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/

 

Client Alert – 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 covered under the JobKeeper program to be around 3.5 million (down from a previous estimate of 6.5 million). The estimated cost of JobKeeper has been revised down to around $70 billion (from the original $130 billion estimate).

The overstatement has been attributed to errors made when employers applied for JobKeeper. 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 (1,500) instead of the number of their eligible employees (1).

Importantly, this error has no consequences for JobKeeper payments already made, as payments under the scheme depend on the subsequent declaration that businesses make 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.

Snapshot of Federal COVID-19 pandemic measures

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 and not-for-profits (including charities) that employ people, with a minimum payment of $20,000.
  • Instant asset write-off: From 12 March to 30 June 2020, the threshold increases to $150,000 for business entities with aggregated annual turnover of less than $50 million.
  • Accelerated depreciation: Businesses with aggregated turnover of less than $500 million can deduct capital allowances for depreciating assets at an accelerated rate. This measure extends over the 2019–2020 and 2020–2021 income years.
  • Research and Development (R&D) Tax Incentive: The Government has deferred the lodgment dates for R&D Tax Incentive applications for 2018–2019 until 30 September 2020.
Superannuation
  • Superannuation early release: Eligible people affected by COVID-19 can apply to release (tax-free) up to $10,000 of their superannuation in 2019–2020 and up to $10,000 in 2020–2021.
  • Temporary residents: Certain temporary residents impacted by COVID-19 may apply for early release of up to $10,000 of their super by 30 June 2020.
  • Super pension drawdowns reduced: The minimum annual payment amounts for certain pensions and annuities have been temporarily reduced by 50% for 2019–2020 and 2020–2021.
Social security and support
  • Fortnightly Coronavirus Supplement: This $550 supplement is available for six months 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 Farm Household Allowance.
  • 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.
  • 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.
ATO concessions
  • Deferring tax payments: Tax payment dates will be deferred by up to six months for tax amounts due through the BAS. 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. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made during the 2019–2020 financial year.
  • ATO automatic lodgment deferrals: Company 2018–2019 income tax returns are now due by 5 June 2020 and SMSF 2018–2019 annual returns by 30 June 2020. For individuals, partnerships and trusts, 2018–2019 income tax returns can be lodged by the 5 June 2020 concessional due date. Finally, the due date for 2019–2020 FBT annual returns has been deferred to 25 June 2020.
  • Working from home deductions: The ATO will accept tax deduction claims using a flat rate of 80c per hour, provided a diary of working hours is kept.
  • 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.
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.
  • 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: measuring decline in turnover

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 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, the 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.

The ATO has recently issued Law Companion Ruling LCR 2020/1, a non-binding ruling that explains various aspects of the test and sets out practical compliance approaches for calculating turnover.

STP exemption for small employers extended to July 2021

The ATO 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.

Processing of super early releases resumes with extra risk filters

Processing of COVID-19 early release of superannuation applications has now resumed, with the ATO adding extra risk filters for all files that are delivered to super funds. These release requests had been temporarily paused between 8 May and 11 May 2020 so that the ATO could consider enhancements to its systems to help protect individuals’ personal data.

Assistant Treasurer Michael Sukkar recently reported that the ATO had identified a small number of third parties who could be susceptible to new techniques that criminals are using to try to steal personal data. The ATO has now worked with these third parties to help them make security enhancements, Mr Sukkar said, and the resulting additional risk filters will be applied on all files before they are delivered to super funds.

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 is still the case even in areas where temporary relief has been provided from specific obligations under the law.

ASIC will maintain its 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.

Do you or your business need help?

If you or your business need help with your financial arrangements during this difficult time, we can help you to work out which of the many corona virus (COVID-19) related payments, concessions and arrangements apply to you, and how you can best make use of them. Contact us today.

 

Being ‘stood down’ is not being sacked

Accountants are fielding lots of questions in the COVID-19 shutdown. One of the most confusing is about standing down staff.

IN BRIEF –
  • While being ‘stood down’ sounds like a retrenchment or redundancy, it is not the same.
  • Standing down measures are being used to try to save companies from going under and, ultimately, retain workers’ jobs.
  • A stand down is a temporary measure; there must be an intent to reopen the business.

On 19 March 2020, after the Australian government warned people to stop travelling overseas, Qantas announced it would stand down 20,000 workers in a measure to “preserve as many jobs as possible”. Gym chains, fashion retailers and casinos have also stood down employees during the pandemic, and many more organisations may do the same in months to come.

While being ‘stood down’ sounds much like a retrenchment or redundancy, it actually refers to something else entirely. It is one of many measures being used by organisations to try to save companies from going under and, ultimately, keep as many jobs as possible after the crisis. In their position on the front line of COVID-19 recovery, accountants are fielding questions from all directions about what employers should do.

“Any [questions about] standing down measures are really best suited to an employment lawyer, so I have referred clients to one where they were contemplating this,” says Kylie Parker CA, director of Lotus Accountants in Sydney.

“My clients are reducing pay and seeking to obtain the JobKeeper payments, where eligible, to ensure they can remain ready to go back to ‘business as usual’ post lockdown,” she adds.

Natalie Lennon CA, founder and director of Two Sides accounting practice, says she is also referring clients to employment lawyers. “It is a minefield,” she says.

So what are employment lawyers saying?

When an employee is stood down, they keep their job. Stand downs under Section 524 of the Fair Work Act are traditionally for reasons outside the employer’s control: “[Things like] earthquakes, bushfires, ‘act-of-god’ type circumstances where, say, a plant is flooded and no one can come in,” explains industrial lawyer Andrew Bland, principal at BlandsLaw in Sydney. Now, under temporary amendments to the Act, an employer can give employees a ‘JobKeeper enabling stand down direction’ if the employee can’t be usefully employed for their usual days or hours because of changes to the business due to the coronavirus crisis or because of government initiatives to slow its transmission.

If turnover has fallen or is likely to fall by more than 30 per cent (or 50 per cent if turnover is more than $1 billion), an employer can direct an employee to work at a different, suitable workplace, for fewer days or hours or no hours at all. Employers can request staff members take some annual leave or change their days or time of work, and the staff cannot unreasonably refuse.

Stood-down employees are still regarded as being on the books, so continue to accrue their leave entitlements.

Usefully employed

“[Coronavirus] affects large and different sections of the community but not all parts of the workforce,” says Bland. “Those in a white-collar area who can work from home won’t be as affected as, for example, pilots who are grounded because the government mandates planes can’t fly.”

‘Usefully employed’ doesn’t mean any job. “It has to be applicable to the expertise,” says Anthony Blaney, principal consultant at Pitcher Partners Melbourne, whose 15 years in the field include senior HR roles with WorkSafe Victoria and Qantas. JobKeeper gives flexibility for changing job roles. An employer can direct an employee to perform any duties they’re qualified to do, providing those tasks are reasonably within the scope of the business’s operations.

A temporary fix

A stand down also needs to be temporary; it’s not a way to delay the inevitable.

“I’ve had clients who’ve decided it’s time to shut. The virus is the final nail,” says Bland, who’s been in practice for 25 years. “Where there’s no intention to reopen, that will be a redundancy [not a stand down].”

Stood down staff are eligible for JobKeeper payments, can work elsewhere or access superannuation, but Bland says stand downs should be viewed as “a second-last resort, the last being redundancy”.

He has watched employers get creative with leave at half-pay, reducing hours or salary.

“I’ve seen organisations act swiftly to offer compassionate leave for people without leave balances,” says Blaney. “This is not something all companies can do, but they’re doing their best to protect jobs.”

Blaney urges employers to keep up communication at this time. “People will remember empathy in the time of crisis, flexibility and thinking outside the square,” he says. “This is about survival but you also have to plan ahead for post-coronavirus, because there will come a day, we all hope, when we return to normality.”

Michael Croker CA, CA ANZ’s Australian tax leader, says employees will have a lot of questions; in some situations, employers will need to deliver bad news to those excluded from the JobKeeper allowance.

“Employees who’ve already been stood down may now ask their former boss about the possibility of re-hiring arrangements. Eligible employees will want to know how their employment arrangements will be changed: their hours, adjusted salary and entitlements,” he says.

“Depending on the business’s circumstances, ‘JobKeeper enabling stand down’ arrangements and ‘JobKeeper enabling directions’ may need to be designed and communicated to employees.

“To cope with all these questions, accountants and employers will need to develop a working understanding of the temporary changes which the legislation makes to the Fair Work Act.”

‘JobKeeper enabling stand down’ allows for a qualifying employer to direct an employee to work fewer hours or days (including no hours) if they can’t be usefully employed due to the COVID-19 pandemic or government-directed lockdown.

‘JobKeeper enabling directions’ permits a qualifying employer to change an employee’s usual duties and location of work, and to make agreements with employees to change their days and times of work and take annual leave in certain circumstances.

Source: https://www.acuitymag.com/ Article by Alison Boleyn.

