Director penalty regime, superannuation changes and FBT

AccomNews Tuesday, January 22, 2013

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The new Director Penalty Regime came into place in June 2012. It once and for all clears up any suggestion that a director can have a passive involvement in a company.

It provides a stern warning to company directors that this position has great responsibilities. Unless directors closely monitor their company’s activity, they are placing themselves at great risk. Most management rights are operated through a Pty Ltd company, ATF or a discretionary or family trust. Companies (as a legal entity) have long been a preferred structure for new business ventures because it provides protection of the personal assets of the director(s). For management rights, the personal asset (in particular the manager’s residence) is often significant in dollar terms.

As a separate legal entity – if things go bad in the business – it is the company that is responsible not the directors personally. However; there are exceptions to this general principle. For instance, when a director seriously breaches their legal duties as a director or allows the company to trade while insolvent, they may be personally liable.

The new rules go a lot further. Under the new Director Penalty Regime, a director will be personally liable for any PAYG withholding tax and employee superannuation if they are not paid or reported within three months from their due date. This liability remains even if the company is later put into administration or liquidation.

Company directors must be fully aware of the financial position of their company. This means taking all reasonable steps to ensure that the company does not incur financial commitments that the company cannot afford.

With the change in law, company directors must ensure that PAYG withholding tax and employee superannuation are paid when due or are adequately reported to the Australian Taxation Office. That means lodging business activity statements and superannuation guarantee charge statements on time.

The new Director Penalty Regime highlights the serious obligation and risk as a result of being a company director. If in doubt about your obligations, or the financial standing of a company, you have the option of getting legal and financial advice. Like so many other things in business – early advice is usually the best.

Superannuation changes ahead – On 1 July 2013 the superannuation guarantee levy will increase from 9.00% to 9.25%. These changes will see the superannuation guarantee levy rising by 0.50% per year – capping out at 12.00% in 2020.

Rate increases are not the only change. The upper age limit for paying superannuation to an employee will no longer apply. This move is to encourage mature workers to stay in the work force longer. This means employees aged 70 years or older will continue to receive employer superannuation payments.

Employers may also be required to print information about superannuation on employee pay slips. This new information may include the amount of superannuation and the date it was paid into each superannuation fund. Doing this will provide employers and employees with a point of reference in the case of payment disputes.

If these additional changes are introduced, employers need to update their payment processes to include these new changes. Management rights operators should consult their bookkeeper and/or accountant to ensure their payroll systems are updated accordingly.
These changes are intended to give employees more information. The aim is to help employees keep track of their superannuation and be able to make more accurate long-term plans for their retirement.

FBT and Christmas – the top ten – With the Christmas festive season concluded, many businesses need to consider how they account for their Christmas function and any gifts given to staff, unit owners, suppliers, etc. Something that is often forgotten at this time is the tax implications these niceties bring.

Here are ten things about providing such benefits to employees, unit owners, suppliers, etc that might help make things a little clearer:

1. The costs of Christmas parties are exempt from FBT – as long as they are only provided to current employees on a working day on your business’ premises.

2. If current employees invite their spouse or another associate of theirs – these costs will be subject to FBT unless these costs are a minor benefit or satisfy the minor benefits exemption.

3. Christmas parties that are provided off business premises will also be subject to FBT – unless they satisfy the minor benefits exemption.

4. This exemption allows for an FBT exemption to be claimed for benefits provided, where each benefit – on a benefit by benefit basis – is less than $300 (including GST), regardless of whether it is provided to an employee or an employee’s associate (spouse or family member).

5. The application of the minor benefits exemption also requires that the costs associated with the party and the provision of gifts to employees is infrequent and irregular.

6. The FBT and tax implications of gifts given to employees are also dependant on where the employee decides to consume those gifts. Gifts consumed on a business premises are exempt from FBT and the employer cannot claim a tax deduction.

7. A tax deduction for costs associated with the provision of Christmas parties and gifts for employees is allowable only to the extent that the cost is subject to FBT – that is, if the cost is deemed to be FBT Exempt, you cannot claim a tax deduction.

8. Entertainment costs for clients are not subject to FBT – as a result, they are not tax deductible.

9. Gifts provided to suppliers and clients are not subject to FBT and a tax deduction can be claimed – that is, provided the gifts are not excessive, frequent or overly expensive.

10. If the above seems too complicated – businesses can simplify their FBT paperwork by electing to pay FBT on 50% of all meal entertainment benefits provided in an FBT year – regardless of whether it was provided to an employee, associate or client.
Prepare for Easter and school holidays – For management rights operators in short-term letting, the Christmas rush has come to an end and it won’t be long before Easter and the next round of school holidays are upon us. Unusually long operating hours, public holidays and demanding guests can be a recipe for disaster. The best way to avoid the holiday period chaos is to have a well thought-out operating plan.

The following are a few tips:

As management rights operators, February-March may be an ideal opportunity for you to take a well deserved break from working in your business, so you are fresh and rested for the next onslaught of guests.
Have all staff well prepared for the rush periods – train them extensively where possible and use your best performers for the busiest periods.
Look at any cash flow issues from the previous year (and indeed from the Christmas period) and learn from past mistakes.
Work alongside suppliers to ensure there are adequate amounts of stock available – have a warning system in place if stock levels suddenly drop.
Place orders early – suppliers may prefer payment in advance around public holidays – it may be a case of first in best dressed.
For those operating longer hours than usual, take as many safety precautions as possible – always have two team members lock up together at the end of the day.
Put your bookkeeper and accountant on notice early – scheduling a meeting in April-May to plan for the management of the financial year end.