What s Happening in December

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What's Happening at DSR in December?

In this issue:

Ho Ho Ho Humbug... Avoid the Christmas Tax Scrooge
Declaring or Paying Dividends? New rules apply
Employee or Contractor - ATO Tool
Reminder to Lodge 2010
Important Dates
Client Testimonial

Merry Christmas from Davis Stewart Rowland

Welcome to What's Happening at DSR in December.

Christmas is a time when we can give a collective sigh of relief and, for a short time at least, put away the hard work that consumes us and focus on what’s really important.

Be generous to others, be generous to yourself and relax.

2011 will be here soon enough and we’ll be here to help you meet the challenges and capitalise on the opportunities that the New Year will inevitably bring.

Our offices will be closing on Wednesday 22 December 2010 and will reopen on Monday 10 January 2011.

So wishing you all a very merry and safe christmas, thank you for all your support and we look forward to working with you in 2011.

Ho Ho Ho Humbug...Avoiding the Christmas Tax Scrooge

If you’re planning your Christmas budget for your team and your clients there are a couple of things you need to know to keep the Christmas tax scrooge from ruining your Christmas celebrations. We take a look at what you can and can’t deduct and what is and isn’t likely to incur Fringe Benefits Tax (FBT).

Your team
The big issue with Christmas celebrations for your team is FBT. FBT applies to non-cash benefits provided by employers to their employees. This generally includes expenses for entertainment that you provide to your team (and their family).

If you provide the Christmas celebrations at your work on a working day, then they are likely to be exempt from FBT. If however family members of your team attend, then FBT may apply if the cost of the celebration is over $300 per person. If the cost of the celebration is less than this amount then no FBT applies as it is considered to be a minor benefit and minor benefits are exempt from FBT.

If you hold your celebrations at an external venue, then you need to ensure that the cost of the celebrations is less than $300 per person. So, if you invited 40 team members and 20 of their spouses to a Christmas lunch, your expenses might look like this:

Item             Cost per person                   Total
Meal                         $60                             $3,600
Beverages              $40                             $2,400
Entertainment         $33                             $2,000
Total                         $133                           $8,000

For FBT purposes, the cost per employee is $133 so no FBT applies. If however the cost of the meal was $180 per person, the beverage package $90 per person and the entertainment $3,800 then the cost per employee would be $333 and the Christmas party celebrations would be subject to FBT for both the employee and the spouse.

Christmas presents to staff members also need to be kept to less than $300 per person and need to be one-off gifts. They are not included in the calculation of the total cost of the Christmas party but are assessed separately (even if they are given out at the event).

The cost of your Christmas celebrations for team members is not deductible for income tax purposes if FBT does not apply. If FBT applies, then you can claim a tax deduction.

Entertaining clients at Christmas
Entertaining your clients at Christmas is not tax deductible. So, if you take them out to dinner, to the theatre, or any other form of entertainment, then it’s not deductible. However, if your business gives a gift then it is deductible as long as the gift is given in the expectation that the business will benefit. To be deductible the gift needs to be an expense of the business incurred in the course of generating revenue. You need to be able to prove the link between the two.

Donations to charity
It’s important to recognise that you can only claim a deduction for donations made to deductible gift recipients (DGRs). If you receive any form of merchandise - biscuits, teddies, balls or you buy something at an auction - then it’s not deductible. This is simply because you purchased something rather than giving a gift. The same goes for charity balls and dinners. You cannot claim the cost of the dinner unless the organisers have arranged for part of the cost to be deductible and are able to provide you with a confirmation receipt.

The most (tax) effective way to give is to make a direct donation to a DGR. This way, you get a tax deduction for the donation and the charity does not have to spend time, money, and resources creating and supporting events.

Declaring or Paying Dividends?

New rules apply to how your company declares or pays a dividend.

Paying dividends is a normal part of company life; generate the profits, pay the tax, and then look at what dividends are available for the shareholders. Changes in the Corporations Act earlier this year mean that directors need to consider a new set of rules before they declare or pay a dividend. Section 254T of the Corporations Act provides the rules governing dividends. In the past, directors needed to ensure that dividends were paid out of profits. This has now changed.

With effect from 28 June 2010, section 254T has been amended and replaces the profit test with three new tests. These new tests are:
1. The company’s assets exceed it liabilities immediately before the dividend is declared and the excess is sufficient for payment of the dividend; and
2. The payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and
3. The payment of the dividend does not materially prejudice the company’s ability to pay its creditors.

As a director you need to consider and satisfy these issues at the time when a dividend is declared and also when the dividend is paid.

At this stage you might be thinking does this really have any practical effect on us? And, in many cases the answer might be no. Certainly as a director, when your company declares or pays a dividend, you are subject to the requirements of the Corporations Act. Get it wrong and you may be explaining your actions to ASIC. But think about what might happen if your company ever got into financial problems and a liquidator was appointed. Then, the liquidator might be interested in identifying any circumstances where the directors had breached their responsibilities. If this occurred you could expose yourself to personal liability. Where tested, the onus would be on the directors to prove that they had met the tests imposed.

Dividends are a normal part of company life. They may be a part of the way you return value to yourself from your company. They may also be used to manage fringe benefits provided by the company, shareholder loan accounts or as an alternative to more traditional forms of remuneration. This will continue. You simply need to be sure at the time when dividends are declared and paid that you satisfy the new tests imposed by the Corporations Act. You also need to be mindful of what your company constitution provides. It may have additional requirements. Where this is the case you will also need to meet these.

Employee or Contractor - The ATO Tool

The Australian Taxation Office has developed an online tool to help you make the decision whether the people who work for you are employees or contractors. This tool has been designed to help businesses comply with their superannuation and tax obligations.

Users of the tool will be asked a series of questions relating to their workers, however all information remains anonymous and no information is transmitted to the ATO. To find out more visit the ATO

If you'd like to discuss your staff situation further contact us today.

Reminder to Lodge 2010

With the Christmas period fast approaching now is a good time to get your tax records together for the preparation of your 2010 tax work.

Our office will be closing for the Christmas/New Year period from midday Wednesday 22 December 2010 and will reopen on Monday 10 January 2011.

If you give us your tax work prior to our office closing, we can plan to have your work completed early 2011.

For those anticipating refunds, it is a nice start to the new year!

Give us a call today for an appointment, post in or drop off your work at reception.

Important Dates

21 December 2010
- November 2010 Monthly IAS

22 December 2010 - 10 January 2010
- Davis Stewart Rowland Office Closure

Client Testimonial

DSR offers excellent financial and investment advice, and although my company is only small, DSR handle my enquiries with a professional, friendly, caring manner.
The DSR difference is that they care for my company as if it is their own.

Mark Walpole
Walcom Pty Ltd

About Davis Stewart Rowland

Davis Stewart Rowland is a three partner firm located at The Entrance on the NSW Central Coast. With over 50 years experience we have an in-depth knowledge of what the business owner and investor needs to embark and stay on the path of growth and wealth creation.

We have a unique appreciation of the issues business owners and investors face, which makes us an integral part of our client's advisory team. Our comprehensive approach includes:

Benchmarks
Tax minimisation plans
Cash flow forecasting
Business information processing
Management & strategic advice

Whatever your needs we can help find a solution.

Contact us today