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Director ID Registration -Compulsory Australian Directors

As part of better reforms and accountability, the government has announced an implementation of Director Identification Number (Director ID). This will be administered by the new and improved Australian Business Registry Services website. (https://www.abrs.gov.au/director-identification-number)

 

What is Director ID?

A director identification number (director ID) is a unique identifier you need to apply for once and will keep forever. It will help prevent the use of false or fraudulent director identities. It is a 15 digit identification number that would be unique to you and permanently attached to your name.

 

Why you need it?

It is a requirement by law to have a director ID to:

  • prevent the use of false or fraudulent director identities
  • make it easier for external administrators and regulators to trace directors’ relationships with companies over time
  • identify and eliminate director involvement in unlawful activity, such as illegal phoenix activity.

 

Who needs to apply?

You need a director ID if you are a director of a company, corporate trustee, or charity organisation.

 

When do you need to apply for the Director ID?

The director ID application is now open.  Below is the guideline of due dates:

 

Date you become a director Date you must apply
On or before 31 October 2021 By 30 November 2022
Between 1 November 2021 and 4 April 2022 Within 28 days of appointment
From 5 April 2022 Before appointment

 

How to Apply for your Director ID?

You will need to set up MyGovID account (which is different from mygov) and gather some information for prove of identification:

  • your tax file number (TFN)
  • your residential address as held by the ATO

Some of the following documents for identification:

  • bank account details
  • an ATO notice of assessment
  • super account details
  • a dividend statement
  • a Centrelink payment summary
  • PAYG payment summary.

 

Can your Accountant or ASIC agent apply for director ID on your behalf?

Absolutely NOT!!. You will need to apply for Director ID yourself.

Are there penalties or fines if you do not comply?

YES YES!!. Director ID is a legislation and breaking the law will enforce hefty penalties and discharge of directorship.

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Is my Company Christmas Party subject to Fringe Benefit Tax?

If you have asked yourself this question you are not alone. Lots of employers think about this at this time of the year when they are planning Christmas Parties or buying gifts for their employees.

 

Firstly, what is Fringe Benefit Tax or FBT?

Well, put simply FBT is a tax paid by an Employer for certain benefits provided to an employee or their associates, in connection with employment. This tax can apply to past, present, or future employees.

A simple example would be an employer providing a fully maintained car to an employee to be used for personal use. Now, if that same car was to be maintained by an employee, the employee would be paying all the running cost from its net pay (that is after tax money). Therefore, ATO introduced this tax regime, to ensure this free benefit (commonly known as Fringe benefit), is taxed the same way it would if someone in the similar position had to bear the cost from after tax money.

FBT is only payable by an employer and is claimable as income tax deduction for the business to the extent of amount. To complicate the matter further, FBT year runs from 1st of April to 31st of March and the tax rate is at the top of marginal rate of 47%.

Even though the cost of providing fringe benefit is high for a business, many do this to attract better personnel on Senior positions like CEO, CFO, Divisional Mangers etc.

Fringe benefit can take many forms, for example a business class ticket for the employee and the wife, paid private health insurance cover for employee’s family, private school fees and most common Entertainment. And one example of entertainment is Christmas parties.

 

Christmas Parties and FBT?

There are a few different scenarios we will cover:

  • A Christmas party for only your current employees held on the business premises on a working day before Christmas will be exempt from FBT. This is known as Property Fringe benefit exemption. But if an employee’s partner attends the Christmas party then it would be subject to FBT. The only exemption would apply here is the minor benefit exemption. If the employee’s partner’s cost per head is less than $300, then you can apply for this exemption.

 

But the exemption does not apply to clients attending the party. For clients attending any business parties that is considered some sort of entertainment, have no FBT payable nor any income tax deductions. This means you can entertain your business clients, but ATO will not allow you to deduct it as an expense in your business.

 

  • Christmas parties in Restaurants or hired Venue.

Your employees have worked hard the whole year and as a business owner, you want to treat them to a lavish meal and free flowing beers and wine. But imagine, after the party, your accountant informs you that you will be slapped with a huge FBT tax for providing this kind of awesomeness. So let me take some of your stress and provide you good news.

You can throw a lavish Christmas party, if the cost of the meal, drink and music is less than $300 per employee. You can also invite employee’s partner’s and not pay FBT if the cost is less than $300. Again, the minor benefit exemption will apply.

But as mentioned earlier, clients are not included in this exemption. You cannot deduct anything for the business client.

If you do go over the $300 threshold, be ready to face some FBT consequences.

 

Let’s look at a simple example how the tax is calculated:

XYZ decided to provide a party for employees which would cost $500 per person (GST free) in a restaurant.  Now to calculate the tax amount, we need to gross up the $500. The reason ATO gross up the benefit amount is to reflect the gross salary that an employee would have to earn to purchase the same benefit from after tax income. There are two gross up types:

Type 1 – 2.0802 (if you can claim GST on the benefit)

Type 2- 1.8868  (benefits without GST)

In our example, we do not have any GST, so the calculation would be:

$500 x 1.8868 =$943.40

$943.40 X 47% (FBT tax rate) =   $443.39

Therefore, the total cost to the business is:

Restaurant                                      $500

FBT tax                                            $443.39

Total cost to business per head   $943.39

Of course, the above is a full deduction to the business if you pay the FBT tax.

