Category: FBT

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FBT Planning Stuff Uncategorized

The End of Salary Packaged Super

From 1 July 2017 I cannot understand why anyone would salary package super in addition to the 9.5% SG their employer is required to pay for them.

Now I am not saying that it is not worth using up an employee’s entire $25,000 concessional cap (2017/18 cap amount), but I am saying you are crazy if you attempt to get to $25,000 by salary packaging super… There is a much easier way.

From 1 July 2017 anyone, including employees, can make deductible contributions straight to super in addition to their employer’s SGC amounts. This means they need not enter into a valid salary sacrifice agreement with their employer to sacrifice salary into super anymore. They can just make the contribution any time during the year.

This is much easier than making sure the salary sacrifice agreement is”effective” as defined by the 145 paragraphs of  Taxation Ruling TR 2001/10. Especially, this Ruling states clearly that an employee must agree to receive part of their remuneration as superannuation before they have an entitlement to receive that part of their remuneration as salary or wages. This has caused problems for bonuses, leave, payouts…

But all these rules can easily be avoid. And you can avoid all the negotiating with your employer, completing forms with payroll to get the sacrifice set up, remembering to change the amount when circumstances change, and even finding that your employer may have LEGALLY stopped paying your 9.5% SG as your salary packaged super is greater than the required 9.5% and your have a dodgy salary sacrifice agreement!

For example, if an employee wants to salary sacrifice a bonus into super they need to agree with the employer before they have derived the bonus that, whatever the amount will be, will be salary sacrificed. They need to ensure the agreement states this super is in addition to the 9.5% the employer remitted before the salary package. They need to complete any forms needed by payroll and then ensure payroll actually execute the package correctly. So when did the employee derive the bonus? the Taxation Ruling states “it depends” (have a look at paragraphs 97 & 98)

Under the new rules from 1 July 2017, the employee can merely wait until they have received the bonus, contribute it to super, notify the fund on a very simple form and claim a deduction. Yes, the bonus will have tax withheld from it when it is paid but that tax will be returned when the employee lodges their tax return.

So is this the end of salary packaged super. I cannot see why not. But I am sure you will all tell me I have missed something.

PS. If you can convince your client to use the additional tax refund they get each year for topping their employer’s SG contributions up to $25,000 as additional super contribution you might find it easier to convince them that putting money away in super is a good idea…

 

 

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FBT Planning Stuff Tax Policy

The end of salary packaging???

The Government has just released draft legislation in relation to the capping rules for exempt fringe benefits that can be provided by public hospitals, ambulance services, registered public benevolent institutions and registered health promotion charities.

I should quickly say it is exactly as was announced on Budget night – from 1 April 2016 the total amount of salary packaged meal entertainment and entertainment leasing facilities that employees of these entities will be able to salary package is $5,000. (By the way, as my wife is a doctor at the public hospital, I have to get my 8 and 4 year old sons married by 1 April 2016 so my wife can salary package the costs of their wedding…)

But what is more interesting is that these changes only apply to benefits where there is a “salary packaging” arrangement.

For the first 20 years of the FBT Assessment Act 1986 there was no difference between whether a fringe benefit was “salary packaged” or not. But recently, changes have been made to limit the FBT concessions and exemptions to situations where the benefit is not provided under a salary package arrangements.

In 2008 the FBT Assessment Act 1986 was changed so that the exemption provided by section 41 would no longer apply to food or drink provided to an employee as part of a salary sacrifice arrangement.

In 2012 the FBT Assessment Act 1986 was changed so that:

  • Concessions that apply to the valuation rules in respect to in-house expense payment benefits, in-house property benefits and in-house residual benefits do not apply to benefits under a salary packaging arrangement.
  • The specific exemption that applies to residual benefits in respect to private home to work travel through public transport, where the employer and associate are in the business of providing transport to the public, does not apply where the benefit is provided in-house and where the employee accesses the benefit under a salary packaging arrangement.
  • The annual reduction of aggregate taxable value of $1,000 does not apply to in-house benefits where the employee accesses the benefit under a salary packaging arrangement.

This draft legislation is the third time the Government has limited FBT exemptions and concession so they do not apply to “salary packaging” arrangements.

Given that there is now a definition of “salary packaging” in section 136 of the FBT Assessment Act 1986, it is very easy to amend this Act so that any exemption or concession in the FBT law does not apply where there is salary packaging (interestingly my auto correct keeps changing this to slurry packaging…).

