Accounting Archives | QC Accountants

As a director of an Australian company, it is your responsibility to ensure that the company remains solvent and can meet its financial obligations.

Insolvent trading happens when a company incurs a debt while it is insolvent or becomes insolvent by incurring that debt. Insolvency happens when a company is unable to pay its debts as they fall due. To prevent insolvent trading, directors must be aware of the company’s financial position at all times and take steps to ensure that the company remains solvent.

Directors should regularly review the company’s financial statements, cash flow projections, and budgets to identify any potential financial issues. If a director suspects that the company may be insolvent, they must take immediate action to seek professional advice and develop a plan to address the company’s financial issues. This may include restructuring the company’s operations, negotiating with creditors, or placing the company into voluntary administration.

In addition to seeking professional advice, directors should also take the following steps if they suspect that the company may be insolvent:

Conduct a thorough review of the company’s financial position, including cash flow projections, budgets, and debtors and creditors.
Consider whether the company has any viable options for restructuring its operations to improve its financial position.
Develop a plan to address the company’s financial issues, including negotiating with creditors or seeking additional funding.
If the company is unable to meet its financial obligations, consider placing the company into voluntary administration.
Seek legal advice to understand the director’s duties and obligations regarding insolvent trading.

If a director fails to take appropriate action to prevent insolvent trading, they may be held personally liable for any debts incurred by the company while it was insolvent. This can include fines, disqualification from managing a company, and even imprisonment in severe cases.

In conclusion, directors must take a proactive approach to managing the company’s financial affairs and seek professional advice whenever necessary to prevent insolvent trading. By doing so, directors can ensure that the company remains solvent and can continue to operate effectively for the benefit of its stakeholders.

How we can help

We have helped many clients navigate their way through this process. As your accountant we can help you right from the very start to identify if the company is insolvent and provide you with the right steps to move forward.

A cash flow forecast is a critical tool that helps our businesses plan for their future financial stability and navigate economic downturns. It provides a comprehensive view of the inflows and outflows of cash and identifies patterns to help make informed decisions about spending, savings, and investments.

Here are some ways preparing a cash flow forecast can help clients plan for their future and navigate a potential downturn:

Identify potential cash flow shortages

One of the primary benefits of a cash flow forecast is that it can help clients identify potential cash flow shortages before they occur. By projecting future inflows and outflows, clients can see if their cash reserves are going to be sufficient to cover their expenses. This information can help them make adjustments to their spending and invest in initiatives that will increase their cash flow, allowing them to avoid financial difficulties.

Plan for future expenses

A cash flow forecast can also help clients plan for future expenses, such as investments in new equipment, expansions, or upgrades to existing systems. This information can help them determine how much they need to save each month to meet their goals and avoid dipping into their emergency funds.

Monitor their financial health

By regularly updating their cash flow forecast, clients can monitor the health of their finances and see how their financial situation is evolving over time. This information can be used to make necessary adjustments to their spending habits and investment strategies, ensuring they remain on track to reach their financial goals.

Anticipate potential risks

A cash flow forecast can also help clients anticipate potential risks that may impact their financial stability. For example, if a client’s cash flow is heavily dependent on a single customer, a change in that customer’s financial situation could have a significant impact on their own finances. By identifying these potential risks, clients can take steps to diversify their sources of income and reduce their dependence on a single customer.

Make informed decisions

Finally, a cash flow forecast allows clients to make informed decisions about their finances. By having a comprehensive view of their inflows and outflows, they can prioritize their spending, understand their cash reserves, and make informed decisions about their investments. This information can help them weather economic downturns and ensure they remain financially stable, even in uncertain times.

In conclusion, preparing a cash flow forecast is a critical step in ensuring financial stability and navigating a potential downturn. It provides individuals and businesses with a comprehensive view of their finances, helping them make informed decisions about their spending, savings, and investments.

We regularly assist our clients to understand their current and future cash position using a cashflow forecast, please reach out to us if we can be of any assistance at [email protected] or using 07 5593 6060.

