Non-cash benefits given to an employee by their employer are known as fringe benefits. These benefits are generally subject to Fringe Benefits Tax (FBT) which the employer pays but will often factor into the employee’s package. However there are exemptions and concessions that can reduce or eliminate the amount of FBT payable. An example of one of these concessions is known as the otherwise deductible rule.

The otherwise deductible rule allows the FBT to be reduced to the extent that the employee would have been entitled to claim a tax deduction for the benefit, had the employer not paid for it.

Examples of benefits that the otherwise deductible rule might apply to include expense payments, loan interest, airline transport, board, property, and residual fringe benefits. For instance, your employer might pay for the interest on a loan that relates to your rental property.

In most cases, to be able to utilise the otherwise deductible rule a logbook or some other declaration is required to be maintained and provided to the employer for lodgment of the annual FBT return.

The true benefit of using the otherwise deductible rule can come about in a situation where an employee has a high amount of negatively geared property or investments. Investment losses are added back by the ATO for the purposes of Div 293 tax, health insurance rebates and a number of other income thresholds, which can result in a higher tax assessment.

In some circumstances an employee may be able to save tax by salary sacrificing wages and asking their employer to pay interest on an investment loan. This results in no change to your taxable income, but eliminates the “add-backs” for the adjusted income used for the various thresholds.

PRO TIP:
A crucial part of the application of the otherwise deductible rule is that the tax deduction must be a once only deduction – meaning a deduction spread over a number of years won’t qualify. Therefore if an employee would have claimed a deduction for depreciation for a benefit provided by their employer, the otherwise deductible concession won’t be available for that benefit.

Author: Tessa Jachmann
Email: tessa@faj.com.au

As of the 1st of July 2017, several of the small business concession thresholds that allow small businesses access to a range of concessions have increased, allowing more businesses to take advantage of various small business tax concessions.

The turnover threshold level used to determine whether you are considered to be a small business entity has increased from $2 million to $10 million for the 2017 financial year. An entity is considered to be a small business if the aggregated turnover for the current year is actually or likely to be less than $10 million, of if the turnover was actually less than $10 million in the previous year. You must also satisfy the criteria of having carried on a business during the year to be recognised as a small business.

Small businesses have access to the simplified depreciation rules if their turnover is under $10 million.  This means they can immediately write off the value of assets up to $20,000 (until 30th June 2018). They also have access to lower company tax rates, simplified trading stock rules and an immediate deduction for prepaid expenses.

However the $10 million threshold doesn’t apply for all available concessions. For example access yo the small business CGT concessions are only available to small businesses whose turnover is under $2 million.

Also small businesses that have an aggregated turnover of $5 million or less are entitled to claim the Small Business Income Tax Offset. This offset reduces the amount of tax payable on business income. The rate of this offset has increased from 5% to 8% in the 2017 financial year, but it is still capped at $1,000.

Pro Tip:
If you are a sole trader or partnership and the income you received is considered to be Personal Services Income, you are not eligible for the Small Business Income Tax Offset, unless you are considered to be a Personal Services Business.

Author:  Tessa Jachmann
Email:  tessa@faj.com.au

People who come to Australia on a “working holiday” are taxed at higher rates than Australian residents, meaning they do not get the same benefit of the tax-free threshold.

However, from 1 January 2017, working holiday makers will pay tax at 15% for taxable income up to $37,000, instead of the higher non-resident tax rates.

Am I a Working Holiday Maker?

You will pay tax at the working holiday maker rates if you hold either a:
1. Subclass 417 Working Holiday Visa
2. Subclass 462 Work and Holiday Visa
3. Certain bridging visas.

Which bridging visa’s allow me to pay tax at working holiday maker rates?

A bridging visa that permits you to work in Australia will allow you to access the lower rates if:

• The bridging visa was granted in relation to a subclass 417 or 462 visa, and
• you are still waiting for a decision to be made on your application, and
• your most recent visa (other than your bridging visa) was a subclass 417 or 462 visa.

What is my “working holiday taxable income”?
Your working holiday taxable income is derived from all assessable income from sources in Australia while qualifying as a working holiday maker, less deductions relating to working holiday income.

