Weekly Digest – 5 August 2022

03/08/2022

Welcome back to our Weekly Digest. Read on for the latest updates and some ideas to help us all move forward.

Fringe Benefits Tax and Business

Benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These benefits are paid for by the employer from pre-tax earnings, making the provision of benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.

Fringe benefits tax (FBT) may apply based on the type of benefit provided.

Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages. The tax is calculated on the taxable value of the benefit, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings.

Employers can generally claim a tax deduction for the benefits and related FBT payable.

Types of Benefits

There are many different types of fringe benefits employers may provide to employees. These include:

Vehicle owned by the business provided for private use
Vehicle lease arrangements
Car parking
Entertainment, such as golf club membership or tickets to major events
Expense payments, such as credit cards or health insurance
Other types include debt waiver, living away from home allowance, or property benefits.

Some benefits provided to employees don’t attract FBT. If you pay for expenses that an employee would otherwise have been able to claim as a work-related tax deduction, FBT won’t apply. For example, if you pay for employees to attend a professional development course, there won’t be any FBT liability on this benefit. COVID-19 tests required for employment are also exempt from FBT.

FBT Administration

The fringe benefits tax year runs from 1 April to 31 March. You must then include the reportable amount for each employee on their Single Touch Payroll finalisation by 14 July, so it flows through to their annual income statement.

As with all business transactions, keeping accurate records is essential to determining whether FBT applies or not and how much needs to be included on the employee’s income statement, if any.

If you’re interested in seeing how fringe benefits might apply to your business, talk to us about FBT registration and administration. We can advise on the types of benefits available, how much tax is payable or how to reduce the FBT liability. We’ll also get your bookkeeping software set up to make record keeping easy.

Tax Tips for Trusts

Whether you have a trust set up for investment or business purposes, there are some common elements to getting ready for the trust’s tax return.

Contrary to popular opinion, a trust is not actually a legal entity; rather, it is a formal relationship between other entities, where one entity holds property for the benefit of another entity, which could be a business or individual.

Because a trust is not a person or business entity, its income is usually taxed differently, although this depends on the setup and type of the trust. But even though the tax return is different, many other administrative aspects are the same as for any taxpaying entity.

Trust Administration

One of the most important administrative tasks to attend to is to hold a formal meeting before midnight on 30 June each year to document the basis of distributions to beneficiaries.

If you haven’t already done this for the 2022 financial year, talk to us as soon as possible so we can check your accounts and advise you on the best arrangements for beneficiary distributions.

Record Keeping

The other essential element of trust administration is record keeping. Although a trust may not be a legal taxpaying entity in the same way a person or business is, all records related to income and expenses must be kept for five years after lodgement of the income tax return.

Particularly important are records for any property owned by the trust. If a trust owns multiple properties, you’ll need to separate income and expenses according to each property.

If the trust earns income from overseas interests or investments, all these records must also be kept.

Capital gains, interest earned, and dividends received must also be documented.

The trustee must keep records of the trust deed, trustee contact details, trustee resolutions, statements of assets and liabilities, all business contracts, and for employing trusts, all records relating to wages and superannuation.

Trust Management

Trust management can be complex but well worth the time spent keeping good records to maintain asset protection, streamline the tax return process, and maximise the allowable tax deductions.

We’ll help with record keeping, managing investments, checking trust deed compliance, and simplifying the administration. Talk to us now and start preparing for your next trust tax return.

Economy in trouble as demand for iron ore falls

With China’s demand for iron ore continuing to fall, economists worry that Australia’s luck has run out when it comes to dodging recessions.

Australians warned to brace for significant power bill hikes

A new report reveals prices in the country’s electricity market have surged to their highest ever levels, and there’s no sign that they’ll slow down.

Rising interest rates will hit low-income earners the hardest

With interest rates still on the rise, economists point out that wages are currently disinflationary because in the past 12 months prices have risen by more than double that of wages.

Some will benefit from rising interest rates

There are, however, some winners in the interest rate rise: retirees and people who locked in fixed rates before the cycle changed.

… but not those who locked in to fixed rates recently

Since rates were historically low, an unusually high number of Australians locked into fixed mortgages during the pandemic. With a steep rise now here, some may see their payments go up by as much as 2-3 times what they originally paid monthly, forcing them to sell.

Biggest tax hike in 30 years leads to the $15 pint

The Australian Tax Office announced the excise on beer would rise by 4%, or $2.50 more a litre on Monday under its CPI indexation review.

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