Trading Accounts can be complicated to look at, but having insider tricks can make it work for you. Traders using trading accounts to hold financial assets such as stocks, bonds, foreign exchange, and other investment vehicles need to know these top 5 trading account tips to make the most of a Trading Account.

Definition of a Trading Account

A typical trading account allows the buying and selling of securities, otherwise known as day trading. Your Trading Account can be prepared at any stage during the year and shows sales generated less any variable costs directly associated with those sales. It’s used to calculate your Gross Profit (sometimes referred to as your Gross Margin) which is often also shown as a percentage.

The basic format for your Trading Account is: Sales – Cost of Sales = Gross Profit

Here are our top 5 trading account tips to make the most of a Trading Account.

1. Increasing sales is not the only way to grow your overall profit.

However, growing sales should always be part of your strategy. There are seven ways to grow sales including increasing client retention, leads generated and converted, sales value and frequency, and reducing the cost of sales and overheads.

2. Lifting your Gross Profit Percentage by 1-2% can make a huge difference to your results.

Calculate the impact of lifting your Gross Profit Percentage by 1% by taking 1% of your total sales for the year; that is how much more will hit your overall profit. We can help you employ strategies to increase your margin.

3. Compare your expected Gross Profit Percentage to your actual Gross Profit Percentage.

You can do this by ‘back costing’ a job once you’ve finished it. Calculate all costs associated with a completed job. For example,for a building job, calculate the total material and labour costs for that job, then divide by the selling price to determine the Gross Profit Percentage for that job.

4. Ensure your pricing is up to date.

If your Gross Profit is declining, review your costing to ensure you’re using current costs when pricing a job, product or service. Many businesses use great pricing tools and standard markup formulae, but often have outdated costs in the model or calculation.

5. Consider all costs associated with creating a sale.

Your margin could be slipping because there are costs hidden in overheads that should be measured as variable costs. For example, a mobile ice cream truck will have fuel as a variable cost, but the fuel costs might be lumped in as overhead costs with another business vehicle.

Overall, Trading Accounts can be incredibly beneficial to you in the long term – if you know how to use them well. For more information on how to make your Trading Account more profitable, get in touch with the expert team at QCA today!

Business growth should always be at the forefront of the minds of business owners. However, it can become unclear sometimes just how to achieve that growth. This article seeks to clarify some ways that you can increase the value and size of your business.

1. Increase client retention rate

Most business owners are already aware of the first rule of client work: it is easier to keep existing clients than it is to attract new ones. By putting the right amount of resources and energy into keeping your existing clients happy, you will find yourself with a much more sustainable business model. Be careful not to chase after clients who are not of high value to your business.

2. Increase leads generated\

Just because it’s easier to hold onto existing clients, doesn’t mean you should ignore new leads. On the contrary, driving more potential clients to your website, phone line and premises is another essential step to growing your business. Using effective lead generation techniques is a crucial element to your success.

3. Increase prospect conversion

Don’t leave responding to clients to your auto-responder. Follow up with potential clients who have made enquiries, show genuine interest and build rapport. The more attention prospective clients have, the more likely they are to consider you their best option.

4. Increase transaction value

Upselling and cross-selling is a hidden gem in the business industry and helps to increase the value of your sales. Upsell additional services or bigger volumes to your current clients or customers to bolster the value of the deals that you make with them. Be careful not to overdo it though, clients who feel like they are being pressured into services they didn’t ask for are liable to walk away from your business altogether.

5. Increase transaction frequency

Encouraging clients or customers to buy more frequently is another way to increase your business. This can involve signing clients up for repeat or recurring services and subscriptions. Compared to one-off sales, by increasing transaction frequency you can ensure the longevity of your business.

6. Reduce cost of sales

Another major step to growing your business is to ensure that your processes are as cost efficient as possible to increase the profit margin of sales. Identify ways to save time and resources in order to make more sales, as well as drive efficiency and variable cost reduction.

