Industry Pressure Forces ATO’s Hand on STP 1 July 2021 Deadline Extending it till 1 January 2022

A legislative instrument issued by the ATO on Wednesday has confirmed that mandatory STP phase 2 reporting will commence from 1 January 2022 — a six-month extension from the previously proposed 1 July 2021 start date.

STP phase 2 will require additional payroll information to be reported to the ATO, and subsequently shared with Services Australia and other government agencies.

The deferral comes after fierce backlash from the profession, with tax and accounting professional bodies, bookkeeping associations and software providers pushing back against the proposed 1 July start date.

The ATO was told that the deadline was unrealistic, given the impact of COVID-19 on the workload and priorities of tax practitioners, employers and digital service providers.

The Tax Institute’s senior advocate, Robyn Jacobson, said that while a 12-month deferral would have been preferable, the extension was a “sensible” outcome.

“Today’s announcement in the form of a legislative instrument issued by the ATO to defer the commencement to 1 January 2022 is very welcome,” Ms Jacobson said.

The deferral will help to ensure that data submitted through STP phase 2 to the ATO and subsequently shared with Services Australia is more likely to be accurate and able to be relied upon by the government.

“The start date of 1 January 2022 is softened by the fact that if businesses are not ready at the time, they can seek additional time depending on their circumstance, so it would be a case-by-case basis of the ATO allowing more time for individual businesses.”

The ATO notes that there is nothing practitioners and employers need to do at the moment, with work being done with accounting and payroll software providers to develop and test their services.

The profession also continues to wait for further public guidance on the rollout of STP reporting for closely held payees, after the ATO extended the exemption for such employers to 1 July 2021 in light of COVID-19.

 

Source: Article by Jotham Lian – www.accountantsdaily.com.au

Coronavirus grants now tax-free

Legislation aimed at ensuring coronavirus small business grants are not subject to income tax has now passed both houses of Parliament.

Treasury Laws Amendment (2020 Measures No. 5) Bill 2020 passed Parliament late on Thursday.

The bill amends income tax law to make certain grant payments received by eligible businesses non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

The minister must declare a grant program to be eligible by legislative instrument and must be satisfied that the program is responding to the economic impacts of the coronavirus pandemic.

The grant must have been first publicly announced on or after 13 September 2020 by the relevant state, territory or authority, and must be directed at supporting businesses subject to certain restrictions regarding their operations.

Only entities with an aggregated turnover of less than $50 million will be eligible for the concessional tax treatment.

“The concessional tax treatment ensures that eligible businesses obtain an additional boost to their cash flow, further supporting their economic recovery,” the explanatory memorandum said.

“This is because, in addition to the payments not being subject to income tax (by being treated as non-assessable non-exempt income), businesses will continue to be able to claim deductions for eligible expenses made with the grant payments.”

The concessionary measure was first revealed by Prime Minister Scott Morrison following the announcement of Victoria’s $3 billion Business Resilience Package.

 

Source: Article by Jotham Lian – www.accountantsdaily.com.au

Getting your clients ready for the next phase of recovery

It’s been a year no one really expected: a pandemic shut the economy and the Australian government opened a tap of stimulus worth A$259 billion so far.

That government support has helped many small businesses hit hard by restrictions imposed to limit the spread of COVID-19.

It’s helped businesses pay employees, access capital via one-off payments, provided a loan guarantee scheme and allowed instant asset write-offs. Tax payment deferrals and temporary relief from insolvent trading regulations have also been useful.

The key now is how to ensure you stay on a firm financial footing after these benefits wind down.

To gain insight on how to do this, we spoke to Melbourne-based Accountant Kane Munro and Adelaide-based Accountant Emma Fabbro.

Both have been busy supporting small business clients through this pandemic and highlight key steps small business owners can take to avoid a bumpy landing when government stimulus and tax deferrals end.

Have up-to-date financials

There has never been a more relevant time to have accurate and up-to-date financial information about your business.

“Keep an eagle eye on your balance sheet,” says Munro. “Look at your liabilities and when they are going to fall due and start to plan now. Give yourself time to prepare – there’s no guarantee business will snap back to normal as things re-open.”

“Understand your profitability and cash-flow position,” . “This will ensure you have an accurate view of where your business stands today and also if you need to look to approach a lender for short-term finance, when accurate financial reports will be necessary.”

Check your outgoings

Now is the time to cut back on all but essential spending – take time to dig into what’s going out of your business on a monthly basis. You might be surprised.

Says Fabbro: “Cash has always been king, but especially now. Small businesses need to have cash reserves to enable them to continue to pay business expenses after the stimulus measures stop.

“Ideally, anything from three to 12 months’ cash reserves will allow businesses to trade at lower income levels while still meeting outgoings.

“Check your outgoings. Only spend money on what is absolutely necessary,” she adds.

“As a subscription-based society, it’s amazing how many small businesses are being charged monthly subscriptions they do not know about and no longer need.

“Review stock levels: can you hold less inventory or lower the cost of goods while still delivering the same service?”

Set money aside (if possible)

Munro is particularly concerned about those small businesses that have deferred payment of tax debts, rent or loan repayments. Each of these debts is still going to have to be paid once the deferral period ends and “that’s when it’s going to hurt,” he says.

Fabbro says the best way to ensure you don’t get into trouble after the stimulus ends is to try to run your business as if you never received these funds or had costs deferred. If it’s possible, put the money aside.

Payments are still going to have to be paid once the deferral ends. The slate won’t be wiped clean.

Look ahead and prepare for recovery

A recent Roy Morgan poll found that business confidence in Australia took a record plunge in mid-April but has been improving since then. Those in business have been feeling more positive about their ability to bounce back by next year.

Making sure your small business is fit to capitalise on the forecast uptick in consumer confidence and business activity means getting prepared.

It may also be helpful to take a step back and reassess your opportunities – how you can reposition your business to serve new markets with new services, or how you can offer existing services in new ways.

 

Source: https://www.acuitymag.com/business/getting-your-clients-ready-for-the-next-phase-of-recovery?

NSW State Budget

The 2020-21 New South Wales Budget focuses on stimulus and job creation to overcome the impacts of COVID-19. Here are the highlights as they affect businesses.

The New South Wales (NSW) Government handed down its 2020-21 Budget on 17 November 2021. It includes several large-scale announcements to boost the economy and create jobs as the state battles its way out of COVID-19.

Central to supporting the economic recovery is a series of large investments in infrastructure.

The government also announced a consultation on whether property buyers could opt-out of paying stamp duty and instead pay a smaller annual property tax. If this reform proceeds, it would represent a significant change to the taxation of property in NSW.

Announcements in the Budget Relating to Business and Tax Measures

  • Over the coming months, the government will seek feedback on whether the current stamp duty system should be reformed to allow buyers to opt out of stamp duty and instead choose a smaller annual property tax. Those who opt-in to annual property tax will also not have to pay land tax. The proposed model includes a property tax rate that would be lower rate for owner-occupiers and higher rates for investors and commercial property owners. Depending on the result of the consultation, the reformed system could begin in the second half of 2021.
  • From 1 July 2020, the tax-free threshold for payroll tax in NSW will increase from A$1 million to A$1.2 million.
  • The payroll tax rate will be reduced from 5.45 per cent to 4.85 per cent from 1 July 2020 to 30 June 2022.
  • Businesses that do not pay payroll tax will receive a $1500 voucher for the cost of government fees and charges. The voucher will be available from April 2021, which is when many current government fee waivers expire. It will operate as a rebate, where a claim can be made after fees and charges have been paid.
  • Every adult resident of NSW will be eligible for four $25 digital vouchers. Two vouchers can be used for eating in at venues such as restaurants and cafes, and two vouchers can be used for entertainment and recreation such as cinemas and amusement parks.
  • The commercial rent relief scheme will be extended to 28 March 2021 for retail tenants only with an annual turnover of less than $5 million.
  • Landlords who provide rent reductions between 1 January and 28 March 2021 to eligible retail tenants experiencing financial distress due to the pandemic can apply for land tax relief of up to 25 per cent on the land leased for the 2021 land tax year.
  • The NSW Government will offer businesses that create at least 30 new net jobs payroll tax relief for up to four years, for every new job created. The Jobs Plus Program commences on 15 December 2020 and runs until 30 June 2022.
  • The government will spend A$180 million to grow its trade and investment network offshore.
  • New film and TV projects will receive A$175 million in additional funding.
  • The government intends to streamline its planning system by cutting assessment times, review the retain-and-manage category of industrial and urban services land, reforming infrastructure contributions and consolidating employment zones.

 

Federal Budget – October 2020

PERSONAL TAXATION

Personal tax cuts brought forward to 1 July 2020

In the Budget, the Government announced that it will bring forward to 1 July 2020 the personal tax cuts (Stage 2) that were previously legislated in 2018 to commence from 1 July 2022. The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated:

  • Stage 2 tax rates – was 1 July 2022, now 1 July 2020; and
  • Stage 3 tax rates – unchanged; to commence on 1 July 2024, as previously legislated.

The Government will bring forward the Stage 2 personal income tax cuts to 1 July 2020 (from 1 July 2022, as previously legislated in 2018). The Treasurer said this will see more than 11 million taxpayers get an immediate tax cut backdated to 1 July 2020.

From 1 July 2020:

  • the top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
  • the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000.

The new low income tax offset (maximum $700) has also been brought forward to 2020–2021, while the low and middle income tax offset (maximum $1,080) has been retained for 2020–2021.

