FBT changes under COVID- What are the rules

FBT changes under COVID: What are the rules?

FBT changes under COVID- What are the rules

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.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Granny flats- tax tips and traps

Granny flats: tax tips and traps

Granny flats- tax tips and traps

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.


This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Analysis of Australian Federal Budget 2020-21

Tax and business investment took centre stage in the Federal Budget this year, as the Morrison Government seeks to reboot growth and repair the damage wrought by COVID-19 on Australia’s economy and employment.

Treasurer Josh Frydenberg emphasised the Coalition’s focus on tax by bringing forward the start date for the next round of tax changes. Backdated to 1 July 2020, the measures will provide immediate tax relief for individuals and small businesses. They also represent a significant step in reshaping Australia’s current progressive tax system.

In addition, the reintroduction of measures allowing the carry-back of tax losses and a significant expansion of existing asset write-offs should help support medium and small businesses who have been facing some of the toughest trading conditions in living memory.

Early start to personal tax cuts

At the centre of the tax changes announced by the Treasurer is a new 1 July 2020 start date for the next stage of the government’s tax plan.

Under the Stage 2 changes:

  • The existing low-income tax offset increases from $445 to $700,
  • The upper limit of the 19 per cent tax bracket increases from $37,000 to $45,000, and
  • The upper limit of the 32.5 per cent bracket increases from $90,000 to $120,000.

There is also a one-year extension of the low and middle-income tax offset (LMITO) during 2020-21 worth up to $1,080 for individuals and $2,160 for dual income couples.

Companies gain full asset write-off

For businesses, a major announcement was the introduction of a temporary tax incentive allowing the full cost of eligible depreciable assets to be written off in the year they are first used or installed ready for use. This will also apply to the cost of improvements.

From Budget night, companies with a turnover of up to $5 billion – over 99 per cent of businesses – can fully claim eligible depreciable assets as an expense until 30 June 2022. This will significantly reduce the cost of eligible assets by providing a cash flow benefit.

Temporary carry-back of tax losses

Companies with turnovers of up to $5 billion will also be able to generate a tax refund by offsetting tax losses against previous profits on which tax has been paid. Losses incurred in 2019-20, 2020-21 and 2021-22 can be carried back against profits made in or after 2018-19.

Under the new measure, eligible companies can elect to receive a tax refund when they lodge their 2020-21 and 2021-22 returns. This will help previously profitable companies who are making losses due to COVID-19 access a cash refund to keep their business running, or to take advantage of the new full write-off provision.

JobMaker hiring credit for young employees

Businesses will now be able to access a new JobMaker Hiring Credit if they hire additional employees working at least 20 hours a week.

From 7 October 2020, eligible employers will be able to claim $200 a week for each new employee they hire aged between 16 and 29, and $100 a week for additional hires aged 30 to 35 years old. New employees must have been unemployed or in education prior to hiring.

New jobs created until 6 October 2021 will attract the hiring credit for up to 12 months, with the credit claimed quarterly in arrears from the ATO.

More small business tax concessions

The Treasurer also made several announcements prior to the Budget providing valuable tax concessions for small businesses. From 1 July 2020, the annual turnover test for a range of business tax concessions will increase from $10 million to $50 million. This includes immediate deductions for eligible start-up expenses and prepaid expenditure.

In addition, from 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices such as phones and laptops provided to employees.

From 1 July 2021, eligible business will be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax, settle excise duty monthly and enjoy a two-year (instead of four-year) amendment period for income tax assessments.

If you would like to discuss how to make the most of these and other Budget announcements, please get in touch.

Unlet Property Rental Tax Issues

Holiday Rental Owners: Beware This Unlet Property Tax Trap

Do you own a rental property that stands vacant for any period of time? Or does your investment property double as a personal holiday home?

Yes? Then this article is for you.

The ATO has warned that claims for deductions relating to rental properties for the Y.E. 2017 will be subject to close scrutiny.Read more

Airbnb Tax Management Australia

Airbnb Hosts - Here’s What You Must Know About Australian Property Tax

As specialist property accountants we look after a lot of clients with Airbnb rental incomes.

