UNSW Tax Overview

Report
Overview of Tax at UNSW for
Corporate Finance & DSFP
Anne Harvey – Group Tax Manager, Corporate Finance
Eric McCallum – Group Tax Accountant, Corporate Finance
24 August 2012
Objectives
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Taxes applicable
When does GST apply
GST Codes
What is FBT
What does Taxable Value mean
How is FBT calculated
Types of benefits which attract FBT
When is FBT charged
Update on NFP
UNSW Tax status
• Charitable institution
 established and run for charitable purpose - Education
• Income Tax Exempt
• Some GST concessions
 Non commercial activities – no GST on sale, claim GST
credits on purchase
 Fundraising events – treat sales as Input taxed, no GST
claimed
• DGR – entitled to receive income tax deductible gifts
Taxes
Payroll Tax
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•
•
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Goods and
Services Tax
Salaries &Wages
Allowances
Superannuation
Contractor
Payments
• Fringe Benefits
• Value added Tax
• Monthly Return and
Annual reconciliation
• Payment to OSR
• Monthly Return
• Payment & Refunds
to ATO
• Supplies –
Billings/AR
• Acquisitions – AP,
Credit card, EMS
Fringe
Benefits Tax
• Employee benefits
• Identify by employee
• Quarterly
instalments and
Annual Return
• Payment to ATO
Payroll Tax
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
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Reports run from HR System
 Salaries and wages, Allowances
 Superannuation
 Exemptions – Maternity Leave, Severance pay, Workers Compensation
Report from GL
 Contractor payments subject to PRT
 Allowances - Travel, overtime meal
Other inclusions
 FBT (1/12th of last FBT Return, adjust in Annual Reconciliation)
Summarise into OSR reporting format
State based tax – NSW (5.45%), ACT(6.85%), Qld (4.75%), SA (4.95%),Vic, WA, NT
Monthly return and payment due 7th next month
Annual return for July – June year due 21st July – reconcile for year, include any
adjustments, e.g. Contractor exemptions, Travel allow, Actual FBT, overseas
Grouped with controlled entities – NSG, NSi
When does GST apply?
When is it applicable?
• 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
• Taxable sales


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
price includes GST
pay GST on sales
claim GST on purchases
1/11th of Total invoice/sale price
When is it not applicable
• GST free sales
 Basic food - meat, milk, bread,
fruit and vegetables
 Most education, child care,
health
 Most exports – goods within 60 days
 Can claim a input tax credit on
purchases
• Input Taxed sales
 Residential property
 Financial transactions
 Cannot claim GST credit
How Does GST work?
Supplie
r
Raises
Tax
Invoice
Purchase
r
Receives
Tax
Invoice
Issue Tax invoice
$1100
• Taxable Sale
$1000
• GST on sale
$100
Receives Tax
Invoice $1100
• Purchases
$1000
• GST charged
$100
Total Sales on
BAS $1100
• Sales $1000
• Remit GST
1/11th to ATO
$100
Total Acquisitions
on BAS $1100
• Acquisition
$1000
• Claim ITC for
GST $100
Cash Received
$1100
• Net revenue
$1000
• GST paid to
ATO $100
Cash Payment
$1100
• Net Expense
$1000
• GST claimed
from ATO
$100
UNS
W
Sponso
Recipie
nt r
Completing BAS
• BAS – Return due to ATO showing Sales and Acquisitions. Reported
as Taxable, GST free, Input Taxed, Non Deductible
• Monthly return due 21st of following month
• 22 NS Financials Queries are run each month to obtain the required
data.
• Around 50K transaction lines per month
• GST codes determine the reporting line of each transaction on the
BAS return
• GST paid/claimable reconciled to GL before BAS is lodged
• FBT instalments are paid quarterly on BAS
• GST on imports through Customs, under deferral scheme, charged
to BAS and claim as ITC
Common GST Mistakes
• Mixed Supplies – need to enter Taxable items and GST free items on
separate lines with GST code (Telstra bills, Cabcharge, Hotels,
Qantas, basic food)
• Use GST code from PO - check if agrees to Tax Invoice
• Relying on default GST codes in EMS (Business purpose and
expense type)
• Tax calculated by the system does not agree to GST on Tax invoice –
may need to split lines
• Deposits – claiming GST on deposit. Adjust on final Tax invoice
(security deposits vs. part payment)
• Credits from prior month. Check GST charged on Invoice.
Risk to UNSW if GST Not charged
 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 and ATO risk matrix
Student Accommodation
•
Accommodation for student during semesters is input taxed residential
accommodation and falls outside the definition of commercial residential
premises.
•
Demolition and construction costs include GST and to the extent that a
building is used to make input taxed supplies the GST “Input Tax Credits” on
the demolition and construction costs cannot be claimed.
•
The GST legislation allows for the non-commercial operations of charities to
be GST free where certain criteria are met. In the case of student
accommodation the amount charged to students must be below 75% of the
market value for the non-commercial criteria to be met.
Student Accommodation continued:
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The UNSW has engaged a property valuer to determine the market value of
the student accommodation to be supplied at Gate2 and the Kensington
Colleges in order to ensure compliance with the non-commercial operations
of a charity criteria.
•
As the UNSW is a charity for taxation purposes meeting the non-commercial
operations of a charity criteria means that the supply of student
accommodation is GST free, provided charged at less than 75% of market
rate.
•
The benefits of the accommodation supply being classified as GST free are
that the student receive more affordable accommodation and the UNSW can
claim GST “Input Tax Credits” on the demolition, construction and on-going
costs.
Sale of Second Hand Capital Equipment
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Sale of second hand equipment is a taxable supply and consequently 1/11th
of the sale price must be remitted to the ATO.
•
As the UNSW is a charitable institution if the sale price of the second hand
equipment
 is less than 50% of the market value then the supply is GST free, or
 is less than 75% of the original purchase price paid the supply is also
GST free.
•
Given that the original purchase price is often easier to substantiate than the
current market value; it may be worthwhile to look up the cost on the Fixed
Assets Register prior to negotiating the final sale price.
Appropriations
Previously
New legislation -1/7/2012
Current requirement to be specifically covered
by appropriation removed – (no need to specify
GRE recipient by name, or generically)
If payment by GRE, can be paid to GRE and/or
non Govt – not appropriation
New “non-commercial” test satisfied
Non-commercial activities of GRE not subject
to GST
GST Act paragraph 9-15(3)(c)
Payment made by GRE to another GRE is
not consideration for GST purpose if
payment specifically covered by
appropriation under Australian law
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Be Appropriation under Australian law
Payment made by GRE to GRE
Specifically covered by appropriation

