employment taxes tips tricks and traps · car fringe benefit); usually valued by an operating cost...

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Session 4C: Employment Taxes –

Tips Tricks and Traps

Judy White24 November 2016

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JUDY WHITE, ASSOCIATE DIRECTOR - BDO

Thursday 24 November 2016

EMPLOYMENT TAXES – TIPS TRICKS AND TRAPS OVERVIEW

The area of employment taxes is complex! In particular, there are different definitions for whether persons are caught under each of the taxes, to navigate in the tax legislation. On top of this, in recent times the Australian Taxation Office has significantly increased their compliance focus on this area putting it firmly in the spotlight.

Employment Taxes reviews include Fringe Benefits Tax, Superannuation Guarantee, PAYG Withholding and also covers generally Employee versus Contractor areas. This seminar will be a memorable journey through the world of Employment Taxes including the Tips Tricks and Traps in these areas.

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INSTITUTE OF PUBLIC ACCOUNTANTS

TOPICS: TIPS TRICKS AND TRAPS FOR:

1. Fringe Benefits Tax.

2. Superannuation Guarantee.

3. PAYG Withholding.

4. Employee versus Contractor.

5. ATO Compliance.

Page 5IPA NC ETaxes 24-11-2016. © Judy White, BDO 2016

EMPLOYMENT TAXES – TIPS TRICKS AND TRAPS


1. Exempt Cars – HR Policy and monitoring required of

incidental private use (extremely limited private use).

2. ‘Cars’ versus non-cars and ‘exempt’ vehicles:

– Cars – Only vehicles that meet the definition of a car are eligible to

apply the Statutory Formula method of valuing the fringe benefit.

– ‘Non-cars’ – Where vehicles do not meet the definition of a ‘car’,

then any private use is considered a ‘residual benefit’ (rather than a

car fringe benefit); usually valued by an operating cost type method.

– ‘Exempt’ vehicles – There is an exemption for cars Section 8(2)

and for non-cars Section 47(6) which may not cover all vehicles.


1. FRINGE BENEFITS TAX–TIPS TRICKS AND TRAPS

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3. Cars – Car versus Expense: Ensure where possible

that the car is in the name of the Employer (Car fringe

benefit); rather than the Employee (Expense payment

fringe benefit).

4. Travel vs Living away from home vs Relocation:

Examples contained on following slides. Examples One to

Three demonstrate potential LAFH scenarios – please

assume these occurred during the 2016/17 FBT year.






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5. Housing – Remote area housing:

– Ensure the lease is in the name of the employer (Section 58XC –

100% exemption); rather than the employee (Section 60(2A) – 50%

reduction).

– The exemption under Section 58XC can only apply if it is a housing

benefit; therefore the employee must have changed their usual

place of residence (ie relocation, rather than living away from

home).

– There is a reduction under Section 59 of 50% for residential fuel (ie

electricity/ gas) supplied in relation to remote area housing benefits.




6. Entertainment:

– Provide benefits that are exempt minor benefits and not

‘entertainment’. These are not subject to FBT, will be income tax

deductible and GST creditable. Eg David Jones gift voucher

costing $250.

– Gym memberships are considered ‘entertainment’ (by way of

recreation), therefore if qualify as exempt minor benefits (per the

example in TR 2007/12); then will not be income tax deductible.

– Tax Exempt Body Entertainment – The calculation of taxable value

of such benefits does not allow for a reduction for recipient/

employee contributions.



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7. FBT is a cost of employment:

• How to view benefits and FBT in an organisation?- ‘On top’ of salary? Part of Remuneration package? Bit of both?

• Example – Facts based on the 2015/16 FBT & financial year:- Jonathan Brown is an employee of The Best AFL Club Ever Pty Ltd.

- He is paid a salary of $200,000

- He is also provided with:

- A fully maintained car costed at $25,000 p.a

- Private insurances and fee costs at $15,000 p.a

- Various other accommodation, gifts and benefits at $30,000 p.a.