7. Reduce overheads

Review your overall business costs to identify unnecessary expenditure that can be trimmed. Be careful when undertaking this process to strongly identify the strengths and weaknesses within the business. This will mean you don’t accidentally trim away the proverbial muscle of the business, instead of the fat.

In conclusion, by following these 7 steps for business growth, you can ensure stability, health and expansion of your business for years to come. For a further explanation of any of these steps, or for help actioning them, get in touch with the expert team at QCA today!

Consumers and investors are driving increasing demand for sustainability in the market in response to climate change. Investors are doing so by increasingly seeking accountability and transparency from the businesses they support. As we find new ways to do better business in a sustainability focused environment, now is the time to push for investment in sustainable business practices.

What is a sustainable business practice?

‘Sustainable business practice’ can be a fairly broad, ambiguous, and daunting term. Let’s start by clearly defining what constitutes a sustainable business practice.

A sustainable business practice adheres to, and is driven by a triple bottom line of profit, planet and people. This means that businesses act in a way that equally propagates the economic success of the business, environmental impact mitigation, and ethical treatment of people.

From choosing recyclable materials to electric vehicle fleets, there are many environmentally ethical paths that businesses can choose to invest in. Some innovations to look out for include electric transport, energy efficient lighting, renewable energies, carbon capture and storage, and even hydrogen powered vehicles.

Why is it important for businesses to operate sustainability?

Consumers are said to find brands equally responsible for their impact on the planet as our government. While this might seem like an overstatement, the fact remains that there are a lot more businesses than governments, and thus they must shoulder a fair amount of responsibility for the state of our world today.

In the past, a major roadblock to business sustainability has been the cost. However, by contributing to a push for a greener economy, businesses are able to channel growth and encourage competition in sustainability sectors, thereby driving down the cost of sustainable investments.

How can businesses improve using sustainable business practices?

There are two key ways businesses can improve their sustainability, including the use of digital technologies, and investment in renewable energy.

By utilising digital technology, businesses can reduce paper usage, waste production, and as an added bonus, reduce overhead costs. Digital file management systems are constantly evolving to be more intuitive and reliable than traditional filing systems, so it stands to reason that businesses should be making this move anyway. The environmental benefits of going paperless pair nicely with the economic benefits for your business, reducing the need for paper to be purchased regularly.

Digital files are best stored using cloud based storage systems, which are run using climate neutral servers. Cloud based storage is more preferable, as hard drive systems contribute to e-waste, a waste product which currently makes up about 70% of the planet’s toxic waste.

Renewable energy not only reduces your carbon footprint, it can save you money! By investing in private renewable energy sources such as solar panels, you immediately reduce your spending on energy from power grids. Additionally, having your own source of power means that should the grid go down, your business doesn’t lose money on interrupted operations. Even if you outsource to external renewable energy providers, your energy bill is likely to see a significant decrease.

Conclusion

Accounting for a more sustainable future means striking a balance between economic growth, and environmental impact. Sustainable innovations in terms of product development, delivery and marketing are just a few ways businesses are making a shift towards safeguarding the environment against the effects of climate change.

On December 13, 2021 the Australian government announced it would be extending its SME Recovery Loan Scheme (SMRL) program, which provides small and medium-sized businesses with Government guaranteed loans of up to $5 million to help their business recover from the impacts of the coronavirus pandemic. The SMRL was initially introduced in April 2021 to enable lenders’ to provide cheaper credit to eligible SMEs. This has helped SMEs to get through the pandemic, begin to recover and start investing for the future.

Under the existing SME Recovery Loan Scheme, loans were available from 1 April 2021 until 31 December 2021 with a Government guarantee of 80%. Under the new 2022 Scheme expansion, loans are available from 1 January 2022 until 30 June 2022, with a Government guarantee of 50%. The SMRL has been extended from January 1, 2022, and will be available to eligible businesses until June 30. The Australian government’s

Key features of the new SME Recovery Loan Scheme:

the expanded Scheme commenced on 1 January 2022 and will close 30 June 2022.
the Government will guarantee 50% of the loan amount
borrowers can access up to $5 million in total
loans can be used for a broad range of business purposes including refinancing any pre‑existing debt of an eligible borrower
loans are for terms of up to 10 years, with an optional repayment holiday period
loans can be either unsecured or secured (excluding residential property)
the interest rates will be determined by lenders, but will be capped at around 7.5% per cent

What can the SME Recovery Loan be used for?

