December 2019
WORK CHRISTMAS PARTIES DUTY OF CARE AND HOW TO AVOID DISASTERS
The festive season can be a happy and joyful time, but it can also be a period when unruly staff behaviour can ruin careers and damage working and business relationships.
The festive season and end-of-year celebrations should be enjoyed, but the work Christmas party can be a source of anxiety for employers who are unsure of their obligations to their workers.
The Christmas and New Year period are notorious for employee related incidents that can have a major detrimental impact on an organisation no matter what size or configuration.
Particularly if the event is organised and paid for by the employer, the duty of care to workers remains the same as it would if they were at work.
The typical issues are sexual harassment, fighting, drink driving, bullying (abusing work colleagues and Management) and the use of banned substances.
For some reason the annual Christmas party can bring out the worst behaviour in otherwise good employees as many people forget in their excitement at end-of-year parties that they are still attending a work function.
The good news is that with some foresight and leadership a lot of potential problems can be avoided.
“When it comes to work Christmas parties, employers need to make sure workers understand what behaviour and conduct is acceptable, and what the repercussions could be if misconduct occurs.”
We suggest that if you are holding a staff Christmas Party that prior to the event all staff are notified either by a general communication to staff, email prior to the event or at the event by a Senior Manager that:
“While the organisation welcomes you to the annual Christmas party you are reminded that all attendees are required to abide by normal acceptable social and legal conventions and laws including applicable Company Policies.
This includes your treatment of other staff and your behaviour in general, and while the organisation is supplying some alcoholic beverages, it is your responsibility to ensure that you drink and drive responsibly and that you remain within legal limits.
We hope that you are able to enjoy the end of year celebrations and thank you for your contributions over the last year.”
Managers also have an important role to play to make sure the event goes smoothly, and people start their journey home safely.
If you are supplying alcohol on your premises it is important to make sure that you are not breaching your own internal policies and that all staff are made aware of the logistics of the function and their responsibilities.
Especially in relation to leaving the function and any arrangements to get home safely. Some employers provide Taxi vouchers or provide alternative transport for employees.
Remember that workers who are injured on their way home from a work function may also be entitled to make a workers’ compensation claim for their journey home so it’s important to ensure that people have access to safe transportation after the party.
If transport is provided it should be to the employees’ home, not to another venue where more alcohol can be consumed as this can actually contribute to the risk against the employer.
Employers may be liable for the inappropriate behaviour, including discrimination, workplace harassment/bullying or sexual harassment, of employees at work Christmas parties. Employers should ensure staff are aware of harassment and discrimination policies and intervene if they witness any inappropriate behaviour.
One of the most common behavioural problems arises where employees, after consuming large quantities of alcohol, decide to tell their boss or colleague at a Christmas function what they really think of them and/or the organisation.
“This sort of behaviour should be discouraged, and staff advised that the Christmas function is one of celebration not aggravation”.
If you decide to have a Secret Santa gift purchasing scheme in place make sure that all participants are clearly advised that all gifts must be appropriate and socially acceptable, this means specifically no sexually explicit items.
In large organisations it is recommended to advise all sections that if they wish to allow staff to participate in one of these Secret Santa schemes that no inappropriate gifts are to be included and that any breaches will be dealt with through the normal disciplinary process.
All internal policies should contain references to alcohol and other drugs so that staff understand what substances are allowed and the conditions of their use.
The term “recreational drug” is a misnomer because almost all of these substances are illegal and the use and distribution of some of these substances can carry criminal charges.
Failure to have in place appropriate and specific policies in relation to alcohol and other drugs in the workplace, and bullying and harassment, can significantly reduce an employer’s defence if an incident occurs and a claim arises during or following a Christmas function.
Parties in Strip Clubs or the use of adult entertainment are at the highest scale of the risk table and should be avoided. Consideration also needs to be given to the timing and location of the function and to whether or not it should be held during work hours (long lunch) or after hours.
Each option has its own strengths and weaknesses, but generally it is counterproductive to have staff return from a long and hearty Christmas lunch and expect them to complete the day in the most efficient and best possible way.
There have been many successful cases against companies who do not take reasonable steps to ensure that their employees and families are not put in harm’s way during Christmas celebrations and a few simple steps as outlined above will greatly assist in ensuring you have a trouble free party.
Some other tips are:
- no unlimited alcohol passes
- beware of transferring party attendees to another venue for more drinks
- lead by example
- keep your shoes and shirts on
- deal with bad behaviour quickly and authoritatively
- limit physical activities to simple tasks
There is no reason why Christmas parties cannot be an enjoyable end to a hard year’s work and a deserved reward for staff as long as some simple guidelines to minimise bad behaviour are applied.
The most effective way to ensure success is to plan for the event and foster an atmosphere of professionalism and to promote the end of year function as a reward and celebration for a year of hard work and commitment by all.
