A “WATCH OUT” AND A “HOW TO” FOR THE YEAR END!
With the year-end holidays coming up, there are 2 urgent and very important things we’d like to briefly make you aware of.
- Unpaid Superannuation – Penalties for Directors
- Christmas Parties, Employee / Client Gifts and Fringe Benefits Tax (FBT)
Each article is a 2 minute read!
WATCH OUT – Director Penalties for Unpaid Super – CHANGES TO THE LAW
Company Directors can be held personally liable for a company’s unpaid employee superannuation.
The unpaid superannuation is (after three months) payable to the ATO as a Superannuation Guarantee Charge (SGC) and the ATO can issue a Director Penalty Notice for unpaid SGC. When a Director receives a Director Penalty Notice, it means that the Director’s personal assets can be sold to pay for the debts listed in the penalty notice. This is not a good outcome for a Director of a company.
If a company fails to pay superannuation, but it lodges its SGC Statements by the SGC Statement due dates, the ATO can issue a Director Penalty Notice to the company’s directors. The Directors can become liable to the ATO for the amount of SGC claimed in the Director Penalty Notice. Directors can avoid personal liability if the SGC is paid by the company.
If a company fails to pay superannuation and it also fails to lodge SGC statements by the SGC Statement due dates, the Directors are automatically personally liable for unpaid superannuation. In these circumstances:
- The ATO can estimate unpaid superannuation if it chooses
- The ATO can and will issue a Director Penalty Notice to recover superannuation from the Directors
- Placing the company in liquidation or voluntary administration will not avoid liability for the Directors
- The ATO can and will issue Director Penalty Notice after a company is already in liquidation or voluntary administration
In May 2019, new legislation was passed to change the date upon which company directors become automatically liable for SGC amounts. The new date is the date which SGC Statements are due, which are:
|Quarter||Period||Super Due for Payment||SGC Statement Due Date|
|1||1 July – 30 September||28 October||28 November|
|2||1 October – 31 December||28 February||28 February|
|3||1 January – 31 March||28 April||28 May|
|4||1 April – 30 June||28 July||28 Aug|
If your company cannot pay superannuation, the best thing to do to avoid liability is to lodge SGC Statements within three months of them being due. If this is done, then you will be able to avoid liability under any Director Penalty Notice issued by placing your company in liquidation, if this is the best option available. The ATO will also not be able to issue you with a Director Penalty Notice after your company has been placed in liquidation.
But if your company is unable to pay superannuation within three months of it being due, then it probably has some underlying financial problems and you should see advice regarding the company’s circumstances, strategies that may be put in place and risks to you as a Director personally.
ACTION PLAN: Contact our expert Accountants for assistance immediately if you have any questions about this information or if you need help in working out what to do if you have unpaid superannuation in your company. Don’t leave this too late. If you do, then your personal assets will be at risk!
HOW TO – Christmas Parties, Employee + Client Gifts and FBT
The tax outcomes for client gifts, employee gifts and Christmas parties are so complicated and confusing. We’ve simplified things for you below.
At the end of the year it is common to provide gifts to existing clients and customers as a thank you for their business.
As the gift is an expense to your business, it is generally considered to be a tax deduction. The ATO has considered the act of gift making to clients, and several cases exist where the tax treatment has been tested in the courts. If there is an expectation that the gift will either generate future business from the client or motivate them to refer your services to others, it is considered that the expense of the gift was in the nature of business promotion and is a tax deduction.
It should be noted that the gift does not constitute the provision of entertainment which is a non-taxable deduction.
Christmas parties for your team
This is where it starts to get complicated.
The ATO’s view is that the cost of a Christmas party is tax-deductible only to the extent that it is subject to FBT. As a result, Christmas party costs that are exempt from FBT (where the costs relate to exempt minor benefits and exempt property benefits) cannot be claimed as a tax deduction.
If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.
Exempt Property Benefits. The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day, on your business premises and consumed by current employees. These costs are known as an “Exempt Property Benefit”. The property benefit exemption is only available for employees, not family members.
Exempt Benefits – Minor Benefits. The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the end of the year party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Gifts provided to employees at a Christmas party. The giving of a gift to an employee at Christmas time may be a minor benefit that is an “exempt benefit” where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the year-end gift are less than $300 in value each and the other conditions of a minor benefit are met, they will both be exempt benefits.
ACTION PLAN: If you are unsure about the FBT implications of your Christmas party or year-end gifts, please contact our expert Accountants today, and they can assist you!
This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent financial advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.
Aaron is a Chartered Accountant with over 15 years experience in the accounting industry. Aaron has been able to provide advice around structuring, cashflow, tax compliance and working with clients to develop strategies.