Are gifts tax-deductible?

As a business owner, you want to show appreciation towards your employees through tangible ways on either their birthday or during the Christmas season. So it’s great to know how you can give gifts and, more importantly, save on tax at the same time.

One common act of appreciation, on a collective level, is hosting an end-of-year staff party. Now holding a party that celebrates hard work is a great idea, but the cost of holding a Christmas party (or any staff party for that matter) is regarded as “entertainment” expenditure, and:

• Is NOT tax deductible.

• Plus, you have to pay fringe benefits tax (FBT) if the cost per person is more than $300, which doesn’t fall under the “minor benefits” exemption.

  • A minor benefit is one that is provided to staff or their associates, for example their spouse or partner, on an “infrequent” or “irregular” basis, is not considered a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.

Therefore, to be on the safe side, it’s better to gift your staff with certain items known as “non-entertainment” gifts that cost less than $300. The amount is fully tax deductible with no FBT payable.

Non-entertainment gifts given to staff (including working directors) are usually exempt from FBT where the total cost is less than $300 inclusive of GST per staff member. A tax deduction and GST credit can also be claimed. The types of gift can include skincare and beauty products, flowers, wine, perfumes, gift vouchers and hampers.

Spending $300 or more (GST inclusive) on “non-entertainment” gifts, for employees, is tax deductible and GST credit can still be claimed, but FBT is payable at the rate of 47 percent on the grossed-up value.

The $300 minor benefits exemption also separately applies to any gifts provided to associates meaning that a similar gift can also be provided to a spouse or partner of the staff member with the same favourable tax outcome.

Non-entertainment gifts given to clients and suppliers do NOT fall within the FBT rules as they are not considered your staff. Generally, a tax deduction and GST credit can still be claimed provided they are not excessive or overly valuable.

Avoid gifting “entertainment” gifts

Entertainment gifts include items of “recreation” such as tickets to a musical, theatre, live play, movie, sporting events or providing a holiday.

If the cost for each staff member and their associate is less than $300 (GST inclusive) each, FBT is not payable, but you can’t claim tax deduction or GST credit. However, if the cost for the staff member and their associate is $300 or more (GST inclusive) each, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47 percent on the grossed-up value.

For clients, the cost of any entertainment gifts provided is not subject to FBT, and NO tax deduction or GST credit can be claimed.

So there’s no real win-win situation if you wanted to gift your employees, clients, or suppliers, an entertainment gift. The best tax outcome for your business is to give staff non-entertainment type gifts that cost less than $300 (GST inclusive) per staff member as this is fully tax deductible with no FBT payable.

NOTE: these favourable tax rules don’t apply to gifts to sole proprietors and partners in a partnership as they cannot be employees of themselves.

Some fringe benefits need to be reported on payment summaries. As the employer, if the total taxable value of certain fringe benefits is more than $2,000 in an FBT year, you must record these on an employee’s payment summary. We’re happy to discuss how to prepare your payment summaries (with these rules in mind), feel free to contact us for a chat. We’re here to help!

The following article was adapted from MYOB.

I want to apply for a bank loan, what's the process?

If you have been contemplating investing in either property or business, you may be in need to borrow.

The problem is, the banks are so busy with their business of lending, it's not that quick & easy to get a loan approved. Therefore, you need to be thinking ahead of time by preparing your finances to be ready for any financial application. This means getting copies of returns from past years and being able to demonstrate that you have the capability of making repayments. So your best option is to get a pre-approval of what you can borrow before you commit to the purchase or sign any contract. That way you can't be disappointed if they say no to your dream.

But getting ready to borrow for any reason can be more complex. Did you know the banks will want to look through all your transactions to see what you spend your money on? Including things like, streaming, eating out, and pet costs. So if you are in the market for finance, it’s better to know what you might need to supply before you’ve spilled your life.

And please, whatever you do, do not go from bank to bank making enquiries. This will go against you in your credit rating.

We’re happy to discus with you about your finance needs before you leap lead first. Or, if you believe it’s time to re-finance, also feel feel free to contact us for a chat. We’re here to help!

Do I Need a Director Identification Number (DIN)?

The short answer: Yes. New legislation will require all company directors (both existing and new) to obtain a unique Director Identification Number (or DIN).

What is a DIN?

A DIN is a 15-digit identification number unique to each director.

A director must only apply for a DIN once and will then keep this number forever, including if they stop being a director, change to another company, are a director of multiple companies, or move interstate or overseas.

