Client Alert – February 2021

ATO warning: watch out for tax avoidance schemes

Tax planning or tax avoidance – do you know the difference? Tax planning is a legitimate and legal way of arranging your financial affairs to keep your tax to a minimum, provided you make the arrangements within the intent of the law. Any tax minimisation schemes that are outside the spirit of the law are referred to as tax avoidance, and could attract the ATO’s attention.

The ATO has outlined some common features of tax avoidance schemes, and we can help you to steer clear of them. While it’s not always easy to identify these schemes, the old adage of “if it seems too good to be true, it probably is” is a good rule of thumb.

Tax avoidance schemes range from mass-marketed arrangements advertised to the public, to individualised arrangements offered directly to experienced investors. Other schemes exploit the social/environmental conscience of people or their generosity. As different as these schemes are, the common threads involve promises of reducing taxable income, increasing deductions, increasing rebates or entire avoidance of tax and other obligations.

Schemes may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. They may also incorrectly classify revenue as capital, exploit concessional tax rates, or inappropriately move funds through several entities including trusts to avoid or minimise payable tax.

Currently, the ATO has its eyes on retirement planning schemes, private company profit extraction and certain problematic financial products.

 

COVID-19 Supplement extension to 31 March 2021

The Federal Minister for Families and Social Services has now registered the legal instrument that ensures the COVID-19 Supplement will continue to be paid until 31 March 2021 for recipients of:

  • JobSeeker Payment;
  • Parenting Payment;
  • Youth Allowance;
  • Austudy Payment;
  • Special Benefit;
  • Partner Allowance; and
  • Widow Allowance.

It will be paid at the rate of $150 a fortnight (down from the previous $250 a fortnight) from 1 January 2021 to 31 March 2021.

The period for which people are considered as receiving a social security pension or benefit at nil rate, meaning they keep their access to benefits such as concession cards, has also been extended until 16 April 2021.

A number of other temporary social security measures will also remain until 31 March 2021, including waivers of waiting periods for certain payments, some requirement changes and exemptions, and more permissive income-free areas and payment taper rates.

Working from home deductions: “shortcut” rate until 30 June 2021

The ATO advises that the “shortcut” rate for claiming work-from-home running expenses has been extended again, in recognition that many employees and business owners are still required to work from home due to COVID-19. This shortcut deduction rate was previously extended to 31 December 2020, but will now be available until at least 30 June 2021.

Eligible employees and business owners therefore can choose to claim additional running expenses incurred between 1 March 2020 and 30 June 2021 at the rate of 80 cents per work hour, provided they keep a record (such as a timesheet or work logbook) of the number of hours worked from home during the period.

The expenses covered by the shortcut rate include lighting, heating, cooling and cleaning costs, electricity for electronic items used for work, the decline in value and repair of home office items such as furniture and furnishings in the area used for work, phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device.

Tip: This shortcut rate will suit many people, but if you choose to use it for your additional work-from-home running expenses, you can’t also claim any further deductions for the same items. We can help you decide whether the shortcut rate is the best option for your situation.

JobMaker Hiring Credit rules and reporting

With a range of government COVID-19 economic supports such as the JobKeeper and JobSeeker schemes winding down in the next few months, businesses that are seeking to employ additional workers but still need a bit of help can now apply for the JobMaker Hiring Credit Scheme. Unlike the JobKeeper Payment, where the money has to be passed onto your employees, the JobMaker Hiring Credit is a payment that your business gets to keep. Depending on new employees’ ages, eligible businesses may be able to receive payments of up to $200 a week per new employee.

To be eligible for the scheme, you need to satisfy the basic conditions of operating a business in Australia, holding an ABN, and being registered for PAYG withholding. Your business will also need to be up to date with its income tax and GST obligations for two years up to the end of the JobMaker period you claim for, and satisfy conditions for payroll amount and headcount increases. Non-profit organisations and some deductible gift recipients (DGRs) may also be eligible.

Beware, however, that businesses receiving the JobKeeper Payment cannot claim the JobMaker Hiring Credit for the same fortnight.

For example, businesses that wish to claim the payment for the first JobMaker period must not have claimed any JobKeeper payments starting on or after 12 October 2020, and employers currently claiming other wage subsidies – including those related to apprentices, trainees, young people and long-term unemployed people – cannot receive the JobMaker subsidy for the same employee.

If you think your business may be eligible, the next step is to determine whether you are employing eligible additional employees.

Generally, the employee needs to:

  • be aged 16–35 when their employment started (payment rates are $200 per week for 16 to 29 year-olds and $100 for 30 to 35 year-olds);
  • be employed on or after 7 October 2020 and before 7 October 2021;
  • have worked or been paid for an average of at least 20 hours per week during the JobMaker period;
  • have not already provided a JobMaker Hiring Credit employee notice to another current employer; and
  • received a JobSeeker Payment, Parenting Payment or Youth Allowance (except if they were receiving Youth Allowance due to full-time study or as a new apprentice) for at least 28 consecutive days in the 84 days before to starting employment.

Since the aim of JobMaker is to subsidise an increase in the number of employees a business hires – not to reduce the cost of replacing employees – businesses wishing to claim the payment must also demonstrate increases in both in headcount and employee payroll amount.

This is meant to reduce instances of rorting by businesses that might replace existing non-eligible employees with eligible employees. Employers will need to send information such as their baseline headcount and payroll amounts to the ATO for compliance purposes.

Small businesses: don’t forget your FBT concessions

If you own a small business still recovering from the COVID-19 induced downturn, remember that you can take advantage of FBT concessions to lower the amount of FBT you may need to pay. The concessions include exemptions for car parking in some instances, and work-related portable electronic devices.

All this could mean more cash to invest in the revitalisation and ultimate success of your business.

For small business employers, the car parking benefits provided to employees could be exempt if the parking is not provided in a commercial car park and the business satisfies the total income or the turnover test. This is the case if the business is not a government body, listed public company or a subsidiary of a listed public company.

The second exemption relates to work-related devices. Small businesses can to provide their employees with multiple work-related portable electronic devices that have substantially identical functions in the same FBT year, with all devices being exempt from FBT. Note, however, that this only applies to devices that are primarily used for work, such as laptops, tablets, calculators, GPS navigations receivers and mobile phones.

New insolvency rules commence

Important changes to Australia’s insolvency laws commenced operation on 1 January 2021. The Federal Government has called these the most important changes to Australia’s insolvency framework in 30 years.

The measures apply to incorporated businesses with liabilities less than $1 million. The intention is that the rules change from a rigid “one size fits all” model to a more flexible “debtor in possession” model, which will allow eligible small businesses to restructure their existing debts while remaining in control of their business. For those businesses that are “unable to survive”, a new simplified “liquidation pathway” will apply for small businesses to allow faster and lower-cost liquidation.

The measures are expected to cover around 76% of businesses currently subject to insolvency, 98% of which have fewer than 20 employees. The new rules do not apply to partnerships or sole traders.

To be eligible to access this new process a company must:

  • be incorporated under the Corporations Act 2001;
  • have total liabilities which do not exceed $1 million on the day the company enters the process – this excludes employee entitlements;
  • resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed; and
  • appoint a small business restructuring practitioner to oversee the restructuring process, including working with the business to develop a debt restructuring plan and restructuring proposal statement.

 

Explanatory Memorandum – February 2021

ATO warning: watch out for tax avoidance schemes

To many individuals, the difference between tax planning and tax avoidance is not immediately obvious, while the ATO considers the former to be a legal way of arranging your affairs to minimise the tax you pay, the latter could land you in legal hot water. So, how can your clients tell the difference? The ATO has outlined some common features of tax avoidance schemes in order to warn individuals to steer clear of them. While it is not always easy to identify these schemes, the old adage of “if it seems too good to be true, it probably is” usually applies.

The ATO warns individuals to steer clear of tax avoidance schemes involving deliberate exploitation of the tax and super systems which may put them at risk of paying back tax, with interest and penalties. According to the ATO, most people get suckered into these schemes by promoters making promises of tax benefits that aren’t legally available.

These tax avoidance schemes range from mass-marketed arrangements advertised to the public, to individualised arrangements offered directly to experienced investors. Other schemes exploit the social/environmental conscience of people or their generosity. As different as these schemes are, the common thread often involves promises of reducing taxable income, increasing deductions, increasing rebates or entire avoidance of tax and other obligations.

The ATO notes that tax avoidance schemes may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. Schemes may also incorrectly classify revenue as capital, exploit concessional tax rates, or inappropriately move funds through several entities including trusts to avoid or minimise tax that would otherwise be payable.

Currently, the ATO has its eyes on retirement planning schemes, private company profit extraction and certain financial products. In relation to retirement planning, it has outlined areas of concern including non-concessional cap manipulation, life interests over commercial property, dividend stripping, some types of limited recourse borrowing arrangements, and personal services income.

For private companies, the ATO is concerned with privately owned and wealthy groups with tax or economic performance not comparable to similar business and those with low transparency tax affairs, or unusual/large transactions with could be an indicator for shifting of wealth.

While the majority of financial products offered to retail investors do not raise concerns with the ATO, it has flagged a small number of products that promise to provide investors with tax benefits where those benefits may not be available to some or all investors who invest in the product. Additionally, there may be issues concerning whether interest and borrowing costs can be claimed as a tax deduction, transactions involving deferred purchase agreements, and various CGT issues.

Source: www.ato.gov.au/Tax-professionals/Your-practice/Tax-and-BAS-agents/Recognising,-rejecting-and-reporting-tax-avoidance

COVID-19 Supplement extension to 31 March 2021

The Federal Minister for Families and Social Services has registered the Social Security (Coronavirus Economic Response – 2020 Measures No 16) Determination 2020 to ensure the continued payment of the COVID-19 Supplement to 31 March 2021.

The COVID-19 Supplement will be paid to recipients of the following:

  • JobSeeker Payment;
  • Parenting Payment;
  • Youth Allowance;
  • Austudy Payment;
  • Special Benefit;
  • Partner Allowance; and
  • Widow Allowance.

It will be paid at the rate of $150 a fortnight (down from the previous $250 a fortnight) for social security instalment periods for the period 1 January 2021 to 31 March 2021. This is courtesy of the Social Services and Other Legislation Amendment (Extension of Coronavirus Support) Act 2020.

The new determination also extends (until 16 April 2021) the period for which a person is taken to receive a social security pension or benefit at nil rate, resulting in their continued access to benefits such as concession cards.

In addition, the determination extends the following temporary social security measures to 31 March 2021:

  • waivers of the ordinary waiting period for JobSeeker Payment, Parenting Payment and Youth Allowance (Other), and the seasonal work preclusion period and the newly arrived resident’s waiting period for JobSeeker Payment, Parenting Payment, Youth Allowance, Austudy Payment and Special Benefit;
  • the exemption from the qualifying residence requirement for Parenting Payment;
  • the modifications of the social security law regarding the process to determine when a person is a “member of a couple” for the purposes of JobSeeker Payment;
  • income-free areas and taper rates for JobSeeker Payment and Youth Allowance (other) recipients to $300 with a 60 cent taper (except single principal carer parents, who have an income-free area of $106 and a taper of 40 cents) and the current 27 cent taper rate associated with the partner income test for JobSeeker Payment;
  • access to certain payment portability arrangements currently in place for Age Pension recipients (and certain recipients of the Disability Support Pension);
  • the power of the Secretary of the Department of Social Services to extend the Mobility Allowance two-week and 12-week qualification grace periods to 18 weeks in recognition of the continued difficulty for some people, in particular people with disability, to access the workplace and other activities.

Source: www.legislation.gov.au/Details/F2020L01671.

Working from home deductions: “shortcut” rate until 30 June 2021

The ATO has again extended – this time from 31 December 2020 to 30 June 2021 – the application of the “shortcut” rate outlined in Practical Compliance Guideline PCG 2020/3 for claiming work-from-home running expenses.

As amended on 17 December 2020, PCG 2020/3 allows eligible taxpayers to claim additional running expenses incurred between 1 March 2020 and 30 June 2021 at the rate of $0.80 per work hour, provided they keep a record of the number of hours worked from home. Taxpayers eligible to use the shortcut rate are employees and business owners who:

  • work from home to fulfil their employment duties or to run their business during the period from 1 March 2020 to 30 June 2021; and
  • incur additional running expenses that are deductible under s 8-1 or Div 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

The additional running expenses covered by the shortcut rate are listed at para 26 of PCG 2020/3 and comprise lighting, heating, cooling and cleaning costs, electricity for electronic items used for work, the decline in value and repair of home office items such as furniture and furnishings in the area used for work, phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device. Crucially, taxpayers who decide to use the shortcut rate to claim a deduction for their additional running expenses cannot claim any further deductions for the listed expenses.

Taxpayers who choose not to use the shortcut rate can:

  • claim $0.52 per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture (in accordance with Law Administration Practice Statement PS LA 2001/6), plus the work-related portion of phone and internet expenses, computer consumables and stationery and the work-related portion of the decline in value of a computer, laptop or similar device; or
  • claim the actual work-related portion of all running expenses, which need to be calculated on a reasonable basis.

Source: www.ato.gov.au/law/view/document?DocID=COG/PCG20203/NAT/ATO/00001&PiT=99991231235958.

JobMaker Hiring Credit rules and reporting

The Government registered the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 9) 2020 on 4 December 2020. These set out details of the JobMaker Hiring Credit rules.

The JobMaker Hiring Credit was announced in the Federal Budget and legislation to implement the rules – the Economic Recovery Package (JobMaker Hiring Credit) Amendment Act 2020 – received assent on 13 November 2020. This Act contains what may be termed the “machinery” provisions, while the Statutory Rules contain the “nuts and bolts” of the system.

The Statutory Rules specify:

  • the start and end date of the scheme;
  • when an employer or business is entitled to a payment;
  • the amount and timing of a payment; and
  • other matters relevant to the administration of the payment.

Broadly, the JobMaker Hiring Credit will be available to employers for each new job they create over the next 12 months for which they hire an eligible young person aged 16 to 35 years old.

Generally, the amount of the JobMaker Hiring Credit payment depends on the age of the eligible additional employee when they commence employment with the entity. An entity may receive up to $200 per week for each eligible additional employee aged 16 to 29 years and up to $100 per week for each eligible additional employee aged 30 to 35 years.

The JobMaker scheme commences on 7 October 2020 and ends on 6 October 2022, but only applies to eligible individuals who commence employment between 7 October 2020 and 6 October 2021.

An employer will be eligible for a JobMaker payment if:

  • the period is a JobMaker period;
  • the employer qualifies for the JobMaker scheme for the period;
  • the employer has one or more eligible additional employees for the period;
  • the employer has a headcount increase for the period;
  • the employer has a payroll increase for the period;
  • the employer has notified the ATO of its election to participate in the scheme;
  • the employer has given information about the entitlement for the period to the Commissioner in accordance with the requisite reporting requirements (to be determined by the ATO); and
  • the employer is not entitled to a JobKeeper payment for an individual for a fortnight that begins during the period.
Changes from the draft Rules

The Statutory Rules were released in draft form on 2 November 2020. During the consultation, “some concerns” were raised around complexity for small businesses. Changes were subsequently made to to clarify certain provisions and to reduce complexity “where possible”. However, the explanatory statement (ES) to the registered Rules says that some complexity in the provisions “is unavoidable” (particularly regarding the “additionality” requirements). The ES goes on to state, however, that “much of the practical implications” will be resolved through the ATO’s “proposed administration of the scheme”.

There is no doubt that the logistics of the JobMaker Hiring Credit are very technical (unfortunately necessitating the following long discussion). Indeed, the provisions dealing with calculating the entitlement amount are almost baffling.

JobMaker periods

Entitlement to a JobMaker Hiring Credit payment is assessed in relation to three-month periods known as “JobMaker periods”. Accordingly, each of the following is a JobMaker period (inclusive):

  • 7 October 2020 to 6 January 2021;
  • 7 January 2021 to 6 April 2021;
  • 7 April 2021 to 6 July 2021;
  • 7 July 2021 to 6 October 2021;
  • 7 October 2021 to 6 January 2022;
  • 7 January 2022 to 6 April 2022;
  • 7 April 2022 to 6 July 2022; and
  • 7 July 2022 to 6 October 2022.

It be seen that there are eight JobMaker periods. Note that the distinction between periods 1 to 4 and periods 5 to 8 becomes relevant later in the following discussion.

Qualifying employers

The JobMaker Hiring Credit payment is only available to “qualifying entities”. An entity is a qualifying entity in respect of a JobMaker period if, from the time it elected to participate in the scheme, it:

  • carries on a business in Australia;
  • has an Australian Business Number (ABN); and
  • is registered for pay-as-you-go (PAYG) withholding.

The payment is also available to certain non-profit bodies or deductible gift recipients. Note that Australian universities may also participate in the scheme.

The term “business” is as it is used in the Income Tax Assessment Act 1997 (ITAA 1997). GST pundits will notice that this is narrower than the “carrying on an enterprise” test used in that legislation.

Entities must be up to date with lodgments – at the time an entity gives information to the Commissioner of Taxation about its entitlement for a JobMaker period, the entity cannot have any outstanding income tax or GST returns that have become due in the past two years.

The ATO will require that information be provided through single touch payroll (STP). Entities that are not enrolled in STP will not qualify for JobMaker payments.

Certain entities are specifically excluded from eligibility:

  • those who have been subject to the levy imposed by the Major Bank Levy Act 2017 for any quarter ending before 1 October 2020 (or where a consolidated group member had been subject to the levy);
  • any Australian government agency or local governing body (or wholly-owned entity of those);
  • sovereign entities; and
  • those where a provisional liquidator or liquidator has been appointed to the business or a trustee in bankruptcy had been appointed to the individual’s property at any time in the fortnight.