Explanatory Memorandum – April 2020

Coronavirus cash flow boost payments explained

As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the Australian Government has legislated a measure to boost cash flow for employers. Put simply, the cash flow boost payments are intended to support employment by providing Federal support for employers through the tax system. This is admirable yet is likely to prove complex to administer.

Small to medium employers who intend to claim the “cash flow boost payment” (a minimum of $10,000 and a maximum of $50,000) and hoping to receive an injection of cash should beware. The “payment” is not actually a payment; rather, it is a credit that will be offset against the liabilities that appear on the business activity statement (BAS) and any debits in a taxpayer’s running balance account (RBA). While this is still likely to support employment by reducing the amount businesses have to pay to the ATO, anyone hoping to get a cash injection will be sorely disappointed.

The measure ensures that an eligible employer receives an amount equal to three times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter. Both are subject to a minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year.

The cash flow boost payments are only available to entities that qualified as small or medium entities (ie with turnover less than $50 million) for the income year when they were most recently assessed. There will be no cash flow boost payments for entities with turnover greater than $50 million. There is also a withholding requirement – the payment will only be made to entities that first notified the ATO that they have a withholding obligation through the lodgment of a BAS or an instalment activity statement (IAS) for the period.

Therefore, the key to the system is the BAS that entities lodge for March (either monthly or quarterly). That BAS will determine how much is paid, and when it is paid.

A word of caution, however. The headline numbers (and dates) can be a tad misleading. This “boost” measure is not a minimum $10,000 payment – instead, it is an entitlement to a minimum gross credit of $10,000 in respect of the March BAS. This credit will be offset against the liabilities that appear on the BAS and any debits in a taxpayer’s RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO.

Even assuming that the ATO owes the taxpayer money, that refund will not be paid on 28 April, but rather within 14 days of lodging the BAS. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment.

Another important feature to note is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The ATO has stated that a “scheme” for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.

Source: www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers/.

Understanding the JobKeeper Payment scheme

Federal Treasurer Josh Frydenberg registered the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 on 9 April 2020. These statutory rules set out the actual rules and taxpayer requirements for the JobKeeper Payment scheme, which will be administered by the ATO. The statutory rules complement the JobKeeper Payment legislation, the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, which was passed by Parliament on 8 April 2020.

The JobKeeper Payment scheme commenced on 30 March and will finish on 27 September 2020. It will operate on a fortnightly basis. The first fortnight commenced on 30 March and the last will end with the fortnight ending on 27 September. Employers and eligible recipients must qualify on a (rolling) fortnightly basis.

Businesses (including sole traders and charities) must have suffered a “substantial decline” in turnover due to the COVID-19 pandemic to be entitled to the payment of $1,500 for each eligible employee. Critically, it is a condition of entitlement that the business has paid salary and wages of at least that amount to the employee in the fortnight.

The government will pay the JobKeeper Payment within 14 days of the end of the calendar month in which the fortnight(s) end(s). According to the fact sheets Treasury has released, employers will be paid “shortly after the end of each calendar month”, for fortnights ending in that month. This means that the first JobKeeper Payment will not be made until (at least) the first week of May.

An entity is not eligible for the JobKeeper Payment if another employer is claiming it for the same employee.

Definition of a JobKeeper fortnight

An employer receives a JobKeeper Payment in respect of each “JobKeeper fortnight” in which they are entitled to the payment.

Each of the following is a JobKeeper fortnight:

  • the fortnight beginning on 30 March 2020; and
  • each subsequent fortnight, ending with the fortnight ending on 27 September 2020.

This means that the JobKeeper scheme commences on 30 March 2020 and ends on 27 September 2020 – a period of 26 weeks. This means the last fortnight in respect of which a JobKeeper Payment may be paid (under the current rules) is the fortnight commencing on 14 September 2020 and ending on 27 September 2020.

Entities that qualify

For an entity to be eligible for the scheme, there are tests that must be met as at 1 March 2020 and other tests that must be satisfied on a rolling fortnightly basis.

Entities that carried on a business at 1 March 2020 or charities that “pursued [their] objectives” at that time will qualify, provided that they also satisfy the decline in turnover test.

However, the following are specifically excluded:

  • entities that had a levy imposed under the Major Bank Levy Act 2017 imposed for any quarter ending before 1 March 2020;
  • an entity that is an Australian Government agency (or a wholly owned subsidiary of one);
  • an entity that is a local governing body (or a wholly owned subsidiary of one);
  • if the entity is a sovereign entity;
  • if the entity is a company – a liquidator or provisional liquidator has been appointed in relation to the company; or
  • if the entity is an individual – a trustee in bankruptcy has been appointed to the individual’s property.

The exclusion for local government bodies and government agencies means that councils will not be covered by the JobKeeper Payment scheme.

Qualifying employers must apply to the ATO in the approved form and become registered under the scheme prior to the end of a JobKeeper fortnight. Employers must then notify all employees in writing that they have elected to participate in the scheme and that their eligible employees will all be covered by the scheme.

Decline in turnover test

The decline in turnover test is linked to the GST turnover test in Div 188 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), in particular the projected GST turnover – which will take into account anticipated decline in revenue. There are a number of technical modifications to ensure that the test applies as intended.

The test requires an entity to measure its projected GST turnover and compare it to a “relevant comparison period”. Any shortfall is to be expressed as a percentage. If this equals or exceeds the following thresholds, the entity satisfied the decline in turnover test:

  • for ACNC-registered charities: 15%;
  • for entities with turnover less than $1 billion: 30%;
  • for entities with turnover greater than $1 billion: 50%.

Note that universities, schools and local councils will not be covered by the 15% rate.

The $1 billion threshold is determined by reference to “aggregated turnover” as defined in s 328-115 of the Income Tax Assessment Act 1997 (ITAA 1997). This includes the annual turnover of any entity that is connected with or an affiliate of the business.

The turnover test period must be a calendar month that ends after 30 March and before 1 October 2020, or a quarter that starts on 1 April or 1 July 2020. The relevant comparison period must be the period in 2019 that corresponds to this turnover test period. For example, an entity can make the comparison by comparing the whole of the month of March 2020 with March 2019, or by comparing the quarter beginning on 1 April 2020 with the quarter beginning on 1 April 2019.

Once the decline in turnover test is satisfied, the entity does not need to retest its turnover in later months. However, if an entity does not qualify for one month (or quarter), it can test in a later month (or quarter) to determine if the test is met and can become eligible from that time.

Despite the fact that an entity does not need to retest its turnover once the decline in turnover test is satisfied, an entity that has qualified for the JobKeeper Payment must, within seven days of the end of that month, notify the ATO of its current GST turnover for that month and its projected GST turnover for the following month.

Deductible gift recipients (DGRs) are required to include gifts received or likely to be received that are tax deductible to the donor under s 30-15 ITAA 1997. Charities that are registered with the Australian Charities and Not-for-profits Commission (ACNC) but are not DGRs must instead include gifts received or likely to be received that are made by way of monetary donations, property with a value of more than $5,000 and listed Australian shares. For either type of entity, gifts received from an associate are not included in their turnover.

There will undoubtedly be ATO guidance on this.

The turnover numbers must be reported to the ATO before any payments will start, although there is a transitional rule for the first two JobKeeper fortnights.

There is scope for the ATO to apply an alternative test to different classes of entities, by way of legislative instrument. For example, where a business or non-profit organisation was not in operation a year earlier, or where the turnover a year earlier was not representative of the usual or average turnover (eg because the entity was newly established or its turnover is typically highly variable). Although no legislative instrument had been made as at the time of writing, the following example (adapted from an example in the explanatory statement to the statutory rules) shows how the alternative test would apply.

Example

Milly’s Farms carries on a farming and retail flower sales business in Australia. It was subject to a severe drought from 2018 until September 2019 that reduced the amount of flowers it could grow. It returned to normal crop output in January 2020. Its retail flower sales became significantly affected in March 2020.

It assesses its eligibility for JobKeeper Payments on 3 July 2020 based on a projected GST turnover from its farming activities for the quarter beginning on 1 July 2020 of $2 million. The corresponding period is the quarter beginning on 1 July 2019 – a period in which Milly’s Farms was severely affected by drought. Because of the effects of the drought, Milly’s Farms had a much lower than usual 2019 GST turnover of $2.5 million. The July 2020 quarter turnover falls short of the July 2019 quarter turnover by $500,000, which is 25% of the July 2019 quarter turnover. This does not exceed the specified percentage of 30%, so the basic decline in turnover test is not satisfied.

However, because of the effects of the drought on farming businesses, the ATO is satisfied that there is not an appropriate relevant comparison period for an entity that carried on a farming business. Instead, for these entities, the ATO determines an alternative test for which the relevant comparison period is the corresponding quarter in 2017. The ATO determines that the alternative test will be satisfied in these circumstances where the entity can show a 30% shortfall in turnover (for entities with less than $1 billion aggregated annual turnover) when compared to one of these alternative periods.

In the quarter beginning on 1 July 2017, Milly’s Farms had a current GST turnover of $4 million. This represents a shortfall of 50% when compared to its projected GST turnover for the quarter beginning on 1 July 2020. This exceeds the specified percentage of 30%, so the alternative decline in turnover test is satisfied.