It is not possible to remove all risks but following this advice will allow a fresh start to the New Year as opposed to meetings with lawyers or a trip to the Anti-Discrimination Tribunal Fair Work Commission or Workers Compensation Tribunal.
“If everyone is clear on their responsibilities beforehand, the Christmas party will be more enjoyable for everyone.”
LIMITING DEDUCTIONS FOR VACANT LAND
In the 2018–19 Federal Budget the Government announced that it would limit deductions for expenses associated with holding vacant land these changes received royal assent on 28October 2019.
The changes apply to limit the deductions that can be claimed for holding vacant land incurred on or after 1July 2019, even if the land began to be held before that date.
For the purposes of determining whether deductions for holding cost are denied, land is considered vacant if:
- at the time the expense was incurred, the land did not contain a substantial and permanent structure; or
- the land did contain a substantial and permanent structure that is residential premises, the premises is not lawfully able to be occupied, or it is not rented out or made available for rent.
Deductions for vacant land holding costs are not impacted by these changes if:
- the land is held by:
- corporate tax entities, superannuation plans (other than self-managed superannuation funds), managed investment trusts or public unit trusts; or
- unit trusts or partnerships of which all the members are entities listed above.
- the land is used in carrying on a business by:
- you
- your affiliates
- an affiliate of you
- your spouse or child (under 18) or
- an entity connected with you
- you or an entity listed above is carrying on a business of primary production and the land is leased or hired to another entity;
- the land is made available at arm’s length to a business for use in the business;
- a substantial and permanent structure was on the land, but an exceptional circumstance occurred that resulted in the land becoming vacant.
SALARY SACRIFICE SUPER DISCONNECTED FROM THE SUPERANNUATION GUARANTEE FROM 1 JAN. 2020
The rules regarding the interaction between salary sacrificed super contributions and employer Superannuation Guarantee (SG) obligations will soon change.
Effective from 1.1.2020, salary sacrificed super contributions to an employee’s superannuation fund:
- will no longer count as an employer contribution for the purposes of the employer’s minimum SG obligations; and
- can no longer be used to reduce ordinary time earnings (OTE) on which the SG obligation is calculated.
These changes have rectified deficiencies in the previous law.
Given the recent media exposes on both wage and superannuation underpayment, employers should carefully check the operation of their payroll set up and not assume that it already operates in line with the new measure.
Example
An employee (Tony) is expecting to receive $20,000 salary for the 1.1.220 to 31.3.2020 period. Consequently, his relevant OTE (on which SG is calculated) would also be $20,000.
Prior to earning part of this income, Tony enters into an effective salary sacrifice arrangement with his employer in which he agrees to forego $1,000 of this salary in return for the same amount being contributed to his superannuation fund on his behalf. The consequences are that:
- The employer’s minimum SG charge will now be calculated on OTE of $2,000.
- The employer’s OTE in respect of this employee will no longer be $19,000 as was the case for quarters finishing on or before 31.12.2019.
- The $1,000 salary sacrifice contribution will not count towards reducing the employer’s SG charge.
- The employer will still be required to contribute 9.5% of the $20,000 OTE (equal to $1,900) to the employee’s superannuation fund by 28.04.2020. the $1,000 salary sacrifice contribution does not count towards satisfying the employer’s required superannuation contribution of $1,900, which is needed to avoid the superannuation guarantee charge. Therefore, a total of $2,900 would need to be paid in superannuation.
REMOVING TAX DEDUCTIBILITY OF NON-COMPLIANT PAYMENTS
You can only claim deductions for payments you make to your workers (employees or contractors) from 1.7. 2019 where you have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.
If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:
- withhold the amount from the payment before you pay it to them
- report the amount to the ATO.
Any payments you make to a worker where you haven’t withheld or reported the PAYG amounts are called non-compliant payments.
You won’t be able to claim a deduction if you are required to withhold an amount and you don’t withhold or report any amount to the ATO, unless you voluntarily tell the ATO before they advise that they have commenced an audit or other compliance activity.
How you voluntarily tell the ATO will depend on whether you failed to withhold or report.
If you make a mistake and withhold or report an incorrect amount, you won’t lose your deduction. You still need to correct your mistake as soon as possible to minimise penalties.
You won’t lose your deduction for failing to report payments on a Taxable Payments Annual Report (TPAR) or a PAYG withholding Payment Summary Annual Report (PSAR).
IMPORTANT CHECKS FOR EMPLOYERS WHEN HIRING A CONTRACTOR
There’s not just one deciding factor that makes a worker you hire an employee or contractor for tax and superannuation purposes. As an employer, it’s a decision you can only make once you’ve reviewed the entire working arrangement.