Those who have clients who may be getting close the financial cliff will be most interested in this last category.

Disqualified employers

An entity may be separately disqualified for the JobMaker scheme for a period if:

  • at or before the end of the period, the entity terminates the employment; or
  • at or before the end of the period, the entity reduces the ordinary hours of work of an employee; and
  • the termination or reduction is part of a scheme for the sole or dominant purpose of the entity obtaining, or increasing the amount of, the JobMaker payment.

This denies access to JobMaker for an employer who enters into an arrangement to artificially inflate their employee headcount and/or payroll for a JobMaker period. Terminating or reducing the hours of an existing employee could be considered part of a scheme to facilitate greater access to JobMaker by hiring other employees.

Generally, this rule would not apply to an arrangement voluntarily entered into by the employee whose employment was terminated or whose ordinary hours of work were reduced.

An employer who is disqualified under this specific rule loses all entitlements to JobMaker for any JobMaker period that ends after the termination or reduction in hours occurred. This includes the period in which the termination or reduction occurred, as well as any subsequent periods.

In addition to losing access to the hiring credit under the general anti-avoidance provisions, employers who take adverse action against an older employee in order to benefit from the scheme may also be acting unlawfully under the Age Discrimination Act 2004 and the Fair Work Act 2009.

One or more additional employees for the period

To be eligible, an employer must have one or more eligible additional employees for a JobMaker period. An “eligible additional employee” is an individual who:

  • was employed by the qualifying entity at any time during the JobMaker period;
  • commenced employment between 7 October 2020 and 6 October 2021;
  • was aged between 16 and 35 years at the time they commenced employment (note that there are split rates depending on the age of the individual at the commencement of their employment);
  • has worked or has been paid for an average of 20 hours a week for each whole week the individual was employed by the qualifying entity during the JobMaker period;
  • meets the pre-employment conditions;
  • meets the notice requirement; and
  • is not excluded as an eligible additional employee.

Two important limitations flow from these conditions.

First, the requirement that an employee must commence employment between 7 October 2020 and 6 October 2021 means that JobMaker is only available for additional employment that occurs within this 12-month period.

Second, the requirement that an employee commenced employment no more than 12 months before the start of a particular JobMaker period means that employers can only claim JobMaker for a given employee for up to 12 months (ie from the time they commence employment). After 12 months, the employer can no longer receive payments in relation to that employee. However, employers can continue to qualify for payments in relation to another eligible additional employee who commenced their employment at a later time. This is the reason that, while scheme only applies for employment commenced up to 6 October 2021, payments can continue to operate until 6 October 2022 (ie JobMaker Period 8).

Pre-employment condition: recipients of social security

The pre-employment condition is that for at least 28 of the 84 days (ie for four out of 12 weeks) immediately before the commencement of employment of the individual, the individual was receiving the following payments under the Social Security Act 1991:

  • Parenting Payment;
  • Youth Allowance (except if the individual was receiving this payment on the basis that they were undertaking full time study or was a new apprentice); or
  • JobSeeker Payment.
Notice requirement

The notice requirement for an eligible additional employee is that the individual must give written notice to the employer in the approved form that the individual:

  • met one of the applicable age requirements at the time they commenced employment (ie they were either aged between 16 and 29, or between 30 and 35);
  • meets the pre-employment condition; and
  • has not provided a similar notice to another entity of which they are currently an employee.

This notice requirement allows qualifying entities to rely on declarations made by the employee regarding their satisfaction of the pre-employment condition and that they are not nominated by another entity to receive the JobMaker Hiring Credit payment. Under no circumstances are employees permitted to have valid notices with multiple employers at the same time.

This does provide some relief for employers – the onus very much rests with the employee to make full and true disclosures.

Excluded persons

There are two broad categories of individuals who are excluded from qualifying as an eligible additional employee.

The first category, not unexpectedly, is relatives of the employer, namely:

  • if the entity is a sole trader – the sole trader themselves;
  • if the entity is a partnership – a partner of the partnership;
  • if the entity is a trust – the trustee or beneficiary of that trust; or
  • if the entity is a company (other than a widely-held company) – a shareholder in the company or a director of the company.

The term “relative” has the same meaning as in s 995-1 of the ITAA 1997. The exclusion of relatives applies on a look-through basis, where interposed entities are disregarded for the purposes of the test.

The second exclusion applies to contractors. Specifically, an individual is also excluded from being an eligible additional employee if, at any time between 6 April 2020 and 6 October 2020, the individual was engaged by the entity as a contractor or a subcontractor where they worked in a substantially similar role or performed substantially similar functions or duties.

This is designed to prevent parties converting an existing consultancy relationship into an employment relationship, as this would not result in additional aggregate employment (which is what JobMaker is designed to stimulate).

Headcount increase amount for a JobMaker period

An entity has a “headcount increase” for a period if the number of employees employed by the entity at the end of the last day of the JobMaker period is greater than the entity’s “baseline headcount” for the period. This excess or increase in employees in comparison to baseline headcount is the “headcount increase amount”.

Note, though, that to be entitled to the JobMaker Hiring Credit payment for a period, an entity must have at least one employee for whom the entity is not entitled to the JobMaker Hiring Credit payment. As a result, an entity cannot be a sole trader and employ themselves to receive the JobMaker Hiring Credit payment –  there must be additional employees.

For the first four JobMaker periods (7 October 2020 to 6 January 2021, 7 January 2021 to 6 April 2021, 7 April 2021 to 6 July 2021 and 7 July 2021 to 6 October 2021), the entity’s baseline headcount will be the greater of one and the number of employees employed by the entity at the end of 30 September 2020.

In other words, additional employment for the first four JobMaker periods is measured by reference to the number of employees on the books as at 30 September 2020.

For the last four JobMaker periods (ie 7 October 2021 to 6 January 2022, 7 January 2022 to 6 April 2022, 7 April 2022 to 6 July 2022 and 7 July 2022 to 6 October 2022), reference is made to the corresponding period 12 months earlier or the increase of the previous period, whichever is higher. There are special rules that apply to working out headcount increase amount for JobMaker Period 5 to Period 8 (but, at this point, this can be next year’s problem).

Payroll increase for a JobMaker period

An entity’s “total payroll amount” must be greater than its “baseline payroll” for a JobMaker period to qualify for a JobMaker payment.

The amount for each category is referable to:

  • salary, wages, commission, bonuses and allowances;
  • amounts withheld under the PAYG withholding regime;
  • salary sacrifice superannuation contributions; and
  • amounts applied or dealt with in any way where the employee has agreed for the amount to be so dealt with in return for salary and wages to be reduced (eg amounts forming part of salary sacrifice arrangements).

An entity’s total payroll amount for a JobMaker period is the sum of these payroll amounts for each of the entity’s employees for each pay cycle that ended during the JobMaker period.

An entity’s baseline payroll amount is the sum of those amounts for a reference period that ended on or immediately before 6 October 2020 (by reference to an equivalent number of pay cycles as the number of pay cycles in the JobMaker period).

The ES to the Statutory Rules states that “the payroll amount is worked out as the excess of the entity’s total payroll amount for a JobMaker period from the baseline payroll amount”. This is used in the formula to work out the amount of payment.

Where the payroll amount for a JobMaker period is less than or equal to the reference period payroll amount, the entity may not claim a JobMaker Hiring Credit for that JobMaker period. This reflects that in such cases the entity has not had a substantive increase in its overall employment levels, irrespective of whether it has nominally increased the number of its employees.

In other words, the design is presumably to prevent employers cutting the wages of existing employees to take on new employees and therefore access JobMaker payments.

Amount of JobMaker payment

This is where the draft Statutory Rules start to get quite complex. The amount of payment that a qualifying entity may receive in relation to a JobMaker period is the lesser of:

  • the headcount amount; and
  • the payroll amount.

It is expected that the ATO will establish systems to automate the calculation of the payroll amount “for most employers”. This is, to quote the ES to the Rules, “because the calculations only rely on inputs relating to start and cessation times, the age of eligible employees at the time they commenced employment, the entity’s baseline headcount and payroll on 30 September 2020 and the entity’s headcount and payroll at the end of the period”.

The payroll amount is the excess of the entity’s total payroll amount for a JobMaker period from the baseline payroll amount, as already discussed.

The headcount amount is worked out as follows. This information is taken largely verbatim from the ES.

It is worked out on a daily basis in the relevant JobMaker period. In working out the headcount amount, different calculations apply based on whether an eligible additional employee is aged from 16 to 29, and from 30 to 35. For these two groups, the higher rate of payment is $200 per week, and the lower rate of payment is $100 per week. The headcount amount based on the total counted days in a period is capped by the maximum payable days as worked out below.

To calculate the headcount amount for a period under the formula, the entity should:

  • Step 1: count the number of higher rate days for the JobMaker period by adding together the number of days each higher rate eligible additional employee was employed in the period – these individuals are those who were aged 16 to 29 years (inclusive) at the commencement of their employment;
  • Step 2: count the number of lower rate days for the JobMaker period by adding together the number of days each lower rate eligible additional employee was employed in the period – these individuals are those who were aged 30 to 35 years (inclusive) at the commencement of their employment;
  • Step 3: count the number of maximum payable days for the JobMaker period by subtracting the entity’s baseline headcount from the number of employees employed by the entity at the end of the last day of the period, and multiply this by the number of days in the period. For example, for the JobMaker period of 7 October 2020 to 6 January 2021 (dates inclusive), there are 92 days.

Where the sum of steps 1 and 2 (total counted days) is equal to or less than the maximum payable days for the period, the headcount amount in a JobMaker period is the sum of:

  • the amount derived by multiplying the higher rate days for the period by $200, dividing the result by seven (for the number of days in a week) and rounded up to the nearest cent; and
  • the amount derived by multiplying the lower rate days for the period by $100, dividing the result by seven (for the number of days in a week) and rounded up to the nearest cent.

However, if the total counted days (sum of the higher rate days and the lower rate days) exceeds the cap imposed by the maximum payable days, the counted days are reduced to the number of maximum payable days by:

  • reducing the lower rate days; then
  • reducing the higher rate days.

Accordingly, it is possible for the maximum payable days to cap the total counted days for a JobMaker period to the effect that there are only higher rate days used for the calculation and no lower rate days. After applying the cap imposed by the maximum payable days, the headcount amount is worked out according to the formula.

Participation and notification requirements

To be entitled to the JobMaker Hiring Credit payment in relation to a JobMaker period, the entity must have notified the Commissioner in the approved form of its election to participate in the scheme by the end of the period that the entity first elects to participate. The notification requirements are set out in the JobMaker Hiring Credit Reporting Obligations Instrument 2020.

Interaction with JobKeeper

An entity cannot participate in the JobMaker scheme if it is entitled to receive a JobKeeper payment in respect of an individual for a JobKeeper fortnight that begins during the JobMaker period. This ensures that an entity cannot participate in both the JobKeeper scheme and the JobMaker scheme simultaneously.

The prohibition on JobKeeper fortnights that begin during a JobMaker period allows an entity to have a single JobKeeper fortnight end at the start of a JobMaker period.

Permitting this overlap allows an entity to cease its participation in the JobKeeper scheme and begin its participation in the JobMaker scheme without requiring a “gap” between the two schemes. Preventing a JobKeeper fortnight from starting in a JobMaker period ensures that any such overlap is always limited to a part of a single JobKeeper fortnight. According to the ES, this reflects that any transition between the two schemes must be limited and temporary in nature.

Reporting obligations

The Government also registered the JobMaker Hiring Credit Reporting Obligations Instrument 2020 on 4 December 2020. This sets out the information that employers who seek to participate in the JobMaker Hiring Credit scheme must provide the ATO.

Specifically, it describes information that must be reported under JobMaker, including the information that must be reported each time a claim for a payment is made under the scheme. The instrument also explains how reporting must be undertaken and when reports are due.

Employee reporting

Certain information must be reported before an employer can claim JobMaker. This includes the following details for each employee an employer intends to claim for as an eligible additional employee using STP:

  • TFN;
  • date of birth;
  • full name;
  • date employment commenced (if occurring in the JobMaker period);
  • date employment ceased (if occurring in the JobMaker period); and
  • whether the employee met the average hours of work requirement for the JobMaker period.

The ATO is developing specifications setting out the JobMaker Hiring Credit functionality for STP enabled payroll software. Information will be located on the ATO website.

The Rules set out reporting deadlines on this, starting in April 2021 and progressing forward on a monthly basis. Given that the information must be provided before a claim can be paid, it is in the employer’s interest to provide the information as soon as possible.

Payment claim information

Information that must be provided when a claim is made includes:

  • the total payroll expenses for the JobMaker period;
  • the baseline payroll amount for the period;
  • the total headcount at the end of the JobMaker period;
  • the baseline headcount for the JobMaker period;
  • confirmation that each employee included in the claim calculation is an eligible additional employee (including that the minimum hours test has been satisfied);
  • a declaration which meets specific requirements;
  • a signature which meets specific requirements; and
  • financial institution account details.

This information is to be reported via ATO Online services for Individuals, ATO Online Services for Business, Business Portal or Online Services for Agents or the Business Portal as part of the claims process.

Source: www.legislation.gov.au/Details/F2020L01534/Download; https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6609%22; www.legislation.gov.au/Details/F2020L01535/Download.

Small businesses: don’t forget your FBT concessions

If your clients own a small business still recovering from the COVID-19 induced downturn, remember that they can take advantage of FBT concessions to lower the amount of FBT they will need to pay. The concessions include exemptions for car parking in some instances, and work-related portable electronic devices. All this could mean more cash to invest in the revitalisation and ultimate success of small businesses. Even if a business was not considered to be a small business entity a few years ago, the turnover threshold has changed, and it may be worth a reassessment.

For small business employers, the car parking benefits provided to employees could be exempt if the parking is not provided in a commercial car park and the business satisfies the total income or the turnover test. This is the case if the business is not a government body, listed public company or a subsidiary of a listed public company.

The second exemption relates to work-related devices. Small businesses can to provide their employees with multiple work-related portable electronic devices that have substantially identical functions in the same FBT year, with all devices being exempt from FBT. Note, however, that this only applies to devices that are primarily used for work, such as laptops, tablets, calculators, GPS navigations receivers and mobile phones.

What is a “small business entity”?

To be a small business entity, the business must satisfy the turnover threshold, which for the 2020–2021 FBT year (1 April 2020 to 31 March 2021) is $10 million. From 1 April 2021 (that is, the 2021–2022 FBT year onwards), the turnover threshold will increase to $50 million.

Therefore, to be a small business entity, the business in question must have had an aggregated turnover in the previous year of less than $10 million for the 2020–2021 FBT year, or $50 million for the 2021–2022 FBT year and onwards. There may also be other tests that the business can satisfy in place of the aggregate turnover test, depending on its circumstances.

When concessions are not available

Businesses that do not satisfy the small business entity tests will not be eligible for the car parking or work-related devices exemption. This means that, generally, the business/employer can only provide one work-related item in each category (ie if the items’ functions are substantially identical) to each employee, each FBT year (unless an additional item is a replacement).

Whether the items have substantially identical functions depends on the facts of each case. For example, the ATO considers that where a tablet can perform the functions of a laptop computer, even in reduced capacity, it has substantially identical functions to a laptop. Thus, either a laptop or a tablet may be provided to each employee for each FBT year, but not both.

As for car parking fringe benefits, where a business is not considered to be a small business or where it provides car parking to employees in a commercial car park, the business will not be exempt and will bear the extra administrative burden of having to work out whether it is liable for car parking fringe benefits, and if so, the amount of FBT it is liable for.

Where a business does not satisfy the definition of a small business entity in the current FBT year, this may be worth a revisit in the 2021–2022 FBT year when the threshold will have increased – the business may then be eligible to receive these FBT exemptions as well as other tax concessions.

New insolvency rules commence

Important changes to Australia’s insolvency laws commenced operation on 1 January 2021. The Government has called these the most important changes to Australia’s insolvency framework in 30 years.

The measures apply to incorporated businesses with liabilities less than $1 million. The intention is that the rules change from a rigid “one size fits all” model to a more flexible “debtor in possession” model, which will allow eligible small businesses to restructure their existing debts while remaining in control of their business. For those businesses that are “unable to survive”, a new simplified “liquidation pathway” will apply for small businesses to allow faster and lower-cost liquidation.

The changes were enacted by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020.

The measures are expected to cover around 76% of businesses currently subject to insolvency, 98% of which have fewer than 20 employees. The new rules do not apply to partnerships or sole traders.

Treasury factsheet

On 24 December 2020, Treasury released a factsheet entitled Simplified Debt Restructuring: a factsheet for small business. It states that to be eligible to access this new process a company must:

  • be incorporated under the Corporations Act 2001;
  • have total liabilities which do not exceed $1 million on the day the company enters the process – this excludes employee entitlements;
  • resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed; and
  • appoint a small business restructuring practitioner to oversee the restructuring process, including working with the business to develop a debt restructuring plan and restructuring proposal statement.

A list of restructuring practitioners that can undertake this work is available on the Australian Securities and Investments Commission (ASIC) website.

The temporary insolvency and bankruptcy protections were extended until 31 December 2020 (having otherwise been due to expire in September 2020). To access the relief, companies were required to declare their intention to access the restructuring provisions by publishing the declaration on the published notices website from 1 January 2021. Companies must also notify ASIC within five business days that they have made this declaration.

From the date a declaration is published, temporary relief from insolvent trading liability and responding to statutory demands from creditors applies to the business for up to three months. The ability to declare such an intention will be available until 31 March 2021.

