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Issue 139, 3 November 2006
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Christmas may be a time for giving, but employers should know
that they don't have to apply the 'giving' principle when dealing
with the Tax Office. Paying tax on employee entertainment and
gifts is a sure fire way to take some of the cheer out of
Christmas. Tax practitioners should advise clients who want to
reward their staff for a year's worth of hard work that there are
a few things they can do to make Christmas a little less taxing.
An office Christmas party
Throwing a Christmas party for staff can be problematic for
employers. For example, your client, Frank, who runs a printing
business recently asked you whether the costs of hosting a lavish
Christmas party for his staff at their business premises would be
deductible. You set about informing him of all the potential tax
implications he faces if he carried out this 'simple' exercise.
You advise Frank that the cost of providing a Christmas party
for staff at work is non-deductible but exempt from FBT. That is,
unless the employees bring a spouses or friends. The costs of
entertaining 'associates' of employees are deductible but subject
to FBT. By contrast the costs of entertaining clients and business
contacts is not subject to FBT but is non-deductible. What began
as a simple Christmas offering to staff suddenly became a maze of
rules with differing tax outcomes - all before apportionment is
even considered!
A restaurant party
Frank, not overly impressed by this advice, then asks whether
it would be easier having the party at a local restaurant.
Unfortunately, from a tax viewpoint, it is not easier. The
complexity of the FBT rules means that, if the function is not
held at Frank's premises, the costs of entertaining employees
remains non-deductible and becomes subject to FBT. It appears that
'it's not what you eat and drink but where you consume it' which,
at least partially, determines the tax outcome.
A cheaper party
However,
Frank's Christmas function will be treated as an exempt minor
benefit if it costs less than $100 per employee. But don't rejoice
too quickly. Nothing is quite this simple. The $100 threshold
applies per employee including associates. This reduces the
exemption for couples to $49 per head, or even less if a family
function is held.
To make
matters worse, all benefits associated with a Christmas function
must fit within the 'minor and infrequent benefits' cap of $100
per employee. For example, the cost of bottles of wine and hampers
distributed at a Christmas function become benefits associated
with the function itself. That outcome may be different if, for
example, the hampers were distributed in the office two days
before the Christmas party.
This is an excerpt from an article that
appeared in Thomson's InTax
Magazine (November 2006); Australia's best independent monthly tax
magazine. It provides concise reports of the latest tax news, plus
the practical implications of tax developments in an easy-to-read
magazine format. To find out more, phone Thomson Customer Service
on 1300 304 197 or click
here.
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This ruling, released 25 October 2006, outlines the Tax Office's
views on the meaning of supply and how supplies are to be
identified in bipartite and tripartite arrangements. The meaning
of supply and its identification are, of course, critical to the
operation of GST.
The ruling is divided into three parts. Part 1 considers the
meaning of supply in the context of the GST Act. Part 2 focuses on
the meaning of supply in the context of a transaction and Part 3
applies the analysis to multi-party arrangements, commonly
referred to as tripartite arrangements.
The ruling was previously issued as Draft GST Ruling GSTR
2005/D8. Although there are changes between the draft and final
rulings, the various propositions that the Tax Office uses to
assist in identifying a supply are essentially unchanged.
The ruling explains the Commissioner's view of the law as it
applied from 1 July 2000.
This article appeared in Thomson ATP's daily
Latest
Tax News (Wednesday 25 October). With tax fast-moving and ever
changing - EVERY DAY, practitioners rely on Thomson ATP's daily
Latest Tax News for quick, accurate, comprehensive information -
no compromises. When you need to know what's new in tax and
related news every day, there's only one place to look - LTN. To
find out more, click
here.
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In a recent decision (VCE and FCT [2006] AATA 821), the
Administrative Appeals Tribunal (AAT) handed down its first case
in relation to the anti-avoidance provisions in Division 165 of
the A New Tax System (Good and Services Tax) Act 1999 (the
GST Act).
The taxpayer, VCE, entered into an agreement to acquire a
commercial property from its sole director for the sum of $770,000
(GST inclusive).
The purchase price was payable in instalments, the first
instalment being for $550, with the final payment of $727,450
being payable in June 2018. As VCE registered to account for GST
on a non-cash basis it lodged a Business Activity Statement (BAS)
showing a capital purchase of $770,000 and claiming input tax
credits of $70,000. On the other hand, the vendor, declared GST of
only $50 on its BAS (and not $70,000) as it was registered to
account for GST on a cash basis. Effectively, the vendor had a
deferred commitment of the payment for most of the GST by 15
years, while the purchaser had effected an immediate input tax
credit. The issues considered by the AAT were:
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whether the
anti-avoidance provisions in Division 165 of the GST Act
disallow the input tax credit of $70,000 claimed by the
taxpayer (VCE); and
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if so, whether
the penalty on the shortfall amount of $70,000 was properly
imposed at the rate of 50%.
The AAT affirmed the Commissioner's decision to prohibit input
tax credits totalling $70,000 claimed by the taxpayer and to
impose a penalty of $35,000.
This article appeared in Thomson's Client
Alert Newsletter Service. Client Alert is a monthly newsletter
that promotes your business and develops your client's awareness
of upcoming tax issues. To find out more, phone Thomson Customer
Service on 1300 304 197 or click
here.
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