Eligible employees

An individual must be employed for a JobKeeper fortnight to be eligible for that fortnight. In addition, as at 1 March 2020 the employee must:

  • be aged 16 or over;
  • be an employee or a long-term casual employee of the entity (12 months of regular and systematic employment); and
  • be an Australia resident, as determined by reference to the Social Security Act 1991, or the Income Tax Assessment Act 1936 (ITAA 1936) where the person holds a Subclass 444 (Special Category) visa.

The 1 March date is important, as it allows employees who were retrenched after that date but then subsequently rehired (possibly on the basis of the announcement of the scheme) to be eligible for the JobKeeper Payment. However, if an employee was only engaged after 1 March, that employee would not be eligible for the scheme, because they were not an employee of the eligible employer as at 1 March 2020.

There are some specific exclusions. A person is excluded from being an eligible employee if:

  • parental leave pay is payable to the individual and the individual’s paid parental leave period overlaps with, or includes, the fortnight;
  • at any time during the fortnight, the individual is paid dad and partner pay; or
  • all of the following apply:
  • the individual is totally incapacitated for work throughout the fortnight;
  • an amount is payable to the individual under, or in accordance with, an Australian workers’ compensation law in respect of the individual’s total incapacity for work; and
  • the amount is payable is respect of a period that overlaps with, or includes, the fortnight.

The test is specifically that a person must be employed by an eligible employer “at any time” in the fortnight. The person does not need to be employed for the full fortnight.

There is also a requirement that eligible employees have provided a notice to their employer agreeing:

  • to be nominated by the employer as an eligible employee of that employer under the JobKeeper scheme;
  • that they have not agreed to be nominated by another employer; and
  • that (if they are employed as a casual employee with this employer) they do not have permanent employment with another employer.

An eligible employee who is employed by one or more qualifying employers will need to choose one employer that will receive the JobKeeper Payments for their employment.

Once an employee has nominated an employer and the employer has received JobKeeper Payments in respect of the employee and has paid the employee, the employee cannot nominate a different employer. If for any reason, the employment relationship between an eligible employee and their nominated employer ends, the employee will not be able to have another employer qualify for the JobKeeper Payments in respect of their new employment. The advice then would be to look at eligibility for the JobSeeker Payment.

Wage condition

Employers must satisfy what is termed the “wage condition” to be entitled for a JobKeeper Payment. This is satisfied in respect of an individual for a fortnight if the sum of the following amounts equals or exceeds $1,500:

  • amounts paid by the employer to the individual in the fortnight by way of salary, wages, commissions, bonuses or allowances;
  • amounts withheld by the employer from payments made to the individual in the fortnight under the PAYG provisions (specifically, s 12-35 in Sch 1 to the Taxation Administration Act 1953);
  • contributions made by the employer in the fortnight to a superannuation fund or a retirement savings account (an RSA) for the benefit of the individual, if the contributions are made under a salary sacrifice arrangement (within the meaning of the Superannuation Guarantee (Administration) Act 1992);
  • other amounts that, in the fortnight, are applied or dealt with in any way if the individual agreed:
  • for the amount to be so applied or dealt with; and
  • in return, for amounts covered by salary and wages etc for the individual for the fortnight to be reduced (including to nil).

If the regular payment period is longer than a fortnight, these payments are allocated to each fortnight on a reasonable basis. For example, if an employee is paid monthly, it would presumably be reasonable to multiply the monthly amount by 12 and then divide that amount by 26.

The effect of these rules is as follows:

  • If the employer pays the employee $1,500 or more in income per fortnight before tax, the JobKeeper Payment will assist the employer to continue operating by subsidising all or part of the employee’s income.
  • If the employer would otherwise pay the employee less than $1,500 in income per fortnight before tax, the employer must pay the employee, at a minimum, $1,500 per fortnight before tax using the JobKeeper Payment.
  • If the employee has been stood down, the employer must pay the employee, at a minimum, $1,500 per fortnight before tax using the JobKeeper Payment.
Sole traders, partners, etc

There are special rules that enable sole traders (entities that do not have employees as such) to obtain the JobKeeper Payment. The statutory rules refer to such entities as “business participants”.

The ATO states that sole traders and some other entities (such as partnerships, trusts or companies) may be entitled to the JobKeeper Payment scheme under what is termed the “business participation entitlement”. However, not-for-profit organisations are not included.

The entity may be eligible for the JobKeeper Payment scheme if it has a non-employee individual – an “eligible business participant” – who is actively engaged in the operation of the business. The entity must meet all other relevant requirements.

The ATO makes the important point that officially under the scheme it is the entity – not the eligible business participant – which receives the JobKeeper Payment. However, this distinction is moot for a sole trader, who is both the business entity and an eligible business participant, and does receive the JobKeeper Payment themselves.

Eligible business participant

A non-employee individual is an eligible business participant of an entity for a JobKeeper fortnight if all of the following conditions are met; namely, that the individual:

  • is not employed by the entity;
  • is actively engaged in the business carried on by the entity (at 1 March 2020 and for the relevant JobKeeper fortnight);
  • is one of the following (again as at 1 March 2020 and for the individual fortnight):
  • a sole trader;
  • a partner in the partnership;
  • an adult beneficiary of the trust;
  • a shareholder or director in the company; and
  • as at 1 March 2020, was aged at least 16 and was an Australian resident (within the meaning of s 7 of the Social Security Act 1991), or a resident for income tax purposes and the holder of a special category (Subclass 444) visa;
  • is not receiving government parental leave pay or dad and partner pay; and
  • is not currently totally incapacitated for work and receiving payments under an Australian workers’ compensation law in respect of a total incapacity to work.

The ATO states that an eligible business participant cannot also be an employee (other than a casual employee) of another entity. If a sole trader is both a long-term casual employee of another business and an eligible sole trader, they can choose to either let their employer claim the JobKeeper Payments on their behalf or they can claim as a sole trader, but not both.

Importantly, only one eligible business participant can be nominated by an entity. This means that a business entity must choose which eligible business participant to nominate, and that entity is only entitled to one JobKeeper Payment per fortnight. This requirement does seem stringent when it comes to entities other than sole traders (eg partnerships or trusts).

The ATO has issued a JobKeeper Nomination Notice on its website. However, this should be not be used if an entity is intending to claim JobKeeper payments for an eligible business participant. Rather, a different nomination process will be required.

Eligible entities

An entity is eligible if it carried on a business in Australia as at 1 March 2020 and it satisfies the decline in turnover test for the relevant period.

In addition, it must have had an ABN as at 12 March 2020 and have lodged, on or before 12 March 2020:

  • a 2018–2019 income tax return showing that it had an amount included in its assessable income in relation to it carrying on a business, or
  • an activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing that the entity made a taxable, GST-free or input-taxed sale.

The ATO has the discretion to allow an entity to obtain an ABN after 12 March 2020 where it was running an active business before 12 March 2020 but was not required to have an ABN to operate it.

An entity cannot claim JobKeeper Payments for an individual if there is already a JobKeeper claim being made by another business or employer for that individual.

Payment

The amount of an entity’s JobKeeper Payment for an individual for a fortnight is $1,500.

The statutory rules note that, for the avoidance of doubt, the fact that the ATO pays an entity a payment does not mean the entity is actually entitled to it, therefore ensuring the door to recovery is kept well open.

No payment will be made after 30 September 2021. Entitlement to a payment may be cancelled, revoked or varied by later legislation.

Superannuation

There are no changes to superannuation in the JobKeeper statutory rules, but the explanatory statement to the rules does flag that amendments will need to be made (through regulations made under the Superannuation Guarantee (Administration) Act 1992).

The regulations will ensure that an employer will only need to make superannuation contributions for any amount payable to an employee in respect of their actual employment, disregarding any extra payments made by the employer to satisfy the wage condition for getting the JobKeeper Payment.

For example, if the work actually done by an employee over a period entitled them to be paid $1,000 but the employer instead paid them $1,500 to satisfy the wage condition for a JobKeeper fortnight, then the employer will only be required to make superannuation contributions in relation to $1,000. Similarly, any liability to superannuation guarantee charge that the employer would have for not making sufficient superannuation contributions would be calculated by reference to that $1,000 base.

An employer will still be required to make the same superannuation contributions for an employee whose pay exceeds the JobKeeper Payment. For example, if an employee is entitled to be paid $2,000 for their work, the employer will continue to be required to make contributions in relation to that amount, irrespective of whether they were eligible to receive the JobKeeper Payment in relation to the employee.

Transitional rules

There is a transitional rule that allows the ATO to make an “advance payment” for the JobKeeper fortnights ending in the month of April without being satisfied that the entity is entitled to that payment. This was necessary to ensure that payments in respect of the first and second JobKeeper fortnights (starting on 30 March 2020 and 13 April 2020 respectively) could be made quickly to assist entities affected by the pandemic. Otherwise, entitlement only arises for those JobKeeper fortnights and later fortnights in which eligible employers are registered under the scheme before the end of a JobKeeper fortnight.