Mr Frydenberg said more than seven million individuals are expected to receive tax relief of $2,000 or more for the 2020–2021 income year compared with the 2017–2018 tax settings. Low and middle income tax payers will receive relief of up to $2,745 for singles and $5,490 for dual income families.

Stage 3: from 2024–2025

The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time under the Government’s already legislated plan.

Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Low income offsets: new LITO brought forward and LMITO retained

The Government announced in the Budget that the new low income tax offset (LITO) will be brought forward to start as from the 2020–2021 income year. The new LITO was intended to replace the existing low income and low and middle income tax offsets as from 2022–2023. Although the existing LITO is scrapped, the low and middle income offset (LMITO) will be retained for 2020–2021.

Bringing forward the new LITO is a consequence of bringing forward to 2020–2021 the tax cuts that were scheduled to start in 2022–2023.

The maximum amount of the new LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.

CGT exemption for “granny flats”

The Budget confirms that the Government will put in place a “targeted” CGT exemption for granny flat arrangements.

Under the measure, CGT will not apply to the creation, variation or termination of a granny flat arrangement providing accommodation where there is a formal written agreement in place. The Budget states that it will apply to arrangements that provide accommodation for “older Australians or those with a disability”. There are no further details as to what constitutes “older” or “disability”.

The exemption will only apply to agreements that are entered into because of “family relationships or other personal ties” and will not apply to commercial rental arrangements.

It is intended that the measure commence from 1 July 2021 (ie next financial year), subject to the passage of necessary legislation.

The measure was earlier announced by the Treasurer and Assistant Treasurer on 5 October 2020, the day the Government also publicly released the Board of Taxation’s report on the taxation of granny flat arrangements (the report had been provided to the Government in November 2019). That report recommended the CGT exemption.

First Home Loan Deposit Scheme: additional 10,000 places

The Government will allocate an additional 10,000 places for first home buyers under the existing First Home Loan Deposit Scheme.

Under the existing Scheme, eligible first home buyers can obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5%. The Scheme provides a Government-backed guarantee equals to the difference between the deposit (of at least 5%) and 20% of the purchase price. Applications can be made as part of the standard home loan application process through participating lenders. The Scheme has already helped almost 20,000 first home buyers.

The Treasurer said eligible first home buyers will also be able to take advantage of the Federal Government’s First Home Super Saver Scheme and HomeBuilder. First home buyers may also be eligible for State and Territory grants and concessions.

The additional 10,000 places under the scheme will be provided from 6 October 2020. The additional guarantees will be available until 30 June 2021.

BUSINESS TAXATION

Small business tax concessions extended to medium businesses

The Budget confirmed the Government’s announcement on 2 October 2020 that a range of tax concessions currently available to small businesses (aggregated annual turnover under $10 million) will be made available to medium sized businesses (aggregated annual turnover of $10 million or more but less than $50 million). The extension of these concessions to medium businesses will be delivered in three phases:

  • From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
  • From 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees (note that an FBT exemption for retraining redeployed employees will also apply from 2 October 2020).
  • From 1 July 2021:
  • eligible businesses will be able to access the simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods;
  • The time limit for the ATO to amend income tax assessments will be reduced from four to two years for eligible business for income years starting from 1 July 2021; and
  • the ATO power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.

Outright capital assets deduction until 30 June 2022 for most businesses

Businesses with aggregated annual turnover of less than $5 billion will be enable to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022.

Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium sized businesses (with aggregated annual turnover of less than $50 million), full expensing will also apply to second-hand assets.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the current instant asset write-off rules. Businesses that hold assets eligible for the $150,000 instant asset write-off will have an extra six months (until 30 June 2021), to first use or install such assets.

Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Loss carry-back from 2019–2020, 2020–2021 and 2021–2022

The Government will allow eligible companies to carry back tax losses from the 2019–2020, 2020–2021 or 2021–2022 income years to offset previously taxed profits in 2018–2019 or later income years.

Corporate tax entities with an aggregated turnover of less than $5 billion will be able to apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.

The tax refund will be limited by requiring that the amount carried back to not exceed the earlier taxed profits and to not generate a franking account deficit. The tax refund will be available on election by eligible businesses when they lodge their 2020–2021 and 2021–2022 tax returns.

Companies that do not elect to carry back losses under this measure can carry losses forward as normal.

Instant asset write-off: minor change

Given the largesse of the new outright deduction for capital assets until 30 June 2022, the instant asset write-off rules have become temporarily irrelevant for most taxpayers (those with aggregated annual turnover of less than $5 billion).

Accordingly, there were no changes to the rules, other than a slight tweaking for costs relating to second-hand goods acquired by large businesses (with annual aggregated turnover between $50 million and $500 million).

The new outright deduction rules do not apply to second-hand goods, other than those acquired by small and medium businesses (with aggregated annual turnover of less than $50 million) – who can fully expense costs associated with second-hand goods.

For this reason, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the instant asset write-off provisions. The tweak is this: businesses that hold assets eligible for the $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

The following information sets out the rates and thresholds as they currently operate – but should be read in the context that the instant asset write-off rules are effectively irrelevant for most eligible assets purchased after 6 October 2020 until 30 June 2022. The rules set out three taxpayer categories.

Small business entities

Those taxpayers with aggregated turnover of less than $10 million and who satisfy the other tests in Subdiv 328-C of ITAA 1997 can qualify as small business entities for the purpose of the instant asset write-off rules. A depreciating asset is a low cost asset if its cost as at the end of the income year in which the taxpayer starts to use it, or installs it ready for use, for a taxable purpose is less than the relevant threshold: s 328-180.

For small business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

  • 3 April 2019 to 11 March 2020 – the threshold is $30,000
  • 12 March 2020 to 31 December 2020 – the threshold is $150,000.

The threshold is due to revert back to $1,000 on 1 January 2021 (although it has not been $1,000 since 2015).

Medium business entities

The next category of taxpayer for instant asset write off purposes is medium sized business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $50 million.

For medium business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

  • 3 April 2019 to 11 March 2020 – the threshold is $30,000
  • 12 March 2020 to 31 December 2020 – the threshold is $150,000.

There was an increase in the threshold from $30,000 to $150,000 when the COVID measures started. The instant asset write-off under s 40-82 will cease to be available to medium businesses from 1 January 2021.

Large business entities

The third category of taxpayer for instant asset write off purposes is large business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $500 million. The write-off has only been available to such entities while the COVID measures are in place.

For large business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

  • 12 March 2020 to 31 December 2020 – the threshold is $150,000.

As noted, taxpayers in this category have until 30 June 2021 to first use or install assets (rather than 31 December 2020). It otherwise ceases on 31 December 2020.

Depreciation rules still relevant

There were no changes to the capital allowance rules in the 2020–2021 Federal Budget. This means that the depreciation rules as currently legislated will not change.

This is not a surprise, given the ability of pretty much all businesses to claim an outright deduction for new asset purchases from 7 October 2020 to 30 June 2022.

Note, though, that as part of its response to the COVID-19 pandemic, the Government had earlier enacted to allow businesses with aggregated turnovers of less than $500 million in an income year to deduct capital allowances for depreciating assets at an accelerated rate. This is a temporary measure – it is due to finish on 30 June 2021.

It is worth revisiting these rules because there may be acquisitions that may fall outside the outright deduction rules but still qualify for depreciation (eg certain second-hand goods). The rules still have an ongoing relevance for acquisitions made on or before 6 October 2020.

Due to the temporary nature of the concession, the measures were enacted in the Income Tax (Transitional Provisions) Act 1997 (TPA).

To be eligible for the accelerated depreciation, the depreciating asset must be (s 40-125 TPA):

  • new and not previously held by another entity (other than as trading stock or for the purposes of reasonable testing or trialling) – this excludes most second-hand assets;
  • first held on or after 12 March 2020 (a post-11 March 2020 asset); and
  • first used or first installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021.

A depreciating asset will not qualify for the accelerated depreciation if (s 40-120(3) TPA):

  • the decline in value of the asset has already been deducted under the instant asset write-off rules;
  • the decline in value of the asset is worked out using low-value and software development pools; or
  • the decline in value of the asset is worked using Subdiv 40-F of ITAA 1997 (ie certain primary production depreciating assets).

In terms of working out the accelerated depreciation, different rules apply depending on whether or not an entity is using the simplified rules for capital allowances for small businesses.

An entity with aggregated turnover of less than $500 million in the income year that does not use the simplified depreciation rules may deduct an amount at an accelerated rate for qualifying assets. The amount the entity can deduct in the income year the asset is first used or installed ready for use for a taxable purpose is:

  • 50% of the cost (or adjustable value where applicable) of the depreciating asset; and
  • the amount of the usual depreciation deduction that would otherwise apply but calculated after first offsetting a decline in value of 50%.

A small business entity (with aggregated turnover less than $10 million in the income year) that uses the simplified depreciation rules may deduct an amount equal to 57.5% (rather than 15%) of the taxable purpose proportion of the adjusted value of a qualifying depreciating asset added to the general small business pool in an income year.

Corporate residency test to be clarified

The Government will make technical amendments to clarify the corporate residency test.

The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

The Government said that the corporate residency rules are fundamental to determining a company’s Australian income tax liability. The ATO’s interpretation following the High Court’s decision in Bywater Investments Ltd v FCT (2016) 104 ATR 82 departed from the long-held position on the definition of a corporate resident. The Government asked the Board of Taxation to review the definition in 2019–2020.