The intended purpose of the SMRL is to assist small to medium sized businesses in getting back to economic stability. Lenders can offer any suitable product to the borrower except credit cards, charge cards, debit cards or business cards. Loans issued under the Scheme may take any other form of credit providing eligibility criteria are met.

The loan can be used to finance existing loans from eligible lenders, including investment support. This may be done as long as the debt is no more than 30 days in arrears, and the lender has not gone into administration. Loans can also be used to purchase non-residential real estate property (such as commercial property) or for the acquisition of another business.

The loan cannot be used for:

residential property
purchase financial products
lend to an associated entity, or
lease, rent, hire or hire purchase existing assets that are more than half-way into their effective life.

Who is eligible to apply?

The SMRL is available for small to medium sized businesses with a turnover up to $250 million, and adheres to at least one of the following criteria:

received Jobkeeper payment between January 4 and March 28 of 2021 (a JobKeeper Scheme‑Backed Loan can only be approved under this eligibility prior to the Scheme Expansion date of 1 October 2021)
affected by the floods in eligible Local Government Areas in March 2021 (a Flood affected loan can only be approved under this eligibility prior to 1 January 2022)
adversely economically affected by COVID‑19 (a Covid Scheme‑Backed Loan can be approved under this eligibility from the Scheme Expansion Date of 1 October 2021)

Additionally, self-employed individuals and non-profit businesses are eligible. Businesses that have accessed loans in Phase 1 and Phase 2 can also apply for loans under the SMRL.

How do I apply for the SME Loan Recovery Scheme?

Loans backed by the SMRL are available through approved commercial lenders, and the decisions to extend credit, and management of the loan, remain with the lender. The Government is not directly participating in the lending process. The process is relatively simple;

Approach a lender
Lender makes a decision
If a lender declines your application or you are not satisfied with the product offer, you can approach other lenders

Businesses are encouraged to shop around and compare products offered by different participating lenders. The interest rate on loans will be determined by lenders, but will be capped at around 7.5%, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time

Participating lenders are:

Westpac
ANZ
Bank of Queensland
Commonwealth Bank of Australia
Earlypay
Fifo Capital Australia
Get Capital
Judo Bank
Liberty Finance
Marketlend
Moneytech Finance
National Australia Bank
Regional Australia Bank
Social Enterprise Finance Australia
South West Credit Union Co-operative
Suncorp-Metway
The Mutual Bank
TrailBlazer Finance
Unity Bank

Conclusion

The SME Recovery Loan Scheme has helped many businesses so far in managing the impacts of the Covid-19 pandemic. Hopefully this guide gives you the key insights you need to start making the most of the SMRL. However, we recommend getting in touch with an accounting professional before acting, to ensure there are no costly mistakes or misunderstandings along the way. At QCA our team of professionals are dedicated to ensuring your business gets every advantage. We already have the knowledge and experience to make the SMRL work for you. Contact the team for more information.

Minimising your tax requirements is a well known method for improving a business’ financial health. However, not all business owners know how to make the most of thresholds, deductions and smart money management. You could be paying much higher tax than you should be. By the end of this article, you will have a better understanding of how to save on your tax bills this year. Our 8 tips for paying less tax are as follows:

Keep Good Tax Records
Know your deductions
Charitable donations
Medicare Levy Surcharge vs Private Health Cover
Manage the timing of your tax deductible expenses
Smart management – sell an asset that is subject to Capital Gains Tax (CGT)
Pay off your mortgage
Advice from a Tax Agent

1. Keep GOOD tax records.

By law, you are required to keep written documentation of all business financial activities to ensure you meet your obligations as a business. However, many businesses can find themselves missing out on big deductions from their tax due to poor record keeping. Having receipts to present to the ATO at tax time is crucial to making the most of every deduction you are eligible for. Maintain an organised system of records for all of your income and expenses, and check regularly for discrepancies and issues to prevent having a build up of things to resolve when tax times rolls around. It pays to be prepared.