ASIC declaration

ASIC confirms that for a debt restructuring, a company is required to make a declaration that it is eligible to access the new process, which must be published on the ASIC site (and a copy given to ASIC).

Source: https://ministers.treasury.gov.au/ministers/michael-sukkar-2019/media-releases/insolvency-reforms-support-small-businesses-start; https://treasury.gov.au/publication/simplified-debt-restructuring; https://newshub.asic.gov.au/insolvency-laws-for-small-business-are-changing/; https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/temporary-restructuring-relief/.

Client Alert – December 2020

Coronavirus Supplement extended (but reduced)

The Federal Government’s Coronavirus Supplement has been extended for a further three months. The Supplement payments were due to end on 31 December 2020, but the latest extension will allow them to run until 31 March 2021, which will be welcome news for many individuals still struggling with unemployment and other economic difficulties associated with the COVID-19 pandemic. However, the Supplement rate will be further cut from 1 January 2021 to $150 per fortnight.

The supplement was originally introduced in April 2020 at a rate of $550 per fortnight, which effectively doubled the rate of certain social security payments, including JobSeeker, Youth Allowance and Austudy. Individuals eligible for these payments received the full amount of the $550 Coronavirus Supplement on top of their payment each fortnight, lifting the total payment to $1,100 for most people.

The initial supplement was extended until 31 December 2020 at $250 per fortnight, and while the latest extension may be welcome news for unemployed or underemployed Australians, the supplement will now be further reduced to $150 per fortnight from 1 January 2021 (until 31 March 2021).

Previous arrangements that increased the income-free area of the JobSeeker payment to $300 per fortnight will continue from 1 January 2021 to 31 March 2021, meaning that recipients of various payments can earn income of up to $300 per fortnight and still receive the maximum payment rate. The partner income test cut-out will be retained at an increased rate of $3,086.11 per fortnight ($80,238.89 per year), allowing recipients to continue accessing various payments.

Those on various support payments need to also be aware of the return of mutual obligation requirements which apply to recipients in all states and territories except Victoria (at the time of writing). This includes performing tasks and activities in the individual’s Job Plan, attending to tasks in online employment services, and/or attending all appointments with their

employment provider either over the phone, online or in person. Failure to fulfil these mutual obligations could lead to suspensions of payments, and penalties.

Former employees, sole traders and self-employed individuals thinking of applying for the JobSeeker payment should also be aware that the assets test now applies, as well as the liquid assets waiting period, which could see those with savings having to wait up to 13 weeks to receive payments.

Additional $250 Economic Support Payments on the way

Two additional Economic Support Payments of $250 each will soon be available to people who get any one of the following:

  • Age Pension;
  • Carer Allowance;
  • Carer Payment;
  • Commonwealth Seniors Health Card;
  • Disability Support Pension;
  • Double Orphan Pension;
  • Family Tax Benefit Part; or
  • Pensioner Concession Card.

To be eligible for the additional payments, you must receive an eligible payment (or have an eligible card) on:

  • 27 November 2020 to get a $250 payment in December 2020; and
  • 26 February 2021 to get a $250 payment in March 2021.

These additional cash payments follow the two $750 stimulus payments made in April and July 2020 for social security and veteran income support recipients and concession card holders.

ATO advises of PAYG instalment and company tax rate error

On 10 November 2020, the ATO advised that the recent reduction in the company tax rate had not been applied correctly in its systems from 1 July 2020. The error, which resulted in pay-as-you-go (PAYG) instalments being calculated using the former rate of 27.5% and not the correct 26%, affected companies that are base rate entities with an aggregated turnover of less than $50 million.

The ATO has now corrected the error and will issue a new PAYG instalment letter to affected companies reflecting their correct instalment rate or amount.

The ATO says that all future activity statements will have the correct rate applied.

If you have varied your instalment rate or amount, the variation will continue until the start of the next income year. You can continue to vary your activity statements if your rate or amount does not reflect your current trading situation.

Small businesses who have lodged and paid

If you have lodged your activity statements and paid an amount based on the incorrect instalment calculation, the ATO will refund the overpaid amount shortly. No further action is needed.
Small businesses yet to lodge
When you lodge:
• if you choose to lodge based on the current instalment calculation on your activity statement, the ATO will apply the correct rate and refund any excess amount due to the error; or
• if you have intended to vary your instalment rate or amount, you can still vary, and the ATO will not adjust the varied amounts.

ATO post-COVID expectations for businesses

The ATO has recently outlined its expectations for businesses post-COVID. Overall, it warns companies against using loopholes to obtain benefits from the various government stimulus packages and urged them to follow not only the letter of the law, but also the spirit of the law. Specifically, it reminds taxpayers
that measures such as the expanded instant asset write-off and the loss carry-back scheme should not be used in artificial arrangements for businesses to obtain an advantage.
In a recent speech, ATO Second Commissioner of Client Engagement Jeremy Hirschhorn outlined the expectations for businesses, noting that while companies are largely compliant – with 92.5% voluntary compliance at lodgment and 96.3% after compliance activity – the ATO is seeking to increase the percentages to 96% and 98% respectively.
Corporate taxpayers can use ATO information to compare their performance against those of their peers in relation to income tax. The ATO also urges those taxpayers to use its GST analytics tool, which allows businesses to reconcile financial statements to business activity statements (BASs) and to follow its GST best practice governance guide.
Businesses have been entrusted with leading economic recovery via access to a range of government stimulus measures, and with this trust comes increased expectations around corporate behaviour – including tax. Ultimately, Mr Hirschhorn said, a tax system is about underpinning a country’s social contract by collecting the revenue that funds its program and services.

JobMaker Hiring Credit up to $200/week: draft rules

The Federal Government has released an exposure draft of the rules for the JobMaker Hiring Credit, which was announced in the 2020–2021 Budget in October.

JobMaker will take the form of a payment to employers for each new eligible job they create over the next 12 months. It is estimated that the scheme will cost $4 billion and support about 450,000 employees.

Generally, the amount of the JobMaker Hiring Credit payment depends on the age of the eligible additional employee when their employment starts. Employers can receive up to $200 per week for each eligible additional employee aged 16 to 29 years, and up to $100 per week for each eligible additional employee aged 30 to 35 years.

JobMaker starts on 7 October 2020 and ends on 6 October 2022, but payments will only apply for eligible people who commence employment between 7 October 2020 and 6 October 2021 (that is, during the first year).

Explanatory Memorandum – December 2020

Coronavirus Supplement extended (but reduced)

The Federal Government’s Coronavirus Supplement has once again been extended for a further three months, accompanied by an associated cut-in rate. The first extension was due to end on 31 December 2020, but the extension will allow the Supplement to run until 31 March 2021, which will be welcome news for many individuals still struggling with unemployment and other economic difficulties associated with the COVID-19 pandemic. However, recipients should be aware that the Supplement rate will be further cut from 1 January 2021 to $150 per fortnight.
The supplement was originally introduced in April 2020 at a rate of $550 per fortnight, which effectively doubled the rate of certain social security payments, including JobSeeker, Youth Allowance and Austudy. Individuals eligible for these payments received the full amount of the $550 Coronavirus Supplement on top of their payment each fortnight, lifting the total payment to $1,100 for most people.
This initial supplement was legislated to end on 24 September 2020 and was subsequently extended until 31 December 2020, albeit at a reduced rate of $250 per fortnight. While the current extension may be welcome news for those unfortunately unemployed or underemployed Australians, the supplement will be further reduced to $150 per fortnight from 1 January 2021 (until 31 March 2021).

 

Maximum fortnightly payment 25 September to 31 December 2020 Maximum fortnightly payment 1 January 2021 to 31 March 2021
Single, no children $815.70 $715.70
Single, with dependent child or children $862.00 $762.00
Single, 60 or older, after 9 continuous months on payment $862.00 $762.00
Partnered $760.80 $660.80
Single principal carer granted exemption from mutual obligations requirements for certain categories $1,042.10 $942.10

 

Previous arrangements that increased the income-free area of the JobSeeker payment to $300 per fortnight will continue from 1 January 2021 to 31 March 2021, meaning that recipients of various payments can earn income of up to $300 per fortnight and still receive the maximum payment rate. In addition, the partner income test cut-out will be retained at an increased rate of $3,086.11 per fortnight ($80,238.89 per year), allowing recipients to continue accessing various payments.

Those on various support payments need to also be aware of the return of mutual obligation requirements which apply to recipients in all states and territories except Victoria (at the time of writing). This includes performing tasks and activities in the individual’s Job Plan, attending to tasks in online employment services, and/or attending all appointments with their employment provider either over the phone, online or in person. Failure to fulfil these mutual obligations could lead to suspensions of payments, and penalties.

Former employees, sole traders and self-employed individuals thinking of applying for the JobSeeker payment should be aware, in addition, that the assets test now applies, as well as the liquid assets waiting period. The liquid assets waiting period could see those with savings equal to or more than $5,500 (single with no dependants), or $11,000 (partnered or single with dependants) having to wait between one and 13 weeks to receive any payments.

Additional $250 Economic Support Payments on the way

The Social Services and Other Legislation Amendment Coronavirus and Other Measures Bill 2020 received Royal Assent on 13 November 2020 as Act no 97 of 2020.

The Act implements the 2020–2021 Budget measure to pay two $250 Economic Support Payments for eligible income support recipients and concession card holders. These will be made from December 2020 and March 2021. The Act amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure the payments are tax-exempt. They also do not count as income for social security purposes.

These additional cash payments follow the two $750 stimulus payments made in April and July 2020 for social security and veteran income support recipients and concession card holders.

Services Australia advises that the additional Economic Support Payments of $250 will be made to persons who get one of the following:

  • Age Pension;
  • Carer Allowance;
  • Carer Payment;
  • Commonwealth Seniors Health Card;
  • Disability Support Pension;
  • Double Orphan Pension;
  • Family Tax Benefit Part; or
  • Pensioner Concession Card.

However, the additional $250 Economic Support Payments will not be paid to any person who gets $1 or more of the Coronavirus Supplement.

To be eligible for the additional Economic Support Payments, a person must get an eligible payment (or have an eligible card) on:

  • 27 November 2020 to get the December 2020 payment; and
  • 26 February 2021 to get the March 2021 payment.

If a person claims Family Tax Benefit for 2020–2021 as a lump sum, they will get the payment with their lump sum. This will be after they’ve claimed and confirmed their income for the 2020–2021 financial year. Veteran income support recipients will receive the $250 payments from the Department of Veterans’ Affairs (DVA).

Other social security amendments

In addition, the Social Services and Other Legislation Amendment Coronavirus and Other Measures Act 2020 makes temporary changes to the social security legislation regarding when a person may be regarded as independent for Youth Allowance purposes, and creates a temporary pathway for young people who are seeking to qualify as independent for Youth Allowance (Student) purposes. This is intended to encourage seasonal agricultural work.

The Act also introduces a revised Paid Parental Leave work test to acknowledge the impact of COVID-19. Assistance has also been improved for families affected by stillbirth and infant death in respect of payments for newborn children.

Source: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6611%22; 

https://www.servicesaustralia.gov.au/individuals/services/centrelink/economic-support-payment/who-can-get-it

ATO advises of PAYG instalment and company tax rate error

On 10 November 2020, the ATO advised that the recent reduction in the company tax rate had not been applied correctly in its systems from 1 July 2020. The error, which resulted in pay-as-you-go (PAYG) instalments being calculated using the former rate of 27.5% and not the correct 26%, affected companies that are base rate entities with an aggregated turnover of less than $50 million.

The ATO has now corrected the error and will issue a new PAYG instalment letter to affected companies reflecting their correct instalment rate or amount.

Small businesses who have lodged and paid

If you have lodged your activity statements and paid an amount based on the incorrect instalment calculation, the ATO will refund the overpaid amount shortly. No further action is required from these businesses.

If you have varied your instalment amount or rate, you will not be affected by these changes.

Small businesses yet to lodge

When you lodge:

  • if you choose to lodge based on the current instalment calculation on your activity statement, the ATO will apply the correct rate and refund any excess amount due to the error; or
  • if you have intended to vary your instalment rate or amount, you can still vary, and the ATO will not adjust the varied amounts.

The ATO reminds businesses with an amount payable that it has a range of support options available, including the ability to enter into a payment plan.

Future activity statements

The ATO says that all future activity statements will have the correct rate applied.

If you have varied your instalment rate or amount, the variation will continue until the start of the next income year. You can continue to vary your activity statements if your rate or amount does not reflect your current trading situation.

Source: www.ato.gov.au/Newsroom/smallbusiness/General/PAYG-instalments-and-company-tax-rates/

ATO post-COVID expectations for businesses

The ATO has recently outlined its expectations for businesses post-COVID. Overall, it warns companies against using loopholes to obtain benefits from the various government stimulus packages and urged them to follow not only the letter of the law, but also the spirit of the law. Specifically, it reminds taxpayers that measures such as the expanded instant asset write-off and the loss carry-back scheme should not be used in artificial arrangements for businesses to obtain an advantage.

In a recent speech, ATO Second Commissioner of Client Engagement Jeremy Hirschhorn outlined the expectations for businesses, noting that while companies are largely compliant – with 92.5% voluntary compliance at lodgment and 96.3% after compliance activity – the ATO is seeking to increase the percentages to 96% and 98% respectively.

According to the ATO, businesses accessing government stimulus packages should follow not only the letter of the tax law, but also the spirit of the law. It notes, for example, that although there was nothing explicit in the stimulus measure rules that prevented companies from paying executive bonuses or paying shareholders while accessing these benefits, companies are urged to “consider the optics” of such a move. In addition, the other measures encouraging businesses to invest, including the immediate deduction for assets and carry-back losses, should only be used by businesses for the purposes which they were introduced.

Businesses are discouraged from entering into artificial mechanisms to take advantage of the measures – for example, structured transactions where the plant and equipment are not actually used in the business, intellectual property migration with no change in real activity, asset swaps with related parties, and so on. Similarly, loss carry-back should not be used to artificially shift profits (and losses) around company groups.

Further, the ATO encourages companies with complicated tax situations that find themselves under audit to “open communication, engagement and transparency [which] creates space for the parties to work better together to resolve differences and even in circumstances where resolution is not achieved, refine and narrow the issue in dispute”.

Corporate taxpayers can use information published by the ATO to compare their performance against those of their peers in relation to income tax. The ATO also urges those taxpayers to use its GST analytics tool, which allows businesses to reconcile financial statements to business activity statements (BASs) – thus identifying and testing appropriateness of variations or differences – and to follow its GST best practice governance guide.

For businesses unsure of the certainty of their material tax positions, the ATO encourages obtaining assurance commensurate with importance. For example, if the tax position the business has taken is a key piece of the corporate infrastructure, then a private binding ruling should be sought. Mr Hirschhorn noted that it is “an unambiguously bad idea to rely on non-detection by the ATO”.

Businesses have been entrusted with leading economic recovery with access to a range of government stimulus measures, and with this trust comes increased expectations around corporate behaviour – including tax. Ultimately, Mr Hirschhorn said, a tax system is about underpinning a country’s social contract by collecting the revenue that funds its program and services.

Source:

www.ato.gov.au/Media-centre/Speeches/Other/Taxation-in-the-evolving-post-COVID-world/

JobMaker Hiring Credit up to $200/week: draft rules

The Federal Government has released an exposure draft of the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 9) 2020, which sets out details of the JobMaker Hiring Credit rules.

The JobMaker Hiring Credit was announced in the 2020–2021 Federal Budget and legislation to implement the rules, the Economic Recovery Package (JobMaker Hiring Credit) Amendment Act 2020, received Royal Assent on 13 November 2020. The Act contains what may be termed the machinery provisions, while the Statutory Rules contain the nuts and bolts of the system.

The draft Statutory Rules specify:

  • the start and end dates of the scheme;
  • when an employer or business is entitled to a payment;
  • the amount and timing of a payment; and
  • other matters relevant to the administration of the payment.
Overview

Broadly, the JobMaker Hiring Credit will be available to employers for each new job they create over the next 12 months for which they hire an eligible young person, aged 16 to 35 years old. It is expected that JobMaker Hiring Credits will support 450,000 positions at a cost of $4 billion from 2020–2021 to 2022–2023.

Generally, the amount of the JobMaker Hiring Credit payment depends on the age of the eligible additional employee when they commence employment. An entity may receive up to $200 per week for each eligible additional employee aged 16 to 29 years and up to $100 per week for each eligible additional employee aged 30 to 35 years.

The JobMaker scheme commences on 7 October 2020 and ends on 6 October 2022 (ie will run for two years), but only applies to eligible individuals who commence employment between 7 October 2020 and 6 October 2021 (ie during the first year).

An employer will be eligible for a JobMaker payment if:

  • the period is a JobMaker period;
  • the employer qualifies for the JobMaker scheme for the period;
  • the employer has one or more eligible additional employees for the period;
  • the employer has a headcount increase for the period;
  • the employer has a payroll increase for the period;
  • the employer has notified the ATO of its election to participate in the scheme;
  • the employer has given information about the entitlement for the period to the Commissioner of Taxation in accordance with the requisite reporting requirements (to be determined by the ATO); and
  • the employer is not entitled to a JobKeeper payment for an individual for a fortnight that begins during the period.

There is also scope for anti-avoidance measures (as one could imagine that all sorts of arrangements could be dreamt up to access the payment) as well as record-keeping requirements.

The logistics of the JobMaker Hiring Credit are somewhat technical (unfortunately necessitating the following long discussion). Indeed, the provisions dealing with calculating the entitlement amount are almost baffling.