A DIN starts with 036 (the 3-digit country code for Australia under International Standard ISO 3166) and ends with an 11-digit number and one ‘check’ digit for error detection.

Who needs a DIN?

Acquiring a DIN is mandatory for all directors and alternate directors who are acting in the capacity as director (regardless of whether they are actually called a “director”) unless they are exempt.

This requirement applies to a director of the following types of entities:

(a) a company, registered foreign company or registered Australian body (which are registered under the Corporations Act; or

(b) an Aboriginal and Torres Strait Islander corporation (which are registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act)).

However, the following people are exempt from obtaining a DIN:

(a) other company officers such as company secretaries (but this may later be extended by regulation);

(b) external administrators;

(c) a person running a business as a sole trader or partnership;

(d) a person referred to as a ‘director’ but who has not been appointed as a director under the Corporations Act or the CATSI Act;

(e) a director of a registered charity with an organisation type that is not registered with ASIC to operate throughout Australia; or

(f) an officer of a cooperative, unincorporated association or incorporated association established under state legislation (unless also a registered Australian body).

Why do I need a DIN?

In June 2020, the Federal Government passed the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) (the Act) which introduced the requirement for every director to obtain a DIN. This change was part of broader changes passed with the intent to improve the integrity of Australian business registers and create a central Commonwealth Business Registry. The program will establish the new Australian Business Registry Services (ABRS) and hopes to streamline how business information is registered, viewed and maintained.

The Act commenced on April 4th, 2021, and invokes a new Pt 9.1A of the Corporations Act which provides for DINs and offences for failure to obtain a DIN.

How do I apply for a DIN?

The DIN application is free and will be available from November 2021 through the electronic platform provided by the Registrar at ABRS. It is required that the director first set up a myGovID before starting the application.

A director must apply for their own DIN because they will need to verify their identity. No one can apply on their behalf unless the Registrar is satisfied that the director is unable to make the application on their own behalf.

The Registrar must provide a director with a DIN after receiving an application if the Registrar is satisfied that the director’s identity has been established, but the Registrar can only allocate a DIN if the director applies for one.

What do I need to provide in the application?

In order to complete the identity verification, the Registrar may require and collect the following information of a director:

(a) names and former names;

(b) addresses and former addresses;

(c) contact details;

(d) date and place of birth; and

(e) tax file number (but this can only be requested, not compelled).

The Registrar may request and collect other information necessary to establish a director’s identity if it is not satisfied that the individual’s identity is established.

When making an application, the director must make a declaration that:

(a) they are the applicant identified in the application;

(b) the information provided is true and correct;

(c) the individual is an eligible officer, or intends to become an eligible officer within 12 months of applying for a DIN; and

(d) the individual does not already have a DIN, or the individual has been directed by the Registrar to apply, or apply again, for a DIN.

Once a director has a DIN, they must inform the Registrar of any errors or corrections to the information that are required.

When do I need to apply for a DIN?

The date in which a DIN is required depends on the date that person became a director:

(a) if date of directorship is on or before October 31st, 2021, the DIN application deadline is November 30th, 2022;

(b) if date of directorship is between November 1st, 2021, and April 4th, 2022, application deadline is within 28 days of appointment as a director; or

(c) if date of directorship is from April 5th, 2022, DIN must be applied for before appointment as a director.

What if I don’t obtain a DIN?

There are civil and criminal penalties that may apply for directors who fail to obtain a DIN in the required timeframe or if directed by the Registrar to do so.

Under the new law civil and criminal penalties will also apply where individuals:

(a) misrepresent or provide a false a DIN to a government body or registered body;

(b) knowingly apply for multiple DINs; or

(c) are actively involved in the contravention of any of the above offences.

A contravention of these obligations is both a civil penalty and an offence. This allows the regulator or prosecutor (as the case may be) to take enforcement action proportionate to the action that constituted the breach. The Registrar may also issue infringement notices in relation to such conduct.

The following article was adapted from Mahoneys lawyers and advisors.

My BAS Seems Very High Each Quarter, So How Can I Reduce My Taxes?

A BAS can be made up of the net GST you’ve collected, the taxes you owe for your employees you withheld and a portion of taxes you owe for your entity.

