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The latest news from LBW.....

...... includes tax and technology updates and general business information.

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ATO targets SMSF loan arrangements

The ATO updated its website last week saying that it understands some individuals and organisations are promoting arrangements where SMSF monies are deposited into unit trusts or pooled investment trusts less a management fee. This money is then used to obtain a personal or business related mortgage which results in the SMSF assets being used to provide members with current-day benefits.

The ATO says it is closely scrutinising these lending arrangements on the following weblink. The ATO says such arrangements would breach the sole purpose test as the SMSF is being used for a purpose other than providing retirement benefits for members. According to the ATO, the primary purpose of such arrangements is to enable individuals and any associates to use their super savings, rather than assets held outside the fund to provide assistance to members or relatives.

Christmas Cheer with no FBT fear

As with any benefit that a business provides to staff, the question of whether it is a (taxable) fringe benefit or not needs to be considered.

The Australian Tax Office states that there are no different FBT rules that apply to Christmas parties (entertainment) than to any other entertainment.  The good news is that these parties may come under the "minor benefits" umbrella.  A minor benefit will be FBT-exempt where, broadly, the benefit is less than $300 per person and provided on an infrequent and irregular basis.

The FBT law allows however (perhaps getting into the spirit of the season) for the minor benefits threshold to apply to each benefit provided, not to a total value of "associated benefits".

So if, as a generous employer, you put on a barbecue and hand out gifts, the meal and the gift are considered separately for FBT purposes.  If each is less than $300, they are both generally FBT-free.

Exemption Negates Deduction

It is worth noting however that as such minor benefits are exempt from FBT, sadly a business cannot then claim the expenses as a tax deduction, nor can claims be made for any GST credits.

Where Do Taxis Stand?

For an employer thinking of paying for this travel option for staff, the important consideration in regard to this will be venue. If the taxi travel is from home to an entertainment venue (that is not the workplace) and home again, the Tax Office will include the cost of the ride as part of the entertainment and deem that it is to be included in the cost-per-head total (that is, it counts towards the $300 minor benefit limit).

But if the cab trip is from home to a function held at the workplace, and/or from the workplace back to home after the festivities, the taxi fare is exempt from FBT.

Spreading the Joy

The safest option FBT-wise would be to hold the Christmas party on the business premises on a working day, as providing the food and drinks will be FBT free; if it's only employees who attend.  If spouses or partners are invited (the law refers to them as "associates") the cost will still be FBT free if less than $300.  And if bona fide clients attend there is no FBT in respect of them.  If the party is held off-premise, at say a restaurant or pub, the $300 limit applies to both employees and associates.

Some canny business operators have taken the convivial, and tax effective, approach of holding more than one social event over the year.  Rather than have just one large bash at Christmas, a business may decide to spread the entertainment budget out to, say, an end-of-financial-year function in winter.

Dividing the party purse into two events can reduce the value of the entertainment each employee enjoys below the minor benefits limit of $300, and keeps the FBT liability of an employer to a happy minimum.  It should be remembered however that to be a minor benefit it is necessary that the particular benefit (or similar benefits) be provided irregularly and infrequently.

3 Big Rocks

Some of you may already be familiar with the following object lesson, which goes something like this:

  • You have a jar, a pile of sand, small pebbles and 3 big rocks
  • Objective - put all of the sand, pebbles and rocks into the jar

The lesson is quite simple. If you start with the sand and finish with the rocks, you will not be able to fit it all in and you risk the big rocks falling out. You need to start with the big rocks first.






The 3 big rocks represent what we should focus on first and for most families, the 3 big financial planning rocks are:



Three Big Rocks
(1)Living Comfortablythroughout your Working Life;

(2) Saving for aComfortable Retirement; and

(3) Paying off theFamily Home.

This is by no means an exhaustive list, and many have more rocks (e.g. some of the 'pebbles' below) or less rocks (e.g. retiree may only have 1 rock left). When filling your financial planning "jar" these rocks should be the focus and have priority over lesser goals or wants.


Small Pebbles
Children's Education, Family Business, Overseas Holidays, Domestic Holidays, Bequests, Gifts, Donations, New Car, New Furniture, Self Education, Family Support, New Phone, New Computer, Family Activities, etc.


Again, some of these may very well be big rocks and not pebbles and should demand a higher focus in your financial plans. A private school education for your children may be a must or contributing to the family business may be necessary. The important thing here is to understand which goals are necessities (big rocks) and which can be foregone or delayed if necessary.




A Pile of Sand
Finally, after you have put in your rocks and then your pebbles, you can now fill any free space in your jar with sand. These are the luxuries in life, the wants, but not the musts. These may include:

 

Luxury Cars, Art Collections, 5-Star Holidays, First Class Travel, Top End Consumer Goods, and so on.



So what are your big rocks? And have you prioritised them appropriately? Have you put first things first?

Though it would be great to satisfy all our needs and wants, as most of us know, the latter can be a long and never ending list. By focussing your financial planning on your major short-term and long-term goals (your big rocks), you are likely to have more success in securing your financial future and minimising unwanted surprises

Twitter

Well, we've entered the world of Twitter!  And now we can Tweet.....what has Twitter done for your business?