However, before the ATO can make an advance payment under the transitional rule:

  • the entity must have notified the ATO in the approved form of its election to participate in the scheme; and
  • the ATO must be satisfied, on the basis of the information the entity provides, that it is reasonable in the circumstances to make the payment.

Generally, an employer must notify the ATO in the approved form of its election to participate in the scheme before the employer can be entitled to a payment for a fortnight. This election generally needs to be provided to the ATO before the end of a JobKeeper fortnight for the employer to be entitled to a payment for that fortnight.

However, there is a different timing rule where the employer wishes to participate in the scheme and receive the first or second JobKeeper Payments. Where this is the case, the employer has until the end of the second JobKeeper fortnight, that is, 26 April 2020, to provide the ATO with its election to participate. This gives employers more time to comply with the election requirement and means that fewer employers will miss out on receiving the first JobKeeper payment (given that generally the scheme only applies prospectively to elections to participate).

The ATO points out that to qualify for the first JobKeeper Payment (to be received in May), eligible entities can make one combined payment of $3,000 for the first two fortnights, paid by end of April 2020. It is worth remembering that salary and wages operates on a cash basis; that is, the amount has to be received by the employee. The employer cannot accrue the liability and then pay it to the employee after receiving the JobKeeper Payment.

Integrity issues

Businesses, individuals and entities that deliberately enter into contrived arrangements with the sole or dominant purpose of reducing their turnover in order to gain access to or increase their JobKeeper Payments will not be entitled to the payment or the increased payment. The general interest charge (GIC) will apply on any overpayment under s 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020. In addition, significant administrative and criminal penalties may apply.

Records

An entity is not entitled to a JobKeeper Payment (or any other coronavirus economic response payment) unless it satisfies various pre-payment and post-payment record-keeping requirements. Relevant records must be in English, or readily accessible and easily convertible into English, and must be kept for five years after the payment is made.

Review of decisions

Various decisions of the ATO in relation to the JobKeeper Payment (and any other coronavirus economic response payments) – for example, that an entity is not entitled to a payment for a period or in relation to the amount of a payment – are subject to the objection and appeal provisions in Pt IV of the Taxation Administration Act 1953.

Tax consequences

The statutory rules do not state that a JobKeeper Payment is exempt income or non-assessable non-exempt (NANE) income. The payment will therefore be assessable as a subsidy. However, as a payment forms part of wages paid to the employee, a deduction for the payment is available under s 8-1 of ITAA 1997.

GST does not apply in relation to JobKeeper Payments made to employers, because the payments are not consideration for supplies made by employers to the government.

Source: https://www.legislation.gov.au/Details/F2020L00419; www.ato.gov.au/Business/Business-bulletins-newsroom/Employer-information/JobKeeper-Payment-is-here/.

ATO opens applications for early release of super

The ATO has released its application form for the early release of superannuation by individuals impacted by COVID-19. From 20 April, an individual can make one application to access up to $10,000 (tax-free) in the 2019–2020 financial year (ie they must make the application by 30 June 2020). A second application for up to $10,000 can be made in the 2020–2021 year (ie from 1 July 2020) until 24 September 2020.

An application can be made by:

  • the member authenticating themselves through the myGov website and completing the application form in ATO Online; or
  • for those who are unable to access online services, the individual calling the ATO, confirming their identity and completing the application over the phone.

The application form requires the person to certify that they are eligible and includes information about the consequences of making false applications. The individual will then proceed to:

  • review a list of open accounts they have and the last account balance reported for each account (in most cases at 30 June 2019);
  • input the amount they would like to release from each account – the total amount cannot exceed $10,000, but there are otherwise no limitations on what the individual can input;
  • input the details of the bank account (account name, BSB and number) they would like the money paid into; and
  • authorise the ATO to provide the information to the super fund and the super fund to release the money into that account.

The ATO has run a social media campaign asking people to observe the intention of the legislation and only apply to release their super to deal with the adverse economic effects of COVID-19. For example, the ATO says taxpayers should not withdraw their super early and recontribute it to gain a personal tax deduction.

Individuals have been able to login into myGov and register interest in the coronavirus early release of super measure with the ATO. The ATO has been contacting these individuals via SMS or email now that the application form is available to complete. As at 2 April 2020, 361,000 individuals had registered an interest in the measure.

Eligible individuals should carefully check their super account balances to ensure there are sufficient funds available to claim. If a member makes an application and the fund has insufficient money to fulfil the application, the ATO says the member will not be able to make a second application for the balance from another fund/account in that financial year. They will also not able to seek the balance in the 2020–2021 financial year above the $10,000 cap.

If an application is rejected by the ATO, the member will be notified via their MyGov account in two to three days.

Notification process for super funds

It will take one to two business days for super funds to receive notifications directly from the ATO about their members, with funds expecting to start receiving notifications from 21 April 2020. The ATO will be providing the details to funds in an electronic data file that funds will need to download via the Bulk Data Exchange (BDE) channel and process. The government expects funds to process the payments and release the amounts to individuals “as soon as possible”. The current process for existing categories of compassionate release of super will continue as is.

The ATO and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have confirmed that super funds will be able to rely on the ATO’s customer verification under a proposed anti-money laundering and counter-terrorism financing (AML/CTF) regime rule.

Separate arrangements will apply for applications by members of self managed super funds (SMSFs). The ATO will issue a determination to the member (instead of the super fund) advising of their eligibility to release an amount. When the SMSF receives the determination from the member, the SMSF trustee is then authorised to make the payment.

Unclaimed super payment deferral

The ATO will grant super funds a deferral of the scheduled statement day and payment day for 31 December unclaimed money day accounts. The 30 April 2020 due date will be deferred to 31 October 2020.

The ATO is providing this deferral to allow funds to focus on assisting members who may be looking to release amounts from their super under the coronavirus condition for early release. The deferral extends the period within which unclaimed superannuation money (USM) accounts can be reported and paid. Any fund wanting to continue with their USM reporting as planned can do so. Funds may want to consider continuing reporting and paying USM for certain categories (such as where a member is 65 years or older) where it would be in the member’s interests. The ATO said it will not proceed with hyper-care arrangements for this USM period (including proactive consolidation).

Electronic release authority statements

During the COVID-19 period, the ATO says it will allow super funds to submit electronically release authority statements (RASs) and end benefit notices (EBNs) in relation to the First Home Super Saver (FHSS) scheme and excess contributions, and for Div 293 purposes.

Super accounts available for release

A member can request amounts up to a total of $10,000 from multiple funds at the application stage, as follows:

  • The available fund accounts (excluding those in retirement phase) will be displayed via myGov and the member can choose multiple accounts and the amount to be approved for release from each account.
  • There are no restrictions on the amount a person can request for release from any account, except the $10,000 overall yearly limit.
  • A member can request more than the account balance displayed to them in the application.
  • There is a limit of $10,000 in the one application per financial year.

A member cannot add a new fund to myGov when applying; only matched accounts reported to the ATO through the Member Account Attribute Service (MAAS) will be displayed.

The application form will display all open accounts except those in retirement phase. A member can only apply for one determination per financial year. For example, a member can request $1,000 from one fund and another $9,000 from another fund as long as they do so in the same application. Members will not be able to make a subsequent application if they do not request or receive the full amount approved in their first application for that financial year.

Proportioning rule

While a released amount is non-assessable non-exempt income (NANE) for the individual, the ATO notes that the payment is subject to the proportioning rule in s 307-125 of the Income Tax Assessment Act 1997 (ITAA 1997). Therefore, individuals with multiple super accounts still need to consider the underlying tax components of their different super interests when choosing which accounts to release from.

Generally, a taxpayer with multiple super interests should consider nominating the release amount to be paid from the interest with the largest taxable component. However, take care if looking to maintain an unrestricted non-preserved component, as any benefit payment from a particular super interest will be cashed out first from the unrestricted non-preserved component.

For accounts where a member’s tax-free component is actually higher than the entire accumulation balance itself (as a result of negative returns), it may be helpful to maintain some of that interest in the accumulation phase so that it can be used to absorb any future investment earnings (which would otherwise be effectively added to the taxable component). However, there is no one-size-fits-all approach, so it is necessary to consider the operation of the proportioning rule on the future payment of benefits for a member’s particular circumstances.

Pension accounts

The ATO notes that super amounts cannot be released from a pension account under the coronavirus early access condition of release.

The recent amendments to allow early access to super under the coronavirus condition of release do not vary the circumstances in which pension payments may be made from a transition to retirement income stream (TRIS), or the circumstances in which an amount commuted from a TRIS can be cashed out of the superannuation fund. Hence, the ATO says no amounts in excess of what is already allowed to be cashed from a TRIS can be released under the coronavirus condition.

However, a member whose TRIS comprises preserved or restricted non-preserved benefits may be able to commute the TRIS back to the accumulation phase within the superannuation fund (in accordance with the rules of the fund and the pension). In this case, the ATO says the preserved and restricted non-preserved amounts may then be eligible to be released under the coronavirus condition for early release. As an individual can only apply once in each financial year, it is important to first commute a pension amount back to accumulation before applying to the ATO.