Note that, while JobMaker is limited to new employees aged 16 to 35, there are other wage subsidies already on offer from the Government.

Comments on the draft Statutory Rules were due by 27 November 2020.

JobMaker periods

Entitlement to a JobMaker Hiring Credit payment is assessed in relation to three-month periods known as “JobMaker periods”. Accordingly, each of the following is a JobMaker period (inclusive):

  • 7 October 2020 to 6 January 2021;
  • 7 January 2021 to 6 April 2021;
  • 7 April 2021 to 6 July 2021;
  • 7 July 2021 to 6 October 2021;
  • 7 October 2021 to 6 January 2022;
  • 7 January 2022 to 6 April 2022;
  • 7 April 2022 to 6 July 2022; and
  • 7 July 2022 to 6 October 2022.

It can be seen that there are eight JobMaker periods. Note that the distinction between periods 1 to 4 and periods 5 to 8 becomes relevant later in the following discussion.

Qualifying employers

The JobMaker Hiring Credit payment is only available to “qualifying entities”. An entity is a qualifying entity in respect of a JobMaker period if, from the time it elected to participate in the scheme, it:

  • carries on a business in Australia;
  • has an Australian Business Number (ABN); and
  • is registered to withhold pay-as-you-go (PAYG).

The payment is also available to certain non-profit bodies and deductible gift recipients (DGRs). Note that Australian universities may also participate in the scheme.

The term “business” applies as it is used in the Income Tax Assessment Act 1997 (ITAA 1997). GST pundits will notice that this is narrower than the “carrying on an enterprise” test used in that legislation.

Entities must be up to date with lodgments – at the time an entity gives information to the Commissioner about its entitlement for a JobMaker period, the entity cannot have any outstanding income tax or GST returns that have become due in the past two years.

The ATO will require that information be provided through single touch payroll (STP). Entities that are not enrolled in STP will not qualify for JobMaker payments.

Certain entities are specifically excluded from eligibility:

  • those who have been subject to the levy imposed by the Major Bank Levy Act 2017 for any quarter ending before 1 October 2020 (or where a consolidated group member had been subject to the levy);
  • any Australian government agency or local governing body (or wholly-owned entity of those);
  • sovereign entities; and
  • those where a provisional liquidator or liquidator has been appointed to the business or a trustee in bankruptcy had been appointed to the individual’s property at any time in the fortnight.

Those who have clients who may be getting close to a financial cliff will be most interested in this last category.

One more additional employees for the period

To be eligible, an employer must have one or more eligible additional employees for a JobMaker period. An “eligible additional employee” is an individual who:

  • was employed by the qualifying entity at any time during the JobMaker period;
  • commenced employment between 7 October 2020 and 6 October 2021;
  • was aged between 16 and 35 years at the time they commenced employment (note that there are split rates depending on the age of the individuals at the commencement of their employment);
  • commenced employment no more than 12 months before the start of the JobMaker period;
  • has worked an average of 20 hours a week for each whole week the individual was employed by the qualifying entity during the JobMaker period;
  • meets the pre-employment conditions;
  • meets the notice requirement; and
  • is not excluded by the rules.

Two important limitations flow from these conditions.

First, the requirement that an employee must commence employment between 7 October 2020 and 6 October 2021 means that the JobMaker Hiring Credits payment is only available for additional employment that occurs within this 12-month period.

Second, the requirement that an employee commenced employment no more than 12 months before the start of a particular JobMaker period means that employers can only claim the JobMaker Hiring Credit payment for a particular employee for up to 12 months (ie from the time they commence employment). After 12 months, the employer can no longer receive payments in relation to that employee. However, employers can continue to qualify for payments in relation to another eligible additional employee who commenced their employment at a later time. This is the reason that, while scheme only applies for employment commenced up to 6 October 2021, payments can continue to operate until 6 October 2022 (ie JobMaker Period 8).

Pre-employment condition: recipients of social security

The pre-employment condition is that for at least 28 of the 84 days (ie for four out of 12 weeks) immediately before the commencement of employment of the individual, the individual was receiving one of the following payments under the Social Security Act 1991:

  • Parenting Payment;
  • Youth Allowance (except if the individual was receiving this payment on the basis that they were undertaking full-time study or were a new apprentice); or
  • JobSeeker Payment.
Notice requirement

The notice requirement for an eligible additional employee is that the individual must give written notice to the employer in the approved form that the individual:

  • met one of the applicable age requirements at the time they commenced employment (ie they were aged either between 16 and 29, or between 30 and 35);
  • meets the pre-employment condition; and
  • has not provided a similar notice to another entity.

This notice requirement allows qualifying entities to rely on declarations made by the employee regarding their satisfaction of the pre-employment condition and that they are not nominated by another entity to receive the JobMaker Hiring Credit payment. Under no circumstances are employees permitted to have valid notices with multiple employers at the same time.

This does provide some relief for employers – the onus very much rests with the employee to make full and true disclosures.

Excluded persons

There are two broad categories of individuals excluded from qualifying as an eligible additional employee.

The first, not unexpectedly, are relatives of the employer, namely:

  • if the entity is a sole trader – the sole trader;
  • if the entity is a partnership – a partner of the partnership;
  • if the entity is a trust – the trustee or beneficiary of that trust; or
  • if the entity is a company (other than a widely-held company) – a shareholder in the company or a director of the company.

The term “relative” means the same as in s 995-1 of the ITAA 1997. The exclusion of relatives applies on a look-through basis, where interposed entities are disregarded for the purposes of the test.

The second exclusion applies to contractors. Specifically, an individual is also excluded from being an eligible additional employee if, at any time between 6 April 2020 and 6 October 2020, the individual was engaged by the entity as a contractor or a subcontractor where they worked in a substantially similar role or performed substantially similar functions or duties.

Headcount increase for a JobMaker period

An entity has a headcount increase for a period if the number of employees employed by the entity at the end of the last day of the JobMaker period is greater than the entity’s “baseline headcount” for the period. This excess or increase in employees in comparison to baseline headcount is the “headcount increase amount”.

Note, though, that to be entitled to the JobMaker Hiring Credit payment for a period, an entity must have at least one employee for whom the entity is not entitled to receive the JobMaker Hiring Credit payment. This means that, for example, an entity cannot be a sole trader and employ themselves to receive the JobMaker Hiring Credit payment (ie there must be additional employees).

For the first four JobMaker periods (7 October 2020 to 6 January 2021, 7 January 2021 to 6 April 2021, 7 April 2021 to 6 July 2021, and 7 July 2021 to 6 October 2021), the entity’s baseline headcount will be the greater of one and the number of employees employed by the entity at the end of 30 September 2020.

In other words, additional employment for the first four JobMaker periods is measured by reference to the number of employees on the books as at 30 September 2020.

For the last four JobMaker periods (ie 7 October 2021 to 6 January 2022, 7 January 2022 to 6 April 2022, 7 April 2022 to 6 July 2022, and 7 July 2022 to 6 October 2022), reference is made to the corresponding period 12 months earlier or the increase of the previous period, whichever is higher. Special rules apply to working out headcount increase amount for JobMaker Period 5 to Period 8 (but, at this point, this can be next year’s problem).

Payroll increase for a JobMaker period

An entity’s “total payroll amount” must be greater than its “baseline payroll” for a JobMaker period to qualify for a JobMaker payment.

The amount for each category is referable to:

  • salary, wages, commission, bonuses and allowances;
  • amounts withheld under PAYG;
  • salary sacrifice superannuation contributions; and
  • amounts applied or dealt with in any way where the employee has agreed for the amount to be so dealt with in return for salary and wages to be reduced (ie amounts forming part of salary sacrifice arrangements).

An entity’s total payroll amount for a JobMaker period is the sum of payroll amounts (ie the above) for each of the entity’s employees, for each pay cycle that ended during the JobMaker period.

An entity’s baseline payroll amount is the sum of those amounts for a reference period that ended on or immediately before 6 October 2020 (by reference to an equivalent number of pay cycles as the number of pay cycles in the JobMaker period).

The Explanatory Material (EM) to the draft Statutory Rules states that “the payroll amount is worked out as the excess of the entity’s payroll amount for a JobMaker period from the baseline payroll amount”. Presumably this should read that the payroll amount is worked out as the excess of the entity’s total payroll amount for a JobMaker period from the baseline payroll amount. This is used in the formula to work out the amount of the JobMaker payment.

Where the payroll amount for a JobMaker period is less than or equal to the reference period payroll amount, the entity may not claim a JobMaker Hiring Credit for that JobMaker period. This reflects that in such cases, the entity has not had a substantive increase in their overall employment levels, irrespective whether it has nominally increased the number of its employees.

In other words, it is presumably designed to prevent employers cutting the wages of existing employees to take on new employees so as to access JobMaker payments.

Amount of JobMaker payment

This is where the draft Statutory Rules start to get quite complex. The amount of a payment that a qualifying entity may receive in relation to a JobMaker period is the lesser of:

  • the headcount amount; and
  • the payroll amount.

The EM states that it is expected that the ATO will establish systems to automate the calculation of the payroll amount “for most employers”. This is, to quote the EM, “because the calculations only rely on inputs relating to start and cessation times, the age of eligible employees at the time they commenced employment, the entity’s baseline headcount and payroll on 30 September 2020 and the entity’s headcount and payroll at the end of the period”.

The payroll amount is the excess of the entity’s total payroll amount for a JobMaker period from the baseline payroll amount, as already discussed.

The headcount amount is worked out as follows. This is taken largely verbatim from the EM, so please do not blame the writer!

It is worked out on a daily basis, ie in the JobMaker period. In working out the headcount amount, different calculations apply based on whether an eligible additional employee is aged from 16 to 29, and from 30 to 35. For these two groups, the higher rate of payment is $200 per week, and the lower rate of payment is $100 per week. The headcount amount based on the total counted days in a period is capped by the maximum payable days as worked out below.

To calculate the headcount amount for a period under the formula, the entity should:

  • Step 1: count the number of higher rate days for the JobMaker period by adding together the number of days each higher rate eligible additional employee was employed in the period – these individuals are those who were aged 16 to 29 years (inclusive) at the commencement of their employment;
  • Step 2: count the number of lower rate days for the JobMaker period by adding together the number of days each lower rate eligible additional employee was employed in the period – these individuals are those who were aged 30 to 35 years (inclusive) at the commencement of their employment;
  • Step 3: count the number of maximum payable days for the JobMaker period by subtracting the entity’s baseline headcount from the number of employees employed by the entity at the end of the last day of the period, and multiply this by the number of days in the period. For example, for the JobMaker period of 7 October 2020 to 6 January 2021 (dates inclusive), there are 92 days.

Where the sum of steps 1 and 2 (total counted days) is equal to or less than the maximum payable days for the period, the headcount amount in a JobMaker period is the sum of:

  • the amount derived by multiplying the higher rate days for the period by $200, dividing the result by seven (for the number of days in a week) and rounded up to the nearest cent; and
  • the amount derived by multiplying the lower rate days for the period by $100, dividing the result by seven (for the number of days in a week) and rounded up to the nearest cent.

However, if the total counted days (sum of the higher rate days and the lower rate days) exceeds the cap imposed by the maximum payable days, the counted days are reduced to the number of maximum payable days by:

  • reducing the lower rate days; then
  • reducing the higher rate days.

Accordingly, it is possible for the maximum payable days to cap the total counted days for a JobMaker period to the effect that there are only higher rate days used for the calculation and no lower rate days. After applying the cap imposed by the maximum payable days, the headcount amount is worked out according to the above formula.

Participation and notification requirements

To be entitled to the JobMaker Hiring Credit payment in relation to a JobMaker period, the entity must have notified the Commissioner in the approved form of its election to participate in the scheme by the end of the period that the entity first elects to participate.

For example, for an entity that elects to participate for the JobMaker period of 7 October 2020 to 6 January 2021, the notice must be provided to the Commissioner by 6 January 2021.

The reporting requirements will include information required by the ATO to calculate the entity’s entitlement for a period. This will include the details of employees that have commenced or ceased employment during a JobMaker period and the entity’s payroll amount. The information must be provided through STP.

Interaction with JobKeeper

An entity cannot participate in the JobMaker scheme if they are entitled to receive a JobKeeper payment in respect of an individual for a JobKeeper fortnight that begins during the JobMaker period. This ensures that an entity cannot participate in both the JobKeeper scheme and JobMaker scheme simultaneously.

The prohibition on JobKeeper fortnights that begin during a JobMaker period allows an entity to have a single JobKeeper fortnight that ends at the start of a JobMaker period.

Permitting this overlap allows an entity to cease its participation in the JobKeeper scheme and begin its participation in the JobMaker scheme without requiring a “gap” between the two schemes. Preventing a JobKeeper fortnight from starting in a JobMaker period ensures that any such overlap is always limited to a part of a single JobKeeper fortnight. According to the EM, this reflects that any transition between the two schemes must be limited and temporary in nature.

Anti-avoidance

There are no specific anti-avoidance rules in the draft Statutory Rules, but the EM states that the types of arrangements that would be prevented are “varied”. They could include “arrangements where an employer artificially inflates their employee headcount and/or payroll for a JobMaker period (for example, by terminating, or reducing the hours of, an existing older employee in order to make it appear that they have hired additional employees where there has been no substantive increase in their overall employment levels)”.

Source: https://treasury.gov.au/consultation/c2020-120993; https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6609%22.

 

Explanatory Memorandum – November 2020

Budget personal tax cuts and business concessions now law

The Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 received Royal Assent on 14 October 2020 as Act No 92 of 2020. It implements several tax announcements from the 2020 Federal Budget.

Importantly, the Act brings the personal tax cuts (Stage 2) forward to 1 July 2020. From that date, the top threshold of the 19% personal income tax bracket is increased from $37,000 to $45,000. The top threshold of the 32.5% tax bracket is increased from $90,000 to $120,000. The Act also brings forward to 2020–2021 the increase in the low income tax offset (up to $700). The low and middle income tax offset (up to $1,080) is retained for 2020–2021.

It also expands a range of tax concessions currently available to small businesses (turnover under $10 million) to be made available to medium sized businesses (turnover $10 million to $50 million). Businesses with turnover less than $5 billion are also able to deduct the full cost of eligible depreciating assets that are installed ready for use between 6 October 2020 and 30 June 2022.

Implement new PAYG withholding rates by 16 November

The ATO issued updated tax withholding schedules on 13 October 2020 to reflect the 2020–2021 income year personal tax cuts. The ATO acknowledges that, as the changes to withholding were been made partway through the income year, employers were unable to immediately implement them in their payroll. However, employers must make sure they are withholding the correct amount from salary or wages paid to employees for any pay runs processed in their systems from no later than 16 November onwards.

Employees and other payees will receive their entitlement to the reduced tax payable for the entire 2020–2021 income year when they lodge their income tax returns for that period (on the basis of their full-year taxable income).

Tables that continue to apply unchanged from 13 October 2020 include those relating to:

  • study and training support loans;
  • return to work payments;
  • payments made under voluntary agreements; and
  • an agreement to increase withholding.

There are also separate tables for the Seasonal Worker and Pacific Labour Scheme.

Source: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6610%22; www.ato.gov.au/Rates/Tax-tables/; www.ato.gov.au/Media-centre/Media-releases/It-s-time-for-employers-to-update-their-payroll-processes-to-apply-tax-cuts/.

Working from home “shortcut” deduction extended

The ATO has updated Practical Compliance Guideline PCG 2020/3 to extend the availability of the “shortcut” 80 cents per hour rate for claiming work-from-home running expenses. This shortcut deduction rate will now be available until at least 31 December 2020 (it was previously extended to 30 September 2020).

As amended, PCG 2020/3 now allows eligible taxpayers to claim additional running expenses incurred between 1 March 2020 and 31 December 2020 at the rate of 80 cents per work hour, provided they keep a record of the number of hours worked from home. Taxpayers eligible to use the shortcut rate are employees and business owners who:

  • work from home to fulfil their employment duties or to run their business during the period from 1 March 2020 to 31 December 2020; and
  • incur additional running expenses that are deductible under s 8-1 or Div 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

Source: www.ato.gov.au/law/view/view.htm?docid=%22COG%2FPCG20203%2FNAT%2FATO%2F00001%22.

JobKeeper decline in turnover tests

On 21 October 2020, the ATO issued an addendum to Law Companion Ruling LCR 2020/1 on the JobKeeper decline in turnover test. The ruling has been updated to make it clear that it covers the original test (introduced by the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020) and does not include guidance on applying the “actual decline in turnover” test (which is an additional requirement for JobKeeper fortnights from 28 September 2020). The ruling has also been amended to reflect legislative changes made to the original test by the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 8) 2020.

The addendum confirms that if an entity satisfied the original decline in turnover test for JobKeeper fortnights before 28 September 2020, it does not need to satisfy the original test again for the JobKeeper extension (but does need to consider whether the actual decline in turnover test is satisfied).

Where an entity is seeking to enrol in the JobKeeper scheme for the first time for fortnights from 28 September 2020, it will need to satisfy both tests. However, for entities other than universities that are Table A providers, the ATO will treat the original decline in turnover test as satisfied if the actual decline in turnover test is satisfied for one turnover test period.

The addendum applies from 21 October 2020.

Temporary trading cessation rules

The ATO also registered the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Amendment Rules 2020 (the latest alternative rules) on 9 October 2020, for the purposes of the revised JobKeeper payment system which commenced on 28 September 2020. These latest rules add an alternative “decline in turnover” test which is available for entities that temporarily ceased trading for some or all of the relevant comparative period.

