Small Business Tax Incentives, ATO, FBT, Employee Bonuses & Client Christmas Gifts - Expert Accounting Advice - SUMMIT Business Accountant

If you're a small business owner with a turnover of less than $2 million, you only have a few short weeks left to take advantage of the government's 50% small business tax incentive. The same deadline applies to the 10% incentive for businesses with a turnover of more than $2 million.

By now, you're probably aware that the tax incentive provides a deduction of 50% on assets purchased which cost over $1000. For companies with a turnover of more than $2 million, the tax incentive provides a deduction of 10% on assets purchaed which cost over $1000. Both incentives depend on the asset also meeting certain criteria:

The asset must be intended for use in Australia.
You need to make a commitment to purchase or construct the asset before midnight on 31 December 2009. This commitment could be an order or the signing of a contract but BEWARE; if a hire purchase or certain chattel mortgages are used to finance the purchase or construction of the asset, these financing arrangements (as well as the order/contract) must be in place by midnight on 31 December 2009
You must begin to use or install the asset ready for use before 31 December 2010
The asset must be a tangible, depreciable asset
The asset needs to be new – if the asset has been used previously, it can only be for a ‘reasonable’ trailing and testing. Not everything labelled as ‘demonstrator’ will pass this test.

Many items are covered as assets under the tax incentive, including business vehicles, computers, furniture, tools and equipment. In certain circumstances, the incentive can also be used to upgrade an existing asset (although this does not apply for repairs). It can apply if you are adding items to an existing asset, or making modifications.

Plus, if you are looking to buy a series of items that are ‘identical’ or ‘substantially identical’, you can group the total cost of the assets to meet the threshold.

Remember though, that the investment allowance is available for people and entities ‘carrying on a business’; it is not available for passive investments such as rental properties.

You can use the asset purchased for personal use and still claim the investment allowance as long as the purchase is principally for business purposes (over 50% of the use is in the business).

This is just a summary of what you need to be aware of to qualify for the investment allowance and does not cover every circumstance or all the criteria that might apply to you. If you are uncertain about the investment allowance, the impact of any investment on your cash flow, or how best to manage any intended investments, contact us today.

Business Scruples

I’m feeling generous towards my employees but I don’t want to give the Tax Office a Christmas bonus. What’s the best way to manage Christmas parties and gifts?
Christmas is a great time to thank staff for their work for the year, but celebrating a successful year can leave you with an FBT bill or unable to claim the festivites as a deduction. The good news is that with a little planning, and knowledge of the rules, then you can avoid the tax pitfalls.

Christmas Parties

The rules vary, depending on the location of the party. If the party is held on your premises on a work day, the provision of food and drink to employees is classified as an ‘exempt property benefit’, so it is not counted for FBT purposes.
However, this rule does not apply to family members, so FBT will be triggered if they attend. Your business should be entitled to deductions and GST credits for part of the cost though.
If the function is held away from the work premises, then you are inside the FBT net. However, provided the total cost is less than $300 per person, then it will not be counted for FBT purposess. If your staff bring family and partners, the exemption covers them also.
The down side is that if you avoid paying FBT on the function, you cannot claim GST credits or deductions for the function.
If the functions costs more than $300 per person, you will be caught for FBT, but you can claim the GST credits and deductions.
If you have a function for clients, it is not deductible (but also not subject to FBT).

Staff and team gifts

Gifts for staff are subject to similar rules. If the gift is less than $300, this is generally exempt from FBT. A gift of more than $300 is generally subject to FBT. Note that the $300 threshold applies in full, even if the gift is given at a Christmas party.
Employers can generally claim deductions and GST credits for the cost of gifts that are provided to employees. The main exception is where the gift relates to entertainment (e.g., theatre or sporting tickets, holiday accommodation etc). If the gift relates to entertainment, the business can only claim deductions and GST credits if the gift is subject to FBT.

Gifts to clients

Gifts to clients should be deductible and should give rise to GST credits if the business expects that:

the gift will promote the business, leading to further future business being generated or
the gift will motivate the client to refer business to others.

Businesses cannot claim deductions or GST credits for gifts related to entertainment. Gifts to clients should not be subject to FBT.
It is reasonably easy to avoid FBT, if you plan your celebrations around the minor benefits numbers (below $300). Make sure you keep the paperwork to support your calculations, including the cost of the party and number of attendees so you know the total cost you can apply the minor benefit to. Armed with this information, it should be a very merry Christmas for all.

Quote of the month

“Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want - and their kids pay for it.” Richard Lamm