November is here and it’s shaping up as a big month at home and abroad. As the Melbourne Cup field burst out of the gates on Tuesday, the Reserve Bank is widely tipped to announce a cut in the cash rate. And then there’s the US election on Wednesday (Australian time), which is still an open race.
The Federal Budget on October 6 was the start of a pivotal month on the economic scene. Budget estimates released later in the month revealed a deficit of $132.5 billion in the year to September. While the deficit is expected to peak next year, there are also some positive signs emerging.
The Consumer Price Index (CPI), the main measure of inflation in Australia, rose 1.6% in the September quarter and 0.7% on an annual basis. This is a sign that the economy is beginning to move again after price falls in the June quarter. The biggest increases were childcare (as temporarily free childcare came to an end) and petrol. Consumer confidence also improved, with the weekly ANZ/Roy Morgan index hitting an 8-month high of 99.7 points in late October. Unemployment rose slightly from 6.8% to 6.9% in September, a little less than anticipated.
In another sign of confidence, the value of new loans for housing rose 12.6% in August. The value of owner-occupier loans was up a record 13.6%, with first time buyers accounting for almost a third. The value of investor loans was up 9.3%. And used car prices rose almost 30% in the year to September, a sign that when we do decide to spend, we’re bargain-hunting.
FBT changes under COVID: What are the rules?
The COVID-19 pandemic is raising some interesting questions for small business employers in relation to their Fringe Benefit Tax (FBT) liabilities.
With many employees working from home, common employee benefits are often not being supplied, while some employers are now providing protective equipment such as gloves and COVID-19 testing.
To complicate things there are new FBT exemptions on the horizon next year, so it’s important to ensure you know the rules when preparing your FBT return.
Workplace items used at home
If you have provided your employees with a laptop, portable printer or electronic device so they can work from home due to COVID-19, these items are exempt from FBT if they are primarily used for the employee’s work.
Where you allow your employee to use a monitor or keyboard normally used in the workplace, provide them with stationery or computer consumables, or pay for their phone and internet access, the minor benefits exemption applies. This covers minor, infrequent and irregular employee benefits of less than $300.
COVID-19 protective items
On the other hand, you may need to pay FBT on items given to employees to help protect them while at work, such as gloves, masks and anti-bacterial spray.
These benefits are exempt, however, if you provide them to employees who have physical contact or proximity to customers or who are involved in cleaning premises. If your employee’s specific duties are not covered by this rule, the $300 minor benefits exemption may still apply.
Emergency health care
There is a limited exemption from FBT if you provide emergency health care to employees affected by COVID-19. This only applies to health care treatment provided to an employee on your premises or adjacent to their worksite.
Flu vaccinations and COVID-19 tests
Reimbursing your employees for getting a flu vaccination is exempt from FBT, provided it is offered to all employees.
The same applies to COVID-19 testing if it is available to all staff and is carried out by a qualified health professional.
FBT and car fringe benefits
Where employees have been garaging their work cars at home due to COVID-19 there can be FBT implications. Normally, a car fringe benefit arises if an employer makes a car available for private use by the employee, or if it is garaged at home.
During the pandemic, if a home garaged car is not being driven – or only for maintenance purposes – the ATO accepts a fringe benefit is not being provided. If you use the operating cost method and maintain appropriate records, there is nil taxable value for the car and no FBT liability.
Where you are not using the operating cost method or don’t have odometer records, an FBT liability will arise as it’s assumed the car is available for private use.
Logbooks and driving patterns
Where you use the operating cost method with an employee vehicle, during the pandemic you can rely on its existing logbook to make a reasonable estimate of the business kilometres travelled or choose to start a new logbook.
Accommodation, food and transport
FBT does not apply if you provide emergency accommodation, food and transport to an employee if they are at risk of being adversely affected by COVID-19 and the benefit provides emergency assistance.
This assistance can include costs relating to relocating an affected employee and food or accommodation provided due to travel restrictions or a requirement to self-isolate.
Temporary accommodation and meals provided to fly-in fly-out employees unable to return home due to COVID-19 restrictions are also exempt.
New SME exemption coming
You also need to keep in mind the rule change for the FBT year starting in April. The October Federal Budget included the announcement of a new FBT concession for businesses with an aggregate annual turnover between $10 and $50 million.
From 1 April 2021, if your business is eligible it will be exempt from the current 47 per cent fringe benefits tax on car parking and work-related portable electronic devices such as phones or laptops provided to employees.
If you have any questions regarding your Fringe Benefit Tax liabilities, please don’t hesitate to give us a call.
Granny flats: tax tips and traps
The idea of adding a granny flat to your property sounds like a great idea. A property to rent out to generate some welcome extra income, or a home for adult children or mum and dad in their later years.
But there are important tax and personal considerations to consider before taking the plunge and digging up the backyard.
Although the Federal Budget proposed significant reform in this area (which we cover later in this article), important tax questions remain.
Tax and granny flats: what you need to know
A granny flat is usually a self-contained secondary dwelling with a separate entrance, bathroom, kitchen and living space.
Unlike an investment property, granny flats do not have a separate title and are built within the boundary of your existing property or attached to your home. A granny flat cannot be sold separately unless you subdivide the existing property title.