Under the revised tests for JobKeeper eligibility, the entity must have had an actual decline in its turnover for the applicable quarter relative to the same quarter in 2019. This will generally involve a one-to-one comparison of the 2020 numbers to those in the corresponding period in 2019, to see if it exceeds the 15%, 30% or 50% threshold(s) (depending the type of entity).

Alternative tests can be used (and in fact can only be used) if there is not an “appropriate relevant comparison period” in 2019. The ATO registered the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules (No 2) 2020 on 23 September 2020 (the No 2 alternative rules), which set out the alternative tests that can be used to determine if the decline in turnover test is satisfied.

Note that if an entity qualifies under what may be termed the “standard” turnover tests, it does not need to consider the application of alternative tests. Similarly, if more than one “alternative” decline in turnover test applies to an entity, it only has to satisfy one of them.

Requirements

As already stated, the latest alternative rules add an additional alternative decline in turnover category. There were seven categories in the No 2 alternative rules, so there are now eight categories available to employers.

Four requirements must be satisfied before an entity can use the “temporary cessation of business” alternative tests:

  • the entity’s business had temporarily ceased trading due to an event or circumstance outside the ordinary course of the entity’s business;
  • trading temporarily ceased for a week or more;
  • some or all of the relevant comparison period occurred during the time in which the entity’s business had temporarily ceased trading; and
  • the entity’s business resumed trading before 28 September 2020.

If these four requirements are satisfied, the entity can apply either of the alternative tests.

The explanatory statement (ES) states that “temporarily ceasing to trade” includes where a business ceases to make supplies or cannot otherwise offer its goods and services to customers. It does not require that the entity stopped carrying on business, but does require “a suspension of the ordinary activities of the business while it is still carrying on business due to some event or circumstance outside the ordinary course of business”.

The ES says that an example of a circumstances being outside the ordinary course of business would be where an entity that runs from a purpose-built premises ceased trading for an extended period of time to move into new premises.

The rules impose a minimum of one week; that is, the entity must have temporarily ceased trading for a period of not less than a week. The week’s minimum is necessary, according to the ES, as “short events” such as blackouts and taking several days to move premises are not outside the “ordinary business setting”. This highlights the potential “greyness” of this alternative test – for example, that a move into purpose-built premises taking more than a week would enable an entity to qualify, but a move into premises taking close to a week would not.

The ES lists a number of other events that would not qualify an entity to use the alternative tests:

  • blackouts;
  • moves taking several days;
  • ceasing trade at the end of a business day, on weekends and public holidays;
  • ceasing trade during the off-season of a seasonal business; or
  • ceasing trade because a sole trader (or partner in a small partnership) goes on planned leave for all or part of the relevant comparison period.

It is important to remember that other categories may be available if the requirements for temporary cessation are not met. For example, businesses with seasonal turnover may qualify under the alternative category that applies to businesses with irregular turnover. Similarly, there is an alternative category available for sole traders or small partnerships that covers annual leave (and sickness, injury, etc).

Alternative tests

If an entity satisfies the temporary cessation requirements, it may apply either of the following tests:

  • First alternative test: compare its current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover for the same period in the year immediately before the business temporarily ceased trading. The earlier period will be a more appropriate period to use than the relevant comparison period in 2019 due to the temporary cessation of trade. For example, this could involve going back to 2018 instead.
  • Second alternative test: compare its current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover of the three whole months immediately before the month that the business temporarily ceased trading (or the whole month where the relevant comparison period is a month rather than a quarter). So, assuming the cessation was in September 2019, the entity could look at turnover in June, July and August 2019 for that quarter.

An eligible entity can use either test, entirely at its own discretion.

Special provision is made for entities that qualified for the ATO’s bushfires 2019–2020 lodgment and payment deferrals, or who received Drought Help concessions. Entities may use the nearest month before or after the relevant period(s), as appropriate.

Source: www.ato.gov.au/law/view/document?docid=COG/LCR20201A3/NAT/ATO/00001; www.legislation.gov.au/Details/F2020L01295; www.legislation.gov.au/Details/F2020L01200.

Data-matching program: apprentices and trainees

The Department of Education, Skills and Employment (DESE) has commenced a new ongoing data-matching program with the ATO in relation to the Supporting Apprentices and Trainees (SAT) measure. The program seeks to confirm the eligibility of employers receiving the subsidy, as well as stamp out any potential double-dipping of government assistance. It is estimated that around 117,000 apprentices and trainees and more than 70,000 employers could be affected.

Under SAT, employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage paid until 31 March 2021. To be eligible, an apprentice must have been in an Australian apprenticeship with a small business as at 1 March 2020. The SAT program has since been expanded to include medium sized businesses that had an apprentice in place on 1 July 2020. Employers of any size who re-engage an eligible out-of-trade apprentice are also eligible to claim the SAT wage subsidy. However, there are restrictions on when an employer can claim SAT for an eligible apprentice.

The objective of the new data-matching program, as stated by the DESE, is to confirm that an employer is eligible to receive the SAT subsidy and to validate information provided by the employer. It also seeks to confirm that employers are not claiming both SAT and JobKeeper support at the same time for the same employee.

It is estimated that data relating to around 117,000 apprentices and trainees and more than 70,000 employers will be transferred between DESE and the ATO. While the first data-matching activity is intended to be conducted as soon as possible, it is expected the program will be ongoing, with data transfer to occur at regular intervals as required over the life of the SAT measure.

The data-matching will occur in several steps. The DESE will first provide the ATO with information relating to employers and apprentices that has been extracted from DESE systems, including the Training and Youth Internet Management System (TYIMS) and SmartForms completed by employers. The ATO will match that information against its own data holdings and identify employers that claimed eligibility for SAT as a small business or claimed the SAT wage subsidy and the JobKeeper at the same time for the same individual.

To avoid mistakes, the ATO will be using sophisticated matching techniques which use multiple details to obtain an identity match (eg name, address, date of birth). Additional manual processes may also be undertaken where a high-confidence identity match does not occur. This involves an ATO officer reviewing and comparing third-party data identity elements against ATO information on a one-on-one basis, seeking sufficient common indicators to allow confirmation (or not) of an individual’s or business’s identity.

The DESE will then use the information sourced from the ATO to verify its own data holding, and a manual process will be undertaken by a DESE officer to compare the information. All discrepancies and anomalies will be dealt with on a case-by-case basis.

In instances where the DESE detects a discrepancy or an anomaly that requires verification, it will contact the business and provide them with an opportunity to verify the accuracy of the information on which the eligibility was based. According to the DESE, businesses will be given at least 28 days to respond and any relevant individual circumstances will be taken into consideration.

Small business tax options during COVID-19: ATO reminder

The ATO has reminded businesses impacted by COVID-19 that they have a range of tax options to consider, including claiming a deduction for any losses.

ATO Assistant Commissioner Andrew Watson said small business owners feeling overwhelmed or getting behind with their tax should contact the ATO as early as possible to find a solution. “No matter what your situation is, it’s never too late to ask for help”, Mr Watson said.

Tax losses

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year. Otherwise, the loss can be deferred or carried forward and offset in a future year when the business next makes a profit. The ATO also notes that businesses set up under a company structure that have made a tax loss in a current year can generally carry forward that loss for as long as they want.

Of course, it is crucial that businesses keep proper records when claiming a deduction for losses. While records must be kept for five years for most transactions, if a tax loss is fully deducted in a single income year, records only need to be kept for four years from that income year. However, there are some deductions that can’t be used to create or increase a tax loss, such as donations or gifts and personal super contributions.

For businesses finding it difficult to estimate income for the purposes of PAYG instalments, the ATO will not apply penalties or interest for excessive variations for businesses that make a “best attempt” to estimate their end-of-year tax.

Closing a small business

The ATO has acknowledged that some businesses may need to close their doors – either temporarily or permanently – due to COVID-19, particularly in Victoria. It calls on such businesses that are closing temporarily to “do their best to keep up with tax and super obligations”.

If a business is forced to close permanently as a result of COVID-19, or for any other reason, it must still lodge any outstanding activity statements and instalment notices, make GST adjustments on the final activity statement and lodge final tax returns. This will enable the ATO to finalise the taxpayer’s account and issue any refunds that might be owed.

Once the entity’s tax affairs are finalised, the ABN and GST registration should also be cancelled. Business records must be kept for at least five years after the end of the financial year in which a business is sold or closed.

Source: www.ato.gov.au/Media-centre/Media-releases/Businesses-doing-it-tough-through-COVID-19-reminded-of-tax-options/.

Insolvency reforms announced for small businesses

The Government has announced that it will introduce insolvency reforms to help small businesses restructure in response to COVID-19. Key elements of the reforms include:

  • the introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on key features from Chapter 11 of the US Bankruptcy Code;
  • moving from a one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model which will allow eligible small businesses to restructure their existing debts while remaining in control of their business;
  • providing a rapid 20-business day period for the development of a restructuring plan by a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan; and
  • creating a new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.

Treasurer Josh Frydenberg said the reforms will cover around 76% of businesses subject to insolvencies today, 98% of whom who have less than 20 employees. Further details are set out in a Government fact sheet.

The Government said safeguards will be included to prevent companies from using the new processes to undertake corporate misconduct, including firms seeking to carry out illegal phoenix activity. This will include allowing creditors to convert the liquidation back to a “full” process, and preventing directors from using the process more than once within a prescribed period (proposed at seven years). Company directors seeking to use the process would also be required to declare that they believe the company is eligible and has not engaged in illegal phoenixing.

Complementary measures will also seek to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to meet the needs of small business.

The new insolvency processes are proposed to be available from 1 January 2021.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/insolvency.

JobKeeper payments satisfy “work test” for super contributions

The Australian Prudential Regulation Authority (APRA) has published a new frequently asked question (FAQ) on the interaction between JobKeeper payments and satisfying the “work test” for the purpose of voluntary superannuation contributions.

Where an individual is aged 67–74 and is stood down from their employment due to the impacts of COVID-19 but is in receipt of the JobKeeper payment, APRA says a super fund trustee can accept a personal contribution from that individual under the “work test” rules in reg 7.04 of the Supernnuation Industry (Supervision) Regulations 1994 (SIS Regulations).

APRA’s view is that where an employer is receiving the JobKeeper wage subsidy for an individual, registrable superannuation entity (RSE) licensees should consider the individual to be “gainfully employed” for the purposes of the “work test”, even if that individual has been fully stood down and is not actually performing work. In APRA’s view, it is appropriate for an RSE licensee to take this approach because the individual is still employed and is obtaining a valuable benefit from their employer.

APRA has also said that RSE licensees do not need to distinguish between individual members on JobKeeper who are working reduced hours and those who have been stood down, but can assume that all members in receipt of the JobKeeper subsidy satisfy the “work test”.

Source: www.apra.gov.au/frequently-asked-questions-superannuation-trustees-response-to-covid-19.

SMSF asset valuations: concession during COVID-19

The ATO has advised that it will not apply a penalty for self managed super fund (SMSF) trustees that have difficulty in obtaining evidence to support market valuations of assets due to COVID-19.

SMSF trustees are required to provide objective and supportable evidence to their auditor each year to establish that assets of the fund are valued at market value in compliance with the Supernnuation Industry (Supervision) Regulations 1994 (SIS Regulations). To satisfy this requirement, the valuation evidence should be provided in accordance with the ATO’s Valuation guidelines for self-managed super funds.

During the 2020 and 2021 financial years, the ATO will not apply a penalty if it is satisfied that the difficulty in obtaining valuation evidence is due to COVID-19. Instead, the ATO will send the SMSF trustee a letter advising them to ensure they comply with the ATO’s valuation guidelines and have supporting valuation evidence by the time of their next audit if possible. The ATO warns that repeated contraventions of the valuation evidence requirements could lead to penalties.

If a trustee has difficulty obtaining valuation evidence due to COVID-19, the SMSF auditor should still consider modifying Part B of the audit report and lodge an auditor/actuary contravention report (ACR) if necessary. The auditor should also provide reasons on the ACR as to why the trustee was unable to obtain the appropriate evidence.

Source: www.ato.gov.au/Super/Sup/Regulation-8-02B-and-evidence-required-to-support-real-property-valuations/; www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/Valuation-guidelines-for-self-managed-super-funds/.

Digital AGMs and signatures: legislative determination

The Government has registered the Corporations (Coronavirus Economic Response) Determination (No 3) 2020, which extends until March 2021 the ability for companies to convene annual general meetings (AGMs) and other Corporations Act 2001 prescribed meetings entirely online.

This determination has the same substantive provisions as first implemented. It allows company boards to:

  • provide notice of AGMs to shareholders using email;
  • achieve a quorum with shareholders attending online; and
  • hold AGMs meetings online – shareholders will be able to put questions to board members online and vote online.

The determination also extends the use of electronic signature by company officers to meet the requirements for a signature.

The determination is effective from 23 September 2020, and is currently set to be repealed in six months, on 22 March 2021.

Source: www.legislation.gov.au/Details/F2020L01194.

Client Alert – November 2020

Budget personal tax cuts and business concessions now law

Several tax announcements from the 2020 Federal Budget have now been passed into law.

These include bringing forward changes to the personal income tax thresholds so that they apply from 1 July 2020. From that date, the top threshold of the 19% personal income tax bracket is increased from $37,000 to $45,000. The top threshold of the 32.5% tax bracket is increased from $90,000 to $120,000. The low income tax offset increases to $700 and the low and middle income tax offset (up to $1,080) is retained for 2020–2021.

A range of tax concessions already available to small businesses have been extended to medium sized businesses as well, and businesses with turnover less than $5 billion can deduct the full cost of eligible depreciating assets that are installed ready for use between 6 October 2020 and 30 June 2022.

Implement new PAYG withholding rates by 16 November

The ATO has issued updated tax withholding schedules to reflect the 2020–2021 income year personal tax cuts. Employers must now make sure they are withholding the correct amounts for pay runs processed in their systems from no later than 16 November onwards.

With these changes coming partway through the income year, employees and other payees will receive their entitlement to the reduced tax payable for the entire 2020–2021 year when they lodge their income tax returns for that period.

Working from home “shortcut” deduction extended

The ATO advises that the “shortcut” rate for claiming work-from-home running expenses has been extended, in recognition that many employees and business owners are still required to work from home due to COVID-19 This shortcut deduction rate was previously extended to 30 September 2020, but will now be available until at least 31 December 2020.

Eligible employees and business owners, therefore, can choose to claim additional running expenses incurred between 1 March 2020 and 31 December 2020 at the rate of 80 cents per work hour, provided they keep a record (such as a timesheet or work logbook) of the number of hours worked from home during the period.

JobKeeper decline in turnover tests: temporary trading cessation

An additional category for alternative “decline in turnover” tests is now available for the purposes of the revised JobKeeper payment system (which commenced on 28 September 2020) for entities that temporarily ceased trading for some or all of the relevant comparative period.

Under the revised system, an entity must have had an actual decline in its turnover for the applicable quarter relative to the same quarter in 2019. This generally involves making a one-to-one comparison of the 2020 numbers to those in the corresponding period in 2019, to see if it exceeds the 15%, 30% or 50% decline threshold (depending the type of entity).

Alternative tests can only be used if there is not an “appropriate relevant comparison period” in 2019, and four requirements must be satisfied for an entity to use the alternative tests for the new “temporary cessation of business” category. That is, in the comparison period:

  • the entity’s business had temporarily ceased trading due to an event or circumstance outside the ordinary course of the entity’s business;
  • trading temporarily ceased for a week or more;
  • some or all of the relevant comparison period occurred during the time in which the entity’s business had temporarily ceased trading; and
  • the entity’s business resumed trading before 28 September 2020.

Data-matching program: apprentices and trainees

The Department of Education, Skills and Employment (DESE) has commenced a new ongoing data-matching program with the ATO in relation to the Supporting Apprentices and Trainees (SAT) measure. The program seeks to confirm the eligibility of employers receiving the subsidy, as well as stamp out any potential double-dipping of government assistance (for example, claiming both SAT and JobKeeper support at the same time for the same employee).

Under SAT, employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage paid until 31 March 2021. To be eligible, an apprentice must have been in an Australian apprenticeship with a small business as at 1 March 2020. SAT has since been expanded to include medium sized businesses that had an apprentice in place on 1 July 2020. Employers of any size who re-engage an eligible out-of-trade apprentice are also eligible to claim the SAT wage subsidy. However, there are restrictions on when an employer can claim SAT for an eligible apprentice.

Data relating to around 117,000 apprentices and trainees and more than 70,000 employers will be transferred between DESE and the ATO. The program will be ongoing, with data transfer to occur at regular intervals as required over the life of the SAT measure.

Where the data-matching program detects a discrepancy or an anomaly that requires verification, DESE will contact the business and provide them with an opportunity to verify the accuracy of the information on which the eligibility was based. Businesses will be given at least 28 days to respond and any relevant individual circumstances will be taken into consideration.

Small business tax options during COVID-19: ATO reminder

The ATO has reminded businesses impacted by COVID-19 that they have a range of tax options to consider, including claiming a deduction for any losses. And for businesses finding it difficult to estimate income for the purposes of PAYG instalments, the ATO will not apply penalties or interest for excessive variations where businesses make a “best attempt” to estimate their end-of-year tax.

Tax losses

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year. Otherwise, the loss can be deferred or carried forward and offset in a future year when the business next makes a profit. Businesses set up under a company structure that have made a tax loss in a current year can generally carry forward that loss for as long as they want. Of course, it’s crucial to keep proper records when claiming a deduction for losses.

Closing a small business

The ATO has acknowledged that some businesses may need to close their doors – either temporarily or permanently – due to COVID-19, particularly in Victoria. It calls on such businesses to “do their best to keep up with tax and super obligations”.

