Unfortunately the 2013 New Year brought with it devastating Bush Fires in many parts of the country. They have an impact on both employees and businesses in the affected areas.
While the Government has announced its Disaster Recovery Payment plan for individuals and families and the ATO has provided information on making donations and will give assistance to businesses in relation to tax payments and record keeping reconstruction – what can businesses do if one, some or many of their employees are, or the business itself is, affected by bush fires?
1/ Employee Leave Entitlements
The Fair Work Ombudsman has a fact sheet to assist businesses understand their employees’ entitlements during natural disaster. It also provides information about employees who need time off work as they are volunteers for an emergency service organisation such as the SES or Bush Fire Brigade.
2/ Employer provision of Emergency Assistance
The ATO has provided the following information in relation to payments an employer might make to an employee affected by disasters:
Salary or wages are taxable because they are part of your ordinary income. They have to be included as income in your tax return and your employer will specify the amount as normal salary or wages in your annual payment summary.
However, emergency assistance from your employer – for example, one-off and other non-periodic emergency relief payments – is not taxable.
An employer is not required to withhold tax from a payment that is not taxable.
An employer who gives emergency assistance to an employee can claim a tax deduction as a business expense
Note that this Emergency Assistance is not taxable to the employee (and is not considered to be salary and wages) because it is an Exempt Fringe Benefit. The ATO’s “Fringe Benefits Tax – a guide for employers” booklet says:
Benefits you provide by way of emergency assistance are exempt from FBT.
Emergency assistance is assistance for immediate relief of a victim, or potential victim, of an emergency where the assistance is any of the following:
- first aid or other emergency health care
- emergency meals, food supplies, clothing, accommodation, transport or use of household goods
- temporary repairs
- any similar matter.
For the purposes of this exemption, an emergency is a natural disaster, an armed conflict, a civil disturbance, an accident, a serious illness, or any similar matter.
If the emergency assistance is health care, the exemption applies only if the treatment is provided by an employee of yours (or a related company), or on your premises (or those of a related company) or at or near an employee’s worksite. That is, the exemption would not apply if you pay for an accident victim’s medical or hospital bills, but would apply to emergency treatment by a company doctor at the accident site.
Long-term benefits such as providing a new house or car to replace one destroyed as a result of an emergency are not exempt as emergency assistance.
3/ Employee donations to Deductible Gift Recipients (charities) via payroll
There are 3 different types of giving possible via payroll:
After tax donations
As the name suggests, the donation is deducted from the employee’s net pay after tax has been withheld.
The ATO has advised us that you can report these sorts of donations on the employee’s payment summary in the “Workplace Giving” section. You would normally list the name of the Deductible Gift Recipient (DGR) (charity) and the amount. If however the employee has donated to a number of different charities in the financial year, then you would instead write the word “VARIOUS” and the total of all donations and provide the employee with a list of each organisation and the amount per organisation. (If you print on plain paper payment summaries, you may be able to list more than one charity – talk to your payroll software provider about this).
The employee will claim a deduction on their income tax return using their payment summary as proof of the donation (thus saving the charity having to issue multiple receipts for bulk donations received via employers).
Donations via Salary Sacrifice
Similar to other salary sacrifice arrangements, the gross pay is reduced and tax is calculated on the new after salary sacrifice gross amount.
The donation cannot appear on the payment summary. The employee cannot claim the donation as a deduction in their tax return as the employer will report the “after sacrifice” pay to the ATO as the employee’s taxable gross at the end of the financial year. If the employee were to claim the donation as a tax deduction, this has the effect of reducing their already reduced taxable income – thus “double dipping”.
Remember, as with any other salary sacrifice arrangement, the sacrifice must come from future earnings and not from things already earned or accrued and due.
Donations via a workplace giving scheme
With this method the employee’s tax is reduced but their taxable gross wage is not – this is similar to what you would do when you receive a variation to withholding from the ATO in relation to things like car allowances.
As with after tax donations above, the donation will be reported on the employee’s payment summary under the Workplace Giving heading. The employee will use this as proof of the donation to make their tax deduction claim when they do their tax return.
OPS 2011/3 issued by the Deputy Commissioner of Taxation will help you calculate the correct PAYG withholding using the “Workplace Giving” method. You can access this at http://law.ato.gov.au/atolaw/index.htm. Alternatively speak to your payroll software provider who will be able to assist you with setting this up in your system
In all cases, the donation must be made to an Australian deductible gift recipient (DGR).
A note about non-payroll donations. Usually receipts are required to claim donations as a tax deduction on an income tax return. However, the ATO has announced that donations of up to $10 made to disaster relief funds in “bucket appeals” for the recent bush fires can be claimed without requiring a receipt.