- Total benefits: $70,000.




FBT is a cost of employment – Example continued:

• Example – Facts:

- Anthony ‘The Man’ Mundine is an employee of Boxers Anonymous

Pty Ltd

- He is provided with:

- A remuneration package of $200,000; which he chooses to take

as $130,000 cash plus $70,000 benefits.



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Summary of Remuneration Package:




Summary of Net Pay plus Benefits:



Remuneration Jonathan The Man(FBT on top)

The Man(FBT packaged)

Salary – take home $132,453 $91,353 $52,338

Benefits $70,000 $70,000 $70,000

Total $202,453 $161,353 $122,338

Jonathan vs The Man (excludes 2% budget

repair levy for ease of demo)

$(41,100) $(80,115)

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1. Be aware of disgruntled employees – Likely source of ATO audits on organisations for potential unpaid superannuation.

2. Avoid late payment of superannuation contributions -Omission of payment, or late payment of superannuation contributions, may lead to ATO audits and imposition of superannuation guarantee charge (which includes an interest charge of 10%; plus administration fee $20 per employee; plus the superannuation shortfall amount).


2. SUPERANNUATION GUARANTEE–TIPS TRICKS AND TRAPS


3. Remind Directors they are personally liability:

Directors of a company can be held personally liable for

unpaid superannuation guarantee contributions.

4. Be aware of Clearing Houses – contributions are

counted as paid on the date the superannuation fund

receives it, not the clearing house (except the ATO

clearing house).


2. SUPERANNUATION GUARANTEE–TIPS TRICKS AND TRAPS

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1. PAYGW applies to Directors and Officeholders: PAYG

withholding applies commonly to payments of salary and

wages. It also applies to payments made to Directors for

remuneration. And beware for Not-for-profit entities, that

PAYGW may apply to payments made to officeholders.

2. Ensure the client is the correct remitter: The ATO have

been reviewing the frequency of PAYGW remittances and

whether these match the type of remitter.


3. PAYG WITHHOLDING–TIPS TRICKS AND TRAPS


Type of remitter – small medium or large:



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3. Be aware of PAYGW for Mileage allowance > 66 cents:

The current tax deduction for the cents per kilometre

method is 66 cents. However, some Awards/ Enterprise

bargaining agreements/ employment contracts still state a

rate higher than this eg 78 cents. In this case PAYGW is

required on the difference between 78 cents and 66 cents.

4. Handy reference ATO Website document: ‘Withholding

from allowances’ document provides handy Table 1 and

Table 2 regarding PAYGW obligations for allowances.




1. Employee versus Independent Contractor -

Topical item at present often raised in ATO audits.

2. Common indicators – The following table

provides the following indicators per case law and

TR 2005/16.


4. EMPLOYEE v CONTRACTOR–TIPS TRICKS AND TRAPS

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Summary of the factors indicating employee or contractor


1. Always includes Employee versus Contractor questions.

2. Independent contractor review – ATO asks for the contract/ agreement and copies of the invoices.

3. Initial enquiry may be on one area eg PAYGW, but audit made on all employment taxes eg PAYGW, FBT, SG etc.

4. Some ATO audits on SG request paper documents and facsimiles of information, rather than electronically.

5. Information often requested for 2 to 4 years - onerous.

6. Information may be requested in a different format to that easily available on system (eg Payroll system).


5. ATO COMPLIANCE – FEEDBACK ON AUDITS

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QUESTIONS AND THANK YOU

• Any questions?

• If you would like any further information please contact:

• Judy White

• Associate Director, Tax

• BDO – Brisbane Office: 07 3237 5976

• [email protected]


• Completion of session



© Judy White, BDO 2016

Disclaimer: The material and opinions in this paper are those of the author and not those of The Institute of Public Accountants. The Institute of Public Accountants did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

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employment taxes tips tricks and traps · car fringe benefit); usually valued by an operating cost...

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