Paying reasonable travel allowances to employees
The ATO has issued Tax Determination TD 2021/6 which sets out the reasonable allowances for the 2021/22 year for meals, domestic and overseas travel paid to employees, company directors or office holders.
The reasonable allowance for overtime meals is $32.50, while the reasonable allowances for domestic and overseas travel is set out in various tables in the Determination.
Where the amount paid falls within the relevant reasonable allowance, the person is not required to substantiate the expenses. However, the ATO still requires some written records be kept to show the allowance was expended.
Note any expenditure on accommodation overseas must be fully substantiated.
2021-22 car threshold amounts
From 1 July 2021 the following car threshold amounts apply:
(1) Income tax
An upper limit applies to the value of a car that a taxpayer is able to claim depreciation based on the business use of the car - the car limit applies to the year the car is first used for business or work purposes.
The car limit for 2021–22 is $60,733 – this amount is exclusive of GST so it applies net of any GST credits claimed.
If a taxpayer purchases a car for $70,000, the maximum depreciation that can be claimed is based on the cost limit of $60,733.
(2) Goods and services tax (GST)
Where the purchase price of the car exceeds the cost limit of $60,733, the maximum GST credit that can be claimed is one-eleventh of the car limit amount which in 2021–22 is $5,521.
A GST credit cannot be claimed for any luxury car tax paid upon purchase of a luxury car regardless of any business use.
(3) Luxury car tax (LCT)
From 1 July 2021 the LCT threshold has increased to $69,152.
The LCT threshold for fuel efficient cars has increased to $79,659 for the 2021–22 year.
The LCT value of a car generally includes, the value of any parts, accessories or attachments supplied or imported at the same time as the car.
Deductions for pre-paid rent disallowed by court
The ATO had a win with the recent Full Federal Court decision in the Mussalli v FCT. The court found that payments described as "prepaid rent" were paid by a franchisee to a franchisor (McDonalds) upon entering into lease and license agreements and classified as revenue, rather than correctly as capital. This resulted in “prepaid rent” deductions being not claimable in annual returns.
In operating the restaurants as franchises, it was agreed the owners would pay upfront payments related to some turnover, in order to secure a monthly rent reduction. The court ruled that by making these payments the franchisee had secured a more advantageous profit-making structure via a permanent reduction in rent payable.
These deductions were disallowed with the court determining that these expenses were capital in nature and therefore not deductible. This is an important reminder to business owners that simply labelling an expense rent or prepaid rent isn’t enough to change the nature of the payment without having regard to the surrounding circumstances that the payment gives effect to.
Music teacher found to be an employee for superannuation guarantee purposes
In Olias v FCT, the ATO issued SGC assessments to a music school (Olias) who had engaged the services of an individual to provide private lessons. The individual had an ABN, but was paid a ½ hourly rate, provided lessons as scheduled by the school and was provided with a uniform shirt.
The Administrative Appeal Tribunal (AAT) ruled that the individual was a common law employee. Some factors indicating an employment relationship were:
There was no written contract between the parties, but the contractual arrangement between them was akin to that of a casual employment agreement;
There was no negotiation in relation to pay, and the individual was refused a pay increase when he tried to renegotiate one;
The music school had a large degree of control over the individual in relation to the duration and location of lessons, the fees paid for lessons and the uniform to be worn;
It was clear that the individual was providing services on behalf of the music school and not on his own behalf (i.e. he was not conducting his own independent enterprise);
The individual was required to deliver the lessons personally, and had no right to delegate;
The bulk of the commercial risk was with the music school; and
The individual was provided with all tools and equipment that he needed for lessons.
This is a timely reminder of the broad meaning of ‘employee’ and the ongoing risk that a business could be liable to pay superannuation for individuals they consider to be contractors.
Data matching of lifestyle assets
The Commissioner of Taxation has lodged a Notice of lifestyle assets data matching program in the Gazette.
Under the data matching program the ATO will acquire details from insurance policies for certain assets, including motor vehicles with a value of $65,000 or more. The data will be used to identify compliance issues with income tax, CGT, FBT, GST and superannuation obligations, along with assisting the ATO with debt management and other aspects of tax administration. This is a good opportunity for business owners to review their vehicle purchases, and FBT treatment, particularly in light of the temporary depreciation measures.
FBT retraining and reskilling exemption now law
Employers who provide training or education to redundant, or soon to be redundant, employees may now be exempt from fringe benefits tax (FBT).
Eligible employers can apply the exemption to retraining and reskilling benefits provided on or after 2 October 2020.
There are no limits on the cost or number of training or education courses that employees may undertake.
Retraining and reskilling benefits that are exempt from FBT don't need to be included in the FBT return, or an employee's reportable fringe benefits amount.
Records of all training and education provided to redundant, or soon to be redundant, employees must be kept if you or your clients intend on claiming the exemption.
Employers can determine eligibility for the exemption by visiting Retraining and reskilling exemption.
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.