If a business is forced to close permanently as a result of COVID-19, or for any other reason, it must still lodge any outstanding activity statements and instalment notices, make GST adjustments on the final activity statement and lodge final tax returns. This will enable the ATO to finalise the tax account and issue any refunds that might be owed.

Insolvency reforms announced for small businesses

The Government has announced that it will introduce insolvency reforms to help small businesses restructure in response to COVID-19, including:

  • the introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on key features from Chapter 11 of the US Bankruptcy Code;
  • moving from a one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model;
  • providing a rapid 20-business day period for the development of a restructuring plan by a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan; and
  • creating a new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.

Safeguards will be included to prevent companies from using the new processes to undertake corporate misconduct, including firms seeking to carry out illegal phoenix activity.

The new insolvency processes are proposed to be available from 1 January 2021.

JobKeeper payments satisfy “work test” for super contributions

The Australian Prudential Regulation Authority (APRA) has published new guidance on the interaction between JobKeeper payments and satisfying the “work test” for the purpose of voluntary superannuation contributions.

Where an individual is aged 67–74 and is stood down from their employment due to the impacts of COVID-19 but is in receipt of the JobKeeper payment, APRA says a super fund trustee can accept a personal contribution from that individual under the super “work test” rules. APRA’s view is that where an employer is receiving the JobKeeper wage subsidy for an individual, registrable superannuation entity (RSE) licensees should consider the individual to be “gainfully employed” for the purposes of the “work test”, even if that individual has been fully stood down and is not actually performing work. In APRA’s view, this is appropriate because the individual is still employed and is obtaining a valuable benefit from their employer.

SMSF asset valuations: concession during COVID-19

The ATO has advised that it will not apply a penalty for self managed super fund (SMSF) trustees that have difficulty obtaining evidence to support market valuations of assets due to COVID-19.

SMSF trustees are required to provide objective and supportable evidence to their auditor each year to establish that assets of the fund are valued at market value.

During the 2020 and 2021 financial years, the ATO will not apply a penalty if it is satisfied that the difficulty in obtaining valuation evidence is due to COVID-19. Instead, the ATO will send the SMSF trustee a letter advising them to ensure they comply with the ATO’s valuation guidelines and have supporting valuation evidence by the time of their next audit if possible. However, the ATO warns that repeated contraventions of the valuation evidence requirements could lead to future penalties.

Digital AGMs and signatures: legislative determination

The Government has formally extended the ability for companies to convene annual general meetings (AGMs) and other prescribed meetings entirely online until March 2021.

This extension allows company boards to:

  • provide notice of AGMs to shareholders using email;
  • achieve a quorum with shareholders attending online; and
  • hold AGMs meetings online, with shareholders able to put questions to board members online and vote online.

Company officers are also permitted to use electronic signatures to meet the relevant legal requirements.

Explanatory Memorandum – October 2020

Keeping you informed about the Federal Budget

The Australian Government will hand down its Federal Budget for 2020–2021 on the evening of Tuesday 6 October 2020.

The Client Alert team will, as usual, work to bring you a special Budget Extra edition that outlines the key announcements to assist you in dealing with your clients’ queries. You can expect to receive it on Wednesday 7 October.

A little Budget history

Seeing a Federal Budget this late in the year is, like so much of 2020, a bit unusual. Since 1994, Australia’s Federal Budget has usually been handed down by the Treasurer on the second Tuesday in May. But, as we’ve previously reported, this year is not the only time that exceptional circumstances have lead to a change in Budget timing. Exceptions were made in 1996, when an election and a change of government occurred in March and the Budget was handed down in August; in 2016, when the Budget was handed down on the first Tuesday in May because the government was considering calling call a double dissolution election; and most recently in 2019, when a Federal election was called for 18 May and the Budget was presented on 2 April.

Between 1901 and 1993 the Budget was presented in August, on the first Tuesday night of Parliament’s spring session.

COVID-19 and FBT: updated ATO advice

The ATO has updated its COVID-19 and fringe benefits tax (FBT) information webpage, providing a really useful outline of some issues that may arise due to an employer’s response to COVID-19. There are likely to be some pandemic-related benefits currently provided that may not otherwise have been of consideration; for example, some employers may now be presented with FBT issues for the first time.

Although the webpage (and the following summary) deals with FBT specifically, while reading it is worth thinking through the related income tax consequences, including issues such as who incurs a particular expense (as opposed to who pays it), reimbursements, invoicing and other documentation requirements.

Working from home devices

Items provided to employees to allow them to work from home (or otherwise offsite) due to COVID-19 will usually be exempt from FBT if they are primarily used by employees for work. The items include:

  • laptops;
  • portable printers; and
  • other electronic devices.

Also, the minor benefits exemption or the otherwise deductible rule may apply if an employer:

  • allows an employee to use a monitor, mouse or keyboard that they otherwise use in the workplace;
  • provides them with stationery or computer consumables; or
  • pays for their phone and internet access.

The minor benefits exemption may apply for minor, infrequent and irregular benefits under $300. In addition, the otherwise deductible rule may allow an employer to reduce the taxable value of benefits by the amount that an employee can claim as a once-only deduction.

Garaging work cars at employees’ homes

Employers may have been garaging work cars at their employees’ homes due to COVID-19. There may not be an FBT liability depending on:

  • the type of vehicle;
  • how often the car is driven; and
  • the calculation method chosen for car benefits.

There is a separate ATO fact sheet on this matter. Its executive summary contains the following information:

  • Where a car isn’t being driven at all, or is only being driven for maintenance purposes, the ATO accepts that the employer isn’t holding the car for the purposes of providing fringe benefits. If the employer elects to use the operating cost method (and maintains appropriate records), it may not have an FBT liability for a car.
  • Certain kinds of cars may also be exempt from FBT even where they are garaged at employees’ homes.
  • If an exemption doesn’t apply and a work car is garaged at an employee’s home, it will be deemed to be available for private use and the employer may have an FBT liability.
  • The employer can take into account the impact of COVID-19 on the business use of a car if it is being driven during the period it is garaged at a home. This will require the employer to maintain a logbook (or to have kept a logbook in any of the previous four years) which will enable it to calculate its FBT liability.
  • The logbook-keeping requirements will depend on whether an employer is already maintaining an existing logbook for the year.
  • For any car fringe benefits calculated using the operating cost method, the employer may adjust its business use estimates to reflect changes in its employees’ driving patterns due to COVID-19.
Logbooks

Employees’ driving patterns may have changed due to the effects of COVID-19. The ATO notes that if an employer uses the operating cost method, it may have an existing logbook. If so, the employer can still rely on this logbook to make a reasonable estimate of the business kilometres travelled. However, the employer can also choose to keep a new logbook that is representative of its business use throughout the year.

The issue of logbooks is also addressed in more detail in the COVID-19 and car fringe benefits fact sheet.

Emergency accommodation, food and transport

An employer will not have to pay FBT if it provides emergency accommodation, food, transport or other assistance to an employee where:

  • the benefit is emergency assistance to provide immediate relief; and
  • the employee is, or is at risk of being, adversely affected by COVID-19.

In the context of COVID-19, this would apply to:

  • expenses incurred relocating an employee, including paying for flights home to Australia;
  • expenses incurred for food and temporary accommodation if an employee cannot travel due to restrictions (domestic, interstate or intrastate);
  • benefits provided that allow an employee to self-isolate or quarantine; and
  • transporting or paying for an employee’s transport expenses, including car hire and transport to temporary accommodation.

An employer will not have to pay FBT for benefits that are considered “emergency assistance”. This includes providing temporary accommodation and meals to fly-in, fly-out or drive-in, drive-out employees who are unable to return to their normal residences due to COVID-19 domestic and international travel restrictions.

Items that help protect employees from COVID-19

An employer may need to pay FBT on items it gives employees to help protect them from contracting COVID-19 while at work. These include:

  • gloves;
  • masks;
  • sanitisers;
  • antibacterial spray.

The ATO says, however, that these benefits are exempt from FBT under the emergency assistance exemption if employers provide them to employees who:

  • have physical contact with – or are in close proximity to – customers or clients while carrying out their duties; or
  • are involved in cleaning premises.

Examples of this type of work include:

  • medical (such as doctors, nurses, dentists and allied health workers);
  • cleaning;
  • airline;
  • hairdressing and beautician; and
  • retail, café and restaurant.

Where employment duties are not of this kind, the minor benefits exemption may apply if an employer provides an employee with minor, infrequent and irregular benefits under the value of $300.

Emergency health care

There is a limited exemption from FBT if an employer provides emergency health care to an employee who us affected by COVID-19. It only applies to health care treatment provided:

  • by an employee of the same employer (or an employee of a related company);
  • on the employer’s premises (or premises of the related company); or
  • at or adjacent to an employee’s worksite.

If an employer pays for its employee’s ongoing medical or hospital expenses, FBT applies. However, if an employer pays to transport an employee from the workplace to seek medical help, that cost is exempt from FBT.

Flu vaccinations for employees working from home

Providing flu vaccinations to employees is generally exempt from FBT because it is work-related preventative health care.

Employers will not have to pay FBT for providing their employees with a voucher or reimbursement for getting the flu vaccine from a GP or chemist, as long as that benefit is available to all of its employees. If only some of the employees choose to receive the flu vaccine, the voucher or reimbursement is still exempt from FBT, as long as it is offered to all of the employer’s employees.

COVID-19 testing

The ATO states that, as all employees are considered equally susceptible to contracting the virus, COVID-19 testing qualifies for the FBT exemption for work-related medical screening. However, employers will only be exempt from FBT liability for providing COVID-19 testing to employees if both of the following apply:

  • testing is carried out by a legally qualified medical practitioner or nurse; and
  • testing is available to all employees.

If it turns out that only some employees get COVID-19 tests, the tests are still exempt – again, as long as they are offered to all of the employer’s employees.

Cancelled events

An employer will not have to pay FBT if it is required to pay non-refundable costs for cancelled events that its employees were due to attend. This is because:

  • the arrangement was between the employer and the event organisers, not its employees and the organisers; and
  • the employer has not provided any fringe benefits to its employees, as they did not get to attend the event.

However, an employer may have to pay FBT if its employees were required to pay for their attendance at the cancelled event and the employer reimbursed them. This would be an expense payment fringe benefit – unless the otherwise deductible rule applies.

Not-for-profit salary packaging: ATO concession for meal provision

Not-for-profit employers may provide salary-packaged meal entertainment to their employees to take advantage of an exempt or rebatable cap.

Arrangements to provide meals may qualify as salary-packaged meal entertainment, depending on the facts and circumstances of the meal and how the meal is provided.

This may be particularly salient for employers such as hospitals and aged care facilities, and the like.

Given the unprecedented circumstances brought about by COVID-19, the ATO will not apply compliance resources to scrutinise expenditure under these arrangements for the:

  • FBT year ending 31 March 2021 – where meals are provided by a supplier that was authorised as a meal entertainment provider as at 1 March 2020; and
  • FBT year ended 31 March 2020 – when restaurants and public venues were closed.

Source: www.ato.gov.au/General/COVID-19/Support-for-businesses-and-employers/COVID-19-and-fringe-benefits-tax/; www.ato.gov.au/law/view/document?DocID=AFS/CAR-FBT-COVID-19/00001&PiT=99991231235958.

ATO updates on new JobKeeper arrangements

The ATO has released a somewhat dazzling array of new and updated information sheets addressing the changes to JobKeeper.

Actual decline in turnover test

The ATO states that the actual decline in turnover test can be satisfied in two ways, using:

  • the basic test; or
  • the alternative test.

The basic test involves the comparison of actual GST turnover for the relevant comparison periods (eg September 2020 to September 2019). Generally, businesses will use the basic test. The option of an alternative test has been made available for some cases where the normal comparison period is not appropriate – for example, when a business has been operating for less than a year (although there are other instances where an alternative test can be used). The ATO will issue guidance on the alternative test “soon”.

There is also a modified basic test for group employer labour entities. This refers to those entities that supply employee services to members of consolidated or consolidatable group, or GST groups.

The ATO states that the actual decline test is similar to the “original” decline in turnover test (ie based on projected turnover), except that:

  • it must be used for specific quarters only;
  • actual sales made in the relevant quarter must be used, not projected sales, when working out GST turnover; and
  • sales must be allocated to the relevant quarter in the same way a business would report those sales to a particular BAS (if registered for GST).
Decline in turnover tests

The ATO states that existing participants (ie those enrolled in JobKeeper before 28 September) have already satisfied the original decline in turnover test, and do not need to satisfy it again. They do, however, need to satisfy the actual decline in turnover test.

New participants (ie those enrolling from 28 September) also need to satisfy the actual decline in turnover test. Although they need to satisfy the original decline in turnover test, they will satisfy it if they satisfy the actual decline in turnover test – and they can enrol on that basis.

The ATO advises employers unable to claim JobKeeper that they should notify their eligible employees. Employees should also be advised that the employer is no longer obligated to pay them the amount equivalent to JobKeeper. Those employees will not be eligible to be nominated for JobKeeper by any other entity.

There is no obligation to do monthly reporting during extension period in which an employer is not eligible to receive JobKeeper.

JobKeeper key dates

For the JobKeeper fortnights starting 28 September 2020 and 12 October 2020 only, the ATO is allowing employers until 31 October 2020 to meet the wage condition for all employees included in the JobKeeper scheme.

In addition, to claim payment for the September JobKeeper fortnights, employers must have enrolled by 30 September.

80-hour threshold for employees

The ATO states that a full-time employee who has been employed for their full 28-day reference period will usually satisfy the 80-hour threshold.

However, closer examination may be required for eligible employees who are:

  • part-time;
  • long-term casual;
  • not paid on an hourly basis; and/or
  • stood down.

If an employee has been stood down, an alternative reference period may apply to them.

Any overtime performed by an employee in the course of their employment in their 28-day reference period will count towards the 80-hour threshold. It is the actual hours of overtime performed that count; that is, if a penalty rate loading applies, it does not increase the number of hours counted.

It does not matter if an eligible employee takes their leave at full pay or half pay, or through a purchased leave arrangement. The employer must still count the total number of hours covered by the leave taken. For example, if an employee takes eight hours of annual leave at half pay, the employer counts eight hours towards their 80-hour threshold, not four (full pay) hours.

Unpaid leave is not counted towards the 80-hour threshold. However, if an employee takes unpaid leave, an alternative reference period may apply.

An employee only needs to satisfy the 80-hour threshold in one of the 28-day reference periods. If they satisfy it in one reference period, the employer does not need to determine if they satisfy it in other reference periods.

For employers who have a 30-day pay cycle, the 80-hour requirement equates to 85.72 hours. For a 31-day pay cycle, the equivalent is 88.58 hours.

Employers should use the most accurate workplace records to show the actual hours eligible employees worked in their 28-day reference period. Employers can use their employment records (eg payroll data or timesheets) to help determine whether employees satisfy the 80-hour threshold.

Eligible employees

Employers cannot claim for employees who:

  • were first employed after 1 July 2020;
  • left employment before 1 July 2020 (except in limited circumstances);
  • have been, or have agreed to be, nominated by another employer (except in limited circumstances); or
  • are casual employees, unless they were employed by the employer on a regular and systematic basis during the 12-month period that ended 1 July 2020.

If employees have multiple employers, they can usually choose which employer they want to be nominated by. However, if employees are long-term casuals and have other permanent employment, they must choose their permanent employer. They can’t be nominated for the JobKeeper payment by more than one employer.

Employers must also have given a JobKeeper employee nomination notice to any additional employees who first become eligible on or after 3 August 2020 using the 1 July test. This should have been given to any newly eligible employees by 24 August 2020. If not already done, the ATO says it should be done as soon as possible.

Source: www.ato.gov.au/General/JobKeeper-Payment/In-detail/Actual-decline-in-turnover-test/; www.ato.gov.au/General/JobKeeper-Payment/Decline-in-turnover-tests/; www.ato.gov.au/General/JobKeeper-Payment/Payment-rates/80-hour-threshold-for-employees/; www.ato.gov.au/General/JobKeeper-Payment/Employers/Your-eligible-employees/.

Extended COVID-19 support and relief measures

JobKeeper extension Bill passed

The Coronavirus Economic Response Package (Jobkeeper Payments) Amendment Bill 2020 received Royal Assent on 3 September 2020 as Act No 81 of 2020. This followed the House of Representatives agreeing to the six Government amendments passed by the Senate on 1 September 2020. Those minor Senate amendments apply to the Fair Work measures in Sch 2 of the Bill.

The changes in the Bill extend the end date of the JobKeeper scheme from 27 September 2020 to 28 March 2021, as announced by Prime Minister Scott Morrison on 21 July 2020. The Bill also amends the tax secrecy provisions in relation to JobKeeper and extends certain provisions of the Fair Work Act 2009 implemented in response to COVID-19.

From 27 September until March 2021, there will be a two-tiered JobKeeper payment:

  • for the December quarter, payments will be reduced from $1,500 to $1,200 per fortnight per employee, or $750 for workers employed for less than 20 hours a week; and
  • for the March quarter, payments will be $1,000 per fortnight, or $650 for workers employed for less than 20 hours a week.

The extension to the employment reference date from 1 March to 1 July 2020 has been made via statutory rules.

Fair Work amendments: 10% decline in turnover certificate

The legislation requires that an eligible financial service provider issues a written certificate that relates to a specified employer, stating that the employer satisfied the 10% “decline in turnover test” for the designated quarter applicable to a specified time.

As originally drafted in the Bill, the definition of “eligible financial service provider” included a registered company auditor, a registered tax or BAS agent (or tax (financial) adviser) or a qualified accountant.

