P r a c t i c e U p d a t e November 2023

30 October 2023

Christmas Parties and FBT

With work Christmas parties just around the corner, we look at the tax treatment of such occasions.

Key concepts

To begin with, there are two critical issues to understand.

  1. Entertainment

Typically, fringe benefits tax (FBT) will only apply to a party if it involves the provision of ‘entertainment’. This means the provision of (a) entertainment by way of food, drink, or recreation, or (b) accommodation or travel in respect of such entertainment, such as taxis, hotel accommodations, etc.

In this case, recreation includes amusement, sport and similar leisure-time pursuits and provides recreation and entertainment in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

  1. Minor Benefits

In simple terms, a minor benefit is provided to an employee/associate (spouse) if done so on an infrequent or irregular basis (typically, no more than twice per year), and the cost is less than $300 inclusive of GST per employee/associate. This is $300 per expense (i.e., $300 per meal and drinks and a separate $300 per accommodation, etc.).

Note that for this piece, we will assume the employer (like most employers) uses the Actual method to calculate FBT, whereby FBT is paid only to employees and their associates (not clients or other outside individuals).

Venue

  1. Business premises

Holding your Christmas party on the business premises on a working day (logically, Friday after work) usually gives an employer the most tax-effective outcome. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. The reason why FBT does not apply is because there is typically no “recreational” component in play. Thus, the following rules apply to parties on the business premises:

 

EmployeesTax TreatmentFood and drink per person (no dollar limit) –No FBT applies, no tax deduction, and no GST credit is claimable.Recreation (e.g., band) per person < $300 –No FBT, no deduction, no GST credit.Recreation $300 or more –FBT applies, is tax deductible, and GST credit is available.AssociatesFood and drink <$300 per person –No FBT, no deduction, no GST creditd and drink $300 or moreFBT applies, is tax deductible and GST credit availableRecreation <$300-No FBT, no tax deduction, no GSTRecreation >$300-FBT applies, is tax deductible and GST credit available.

 

EXAMPLE – Christmas party on business premises

A company holds a Christmas lunch on its business premises on a working day.

  • Employees, their partners and clients attend.
  • The company provides food and drink and taxi travel home.
  • The cost per head is $125.

Entertainment is being provided. A party for employees, associates and clients is entertainment because the purpose of the function is for the people attending to enjoy themselves.

Employees – no FBT; exemption applies.

The employer doesn’t pay FBT for the following:

  • food and drink for employees, because it is provided and consumed on a working day on the business premises.
  • taxi travel because there is a specific FBT exemption for taxi travel directly to or from the workplace.

Associates – no FBT; exemption applies.

The employer doesn’t pay FBT for the food, drink and taxi travel provided to the employees’ partners (associates) because it is a minor benefit – that is, it has a value of less than $300, and it would be unreasonable to treat it as a fringe benefit.

Clients – no FBT

There is no FBT on benefits provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.

  1. Offsite (e.g., restaurant)

The party is held offsite, and the tax treatment is slightly different as follows:

EmployeesTax TreatmentFood and drink <$300 per person –No FBT, no deduction, no GST credit.Food and drink $300 or more –FBT applies, tax-deductible, GST credit available.Recreation (e.g., band) <$300 – No FBT, no deduction, no GST credit.Recreation $300 or more –FBT applies, tax-deductible, GST credit available.AssociatesFood and drink <$300 per person-No FBT, no deduction, no GST credit.Food and drink $300 or more –FBT applies, tax-deductible, GST credit available.Recreation <$300 –No FBT, no deduction, no GST.Recreation >$300 or more –FBT applies, tax-deductible, GST credit available.

 

Clients

Irrespective of the cost or the party’s location (business premises or offsite) under the Actual method, there is no FBT, nor is there a tax deduction or GST credit available for food and drink or any recreation component provided to clients or suppliers. The reason for this is that FBT applies to employment. As a result, clients and suppliers fall outside the FBT system (except where the employer elects to use the 50/50 method to calculate their FBT liability).

Christmas Gifts and FBT

To correctly determine the tax treatment of a gift given to an employee or their associate, e.g., spouse (not just at Christmas time but at any time during the year), a distinction needs to be drawn as to whether the gift is categorised as a “non-entertainment gift” or on the other hand as “entertainment”.

“Entertainment” type gifts include movie theatre tickets, sporting tickets, holiday vouchers or admission to an amusement centre. Whereas “Non-Entertainment” type gifts include Christmas hampers, a bottle of whiskey or wine, gift vouchers, perfume, flowers or a pen set.

 

For gifts given to entertainment-based clients, no FBT is applicable nor a tax deduction is available. However, these would be tax deductible if you give a client a bottle of wine, a carton of beer or a Christmas ham rather than movie tickets.

 

Mindful of this, the treatment is as follows:

 

Entertainment gifts

EmployeesTax TreatmentCost <$300 per person –No FBT, no deduction, no GST credit$300 or more –FBT, tax-deductible, GST credit availableAssociates<$300 –No FBT, no deduction, no GST credit> $300 or more –FBT applies, tax-deductible, GST credit available

 

Non-entertainment gifts

EmployeesTax TreatmentCost <$300 per person –No FBT, no deduction, No GST credit$300 or more –FBT, deduction deductible, GST credit availableAssociates<$300 –No FBT, tax-deductible, GST credit available$300 or more-FBT applies, tax-deductible, GST credit available

No FBT would apply for gifts costing less than $300 to employees and associates, but these are tax-deductible, so feel free to hand out Christmas hams, perfume or shopping vouchers. This is the most tax-effective and economic option.

