A self employed person, investor, or individual is entitled to claim a personal deduction for superannuation of up to $50,000 per annum if the following conditions must are satisfied.
- The taxpayer needs to complete a notice of intention to claim the deduction and send this to the superannuation fund by 30 June of the following income year, or lodgement of their income tax return for the relevant income year, whichever occurs first.
- The trustee of the superannuation fund has provided the employee with a written acknowledgment of their notice.
- If a taxpayer receives some form of income as an employee, there is a further 10% rule that applies. This rule is satisfied where less than 10% of the taxpayer’s assessable income and reportable fringe benefits total for the income year is from employment income. This is the case regardless of whether the employer has paid superannuation on the employment income.Providing gifts to employees The income tax treatment of gifts provided to employees depends on whether they are considered ‘entertainment’ or ‘non-entertainment’ gifts. Non-entertainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include flowers, wine, perfumes and gift vouchers. Entertainment gifts like theatre tickets, movies, tickets to a sporting event or holiday have different tax implications. Where the cost for the employee is less than $300 GST inclusive, there is no FBT, no tax deduction is allowed and no GST credit can be claimed. However, if the cost for the employee is $300.00 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable.
Common mistakes with the personal services income (PSI) rules The PSI rules were introduced on 1 July 2000 and seek to attribute income from personal services income to the person earning that income. Personal services income is income that is mainly a reward for an individual’s personal efforts or skills. These rules limit the income splitting opportunities that are available where the person doing the primary work provides their services through a company, partnership, or trust and pays wages and other benefits to associates in order to reduce the overall tax payable. The ATO has provided a list of common mistakes that are made by taxpayers in applying these rules. They include not complying with additional PAYG withholding obligations on the attributed income and claiming deductions that the taxpayer is not entitled to. Another important yet common mistake is applying the PSI rules to the whole entity rather than to each individual performing the services. For example, if the income of one or more people is channelled through a company, the PSI rules must be applied on an individual by individual basis and not to the whole entity. In this situation, the company must keep records of the separate streams of income and expenses for each person providing the services.
Guidelines for remission of penalties for failing to withhold tax from certain payments The ATO issued Practice Statement PS LA 2007/22 which sets out the guidelines for failure to withhold tax from payments including salary and wages and termination payments. The ATO can impose a non-tax deductible penalty of up to 75% of the amount not withheld for intentional disregard, which in certain cases can be remitted to either 50% for recklessness, 25% for failure to take reasonable care and remission to zero for voluntary disclosure. These penalties also have potential application where the business is treating individuals as contractors when they are in effect employees for tax purposes. It is very important for businesses to comply with their withholding requirements because upon an audit, the imposition of penalties could be devastating to the business.
Deduction for charitable donation of shares in a public company The ATO also issued a fact sheet on the deductibility of gifting shares that are valued $5,000 or less. From 1 July 2007, the gift was deductible where the following conditions were satisfied:
- The shares were purchased in a listed public company.
- When gifted, the shares are listed on the Australian stock exchange.
- The shares are gifted to a recognised charity.
- The shares were purchased 12 months or more before they were gifted.
- The market value of the shares was $5,000 or less when gifted.Given the recent volatility in the sharemarket, now is a good time to consider gifting shares that have fallen in value and obtain a tax deduction at the same time.
This article is provided courtesy of www.australianbiz.com.au, a website that provides practical tax and business articles, calculators and other tools to assist business owners and financial decision makers to better manage their business and income tax obligations. The site is also a useful tool for practising accountants. Joe Kaleb, a Chartered Accountant, Registered Tax Agent, with a Master of Taxation from The University of Sydney, is the CEO of Australianbiz. Joe runs his own accounting practice that specialises in providing taxation and advisory services to high net worth professionals and small to medium sized businesses. Contact Joe through the website.