Salary sacrificing laptops

[GreatPig]

In light of the other thread about lunches, a couple of things I've recently discovered about salary sacrificing laptops that are worth being aware of:

If buying from your own company in particular, where the company is GST registered, let the company buy the laptop rather than reimburse you for it, otherwise I'm told the company can't claim back the GST.

If you intend to buy more than one laptop this way in consecutive years, be aware that the year is the FBT year (starting April 1st) and the rule about only being allowed one a year relates to the payment of the benefit rather than the actual purchasing of the laptop. Receiving a payment benefit in any FBT year precludes you from buying another one in that same year. This means for example that if the salary sacrifice is spread over some months and into the next year, you won't be able to get another one that next year either. See IT 2005/149 for more info.

One other issue I'm trying to get more info on is whether the company has to be carrying on a business or can just be an investment type company. One accountant is telling me it has to be carrying on a business to be able to provide laptops FBT exempt, and I'm trying to clarify this.

Note that I'm not an accountant and the above is just my understanding from recent discussions with an accountant or two and from research on the ATO website.

Cheers,
GP

 

[thedon]

In light of the other thread about lunches, a couple of things I've recently discovered about salary sacrificing laptops that are worth being aware of:

If buying from your own company in particular, where the company is GST registered, let the company buy the laptop rather than reimburse you for it, otherwise I'm told the company can't claim back the GST.

If you intend to buy more than one laptop this way in consecutive years, be aware that the year is the FBT year (starting April 1st) and the rule about only being allowed one a year relates to the payment of the benefit rather than the actual purchasing of the laptop. Receiving a payment benefit in any FBT year precludes you from buying another one in that same year. This means for example that if the salary sacrifice is spread over some months and into the next year, you won't be able to get another one that next year either. See IT 2005/149 for more info.

One other issue I'm trying to get more info on is whether the company has to be carrying on a business or can just be an investment type company. One accountant is telling me it has to be carrying on a business to be able to provide laptops FBT exempt, and I'm trying to clarify this.

Note that I'm not an accountant and the above is just my understanding from recent discussions with an accountant or two and from research on the ATO website.

Cheers,
GP

Hi GP

I think you have it wrong there;

Buy the laptop in the individuals name, You CAN still claim the GST in the company, addittionaly the employee can also "double dip" and claim depreciation on their individual tax return if the laptops is for business use. If you buy it in business name then it needs to be depreciated and is shown as an asset in the business accounts.
Regards
Don

 

[trajik]

The Don is spot on with the reimbursement. Also, the company does not have to be in "business" to employ you, and so provide the laptop FBT free. What is important is that you are employed by the company. What the company does to earn it's income really doesn't matter.

Hope this helps.

Ross

 

[Mry]

thedon, Julia stated that the double dip laptop trick doesn't work anymore. I trust her judgment.

http://www.somersoft.com/forums/showthread.php?p=266779#post266779

 

[thedon]

Hi

But when you read TD 2005/D17 it reads the same so I'm staying with that. Also there is very little chance of the ATO picking up on it if you did double dip.

Don

 

[Apocalypse]

Hi

But when you read TD 2005/D17 it reads the same so I'm staying with that. Also there is very little chance of the ATO picking up on it if you did double dip.

Don

TD 2005/D17 is only a draft so I would suggest that at the moment it can't be applied, but it does talk about being retrospective when it passes draft stage. Although in the previously quoted thread Julia suggested it still didn't really address the correct area of the taxation legislation.

 

[GreatPig]

Buy the laptop in the individuals name, You CAN still claim the GST in the company

I hope you are correct, but I've now had two accountants separately tell me I can't (but they could both be wrong of course).

They both provided the same argument that because the invoice would be in my personal name, the company can't use it to claim back the GST. And I can't provide a tax invoice to the company as I don't have an ABN.

What is important is that you are employed by the company

Does just being a director (sole director) count, or do you have to be a real employee with a regular salary, PAYG, super, etc?

Anyway, I'm getting a third opinion on the whole issue, one I trust somewhat more than either of these other two. And I forgot about the depreciation issue, so I'll have to ask him about that as well.

Cheers,
GP

 

[julia]

Great Pig,

Think it is GSTR 2000/17 paragraph 73 and 74 that states the invoice can be in the name of an employee or officer of the company and the company can still claim the GST.
The reason I beleive in the draft ruling on the laptops is if you look in TR93/145 for its reason for being withdrawn, it points out that that ruling only applied to the law before the re write and, in my opinion, the re write makes it pretty clear that this gap is now closed. The draft only applies to the old law.
Hope this makes sense. If I am wrong with the ruling number for the name on the invoice please let me know and I will check tomorrow.

Goodnight
Julia
www.bantacs.com.au

 

[GreatPig]

Think it is GSTR 2000/17 paragraph 73 and 74 that states the invoice can be in the name of an employee or officer of the company and the company can still claim the GST.

Spot on! (although it's actually called GSTR 2000/D17). I'm amazed you can even remember the ruling number, let alone which paragraphs the particular issue is mentioned in

One thing I'm a little confused about though is where it talks about connection to business activities. It says that the reimbursement must be for an expense directly related to the recipients activities as an employee, and that the expense cannot be wholly private in the hands of the employee, yet it also says that claiming input tax credits will not be denied just because the benefit is partly private or non-work related in the hands of the recipient.

So does that mean that the supplied item has to be at least partly work-related, or just that it has to be the sort of thing I might use for my work, even if I ultimately use it purely for personal purposes?