This measure is consistent with the Board’s key recommendation in its 2020 report: Review of Corporate Tax Residency and will mean the treatment of foreign incorporated companies will reflect the position prior to the High Court’s decision in Bywater.

The measure will have effect from the first income year after the date of the enabling legislation receives assent, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew Ruling TR 2004/15: Residence of companies not incorporated in Australia — carrying on a business in Australia and central management and control).

FBT exemption for retraining redeployed employees

The Budget confirmed the Government’s announcement on 2 October 2020 that it will provide an FBT exemption for employer-provided retraining and reskilling benefits provided to redundant, or soon to be redundant, employees where the benefits are not related to their current employment.

Currently, FBT is payable if an employer provides training to its employees that is not sufficiently connected to their current employment. For example, a business that retrains their sales assistant in web design to redeploy them to an online marketing role in the business can be liable for FBT. By removing FBT, the Treasurer said employers will be encouraged to retain redundant employees to prepare them for their next career.

The FBT exemption will not extend to retraining acquired by way of a salary packaging arrangement or training provided through Commonwealth supported places at universities, which already receive a benefit, or extend to repayments towards Commonwealth student loans.

In addition, the Government said it will consult on allowing an individual to deduct education and training expenses they incur themselves where the expense is not related to their current employment. In this respect, the Government acknowledged that the current rules, which limit self-education deductions to training related to current employment, may act as a disincentive to individuals to retrain and reskill to support their future employment and career.

The FBT exemption will apply from 2 October 2020.

Note that an FBT exemption from 1 April 2021 will also apply for eligible businesses on car parking and multiple work-related portable electronic devices, such as phones or laptops.

The proposed FBT exemption for retraining employees follows a Senate Committee recommendation calling for eligible outplacement training to be included under the FBT exemption. The interim report by the Senate Select Committee on Financial Technology and Regulatory Technology recently called on the Government to explore the inclusion of eligible outplacement training under the FBT exemption for eligible start-ups.

FBT record-keeping: reducing compliance burden

To reduce the FBT compliance burden, the Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.

Currently, the FBT legislation prescribes the form that certain records must take and forces employers, and in some cases employees, to create additional records in order to comply with FBT obligations.

This measure will apply from the start of the first FBT year (1 April) after the date the enabling legislation receives assent.

R&D Tax Incentive changes

The Government has announced a number of changes to the R&D tax offset measures contained in the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 and deferred the start date of those measures to income years starting on or after 1 July 2021.

In broad terms, the Bill proposes:

  • increasing the R&D expenditure threshold from $100 million to $150 million and making the threshold a permanent feature of the law;
  • linking the R&D tax offset for refundable R&D tax offset claimants to claimants’ corporate tax rates plus a 13.5% premium;
  • capping the refundability of the R&D tax offset at $4 million per annum; and
  • increasing the targeting of the incentive to larger R&D entities with high levels of R&D intensity.
Refundable tax offset increased

For companies with an aggregated annual turnover of less than $20 million, the refundable R&D tax offset will be set at 18.5% above the claimant’s company tax rate (compared to 13.5% in the Bill).

Annual cap on cash refunds abandoned

The Government will not proceed with the measure proposed in the Bill to impose an annual cap on R&D tax offset refunds of $4 million (with any remaining offset amounts being treated as non-refundable carry-forward tax offsets).

The Bill provided an exclusion from the annual cap for eligible expenditure on clinical trials registered as R&D activities. This carve out acknowledged opportunities for growth in the medical technology, biotechnology and pharmaceutical sectors. The Budget Papers do not provide any guidance as to whether clinical trials will be given special recognition by other means under the R&D incentive rules.

R&D intensity bands reduced

The Bill makes provision for R&D premium offsets (above the company’s tax rate) tied to a company’s incremental R&D intensity (notional deductions/total expenses).

For companies with aggregated annual turnover of $20 million or more, the Government will reduce the number of R&D intensity tiers from three to two.

State COVID-19 business support grants: NANE income

The Federal Government announced that the Victorian government’s business support grants for small and medium business will be non-assessable, non-exempt (NANE) income for tax purposes. The Victorian Government announced the grants on 13 September.

The Federal Government will extend this arrangement to all states and territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.

A new power will be introduced in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income.

Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

JobMaker Hiring Credit

The Budget announced that the Government will provide $4 billion over three years from 2020–2021 to accelerate employment growth by supporting organisations to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

New jobs created until 6 October 2021 will attract the JobMaker Hiring Credit for up to 12 months from the date the new position is created.

To be eligible, the employee must have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one of the previous three months at the time of hiring.

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.

To attract the JobMaker Hiring Credit, the employee must be in an additional job created from 7 October 2020. To demonstrate that the job is additional, specific criteria must be met, requiring that there is an increase in:

  • the business’s total employee headcount (minimum of one additional employee) from the reference date of 30 September 2020; and
  • the payroll of the business for the reporting period, as compared to the three months to 30 September 2020.
Employer eligibility

Employers are eligible to receive the JobMaker Hiring Credit if they:

  • have an ABN;
  • are up to date with tax lodgment obligations;
  • are registered for PAYG withholding;
  • are reporting through Single Touch Payroll (STP);
  • meet the “additionality criteria”;
  • are claiming in respect of an eligible employee; and
  • have kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of.
Newly established businesses

Newly established businesses and businesses with no employees at the reference date of 30 September 2020 can claim the JobMaker Hiring Credit where they meet the criteria. The minimum baseline headcount is one, so employers who had no employees at 30 September 2020 or whose business was created after this reference date will not be eligible for the first employee hired, but will be eligible for the second and subsequent eligible hires.

Supporting small business and responsible lending

The Budget confirmed that the Government will implement reforms to support consumers and businesses affected by COVID-19 to facilitate Australia’s economic recovery. The reforms are designed to reduce regulatory burden to ensure a timely flow of credit and resolution for distressed business. These include:

  • introducing a new process to enable eligible incorporated small businesses in financial distress to restructure their own affairs;
  • simplifying the liquidation process for eligible incorporated small businesses;
  • support for the insolvency sector;
  • introducing a standard licensing regime for debt management firms who represent consumers in dispute resolution processes with credit providers;
  • removing duplication between the responsible lending obligations contained in the National Consumer Credit Protection Act 2009 and the Australian Prudential Regulation Authority (APRA) standards and guidance for authorised deposit-taking institutions (ADIs) and establishing a similar new credit framework for non-ADIs;
  • enhancing the regulation of small amount credit contracts and consumer leases to ensure that the most vulnerable consumers are protected.
Wage subsidy for new apprentices

The Government will provide a capped 50% wage subsidy to businesses who take on a new Australian apprentice from 5 October 2020 to 30 September 2021.

It will be available to employers of any size or industry, Australia-wide, regardless of geographic location or occupation. There are two important caps:

  • it is limited to 100,000 new apprentices or trainees in total; and
  • the 50% subsidy will be limited to $7,000 per quarter ($28,000 per annum).

More information can be found on the Department of Education, Skills and Employment website. The payment will be paid in respect of commencing or recommencing apprentices; that is, it will be possible to re-employ former apprentices whose employment had been terminated.

The scheme will run from 5 October 2020 to 30 September 2021. The measure was earlier announced by the Prime Minister on 5 October 2020. The Department of Education, Skills and Employment states that the start date for claims is 1 January 2021; that is, payments will be made in arrears.

SOCIAL SECURITY

$250 cash payments for income support recipients

The Government will pay two $250 economic support payments for eligible income support recipients and concession card holders. The payments will be made from November 2020 and early 2021 to eligible income support recipients and concession card holders, including:

  • Age Pension;
  • Disability Support Pension;
  • Carer Payment;
  • Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment);
  • Carer Allowance (not in receipt of a primary income support payment);
  • Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment);
  • Commonwealth Seniors Health Card holders; and
  • eligible Veterans’ Affairs payment recipients and concession card holders.

The $250 cash payments are tax exempt and will not count as income support for social security purposes. These cash payments follow the two $750 stimulus payments in April and July 2020 for social security and veteran income support recipients and concession card holders.

Paid Parental Leave: alternative work test

The Government announced in the Budget that it is also supporting new parents whose employment was interrupted by the COVID-19 pandemic by introducing an alternative Paid Parental Leave work test period for a limited time.

Under normal circumstances, parents must have worked 10 of the 13 months prior to the birth or adoption of their child to qualify, but that is being temporarily extended to 10 months out of the 20 months for births and adoptions that occur between 22 March 2020 and 31 March 2021. This measure is estimated to allow about 9,000 mothers to regain eligibility for Parental Leave Pay and allow a further 3,500 people to claim Dad and Partner Pay.

SUPERANNUATION

Super reforms: accounts to be stapled to members; best financial interests duty; other

The Government will provide $159.6 million to implement reforms to superannuation to improve outcomes for super fund members.

The Your Future, Your Super package, which will seek to reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, includes:

  • YourSuper portal – the ATO will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal;
  • stapled accounts – an existing superannuation account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers;
  • MySuper benchmarking – from July 2021, APRA will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming. Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022. The funding for this initiative will be met through an increase in levies on regulated financial institutions; and
  • super trustees – best financial interests duty – to improve transparency and accountability of super funds, the Government will legislate to compel super trustees to also act in the best “financial” interests of their members.