No GST – outside scope of GST
 9-15(3)(c) only apply where payment can only
be made to GRE
 Non-commercial activities of GRE – No GST
 Payment from GRE to GRE, covered by
appropriation, non commercial – not
consideration – No GST
 If payment to GRE for commercial supply-GST
 If margin above cost of supply – GST
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Appropriations
Non-commercial test
Consideration
(for a supply)
≠
Anticipated or actual cost
of GRE Supplier making:
• the supply, or
• any other related supply
Appropriation made by
GRE under Aust law to
GRE Supplier for making
a supply
≥
+
3rd party payments
(monetary and nonmonetary)
3rd party payments – in connection with, or in response to, or inducement of the supply or any other related supply
Is supply by GRE? – No, not appropriation, out of scope, usual GST rules. If yes …
Is payment to Government and Private (co contribution)? If yes …
Is there a margin? Yes, failed non-commercial test. GST on Government and non Gov’t supplies.
If determine non commercial – document reasons why
Appropriations
Grants
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Where the Grant is consideration for a supply made by the UNSW then the
Grant will be subject to GST. If sufficient connection between supply and
payment – basic GST rules.
•
Since the gross amount received by the UNSW is reduced by the GST
payable (1/11th of the receipt), the treatment of the GST should be agreed
during the initial negotiations. This will enable both parties to align their GST
treatment, minimise the risk of one party being left out of pocket by the GST,
and limit any subsequent conflicts.
•
Certain grants that are completely unconditional and are not tied to a
material supply will be GST free and treated like a donation or gift.
Difference between Grants & Appropriations
Grant
1. Can be consideration for a supply
2. Could be made by a private entity
to a government entity or vice
versa
3. Can be made by an individual,
body corporate or legal entity.
4. A competitive Grant could be open
to private companies and
government related entities
Appropriation
1.
2.
3.
4.
Is not part of a commercial
transaction and would normally
reflect the non-commercial
activities of government.
Is between government and
government related entities.
The authority behind an
appropriation is to be found in
an appropriation Act of
Parliament or other legislation.
Is only available to government
or government related entities.
Main Point with Grants & Appropriations
Grants
1. Don’t assume that it is GST free
because it is a Grant.
2. It may be necessary to obtain the
Grant agreement and review the
terms to determine if there is a
supply.
3. It is important to review the
obligations imposed on the
UNSW under a Grant agreement
as this may indicate a supply.
4. A competitive Grant available to
the private sector is an indicator
of a taxable supply.
Appropriations
1. Don’t assume that a GRE to GRE
transaction is automatically GST
free or outside of scope.
2. Try to determine if there a supply
connected to the payment.
3. Estimate the cost of making that
supply in order to determine any
margin.
4. Determine if the payment is
covered by an appropriation Act or
other legislation.
5. Can the payment also be made to
3rd parties?
Fringe Benefits Tax - Facts
FBT year 1 April to 31 March
Tax Rate 46.5% - Calculated on Grossed Up Taxable Value
FBT paid by employer – UNSW
Includes benefits under a salary sacrifice arrangement
Reportable 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 tax
If provide fringe benefit  no PAYG deduction  Employer pays tax
FBT Calculated on Taxable Value
What is Taxable Value
Determined by the rules applying to each category of fringe benefit
Generally the cost of the benefit
Some benefits concessional tax, e.g. Motor Vehicles
Some 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.
FBT Calculation
Type 1
Entitlement to ITC
Gross Up rate
2.0647
Type 2
No entitlement to ITC
Gross Up rate 1.8692
Taxable Value – incl GST $1000.00
Taxable Value - no GST
* Gross Up rate
Grossed up TV
FBT rate
FBT cost
* Gross Up rate
Grossed up TV
FBT rate
FBT cost
2.0647
$2064.70
46.5%
$960.09
$1000.00
1.8692
$1869.20
46.5%
$869.18
PRT = $1000 * 1.8692 * 5.45% (NSW PRT rate) = $101.87
Examples of Benefits Incurring FBT
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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
Entertainment v Sustenance
• Social – FBT
• Complete working day
in comfort –
Sustenance
• CPD seminar sustenance
• Overtime –
Sustenance
• Employee travelling –
Sustenance
• After work - FBT
Why
What
When
Where
• How elaborate
• Sit down meal – FBT
• With alcohol - FBT
• Finger food –
sustenance
• Coffee sustenance
• On premises – less
likely entertainment
• Off premises – more
likely entertainment
Entertainment – FBT
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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
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(6611)tea for
Morning and afternoon
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
Travel Benefits
Business Purpose
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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
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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