Before you rush off to start building, you need to carefully consider the tax implications and get professional advice, or you could find yourself facing significant tax bills.
For example, if you rent out your granny flat at commercial rates to a third party like a student, the rent will be assessable income and you will pay income tax on it at your marginal tax rate. You are, however, entitled to claim the normal deductions for depreciation against income from an investment property.i
Subdividing the property could also create a GST obligation, as the flat may be deemed a new residential property.
Granny flats and capital gains
Under current legislation, the main tax issue when adding a granny flat is that it can create a capital gains tax (CGT) headache when it comes time to sell your home. CGT is payable on the difference in value between the time you bought the property and the time you sell.
Normally, your main residence is exempt from CGT, but adding a granny flat can affect this. If you charge rent to a student living in your granny flat for example, you will lose some of your main residence exemption from CGT as the property is partly being used for income-producing purposes.
When a family member lives in a granny flat and does not pay commercial rent, generally the main residence exemption still applies as the arrangement is deemed private or domestic.
CGT and cash contributions
Things get more complicated if a relative provides a cash sum to help pay for the cost of building a granny flat in return for a right of occupancy for life or life interest.
Under current tax laws, a cash sum paid by one party to build a granny flat is a CGT event. This means if your parent makes a financial contribution towards you building a flat to live in on your property, you will have a partial CGT liability to pay when you eventually sell your home.
To make things worse, the normal 50 per cent discount on CGT for the disposal of an asset held for over 12 months may not be available.
Potential for elder abuse
In many cases, concern about paying CGT means families fail to put formal agreements in place when a relative contributes to the cost of a granny flat. This leaves the family member with no protection if the relationship breaks down and creates the potential for financial abuse.
The family member can also lose out financially if they need to move into an aged care facility, or if the homeowner needs to sell.
It’s also worth noting that an interest in a granny flat can affect social security entitlements and aged care fees.
Proposed Federal Budget exemption
To solve some of these issues, the October 2020 Federal Budget included a proposed CGT exemption for granny flats where a formal written agreement is in place. The new measure will be limited to arrangements covering family relationships and disabled children – not commercial rentals.
Eligibility conditions for the new CGT exemption will depend on the legislation eventually being passed by Parliament. If passed, a start date is expected as early as 1 July 2021.
If you are considering building a granny flat on your property, contact us today to discuss the potential tax implications.
Are you the (personality) type to easily achieve balance?
Checking emails late into the night, reaching for your phone before you’ve even had breakfast to start your working day, the ‘lunch break’ that involves a Zoom meeting – the lines between our work lives and our personal lives have never been blurrier.
While there are many advantages to always being in the loop, getting things done quickly and having some flexibility in where, how and when you work, there is a real cost to our ‘constantly on’ way of working.
According to a 2018 study by Gallup, 23% employees reported feeling burned out at work very often or always, with an additional 44% saying they sometimes felt burned out.i 2020 brought with it further challenges to work-life balance, with a survey by online employment platform Monster finding that 69% employees were feeling burned out mid-year.ii
Work-life balance means quite distinct things to different individuals and, it turns out, the way we manage and achieve balance differs markedly between different personality types. Given this balance is something we can all struggle with at times, it’s worth being familiar with your personality type and how this impacts your work-life balance.
Understanding your personality type
The Harvard Business Review identified four aspects of personality of the Myers-Briggs Type Indicator – extraversion or introversion, sensing or intuition, thinking or feeling, judging or perceiving.iii
Whether or not you have done the Myers-Briggs test, having a deeper understanding of your personality will help you understand how you respond to challenges. For instance, if you are more towards the extrovert end of the scale, being with others will re-change your batteries, while introverts need alone time to reflect.
If you are a sensing personality you are more comfortable tackling one thing at a time, while those who tend to intuition thrive when juggling many balls in the air.
Those who are thinkers need to watch that they are not perceived as too blunt in their communications with others and those who show feeling traits need to ensure they nurture themselves.
And finally, those who show judgement traits will thrive within the structure of set hours, such as 9 – 5, whereas perceivers love the flexibility of setting their own work schedule.
Attaining a work-life balance
We’re all different, yet everyone benefits from having clear boundaries around their time and by identifying their priorities. If you have found your working hours have crept into your downtime, try to set specific times to check your email and attend meetings. If you prefer a more flexible approach, ensure you’re making time for friends or family and participating in hobbies you enjoy.
When setting goals, pay attention to how many of them relate to your career and how many are focused on other important aspects of your life, such as your health and relationships. It’s easy to just focus on one area and neglect others, so make a conscious effort to attend to those that have been forgotten about. Where can you put more of your attention and what needs to give in order for you to divert your energy to this area?
Setting SMART goals is a helpful task for all personality types to do – you just might do them in different ways.iv For instance someone with sensing preferences might reflect more and need to look at the bigger picture in order to set goals, while an intuition preference can mean that person will go with a gut feeling but would do well to focus on one thing rather than setting lots of goals.
It’s fair to say that work-life balance is never going to be a perfect equilibrium all the time, however you can put steps in place so that you can enjoy both work and play.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website www.evogroup.net.au or call 02 9098 5055 for more information on our available services.