As there will be no car manufacturing in Australia in 2017 why would not the Government consider saving $800 million a year and make it so that the statutory method for calculating the FBT on cars only available if the car is not salary packaged.

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FBT Income Tax Super Tax Policy

Tax Impediments Facing Small Business…

The Board of Tax report on Tax Impediments Facing Small Business has been made public. This report, and the Government’s response make some interesting reading.

What do you think about:

  1. “Based on an analysis of business population data, the Board recommends that the small business entity turnover threshold be increased to at least $3 million and investigate the feasibility of an increase to $5 million.” The Government says they will think about it…
  2. “The Board recommends an increase to the ‘minor and infrequent’ threshold from $300 to, at least, $500. This is arguably a reasonable level that keeps the threshold current.” The Government says they will think about it…
  3. “The Board also recommends that there be an investigation of the possibility of aligning the FBT year to the income tax year.” The Government says they will think about it…
  4. “The Board recommends that the superannuation guarantee charge be calculated on the basis of OTE rather than salary and wages to align it with the way that superannuation contributions are calculated. While OTE is a more complex definition it would mean no change to employers’ current calculations. The Government supports this recommendation and has agreed to implement this proposal from 1 July 2016 as part of the package of reforms to be implemented to reduce small business superannuation compliance costs.
  5. The Board recommends that the calculation of the SG Charge components be redesigned by legislation. And the Government will do this as well.
  6. Decision tools from the ATO on PSI, employee vs contractor and whether you will be carrying on an enterprise.

So there are a few good measures but the report does the standard cop out of saying more reviews are need into the Small Business CGT Concessions and the way entities are taxed differently (especially trusts). Still waiting for the Board of Tax review on unpaid present entitlements to companies and Division 7A…

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Cases FBT

You win some, you lose some… and I am a bad loser…

I have patted myself on the back before for an AAT decision on FBT at my local airport. I may have congratulated myself a bit early as in Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168 the Full Federal Court overturned there being no car parking FBT for employers who provide car parking for employees at Canberra Airport.

Now, like any upstart tax advisor I have to prove I am right and the collective wisdom of the Federal Court is wrong (as they have been shown in a few high profile appeals to the High Court – aka MBI Properties)… I quote from their learned justices…

In this case, whilst it is true that the operator of the parking stations imposed the restriction that the car parks were available only to airline passengers and meeters and greeters of airline passengers, the car parks nonetheless are public car parks in the sense that in the ordinary course of the business the car spaces are available to any member of the public on the contractual terms stipulated. The contractual terms do not mean that the car park spaces are not available to members of the public but, rather, that conditions are imposed on the use of the car park by members of the public.

So restricting the use of a car park to a certain part of the public at any time, rather than the whole public all the time, is not limiting its use as at any time any member of the public could be in the part of the public that can use it. Yes I know that is confusing (because it is a stupid argument) but in Australia, anyone can be Prime Minister (other than those with criminal records but lets ignore this…). According to this decision, the Prime Minister’s car park at Parliament House is “available to the public”. To smart by half…

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FBT Planning Idea Rulings

FBT and Public Hospitals

FBT exemptions are amazing ways to reward employees. And one of the most used FBT exemptions relates to employees of public hospital. These employees can receive up to $17,000 worth of grossed up benefits. What does grossed up mean? That there is no FBT payable if the value of the benefits, multiplied by the appropriate gross up rate is less than $17,000.

The gross up rates are:

  • a gross-up rate of 2.0647 where the benefit provider is entitled to a GST credit for the provision of a benefit
  • a gross-up rate of 1.8692 if the benefit provider is not entitled to GST credits.

So who can get a bit over $9,000 of their mortgage payments paid by their public hospital employer under a salary package without any FBT being payable?

In draft Taxation Determination TD 2014/D17, the Commissioner considers “when are the duties of the employment of an employee of a government body exclusively performed in, or in connection with, a public hospital or ‘non-profit hospital’ for the purposes of paragraph 57A(2)(b) of the Fringe Benefits Tax Assessment Act 1986?”

Subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 provides that where the employer of an employee is a government body and the duties of the employment of the employee are exclusively performed in, or in connection with a public hospital or a hospital carried on by a society or association that is a rebatable employer, then a benefit provided in respect of the employment of the employee is an exempt benefit.

This means that be eligible for the exemption, the duties must be performed either ‘in’ or alternatively ‘in connection with’ a hospital.

