ACCOUNTANTS UPDATE – MARCH 2011 FBT Employees

Fringe Benefit —
For You as Employee

A fringe benefit is a benefit either you or an associate, such as your spouse or children, receive because of your employment. You can be a current, former or future employee.

WHO PAYS FBT
Your employer pays FBT on the value of the fringe benefits they provide to you

REPORTING FRINGE BENEFITS ON YOUR PAYMENTS SUMMARY

If the value of certain fringe benefits (other than excluded fringe benefits) you receive is more than $2,000 in an FBT year, your employer must record that amount on your payment summary for the income year in which you receive them. This applies even if your employer is not liable to pay FBT and is eligible for FBT concessions.

GROSSED-UP TAXABLE VALUE

The grossed-up taxable value of a benefit you receive is the gross salary that you would have to earn in order to purchase the benefit from your after tax income.
This amount is reported to ensure the value of the benefits is consistent with other forms of income on your payment summary.
Your employer calculates this amount using the FBT rate equal to the highest marginal rate of income tax, plus Medicare levy. For the FBT year ended 31 March 2010, this is 46.5%. For example, a fringe benefit with a taxable value of $2,000.01 is a reportable fringe benefit amount of $3,738.

Example: working out amounts for payment summaries

Between 1 April 2009 and 31 March 2010 (the 2009-10 FBT year), Tim’s employer provided him
with a work car. The taxable value of Tim’s car fringe benefits is $2,500. Tim and his partner also stay in company coastal accommodation several times a year, with a taxable value of $800. The taxable value of Tim’s fringe benefits total $3,300. The grossed-up taxable value of these benefits will appear on his payment summary for the income year ending 30 June 2009.
The rate of FBT for the year ended 31 March 2009 is 46.5%, so the grossed-up amount to be reported on Tim’s payment summary would be $3300/(1-0.465)= $6,168.

WORKING OUT YOUR SHARE OF A BENEFIT

If you share a fringe benefit with other employees, your employer must work out what portion of the benefit applies to you.

Example: allocating the benefit – holiday package

An employer gives two employees a holiday package as a fringe benefit. The package is for two people and cannot be taken as two single holidays. The taxable value of the package is $5,000.
It is reasonable for the employer to allocate half the taxable value of the holiday package to each employee, so each employee’s share is $2,500.
The employer could calculate each employee’s share as $4500/10=$450

REDUCING YOUR REPORTABLE FRINGE BENEFITS

Ways you can reduce the amount of fringe benefits shown on your payment summary for future years include:

  • arranging with your employer to swap or modify your fringe benefits for cash salary
  • making employee contributions
  • that reduce the taxable value of a
  • fringe benefit by the amount you have contributed.

HOW REPORTABLE FRINGE BENEFITS AFFECT YOU

Even though a reportable fringe benefits amount is included on your payment summary and is shown on your tax return, it is not included in your assessable income. However, it is included in a number of income tests, including for:

  • the Medicare levy surcharge
  • deductions for personal super contributions
  • the super co-contribution
  • the tax offset for contributions to your spouse’s super
  • the mature age worker tax offset
  • the Higher Education Loan Program  and Financial Supplement repayments
  • your child support obligations
  • your entitlement to certain income-tested government benefits.

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