Most earn a side income from letting out parts of their own homes. Others have found Airbnb a more profitable way to let out ordinary self-contained rental properties.Read more

If you link Bank A savings account to Bank A investment loan account as an offset account, does the deposit and withdrawal activity in the offset account impact deductibility of interest charged to the investment loan account?

No it doesn't affect the interest deductibility.

This remains the case where you have a savings account linked to your loan account as an offset account.

The savings account and loan account, while linked, are separate accounts.

While deposits and withdrawals in the offset account will increase or decrease the amount of interest charged to the investment loan account, the deposits are not repayments of the loan and the withdrawals are not new borrowings.

The use of the borrowed funds is not affected by the deposit and withdrawal activity in the offset account.

You can claim borrowing expenses greater than $100 over a five year period or over the life of the loan whichever is the least. You can claim all of the following borrowing costs

• stamp duty charged on mortgage (note this is not the stamp duty on purchase of the property)
• loan establishment fees
• title search fees charged by the lender
• costs for preparing and filing the mortgage documents
• mortgage broker fees
• valuation fees for loan approval
• lender’s mortgage insurance

It is important in the first year that you don’t claim the full amount amortised over the five year period but you will need to apportion the first years borrowing costs over the number of days between the date you took out the loan and the end of that particular financial year. Another common mistake is either not claiming the borrowing costs at all or claiming them all in the first year the loan is taken out.

If a loan has been taken out and has a mix of private and investment/business components (something we recommend you really try to avoid and work together with your accountant and mortgage broker to prevent getting into this sticky situation) then the borrowing expenses also need apportioned.

What is the Market Value for the Small Business CGT Concessions

Syttadel Holdings Pty Ltd sold a CGT asset, the Spinnaker Sound marina at Sandstone Point, in August 2006 for $8.9 million.

Syttadel had acquired the asset, comprising land, buildings, marina berths, goodwill and plant and equipment, in June 1996 for $1.675 million.

The venture was not initially profitable but by 2006 its net profit was $280,306. The majority of the revenue was earned from the hiring of wet berths and dry storage and some income was received from the lease of commercial premises within the marina and the sale of fuel.

Mr Godden, a director and member of Syttadel gave evidence about several enquiries and offers to purchase the marina over time. One, at $2.5 million was made in 2004 – it was rejected because the proposed purchaser wanted vendor finance. The first ‘serious offer’ was made in mid-2005 and was for $3.7 million. A written offer of $4 million was made by the same prospective purchaser in February or March 2006. It was not accepted as Mr Godden ‘was hoping for a price closer to $4.5 million’.

Whilst these dealings were taking place a consortium led by a local real estate agent enquired at what price Mr Godden would be prepared to sell. He replied ‘$9 million’, which response he said was made ‘tongue in cheek’ with the figure of $9 million being ‘completely over the top’.

The consortium negotiated with Mr Godden and a written contract for the sale and purchase of the marina at $8.7 million was executed in early December 2005. The purchaser, World Housing Corporation Pty Ltd, ultimately failed to complete the transaction and forfeited its deposit.

After that Mr Godden had further dealings with the local real estate agent which led to the execution of a new contract, dated 4 July 2006, by which Spinnaker Sound Joint Venture Pty Ltd agreed to purchase the marina as a going concern for $8.9 million. The contract was completed on 14 August 2006.

Syttadel submitted a private ruling request to the Commissioner in November 2008 requesting that the Commissioner rule that, despite the sale at $8.9 million, the market value of the marina was in the range of $4 million to $4.5 million so that Syttadel would be eligible for the small business CGT concessions. The Commissioner ruled on 25 November 2008 that the value of the asset was its sale price and that Syttadel did not qualify for concessional capital gains tax treatment.

Syttadel objected to the ruling, but by then an assessment had issued, and the Commissioner treated the objection as being one against the assessment. The Commissioner disallowed the objection.