Payment by fund

Funds are required to make the payment tax-free “as soon as practicable”. The ATO acknowledges that there may be occasions when a fund will need to contact the member to meet that obligation. In those scenarios, a fund can use the ATO’s provision of details (POD) service to obtain current contact details for a member.

Funds are not required to issue PAYG statements showing a proportion of the payment to be taxable component – untaxed element. The payment is not a “withholding payment” and an amount is not required to be withheld from the payment as it is NANE (s 12-1(1A) of Sch 1 to the Taxation Administration Act 1953). There is no requirement to report back to the ATO where a fund is unable to pay part or all of the money requested under the early release provisions.

The ATO will makes determinations based on self-assessment, but if a fund identifies a case suspected to be at high risk of fraud, it should be reported to the ATO for confirmation of the best approach to manage it. Any compliance activity will be followed up by the ATO directly with the individual.

Non-regulated funds and defined benefit funds

Members of non-regulated funds will need to apply directly to their own scheme/fund for early release of super. If an individual applies to the ATO for the release of an amount from an exempt public sector superannuation scheme (EPSSS), the ATO will process the application, make a determination and send a notification to the EPSSS. It will be up to the EPSSS to decide how to respond to the notification and what action to take.

When an individual applies, they will be presented with all open accounts that are not in retirement phase. This will include defined benefit accounts. The ATO will process the application and notify the defined benefit fund. It is up to the defined benefit fund to decide whether or not to release the amount. As an individual can only apply once in each financial year, it is important to first check whether a defined benefit fund can or will release amounts before applying to the ATO.

ATO-held super

An individual cannot apply for a determination to release super amount held by the ATO. If the individual is not eligible for a direct payment of ATO-held super, they will need to request a transfer of the ATO-held super into an account held by a super provider on their behalf before requesting its release.

Source: www.ato.gov.au/Super/APRA-regulated-funds/In-detail/News/CRT-Alerts/2020/CRT-Alert-004/2020—COVID-19-economic-response-package—early-release-of-super/.

 

This article contains information on developments up to and including 17 April 2020.

Client Alert – April 2020

Coronavirus cash flow boost payments explained

As of the second round of economic stimulus in response to the COVID-19 pandemic, the Australian Government has legislated a measure to boost cash flow for employers. However, small to medium employers who intend to claim the “cash flow boost payment” in the hope of receiving an injection of cash should beware. The “payment” is not actually a payment, but a credit that will be offset against the liabilities that appear on the business activity statement (BAS) and any debits in your running balance account (RBA). While this is still likely to support employment by reducing the amount some businesses have to pay to the ATO, anyone hoping to get a cash injection will be sorely disappointed.

Eligible employers will receive an offset equal to three times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter. Both are subject to a minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year.

These cash flow boost payments are only available to entities that qualified as small or medium entities (ie with turnover less than $50 million) for the income year most recently assessed. There is also a withholding requirement – the payment will only be made to entities that first notify the ATO that they have a withholding obligation through the lodgment of a BAS or an instalment activity statement (IAS) for the period.

Understanding the JobKeeper Payment scheme

The JobKeeper Payment scheme is now open to eligible employers, sole traders and other entities to enable them to pay their eligible employees’ salary or wages of at least $1,500 each (before tax) per fortnight. You can enrol for the JobKeeper Payment through the ATO’s Business Portal, in ATO online services using myGov if you are a sole trader, or through a registered tax or BAS agent.

There are special rules that enable sole traders (entities that do not have employees as such) to obtain the JobKeeper Payment.

The JobKeeper Payment scheme commenced on 30 March and will finish on 27 September 2020, operating on a fortnightly basis. Employers and eligible recipients must qualify on a (rolling) fortnightly basis.

Decline in turnover

Businesses (including sole traders and charities) must have suffered a “substantial decline” in turnover due to the COVID-19 pandemic to be entitled to the payment of $1,500 for each eligible employee.

The decline in turnover test requires you to measure the business’s projected GST turnover and compare it to a “relevant comparison period”. To be eligible, the turnover must have declined by:

  • for ACNC-registered charities: 15%;
  • for entities with turnover less than $1 billion: 30%;
  • for entities with turnover greater than $1 billion: 50%.
Wage condition

Critically, it is a condition of entitlement that the business has paid salary and wages of at least the amount of $1,500 (before tax) to each relevant employee in the fortnight.

Employee conditions

An individual must be employed during a JobKeeper fortnight to be eligible for that fortnight (but does not need to be employed for the full fortnight). In addition, they must, as at 1 March 2020, be aged 16 or over, be an employee or a long-term casual employee (12 months of regular and systematic employment) and be an Australia resident for tax purposes.

The 1 March date is important, as it allows employees who were retrenched after that date but then subsequently rehired to be eligible for the JobKeeper Payment. However, if an employee was only engaged after 1 March, they are not eligible.

Eligible employees must have provided a notice to their employer agreeing:

  • to be nominated by the employer as an eligible employee of that employer under the JobKeeper scheme;
  • that they have not agreed to be nominated by another employer; and
  • that (if employed as a casual employee) they do not have permanent employment with another employer.

An eligible employee who is employed by one or more qualifying employers will need to choose one employer that will receive the JobKeeper Payments.

Once an employee has nominated an employer, the employer has received JobKeeper Payments and has paid the employee, the employee cannot nominate a different employer. This includes where the employment relationship ends (although the ex-employee may then be eligible for the separate JobSeeker Payment).

Payment

The government will pay the JobKeeper Payment within 14 days of the end of the calendar month in which the fortnight ends. This means that the first JobKeeper Payment will not be made until (at least) the first week of May.

ATO opens applications for early release of super

The ATO has released its application form for the early release of superannuation by individuals impacted by COVID-19. From 20 April, an individual can make one application to access up to $10,000 of their super (tax-free) in the 2019–2020 financial year, and a second application for up to $10,000 in the 2020–2021 year until 24 September 2020.

If you are eligible, you should carefully check your super account balances to ensure there are sufficient funds available to claim. If you make an application and the fund has insufficient money to fulfil the application, you will not be able to make a second application for the balance from another fund/account in that financial year or ask for an amount above the $10,000 cap in the 2020–2021 financial year.

It take one to two business days for super funds to receive notifications directly from the ATO about their members. The government then expects funds to process the payments and release the amounts to individuals “as soon as possible”.

If your application is rejected by the ATO, you will be notified via your MyGov account in two to three days.

Separate arrangements apply for applications by members of self managed super funds (SMSFs). The ATO will issue a determination to you as the fund member (instead of to the super fund) advising of your eligibility to release an amount. When the SMSF receives the determination from you, the SMSF trustee is then authorised to make the payment.

This article contains information on developments up to and including 17 April 2020.

Do you or your business need help?

If you or your business need help with your financial arrangements during this difficult time, we can help you to work out which of the many coronavirus (COVID-19) related payments, concessions and arrangements apply to you, and how you can best make use of them. Contact us today.

Foreign Resident CGT Regime

The government had announced that Australia’s foreign resident CGT regime would be extended to deny foreign and temporary tax residents access to the CGT main residence exemption in May 2017.

Following consultation, the government had also amended the change to the main residence exemption to ensure that only Australian residents for tax purposes could access the exemption. Thus, temporary tax residents who are Australian tax residents would be unaffected by the change.

A new Bill, Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, was introduced into parliament on 23 October 2019.  The changes impact certain foreign residents as follows:

  • for properties held before 9 May 2017, the CGT main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2020, provided they satisfy the other existing requirements for the exemption. For disposals of these properties that happen from 1 July 2020, at the time of the CGT event, they will no longer be entitled to the exemption unless any of the following life events occur within a continuous period of six years of the individual becoming a foreign resident:
    • either the foreign resident, their spouse, or their child who was under 18 years of age, has a terminal medical condition
    • their spouse, or their child who was under 18 years of age at the time of their death, dies
    • the CGT event involves the distribution of assets between the foreign resident and their spouse because of their divorce, separation or similar maintenance agreements.
  • for properties acquired at or after 9 May 2017, the CGT main residence exemption will no longer apply to disposals from that date unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident.

Explanatory Memorandum – November 2019

Getting the benefit of your business tax losses

Made a tax loss? If you’re a sole trader or individual partner, you may be able to apply the loss against other income like salary or investment income, or carry the loss forward to a future year.

When you’re starting a new business venture, it may take some time before the business becomes profitable. And there may be other situations where an established business operates at a loss in a particular year. So, what does this mean tax-wise? When your deductions in an income year are greater than your assessable income, you have a “tax loss”. You generally can’t receive a refund for a tax loss, but you can use it in other ways.

Using losses against other income

If you’re a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary and wages from employment and income from personal investments.

