Solutions November 2010: End of Year Edition

Tax tips to stay "merry" this Christmas

With Christmas just around the corner, you may be organising your annual year-end celebration, or gifts to employees and clients.

It is important that you recognise the FBT and other tax implications relating to Christmas entertainment. If you take advantage of the various FBT concessions and exemptions, it can make it tax-effective to provide entertainment over the festive season.

A $1,000 recreational event could almost double that after the FBT applies. However, if you do your homework and plan appropriately, you can minimise your FBT exposure.

While Christmas is usually a time of excessive spending and splurging, it pays to be wise with your money and consider the tax savings that can be made by following a few simple points.

Click here to download a simple guide to the tax concessions for entertainment.

ATO's benchmarking to change the game forever!

The Australian Taxation Office (ATO's) new benchmarking process means that for small businesses, the game has changed forever.

The detail and the quality of taxpayers' recordkeeping is about to take the spotlight.

Fail to keep good records, and the onus will be on the taxpayer to prove the ATO wrong when they apply the benchmark. Not an easy thing to do if you didn't have the records in the first place.

The ATO states that it is not it's intention to issue arbitrary default assessments and there is a prescriptive process it follows in relation to benchmarking audits.

Under that process:

A letter is sent to the taxpayer, with a copy to the tax agent, advising that the taxpayer's business is outside the benchmarks for their industry;
Where necessary, the client's records are requested and reviewed;
Where the records are found to be acceptable, no further action is taken;
Where the records are found to be inadequate, the taxpayer is advised that unless there are futher records supporting the variation from the benchmark or other compelling reasons, the ATO will have to apply the benchmark;
The taxpayer is given 14 days to respond;
If there is no response or if the response is inadequate, a default assessment will be issued applying the benchmarks.

What you should keep in mind

As the ATO are sending these letters directly to businesses, it is important for you to contact our office as soon as possible to prepare a response within the 14 day period.

Strong performing, profitable businesses use management reports such as key performance indicators (KPIs) on a regular basis. KPIs must be reviewed regularly and compared to previous years' performances, with management forecasts and most importantly, against industry average benchmarks.

With the ATO's new benchmarking process being implemented, it is crucial that all businesses have a sound KPI system established. We recommend that businesses compile KPIs on a monthly basis, or at the very least, on a quarterly basis.

If you would like MGI Perth to assist you in developing or reviewing your current KPI reporting, or for further information about this article, please contact Tim Blackburn, Associate Director, on 08 9463 2463 or email tim.blackburn@mgiperth.com.au

ATO blitz on business tax debts

The Australian Taxation Office (ATO) has progressively increased its debt recovery activity and is taking tougher action against small to medium business owners, following a more lenient approach during the GFC.

The ATO has warned of firmer action if small businesses, which account for 60% of the $12.2 billion outstanding debt, continually default on agreed payment arrangements; do not have the capacity to pay; and do not take steps to voluntarily resolve their situation.

We have noticed a dramatic increase in the number of audits, default assessments, writs of summons and winding up applications issued by the ATO.

The ATO is actively issuing "director penalty notices" (DPNs), which make a director personally liable for company PAYG withholding tax. In July 2010, little-known changes to the DPN legislation were introduced which make it easier for the ATO to take action against company directors for outstanding taxation debts.

The substance of the DPN regime is largely the same, except for a couple of significant changes:

A DPN takes effect from the date it is posted, not when received by the director;
On receipt of a DPN, directors no longer have the option of satisfying their obligations by having the company enter a payment arrangement with the ATO. This means that the only three options availble on receipt of a DPN are:
a) Pay the debt;
b) Appoint and administrator; or
c) Wind up the company.

If a director fails to do one of the above within 21 days (an extension on the old 14 days), the ATO can institute proceedings to recover the debt from the director personally.

If a payment agreement is already in place when a DPN is issued, it merely precludes the Commissioner from commencing proceedings to enforce the obligation for the director's penalty. As soon as there is any default by the director, the ATO can enforce the director's penalty.
The defence of 'illness or other good reason' has been amended to make it more difficult for the director to rely on. In addition to establishing the defence, the director must also establish that it would have been unreasonable to expect the director to have taken part in the management of the company.

Should you have any queries regarding the ATO recovery action, MGI Perth can assist. Speak to one of our advisors by calling 08 9463 2463 or emailing info@mgiperth.com.au today.

MGI Perth