Thanks for the reference!

Cheers,
GP

 

[GreatPig]

Further to the last message, GSTR 2000/D17 is a draft ruling that has been finalised in GSTR 2001/3.

In that ruling, paragraphs 86-90 and the following examples are particularly relevant.

GP

 

[julia]

Great Pig,

It was GSTR 2000/17, below are the paragraph’s I am referring to. I would have thought that an expense “directly relating to that position” would include benefits for employees of the business though I can see you point that a laptop used solely for private purposes is private but just as the exemption of laptops from FBT recognizes they may not be used at all for work they are connected by the fact the business is providing the laptop to the employee as a direct result of their employment contract with the business so are indirectly part of the wages expense of the business.
73. Division 111 has special rules covering the situation where you reimburse an employee, an officer of a company or a partner for an expense they incur for an acquisition directly related to that position.
74. Providing the requirements of the Division are met, the reimbursement is treated as consideration for an acquisition you make from that person.F33 You may claim the input tax credit for a creditable acquisition if you hold the tax invoice that was issued to the person you reimbursed.F34 The tax invoice may identify that person and not you as the recipient of the taxable supply.
GSTR 2000/D17 discusses similar issues in the same paragraph numbers probably because it was the draft for GSTR 2000/17. Interesting to look at the change of wording, Looks to me like the profession said to the ATO hey get practical here.
Draft:
73. Division 111 can potentially apply where an employee incurs an expense. An expense can be incurred other than by payment. One prerequisite for Division 111 to apply, in respect of expense payment fringe benefits, is that it must be the employee that incurs the expense. Some amounts incurred by an employee may be incurred as agent for an employer, and reimbursements may be made for activities directly related to activities as the employer's agent. Reimbursed expenses that are incurred by the employee, and that relate directly to activities as the employer's agent, have the amount of input tax credit reduced to the extent that the incurring of the expense is not related directly to activities as the employer's agent.F31
74. For there to be a reimbursement, the employer payment could be paid in cash or deposited into an employee's bank account, or similar facility. Alternatively, it is proposed that the party that supplied the employee can be paid directly by the employer.F32
And GSTR 2001/3 at paragraph 90 accepts without doubt that it is ok for a tax invoice to have an employee’s name on it.
Julia
www.bantacs.com.au

 

[GreatPig]

Thanks, Julia. I'm satisfied with the input tax credit part now. Regarding the private purpose thing, paragraph 52 in 2001/3 pretty much states that acquiring things for the purpose of supplying a fringe benefit to an employee is a creditable purpose, even if the item is for private use.

A couple of other points I've tried to find something written on, but haven't been able to, is whether there's any requirement for the company to be carrying on a business (as opposed to just earning its income from passive investments), and whether a director is considered an employee for this situation even if he doesn't normally draw any salary or directors' fees.

For the latter, I had a quick look in the 2005 Australian Taxation Guide (I think that's what it was called) which we have at work, and it stated that the TAA doesn't have any particular definition of the word "employee" and that its common-law meaning is used. The only thing I could see though that specifically included directors amongst employees was in some section on the superannuation guarantee. However, I've had a couple of other accountants tell me that they believe a director would be considered an employee for the purposes of salary-sacrificing laptops.

So at the moment, it only seems to be the accountant who's actually doing my tax return who doesn't think I can do this (this is some new guy I've never even met yet who recently took over the business from the guy I used to have, and from the few times I've discussed issues with him so far, seems to know very little about anything - I think I've spent more time educating him so far than vice versa).

Cheers,
GP

 

[Mry]

A couple of other points I've tried to find something written on, but haven't been able to, is whether there's any requirement for the company to be carrying on a business (as opposed to just earning its income from passive investments), and whether a director is considered an employee for this situation even if he doesn't normally draw any salary or directors' fees.

Fringe benefits are given in respect of employment. The entity paying the benefit does not need to carry on a business. I often use the example of a rich family employing a cook to do their meals. The rich family aren't carrying on a business with their domestic duties, but have all the duties of an employer.

I include directors as employees.

 

[GreatPig]

Thanks, Mry. Seems like everyone except my new accountant seems to agree with this.

Cheers,
GP

 

[Apocalypse]

Is there any reason you can't salary sacrifice a laptop, sell it soon after (maybe it doesn't suit your purposes) then buy another one - maybe even privately - and then depreciate that one as per usual?

Taking it another step...sell the laptop you've salary sacrificed to a friend, then buy it back from them (being an understanding friend) when you realise a week later it did actually suit your purposes quite well...

Actually, if you do sell a salary sacrificed laptop at any stage - say one year later - do you need to account for that for that for the purpose of assessing a capital gain or loss? And if so, what is your cost base?

 

[Apocalypse]

Sorry to bump this from obscurity, but it is just one of many potentially relevant examples.

If the 'loophole' was effectively closed when TD 93/145 was withdrawn, why would Budget Paper No 2, page 22, have to say this:

The Government will also deny employees depreciation deductions for FBT exempt
items (that is, items purchased primarily for work purposes) purchased from
7.30 pm (AEST) on 13 May 2008. For items purchased before that time, employees will
be denied depreciation deductions for the 2008-09 and later income years. This
measure will ensure that employees are no longer able to gain a double benefit by
obtaining an FBT exempt item (such as a laptop computer) from their pre-tax income,
and then claim a deduction for depreciation.
This delivers on the Government’s commitment to responsible economic management.

Does this somehow imply the inverse, that depreciation deductions aren't denied prior to this date?