The Treasurer said this package of reforms will help improve the $3 trillion superannuation system, and save members $17.9 billion over 10 years, by:

  • having an individual’s super follow them – preventing the creation of unintended multiple superannuation accounts when employees change jobs. Instead, an individual’s super will follow them so that a new employer will pay their super contributions into the individual’s existing account;
  • making it easier to choose a better fund – members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings. It will show a member’s current super accounts and prompt them to consider consolidating accounts if they have more than one;
  • holding funds to account for underperformance – to protect members from poor outcomes and encourage funds to lower costs, the Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members by 1 October 2021. Persistently underperforming products will be prevented from taking on new members; and
  • improving transparency and accountability – the Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require super funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.

All measures will commence by 1 July 2021.

Stapled accounts: how they will work

The first phase of the reforms is proposed to commence on 1 July 2021. Employers will no longer automatically create a new superannuation account in their chosen default fund for new employees when they do not decide on a super fund. Instead, employers will obtain information about the employee’s existing super fund from the ATO, if it is not provided by the employee. The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay super contributions into the employee’s account.

The second phase of the reforms will see the ATO provide a new service for employers. As of 1 July 2022, the ATO will enable digital software providers to give employers the option to automate the communications between the employer’s payroll system and the ATO system. Once this new service is adopted, it will remove the need for the employer to manually enter into their payroll system their employees’ superannuation fund details, reducing business administration costs.

Under both phases, if an employee does not have an existing super account (eg is new to the workforce) and does not make a decision regarding a fund, the employer will pay the employee’s super into their nominated default super fund.

Super trustees: best financial interests duty

The Government will legislate to compel super trustees to act in the best financial interests of their members. Consistent with the recommendation of the Productivity Commission to clarify what it means for a trustee to act in members’ best interests, the Government said it will put beyond doubt that trustees must act in the best financial interests of members. The measure seeks to remove ambiguity on how super trustees should be spending members’ money.

It will also give effect to the statement in the Explanatory Memorandum to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 that “RSE [Registrable Superannuation Entity] licensees will have a heightened obligation to act in the best financial interests of members that accept the default option”.

In addition to strengthening the duty owed by trustees, the onus on demonstrating compliance with the new duty will be reversed so that trustees must establish that there was a reasonable basis to support their actions being consistent with members’ best financial interests.

To ensure that the best financial interests duty is complied with by super funds, these changes will be accompanied by anti-avoidance measures, to ensure payments from the super fund to a third party (including an interposed or a related entity) do not undermine the intent of the changes. No materiality threshold will apply to the new duty.

The penalty provisions introduced by the Government under the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 will apply for breaches of the new duty for both the trustee and individual directors.

Super Guarantee: no change to rate increase set for July 2021

The Budget did not announce any change to the timing of the next Super Guarantee (SG) rate increase. The SG rate is currently legislated to increase from 9.5% to 10% from 1 July 2021, and by 0.5% per year from 1 July 2022 until it reaches 12% from 1 July 2025.

Prior to the Budget, there was speculation as to whether the Government may consider delaying this legislated SG rate increase in the interest of promoting spending and jobs, at the expense of workers’ retirement savings. Association of Superannuation Funds of Australia (ASFA) modelling has previously suggested that an average income earner aged 30 today, and on a $70,000 salary would have $71,600 less when retiring at 67 if the SG stays at 9.5%.

While the Budget did not announce any change to the start date for the SG rate increase, the Government probably does not need to decide this policy issue until next year’s Federal Budget in May 2021, ahead of the 1 July 2021 legislated change date for the SG rate.

Death And Taxes: ATO Improvements Coming Soon?

In a bid to improve the experience of taxpayers when dealing with the ATO in relation to deceased estates, the Inspector General of Taxation and Taxation Ombudsman (IGTO) has recently completed a report which identified opportunities to improve tax administration and cut unnecessary tax compliance.

“We recognised that the death of a loved one is a difficult time for many people, no matter how ‘organised’ we may think we are. It is especially so for those close to the deceased. Not only can it be sad but it can also be stressful and confusing – even sometimes overwhelming…This is especially true for a surviving spouse who is suddenly required to address many financial, tax, legal and accounting issues … alone. Hence, it is a vital area for investigation and ensuring clarity and simplicity within the system itself.” – Karen Payne, IGTO.

The report covers some 130 complaints made to the IGTO regarding the ATO administration of deceased estates starting from 1 May 2015. The complaints raised a range of concerns including:

  • lack of clarity as to why a grant of probate or letters of administration from a Court is necessary for authority to engage with the ATO to provide or receive the deceased taxpayer’s information;
  • difficulties for tax agents accessing information of the deceased taxpayer or dealing with tax matters on behalf of the deceased;
  • delay by the ATO in providing executors with access to unclaimed superannuation;
  • ATO requirements for lodgement of the deceased taxpayer’s past tax returns;
  • executor/administrator confusion in relation to how the tax affairs of the deceased should be handled;
  • lack of ATO guidance and advice for deceased estates;
  • delays in obtaining a TFN for the deceased estate;
  • delay in registering the death of the taxpayer following notification; and
  • uncertainty regarding how a foreign executor should deal with the affairs of the taxpayer in Australia.

As the complaints reveal, it can be very difficult of non-tax/legal experts to navigate the ATO system on behalf of the deceased taxpayer and understand their obligations. Multiple notifications of death are also currently required across Federal, State/Territory, local governments, and various other business and community organisations.

The report made recommendations which the ATO agreed with either in full, in part or in principle, including the following:

  • review, refresh and consolidate advice and guidance for deceased taxpayers, including binding guidance for lodgement of returns and TFNs;
  • better integrate ATO notification with existing end of life processes (ie with State authorities such as Births, Deaths, and Marriages);
  • allow digital notification of death including by registered tax practitioners;
  • promote digital deceased estate TFN application or easier application processes (ie through Tax Agents Online, ATO website and/or MyGov);
  • simplify tax filing requirements for a deceased taxpayer especially for simple estates;
  • confirm ATO position on which “representatives” can represent the deceased for tax purposes;
  • provide authorised tax practitioners with correspondence sent to deceased taxpayer’s MyGov; and
  • develop escalation channels to dedicated areas within the ATO for specialist advice on deceased estates.

While the IGTO helpfully points out that the ATO has recently made tax administration improvements to assist representatives of deceased individuals and their estates including the development of a deceased estate data package. There is still gaps in information and administrative processes, particularly around when there is a requirement to obtain probate and letters of administration.

What’s next?

If you’ve recently lost a loved one, we can help you through this difficult and traumatic time by taking care of all the tax-related matters of the estate and advise you on other matters should you require it. Improvements may be coming but it might take a while, and in the meantime, we can help you through the processes.

 

Super guarantee amnesty ends 7 September 2020

This is your last chance to apply for the super guarantee amnesty to catch up on past unpaid super, without incurring a penalty or paying administration fees.

To be eligible for the amnesty:

  • the unpaid super must be for a quarter between 1 July 1992 and 31 March 2018
  • you must not have already disclosed the shortfall to us
  • we must not already be examining the shortfall
  • we must receive your application by 11.59pm local time 7 September 2020.

If you can’t pay the full amount, ATO can work with you on a payment plan to suit your circumstances.

Tax deduction for amnesty payments

Any amnesty amounts you pay before 7 September 2020 are tax deductible. To make a payment you’ll need your payment reference number (PRN).

ATO encourages businesses to lodge their applications early and your PRN will be sent within 14 business days of receiving your application.

If you don’t lodge your amnesty application by mid-August, you can request your PRN earlier – see Obtain your payment reference number for the details.

Source: https://www.ato.gov.au/Business/Business-bulletins-newsroom

Director Identification Number – A permanent identifier under new laws

The Australian Federal Government has implemented legislation to combat illegal phoenix activities by company controllers which includes the requirement for company directors to obtain a Director Identification Number (DIN).

Applying for DIN

An ‘eligible officer’ (a director, alternate director or any other officer of a registered body of a kind prescribed by regulations) must apply to ASIC for a DIN. Prospective directors may apply for a DIN up to 12 months prior to appointment (or if directed by the ASIC Registrar).

Eligible officers will be required to submit prescribed personal information (to be determined by the Registrar) and undergo a 100 point identity verification with ASIC. Whilst the Registrar has the power to request an applicant’s Tax File Number, they have no power to compel its provision.

Once verified, ASIC will issue a DIN to the director.

Prohibitions & penalties

Both civil and criminal penalties (including imprisonment) apply for contravention of the DIN requirement.

In addition, a director must not:

  • Apply for additional DINs; or
  • Misrepresent a DIN to a Government or registered body (or provide false or misleading information to the Registrar to obtain a DIN).

Only the Registrar will have the power to cancel and reissue a DIN, a director will hold its DIN forever, even if they cease to be a director and will not be entitled to change or cancel it unless done so by the Registrar.

Action required

Directors are to apply for a DIN as follows:

  • Existing Company Directors – An application must be made within a timeframe to be specified by the Registrar. ASIC will notify directors of the requirements and time frame to make an application.
  • New Company Directors – Any person intending to become a director must have made an application before they consent to act (or as directed by the Registrar). For the first 12 months, the transitional provision will permit a new company director to apply for a DIN within 28 days of their appointment to the Board.
Who doesn’t need a DIN

Directors of unincorporated entities, such as unregistered joint ventures or partnerships, or persons acting as shadow or de facto directors will not be required to have a DIN at this stage.

The legislation will allow the Minister to implement these requirements in future if considered necessary.