2. Know your deductions

Tax deductions are invaluable when it comes to reducing the taxes you pay. Most expenses that are related to income generation are tax deductible. This can include operating expenses such as stationery supplies, or even wages.

Your business may also be entitled to concessions, offsets and/or rebates depending on the size and activity of your business. Some business tax concessions include:

Small business concessions which allow for flexible payment and reporting options
Primary producer concessions affecting how much income you include in your reporting for the year
Special professionals, sportspersons and entertainers concessions which can qualify you for income averaging

Businesses may also be eligible to claim tax offsets if they meet certain criteria:

Small businesses
Businesses who paid tax on income in foreign countries
Organisations who underwent eligible, registered research and development (R&D) activities may be entitled to the Research and Development Tax Incentive (R&D Tax Incentive or R&DTI)
Businesses who reported tax losses in the 2019–20, 2020–21 or 2021–22 income years.

3. Charitable donations

Making donations to charitable organisations not only feels good, it can also help you save on your taxes. In Australia, charitable donations are tax deductible and may be applied to reduce the amount of tax you are required to pay.

Money, property, shares and in some cases Heritage and Cultural gifts are all charitable donations which can be deducted from your taxes. The amount or value of the donation/s is deducted from your taxable income, meaning you will receive a percentage of the donation back at tax time. Donations must have been made to Deductible Gift Recipients (DGRs), registered with the ATO. You must also provide a tax invoice from the DGR in order to claim the deduction. There is no limit or threshold for charitable donations.

4. Medicare vs private health care

If you are earning more than $90K annually as an individual, or more than $180K for families, you are required to pay a minimum of 1% more of your income to the Medicare Levy Surcharge, in addition to the mandatory 2% surcharge already paid by most taxpayers, a total of 3% of your annual gross income.

Comparatively, basic private health cover and insurance can come in at less than 1% of your annual income. This means you pay less annually for private health cover than you are required to pay in Medicare Levy Surcharges, and reduce the taxes you have to pay at the same time.

5. Timing your expenses

If you know ahead of time of expenses that will attract a high tax deduction, you can use the timing of your purchase to help improve your tax situation. You should aim to make more expensive tax deductible purchases in the financial year where you have made the most income, as this will maximise the amount of tax you can claim back with deductions.

In financial years where you have generated less taxable income, you will have a lower deductible income, and so making high value deductible purchases will not result in as much return.

6. Timing your Capital Gains Tax (CGT)

If you have owned an asset for longer than twelve months you may be entitled to a 50% Capital Gains discount. If you haven’t owned the asset for at least twelve months, you will have to pay more CGT.

Does your income fluctuate? If so, you may choose to sell the asset in a year you expect to earn a lower income, as your capital gain won’t have such an impact on your tax liability.

Being strategic about when you sell assets which incur CGT can also help you reduce the annual cost of your taxes. Selling an asset after owning it for longer than 12 months can entitle you to a 50% discount on your Capital Gains, which can mean massive savings. Additionally, it can be beneficial to sell assets in financial years where you expect a lower income. Doing this means the capital gain will be paid in a lower income bracket and threshold, effectively lowering the amount you will be required to pay in CGT.

It is important to speak with professional financial advisors, like our team at QCA, before making decisions in regards to CGT. This will ensure you have a thorough understanding of your legal obligations, and to minimise the tax incurred from your capital gains.

7. Pay off your mortgage

Considering the amount of tax you pay on financial savings each year, there are much better places to put your assets to ensure you hold on to as much of your annual income as possible. Investing your savings into unpaid mortgages not only reduces your loan debt, but keeps your hard earned money safe from incurring savings taxes.

