GST and FBT Refresher for COFA

Anne Harvey – Group Tax Manager, Corporate FinanceEric McCallum – Group Tax Accountant, Corporate Finance

15 August 2012

Objectives

• When does GST apply• GST Codes• GST application-

Courses,Workshop,Conference• What is FBT• What does Taxable Value mean• How is FBT calculated• Types of benefits which attract FBT• When is FBT charged• Update on LAFHA Reforms

When is it applicable• Taxable sales

price includes GST pay GST on sales claim GST on purchases 1/11th of Total invoice/sale price

• Taxable supply for consideration in course of furtherance of carrying

on enterprise connected with Australia registered or required to be

registered not GST free or input taxed

When is it not applicable • GST free sales

Basic food - meat, milk, bread, fruit and vegetables

Most education, child care, health

Some exports

• Input Taxed sales Residential property Financial transactions Cannot claim GST credit

When does GST apply

How Does GST work

Supplier

Raises Tax

Invoice

Purchaser

Receives Tax

Invoice

Sponsor

UNSW

Recipient

• Tax Invoice showing GST or GST inclusive price• Can rely on other supporting documentation issued by

supplier if minor defects in Tax Invoice• Purchase $82.50 or less (including GST) with Tax invoice,

Receipt, invoice, docket

• Sale < $1,000 – Tax Invoice, name & ABN of supplier, date, description, if each item is taxable sale, $ GST or Total price includes GST.

• Sale $1,000+ also show buyer’s name or ABN

Claiming ITC for GST charged

1. Taxable – AC/AO

2. GST Free – FRAC/FRAO

3. Imports – IMAC/IMAO

4. Input Taxed – ACIT/AOIT

5. Non deductible – NIAC/NIAO

6. Out of scope – EXCL

7. Advances - EXAD

1. Most goods and services

2. Basic food; consumed/used overseas i.e. international airfare, accommodation

3. Customs clearance e.g. Equipment; overseas subscriptions

4. Financial supplies, residential accommodation

5. Cannot claim GST, no Tax Invoice,student entertainment

6. Taxes, wages, donations

7. Travel Allowance, Advance

GST Codes: Acquisitions – AP/ Expenses/Credit Card

“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

1. Taxable – SALE

2. GST Free – FREE

3. Exports – EXPT

4. Input Taxed – ITAX

5. Out of Scope - EXCL

1. Most services

2. Accredited Education courses

3. Overseas customer

4. Some Kensington College rent

5. Gifts, No supply made

GST Codes: Supplies – Account Receivable/ Billings

GST

• Non-accredited units (of Tertiary course)

• Admin services not directly related to education course - academic hire, non-resident application fee, textbook

• Conferences

• Seminars

• Workshops

• CPD training

• Adult and community education available to non- residents only

• Hobby and recreational course• Self development, public speaking• Excursion/field trip – Food,

accommodation

GST free

• Tertiary course determined by Education Minister in Student Assistance Act 1973 section 5D(1)

• Other course determined by Education Minister

• One unit of tertiary course – enrolment• Course materials, student amenities fee• Excursion/field trip –directly related to

course, not recreational (excl food, accomm)

• Vocational course• Adult and community education

Likely to add to employment related skills

Determined by Education Minister Run by Higher Education

Institution/ recognised body

Courses/ Workshop/Conferences

GST Free Examples

• Photocopied or printed educational material specific to course

• Course notes – content, reading list, tutorials, seminar topics, assignments

• Study guide – extract from textbooks, journals, etc

• Film and developing chemicals

• Art supplies – paint, sketch pad, chalk

• Ingredients - hospitality, chemicals

• Consumables - wood, fabric, create models, necessary/specified stationery

• Workbooks to complete exercises

Effective life limited to duration of course

Taxable Examples

• Textbooks

• Textbooks written by lecturers at Uni sold on/off campus

• Binders for assignments, theses

• Musical instruments

• Computers

• Calculators

• Sporting equipment, clothing

• Scissors, knives

• Photocopying services

Items retain their generic application for other purposes and not consumed or transformed in required manner

Course Materials – GST Free Conditions• Provided by education provider to students - supplied• Necessarily consumed or transformed by students undertaking the course – essential, form

changed• Necessarily consumed or transformed for the purpose of the course – used up/ converted by

student

• Mixed Supplies – need to enter Taxable items and GST free items on separate lines with GST code

• Assume GST applies to total – check for GST free• Use GST code from PO - check if agrees to Tax Invoice• Relying on default GST codes in EMS• Tax calculated in system not agree to GST on Tax invoice –

may need to split lines• Deposits – claiming GST on deposit. Adjust on final Tax

invoice• Credits from prior month. Check GST charged on Invoice.