Exemptions and Reductions
Exemptions
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Minor benefit < $300 and
provided infrequently and
irregularly – (not for entertainment)
Relocation – transport, temporary
accommodation, removalist
Work related item – laptop,
portable electronic device. Limit 1
item per FBT year – same function
LSL awards $1000 for 15 yrs,
+$100 each additional year
Reductions
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Otherwise deductible – entitled to
Income tax deduction if incurred
expense, e.g. course fees,
professional subscriptions, home
internet
LAFHA – with declaration
FBT Applicable Accounts in General
Ledger
GL Account
Description
6457
6459
6501
6613
6619
6623
6624
6626
6630
Entertainment
Entertainment – Recreational
Uniforms FBT Payable
Staff Exp Membership Fees
Staff Gifts & Awards $300+
Staff Exp –Recognition Awards
Staff Exp - Education
Staff Exp – Childcare
Staff Expenses FBT
FBT Accrual A/c
6662
6687
6663
6664
6687
6692
6682
6687
If expenses charged to the GL account, FBT will be accrued at month end
Accrued FBT v Actual FBT
Throughout Year
Expense – FBT account
FBT accrual
FBT Return
Actual FBT cost
V
Accrued FBT cost
Adjustment to FBT charge
Overcharged - Credit
Undercharged - Debit
Living Away From Home
Currently
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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
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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 Proposed Reforms
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Leave LAFHA in FBTAA
Temporary Residents who do not
maintain a home in Australia
which living away from for work no
longer eligible for LAFHA from
1/10/2012
Transitional rules for domestic
employees living away from
Australian home as at 8/5/2012,
eligible LAFHA until 1/7/2014
unless material change in
employment arrangement
Domestic employees, contract
after 8/5/12, maximum period of
12 months for LAFHA
Eligibility
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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
Contractors and VN1 Form
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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
Individual –
No ABN
Sole TraderABN
Company,
Partnerships &
other structures
Process
via H.R
Process
via H.R
Process
Via A.P
PAYG,
Super,
Payroll Tax
Super,
Payroll Tax
Payroll Tax
Note: Some Sole Traders may be assessed(VN1 result) to be paid via A.P, if no Superannuation or PAYG obligations
NFP Sector
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10 May 2011 reforms to NFP sector announced
Creation of Australian Charities and NFP Commission (ACNC) – National
regulator, establish and maintain database of charities, one-stop-shop for
charities, oversight on financial and governance practice. Est by 1/10/12.
Statutory definition of Charity due 1/7/13. Charitable status of entity
reassessed against definition. Some entities potentially lose tax exempt
status if not meet definition. Ensure focus activities on education or other
charitable purposes.
Reform to better target NFP tax concession. NFP taxed on income of
Unrelated commercial activities, where profits not directed back to entities
altruistic purposes. Applies from 1/7/12 to new unrelated commercial
activities commenced after 10/5/11.
Restating “In Australia” special conditions. Operate and pursue purposes
principally in Australia. Income tax exemptions, DGR status. May place
restrictions on overseas operations that could jeopardise tax concessions.
Questions
Further Information
Finance website:
http://www.fin.unsw.edu.au/PoliciesProcedures/AccountingManual/FBT.html
Contact: Anne Harvey - Ext 51635. Email: [email protected]
Eric McCallum – Ext 52825, Lucy Lowe – Ext 51204

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