MB+M Inner Circle Newsletter
December 2011
In this issue:
- Christmas hours
- 13 reasons why Melbourne is the best city in the world to invest in Property
- Christmas parties and gifts
- A brave new world
- Company Directors Beware!
- Our Ita
- MB+M News
Christmas Hours
The whole team at MB+M Business Solutions wishes all of our clients a wonderful Christmas and New Year. Keep safe and spend as much time as possible with your loved ones.
MB+M will be closed from 12 noon on Friday, 23 December, 2011 and re-open on Tuesday, 3 January, 2012. Happy New Year!
13 reasons why Melbourne is the best city in the world to invest in Property
By Scott Keck
Monday, 21 November 2011
It was hoped by many investors that economic and investment fundamentals would settle down, stabilise, and provide an environment in which logical, sound, long-term, low-risk decisions could be made for future medium to long-term investment.
Unfortunately, this has not been so, and economic turmoil persists typified by the American economic downturn, the European debt crisis and the consequent global share market volatility.
During this drawn-out and extended period of investment challenge, cash has been favoured, as is usually the scenario when other markets become less reliable.
This is particularly so in Australia, where the interest rates in global terms are relatively high, and the banks and capital guarantee institutions well governed and strong, in contrast to many alternatives overseas.
For this reason Australians have been saving more than ever and cash investment into Australia by overseas parties has also strengthened, one of the main causes for the Australian dollar maintaining above parity with the US for so many months. Amidst the turmoil and uncertainly, we have noticed at Charter Keck Cramer that beginning approximately eight months ago, there was a gradual turn to commercial property by shrewd investors, a trend that has now strengthened significantly.
So strong is this return in favour of property that our services to provide due diligence to prospective purchasers is in greater demand than in any period for many years, as I have noted in the forthcoming edition of The Asian Executive. Acting for both local and overseas investors, the focus is on the Australian east coast, Sydney and especially Melbourne.
- Australia, especially the east coast, and particularly Melbourne, is assured of sustained long-term population growth. This foreshadows excellent economic prospects, as strong population growth is the energy and primary growth factor of an expanding economy, and in a society such as Australia, creates strong demand for real estate in all classes.
- Over the past four years as a result of the GFC, the Australian markets, which usually depend on “speculative” accommodation, built without commitment, have been inactive. Consequently the vacancy rates in all property classes – not just residential but also retail, commercial and industrial – are very low, as a result of which rental values are likely to increase dramatically over the next six to seven years, enhancing yield returns and capital growth.
- Melbourne is the fastest-growing city in Australia.
- Australia has an outstanding geo-political location, in close proximity to the expanding economies of India and China.
- The Australian population and economy are relatively small, nimble and quick to respond in a proactive fashion to global challenges.
- Australia's sovereign risk is extremely low to the point of being non-existent.
- Australian politics is not polarised, but rather broadly balanced, and between both political parties, responsive to the private sector.
- Australia has a high and enviable level of corporate governance, particularly within its banking industry. The four major banks in Australia are well governed, have strong balance sheets, and remain supportive of the property sector.
- In Melbourne and Sydney, Australia's two leading capitals, the private sector is responsible for 93% of all building construction and development. Accordingly, as population growth creates demand, the opportunities for the private sector are excellent.
- The Australian property markets are well educated, mature and in general terms, managed by world-class executives operating at levels of best practice.
- Australia's long-term economic stability is well underwritten by its natural resources and export markets to the growing economies of India and China.
- The Australian economy is generally well managed.
- Over recent years there has been a dramatic increase in interest by Asian and European investors in Australian property, and this is likely to continue. Asian investors are keen to shift money out of their own countries, and European investors grow more fearful of an EU economic slowdown. By comparison, Australia offers low sovereign risk, a transparent market, ease of transaction, and strong growth prospects.
Scott Keck is executive chairman of Charter Keck Cramer
Christmas parties and gifts 2011
Christmas is on the way and many employers will be planning their annnual year-end "bash". In addition, many businesses will be considering what gifts, if any, they will provide to clients and employees. However, an important issue to consider is the possible FBT and income tax implications of providing "entertainment" to staff and clients.
One major consideration is the "less than $300" minor benefit exemption and the fact that the Tax Office now accepts that different benefits provided at (or about) the same time are not added together when applying this threshold. Basically, this means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300!
Christmas parties - electing to use the 50/50 method
Food and drink provided (irrespective of where the party is held or who is attending) - only 50% of the total expenditure is subject to FBT and is tax deductible. Under the 50/50 method, the following traps must be considered:
- Where the function is held on the employers premises- food and drink provided to employees in not exempt from FBT; and
- The less than $300 (<$300) minor benefit exemption cannot apply.
- The taxi travel exemption cannot apply.
Christmas Parties – Actual Method
The actual Method applies where an employer has not made an election to value their meal entertainment expenditure for the FBT purpose under either the 50/50 split method or the 12 week register method.
Calculating the taxable Value
FBT is generally only payable on the portion of meal entertainment provided to employees and their associates (eg. family members). Therefore, FBT is not payable on entertainment provided to non-employees (eg. clients).
Employers can calculate how much of their meal entertainment relates to employees and family members on the basis of either:
- The exact cost attributable to each person; or
- A ‘per head' apportionment, where an exact allocation cannot be easily made.
“Recreation Expenditure” at a Christmas party
Where an employer hires a band, a DJ, a comedian or any other entertainer, for a Christmas party or similar function, this expenditure is generally considered “recreation expenditure” and is generally dealt with under the actual method.
To the extent that any recreation expenditure relates to clients, suppliers, etc., there is no FBT and no tax deduction.