GST withheld is a byproduct of your sales and purchases. So long as you are recording these correctly, the amount you are legally required to remit is something that you have effectively collected on behalf of the ATO so it is not necessarily something that can be reduced. The thing to remember is if you ordinarily collect GST on your income, but seem to be entitled to a refund each quarter, you may not be making any profit at all and should have a consultation for that outcome before it becomes too late.

PAYG withheld from your employees is a byproduct of how many people you employ and the amount you have to legally withhold, so it may be difficult to have this reduced. But this is not your taxes, but monies owed for others.

The only taxes that you would pay on your BAS that belong to you is any PAYG Instalments that the ATO raise for you to pay. It is recommended that these amounts are reviewed regularly so you don’t overpay as you go, but also if you are underpaying, you are preparing to save for those taxes that will be due once the final return is lodged.

If you feel you are paying too much on each BAS, then organise a consultation to have your BAS reviewed. It has happened to others without them realising.

I Want To Buy A Property, Where Do I Start?

Buying a property can be an exciting and unsettling process all at the same time. You need to consider who is going to own it, how you are going to finance it and how are you going to profit from it.

Whether it is a residential or commercial property, you should consider all opportunities for your personal circumstances. Your own name, a trust or a superfund are some options of who could own the property, but how you can fund this will also be a factor.

Using a superfund can be an option that most don’t consider upfront but might be a really good way of utilising your cash reserves if you can’t raise the cash personally.

Once you consider the option of who should own it, you will need to raise the cash to pay for it. Utilising a mortgage broker can be your best option to get the best deal for your circumstances and getting a pre-approval is the best way to proceed.

I Want To Start A Business And Need An Accounting Package: Which One?

Every business is different and have different ways of gathering the correct information to create the reports necessary for business and tax reporting.

From a reporting perspective, every business really needs to have the same reports so it is the input of data which will influence the decision.

Xero is a popular program that can simplify your data collection and it has a lot of options of apps you can add on that can be tailored to your business. However, depending on your size and type of business, there are others that may be more suitable. The bigger the business, the more likely you will need to consider other options that can handle other data collection such as a CRM system.

If you need assistance with picking a software for your business, come in for a consultation before you get started.

I'm Going Into Business, Should I Have A Company?

Companies can be good strong structures for some businesses. Getting the shareholders and directorships right is the crucial part in setting up a company. But it’s not the only structure you should consider. If you are bringing together more than just people in your family it’s definitely a structure that should be considered.

Trusts can also be great structures for family businesses. They can be great for asset protection and distribution of profits and they are great for future capital gains when you can sell your business. Unit Trusts are another option if bringing together

Partnerships are still viable but obviously only if you have more than one person or trust. These don’t offer any risk protection though for you.

If you are just starting out by yourself, depending on your business type, this may still be an option, but will depend on your circumstances.

Don’t take the advice of what others may have done as your circumstances may be different, so come in for a consultation before you get set up.

Do I Work As A Subcontractor Or Employee?

The common question of whether you should be a subcontractor or an employee may not be within your decision making process, however, you need to be aware of your rights before you decide.

Subcontractors, contrary to what most believe, are entitled to superannuation and workcover. Most employers think that they can get away with not paying these and whilst you may opt for this way thinking you are getting more in your hand now, you need to consider the company you contract with will have these obligations. It’s for your best interests.

Obviously there are benefits to being an employee and these include having your taxes and super paid and entitlements for you when your not able to work, such as personal leave. If the company doesn’t want to give you a choice, you need to understand your rights before taking up their offer and they need to know you know your rights as well.

If you are an employer asking what is the best way to engage with a new person, then you need to consider your legal obligations and how to work out whether you are bringing on an employee or contractor. Use this link to the ATO site and use their decision tool to get it right.

https://www.ato.gov.au/business/employee-or-contractor/how-to-work-it-out--employee-or-contractor/

I Want To Buy A Car, How Should I Finance It?

Everyone’s circumstances and tastes in cars can differ so this is definitely a question best answered to suit your situation. Some simple answers though will include:

You can either buy it out right if you have the cash; you can hire purchase or chattel mortgage it which means you can pay the loan off entirely with no balloon; or you can lease the car which means you will have a balloon.

How you finance it will depend on a few factors: the value of the car, who is going to own the car and of course the overall interest costs you will be charged. Don’t just accept the finance offer made at the car dealership, please arrange a second quote through a broker who may be more competitive.

To get the right answer for you on this, please call before you are at the dealer signing the paperwork to buy it. Plan right, don’t plan to panic in the end.