But watch out: if the loss is “non-commercial”, you can’t use it immediately to offset your other income. Instead, you must defer it (explained below). To pass the non-commercial loss rules, you generally must meet two requirements. First, your adjusted taxable income must be less than $250,000. For these purposes, you ignore your business losses, but must add any reportable fringe benefits, salary sacrifice or personal super contributions, and total net investment losses.

Second, you must pass one of the following four tests, which are designed to measure whether your business activities are sufficiently “commercial”:

  • your assessable income from your business activity is at least $20,000;
  • your business has made a tax profit in three out of the past five years (including the current year);
  • you use real estate valued at $500,000 or more in your business on a continuing basis; or
  • the value of “other assets” (excluding vehicles and real estate) you use in your business on a continuing basis is at least $100,000.

If you don’t pass any of these tests (or fail the $250,000 income requirement), you must defer the loss for use in future. You’ll be able to apply the deferred loss against future business income when the business starts making a profit, or alternatively against other income sources when you start satisfying the non-commercial loss rules. Your losses can be deferred indefinitely until this happens.

The Commissioner of Taxation can use his discretion to allow you to apply the loss in the current year, but only in “special circumstances” or where the nature of your business is such that there will be a lead time before the business activities become profitable or sufficiently commercial.

There are also special rules for primary production and professional arts businesses. If your income from other sources (excluding any net capital gain) is less than $40,000, you can use your business tax loss against that income and you don’t need to worry about the non-commercial loss rules.

Offsetting future income

What if you satisfy the non-commercial loss rules but don’t have income against which you can offset your tax loss?

Sole traders and individual partners can carry forward tax losses to a later year to apply against future income. While losses can be carried forward indefinitely, you must use them to offset income at the first opportunity.

Source: https://ato.gov.au/business/income-and-deductions-for-business/losses/.

Downsizer super contributions: getting it right

“Downsizer” contributions let you contribute some of the proceeds from the sale of your home into superannuation – but there are several important eligibility requirements.

Are you thinking about selling the family home in order to raise funds for retirement? Under the “downsizer” contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a “downsizer” superannuation contribution (which means up to $600,000 for a couple).

These contributions don’t count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds $1.6 million. You’re also exempt from the “work test” that usually applies to voluntary contributions by members aged 65 and over.

The government reports that as at June 2019 over 4,000 people around Australia had taken advantage of the scheme in its first year, representing total superannuation contributions of over $1 billion.

The downsizer scheme is a good opportunity for many Australians to boost their retirement savings, but you must ensure you’re eligible before making a contribution. If you don’t qualify, your contribution could count as a non-concessional contribution and cause you to breach your contributions cap. Here are some areas where the ATO is seeing mistakes with the eligibility rules:

The 10-year ownership requirement

In order to qualify, you, your spouse or a former spouse must have owned the property for the 10 years prior to the sale.

The ATO explains that it’s not necessary for the same person to hold the property during those 10 years, as long as it was held by some combination of the person, their spouse and/or former spouse throughout the 10 years.

However, there’s an additional requirement: the property must be owned by you or a current spouse (not a former spouse) just before you sell. This means, for example, that where a couple divorces and the property is transferred to one spouse under the property settlement, when that spouse eventually sells the property they can potentially make a downsizer contribution, but their ex-spouse cannot.

Another thing to watch is the 10-year ownership period. The ATO says that the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. If you signed a contract to purchase “off the plan” and the settlement occurred much later, be aware that the ownership period for downsizer purposes only starts upon settlement.

The main residence exemption requirement

Another key requirement is that the capital gain from the sale must be wholly or partially exempt from capital gains tax (CGT) under the “main residence exemption”. If your home is a “pre-CGT asset” (ie acquired before 20 September 1985 and therefore not subject to CGT), it must be the case that the capital gain would hypothetically qualify for the main residence exemption, in whole or in part, if it had been acquired on or after 20 September 1985.

You won’t qualify for any main residence exemption where you’ve never used the property as your main residence – perhaps because it’s a rental property permanently leased to tenants, or your holiday home.

But thankfully, even a partial main residence exemption will allow you to make downsizer contributions. Common situations giving rise to a partial exemption include using your home to generate income (in addition to living there); where the land adjacent to your home’s dwelling exceeds two hectares; or where you’ve only lived on the property for part of the ownership period.

The main residence requirement is not related to the 10-year ownership requirement, so it’s not necessary that the property was your main residence during that 10-year period. It’s only necessary that you have (or would have) at least a partial main residence exemption.

Source: https://ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Downsizing-contributions-into-superannuation/.

Health insurance and your tax: uncovered

If you don’t hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future.

Levies, surcharges and loadings – the terminology around health insurance and tax can be bewildering! But if you don’t hold private hospital cover, you need to understand how this may affect your tax.

Medicare levy surcharge

The Medicare levy surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don’t take out a sufficient level of private hospital cover for you and all of your dependants. It’s designed to give you a financial incentive to insure privately. The MLS is applied by the ATO at tax time and included in your assessment.

If you’re a very high-income earner, holding private hospital cover to avoid the MLS makes tax sense.

If your income is lower but still above the relevant singles or families threshold (outlined below), you may want to shop around more carefully for a policy that suits your budget. Bear in mind that it’s hospital cover that’s required to avoid the MLS, not extras (so “extras only” policies are not sufficient). Of course, you also need to factor in the other non-tax benefits of holding private health insurance.

So how much extra tax does the MLS mean? It depends on your income. Your income for these purposes is not just your taxable income – it also includes things like reportable fringe benefits, extra salary sacrifice super contributions you make (or personal super contributions) and total net investment losses.

Income for MLS purposes Rate of MLS
Singles Families
$90,000 or less $180,000 or less nil
$90,001 – $105,000 $180,001 – $210,000 1%
$105,001 – $140,000 $210,001 – $280,000 1.25%
$140,001 or more $280,001 or more 1.5%

If you have two or more dependent children, the families thresholds above increase by $1,500 for the second and subsequent children.

Note that the MLS is separate to the “Medicare levy”, a 2% levy on your taxable income that most Australians must pay – regardless of whether they have private health cover. So, if you have an MLS liability, you’ll pay this in addition to the Medicare levy.

Lifetime health cover loading and the rebate

Lifetime health cover (LHC) loading encourages Australians to maintain private health cover from an early age. If you don’t take out private hospital cover by the year you turn 31, you’ll be penalised with LHC loading if and when you eventually take out cover in future. You’ll pay an extra 2% of your premium for every year that you’re aged over 30, and this is charged annually until you’ve had 10 years of continuous cover.

For example, if you first take out private cover at age 45, you’ll pay annual loading of 30% (ie 2% x 15) for 10 years. (Note, the maximum possible loading rate is 70%.)

LHC loading isn’t a tax, but it can affect your tax return. This is because any LHC loading portion of your premium doesn’t attract the private health insurance rebate. The rebate is available to singles with income for MLS purposes of $140,000 or less and families with income of $280,000 or less. The percentage rebate available ranges from approximately 8% to 25% of your premiums, depending on your exact income level. You can receive your rebate as either reduced premiums from your insurer or a refundable tax offset from the ATO at tax time.

So, if you’re over 30 and don’t have private hospital cover, it’s time to consider how much each year that you remain uninsured may end up costing you in future premiums.

Source: https://ato.gov.au/Individuals/Medicare-levy/Private-health-insurance-rebate/.

Small business CGT concessions: when do I qualify?

The small business CGT concessions are a great tool for business owners to transfer wealth into super. Here, we break down the two essential requirements you must first meet in order to access any of the concessions.

Have you considered the powerful tax and superannuation planning opportunities that the small business CGT concessions can offer your business? These concessions allow you to reduce – or in some cases, completely eliminate – the capital gain from the sale of a business asset, whether it’s held directly by your business entity or in another related structure.

What’s more, the concessions also allow you to make extra super contributions – sometimes up to $1,515,000 – in connection with the sale of business assets. This is an attractive opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. However, there are two basic conditions you must meet before you can access any of the concessions.

Business size

The first requirement tests whether your business is “small” enough to qualify. There are two alternative tests: a turnover test and a net assets test.

The turnover test is met where you carry on a business and have annual “aggregated turnover” under $2 million.

This includes not just your business turnover, but also the business turnover of any entities that are “connected” or “affiliated” with you, which broadly means related entities that you control or influence. So, if you have another trust or company that carries on a separate business, its turnover will often be taken into account.

In terms of timing, you’ll satisfy the test if your aggregated turnover last income year was under $2 million. Alternatively, it’s also sufficient if your aggregated turnover this year is likely to be under $2 million, provided it was not $2 million or more in the previous two years.

What if you, the asset owner, don’t carry on a business but passively hold the asset and it’s used by another of your entities in its business? You can still qualify, provided that entity is sufficiently related to you and it passes the turnover test itself.

The alternative test is the net assets test. You meet this test if the combined net assets of you and certain assets of your “connected” and “affiliated” (i.e. related) entities is no more than $6 million in total. Being a “net” assets test, you can subtract the liabilities related to the assets. You can also ignore assets like your main residence (provided it’s not used to produce income), personal use assets, superannuation entitlements and shares or units in your related entities.