It’s important to assess this correctly because getting it wrong will put your business at risk of penalties and charges. Failing to pay your workers their correct entitlements is a costly mistake.
To get to the right answer, you need to consider a number of factors. Before hiring a contractor review the following case scenarios:
- Ability to subcontract or delegate – if they pay someone else to do the work.
- Basis of payment – if they will be paid based on an agreed quote, they provided.
- Equipment, tools and other assets – if they are providing their own tools and equipment needed to get the job done.
- Commercial risks – if they are legally responsible for their work and liable for fixing mistakes or defects.
- Control over the work – if they decide how the work gets done subject to specific terms in any contract or agreement.
- Independence – if they operate their own business independently of your business.
If the answer is no to some or all of these scenarios, you need to seek further information and advice before treating your worker as a contractor.
COMMITTEE RECOMMENDS SUPERANNUATION AMNESTY BILL BE PASSED
In November, The Senate Economics Legislation Committee tabled its report on proposed legislation which provides for a one-off amnesty to encourage employers to self-correct historical superannuation non-compliance.
While recommending the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 be passed, the Committee also recommended the ATO implement a communication strategy to raise employer awareness.
BACKPACKER TAX DECISION IN FEDERAL COURT
Working holidaymakers from a number of countries may be eligible for a refund of the federal government’s backpacker tax, following a successful court challenge.
The “backpackers” tax, introduced on 1.1.2017, scrapped the tax-free threshold of $18,200 that had formerly applied to some visitors on working holiday visas, replacing it with a 15 per cent tax rate on all income up to $37,000. Higher marginal rates in line with resident income tax rates apply thereafter.
In a judgment on 30.10.2019, in the Federal Court in Brisbane, Justice John Logan ruled the backpacker tax could not be applied to a British woman in Australia on a working holiday bias because it did not meet the forms of a non-discrimination clause in a double taxation treaty between the UK and Australia.
Similar clauses exist in treaties between Australia and the US, Germany, Finland, Chile. Japan, Norway and Turkey.
The double taxation agreement between Australia and the UK stipulates that parties shall not tax citizens from the other country in a “more burdensome” way than their own citizens who are also residents for tax purposes.
In his finding, Justice Logan said the applicant, Catherine Addy, was “liable to a different rate of income tax… solely because she was a ‘working holiday maker’”. This amounted to a “disguised form of discrimination based on nationality” and that this was “exactly the type of discrimination” prohibited by the double taxation agreement between the two countries.
Effectively Ms Addy was entitled to the $18,200 tax free threshold applying to Australian citizens who are residents for tax purposes.
During her working holiday, Ms Addy lived primarily at a share house in Sydney’s Earlwood, making brief visits interstate, which included work on a horse farm in Western Australia.
It meant she was considered a “resident” for tax purposes in Australia. Conversely other holidaymakers adopting a more itinerant backpacking lifestyle are considered non-residents.
Those working holidaymakers travel more or less continuously and work and live in several different places around Australia, such as backpackers, will not be considered as Australian tax residents. As such the non-discrimination argument which succeeded in this case will not be available to these people.
As the ATO arguments in support of the tax have some merit, it is quite possible the ATO may appeal the decision.
Working holidaymakers from countries with which Australia does not have a double taxation treaty will not be affected by this decision.
The ATO has indicated most working holiday makers are not residents for tax purposes and this decision will not affect these working holiday makers.
The Federal Court challenge was initiated by international tax accounting company, Taxback.com. which believes [the tax] …discriminates against foreign workers and breached a number of international tax agreements.
According to Assistant Treasurer Michael Sukkar it would be “a matter for the Commissioner of Taxation to determine whether he will appeal this decision” and the government would “await the finalisation of any legal process before considering if any policy response is needed.”
An interesting decision which may well be challenged.
NATURAL LOVE AND AFFECTION GETS A DEBT MAKE-OVER
In February, the ATO withdrew Interpretative Decision 2003/589. This dealt with whether a company could forgive a debt owed for reasons of “natural love and affection” without triggering the commercial debt forgiveness rules which have adverse CGT consequences.
The only explanation offered for the withdrawal of ATO ID 2003/589, was that the relevant legislation did not specify that a creditor that forgives a loan must be a natural person, and that ID 2003/589 no longer represented the ATO view with an indication there would be “guidance” on this issue.
This has appeared in the form of a draft tax determination TD 2019/D9 issued on the subject of commercial debt forgiveness.
The revised ATO view that “natural love and affection” can only be provided by a living breathing human being. To quote “The context of paragraph 245-40(e) requires a direct causal nexus between the forgiveness and the natural love and affection, and the natural love and affection must arise in consequence of ordinary human interaction. For this to occur, the creditor must be a natural person,”.
For example, the trustee of a trust acting in their fiduciary role, also cannot make use of a natural love and affection exception.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.