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Traps to know of Subcontractors that can deemed as an employee

Is your business off the ground and successful?  Need to hire people to help with the workload? This is an important decision and an important distinction because whether you hire an employee, or a contractor, will affect your businesses legal and tax responsibilities as well as the rights of the person you’re hiring. Not sure what your business needs? We, at Avenue Solutions, are here to help you with this.

There are 6 key factors that can help determine whether a worker is an employee or a contractor:

  • Ability to Subcontract/Delegate:

This is a characteristic of a contractor because an employee cannot pay someone else to do the work. A contractor can take on the assigned tasks and then pay someone else to perform them.

  • Basis of Payment:

Employee – paid for the time worked, a price per item/activity or on a commission basis. Contractor – paid for an achieved result based on a quote for the services to be provided.

  • Equipment, tools, and other assets:

Employee – your business provides the worker with all or most of the equipment/tools required to undertake their work then they are most likely an employee.  If your business does not supply this, then the Employees is then provided with an allowance or reimbursement for the cost of any equipment or tools.

Contractor – expected to provide all or most of the equipment/tools required to complete the work. They would also not receive any allowance or reimbursement for this.

  • Commercial risks:

Employee – no commercial risk because your business would be legally responsible for the work done by the employee and therefore your business would be liable to rectify any defects.

Contractor – takes on the commercial risk of the work performed.  That is, they would be liable for the cost of rectifying any defects in their work.

  • Control over the work:

Employee – your business has the right to direct the way in which the worker does their work

Contractor – the worker has the freedom to decide how the work will be done, subject to specific terms in the contract/agreement.

 

  • Independence:

Employee – does not operate independently of your business.  They work within and are considered part of your business.

Contractor – the worker is operating their own business independently of your business.  The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work.

 

Once you have determined whether your worker is an employee or a contractor then you will know your legal responsibilities:

Employee – need to set up the worker on your payroll system.  Will need to deduct PAYG, pay superannuation, provide annual leave/sick leave, have workers compensation cover and be aware of any FBT related benefits.

Contractor – they look after their own tax obligations. You just pay their invoice.  However, if they don’t quote their ABN to you then you may need to withhold 47% off the invoice and remit to the ATO.

There are hefty penalties to those businesses that treat their workers as contractors and not employees in order to avoid the legal responsibilities.  Keep this is mind when deciding to hire workers.

 

 

 

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Is your activity a Business or Hobby?

Ever wondered if what you are doing constitutes a business or a hobby?  You are not alone.

A lot of small businesses start off as a hobby.  Doing something your passionate about and enjoy as a side hobby can very easily turn into a successful profitable business.

Why is it important to differentiate you may ask?  Well, that is because running a business has important legal and tax obligations.

Below is a summary of some of the characteristics to help you determine if the activity you are undertaking is deemed to be a business or a hobby.

REMEMBER: Even if it’s a hobby to start, you may need to keep these factors in mind if your activities change and grow.  It is important to review your activities on a regular basis and consult an Accountant if anything changes.

 

Characteristics of a Business:

  • You’ve made the decision to start a business and operate it in a business-like manner. For example, registered a business name, obtained an ABN, opened separate bank account, obtained licenses/qualifications
  • You intend to make a profit
  • You repeat similar activities
  • The size and scale of your activity is consistent with other businesses in the industry you operate

As mentioned above, businesses have several legal and tax obligations.  If you believe you are, in fact, running a business, or are still unsure please get in touch with us for further clarification and advice.

 

Characteristics of a Hobby:

A hobby is defined as an ‘activity done regularly in one’s leisure time for pleasure’.  The important distinctions here are:

  • gain personal enjoyment from the activity
  • have the flexibility to do it in your own time
  • choose to gift or sell your work for the cost of materials. There is no intention to make a profit.

If your activity is a hobby, you do not have any reporting obligations.  Because no income is reported, you also cannot claim any expenses relating to the hobby and hence can’t claim any losses.

Sometimes, its beneficial to set your hobby up as a business, especially if you are looking at claiming losses.  It is recommended to get an Accountants advice if you believe that this may apply to you.

 

 

Online selling

If you are engaging in on-line selling, the same characteristics apply as above.  See below a list of questions.  The more you answer yes, the more likely your are carrying on an on-line business.

  • Did you set up your online sales with the intention of being a business?
  • Do you pay for your online-selling presence?
  • Is your main intention to make a profit?
  • Do you make repeated or regular sales?
  • If you make the items, you sell online, do you charge more than they cost you to make?
  • Do you manage your online-selling activity as if it was a business?
  • Is what you are selling online similar or the same as what might be sold in a ‘bricks and mortar’ business?

 

The Next Steps:

Please contact us immediately if you are unsure or if you believe you are carrying on a business based on the information above.  We can help guide you with setting up your business properly as well as providing training on how to run your business.

 

 

 

 

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