Asset requirements

The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an “active” asset. This means it must have been used or held in a business carried on by you or one of your “connected” or “affiliated” entities for the following time periods:

  • if you owned the asset for 15 years or less – for at least half the ownership period; or
  • if you owned it for more than 15 years – for at least 7.5 years.

What about property you hold in another structure and lease to your business? Property can be tricky because of a rule that specifically excludes assets where the asset owner’s main use is to derive rent or other passive income. However, where the property is used by your “connected” or “affiliated” entity in its business, it will generally qualify as an active asset.

If you’re planning to sell shares in a company (or interests in a trust), talk to your adviser about the special rules that apply to these types of assets.

Source: https://ato.gov.au/Business/Small-business-entity-concessions/Concessions/CGT-concessions/.

Unpaid super: important amnesty update for employers

Unpaid super is a big problem, and the compliance landscape is changing. If you’re an employer, now is the time to take action and protect yourself against penalties.

The government is getting tough on unpaid compulsory super guarantee (SG) contributions, but fortunately for businesses it has recently announced a revised “grace period” to rectify past non-compliance. All businesses should review their super compliance to consider what action they may need to take.

How big is the unpaid super problem?

Estimates of the problem vary. Official ATO figures place the annual unpaid super “gap” at $3.26 billion (based on 2015–2016 data) before factoring in ATO intervention, or 5.7% of the super that should be paid by employers. However, some argue the problem is bigger, with Industry Super Australia placing the gap closer to $6 billion, affecting 2.85 million workers.

The extent of the problem can be obscured by “black economy” activity where workers are paid cash-in-hand, and also “sham contracting” where workers are misclassified as independent contractors to avoid paying entitlements like super contributions.

Compliance changes for businesses

The launch of Single Touch Payroll (STP) will dramatically improve the ATO’s ability to monitor employers’ compliance with compulsory super laws moving forward. This electronic reporting standard is now mandatory for all Australian businesses, and gives the ATO fast access to income and superannuation information for all employees.

What about past unpaid super you might already owe? You may have previously heard about an “amnesty” for coming forward and voluntarily disclosing historical underpayments of SG contributions without incurring penalties. After many hiccups with implementing this policy in 2018 and 2019, the returned Coalition government has finally taken steps to relaunch the policy. Under proposed legislation currently before parliament, the amnesty will work as follows:

  • The scheme applies to any unpaid super you still owe dating back to 1992 until the quarter starting on 1 January 2018.
  • To qualify, you must not only disclose but also pay the outstanding contributions – including interest.
  • You must make this disclosure to the ATO before it begins a compliance audit of your business (or informs you it intends to audit you).
  • If you qualify, the ATO will waive certain penalties that would usually apply. You will also be able to deduct your catch-up payments, provided they are made before the amnesty ends.

If you don’t come forward and you’re later caught out, the ATO will be required to apply a minimum penalty of 100% on top of the amount of unpaid super you owe (although this can be as high as 200%). Additionally, catch-up payments made outside of (or after) the amnesty are not deductible.

The timing of your disclosure is important. The proposed new amnesty will cover both previous disclosures made since 24 May 2018 (under the old amnesty scheme that the government failed to officially implement) and, importantly, disclosures made up until six months after the proposed legislation passes parliament.

While there’s a risk that the amnesty legislation may never pass parliament – which would mean the protections against ATO penalties for disclosing businesses wouldn’t be guaranteed by law – businesses do face significant penalties if they’re caught by the ATO, with or without an amnesty in place.

Even in the event that the amnesty does not become law, the ATO would still look favourably upon businesses who make voluntary disclosures. This may be a basis for negotiating a partial waiver of penalties.

Source: http://ministers.treasury.gov.au/ministers/jane-hume-2019/media-releases/extending-superannuation-guarantee-amnesty-reunite-members.

Selling shares: how does tax apply?

Did you know that when you sell your shares, the size of your capital gains tax bill is affected by how long you’ve held the shares, and how you offset your capital gains and losses? Knowing the tax rules can help you plan ahead.

Whether you own just a few listed shares or have an extensive portfolio, understanding how capital gains tax (CGT) applies when you sell your shares can help you plan your trades effectively. If you trade shares on a scale that amounts to a business of share trading, talk to your tax adviser about the different tax regime that applies.

Each time you sell a parcel of shares, you trigger a “CGT event” and you must work out whether you’ve made a capital gain on that parcel (where the proceeds you receive exceed the cost base) or capital loss (where the cost base exceeds the proceeds). You also trigger a CGT event if you give the shares away as a gift – perhaps to a family member. For tax purposes, you’re deemed to have disposed of the shares at their full market value.

Here’s how the CGT rules work: all of your capital gains for the income year are tallied and reduced by any capital losses.

This includes your gains and losses from all of your assets that year, not just shares. If you have an overall “net capital gain”, this is included in your assessable income and taxed at your marginal tax rate. If you have a “net capital loss”, you can’t offset this against ordinary income like salary or rental income. Instead, a net capital loss can be carried forward to future years to apply against future capital gains.

The 12-month discount rule

As an individual, you can reduce your capital gain by 50% if you’ve held the shares for at least 12 months. This “discount” is also available to trusts (also 50%) and superannuation funds, including SMSFs (33.3%), but not companies. This is an important consideration when you’re deciding what structure to hold investments in.

There’s a further detail that may make a big difference if you have multiple gains and losses: the 50% discount is only applied after you subtract any capital losses for the year (and any capital losses carried forward from earlier years). Importantly, you can choose which gains to offset losses against. So, if you have any gains that don’t attract the discount because you held the asset for less than 12 months, it’s often best to subtract your losses against these non-discountable gains first in order to maximise the benefit of the 50% reduction to the discountable gains.

If you bought the shares before 21 September 1999, you have an alternative option of applying an indexation factor to increase the cost base (rather than applying the 50% discount). Your tax agent can help you determine which choice gives you a better tax outcome.

Working out the “cost base”

Where you bought the shares at market value, your cost base includes what you paid for the shares and also incidental costs like brokerage fees (for both the purchase and sale). Watch out for special situations like dividends you chose to reinvest as additional shares – the amount of reinvested dividends is included in those shares’ cost base.

If you received the shares as a gift, you’re deemed to have received them at market value on the date of the gift. What if you inherited them from a deceased estate? If the deceased acquired the shares before 20 September 1985, you must adopt the market value on the date of death. But if the deceased acquired the shares after that date, you inherit the deceased’s own cost base for the shares as at the date of death.

Source: https://ato.gov.au/Individuals/Investing/In-detail/Investing-in-shares/Shares—helping-you-to-avoid-common-mistakes/.

ATO to scrutinise every return for tax time 2019

The ATO has announced that it will scrutinise every tax return lodged during Tax Time 2019 as part of its ongoing focus on “closing tax gaps”.

Assistant Commissioner, Karen Foat, said taxpayers who have done the wrong thing may be subject to an audit, even if the over-claim of deductions is minor. Third party data indicating under reported income, and deductions that appear high compared to people with a similar job and income level, tend to raise concerns, Ms Foat said.

While the ATO contacts around two million people each year about their returns, in most cases, Ms Foat said an audit is not the ATO’s first action. If the ATO does decide to conduct an audit, it will contact the taxpayer and/or their tax agent to make further enquiries of evidence to support the claims in question. The ATO may also request information from third parties (ie employers) to verify expenses, and depending on the behaviour of the taxpayer, it may apply penalties or seek to prosecute.

Once the ATO has been in contact with a taxpayer to review claims, “it is important to be honest and get the matter resolved quickly”. The ATO notes that taxpayers are more likely to face penalties if they aren’t honest. If a taxpayer thinks they may have made a mistake, or there is an error in their tax return, the best thing to do is “fess up” as soon as possible, Ms Foat said.

Most of the time the ATO will be looking for documentation or evidence to support your deductions or claims. It may even contact third parties such as your employer to verify certain deductions (i.e. clothing/uniform, possible reimbursed expenses, or whether the expense was related to earning your income). Therefore, good record keeping throughout the year is essential to defend against any audit.

You may be wondering why the ATO is targeting such small fry when multinational companies get away with paying minimal tax. According to the ATO, it understands that most taxpayers over-claim by a little, but small amounts of overclaiming by a large number of people adds up to $8.7bn less each year in revenue collected. So, by its thinking, it really is a case of a every little bit counts.

If you’re subject to an audit, it’s not always doom and gloom. In some cases, you may get a higher deduction if the ATO discovers that you haven’t claimed something you’re entitled to. For example, you may be entitled to a deduction for depreciation on a laptop or other technology used for work but had incorrectly calculated the claim or omitted it altogether.

In the event of an audit and you’re found to have over-claimed, the ATO may apply penalties depending on your behaviour. If you’re found to have over-claimed based on a genuine mistake, for example, if you’ve claimed the costs which are private and domestic in nature that are sometimes used for work or study (ex. sports backpack or headphones), the ATO may choose not to apply penalties.