How does this impact your company?

Benefits of the DIN requirement are:

  • Traceability of Director Interests – Companies will be able to clearly identify all board positions held by a director to identify involvement in failed companies, associated interests or any perceived or actual conflicts of interest.
  • Prevention of Phoenix Activity – Directors will no longer be able to change personal information or disassociate themselves with a company. The register will record all interests in a company, including companies wound up in insolvency.

The main purpose of introducing the DIN is to prevent illegal phoenix activity and prevent directors from registering under different names to escape liability.

Going forward

Introducing DIN will be a huge aid for corporate governance.

By ensuring directors apply within the appropriate timeframes and corporate records are updated accordingly, companies may have an opportunity to review its directors’ interests to ensure they have not acted in any illegal phoenix activity, have made any misrepresentations to the Board, or hold positions which may be an actual or perceived conflict of interests.

New $ 3k grants for small businesses and change to payroll tax threshhold

From 1 July, NSW small businesses will be able to apply for a small business recovery grant of between $500 and $3,000.

The new grant comes as the state government’s previous $10,000 grants from a $750 million funding pool comes to a halt at the end of the financial year after 49,700 businesses accessed more than $490 million.

The new grants will be funded with the remaining of that $750 million support fund.

The small business recovery grant can only be used for expenses associated with safely reopening or up-scaling a business from 1 July and where no other Government support is available.

The eligibility criteria has been made available on Service NSW, and will require an annual turnover of more than $75,000, including the provision of a Business Activity Statement as evidence.

The small business must have experienced at least a 30 per cent decline in turnover from March to July 2020 compared to the equivalent period in 2019, and must be able to report a payroll below the NSW 2019-2020 payroll tax threshold of $900,000.

Service NSW has noted that a combination of documents may be requested to determine eligibility, including prior BAS statements; income tax declaration; profit and loss statements; extractions from an accounting software; and receipts and invoices from purchases.

“These $3,000 grants can be used to relaunch business operations, from covering marketing and advertising expenses to fit-out changes and training staff on how to work safely under the current health conditions – assisting with expenses that will help get them back to business,” said Minister for Finance and Small Business Damien Tudehope.

Payroll tax

The NSW government will also bring forward the raising of the payroll tax threshold to $1 million from 1 July 2020, up from $900,000 and one year earlier than planned.

NSW Treasurer Dominic Perrottet said the measures were designed to help entrepreneurs and mum and dad owners relaunch and revitalise their businesses, as part of the Government’s more than $13.6 billion COVID-19 stimulus support measures.

“From 1 July, eligible small businesses will be able to access up to $3,000 in Recovery Grants, while the tax-free threshold for payroll tax will be increased from $900,000 to $1 million, saving businesses up to $5,450 a year,” he said.

Source: accountantsdaily.com.au

Explanatory Memorandum – June 2020

Treasury revises down estimated JobKeeper cost by $60 billion

The ATO and Treasury have released a joint statement advising that the previous estimate of the number of employers who would access the JobKeeper program was significantly overstated. Treasury now estimates the number of employees likely to be covered under the JobKeeper program to be around 3.5 million (down from a previous estimate of 6.5 million employees). As a result, Treasury has revised down the estimated cost of JobKeeper to around $70 billion (down from the original $130 billion estimate).

The overstatement has been attributed to errors that employers made when applying for the JobKeeper payment. For example, when estimating their eligibility over 500 businesses with only a single eligible employee actually reported the dollar amount that they expected to receive per fortnightly JobKeeper payment (ie 1,500) instead of the number of their eligible employees (ie 1). This reporting error has come to light as the ATO and Treasury have been analysing the amounts being paid out under the scheme, and reconciling them with the estimates provided by enrolled businesses of the likely number of eligible employees. It was not picked up by the ATO earlier as its primary focus in the first fortnight was on ensuring that JobKeeper payments were paid promptly to those eligible for them, and were not paid to those who were ineligible.

Importantly, this reporting error has no consequences for JobKeeper payments that have already been made to eligible businesses, as payments under the scheme depend on the subsequent declaration that an eligible business makes in relation to each and every eligible employee. This declaration does not involve estimates and requires an employer to provide the Tax File Number (TFN) for each eligible employee.

As of 20 May 2020, 910,055 businesses had enrolled in the JobKeeper program. Of these, 759,654 had made claims in relation to their eligible employees and had their applications processed. This resulted in $8.7 billion of approved payments to those 759,654 businesses, covering around 2.9 million employees. Around 97% of claims have been paid to employers within three business days of employers making the employee declaration.

From the economic viewpoint, Treasury expects the unemployment rate would have been around 5% higher in the absence of the JobKeeper program than it currently is. Treasury continues to expect the unemployment rate to reach around 10%, although as indicated by the recent Labour Force survey, the measured level of the unemployment is highly uncertain given the impact of physical distancing restrictions on the participation rate.

Registration and declaration deadlines

The ATO has reminded all eligible employers that 31 May 2020 is the final date employers can enrol for JobKeeper if they intend to claim for wages paid for JobKeeper fortnights in April and May.

Further, all eligible employers who have enrolled but not yet made their employee declaration must ensure that they complete their April declaration by 31 May 2020. The ATO also reminds employers that on an on-going basis they must declare their eligible employees monthly. May declarations must be made by 14 June 2020.

Source: www.ato.gov.au/Media-centre/Media-releases/Joint-Treasury-and-ATO-statement—JobKeeper-update/.

Snapshot of Federal COVID-19 pandemic measures

The following is a snapshot of Australia’s all-of-Government financial measures in response to the coronavirus (COVID-19) pandemic. It does not deal with the response measures specific to the various states and territories.