The draft Determination states that in assessing this we need to look at the employee’s statement of duties and the actual duties being performed at a particular time.

In assessing whether the employee meets this test the Commissioner states you need to look to see if either:

  • The duties are performed ‘in’ the hospital such that the employee performs their duties in the physical location of the hospital facility and within that facility at a place where activities are conducted that enable the hospital to carry out its functions, or
  • The duties are performed ‘in connection with’ the hospital such that the employee is engaged in activities that enable the hospital to carry out its functions. These duties may be performed at places other than ‘in’ the hospital.

Using these tests the draft Determination considers 9 employees and assesses if they can take advantage of the exemption in subsection 57A(2). These employees are:

  • A hospital employed cleaner performing duties ‘in’ two or more public hospital or a non-profit hospital – Can get the exemption.
  • A hospital employed clinical nurse performing duties ‘in, or in connection with… a public hospital’ both in the hospital and in the homes of patients – Can get the exemption.
  • A construction project manager working on a hospital site building new facilities – Cannot get the exemption
  • An administrative support officer across a number of metropolitan public hospitals doing procurement of hospital goods and services and payment of suppliers – Can get the exemption
  • A shared services manager providing services across government entities, some of which are hospitals – Cannot get the exemption
  • Employees changing jobs – each gets assessed separately
  • Employees being moved from a job at the hospital to a corporate role in government not at the hospital – Cannot get the exemption once they move to the second role.
  • The CEO of a public hospital – Can get the exemption

This, especially the CEO decision, is a minor change from the Commissioner’s previous position. In ATO Interpretative Decision 2003/40 the Commissioner concluded that a State Government employee who had the job of finding alternate funding options for public hospital, monitored spending at public hospitals and advised the Minister about funding allocation and performance of public hospitals could not claim the section 57A exemption.

Therefore, it is worth considering any clients you have who work for a public hospital or for the appropriate Department.

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FBT Planning Idea Planning Stuff Rulings

Religious Practitioners and Fringe Benefits

Believe it or not, I get asked this question all the time so to save you asking me…

Section 57 of the Fringe Benefits Assessment Act 1986 includes an exemption from Fringe Benefits Tax on benefits for certain employees of religious institutions.

Under this section, if a benefit is provided by a religious organisation to assist a religious practitioner with pastoral duties it is both not taxable to the employee (as it is a benefit and not salary) and exempt from FBT being paid by the employer… Nice outcome…

But what is a religious organisation covered by this section?

In practice, if the entity set up for the furtherance of a religion such that it could get income tax exempt charity status, it is a religious organisation. Simple. At law a religious organisation has a “belief in a supernatural Being, Thing or Principle” and the “acceptance of canons of conduct which give effect to that belief, but which do not offend against the ordinary laws.” So don’t tell me AFL is your religion…

But are all employees of religious organisations covered? No, just religious practitioners. A ‘religious practitioner’ is defined in subsection 136(1) to mean:

(a) a minister of religion;
(b) a student at an institution who is undertaking a course of instruction in the duties of a minister of religion;
(c) a full-time member of a religious order; or
(d) a student at a college conducted solely for training persons to become members of religious orders.

So if you are the office manager or the bookkeeper… you will not be a religious practitioner.

If you pass these two tests, and have a religious organisation employing a religious practitioner, certain benefits will be non taxable for the employee and exempt from FBT for the employer.

Taxation Ruling TR 92/17 covers this exemption specifically and has examples of a religious practitioner being provided housing, use of a car and schooling and all of this being effectively tax free.

Having done the books or audited many of these organisations I can say I have never met any religious practitioner who is doing their job for the money – I could not live off what many are paid. But if you are going to employ religious practitioners, how about doing it in a way that saves everyone tax by providing more benefits and less cash salary.

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Cases FBT

FBT and Canberra Airport – my vicarious victory

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Many years ago I prepared to take the ATO to the AAT for a large entity on whether the car park at Canberra airport was a commercial car parking station. If it was, FBT was payable when employers provided parking at the airport for employees.

The definition of commercial car parking station states that the car park must be open to the public. The terms of parking at Canberra Airport are you must be a passenger or a “meeter or greeter”. I was ready to argue this was not the public, when the Commissioner conceded the case less than a week before the hearing.

I was happy with the outcome, the large refund for my client, and the lunch that the owner of the airport took me on… But… I wanted to argue my case. I wanted a judgement not a concession letter.

