Advice

Advice

Client Information Bulletin April 2011

In this issue: FBT Year End To Do List, Collectables and Personal Use Assets in Super Funds, Are you receiving a pension from your SMSF?, Changes of Taxation of Trusts to Come, ATO Targetting GST Compliance, Study Expenses Now Deductible for Youth Allowance Recipients, and Flood Levy Update.

FBT Year End To Do List

As the 2011 FBT year came to an end on 31 March, it is now essential for all employers to ensure that you are ready to discharge your FBT obligations. Most importantly, the following information needs to be completed and available for the preparation of your 2011 FBT returns and also to keep in mind for future FBT years:

Car Fringe Benefits

  • Odometer reading of each vehicle at 31 March 2011;
  • The total kilometres travelled during the FBT year;
  • Details of any days when vehicles were unavailable for private use and not kept on employee’s premises (e.g. when vehicles are undergoing substantial repairs);
  • If a log book has been maintained for any vehicles during the year, it should be completed over a period representative of the car’s business use (please note that log books are only valid for a maximum period of 5 years and must be updated before the expiration of that period to ensure the correct calculations are made, for details see below).

Motor Vehicle Log Books

These records must be maintained for a minimum continuous period of 12 weeks. The log book must at least include:

  • the date the business journey began and ended;
  • the odometer reading at the beginning and end of the business journey;
  • the purpose of the journey; and
  • the number of kilometres travelled in the course of the journey.

It is imperative that all entries in the log book are made at the end of the journey or as soon as reasonably practicable after the journey. Using a log book usually ensures the best possible outcome can be achieved.

The ATO has again emphasised the importance of maintaining accurate and sufficiently detailed records when an employer provides a car fringe benefit to an employee. In particular, log books must be detailed, clearly stating the purpose of each journey. To state “business” is regarded as insufficient by the ATO.

Car fringe benefits will be one of the main areas of focus for the ATO for the 2011 FBT year and they have expanded their data matching activities to include data for vehicles with a value of $10,000 or greater.

Expense Payment Benefits

You may provide an expense payment fringe benefit if an employee incurs expenses and:

  • you reimburse them for the expenses, or
  • you pay a third party for the expenses.

Records of these expenses need to be kept for FBT purposes. If any one of these expenses would have been deductible to the employee (e.g. income protection insurance, work related expenses), then appropriate declarations need to be obtained from the employees to that effect. If the expense is partially work-related (e.g. telephone costs), then declarations from the relevant employees need to be obtained specifying the work-related portion of the expense. Please contact your Ruddicks adviser to obtain details of the format of declarations accepted by the ATO.

Make sure you obtain any declarations from employees before the due date for lodgement of your FBT return or, if you are not required to lodge a return, by 21 May 2011.

Exempt expense payment benefits

You don’t have to pay FBT on certain expense payment fringe benefits. Some examples are listed below.

  • Payment of taxi travel expenses is an exempt benefit if the travel: is a single trip beginning or ending at the employee’s place of work, or arises as a result of sickness or injury to the employee. Other non-work-related taxi travel generally gives rise to an expense payment fringe benefit.
  • Mobile phone expenses - payment of mobile phone expenses where the mobile is primarily for use in the employee’s employment is an exempt benefit;
  • Laptop Computer - one laptop computer and/or iPad or other similar device per employee per year is an exempt benefit, provided it is used predominantly for business purposes.
  • The costs of providing newspapers and periodicals to employees for business purposes are exempt benefits. The exemption does not apply where the business use is merely incidental.
  • A subscription to a trade or professional journal, or an entitlement to use an airport lounge membership.

Minor benefits

Some minor benefits you provide may be exempt from FBT. This may be the case where the value of the benefit is less than $300 and the benefit is not provided on a frequent and/or regular basis.

Living Away From Home Allowance (LAFHA)

If you pay an employee a living away from home allowance, you are providing a fringe benefit. For FBT purposes, a living away from home allowance is an allowance you pay to an employee to compensate them for any additional expenses they incur and disadvantages they suffer because they are required to live away from their usual place of residence to perform their work-related duties. There are some LAFHAs which are not subject to FBT.

Details of such allowances are to be kept in order to calculate your FBT liability in relation to LAFHA payment.

If you have any concerns in relation to your FBT exposure and obligations, please contact your adviser at Ruddicks to discuss your concerns and how we can help.

Collectables and Personal Use Assets in Super Funds

The Assistant Treasurer and Minister for Financial Services and Superannuation has released draft legislation that will allow the Government to make regulations about how self managed super funds (SMSFs) can make, hold and realise investments in collectables and personal use assets. Under the draft legislation, SMSFs will continue to be allowed to invest in collectables and personal use assets like artwork or stamps, provided they are held in accordance with tightened legislative standards from 1 July 2011.

The new rules will ensure these investments do not give rise to a personal benefit for SMSF trustees, but rather are held for the purpose of providing retirement benefits and this legislation will set more precise guidelines and standards about what SMSF trustees can and cannot do.

Further information on this draft Bill is available from www.strongersuper.treasury.gov.au or alternatively contact your Ruddicks adviser to discuss the implications of holding these asset types in your SMSF.

Are You Receiving a Pension From Your SMSF?