Tax-related business measures
  • Cash flow boost payments: Tax-free payments of up to $100,000 are available for eligible small and medium sized entities (SMEs) and not-for-profits (including charities) that employ people, with a minimum payment of $20,000. The amounts will be delivered will be made in two stages. At 23 April 2020, the ATO had paid out $3 billion in cash flow boost payments to 177,000 businesses ahead of the originally anticipated start date of 28 April. Further cash flow boost payments will be made by October 2020.
  • Instant asset write-off extended and increased to $150,000: The Coronavirus Economic Response Package Omnibus Act 2020 has amended the Income Tax Assessment Act 1997 (ITAA 1997) to increase the instant asset write-off threshold from $30,000 to $150,000 for business entities with aggregated annual turnover of less than $50 million (up from a minimum of $50 million) from 12 March 2020 to 30 June 2020.
  • Accelerated rates of depreciation: Businesses with aggregated turnover of less than $500 million in an income year can deduct capital allowances for depreciating assets at an accelerated rate. This measure extends over two income years; that is, 2019–2020 (albeit not the full year) and all of 2020–2021.
  • Research and development (R&D) tax incentive applications for 2019 extended: The Government has deferred the lodgment dates for R&D tax incentive applications for the 2018–2019 income year until 30 September 2020.
JobKeeper Payment
  • JobKeeper legislation passed: This contains the legislative framework to implement the Government’s JobKeeper Payment program (with the mechanics to be contained in Statutory Rules). At 23 April 2020, more than 900,000 businesses had registered their interest in accessing JobKeeper payments, with 275,000 already completing applications.
  • JobKeeper Statutory Rules (as amended): These contain the detailed rules and taxpayer requirements to qualify for the JobKeeper Payment program.
  • JobKeeper “decline in turnover” tests: Details are now available regarding the alternative tests that can be used to determine if the “decline in turnover” requirement of the JobKeeper Payment program is satisfied. New rules set out a separate decline in turnover test where businesses use a special purpose entity to employ staff, and there have been changes to rules affecting charities, religious practitioners, the selection of all eligible employees (one-in, all-in), students aged 16 and 17, international aid organisations and universities.
  • Banks can confirm employer JobKeeper elections: Authorised deposit-taking institutions (ADIs) are able to confirm that the ATO has provided a notice to an employer concerning their election to participate in the JobKeeper Payment program. This measure is designed to assist in the provision of bridging finance.
  • JobKeeper deadline(s) extension: Employers had until 8 May 2020 to pay staff for the first two JobKeeper fortnights and must be registered by 31 May 2020 (the deadline was previously 30 April for both).
  • Fair Work advice: The Fair Work Commission has released a “JobKeeper disputes benchbook” to assist employers and employees to resolve disputes relating to the JobKeeper Payment scheme.
Superannuation
  • Superannuation early release up to $20,000: Individuals affected by COVID-19 can apply via myGov to release (tax-free) up to $10,000 of their superannuation in the 2019–2020 financial year. A second application up to $10,000 can be made in the 2020–2021 year until 24 September 2020. To be eligible, a person must be unemployed or eligible to receive income support such as JobSeeker or Youth Allowance payments. Alternatively, on or after 1 January 2020, the person must have been made redundant or have had their working hours reduced by 20% or more (or, for a sole trader, have experienced a reduction in turnover of 20% or more).
  • Super pension drawdowns reduced by 50%: The minimum annual payment amounts for pensions and annuities have been temporarily reduced by 50% for 2019–2020 and 2020–2021. The reduction in the minimum payment amounts applies to account-based, allocated and market-linked (term allocated) pensions.
  • Temporary residents early release for COVID-19: Certain temporary residents impacted by COVID-19 may apply for an early release of up to $10,000 of their superannuation by 30 June 2020.
  • Tax agents granted Australian financial services (AFS) licensing relief for early release: A temporary AFS licensing exemption allows registered tax agents to provide certain financial product advice to their existing clients about the early release of superannuation under the coronavirus condition of release. The Australian Securities and Investments Commission (ASIC) has also provided some administrative relief.
  • Anti-money-laundering/counter-terrorism-financing (AML/CTF) exemption for early super release: The Australian Transaction Reports and Analysis Centre (AUSTRAC) has registered legislative rules to provide a temporary exemption from the customer identification procedures for super funds making COVID-19-related early super release payments in respect of the anti-money-laundering and counter-terrorism rules.
Social security
  • Fortnightly $550 Coronavirus Supplement: This supplement is available for job seekers, sole traders, students and some others. It effectively doubles the current payment for new and existing social security recipients from 27 April 2020. It will be paid for six months to both existing and new recipients of the JobSeeker Payment, Sickness Allowance, Youth Allowance for jobseekers, Parenting Payment Partnered, Parenting Payment Single, Partner Allowance, Sickness Allowance and the Farm Household Allowance.
  • $750 stimulus payments for income support recipients: The first $750 cash stimulus payment has now gone out to 6.8 million eligible pensioners, carers, disability support pensioners, those on family tax benefits and concession card holders. A second $750 payment will be made from 13 July 2020 for eligible income recipients and concession card holders.
  • Pension deeming rates cut: The social security deeming rate have been reduced (twice) to 0.25% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate is 2.25% for balances over these amounts.
Regulation
  • Commercial property tenancies: The Prime Minister has confirmed that the states and territories will legislate the Mandatory Code of Conduct for SME commercial leasing principles during COVID-19.
  • Creditor’s statutory demand threshold: The current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 has been raised from $2,000 to $20,000. The statutory timeframe for a company to respond to a statutory demand has been extended from 21 days to six months.
  • Bankruptcy minimum debt of $20,000: The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor (ie personal insolvency) will increase from its current level of $5,000 to $20,000. The time debtors have to respond to a bankruptcy notice will be increased from 21 days to six months.
  • Duty to prevent insolvent trading: Directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business.
  • Federal wage subsidy for apprentices: Eligible employers can apply for a wage subsidy of 50% of an apprentice’s or a trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020.
  • SME loan guarantee scheme for bank lending: The Coronavirus SME Guarantee scheme will provide a guarantee of 50% to SME lenders for new unsecured loans to be used for working capital.
  • Regional and sector support: The Government has set aside an initial $1 billion to support regions, communities and industries that have been disproportionately affected by the economic impacts of the pandemic, including those heavily reliant on industries such as tourism, agriculture and education.
  • Subsidy for child care providers: The Government will pay 50% of the sector’s fee revenue up to the existing hourly rate cap based on a point in time before parents started withdrawing their children in large numbers, but only so long as services remain open and do not charge families for care.
ATO concessions
  • Deferring tax payments: Tax payment dates will be deferred by up to six months for tax amounts due through the BAS (this was initially announced as four months). This includes PAYG instalments, income tax assessments, FBT assessments and excise.
  • Varying PAYG instalments: The ATO has allowed businesses to vary their PAYG instalment amounts to zero for the March 2020 quarter. That is, a quarterly PAYG instalments payer can vary its PAYG instalments on its activity statement for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made during the 2019–2020 financial year (ie for the September 2019 and December 2019 quarters).
  • ATO automatic lodgment deferrals: The ATO has advised that lodgment and payment deferrals will be automatically applied to the following obligations due on 15 May 2020: company 2018–2019 income tax returns are now due by 5 June 2020, and self managed superannuation fund (SMSF) 2018–2019 annual returns are now due by 30 June 2020. For individuals, partnerships and trusts, the ATO says 2018–2019 income tax returns can be lodged by the 5 June 2020 concessional due date, provided that the taxpayer pays any liability by this date. Finally, the lodgment and payment due date for 2019–2020 FBT annual returns has been automatically deferred from 21 May to 25 June 2020.
  • Remitting interest and penalties: This measure is applicable to certain interest and penalties incurred on or after 23 January 2020 that have been applied to tax liabilities.
  • Low-interest payment plans: These are available to allow affected businesses to enter into low-interest payment plans for their existing and ongoing tax liabilities.
  • Cessation of business: The ATO is taking a practical attitude to those who have to put their business “on hold”.
  • Working from home deductions: The ATO will accept deduction claims using a flat rate of 80c per hour, provided a diary of working hours is kept. This is subject to rules in Practical Compliance Guideline PCG 2020/3.
  • Tax agents can enrol clients for JobKeeper: The ATO has advised that agents can enrol on behalf of their clients for the JobKeeper Payment program.
  • Corporate residency and central management and control: Where a foreign incorporated company that is not an Australian tax resident has had to make alternative arrangements for board meetings because of COVID-19 travel restrictions, concessions will be made when determining if the central management and control is in Australia.
  • Permanent establishment (PE): The ATO says a foreign incorporated company that is not an Australian tax resident will not be deemed to have an Australian PE where it has an unplanned presence of my employees in Australia due to COVID-19.
  • Significant global entity (SGE) penalty: The ATO will remit the significant global entity (SGE) penalty for a period of 30 days from the lodgment date of the approved form, including for the general purpose financial statement (GPFS) lodgment, under certain circumstances.
  • PAYG withholding and foreign employers: The ATO does not expect foreign employers to register for PAYG withholding if the only reason that a foreign employee is now working in Australia (but not otherwise a resident of Australia) is the impacts of COVID-19 on travel, and it is anticipated that they will leave before 30 June 2020.
  • FBT: If entities provide or pay for goods or services to assist employees who are sick, or are at risk of becoming sick, with COVID-19, this will generally be exempt from FBT if the benefit is provided for their immediate relief.
  • Switching to monthly GST reporting: Businesses on a quarterly reporting cycle can elect to switch their GST reporting and payment to a monthly cycle to get a quicker GST refund.
ATO concessions: SMSFs
  • SMSF annual returns: The ATO has automatically deferred until 30 June 2020 the lodgment due date for the 2018–2019 SMSF annual return for all funds.
  • SMSF temporary rent reductions: The ATO has confirmed that it will not take compliance action for the 2019–2020 and 2020–2021 financial years where an SMSF landlord gives a tenant (who is also a related party) a temporary rent reduction during this period.
  • Related-party limited recourse borrowing arrangements (LRBAs) and temporary rent reductions: If an SMSF with an otherwise compliant LRBA grants COVID-19 rent repayment relief, reflecting similar terms to what commercial banks are offering, the ATO will accept that the parties are dealing at arm’s length and the non-arm’s length income (NALI) provisions in s 295-550 of ITAA 1997 do not apply. The ATO still expects to see evidence that interest continues to accrue on the loan and that the SMSF trustee will catch up any outstanding principal and interest repayments as soon as possible.
  • In-house assets: If an SMSF exceeds the 5% in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. However, the ATO will not undertake compliance activity if the rectification plan could not be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.
  • SMSF residency test: If a trustee or director is stranded overseas due to COVID-19, the ATO will not apply compliance resources to that aspect of the SMSF residency condition in s 295-25 of ITAA 1997.
ASIC
  • AFS licensees and financial advisers: ASIC has granted temporary financial services relief to enable the provision of timely COVID-19 advice (including the early release of super). ASIC has also adopted a temporary no-action position for intra-fund advice by super trustees. Professional bodies have released Record of Advice (RoA) templates to assist members providing clients with COVID-19 advice about the early release of super.
  • ASIC’s regulatory priorities: Until 30 September 2020, ASIC will afford priority to COVID-19 issues and delay less time-critical activities, such as consultations, regulatory reports and reviews (eg executive remuneration, internal dispute resolution and managed discretionary accounts). ASIC will also revise its work on implementing recommendations of the Banking Royal Commission in light of changes to the Parliamentary timetable.
  • Annual general meetings (AGMs) and financial reporting: ASIC has adopted a “take no action” stance in relation to the timing of AGMs and the conduct of AGMs by electronic means.
  • Reporting by unlisted entities: Lodgment deadlines have been extended for unlisted entities, including unlisted public companies, proprietary companies, registered schemes, disclosing entities and AFS licensees.
  • Directors’ duties: Despite the temporary COVID-19 relief for financially distressed businesses, ASIC has reminded directors that they must still comply with their other statutory and common law duties, including the duties to act with due care, skill and diligence; to act in the best interests of the company as a whole; and to not use their position to gain an advantage.
  • Unlicensed advice by real estate agents: ASIC has warned estate agents not to advise tenants who are unable to pay their rent to apply for the early release of their super.
APRA
  • APRA’s regulatory priorities: until 30 September 2020, the Australian Prudential Regulation Authority (APRA) has suspended the majority of its planned policy and supervision initiatives. It will focus on monitoring entities for key financial settings, such as capital and liquidity. APRA has also suspended all substantive public consultations and actions to finalise revisions to the prudential framework that are currently underway or upcoming. However, APRA may still progress certain data reporting initiatives that are related to the impacts of COVID-19.
  • APRA prudential and reporting standards: APRA has deferred the start dates for six prudential and reporting standards that have been finalised but are yet to fully come into effect.
  • APRA data collection: APRA has suspended for six months its project to replace the Direct to APRA (D2A) data collection tool with its APRA Connect data collection solution.
Financial institutions
  • Bank loan deferrals: Banks will defer loan repayments for six months for small businesses with total business loan facilities up to $10 million who need assistance because of COVID-19.
  • Commercial property landlords: The banks have agreed not to enforce business loans for non-financial breaches of the loan contract (such as changes in valuations). This concession is subject to the landlord complying with the mandatory National Code of Conduct for commercial leasing principles during COVID-19.
  • Bank assistance for JobKeeper: The major banks have agreed to set up a dedicated hotline for customers needing to access bridging finance to pay their staff ahead of receiving money under the JobKeeper program. The banks have also agreed to expedite the processing of those JobKeeper applications.