Common GST Mistakes

If Taxable Supply UNSW still have to remit 1/11th of total amount to ATO

Loss of revenue received by UNSW – only 10/11ths.

Audit risk – inadequate processes and controls

Penalties and Fines

Reputational risk

BAS amendments

Risk to UNSW if GST Not charged

Fringe Benefits Tax - Facts

FBT year 1 April to 31 MarchTax Rate 46.5% - Calculated on Grossed Up Taxable ValueFBT paid by employer – UNSWIncludes benefits under a salary sacrifice arrangementReportable Fringe Benefit included on Payment Summary in June, if >

$2000

FBT is tax on benefits (right, privilege, service or facility) provided to employees & associates (relative, partner/ spouse,

child) by an employer, associate of employer or under an arrangement

with a third party in respect of employment – reward for service

“Employee” includes current, former and future employees

If pay Salary PAYG deduction Employee pays taxIf provide fringe benefit no PAYG deduction Employer pays tax

FBT Calculated on Taxable Value

What is Taxable ValueDetermined by the rules applying to each category of fringe

benefitGenerally the cost of the benefitSome benefits concessional tax, e.g. Motor VehiclesSome reductions and exemptions provided in legislation

GST Impact• Taxable Value based on GST inclusive amount• FBT payable depends on whether entitlement to ITC credit • Can claim Input Tax Credit for GST paid

Important correct GST codes are used and GST amount is correct.

Type 1 Entitlement to ITC

Gross Up rate 2.0647

Taxable Value – incl GST $1000.00* Gross Up rate 2.0647Grossed up TV

$2064.70FBT rate 46.5%FBT cost $960.09

Type 2

No entitlement to ITC

Gross Up rate 1.8692

Taxable Value - no GST $1000.00

* Gross Up rate 1.8692

Grossed up TV $1869.20

FBT rate 46.5%

FBT cost $869.18

FBT Calculation

PRT = $1000 * 1.8692 * 5.45% (NSW PRT rate) = $101.87

• Salary packaged Motor Vehicles or UNSW provided – personal use. • Medical Insurance - inpatriates• Permanent Residency – application, police & medical checks, lawyers fees

(Exempt if to enter Australia on relocation)• Gifts, awards and prizes - $300 or more• Travel for family – SSP, accompany employee on business (exclude

relocation)• VC Child care support• Furniture purchase in lieu of relocation transport/ relocation allowance• Kensington College accommodation and meals – provided to

tutors/employees• Reimburse deferred HECS/HELP fees• Write off Advance - Debt waiver• Outstanding Advance not acquitted within 6 months – Loan• Home phone/ internet – private %• Dual purpose travel – business and private• Entertainment – tax exempt body

Examples of Benefits Incurring FBT

Entertainment v Sustenance

Entertainment – FBT

• Social function, farewell• Party, Christmas party• Restaurant meals• Business lunch & drinks • Celebrations, Dinners• Spouse meal of employee

travelling on business• Non travelling employee (when

dines with travelling employee)• Morning, afternoon tea, light

lunches – associates• Leisure or amusement activities• Sporting activities, golf days• Gym membership, sporting club

memberships• Holiday• Theatre/movie ticket• Cruises

Sustenance – no FBT (6611)

• Morning and afternoon tea for employees

• Birthday cake – morning tea for employees

• Light lunches, sandwiches, finger food, salad, juice, etc for employees

• Light breakfast at training seminar – incidental to seminar

• Finger food and light refreshments (with moderate alcohol) immediately after training or CPD seminar – incidental to seminar

• Meal at seminar that goes for over 4 hours

• Meal (with alcohol) while travelling on business - employee

• Tea / coffee – employee• Overtime meal in office

Business Purpose

• Predominantly business undertaken• Considered Incidental to business –

extra day to acclimatise• Weekends during business period, e.g.