Exclusive use of premises or facilities
Where an employer hires or leases premises or other facilities. (eg. a reception centre, a boat, a cinema, or even a corporate box), for the exclusive use* of their own staff, family members and clients, this expenditure may be dealt with under the 50/50 method (instead of the normal method).
Note *: such exclusive use qualifies the hiring costs as Entertainment Facility Leasing Expenses (‘EFLEs')
Where the 50/50 split method is used for EFLEs' 50% of the employers EFLEs' are:
- subject to FBT; and
- deductible
Irrespective of who is being entertained (eg. employees, clients, suppliers or contractors).
Christmas Gifts
Gifts which are not considered to be entertainment
These generally include, for example:
- a Christmas hamper, a bottle of whisky, wine, etc.; and
- gift vouchers, a bottle of perfume, flowers, a pen set, etc.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
- Gifts to employees and family members- FBT is payable (except where the minor benefit exemption applies) and a tax deduction is allowed
- Gifts to clients, suppliers, etc. - No FBT and a tax deduction is allowed.
Gifts which ARE considered to be entertainment
These generally include, for example
- Tickets to attend a theatre, live play, sporting event, movie or the like; and
- A holiday airline ticket or admission ticket to an amusement centre.
Briefly, the general FBT and income Tax consequences for these gifts are as follows;
- Gifts to employees and family members - FBT is payable and a tax deduction is allowed (except where the minor Benefit exemption applies); and
- Gifts to clients, suppliers, etc. – no FBT and no tax deduction.
The Minor Benefit exemption
Generally speaking, where the values of a Christmas related benefit (eg. food and drink, and a gift) provided to an employee or a family member is <$300, it may be exempt from FBT (subject to certain other conditions – refer S.58P of the FBTAA 1986 and TR 2007/12).
Surprisingly, for the purpose of the $300 minor benefit threshold, the following tips should be considered
- The $300 threshold is applied separately to each benefit provided to an employee, and/or each benefit provided to a family member (eg. spouse)
- All benefits provided to an employee or a family member in relation to a Christmas function are no longer grouped when applying the <$300 threshold (ie., the <$300 threshold is applied separately to each benefit)
However, note that, if the minor benefit exemption applies to the provision of entertainment benefits to an employee, no deduction can be claimed.
EXAMPLE
An employer holds an external Christmas party for employees and their spouses.
The cost of the food and drink per person is $250 and no other benefits are provided.
Assuming the actual method is adopted:
- For employees attending with their spouse – no FBT is generally payable (ie., the per head cost is <$300).
- For employees attending alone – no FBT is generally payable (ie., the per head cost is <$300).
In either case, no tax deductions will be allowed.
Assuming the 50/50 method is adopted:
- 50% of the total expenditure is subject to FBT and is tax deductible.
Gift Vouchers
What if employees with spouses are given a gift voucher (for their spouse) to the value of $150 (assuming this benefit is infrequent and irregular, etc.)?
Under the actual method, for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the voucher) is <$300 (ie. the benefits are not aggregated).
No deduction is allowed for the food and drink, but the voucher is deductible.
Assuming the 50/50 method is adopted:
- 50% of the total cost of food and drink is subject to FBT and deductible; and
- The total cost of all gift vouchers is not subject to FBT because the cost is <$300. As the vouchers are not entertainment, the cost is deductible .
A brave new world!
What does PPSA mean for your business?
The PPSA is new law for Australia coming in to force from the 28 January 2012. It will have a major impact on nearly every type of business.
Advance notice of our seminar dealing directly with this important issue:
Tuesday 24 January, 2012
Breakfast: 7:30am to 9:00am
at MB+M, 23 Nixon Street, Shepparton
If you sell goods or equipment on credit terms - you need to attend this seminar. Further information will be forwarded to you in the New Year.
Company Directors Beware!
Where a company makes payments to employees, the company (as employer) must comply with its obligation to remit PAYGW (wages tax) and Superannuation.
Proposed new rules to take effect from 1st July, 2012 seek to assist the ATO with collecting any unpaid PAYGW or superannuation, effectively making company directors personally liable for the company debts.
The proposed new rules include;
- The ability to recover unpaid superannuation from directors by fining them personally.
- Directors can be fined personally where a company fails to disclose PAYGW on the company BAS.
- The ATO no longer has to provide warning to the company that they are chasing outstanding PAYGW debt.
- The ATO has the discretion to not allow directors to claim PAYGW tax credits on salaries paid in their personal income tax return where the company has outstanding PAYGW debt relating to that financial year.
The ATO will be able to commence recovery action against the directors where amounts remain unpaid, or unreported after 3 months of becoming due!
For more information please contact your MB+M advisor.
Our Ita!
Ita Buttrose with Rebecca Woolstencroft
MBM were fortunate enough to host Ita Buttrose at a pre-dinner drinks function on our balcony before the recent GV brain function.
Those who came along all remarked what a fantastic experience it was to meet Ita and to then hear her give a truly inspiring and motivating speech at the dinner.
MB+M News
The competition was fierce and furious with much sledging from both sides occurring in the lead up to the big day. The weather was fine for the big match and strong teams were fielded. Despite the girls winning three of the quarters, the boys stellar 2nd quarter enabled them to win by 2 goals. The BOC award went to tall timber, Glenn Irvine.
We welcome Michael Curtis to the MB+M team. Michael comes to us with a wealth of experience having worked in the industry for over 20 years.
Congratulations to Kara Shields and husband, Andrew, on the birth of their beautiful daughter, Gabrielle Judith.
Also, well done to Katrina Hinchliffe who is now a Chartered Accountant.