GST and FBT Refresher for COFA

1. GST and FBT Refresher for COFA Anne Harvey – Group Tax Manager, Corporate Finance Eric McCallum – Group Tax Accountant, Corporate Finance 15 August 2012

2. 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

3. When does GST apply 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 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

4. How Does GST work Supplier Raises Tax Invoice UNSW Recipient Purchaser Receives Tax Invoice Sponsor

5. Claiming ITC for GST charged • 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

6. GST Codes: Acquisitions – AP/ Expenses/Credit Card • Taxable – AC/AO • GST Free – FRAC/FRAO • Imports – IMAC/IMAO • Input Taxed – ACIT/AOIT • Non deductible – NIAC/NIAO • Out of scope – EXCL • Advances - EXAD • Most goods and services • Basic food; consumed/used overseas i.e. international airfare, accommodation • Customs clearance e.g. Equipment; overseas subscriptions • Financial supplies, residential accommodation • Cannot claim GST, no Tax Invoice,student entertainment • Taxes, wages, donations • Travel Allowance, Advance “C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

7. GST Codes: Supplies – Account Receivable/ Billings • Most services • Accredited Education courses • Overseas customer • Some Kensington College rent • Gifts, No supply made • Taxable – SALE • GST Free – FREE • Exports – EXPT • Input Taxed – ITAX • Out of Scope - EXCL

8. Courses/ Workshop/Conferences GST 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 • 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

9. 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 GST Free Examples 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 • 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

10. Common GST Mistakes • 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.

11. 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

12. 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 Fringe Benefits Tax - Facts

13. 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 FBT Calculated on Taxable Value • 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.

14. FBT Calculation Type 1 Entitlement to ITC Gross Up rate 2.0647 Taxable Value – incl GST $1000.00 * Gross Up rate 2.0647 Grossed up TV $2064.70 FBT 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 PRT = $1000 * 1.8692 * 5.45% (NSW PRT rate) = $101.87

15. Examples of Benefits Incurring FBT • 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

16. Entertainment v Sustenance

17. Entertainment – FBT 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 • 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

18. Travel Benefits Business Purpose 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 • 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

19. Gifts and Awards No FBT FBT Gift of $300 or more – 6619 Teaching Award Movie ticket/ vouchers – Recreational entertainment • Minor benefit < $300 and provided infrequently and irregularly – 6617 • Student gift – not employee • Westfield Gift voucher

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

21. Accrued FBT v Actual FBT V

23. Living Away From Home Currently 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 • 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

24. 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

25. Living Away From Home Reforms

26. Living Away from Home Proposed Reforms 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 • 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

27. Living Away From Home Reforms Who impacted 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 • 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

28. 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)

30. 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

31. Service Provider – Payment for Expenses

32. 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