Beware overseas workers
Do you have employees working overseas? If so, be very careful to determine what exact benefits they have received from the company. Deloitte partner Frank Klasic says new provisions brought in from July 1, 2009 mandate overseas expenses must be subject to fringe benefits tax.
“Changes indicate that if you have an employee overseas, and they are an Australian resident for tax purposes, any benefit they receive over there can be subject to FBT in Australia.”
“So if you have an employee working for a parent company, but remains a tax resident, and receives things like a driver for a car, accommodation, etc, all of these are subject to FBT in Australian returns. Previously this was exempt – this is a big change and businesses need to pay attention to it.”
Depreciate where possible
These experts warn not to forget about depreciation benefits. Small business concessions allow SMEs to immediately write-off depreciating assets costing less than $1,000. Other assets can actually pool together to reach over $1,000, and can then be depreciated at accelerated rates.
While the Tax Office provides depreciation rates for different kinds of assets, there is scope to use your own rates if you have sufficient grounds, such as industry figures or any other relevant evidence.
Salary sacrificing advice
Klasic says many businesses have salary sacrificing arrangements in place, but not many have actually organised them through official processes.
“You need to make sure these salary sacrifice arrangements are proper agreements. The absence of a salary sacrifice agreement means the whole thing can fall apart and result in taxable salary for the employee if things aren’t checked out.”
“There needs to be an upfront formal request from the employee, usually done in the form of a letter, and the acknowledgment of that request needs to be put in writing by the employer. If you don’t have that in place, the ATO will not necessarily say the agreement is effective, and it therefore becomes normal salary.”
Trusts – it’s a whole new game
These tax experts say careful attention should be given to trusts, especially in the wake of the High Court’s Bamford decision.
Although a trust may not have any income to distribute, that may not stop from taxable income actually being accumulated. If this is the case, the trustee will be subject to a 46.5% rate on the taxable income, and would not receive a 50% discount on capital gains.
The crux of the Bamford decision was that a trust deed determines the income associated with the trust, and determines what members of the trust are entitled to income.
Essentially, Bembrick says, all this means is that people need to read their trust deed and make sure it represents the agreement they feel they’ve signed into.
“The important thing for people here is to simply read their trust deeds. The Bamford decision relates to how the trust defines income, and so people just need to read their agreements and make sure they reflect the right things.”
Partnership splits
The rules for partnerships are similar to those for trusts. Bembrick says the basic rule the ATO lives by is that the income distribution stated in the partnership agreement essentially represents the ownership of the agreement.
“If you have two partners who go in 50/50 each, the income from the partnership is distributed on a 50/50 basis,” he says.
“If somebody is looking to distribute more money to one partner than another, because you have one active partner or whatever, then you need to have a partnership salary agreement in place and make the arrangements. If not, the ATO goes by the default method of judging income.”
Share schemes – still complex
The Government’s proposed changes to employee share schemes have been the stuff of controversy over the past year, but a recent ATO ruling should clarify matters for most businesses. The ruling essentially states executives can defer payable tax on shares, provided a few requirements are met.
Employees can defer tax associated with shares and options provided by an employer for up to seven years, but if only there is a risk they could lose those shares for one year.
Also, employees can defer any tax associated with shares or options as long as there is a risk of losing those shares or options for at least six months after they have been granted.
“A condition imposing a minimum employment period of 12 months is considered to give rise to more than a ‘mere’ or ‘rare’ possibility of forfeiture and to be a condition genuinely directed to retaining employees and aligning their interests with the interest of the company,” the ruling states.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
