Superannuation Guarantee Amnesty – This and more on the Simeoni March News Update

27th Mar 2020

FBT hot spots

With the start of the Fringe Benefits Tax year looming on 1 April, businesses are being urged to review their Fringe Benefits Tax (FBT) position.

The ATO’s top FBT problem areas

Motor vehicle fringe benefits – failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits
FBT and income tax mismatch – mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return
Entertainment claimed as a deduction but not recognised as FBT – claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising
Car parking fringe benefits – incorrectly calculating car parking fringe benefits due to:

significantly discounting market valuations
using non-commercial parking rates
not being supported by adequate evidence5. Business you use personally – not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates
6. Not lodging FBT returns – not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.

FBT liabilities can trap unwary businesses, some of whom don’t recognise that there can be a tax consequence from providing benefits to staff such as entertainment.

It is important to understand there can be implications from seemingly straight-forward business activities across income tax and GST, as well as FBT.

For some smaller businesses, it can come as a surprise that business related activities can fall within the FBT system. While there are some exemptions in place, businesses need a clear understanding that many benefits could come under the scrutiny of the Australian Taxation Office (ATO).

A small business owner might think it appropriate to take a good customer or supplier to lunch. It might also seem natural to take along a staff member to that lunch. But there could be an FBT liability that arises depending on the value of the food and drink on a per head basis and how frequently staff members receive similar benefits.

Excellent record-keeping is fundamental. It is crucial at lunches for example to note who was there because the portion relating to staff members might be subject to FBT while the portion relating to clients would not generally trigger FBT.

In addition to determining whether there is an FBT issue, these records will also generally be used to check whether the business can claim a deduction and GST credits for the expenses. The ATO’s approach is very evidence-based, there needs to be documentation to back up whatever the business is claiming.

That record-keeping can be difficult, especially if they do not have a dedicated internal accountant.

Motor vehicles are another key FBT issue. Many businesses provide cars to staff or allow them to take vehicles home but this can easily trigger an FBT liability – although again, some businesses may be unaware of that.

While there are some exemptions that can apply to these benefits and it may be possible to reduce or eliminate the FBT liability completely, it is crucial that there is detailed record-keeping. For example, a car that is used solely for business purposes could still potentially trigger a significant FBT liability unless there is a valid log-book in place.

There can be questions raised by the ATO if for example a business has substantial motor vehicle expenses, yet they do not lodge an FBT return.

You cannot avoid the FBT system by simply not claiming a deduction for expenses relating to a vehicle.

How to get your payroll right

A series of high-profile examples of businesses underpaying their employees has brought the need to get payroll right into sharp focus.

Complex award and enterprise agreements can complicate payroll obligations, in terms of both regular salary and wages and the ongoing need to pay employee superannuation. On top of that, from 1 March 2020, changes commence for annualised wage arrangements that will increase the compliance burden on some businesses.

The new rules impact on full time employees paid an annual wage under one of 16 Awards (see the full list here). Under the rules, an employee’s annual wage can’t be less than what they would’ve been paid over the year if they were paid all of their award entitlements for their work. If you pay your team above the award entitlements, then you can continue to pay an annualised salary without using the annual wage arrangements. If you have team members on a minimum wage however, there are additional obligations.

Fair Work states that employers need to record the annual wage arrangement in writing and give their employees a copy. This has to include:

The annual wage that will be paid
Which award entitlements are included in the annual wage
How the annual wage has been calculated, including any assumptions used in the calculation
The maximum (or ‘outer limit’) number of penalty hours and overtime hours the employee can work in a pay period or roster cycle without extra payment.

The employer must also record the employee’s:

starting and finishing times
unpaid breaks taken.
Employees have to acknowledge the record of hours they’ve worked is correct by signing in writing or electronically at the end of every pay period or roster cycle. This record is used for annual reconciliations.

The introduction of single touch payroll (STP), has standardised the payroll process. Virtually all businesses will be on STP by July this year with closely held businesses moving to STP (closely held payees receive payments that are not at arm’s length, generally family members of a family business, directors or shareholders of a company, or beneficiaries of a trust).

For businesses that employ backpackers, there is a separate registration scheme that needs to be followed.

There are two key components to getting payroll right:

Get the award right and ensure you are paying your team the correct rates including any overtime, penalties and allowances (you can use Fair Work’s pay calculator – save the results and keep on file as evidence).
Ensure you are calculating super guarantee correctly particularly for team members with salary sacrifice arrangements in place. The rules for calculating SG change on 1 July 2020 to ensure that an employee’s salary sacrifice contributions cannot be used to reduce the amount of SG paid by the employer.

Super guarantee amnesty: Now is the time to get payroll right

The superannuation guarantee (SG) amnesty provides employers with a one-off opportunity to “self-correct.” Now is the time to ensure that your payroll is correct and there are no hidden SG issues looming.

The amnesty applies from 24 May 2018 (the date of the original announcement) until 6 months after the legislation receives Royal Assent. Employers will have this period to voluntarily disclose underpaid or unpaid SG payment to the Commissioner of Taxation.

The amnesty applies to historical underpaid or unpaid SG for any period up to the March 2018 quarter.

To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply. The amnesty only applies to “voluntary” disclosures.

Quote of the month

“This is not a drill.”
World Health Organisation
Director-General Dr Tedros – Adhanom Ghebreyesus

Paul Simeoni & Team