It might be a few years after my little victory but the same argument I ran just won the day again… But this time there is a judgement – See (Qantas v Commissioner of Taxation ).

I am going to claim that Qantas found out my little argument from the private ruling I put together or from the wonderful guys at Canberra Airport Group and claim a little piece of this victory.

By the way, do you think every airport will now change the conditions of its parking stations???

Please appeal the case Commissioner as I want another win!

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FBT Income Tax Part IVA Planning Idea Planning Stuff

Employee Benefit Trusts And “Deep Throat”

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Many years ago I received a call from a very junior ABC journalist (her career has very much blossomed since the and she is now a household name). We met in a meeting room where I worked an she provided me with two private rulings – both about employee benefit trusts.

The first was a very simple arrangement and the private ruling was favourable – deductible contributions, no FBT…

The second was pretty much the same arrangement, so much I suspected it was written by the same firm. BUT THIS ONE WAS NEGATIVE!

I said that I could not believe that the ATO had stuffed this up so badly… And that was the end of our discussion.

What I did not know is that this very quick meeting started an investigation about whether an employee at the ATO was providing positive rulings to “friendly” applicants.

Since then I have steered away from Employee Benefit Trusts – but now the Commissioner has released a draft taxation ruling (TR 2014/D1) that clears up his position. He has also released a guide on these trusts.

What are the three most important things in these documents…

1. If you are an employer, contributions you make to the trustee of an ERT are generally deductible if you have a genuine purpose for it being applied within a relatively short period towards remunerating employees. What is a relatively short period? It must be less than 5 years – any longer and there will be no deductions. This is a big change to many earlier private rulings.

2. As an employer, if you made a contribution to an ERT at the direction of, or on behalf of, your employee and that contribution is remuneration, you are required to withhold an amount from the contribution as a Pay as you go Withholding amount.

3. Fringe Benefits Tax and Division 7A can apply to contributions made by an employer to the trustee of an ERT, to benefits provided by the trustee of the ERT and on loans provided by the trustee of the ERT to employees. SO WATCH OUT!

These documents also remind us that the Commissioner has applied Part IVA to these types of arrangements. So don’t jump in without clearly documenting the purpose of the arrangement. But at least we have some more clarity now.

But this does mean I may never get to have cloak and dagger meetings with investigative journalists about tax again…

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FBT Planning Idea Tax Policy

Another go at closing salary packaged cars

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One of the arguments presented by the salary packaging companies (please note these are companies that only exist due to the combination of a tax loophole and tricky marketing – https://taxrambling.wordpress.com/2013/11/29/the-post-the-salary-packagers-do-not-wanted-you-to-see/) is that removing the statutory method for calculating car fringe benefits would hurt the local car manufacturers. But by 2017 there will be no local car manufactures (Toyota will go to). So can we just kill this concession. In 1986 when the statutory method was introduced 87% of new cars were made in Australia. Now it is 15% and by 2017 it will be 0%. It is time to get rid of this $1 billion a year car support anomaly.

Categories
FBT Planning Stuff Tax Policy

The post the salary packagers do not wanted you to see…

Go to any salary packager’s website and they will have a calculator. After you complete or the details the calculator will tell you how much you will save in tax by salary packaging a car. THIS NUMBER IS ABSOLUTELY RUBBISH. I don’t mean the calculation is wrong in any way at all. What I mean is that the calculator compares apples and oranges to get the tax saving.

Picture 9

What these calculators do is compare the after tax outcome of leasing the car in your own name with leasing the car under a salary packaging arrangement. The tax saving is right based on this comparison. BUT NOBOBY LEASES A CAR IN THEIR OWN NAME SO THE COMPARISON IS WORTHLESS. Outside of salary packaging, almost everyone who wants a car buys it with either cash they have saved or by using the equity in their home. The interest rate on cash you already have is 0%, but lets call it 3% as you could have invested it in a very secure investment. Your home loan interest rates is about 5-6% and does not look like moving much for some time.

The implicit interest rates in leases for cars are from 8-11%.

So if you were to do a real comparison it would be comparing salary packaging a leased car with using the equity in your home. There may be a tax saving between leasing you car in your own name and salary packaging it BUT that tax saving will be reduced by the extra funding costs of the interest rate in the lease when compared to the interest rate on your home loan.

Don’t compare leasing under salary packaging with leasing in own name. Compare leasing under salary packaging with borrowing from your bank using the equity on your home loan. And I dare you to ask the packaging companies to do this calculation for you… And watch them sweat…