New car threshold amounts will be implemented from 1 July 2020. Understanding the new thresholds and how they may affect your small business operations and vehicle usage will be important in preparing you for the financial year ahead.

Income tax:

There is an upper limit on the cost you use to work out the depreciation for the business use of your car or station wagon (including four-wheel drives). The maximum value you can use for calculating your depreciation claim is the car limit (irrespective of any amount you were paid for a trade-in) in the year in which you first used or leased the car.

For the 2020-21 financial year, the upper cost limit is $59,136 including GST.

Goods and services tax (GST):

Businesses registered for GST with motor vehicles used solely for business purposes are entitled to claim a credit for the GST included in the price of the vehicle, provided they have a tax invoice.

In the event that you purchase a car and the price is more than the car threshold, the maximum amount of GST credit you can claim is one-eleventh of your car limit amount. Keep in mind that you cannot claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.

Luxury car tax (LCT):

You are required to pay LCT if you’re registered or required to be registered for GST and you sell or import a luxury car.

LCT applies to motor vehicles designed to carry a load of less than two tonnes and fewer than nine passengers. LCT also applies to a car purchased by a person with a disability even if the car is GST-free. However, disability-related modifications are not subject to LCT. The LCT value of a car includes the value of any parts, accessories or attachments supplied or imported at the same time as the car.

Cars with LCT over the LCT threshold attract an LCT rate of 33%. From 1 July 2020, the LCT threshold will increase to $68,740. Additionally, the LCT threshold for fuel efficient cars will increase to $77,565 for the 2020-21 financial year.

It’s getting closer to the time that FBT returns need to be lodged, so it’s important to understand that there may be a change to the FBT liability of your business when it comes to one employee benefit.

Car parking as an FBT benefit is provided on a particular day when, between 7.00am and 7.00pm:

• a car is parked at a work car park for the minimum parking period;
• an employee uses the car in connection with travel between their place of residence and primary place of employment at least once on that day;
• the work car park is located at or in the vicinity of the primary place of employment, on that day;
• a commercial parking station is located within a one-kilometre radius of the work car park used by the employee;
• the lowest representative fee charged by any commercial parking station for all-day parking within a one-kilometre radius of the work car park exceeds the car parking threshold;
• the parking is provided to the employee in respect of their employment, and
• the parking is not excluded by the regulations.

However, a car parking benefit provided in respect of an employee is exempt where:

• the car is not parked at a commercial parking station;
• the employer is not a public company or a subsidiary of a public company;
• the employer is not a government body; and
• for the income year ending before the start of the FBT year, the employer’s assessable income is less than $10 million or alternatively, it is a ‘small business entity’ (SBE)

Redefining a ‘commercial parking station’ to revisit a prior concept associated with the application of fringe benefits tax may make the perks of coming into the office a little more appealing to employees.

FBT applies to parking provided by employers to their employees where there is alternative parking available commercially available.

Prior to the recent ruling, there was a previous understanding that car parks that effectively charge penalty rates for all-day parking (to encourage shorter stays) would not represent genuine alternative parking arrangements for commuters, and should not trigger FBT liabilities as a result. However, the recent ruling has overturned this, which means that any alternative paid parking would trigger the liability.

This ruling came into effect on 1 April 2022.

This recent ruling on how car parking is treated as an FBT liability should assist in reducing the potential FBT burden on some employers (which should assist them in turn in incentivising employees back into the workplace with benefits).

Other FBT benefits that employers may be able to claim back on in their FBT return could include COVID-19 related benefits (such as office equipment, technology, etc), company cars, meals, entertainment, living away from home allowances, and more. As a result of the impact

If you need assistance with preparing your FBT return for lodgement, consult with a professional as soon as possible so that we can assist you with preparing your return.

If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.

The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. As mentioned earlier, a CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.

The Sale Of An Asset

If there is a contract of sale, the CGT event happens when you enter into the contract.

A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.

If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.

Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.

Loss Or Destruction Of An Asset

If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction.  In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost. If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).