The rules regarding the minor benefit exemption have changed, so you should feel free to give the gifts at the Christmas Party rather than a few weeks before, as was previously the case. This is because the gift and the cost of the function are considered separate benefits and have their own $300 threshold. 

The FBT implications for Christmas parties and gifts can be quite complicated. There are many different variables and combinations that can change the tax-deductible nature and the fringe benefits implications for having an event or giving a gift. Speak with us if you have any questions.

Refinancing is the process of replacing an existing loan with a new one, usually with better terms and interest rates.

Pros

  • Some lenders are offering up to $5,000 in refinance cashbacks. These, however, are subject to qualifying criteria regarding the loan amount and LVR, etc.
  • Borrowers may be able to secure lower interest rates elsewhere. If you’re refinancing to a lower interest rate, lower repayments can help you manage your finances.
  • Access to more loan features. Your current home loan may not have the parts you require, like redraw and offset, or one that gives you flexible repayment options so you can pay off your mortgage faster.

Cons

  • When you’re refinancing to another lender, there are fees involved. It could amount to thousands of dollars, from discharge fees to setting up a new loan.
  • If you have less than 20% equity, you might have to pay Lenders Mortgage Insurance (LMI) fees, even if you’re refinancing with the current lender.
  • When you refinance, you are applying for another home loan, which will make a credit enquiry. If you keep making refinancing applications, it will leave too many questions quickly, lowering your credit score.
  • When you refinance, it resets the loan term. If you’ve already paid off five years of your 30-year loan term, if you refinance to another lender, then you’re potentially back to paying 30 years’ worth of interest again.

Tax

From a tax standpoint, refinancing with another loan does not change interest deductibility. For example, Jack has a loan with ANZ bank, which was used to acquire an investment property. He refinances this with AMP. Because the interest was deductible before, it is deductible after the refinance (see Taxation Ruling TR 95/25 in paragraph 47).

Furthermore, interest on a new loan will be deductible if the new loan is used to repay an existing loan which, at the time of the second borrowing, was being used in an assessable income-producing activity or used in a business activity which is directed to the production of assessable income (Taxation Ruling TR 2000/2).

Consolidating Your Superannuation

You may be able to transfer your existing super account(s) to another complying fund (known as a rollover), depending on the rules of your super funds.

For example, you can transfer your super to consolidate multiple accounts. Putting all your super in one account means paying only one set of account fees. Differences in fees can significantly affect the amount you have when you retire. Having fewer accounts also makes it easier to keep track of your super.

Think about the possible consequences before deciding to roll over your super. Ask your existing super fund about any fees or charges that will apply or any loss of entitlements such as life insurance.

You should also consult the receiving super fund to ensure they will accept a rollover of your super.

The preservation rules apply to benefits rolled over to another complying super fund. This means benefits can only be accessed once you meet a condition of release, such as reaching 65.

Sometimes, your super may be rolled over to another super fund without you requesting it, such as when two super funds merge.

Tax

No tax is payable on the amount rolled over to another complying super fund until you withdraw your super, when tax may apply.

If a super benefit is paid directly to you before being born into another fund, the payment is considered outside the excellent system. It will be treated as a super benefit rather than a rollover, in which case it may be taxed.

If you roll over an amount wholly or partly of an untaxed element that exceeds the untaxed plan cap amount, the transferring fund will withhold the tax payable on the excess amount.

Considerations

Check with both super funds, particularly the transferring fund, so you know of any applicable fees or charges, any effect on your benefits, and any loss of entitlements such as insurance.

The fund you want to transfer to may not accept transfers from other funds or ATO-held super–checks before starting your transfer. There are no fees or charges for transferring ATO-held super money into a super fund account.

Check that both the account you’re planning to transfer super from and the account you’re planning to move it to are still open, as there can be delays in funds reporting closed accounts to us. Check that neither of the funds has restrictions on actioning the transfer.

There are some essential factors to consider before transferring your super:

  • Differences in fees can significantly affect the amount you have when you retire.
  • The fund you want to leave could charge administrative, exit, or withdrawal fees.
  • The fund you want to transfer may charge entry or deposit fees.
  • The fund you want to leave may insure you against death, illness or an accident that prevents you from returning to work. If you leave this fund, you may lose these entitlements – check if the other fund offers comparable cover. ATO online services flag any super account with insurance with a ‘Yes’ indicator.

Transferring your funds will not change the super fund your employer pays your contributions to. Speak with your employer about whether you can choose a different fund and advise them of the new fund account details for future contributions.

If unsure what to do, seek independent financial advice or contact your super fund.

How?

You can request a transfer of the whole of a super account balance online by:

  • sign in to myGov.
  • select the Australian Taxation Office.
  • select Super, then Manage, then Transfer Super.

Completing the rollover or transfer request using ATO online services lets you view all your super accounts in one place.

You can only transfer a whole account balance from one super fund to another using ATO online services or the paper form, as this process involves closing the account. If you want to transfer part of your super account balance, contact the super fund from which you wish to transfer money.


Practice Update April 2025

31 March 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.

Practice Update March 2025

5 March 2025
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.

Personal super contribution and deductions

11 February 2025
Personal super contribution and deductions
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