8. Get advice from an expert

Taxes can be complex, and there are so many different ways to increase and decrease your taxes that it can quickly become overwhelming if you can’t dedicate time to understanding it all. Tax professionals like the team at QCA are essential to help you minimise the tax you are required to pay, and make the most of government tax programs.

Conclusion

There are many ways to pay less tax as a business. Some of our recommended methods include keeping good records, knowing your deductions, timing your expenses and asset sales strategically, and getting quality advice and financial management from a qualified professional provider like QCA. Additionally, some proactive financial moves you can make include making charitable donations, considering private health care, and putting savings into mortgage repayments.

If you have more questions about how to reduce your tax liability, or if you’re ready to start working with a professional team, get in touch with QCA today!

Holidays are an important part of the working world; if no one ever took holidays, we probably wouldn’t live to an average age of 85. Making sure your employees get breaks is important, and so is understanding leave entitlements. This article explains when and why annual leave needs to be paid.

What is annual leave?

Annual leave, also referred to as ‘holiday pay’, is an accrued number of hours which any employees, other than casual workers, are entitled to claim. This allows employees to take time off work while still being paid. Annual leave is one of 11 minimum employment standards which must be provided to employees as mandated by the Fair Work National Employment Standards.

How much annual leave are employees entitled to?

The National Employment Standards dictate that at a minimum annual leave for full-time and part-time employees are to receive the equivalent of 4 weeks of ordinary work per year. This means that each year, employees are entitled to 4 times their average working week in annual leave. For example, an employee who works 38 hours per week will accrue 152 hours of annual leave over the course of a year.
Shift workers, classified as employees who work rostered shifts on any day of the week at any time, are entitled to 5 weeks of annual leave per year.

How is annual leave calculated?

Annual leave must begin from the first day an employee begins working for your business. As mentioned previously, full-time and part-time employees are entitled to a minimum rate of 4 weeks paid annual leave per year. However, annual leave is calculated and accrued daily.

Daily annual leave accumulation can be calculated using the following formula:
Total annual leave ÷ 52 weeks = annual leave per week
Annual leave per week ÷ 5 days = annual leave per day

How to manage annual leave

Managing your employee annual leave balances and payments doesn’t need to be difficult. Using cloud based software like Xero allows employees to view, request and manage their own annual leave. This type of software also allows you to view each of your employees’ leave balances, requests, and approved time off. By automating the annual leave process, you are free to focus on business growth.

Conclusion

Understanding your annual leave requirements and your employees entitlements is just as important as taking some time off. Without proper management, you could find yourself giving your employees too much or too little annual leave, and neither would be good for your business. For more in-depth advice on how to properly manage annual leave in your business, contact the QCA team.

In a recent article, we explained how to make your Christmas party Fringe Benefit Tax (FBT)-friendly and avoid some unwelcome surprises. Employers may be confused, or unaware of the scope of FBT, how and when to pay it, and how to reduce it. Knowing the basics of FBT and how you can avoid and reduce it can be a huge money saver for your business.

What is a Fringe Benefit?

A Fringe Benefit refers to anything paid to your employees which does not fall under the categories of salary or wage. A Fringe Benefit can refer to many things including cars, accommodation, entertainment, financial aids (i.e. loans, expense payments and debt waivers). For a full list of fringe benefit examples, see the ATO website.

When do I have to pay Fringe Benefit Tax?

The FBT year runs from April 1 to March 31, and any FBT payments that are due should be made annually by May 21. If this is your first time time paying FBT, or if the amount of FBT you paid in the previous year was under $3,000, then you only need to make one payment for the year. If you paid $3,000 or more in the previous year, then you are required to pay FBT in quarterly instalments for the next FBT year. Payments must be made to the ATO on or before the due date to avoid Failure to Lodge (FTL) penalties.

How do I pay Fringe Benefit Tax?

It is a legal requirement that you keep written records of all Fringe Benefits, and lodge an annual FBT activity statement through the Australian Business Registry Service (ABRS).
Standard Business Reporting (SBR) enabled software including Xero and MYOB must be used to submit your FBT statements. There is a full list of software you can use to lodge your activity statement, however it is recommended to manage your FBT through a registered tax agent to ensure you meet all obligations.