However, in cases of fraudulently claimed deductions, the ATO will apply penalties in addition to requiring the repayment of any refunds issued. It notes in extreme cases, prosecution through the courts may be pursued. The ATO gives an example where a taxpayer was convicted of making false and misleading statements in their tax return which resulted in the repayment of the refunds totalling $45,000, a fine of $3,000, penalties totalling $20,000 as well as court costs. The claims related to travel, clothing, and work-related expenses which were paid by the employer, as well as charitable donations to an organisation that was not registered as a DGR.

Source: https://ato.gov.au/Media-centre/Media-releases/Stress-less-if-you-have-nothing-to-confess/.

Beware of insurance changes in superannuation

You may have heard a lot recently about super funds providing either opt-in or opt-out insurance and have wondered how will affect you and your retirement savings. Perhaps you’ve heard horror stories about super funds cancelling people’s insurance. Don’t fret, in most cases cancellation of insurance only happens in limited instances, and your fund will most likely notify you before any cancellation occurs. As for opt-in and opt-out insurance, the changes are coming, but not until 1 April 2020, so if you’re affected, you’ll have plenty of time to prepare.

Insurance within superannuation has always been a mixed blessing, good for some who enjoy having cheaper insurance, while others see as an erosion of their super balances. It doesn’t matter which camp you fall into, the recent changes to the way super funds provide insurance may impact you depending on your super balance, age, and when your last contribution was.

Since July this year, super funds have been required to cancel insurance on accounts that have not received any contributions for at least 16 months unless the member elects to continue the cover. In addition, inactive super accounts with balances of under $6,000 will either be automatically consolidated by the ATO with other accounts you may hold or transferred to the ATO. If your super is transferred to the ATO, any insurance will also be cancelled.

This applies to life insurance, total and permanent disability (TPD) insurance and income protection (IP) insurance that you may have with your super fund. Before cancelling your insurance, your super fund will most likely notify you, although if you’re worried about your insurance being cancelled, you can contact your super fund to discuss your options.

Remember, once your insurance is cancelled, you can no longer make a claim and it doesn’t matter how long you had held the policy previously. Whilst this change is designed to stop people from paying unnecessary insurance premiums, it can have unintended consequences for those on longer periods of leave such as parental leave and long-term sick leave. The best thing to do is to engage with your super fund regularly to ensure that an adequate level of insurance is maintained and you’re not paying too much for insurance cover you don’t need.

Another change coming to super funds in the not too distant future of 1 April 2020 is opt-in insurance for members under 25 years old and those with account balances of less than $6,000. From that date, members under 25 who start to hold a new choice or MySuper product will need to explicitly opt-in to insurance. Currently, the onus is on the member to opt-out of insurance if they do not want it. This change is designed to protect younger people on their first jobs from super balance erosion stemming from unnecessary insurance but may disadvantage those who assume that they will automatically have insurance based on previous rules.

For members with active super account balances less than $6,000, super funds will be required to notify them of the change in the opt-in insurance requirements by 1 December 2019. This will give members plenty of opportunity to opt-in to the relevant insurance policies by 1 April 2020 if they choose to do so.

However, if you work in a “dangerous occupation” such as a member of the police force, fire service or ambulance service, among other occupations, the change in the opt-in insurance requirement will not apply to you even if you’re under 25 years or have balances below $6,000.

The insurance changes may be good for some and not so for others, it is difficult to strike the right balance between the two camps. The best thing you can do for yourself is have an awareness of your superannuation, including fees, insurance and other outgoings. After all, it is your hard-earned money and you want it to be working hard for your retirement.

Source: https://aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6331.

 

Client Alert – November 2019

Getting the benefit of your business tax losses

When you’re starting a new business venture, it may take some time before the business becomes profitable. And there may be other situations where an established business operates at a loss in a particular year. So, what does this mean tax-wise? When your deductions in an income year are greater than your assessable income, you have a “tax loss”. You generally can’t receive a refund for a tax loss, but you can use it in other ways.

If you’re a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary and wages from employment and income from personal investments.

But watch out: if the loss is “non-commercial”, you can’t use it immediately to offset your other income. Instead, you must defer it.

Downsizer super contributions: getting it right

“Downsizer” contributions let you contribute some of the proceeds from the sale of your home into superannuation – but there are several important eligibility requirements.

Are you thinking about selling the family home in order to raise funds for retirement? Under the “downsizer” contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a “downsizer” superannuation contribution (which means up to $600,000 for a couple).

These contributions don’t count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds $1.6 million. You’re also exempt from the “work test” that usually applies to voluntary contributions by members aged 65 and over.

Health insurance and your tax: uncovered

If you don’t hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future.

Levies, surcharges and loadings – the terminology around health insurance and tax can be bewildering! But if you don’t hold private hospital cover, you need to understand how this may affect your tax.

The Medicare levy surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don’t take out a sufficient level of private hospital cover for you and all of your dependants. It’s designed to give you a financial incentive to insure privately. The MLS is applied by the ATO at tax time and included in your assessment.

Small business CGT concessions: when do I qualify?

CGT concessions allow you to reduce – or in some cases, completely eliminate – the capital gain from the sale of a business asset, whether it’s held directly by your business entity or in another related structure.

What’s more, the concessions also allow you to make extra super contributions – sometimes up to $1,515,000 – in connection with the sale of business assets. This is an attractive opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. There are two basic conditions you must meet before you can access any of the concessions. The first requirement tests whether your business is “small” enough to qualify. There are two alternative tests: a turnover test and a net assets test. The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an “active” asset.

Unpaid super: important amnesty update for employers

The launch of Single Touch Payroll (STP) will dramatically improve the ATO’s ability to monitor employers’ compliance with compulsory super laws moving forward. This electronic reporting standard is now mandatory for all Australian businesses and gives the ATO fast access to income and superannuation information for all employees.

The government is getting tough on unpaid compulsory super guarantee (SG) contributions, but fortunately for businesses it has recently announced a revised “grace period” to rectify past non-compliance. All businesses should review their super compliance to consider what action they may need to take.

The timing of your disclosure is important. The proposed new amnesty will cover both previous disclosures made since 24 May 2018 (under the old amnesty scheme that the government failed to officially implement) and, importantly, disclosures made up until six months after the proposed legislation passes parliament.

Selling shares: how does tax apply?

Whether you own just a few listed shares or have an extensive portfolio, understanding how capital gains tax (CGT) applies when you sell your shares can help you plan your trades effectively. If you trade shares on a scale that amounts to a business of share trading, talk to your tax adviser about the different tax regime that applies.

Each time you sell a parcel of shares, you trigger a “CGT event” and you must work out whether you’ve made a capital gain on that parcel (where the proceeds you receive exceed the cost base) or capital loss (where the cost base exceeds the proceeds). You also trigger a CGT event if you give the shares away as a gift – perhaps to a family member. For tax purposes, you’re deemed to have disposed of the shares at their full market value.

All of your capital gains for the income year are tallied and reduced by any capital losses. This includes your gains and losses from all of your assets that year, not just shares. If you have an overall “net capital gain”, this is included in your assessable income and taxed at your marginal tax rate. If you have a “net capital loss”, you can’t offset this against ordinary income like salary or rental income. Instead, a net capital loss can be carried forward to future years to apply against future capital gains.

ATO to scrutinise every return for tax time 2019

The ATO has announced that it will scrutinise every tax return lodged during Tax Time 2019 as part of its ongoing focus on “closing tax gaps”.

Assistant Commissioner, Karen Foat, said taxpayers who have done the wrong thing may be subject to an audit, even if the over-claim of deductions is minor. Third party data indicating under reported income, and deductions that appear high compared to people with a similar job and income level, tend to raise concerns, Ms Foat said.

If you’re subject to an audit, it’s not always doom and gloom. In some cases, you may get a higher deduction if the ATO discovers that you haven’t claimed something you’re entitled to. For example, you may be entitled to a deduction for depreciation on a laptop or other technology used for work but had incorrectly calculated the claim or omitted it altogether.

In the event of an audit and you’re found to have over-claimed, the ATO may apply penalties depending on your behaviour. If you’re found to have over-claimed based on a genuine mistake, for example, if you’ve claimed the costs which are private and domestic in nature that are sometimes used for work or study (eg sports backpack or headphones), the ATO may choose not to apply penalties.

Beware of insurance changes in superannuation

Since July this year, super funds have been required to cancel insurance on accounts that have not received any contributions for at least 16 months unless the member elects to continue the cover. In addition, inactive super accounts with balances of under $6,000 will either be automatically consolidated by the ATO with other accounts you may hold or transferred to the ATO. If your super is transferred to the ATO, any insurance will also be cancelled.

This applies to life insurance, total and permanent disability (TPD) insurance and income protection (IP) insurance that you may have with your super fund.

Another change coming to super funds in the not too distant future of 1 April 2020 is opt-in insurance for members under 25 years old and those with account balances of less than $6,000. From that date, members under 25 who start to hold a new choice or MySuper product will need to explicitly opt-in to insurance. Currently, the onus is on the member to opt out of insurance if they do not want it.