2 week business trip• Day to prepare/ wrap up• Make Flight connections• Due to flight availability/ delays• 1 day Stopover en route – no extra

cost• Day between business meeting

Dual Purpose

• Travel to conference then holiday• Holiday at same or different location• Book Annual Leave days in myUNSW• Family accompanies• Private portion 40% or more of total

days• Travel Allowance only for business days• Frequency of trips• No restrictions on private travel

Flight cost split 50/50 between business and private FBT on 50% private

If employee pays 50% of airfare directly to Travel Agent No benefit No FBT

Travel Benefits

No FBT

• Minor benefit < $300 and provided infrequently and irregularly – 6617

• Student gift – not employee

• Westfield Gift voucher

FBT

• Gift of $300 or more – 6619

• Teaching Award

• Movie ticket/ vouchers – Recreational entertainment

Gifts and Awards

If expenses charged to the GL account, FBT will be accrued at month end

Accrued FBT v Actual FBT

V

Currently

• FBTAA provides concessional taxation to LAFH benefits

• LAFHA is compensation for additional expenses & disadvantages suffered due to employee being required to live away from usual place of residence in order to perform employment duties

• Required by employer to move• Temporary period – fixed term

contract• Intention to return to live at former

locality• Employee provides a LAFHA

declaration each FBT year

Tax Implications

• Employee Salary Sacrifices for Rent and F&D

• Managed by HR• Rent – No PAYG, No FBT • F&D – No PAYG, No FBT on exempt

statutory amount (i.e. >$42pw per adult up to ATO rate)

• No Payroll Tax - Exempt Fringe Benefit

• LAFHA not subject to SGC• No Workers Compensation -

Exempt Fringe Benefit

Living Away From Home

Living Away From Home Reforms Background

• 2010 - ATO started to take stricter view on LAFHA in Private Rulings issued• Mid 2011 – ATO sent review letters to some organisations requesting information • Mid 2011 – ATO audit letters• 29 November 2011 – Treasury released Consultation paper on proposed LAFHA

reforms• 3 February 2012 – Submissions due on Consultation paper• UNSW as part of Go8 made submission to Treasury outlining significant impacts of

reforms• Large number of Accounting bodies and other organisations also made submissions• Late 2011 – HR advised Faculties to be aware of changes in recruitment discussions• February 2012 – HR arranged for PwC to provide information session to LAFHA

recipients• 8 May 2012 – in Federal Budget further details released on proposed reforms –

expected start date 1 July 2012• Exposure Draft and Explanatory Materials released• 28 June 2012 – Bill introduced to winter sitting of Parliament• Bill not yet been passed – new start date 1 October 2012

Living Away From Home Reforms

• Treat LAFHA as part of employee’s assessable income

• Allow an Income Tax deduction to employees eligible for LAFHA For reasonable expenses

incurred and substantiated for accommodation

For food beyond statutory amount. If exceed specified amount, substantiate full expense

Maximum period of 12 months

Retain written evidence for 5 years

Eligibility

• Required by employer to live away from Australian residence

• Maintain a home in Australia• Ownership interest in home• Home which living away from

must be available for their personal use and enjoyment at all times

• Cannot be rented out or sublet• Expectation to return to live at

former residence

Living Away from Home Proposed Reforms

Who impacted

• Fixed term employees from Overseas - no longer eligible LAFHA from 1 Oct 2012

• Domestic employees on LAFHA if change to contract

• Visiting Academics Living Allowance – from 1 Oct 2012 no longer exempt from FBT as not living away from Australian residence

• SSP – accommodation or living expense paid/reimbursed – from 1 Oct 2012 only exempt if satisfy proposed LAFHA rules

Tax Implications

• Employee - Overseas employee now taxable salary from 1 October 2012

• Employer Additional Payroll Tax - no longer

LAFHA Additional Workers Compensation Additional SGC

• Employer subject to FBT on LAFHA benefits provided to employees not eligible to claim income tax deduction

• Employer subject to FBT on F&D for employees eligible for LAFHA on first $42 per week per adult, $21pw per child

Living Away From Home Reforms

Contractors and VN1 Form

• All new Vendors to complete VN1 form – process and system to manage

• VN1 form has questions in relation to the services provided and ABN status

• To assess if employee or contractor• Assess for PAYG withholding, Superannuation and Payroll Tax• Vendor Classification assists in identifying for upfront Payroll Tax

exemption, ongoing Payroll tax assessment or SGC.• If “Refer HR” – needs to be referred to HRC for setting up in HR

system. Cannot be paid through AP.

• Standard UNSW Contact Sole Trader Contractor Agreement Other Entity Contractor Agreement (Company, Partnership, Trust)

Service Provider – Payment for Service

Note: Some Sole Traders may be assessed(VN1 result) to be paid via A.P, if no Superannuation or PAYG obligations

Service Provider – Payment for Expenses

Questions

Further Information

Finance website: http://www.fin.unsw.edu.au/PoliciesProcedures/AccountingManual/FBT.html

Contact: Anne Harvey - Ext 51635. Email: a.harvey@unsw.edu.au

Eric McCallum – Ext 52825, Lucy Lowe – Ext 51204