How can I reduce Fringe Benefit Tax?

To reduce FBT, make sure you are well aware of all the benefits which incur FBT and plan your benefits accordingly. FBT can apply to cars, entertainment, loans and accommodation. Your payable FBT can be reduced by:

providing benefits that are income tax deductible
using employee contributions
providing a cash bonus
providing benefits that are exempt from FBT

The threshold for taxable Fringe Benefits is $2000, so keeping annual benefit value below that will immediately save you the obligation of paying FBT.

Fringe Benefits are a great way to reward your staff in a way that can be much more meaningful and relationship building than a cash bonus. However, it is crucial to keep a close eye on the benefits you provide your employees to ensure you don’t end up hurting your business as a result.

Our expert team knows all about Fringe Benefit Tax in Australia. Get in touch today to make the best decision for your business when it comes to FBT.

Planning your work Christmas party can be a huge task and Fringe Benefit Tax can be confusing and add up quickly if you’re not careful. So it’s important to take advantage of all the tax exemptions you are entitled to during this process.

In this article, we will discuss how Fringe Benefit Tax works and provide our top 5 tips on how to make your Christmas party exemption-friendly

What is Fringe Benefit Tax (FBT) in Australia?

Fringe Benefit Tax is a tax that employers have to pay on non-cash benefits provided to employees. Fringe Benefits are the perks given by an employer, such as gifts or free food and drinks at parties or work functions. There is a Fringe Benefit Tax exemption limit each FBT year (April 1 – March 31).

If the cost of your Fringe Benefits is under the current threshold, you don’t pay FBT on them. It’s important that you understand your Fringe Benefit Tax exemption limit, and make sure you don’t go over it so you can reduce the amount of FBT you have to pay.

1. Stay within your limits

Work Christmas parties can be considered a ‘minor benefit’ for your employees according to the ATO’s FBT guide. This means that if the total value of the party or gift is less than $300 including GST per employee or associate, then there is no payable tax on the benefit. The minor benefit exemption can apply to both employees of the business and associates, such as partners, who are invited to the event.

It is important to note that if a benefit is deemed to fall under the category of ‘meal entertainment’, you are still required to pay a calculated FBT. Understanding what benefits and exemptions exist is crucial to remaining compliant with your legal requirements as an employer.

2. Where is the best venue for a work Christmas party?

When deciding on the venue for your work Christmas party, it can pay to consider hosting the event on your work premises where you will be entitled to property exemption.

Choosing to host in your own establishment means any food and drink, including alcohol, is not subject to FBT, as opposed to these benefits provided on a third party premises which require FBT to be paid. GST credits and income tax deductions are not applicable to these expenses.

3. Choosing the right gift for employees

Entertainment gifts provided to employees in Australia are subject to FBT. In order to avoid this cost, employers can opt for ‘non-entertainment’ gifts, which can include hampers, gift vouchers, bottles of alcohol, etc.

To determine whether employee gifts are classified at entertainment or non-entertainment, see the FBT guide for a set of identifying questions including why, what, when and where food or drinks are being provided to employees

5. Record your expenses

Ensure all expenses are recorded and organised, with expenses such as entertainment, meals, gifts, etc. kept separate.im to keep costs within the limit of the FBT exemption. Your records must include the taxable value of each fringe benefit provided to each employee, the method of allocating the taxable value, and evidence that 100% of the taxable value of the benefits has been allocated to employees.

You must also keep records if you want to take advantage of various exemptions or concessions that reduce your FBT liability. These documents must also be kept for five years from when the relevant FBT return is lodged.

Conclusion

The best way to plan your work Christmas party and make use of Fringe Benefit Tax exemptions is to host your party on your business premises, and give staff non-entertainment gifts that cost less than $300 per employee. Minimise your FBT without minimising the fun.

If you’re still not sure about your Fringe Benefit Tax requirements, and how you can reduce them, get in touch with QCA today!