The amendments remove registered company auditors and tax (financial) advisers from the definition. This means qualified accountants, registered tax agents and BAS agents are the only professionals who can supply the certificate. It is important to note that lawyers may not do so.

In addition, the amendments make clear that the issuing of the 10% decline in turnover certificate involves a declaration from an eligible financial service provider that relates to a specific employer and confirms that, based on the information provided, the employer satisfied the 10% test for the designated quarter applicable to a specified time. This replaces the originally drafted requirement that the provider “express an opinion”.

Source: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6583%22; https://parlinfo.aph.gov.au/parlInfo/download/legislation/amend/r6583_amend_ed967ce0-aee9-4f9a-8ff5-ef8861a029d3/upload_pdf/B20SW102.pdf;fileType=application%2Fpdf; https://www.ato.gov.au/General/JobKeeper-Payment/JobKeeper-extension-announcement/.

Coronavirus Supplement extended

The Social Security (Coronavirus Economic Response – 2020 Measures No 14) Determination 2020, registered on 30 August 2020, extends the period for payment of the COVID-19 Supplement from 25 September to 18 December 2020, but at the reduced rate of $250 per fortnight (down from $550). This measure was announced by Federal Treasurer Josh Frydenberg on 21 July 2020. A further instrument will be made to extend the COVID-19 Supplement from 19 December to 31 December 2020.

The instrument amends multiple legislative instruments that have modified aspects of the Social Security Act 1991 as part of the Government’s COVID-19 economic response. For example, the assets tests and the liquid assets test waiting period are reinstated for certain payments from 25 September 2020.

The instrument also temporarily increases the income free area to $300 a fortnight for certain JobSeeker Payment recipients for the period 25 September 2020 to 31 December 2020, and increases the partner income taper rate for JobSeeker Payment recipients from 25 cents to 27 cents for every dollar over the partner income free area. The instrument also extends to 31 December 2020 the temporary pension portability measure.

Source: www.legislation.gov.au/Details/F2020L01093.

COVID-19 early release of super extended

The Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No 3) 2020, registered on 3 September 2020, give effect to the Government’s extension of the COVID-19 early release of superannuation up to $10,000 until 31 December 2020.

As part of the Economic and Fiscal Update in July 2020, the Government announced that it would extend the application period to allow those dealing with adverse economic effects of COVID-19 to access up to $10,000 of their super (tax-free) for the 2020–2021 year.

These regulations amend reg 6.19B(2) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) to allow an application via the myGov website to access $10,000 of super until 31 December 2020 (extended from 24 September). Eligible Australian and New Zealand citizens and permanent residents were also able to access up to $10,000 of their super for the 2019–2020 year by 1 July 2020.

The changes under the new regulations apply from 4 September 2020. In accordance with the original provisions, provided that a valid application is made by 31 December 2020, the ATO can make a determination to release up to $10,000 of super after the application period has expired.

Source: www.legislation.gov.au/Details/F2020L01133.

Bankruptcy concessions and director liability safe harbour extended

In a media release on 7 September 2020, the Government announced that it will extend its temporary insolvency and bankruptcy protections until 31 December 2020. Federal Treasurer Josh Frydenberg said that regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

Background

In March 2020 the Government made a number of important changes to the Bankruptcy Act 1966 and the Corporations Act 2000 (Corporations Act) via the Coronavirus Economic Response Package Omnibus Act 2020 (the Omnibus Act). The changes were intended to provide relief from issues caused by the pandemic by way of lessening the threat of actions which could unnecessarily push companies and/or directors, as well as individuals, into insolvency and force the winding up of a business.

Statutory thresholds

The Omnibus Act increased the minimum amount of debt required to be owed before a creditor can initiate involuntary bankruptcy proceedings from $5,000 to $20,000. The statutory minimum for a creditor to issue a statutory demand was increased from $2,000 to $20,000.

Timeframes

The timeframe in which a debtor must comply with a bankruptcy notice was changed from 21 days to six months. The timeframe in which a debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition was changed from 21 days to six months.

There was also an increase to the period within which a debtor must respond to a statutory demand. The statutory period increased from 21 days to six months.

Directors’ personal liability

The Omnibus Act inserted a new provision which provides that directors have temporary relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business. Directors otherwise have a duty to prevent insolvent trading.

A director may rely on the temporary safe harbour in relation to a debt incurred by the company if the debt is incurred:

  • in the ordinary course of the company’s business;
  • during the period starting on 24 March 2020; and
  • before any appointment of an administrator or liquidator of the company during the temporary safe harbour application period.

A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business. This could include, for example, a director taking out a loan to move some business operations online. It could also include debts incurred through continuing to pay employees during the pandemic.

A person wishing to rely on these safe harbour provisions in a proceeding in which unlawful insolvent trading is alleged bears an evidential burden in relation to that matter – and a new definition of “evidential burden” was inserted into the Corporations Act.

A holding company may rely on the safe harbour for insolvent trading by its subsidiary if it takes reasonable steps to ensure the safe harbour applies to each of the directors of the subsidiary, and to the debt, and if the safe harbour does so apply. The holding company bears an evidential burden in relation to these matters.

Egregious cases of dishonesty and fraud are still subject to criminal penalties. Any debts incurred by the company will still be payable by the company.

Measures extended

The measures were enacted with an intended life span of six months, meaning that they were due to finish on or around the time that the JobKeeper and JobSeeker measures were originally intended to finish, on 28 September 2020.

The end time has now been pushed back to 31 December 2020 (unlike JobKeeper, which is going to the end of March 2021).

The Omnibus Act actually amended the Bankruptcy Act (and Corporations Act) to remove references to amounts and time periods, and updated them to reflect that the statutory minimum may be changed via regulation. This means that the proposed extension will be implemented by regulation rather than by further amending legislation, removing the need to wait for Parliament to resume before the proposal becomes law.

Although the wording of the Government’s press release on the extension does not specifically address the minimum amount of debt required before a creditor can initiate involuntary bankruptcy proceedings, it is reasonable to assume that both $20,000 limits will stay in place – the release only refers to “the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive”.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extension-temporary-relief-financially-distressed.

ASIC grants hardship relief for withdrawals from frozen funds

The Australian Securities and Investments Commission (ASIC) has announced new relief measures for operators of managed funds to facilitate withdrawals by members who are facing financial hardship during the COVID-19 pandemic.

The conditional relief implemented by the ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778, registered on 27 August 2020, will apply to all responsible entities (REs) of registered managed investment schemes (MIS) that have become “frozen funds”.

The relief measures will ease some of the statutory restrictions on REs and improve access to investments by members who meet specific hardship criteria. ASIC previously granted hardship relief to REs of frozen funds on a case-by-case basis only. ASIC has also issued Information Sheet INFO 249 Frozen funds – information for responsible entities to provide updated guidance about frozen funds.

Frozen funds

At times of extreme market volatility, some managed funds may need to suspend redemptions and freeze funds to protect the interests of the members as a whole. A fund is frozen when the responsible entity has suspended or cancelled redemptions to prevent withdrawals from destabilising their fund. When a fund is frozen members will generally not have access to their investments for a period of time. This does not necessarily mean that there has been a loss of asset value or that investors will not get their money back eventually.

ASIC Deputy Chair Karen Chester has said the hardship relief will make it easier for REs of frozen funds to enable withdrawals by investors suffering hardship. However, in doing so, REs will still have to act in the best interests of members.

Eligibility criteria

To be eligible to make hardship withdrawals from frozen funds, a member must meet at least one “hardship criterion” such as severe financial hardship, unemployment for over three months, compassionate grounds or permanent incapacity. An eligible member may:

  • withdraw up to a total of $100,000 of their investment per calendar year; and
  • receive up to four withdrawals per calendar year.

An RE has the discretion to facilitate a hardship withdrawal where the RE is satisfied that the member has met the hardship criteria. Members of frozen funds should contact their RE for information on hardship withdrawals in the first instance. More information on frozen funds is available on ASIC’s Moneysmart website, www.moneysmart.gov.au.

Source: www.legislation.gov.au/Details/F2020L01069; https://asic.gov.au/for-finance-professionals/fund-operators/running-a-fund/requirements-when-running-a-managed-investment-scheme/frozen-funds-information-for-responsible-entities/.

Super choice of fund and enterprise agreements Bill passed

The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 received Royal Assent on 3 September 2020. The changes the Bill makes will extend the super “choice of fund” regime to employees covered by enterprise agreements and workplace determinations made from 1 January 2021 (revised from 1 July 2020).

Federal Treasurer Josh Frydenberg has said this will allow another 800,000 people to make choices about where their super guarantee contributions are invested, representing around 40% of all employees covered by a current enterprise agreement. The measure was originally announced as part of the Government’s response to the Murray Financial Services Inquiry (FSI) in October 2015.

Choice of fund extended to enterprise agreements

The Bill amends s 32C of the Superannuation Guarantee (Administration) Act 1992 (SGAA) to enable employees to choose their own super fund where they are employed under a workplace determination or enterprise agreement made on or after 1 January 2021. This will require an employer to give a standard choice form to an employee in certain circumstances; for example, upon commencement of their employment or when receiving a written request from an employee.

An employer will not be required to provide existing employees with a choice form, unless they request it once a new determination or agreement is made on or after 1 January 2021. However, existing employees will be able to request a choice of fund form from their employer and the employer will be required to act on such a request.

Where a new employee does not choose a fund, the proposed changes will enable an employer to continue to make compulsory super guarantee contributions for an employee with the same fund, in accordance with the previous determination or agreement, and comply with the choice of fund rules.

If a workplace determination or enterprise agreement made after January 2021 includes a term that restricts choice, such a term will not be enforceable under s 32Z of the SGAA to the extent that the employer instead makes contributions to an employee’s chosen fund. Examples of terms which restrict choice include terms that list several funds the employer must choose between to make contributions to.

A technical amendment (s 20(3A) of the SGAA) will ensure employers are not penalised with a SG shortfall if they rely on the existing exemptions for employees in certain defined benefit schemes.

Start date revised to 1 January 2021

The Bill was passed after the House of Representatives agreed to the two Government Senate amendments to revise the start date so that it applies to enterprise agreements and workplace determinations made from 1 January 2021 (instead of 1 July 2020, as originally proposed). The other amendment by Senator Rex Patrick (Independent) requires the Australian Prudential Regulation Authority (APRA) to review the provisions to identify any unintended consequences, including the ongoing viability and profitability of defined benefits schemes. The APRA review will need to be completed within 30 months of Royal Assent to the Bill and must involve consultation with industry stakeholders.

Source: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6447%22; https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/government-passes-legislation-through-senate-allow; https://parlinfo.aph.gov.au/parlInfo/download/legislation/amend/r6447_amend_c2eff2f8-445e-4d13-adde-dce9de7dcdec/upload_pdf/B20UD113.pdf;fileType=application%2Fpdf; https://parlinfo.aph.gov.au/parlInfo/download/legislation/amend/r6447_amend_f94c441e-cf5b-4897-ae4d-83a4af7fbf01/upload_pdf/8926%20revised%20TLA%20(Your%20Super,%20Your%20Choice)%20Bill%202019_Patrick.pdf;fileType=application%2Fpdf.

Super guarantee amnesty now closed

The ATO has reminded employers that the superannuation guarantee (SG) amnesty closed on 7 September 2020. The amnesty enabled employers to self-correct historical SG underpayments, without incurring the normal penalties, for SG shortfalls from 1 July 1992 until 31 March 2018.

Any amnesty applications received by the ATO after 11:59pm on 7 September will not qualify for the amnesty and but instead will be treated as a standard lodgment of a super guarantee charge (SGC) statement.

Applications received after 7 September

The ATO says it will notify late applicants in writing of the quarters that aren’t eligible for the SG amnesty and charge the administrative component ($20 per employee per quarter). The ATO will consider whether to remit the additional SGC Part 7 penalty (up to 200%): see Draft Practice Statement Law Administration PS LA 2020/D1. A minimum penalty of 100% will apply if the ATO subsequently commences an audit in respect of non-disclosed quarters covered by the amnesty.

The ATO will issue a notice of amended assessment with the increased SGC amount owing. Any SGC payments made after 7 September 2020 are not deductible, even if they relate to SG shortfalls disclosed under the amnesty.

Applications received by 7 September

To retain the benefits of the amnesty, the law requires an eligible employer to pay the outstanding SGC amount in full or enter into a payment plan with the ATO. Note that the SGC amount disclosed in an amnesty application must be paid to the ATO (not the employee’s super fund).

Amnesty payments made after 7 September 2020 are not deductible (including amounts paid under a payment plan after 7 September). If an employer is subsequently unable to maintain payments under a payment plan, the ATO will disqualify the employer from the amnesty and remove the amnesty benefits for any unpaid quarters.

Source: www.ato.gov.au/Business/Super-for-employers/Superannuation-guarantee-amnesty/.

Client Alert – October 2020

COVID-19 and FBT: updated ATO advice

The ATO has updated its COVID-19 and fringe benefits tax (FBT) advice, providing a useful outline of some issues that may arise due to an employer’s response to COVID-19.
Working from home devices

Items provided to employees to allow them to work from home (or otherwise offsite) due to COVID-19 will usually be exempt from FBT if they are primarily used by employees for work.

Also, the minor benefits exemption or the otherwise deductible rule may apply if an employer:

  • allows an employee to use a monitor, mouse or keyboard that they otherwise use in the workplace;
  • provides them with stationery or computer consumables; or
  • pays for their phone and internet access.

The minor benefits exemption may apply for minor, infrequent and irregular benefits under $300.

In addition, the otherwise deductible rule may allow an employer to reduce the taxable value of benefits by the amount that an employee can claim as a once-only deduction.

Garaging work cars at employees’ homes, and logbooks

Employers may have been garaging work cars at their employees’ homes due to COVID-19. There may not be an FBT liability depending on:

  • the type of vehicle;
  • how often the car is driven; and
  • the calculation method chosen for car benefits.

Employees’ driving patterns may have changed due to the effects of COVID-19. If an employer uses the operating cost method, it may have an existing logbook. If so, the employer can still rely on this logbook to make a reasonable estimate of the business kilometres travelled. However, the employer can also choose to keep a new logbook that is representative of its business use throughout the year.

The issue of logbooks is also addressed in more detail in the COVID-19 and car fringe benefits fact sheet.

There is also a separate ATO fact sheet on these matters.

Emergency accommodation, food and transport

An employer will not have to pay FBT if it provides emergency accommodation, food, transport or other assistance to an employee where:

  • the benefit is emergency assistance to provide immediate relief; and
  • the employee is, or is at risk of being, adversely affected by COVID-19.

An employer will also not have to pay FBT for benefits that are considered “emergency assistance”.

Items that help protect employees from COVID-19

An employer may need to pay FBT on items it gives employees to help protect them from contracting COVID-19 while at work. These include gloves, masks, sanitisers and antibacterial spray.

The ATO says, however, that these benefits are exempt from FBT under the emergency assistance exemption if employers provide them to employees who:

  • have physical contact with – or are in close proximity to – customers or clients while carrying out their duties; or
  • are involved in cleaning premises.

Where employment duties are not of this kind, the minor benefits exemption may apply if an employer provides an employee with minor, infrequent and irregular benefits under the value of $300.

Emergency health care

There is a limited exemption from FBT if an employer provides emergency health care to an employee who us affected by COVID-19.

If an employer pays for its employee’s ongoing medical or hospital expenses, FBT applies. However, if an employer pays to transport an employee from the workplace to seek medical help, that cost is exempt from FBT.

Flu vaccinations for employees working from home

Providing flu vaccinations to employees is generally exempt from FBT because it is work-related preventative health care.

COVID-19 testing

COVID-19 testing also qualifies for the FBT exemption for work-related medical screening, under ceration conditions.

Cancelled events

An employer will not have to pay FBT if it is required to pay non-refundable costs for cancelled events that its employees were due to attend.

However, an employer may have to pay FBT if its employees were required to pay for their attendance at the cancelled event and the employer reimbursed them. This would be an expense payment fringe benefit – unless the otherwise deductible rule applies.

ATO updates on new JobKeeper arrangements

The ATO has also released an array of new and updated information sheets addressing the changes to JobKeeper. Here is a summary of some main points to consider.

Actual decline in turnover test

The ATO states that the actual decline in turnover test can be satisfied in two ways, using:

  • the basic test; or
  • the alternative test.

The basic test involves the comparison of actual GST turnover for the relevant comparison periods (eg September 2020 to September 2019). Generally, businesses will use the basic test. The option of an alternative test has been made available for some cases where the normal comparison period is not appropriate. There is also a modified basic test for group employer labour entities.

The actual decline test is similar to the “original” decline in turnover test, except that:

  • it must be used for specific quarters only;
  • actual sales made in the relevant quarter must be used, not projected sales, when working out GST turnover; and
  • sales must be allocated to the relevant quarter in the same way a business would report those sales to a particular BAS (if registered for GST).
Decline in turnover tests

The ATO states that existing JobKeeper participants have already satisfied the original decline in turnover test, and do not need to satisfy it again. They do, however, need to satisfy the actual decline in turnover test.

New participants also need to satisfy the actual decline in turnover test. Although they need to satisfy the original decline in turnover test, they will satisfy it if they satisfy the actual decline in turnover test – and they can enrol on that basis.

Employers now unable to claim JobKeeper should notify their eligible employees. Employees should also be advised that the employer is no longer obligated to pay them the amount equivalent to JobKeeper. Those employees will not be eligible to be nominated for JobKeeper by any other entity.

There is no obligation to do monthly reporting during extension period in which an employer is not eligible to receive JobKeeper.