JobKeeper: common questions to the ATO

The ATO has updated its webpages – one for employers and one for employees – that provide answers to some common JobKeeper questions. These pages are being regularly updated, so it is worth keeping an eye on them. The following highlights some of the more noteworthy items.

  • Super is not included: The ATO confirms that the minimum $1,500 payment does not include the amount contributed as super to meet super guarantee obligations. However, it does include super contributions made under a salary sacrifice arrangement. For example, assume an employer pays an employee $1,400 per fortnight before tax, plus contributes $133 super per fortnight (ie 9.5%) to meet super guarantee obligations. This would not meet the requirements for the minimum payment to the employee.
  • Out-of-sync pay cycles: Employers are not required to change pay cycles to correspond with JobKeeper fortnights. What is important is that employees are paid at some time during the JobKeeper fortnight. However, if the employer usually pays their employees less frequently, the payment can be allocated between fortnights in “a reasonable manner”. For example, if employees are paid monthly, the employer will still be entitled to receive a JobKeeper Payment, provided that the employees received the monthly equivalent of $1,500 per fortnight.
  • Proof of participation: The ATO cannot provide a letter (eg to a bank) confirming that an employer has enrolled in the JobKeeper Payment scheme. However, the employer themselves can provide the bank with the information used as part of the JobKeeper enrolment process, including the JobKeeper receipt number and the number of eligible employees.
  • Eligibility cut-off: If an employer does not satisfy the “decline in turnover” test for the current month or quarter, it can still assess its eligibility at a later date. To qualify later, the turnover month can be May, June, July, August or September 2020, provided the relevant JobKeeper fortnight has ended that month or an earlier month. If the turnover for a quarter is being used, it can be the quarter:
  • from 1 April 2020 to 30 June 2020; or
  • from 1 July 2020 to 30 September 2020 – but only if first seeking to qualify for fortnights ending in July 2020 or later.
  • Turnover recovery: Employers only need to satisfy the “decline in turnover” test once to be entitled to JobKeeper payments (and remain entitled). For example, having satisfied it for March 2020 (compared in March 2019) is sufficient – even if the business recovers to previous levels after this (eg if things pick up in May).
  • Reporting current turnover: Employers needed to report their April current GST turnover and May projected GST turnover to the ATO by 31 May 2020 (not 7 May as originally announced). Note, though, that the approved form that entities use to report their monthly GST turnover for April is also used to identify eligible employees, religious practitioners and/or a business participant each month. This confirmation will need to be made for the ATO to be satisfied that the entity is entitled to a JobKeeper Payment. This means that if an employer reported its April GST turnover amounts later than 7 May 2020, its JobKeeper Payment will also be delayed.
  • Evidence of turnover decline: In terms of proving projected GST turnover for a test period, “relevant evidence that would support a prediction of sales likely to be made” may include:
  • a decline in sales during the turnover test period or since 1 March 2020 as a result of government COVID-19 restrictions;
  • customers cancelling or modifying existing contracts for sales on or from 1 March 2020;
  • being required to close or pausing the business due to government COVID-19 restrictions;
  • delays in being able to get access to trading stock sourced from overseas on or from 1 March 2020;
  • evidence of a business’s reliance on tourism;
  • any consequential effect on the price of supplies, eg the effect on the market value of new property being sold by a developer;
  • information known to the business, whether or not publicly available;
  • economic forecasts undertaken by a reputable organisation that are relevant to the type of business; and
  • the likely timing of government COVID-19 restrictions being lifted for employer’s type of business, based on government announcements.
  • Incorrect assessments of turnover: If, at a later stage, it eventuates that actual turnover for a test period is greater than the projected turnover, the employer will not lose access to JobKeeper. The ATO will accept the assessment of these turnovers, unless it has reason to believe that the calculation of projected GST turnover was not reasonable. If there is a significant difference, the ATO may need to assess whether the assessment was reasonable, so there is a need to keep good records of calculations and the assumptions behind them.
  • Job change: If an employee changes jobs after 1 March 2020, the new employer will not be eligible to claim JobKeeper Payments for that employee. However, there are some limited exceptions that may apply when a person is re-employed within the same corporate group.
  • Other income of employees stood down: An employee who has been stood down can earn income from another job while the original employer is receiving JobKeeper Payments for the employee, provided the employee maintains employment (including while being stood down) with the JobKeeper-eligible employer.

Source: www.ato.gov.au/General/JobKeeper-Payment/In-detail/Employers–frequently-asked-JobKeeper-questions/; www.ato.gov.au/General/JobKeeper-Payment/In-detail/Employees–frequently-asked-JobKeeper-questions/.

JobKeeper: measuring decline in turnover

Law Companion Ruling LCR 2020/1, issued on 4 May 2020 and effective from 9 April 2020, explains various aspects of the JobKeeper “decline in turnover” test and also sets out practical compliance approaches that an entity can apply to calculate its turnover. The Ruling is intended to supplement guidance already available on the ATO website. The ATO says it decided to issue a (non-binding) ruling as it continues to receive questions about some aspects of the test.

Background

Businesses (including sole traders and charities) must have suffered a “substantial decline” in turnover to qualify for the JobKeeper Payment of $1,500 per eligible employee. The basic decline in turnover test is linked to the GST turnover test (in Div 188 of the GST Act) and requires an entity to measure its projected GST turnover for a turnover test period in 2020 and compare this to the current GST turnover for a relevant comparison period in 2019. In particular, an entity needs to allocate supplies made, or likely to be made, to a turnover test period or relevant comparison period based on when the supply is made or is likely to be made, and to then determine the value of those supplies. Any shortfall is to be expressed as a percentage. If this equals or exceeds specified thresholds, the entity satisfies the decline in turnover test.

An alternative turnover test may be available if an entity’s circumstances do not fit the basic test rules. The alternative tests are not addressed in LCR 2020/1.

Issues covered by LCR 2020/1

Ruling LCR 2020/1 discusses in some detail the following aspects of the basic decline in turnover test:

  • Step A: the supplies that are included in projected GST turnover and current GST turnover;
  • Step B: allocating supplies to the right period; and
  • Step C: determining the value of each supply allocated to a relevant period.

The Ruling then sets out practical compliance approaches that effectively allow entities to work out Steps B and C simultaneously.

Practical compliance approaches: alternative methods

The ATO accepts that there may be practical compliance difficulties in linking amounts received or invoiced based strictly on the time a supply is made or likely to be made. Ruling LCR 2020/1 outlines the following alternative methods which, if applied in good faith, can be used as a proxy to determine the value of supplies (Steps B and C):

  • Accrual accounting: Entities can use the GST-exclusive revenue from making supplies that would be recognised in financial accounts prepared in accordance with accounting principles as a proxy for the value of supplies made or likely to be made in a turnover test period. This method extends to entities that account for GST on a cash basis.
  • GST attribution basis: The total GST-exclusive value of supplies that would be allocated to a relevant period under the GST attribution rules (assuming the relevant period was also a GST reporting period) can be used as a proxy for the value of supplies made or likely to be made in a relevant period. For non-taxable supplies, entities should use the GST attribution rules as if they applied in the same way as they do for taxable supplies and as if the relevant period was a reporting period for GST purposes. If the amounts used for GST reporting purposes do not reflect the value of the supplies for the decline in turnover test, entities should ensure they include the value of the supply when the GST may have been calculated on a different basis (eg the full value of a supply of real property and not just the margin).

Entities that are not registered for GST may use the same accounting method that they use for income tax purposes. This involves treating the income or gains that are, or are likely to be, derived in a relevant period for income tax purposes as being the value of the supplies made, or likely to be made, in that relevant period.

An entity that chooses to use one of these alternative methods must use the same method, and apply it consistently, for both relevant periods. The entity also needs to keep reasonable records to show which method was used.

The ATO emphasises that an entity will not lose access to JobKeeper payments if its actual turnover for the turnover test period turns out to be greater than the prediction of projected turnover. The ATO will accept an entity’s assessment of these turnovers unless there is reason to believe that the calculation of projected GST turnover was not reasonable.

Source: www.ato.gov.au/law/view/view.htm?docid=%22COG%2FLCR20201%2FNAT%2FATO%2F00001%22.

STP exemption for small employers extended to July 2021

The ATO has announced that it has extended the Single Touch Payroll (STP) exemption for small employers in relation to closely held payees from 1 July 2020 to 1 July 2021 in response to COVID-19.

This STP exemption for closely held payees applies automatically and small employers do not need to apply to the ATO to access it. However, employers should keep records to support their decision to apply the concession. Alternatively, an employer can notify the ATO and apply for the exemption through the online Business Portal – select “Manage employees”, then “STP deferrals and exemptions”, and then “Exemption”. A registered tax agent can also apply for an exemption on behalf of a client.

If a small employer has any other employees (also known as arm’s length employees), the ATO says they must be reported through STP on or before each payday, unless the employer is eligible for the reporting concession available to micro employers (those with one to four employees). Micro employers who need more time to move to STP reporting can ask their registered tax or BAS agent to report on their behalf on a quarterly basis. This can continue until 30 June 2021.