PRO TIP:
As the working holiday maker tax rules only apply from 1 January 2017, the rates of tax payable will differ for working holiday makers, depending on whether or not Australian sourced income was derived before or after 1 January 2017. If a working holiday maker worked for the same employer before and after 1 January 2017, the employer will need to issue two separate PAYG summaries for the employee for the 2017 financial year to distinguish the income earned in each period.

Author: Jake Solomon
Email: jake@faj.com.au

If you are carrying on an enterprise and your turnover for the next 12 months is likely to be more than $75,000 you will be required to register for GST.

If you are under that threshold you can choose to be registered for GST, unless you’re a Taxi or Uber driver in which case you must register for GST, regardless of turnover.

How do I register?
Registering is easy – you can do this online, phoning the ATO on 13 28 66 or alternatively contact your accountant.

If you’re new to business then you can do your GST registration at the same time you apply for your Australian Business Number (ABN).

Once you’ve registered, you must include GST in your sales price (unless you’re providing exempt services such as medical or education).

How do I know how much GST to put aside?
If most of your sales and purchases are subject to GST, then you should put aside an estimated amount based on one-eleventh of your sales less one-eleventh of your purchases.

When do I need to pay the GST?
You report and pay GST amounts to the ATO, and claim GST credits, by lodging a business activity statement (BAS) or an annual GST return. This can be done online or manually.

The ATO will issue your business activity statement about two weeks before the end of your reporting period, which for GST is usually every three months. The date for lodging and paying is shown on your activity statement.

Record Keeping
Ultimately you need a system that is going to track the GST you have received and paid. This could be a simple excel worksheet, manual cashbook or more advanced accounting system such as MYOB or Xero. Your accountant can help you decide which system would best suit your business.

Pro Tips
If you run a small business that deals primarily with home users then it’s usually preferable not to register for GST (if you’re turnover is under the thresholds). This means that your total cost to the end consumer may be less than someone that is registered for GST, and this gives you a competitive advantage.

If you run a small business you can opt to account for GST on a cash basis. The advantage of cash accounting is that it’s easier to manage your cash flow as the money flowing through your business is better aligned with your business activity statement liabilities.

Author: Allan Edmunds
Email: allan@faj.com.au

As a business owner you may have heard your accountant talking about Division 7A and wondered what all the fuss it about.

If you are operating your business through a company, you might expect that your hard earned efforts to be profitable would mean that the money is yours to access, right? This is somewhat true. The problem is that a company is a separate legal entity. As the owner of that company you have the ability to access the profits but only through the correct mechanism – i.e. by payment of dividends to shareholders or payment of wages to directors.

A common trap for company owners is to think that they can withdraw money from their company bank account ad-hoc for private use and not pay the money back. This is perfectly acceptable for sole traders or partnerships, but not for companies.

The Australian Taxation Office (ATO) has enforced Division 7A to prevent shareholders from doing exactly this. Why would this matter to the ATO? Because if shareholders are taking money from companies without declaring it in their own tax returns (as you would with dividends and wages), the shareholder is essentially receiving a tax-free distribution. This is different to a sole trader or partnership where the owner is paying personal tax on all the profits anyway, whether he or she draws those profits or not.

Should you withdraw money from your company for personal use and do not pay the full amount back by the lodgement date of that year’s tax return, you will trigger Division 7A. If this occurs, and no action is taken then any payments made from the company to shareholders will need to be declared as unfranked dividend to the shareholders (an outcome which ought to be avoided).

One option to avoid an unfranked dividend being declared is to enter into a complying Division 7A loan agreement between yourself and your company. This allows the money withdrawn to be treated as a loan for which you must pay future minimum repayments and interest. This is often a better outcome, especially when cash flow is an issue and you can’t immediately pay the money back.

Pro Tips
• Always be mindful when taking money from a private company if it cannot be paid back before tax return lodgement date
• Make sure your Division 7A loan agreement complies with all the requirements of the law for it to be valid
• Speak to your accountant about ways repayments can be made if a Division 7A loan agreement has been entered into

Author: Allan Edmunds
Email: allan@faj.com.au