JobKeeper key dates

For the JobKeeper fortnights starting 28 September 2020 and 12 October 2020 only, the ATO is allowing employers until 31 October 2020 to meet the wage condition for all employees included in the JobKeeper scheme. In addition, to claim payment for the September JobKeeper fortnights, employers must have enrolled by 30 September.

80-hour threshold for employees

The ATO states that a full-time employee who has been employed for their full 28-day reference period will usually satisfy the 80-hour threshold.

However, closer examination may be required for eligible employees who are:

  • part-time;
  • long-term casual;
  • not paid on an hourly basis; and/or
  • stood down.

If an employee has been stood down, an alternative reference period may apply to them.

Any overtime performed by an employee in the course of their employment in their 28-day reference period will count towards the 80-hour threshold. It is the actual hours of overtime performed that count; that is, if a penalty rate loading applies, it does not increase the number of hours counted.

Eligible employees

Employers cannot claim for employees who:

  • were first employed after 1 July 2020;
  • left employment before 1 July 2020 (except in limited circumstances);
  • have been, or have agreed to be, nominated by another employer (except in limited circumstances); or
  • are casual employees, unless they were employed by the employer on a regular and systematic basis during the 12-month period that ended 1 July 2020.

If employees have multiple employers, they can usually choose which employer they want to be nominated by. However, if employees are long-term casuals and have other permanent employment, they must choose their permanent employer. They can’t be nominated for the JobKeeper payment by more than one employer.

Employers must also have given a JobKeeper employee nomination notice to any additional employees who first become eligible on or after 3 August 2020 using the 1 July test. This should have been given to any newly eligible employees by 24 August 2020. If not already done, the ATO says it should be done as soon as possible.

Extended COVID-19 support and relief measures

JobKeeper

The end date of the JobKeeper scheme has now been extended from 27 September 2020 to 28 March 2021, as announced by Prime Minister Scott Morrison on 21 July 2020. The relevant legislation also amends tax secrecy provisions in relation to JobKeeper and extends certain provisions of the Fair Work Act 2009 implemented in response to COVID-19.

From 27 September until March 2021, there will be a two-tiered JobKeeper payment:

  • for the December quarter, payments will be reduced from $1,500 to $1,200 per fortnight per employee, or $750 for workers employed for less than 20 hours a week; and
  • for the March quarter, payments will be $1,000 per fortnight, or $650 for workers employed for less than 20 hours a week.

The employment reference date has also been extended from 1 March to 1 July 2020 via a change in the statutory rules.

The law now requires that an eligible financial service provider issues a written certificate that relates to a specified employer, stating that the employer satisfied the 10% “decline in turnover test” for the designated quarter applicable to a specified time.

Coronavirus Supplement

The period for payment of the COVID-19 Supplement has now been extended from 25 September to 18 December 2020, but at the reduced rate of $250 per fortnight (down from $550). This measure was announced by Federal Treasurer Josh Frydenberg on 21 July 2020. A further instrument will be made to extend the COVID-19 Supplement from 19 December to 31 December 2020.

The income-free area is temporarily increased to $300 a fortnight for certain JobSeeker Payment recipients for the period 25 September 2020 to 31 December 2020, and the partner income taper rate for JobSeeker Payment recipients has been adjusted.

COVID-19 early release of super

As part of the Economic and Fiscal Update in July 2020, the Government announced that it would extend the application period to allow those dealing with adverse economic effects of COVID-19 to access up to $10,000 of their super (tax-free) for the 2020–2021 year. This has now been achieved, allowing an application via the myGov website to access $10,000 of super until 31 December 2020 (extended from 24 September).

Bankruptcy concessions and director liability safe harbour extension

The Government has announced that it will extend its temporary insolvency and bankruptcy protections until 31 December 2020. Federal Treasurer Josh Frydenberg said that regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

ASIC grants hardship relief for withdrawals from frozen funds

The Australian Securities and Investments Commission (ASIC) has announced new relief measures for operators of managed funds to facilitate withdrawals by members who are facing financial hardship during the COVID-19 pandemic.

The conditional relief will apply to all responsible entities (REs) of registered managed investment schemes (MIS) that have become “frozen funds”.

At times of extreme market volatility, some managed funds may need to suspend redemptions and freeze funds to protect the interests of the members as a whole. A fund is frozen when the responsible entity has suspended or cancelled redemptions to prevent withdrawals from destabilising their fund. When a fund is frozen members will generally not have access to their investments for a period of time. This does not necessarily mean that there has been a loss of asset value or that investors will not get their money back eventually.

The relief measures will ease some of the statutory restrictions on REs and improve access to investments by members who meet specific hardship criteria. REs will still have to act in the best interests of members.

Super choice of fund and enterprise agreements

With recent changes to Australia’s superannuation law, the “choice of super fund” regime now extends to employees covered by enterprise agreements and workplace determinations made from 1 January 2021.

Federal Treasurer Josh Frydenberg has said this will allow another 800,000 people to make choices about where their super guarantee contributions are invested, representing around 40% of all employees covered by a current enterprise agreement. The measure was originally announced as part of the Government’s response to the Murray Financial Services Inquiry (FSI) in October 2015.

Super guarantee amnesty now closed

The ATO has reminded employers that the superannuation guarantee (SG) amnesty closed on 7 September 2020. The amnesty enabled employers to self-correct historical SG underpayments, without incurring the normal penalties, for SG shortfalls from 1 July 1992 until 31 March 2018.

Any amnesty applications received by the ATO after 11:59pm on 7 September will not qualify for the amnesty and but instead will be treated as a standard lodgment of a super guarantee charge (SGC) statement.

The ATO will notify late applicants in writing of the quarters that aren’t eligible for the SG amnesty and charge the administrative component ($20 per employee per quarter), also considering whether to remit the additional SGC penalty (up to 200%). A minimum penalty of 100% will apply if the ATO subsequently commences an audit in respect of non-disclosed quarters covered by the amnesty.

The ATO will issue a notice of amended assessment with the increased SGC amount owing. Any SGC payments made after 7 September 2020 are not deductible, even if they relate to SG shortfalls disclosed under the amnesty.

To retain the benefits of the amnesty, the law requires an eligible employer to pay the outstanding SGC amount in full or enter into a payment plan with the ATO. Note that the SGC amount disclosed in an amnesty application must be paid to the ATO (not the employee’s super fund).

Amnesty payments made after 7 September 2020 are not deductible (including amounts paid under a payment plan after 7 September). If an employer is subsequently unable to maintain payments under a payment plan, the ATO will disqualify the employer from the amnesty and remove the amnesty benefits for any unpaid quarters.

Death And Taxes: ATO Improvements Coming Soon?

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

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

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

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

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

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

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

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

What’s next?

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

 

Client Alert – September 2020

JobKeeper changes: turnover test and employment start date

Prime Minister Scott Morrison announced further changes to JobKeeper on 7 August 2020. The changes are intended to ensure that eligibility for the revised JobKeeper scheme – to commence on 28 September 2020 – will be based on a single quarter tax period, rather than multiple quarters as previously announced. Employees hired as at 1 July 2020 will now also be eligible to receive JobKeeper.

Treasury has updated its JobKeeper factsheets as at 7 August 2020 to incorporate the PM’s announcements.

The JobKeeper rules implemented in March 2020 in response to the COVID-19 pandemic were due to finish on 27 September 2020. The Government then announced on 21 July 2020 that the scheme would be extended for six months (until 28 March 2021), in an amended form.

The key highlights of JobKeeper Version 2 – to start on 28 September – are that:

  • the extended scheme will apply at a top rate of $1,200 per employee (down from the current $1,500) per JobKeeper fortnight from 28 September 2020 until 3 January 2021, then drop to $1,000 until 28 March 2021;
  • lower rates will apply for part-time and casual employees; and
  • businesses will be required to re-test their eligibility for the payment scheme to access the extension.
Changes to turnover test

The latest changes relate to the eligibility test announced in JobKeeper Version 2.

JobKeeper Version 2 originally required that, from 28 September 2020, businesses and not-for-profits seeking to claim JobKeeper payments would have to meet a further decline in turnover test for each of the two periods of extension, as well as meeting the other existing eligibility requirements. That is, at that time businesses would have been required to reassess their eligibility for the JobKeeper extension with reference to their actual turnover in the June and September quarters 2020.

The PM has eased the proposed changes to turnover tests for businesses Australia-wide.

The changes mean that businesses will now only be required to show the requisite actual decline in turnover for the September quarter, rather than for both the June and September quarters. Similarly, businesses will only need to demonstrate a decline in turnover for the December 2020 quarter, rather than each of the June, September and December 2020 quarters.

JobKeeper reference date now 1 July 2020

For JobKeeper fortnights beginning on or after 3 August 2020, the reference date for determining certain employee eligibility conditions has been changed from 1 March 2020 to 1 July 2020. The purpose of this change is to extend the scope of JobKeeper so that “it also benefits employers of more recently engaged employees”.

Importantly, the changed rules preserve the existing eligibility of employees for JobKeeper payments; that is, those for whom employers are currently receiving JobKeeper, termed “1 March 2020 employees” because they satisfied the rules as at that date.

As a result, for JobKeeper fortnights beginning on or after 3 August 2020, an individual can be an eligible employee if they:

  • meet the eligibility requirements with reference to the new 1 July 2020 date; or
  • qualify as a 1 March 2020 employee.
Newly eligible employees

The later reference date provides the opportunity for qualifying employers to access JobKeeper for those employees who they engaged after 1 March 2020 and who were in an employment relationship as at 1 July 2020. That is, for new employees engaged after 1 March.

The changes also allow employers to qualify for JobKeeper payments for those employees who do not qualify as 1 March 2020 employees, but became eligible by meeting the conditions under the new 1 July 2020 reference date.

Existing and re-employed employees

The amending rules make no changes to the existing eligibility of employees who are already covered by JobKeeper; that is, those for whom the employer has been receiving the benefit based on their status as at 1 March 2020. In other words, eligible 1 March 2020 employees do not need to retest (and potentially lose) their eligibility for their employer due to the introduction of the 1 July 2020 date, or satisfy any new nomination requirements.

Although employees do not qualify as 1 March 2020 employees if their employment has ceased since 1 March, they may qualify for JobKeeper if they are engaged by another employer as at 1 July 2020. Further, if 1 March 2020 employees are made redundant by an employer and are later re-employed by the same employer (including after 1 July 2020), there is scope for them to qualify without further testing.

Employer obligations

Employers that are already participating in the JobKeeper program are required to give a notice to all employees about the revised JobKeeper reference date, other than:

  • employees to whom the employer has previously given a notice in writing advising that the employer has elected to participate in the JobKeeper scheme;
  • employees who had previous provided the employer with a nomination form in relation to the JobKeeper scheme;
  • individuals who the employer reasonably believes do not satisfy the 1 July 2020 requirements; and
  • employers that are ACNC-registered charities that have elected to disregard certain government and related supplies and the individual’s wages and benefits are funded from such government and related sources.

Further, to be eligible for the JobKeeper payment for any newly eligible employees under the 1 July 2020 reference date, a qualifying employer must provide notice to the ATO of information about that employee and their nomination. Where an employer has provided this notification to the ATO for entitlement to receive JobKeeper payments in respect of the eligible employee, the employer must notify the employee within seven days.

For those employers entering JobKeeper for the first time, the notification requirement will apply to all of their employees.

PM announces pandemic leave disaster payment for Victoria

Prime Minister Scott Morrison announced on 3 August 2020 a Federal Government “pandemic leave disaster payment”. The payment will be a one-off amount of $1,500, available to workers in Victoria who have no sick leave available who have to self-isolate for 14 days as a result of an instruction by a public health officer.

It will only apply to workers in Victoria, where the Government has declared a “state of disaster” and imposed Stage 4 lockdowns, which are expected at this point to run until mid-September.

The Victorian Government has already announced that it will provide a disaster payment, principally made to those on short-term visas; that is, those who are not permanent residents or citizens of Australia who otherwise wouldn’t have accessed Commonwealth payments. The Federal Government will provide its payment to those who fall outside that scope and who don’t have leave available to them because it has been used up.

Accessing the Federal Government payment

Services Australia has provided further details on its website. It states that, to get this payment, the applicant must:

  • be at least 17 years old;
  • live in Victoria; and
  • have no income from paid work, including sick leave entitlements.

In addition, the Victorian Department of Health and Human Services must also have told the applicant to self-isolate or quarantine. They must have done this because the applicant:

  • has COVID-19;
  • has been in close contact with a person who has COVID-19;
  • cares for a child, aged 16 years and under, who has COVID-19; and/or
  • cares for a child, aged 16 years and under, who has been in close contact with a person who has COVID-19.

If a person has to self-isolate more than once, they can claim this payment each time. However, a person cannot get this payment if they already receive:

  • an income support payment, ABSTUDY Living Allowance, Paid Parental Leave or Dad and Partner Pay;
  • the JobKeeper payment; or
  • the Victorian Coronavirus (COVID-19) Worker Support Payment.
Coronavirus Worker Supplement Payment (Victoria)

The Victorian Government announced its Coronavirus Worker Supplement Payment on 30 July. To be eligible for a one-off $1,500 Coronavirus (COVID-19) Worker Support payment, the claimant must have been instructed by the Department of Health and Human Services:

  • to self-isolate or quarantine at home because they are either diagnosed with coronavirus (COVID-19) or are a close contact of a confirmed case; or
  • that a child aged aged under 16 in the claimant’s care needs to self-isolate or quarantine at home because they are either diagnosed with coronavirus (COVID-19) or are a close contact of a confirmed case.

To receive the payment, the claimant must:

  • be 17 years and over;
  • be currently living in Victoria (including people on Temporary Protection Visas and Temporary Working Visas 457 and 482);
  • be likely to have worked during the period of self-isolation or quarantine and are unable to work as a result of the requirement to stay at home;
  • not be receiving any income, earnings or salary maintenance from work;
  • have exhausted sick leave entitlements, including any special pandemic leave; and
  • not be receiving the JobKeeper payment or other forms of Australian Government income support.

There is no requirement for a claimant to be a citizen or permanent resident to be eligible for the Victorian Government payment.

Loans put on hold and debt forgiveness: ATO’s views

The ATO has “clarified” its position on loans put on hold during COVID-19. The ATO will consider a debt to be forgiven for tax purposes if:

  • the debtor is somehow relieved from the legal obligation to repay it; or
  • there is evidence that the creditor won’t insist on repayment or rely on the obligation for repayment.

A debt is not considered to be forgiven if a creditor only postpones an amount payable and the debtor acknowledges the debt – unless there is evidence that the creditor will no longer rely on the obligation for repayment.

Residency and source of income in the COVID-19 era

The ATO has issued an update on residency and source of income. It deals with issues from the perspectives of an Australian resident and a foreign resident in the context of a change of residency due to COVID-19.

In terms of Australian residents, the update addresses those who are temporarily overseas and those who have had to return to Australia early from certain foreign service. The latter may involve the “91 days of continuous foreign service” test.

Where the update is interesting regards what it says about foreign residents who are stuck in Australia because of the COVID-19 pandemic. The ATO acknowledges that “COVID-19 has created a special set of circumstances that must be taken into account when considering the source of the employment income earned by a foreign resident who usually works overseas but instead performs that same foreign employment in Australia”.

Whether salary or wages earned from continuing foreign employment working remotely while in Australia temporarily is assessable depends on:

  • whether it is from an Australian or a foreign source; and
  • whether a double tax agreement (DTA) applies.

Where the remote working arrangement is short-term (three months or less), the ATO readily accepts that income from that employment won’t have an Australian source.

For working arrangements longer than three months, the ATO says that individual circumstances need to be examined to determine if a person’s employment is connected to Australia.

ATO’s employees guide for work expenses updated

The ATO has updated its employees guide for work expenses for 2019–2020. The document is designed to assist employees to determine whether incurred expenses are tax deductible, and outlines the substantiation requirements.

The following are highlighted as being new for 2019–2020:

  • The additional method for calculating running expenses incurred as a result of working from home (the “shortcut method” allowing an 80 cents per hour deduction) was introduced to help employees working from home during the COVID-19 pandemic. This method was initially only available to use from 1 March 2020 to 30 June 2020, but has now been extended to 30 September 2020.
  • Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under s 8-1 of ITAA has been released. This ruling provides guidance on when an employee can claim a deduction for a work expense.

The employees guide highlights “common myths” about expenses – for example, the myths that everyone can automatically claim $150 for clothing and laundry, 5,000 km of travel under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money, or that employees can claim gym membership if they need to be fit for work.

FBT: cars garaged at employees’ homes during COVID-19

The ATO has published a fact sheet to assist employers in determining if they have an FBT liability where cars are garaged at employees’ homes because of COVID-19.

The fact sheet states that the ATO will accept that an employer isn’t holding a car for the purposes of providing fringe benefits where the car isn’t being driven at all, or is only being driven for maintenance purposes. Provided that the employer elects to use the operating cost method and maintains odometer records, the employer will not have an FBT liability for a car. Without electing to use the operating cost method or not having odometer records, the statutory formula method applies and an FBT liability will arise as the car garaged at the employee’s home is taken to be available for private use.

Where a home-garaged car is being driven by an employee for business purposes, the ATO says the employer may be able to reduce the taxable value of the car fringe benefit by taking into account the business use, provided the employer has logbook records and odometer records for the period in question. Logbook records will need to be for at least:

  • 12 continuous weeks; or
  • until the car stops being garaged at home, if this is less than 12 weeks.

The fact sheet also provides information on logbook requirements for car fringe benefits and options for employers to consider where COVID-19 has impacted driving patterns.