The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:

• receipts of purchase, transfer or sale
• if money was borrowed and details of interest
• receipts for insurance, rates and land taxes
• receipts for the cost of maintenance, repairs and modifications
• any market valuations
• brokerage on shares and cryptocurrency
• digital wallet records and keys.

Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).

If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigamarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission.

Employees of a small business may need to develop their expertise or skills in a particular area to better perform their duties. While training courses like seminars and one-day intensives can be a worthwhile investment, there are still a few things employers should consider from a tax point of view.

Employers can generally claim deductions for the full costs incurred when providing education to employees, including aspects like course fees and travel costs. Many owners tend to forget possible FBT implications.

Paying for employee work-related course fees commonly constitutes as a fringe benefit and is subject to FBT. However, FBT law allows a full or partial reduction of FBT payable provided that the ‘otherwise deductible’ rule is met. The ‘otherwise deductible rule’ implies that if the employee had paid the expense themselves, they could claim a deduction for the expense. The business could then provide the benefit to the employee without having to pay FBT on the amounts.

An education expense is considered to be hypothetically deductible to the employee depending on the type of course or education studied. The course must have a satisfactory connection to an employee’s current employment, maintain or improve the skills or knowledge required for the employee’s current role, or result in an increase in the employee’s income.

Employees cannot claim a deduction for education expenses if there is no connection to their current employment, even if it assists them to gain new employment.

While your business may not necessarily be planning an extravagant bash after the events of this year, a Christmas party may be on the menu for your hard-working employees.

Planning out your Christmas party in a COVID-safe manner with a little knowledge of the tax deductions you might be able to claim back can make the giving a little sweeter this year.

The Venue

You can take advantage of the $300 (including GST) minor benefit and exemption rule to hold a Christmas function for your current employees and their spouses. To do so, the party would need to be held on the premises of the business, and during a business day. If your costs are below $300 per person, FBT will not be incurred but you will not be able to claim tax deductions or GST credits.

However, if you provide benefits to your employees over $300, it will incur fringe benefits tax (FBT). This means if the Christmas party that you hold is priced at over $300 per person (for the cost of food and drink consumed by employees and spouses) at your in-house party, you will incur and need to pay FBT on the expenses of your employee’s spouse or family members only.

If the party is being held at a restaurant or venue, you will not need to pay FBT if the costs remain under $300 as it is considered a minor benefit. If the costs rise to over $300, you will need to pay FBT for your employees, their spouses and their family.

Transportation

You may also choose to provide your employees with transportation to the Christmas party. Taxis provided to an employee will attract FBT unless the travel is to or from the employee’s place of work. If the party is held off-premises and you pay for your employee to travel by taxi to the venue and to their home after the event, only the first trip is FBT exempt.

The second trip may be exempt under the minor benefits exemption if you adopt its meal entertainment on an actual basis.

You can also provide other types of transportation to the venue, such as buses. These costs will form a part of the total meal entertainment expenditure and will be subject to FBT. If the threshold is not breached, then it may fall under the minor benefits exemption.

What About Meal Entertainment?

If your Christmas party does not include recreation, you may choose the value of food, drink, associated accommodation or travel as ‘meal entertainment’. This allows staff to pay less tax by claiming meals and drinks consumed in a restaurant/cafe or provided at a social gathering.

The taxable value of the meal entertainment can be made using a 50:50 method, 12-week method or actual method.

• 50:50 method – a 50:50 split where the taxable value is 50% of your total expenditure when providing entertainment to your employees, associates or clients during an FBT year.
• 12-week method – involves tracking the taxable value of each individual fringe benefit, and is based on the percentage of meals and entertainment provided to employees as registered in a log for a 12-week representative period.
• Actual method – best used when the exact number of attendees at the majority of meals and entertainment provided or the total value of all meals and entertainment during the FBT year based on actual expenditure.

Want to know more about how you can make this merry time of the year more tax-friendly to your business? Consult with us about how we can make your Christmas parties and employee benefits work for your tax.