The Tribunal mentioned that both parties made reference to the passages from Spencer v The Commonwealth (1907) 5 CLR 418 where Griffith CJ said,

In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor will to sell it for a fair price but not desirous to sell?’

and where Isaacs J said

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding
features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.

The Tribunal also noted that the parties agreed that the market value of the land had to take into account the highest and best use of the land.

The Tribunal had been provided with two valuations, one for the company where the value was set at $4.5 million, and one for the ATO where the valuer had originally set a value of $6.3 million but revised that down to $5.3 million.

The Tribunal were unprepared to accept the $4.5 million valuation figure as the Deputy President did not agree with the valuation methodology employed. The company’s valuer had set the value as being the value at which the vendor would be prepared to sell, and justified this by valuing the component parts of the marina using capitalization rates of 9% and 12%. The ATO’s valuer by contrast had used capitalization rates of 6% which the Deputy President considered ‘appropriate rate having regard to the market evidence and the potential for future growth but taking account the generally poor condition of the marina’. The ATO’s valuer had also supported their valuation by using comparable sales data.

As the Tribunal was unprepared to accept the company’s valuation it held that the small business CGT concessions would not be available.

Capital Allowances and Impact on Capital Gains Tax

Many people ask how capital allowances impact on the calculation of the capital gain when disposing of a property.  Capital allowances are covered by Division 43 of the Tax Act.  Effectively this allows someone to claim a write-off for the building construction costs over a period of time.

If a taxpayer is selling an investment property that was acquired after 13 May 1997 then they must reduce the cost base of that property by any Division 43 capital allowances that they have claimed.  If a capital loss is made on the sale of an investment property the reduced cost base must generally be reduced by any Division 43 capital allowances that the taxpayer was entitled to claim regardless of when the property was acquired.

If a taxpayer is selling an investment property that was acquired on or before 13 May 1997 the cost base of that property will only be reduced where the deductions relate to improvement expenditure incurred after 30 June 1999 and which is included in the fourth element of the cost base.

It is important for people selling investment properties that if capital allowances have been claimed the vendor is required to provide the purchaser with a written notice containing information that will allow the purchaser to calculate the remaining capital allowances.  The vendor needs to consider this as part of the sale if the building commenced construction after 26 February 1992.  This notification must be provided within 6 months after the end of the year of the income in which the property was sold or penalties can apply for the vendor.  This is something frequently overlooked by both parties.

If the taxpayer has not claimed the Division 43 capital allowance they are however required to reduce the cost base by the amounts they could have claimed regardless of whether they have been claimed or not by virtue of s110-45(2) of ITAA 1997 and s 110-45(4) of the ITAA 1997. Taxation Determination TD 2005/47 also deals with this issue http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200547/NAT/ATO/00001. This is something which is frequently identified during audit and can result in penalties and interest if the taxpayer or their accountant have not identified this during their calculation of the capital gain.

However the ATO does provide a concession to not reduce the cost base where

  • the taxpayer does not have sufficient information to determine the property’s construction expenditure ; and
  • the taxpayer does not seek to claim any deduction for the capital allowance.

PS LA 2006/1 does not require the taxpayer to obtain a depreciation schedule to determine the amount of any eligible claim however as noted above as the vendor is required to provide the purchaser with notification of any remaining capital allowances to be written off then many times this information will be available for the taxpayer and the concession will not apply.  As with all aspects of tax law the devil is in the detail and House of Wealth can deal with your clients property investment and the tax related consequences can assist in dealing with this area of tax law.

Can you claim a deduction for 100% of interest incurred on an investment loan held in joint names where the title of the investment property is in your name only?

Yes you can.

Taxation Ruling TR 93/32 considers the division of net income or loss between co-owners of a rental property. TR 93/32 states that net income or loss from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. Legal interest is determined by the legal title to a property.

TR 93/32 states that where the title deed of a rental property indicates sole ownership of the property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid.

In example 5 of the ruling it states:

The fact that Mr Z has paid all the expenses on the property is of no consequence for income tax purposes. We would simply treat the payment of Mrs Z's share of the expenses by Mr Z as no more than a loan by Mr Z to Mrs Z.