Minimum Pension Payments

We remind you to keep track of the pension payments received from your self-managed superannuation funds to ensure that you withdraw the minimum amount specified. The minimum payment amounts have been halved for the 2008/09, 2009/10 and 2010/11 years. The following table shows the minimum percentage factor for each age group.

Age as at 1 July of relevant year

Percentage of account balance as at 1 July of relevant year to be drawn (2008/09 to 2010/11 years)

 

Under 65

2%

65-74

2.5%

75-79

3%

80-84

3.5%

85-89

4.5%

90-94

5.5%

95 or more

7%

If you are receiving a Transition To Retirement pension, you are also subject to a maximum pension payment restriction of 10% of your account balance as at 1 July for each financial year. We note that allocated pensions are subject to different minimum/maximum rules. Please contact us if you require guidance in relation to pension payments from your allocated pension.

We recommend that pension payments are monitored throughout the year to ensure that the total pension withdrawn falls within the mandated range by 30 June. The consequences of not drawing enough, or too much, can be severe. Please contact your Ruddicks adviser if you are unsure what your minimum or maximum amounts are and how much you should be withdrawing during the 2011 financial year.

Changes to Taxation of Trusts to Come

On 4 March 2011, the Assistant Treasurer, Bill Shorten, announced that the Government will adopt two recommendations of the Board of Taxation to simplify the tax law for trusts. The changes are to address the existing uncertainties within the trust taxation arena.

"First, the amended law will clarify the definition of the income of a trust estate. This will address situations where the tax burden falls on a beneficiary despite not receiving the economic benefit. Second, the law will be amended to enable streaming of capital gains and franked distributions to beneficiaries. Before the Bamford case, trusts commonly streamed income to particular beneficiaries and the Government wants to ensure that this flexibility can continue."

These amendments will apply for 2010-11 and later income years with a discussion paper also released on 4 March with a very short submissions period until 18 March. An exposure draft legislation was released on 13 April 2011, which addresses the streaming of franked income and capital gains, as well as anti-avoidance provisions. Submissions on the exposure draft are open until 29 April and we will communicate any significant further developments as they become available.

Did you know - Medical Expenses Tax Offset Threshold to Increase!

The threshold for the 20% medical expenses tax offset threshold has increased from $1,500 to $2,000 from 1 July 2010, making the tax offset more difficult to obtain than in prior years. If you and/or other family members are planning to undertake some significant eligible medical procedures, it may be beneficial to plan them (wherever possible) for the same financial year in order to get the tax offset equal to 20% of expenses over the threshold.

ATO Targetting GST Compliance

The ATO received specific funding in the 2010 Budget to look closely at GST compliance, and will be implementing a dedicated program over the next four years to deal with some specific compliance issues. They will focus on the timely lodgement of activity statements, verifying GST refund claims, identifying and dealing with those that deliberately avoid GST and addressing aging GST debts.

The ATO will undertake a compliance program using the following tools available to them:

  • using a mix of pre due date SMS and letter reminders around lodgement;
  • contacting taxpayers that have one or two activity statements overdue;
  • increasing their focus on taxpayers that have multiple activity statement obligations outstanding;
  • matching sales and high value transactions to activity statements and using information on asset transactions (for example in the property industry) from state revenue offices, land titles offices and motor vehicle registries;
  • verifying refunds by phoning or visiting businesses and contacting third parties to substantiate claims;
  • comparing businesses to small business benchmarks for their industry to select businesses for audit;
  • using benchmarks to calculate default assessments where a business provides insufficient or unreliable information or has not met their lodgement requirements; and
  • using new risk filters and risk models to detect incorrect or fraudulent refund claims on activity statement credits.

This once again highlights the importance of record keeping, especially as legitimate Tasmanian businesses may fall below the benchmarks based on nationwide data collected by the ATO and deemed to be representative of an industry operating in any state or territory.

Study Expenses Now Deductible for Youth Allowance Recipients

A recent High Court decision means that taxpayers may be eligible to claim a deduction for their study expenses if they received Youth Allowance to study full-time.

Tax Commissioner Michael D’Ascenzo said that the ATO will amend tax assessments of eligible taxpayers to include a notional tax deduction of $550 for study expenses for each of the 2007, 2008, 2009 and 2010 income years. These deductions represent the ATO’s estimates of amounts that Youth Allowance recipients would reasonably have incurred in study expenses in each of those years and will enable the eligible taxpayers to obtain the benefit of a notional deduction where they may not have kept records of their actual expenses.

The ATO will be writing to eligible taxpayers between 1 March 2011 and 30 April 2011 advising them that they will be receiving amended tax assessments. Those taxpayers who are eligible for a deduction and have not yet lodged their 2009/10 tax return can make their claim in their return.

Eligible taxpayers are those who, in the relevant income year:

  • received Youth Allowance to study fulltime and declared it as income in their tax return;
  • paid tax; and
  • have not already claimed a deduction for their study expenses.

Where students believe they have incurred expenses of more than $800 (the first $250 of education expenses is not deductible), they can seek an amendment for that higher amount, if they have records to support their claim.

Flood Levy Update

Further to our January flood levy newsflash, the relevant legislation has now been passed by both the House of Representatives and the Senate and is now law.

The Flood Levy Calculator, which estimates your 2011-12 financial year levy is available on the Treasury website at http://www.treasury.gov.au/floodrebuild/content/calculator.asp.

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