Source: www.ato.gov.au/Business/Single-Touch-Payroll/Concessional-reporting/Closely-held-payees/.

Foreign employment income and the impact of COVID-19

The ATO has issued a fact sheet for taxpayers who have returned to Australia as a result of the COVID-19 pandemic, particularly to address their status in regards of the income tax exemption for foreign earnings. Foreign earnings include salary, wages, commissions, bonuses and allowances earned from engagement in foreign service.

An Australian resident deriving foreign earnings from service in a foreign country may be entitled to an income tax exemption on those foreign earnings under s 23AG of the Income Tax Assessment Act 1936 (ITAA 1936). This exemption can only apply where the foreign earnings are from a continuous period of service in the foreign country that lasts for at least 91 days.

The fact sheet applies where a taxpayer has returned to Australia from foreign service as a result of the pandemic and had:

  • undertaken 91 days of continuous foreign service that qualifies for the income tax exemption, but had expected to complete further foreign service prior to returning to Australia; or
  • commenced foreign service that otherwise would have qualified for the income tax exemption, however the taxpayer had not yet completed 91 days of continuous foreign service at the time of return.

If the taxpayer had already completed 91 days of continuous foreign service and met all the other requirements in s 23AG, the foreign earnings earned while undertaking the foreign service will remain exempt income. This includes income earned after return which is related to that period of foreign service, even if it is paid after the return (eg wages paid in arrears and paid recreation leave that accrued during the period of foreign service). However, if they had not yet completed 91 days of continuous foreign service, any foreign earnings from that period of foreign service are not exempt and therefore will be assessable.

While temporary absences from foreign service (such as time spent in Australia) still count as a period of foreign service, the ATO says that an absence from foreign service because a person returns to Australia as a result of COVID-19 and commences working in Australia is not a temporary absence from foreign service that falls into the s 23AG exceptions, because the person is returning without knowing when they can recommence their service in the foreign country. In the ATO’s view, this time in Australia cannot be characterised as a short work-related trip.

Source: www.ato.gov.au/law/view/view.htm?docid=%22AFS%2F23AG-COVID-19%2F00001%22.

Rental properties and the impact of COVID-19

The ATO has updated its webpage that addresses questions about residential rental properties and the financial impact of COVID-19. Some of the more interesting issues are outlined here.

  • Reduced or temporary cessation of rent: If tenants are not meeting their payment obligations under the lease agreement due to COVID-19 and a landlord continues to incur normal expenses on the property, the landlord will still be able to claim those expenses.
  • Reduced rent to assist tenants affected by COVID-19: If landlords reduce rent to enable tenants to remain in the property (thereby maximising rental return in a changed rental market), there will be no corresponding reduction for rental property expenses.
  • Back payments/insurance: Receipts of back payment of rent or an amount of insurance for lost rent should be declared as income in the tax year in which the amounts are received.
  • Interest on deferred bank loans: If a bank defers loan repayments for a period of time as a result of COVID-19, any interest accrued will be deductible.
  • Instant asset write-off: The new instant asset write-off deduction is not available for property investors.

Private use of short-term accommodation

The ATO has also addressed a number of questions related to short-term accommodation being used for private purposes.

One question asks whether, in relation to a property that has suffered rental downturn due to COVID-19, the owner will be able to continue to deduct expenses associated with this property in the same proportion as before COVID-19 for the period when demand is adversely affected. The ATO says that the amount to be claimed will depend on how the property had been used before COVID-19 and how the owner planned to use it during the period that is now affected by the pandemic. If the reason for the adverse effect on demand for the property is COVID-19 (or the bushfires immediately beforehand), the owner can continue to deduct expenses associated with the property in the same proportion as they were entitled to deduct before the pandemic (or the bushfires). However, if they had started to use the property in a different way beforehand, the proportion of expenses to be claimed as a deduction may change. The ATO provides the following examples of changed use:

  • increased private use of the property by the owner, their family or their friends; and
  • a decision to permanently stop renting out the property once the COVID-19 restrictions end.

A flow-on question involves a taxpayer using a holiday home to self-isolate and whether deductions can continue to be claimed, given that the taxpayer was unable to rent the property commercially. Perhaps unsurprisingly, the ATO says that the increased private usage will reduce the amount that the taxpayer can claim.

The last question addresses rental advertising and is interesting. If a taxpayer stops paying for advertising during the COVID-19 lockdown period, can deductions associated with holding the property still be claimed? It is worth quoting the ATO’s answer in full:

“It depends on a wider range of factors, not just one. Whether active and bona fide efforts are made to ensure a property is available for rent is only one factor to consider when determining the appropriate method to apportion deductions for a short term rental property. You would need to consider how the property had been used before COVID-19 and how you plan to use it during the period now adversely affected by COVID-19.

During this time we acknowledge it may be a reasonable commercial decision to temporarily reduce the level of paid advertising for your property, depending on the restrictions in your property’s locality. However, this factor alone doesn’t necessarily determine the allowable proportion of your deductions.”

Source: www.ato.gov.au/general/covid-19/covid-19-frequently-asked-questions/individuals-frequently-asked-questions/?anchor=Residentialrentalproperties#Residentialrentalproperties.

Processing of super early releases resumes with extra risk filters

Processing of COVID-19 early release of superannuation applications resumed 11 May 2020 after the ATO added extra risk filters for all files that are delivered to super funds.

This followed the “pausing” of early release requests on 8 May 2020 so that the ATO could consider further enhancements to its systems to help protect individuals’ personal data. Out of an abundance of caution, the ATO “paused” the early release of super requests being sent to super funds until 11 May. This was to enable the ATO to make sure there was nothing more that could be done to help individuals protect personal data to ensure they don’t become victims of identity theft, said Assistant Treasurer Michael Sukkar.

In an update on 11 May, Mr Sukkar said the ATO had identified a small number of third parties who could be susceptible to new techniques criminals are using to try to steal personal data. The ATO is working with these third parties to help them make security enhancements, Mr Sukkar said. The additional risk filters will now be applied by the ATO on all files before they are delivered to super funds. Further information will be provided to funds to assist them in discharging their own obligations to apply fraud prevention processes.

The ATO has also reminded people to be vigilant about how they store and share their personal information. An individual’s myGov log-in should never be shared with anyone, including their tax agent, Mr Sukkar said. Also be wary of emails or text messages that request personal information. The ATO will never send taxpayers a direct link to log on to ATO online services.

Appearing before the Senate Select Committee on COVID-19 on 7 May 2020, Australian Federal Police (AFP) Commissioner Reece Kershaw said the AFP was in the early stages of an investigation into fraud attempts against the super early release scheme, with five search warrants executed. So far, there are up to 150 victims. The AFP said it has identified some bank accounts and had them frozen, with $120,000 all up.

The Assistant Treasurer added that the AFP is investigating one incident that might involve around 150 individuals. Tax Commissioner Chris Jordan has also confirmed that the ATO’s systems have not been compromised. Mr Jordan has called on all taxpayers to be extraordinarily careful about keeping their personal information, such as their date of birth and Tax File Number (TFN) private and secure.

Source: https://ministers.treasury.gov.au/ministers/michael-sukkar-2019/transcripts/interview-laura-jayes-first-edition-sky-news-0; https://ministers.treasury.gov.au/ministers/michael-sukkar-2019/media-releases/processing-early-release-superannuation-applications; https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%
22committees%2Fcommsen%2F0c5c7e36-6300-484b-b9c3-ed5847b7ce91%2F0000%22

Directors’ duties still apply despite COVID-19 relief

The Australian Securities and Investments Commission (ASIC) has reminded companies, directors and officers faced with COVID-19 challenges to reflect on their fundamental duties to act with due care, skill and diligence, and to act in the best interests of the company.

ASIC Commissioner John Price has said the impacts of COVID-19 will require many companies to focus on and, most likely, recalibrate aspects of their corporate strategy, risk-management framework, and funding and capital management, among other things. This will require directors to reflect on which stakeholders’ interests need to be factored into decisions – including employees, investors and creditors. This continues to be the case in areas where temporary relief has been provided from specific obligations under the law, Mr Price said. For example, the Coronavirus Economic Response Package Omnibus Act 2020 has granted temporary relief for financially distressed businesses (s 588GAAA of the Corporations Act 2001). The temporary safe harbour provides relief for directors from potential personal liability for insolvent trading.

ASIC notes that a director wishing to rely on the temporary safe harbour measure “bears an evidential burden” to prove that the requirements of the temporary safe harbour provisions are met. According to ASIC, it may need to be shown that the debt was not effectively incurred before 25 March 2020. Even though temporary relief is provided from the insolvent trading provisions, ASIC said the relief does not extend to relief from statutory and common law directors’ duties. These include the duty to act in the best interests of the company as a whole (which can involve directors taking into account the interests of stakeholders beyond shareholders, including creditors, when the company is in financial distress). These duties also involve the duty to act with care, diligence and good faith and not to use a director’s position or information they have obtained as a director to gain an advantage or cause detriment to the company.

Finally, ASIC will maintain enforcement activities and continue to investigate and take action where the public interest warrants it. Whether action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of taking relevant decisions or incurring debts, Mr Price said.

Source: https://asic.gov.au/about-asic/news-centre/articles/directors-duties-in-the-context-of-covid-19/