The ATO is targeting side hustlers: Here’s what you need to know

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This is an interesting article for those of you who have started a side business.

Starting a side business can open a path towards financial freedom, but that opportunity comes with the risk of falling afoul of the Australian Taxation Office.

Director of tax communications at H&R Block Mark Chapman said that starting a side business comes with tax obligations that have to be met.

The first tip offered when it comes to side businesses is to remember that every extra dollar your business earns will count against your annual taxable income.

Even if you get paid in cash, you’ll need to declare that additional income. Not doing so comes with significant risks, so it’s much better to err on the side of caution.

If the annual turnover of your business is greater than $75,000, you’ll also have to register your small business for GST and apply that tax to transactions. Having to do adopt this extra tax obligation can sometimes work in your favor.

The GST you pay on your purchases or expenses can be offset against the GST you owe; only the net figure is paid to the taxman.

Keeping track of just how much extra income you need to declare can be messy.

Investing in professional bookkeeping software can help alleviate this.

There are plenty of accounting software packages out there that can help you stay on top of your figures.

Having the right records in place is also an important step when it comes to deductions.

Handling this aspect of the tax system correctly can usually be time-consuming, but it’s usually worth the trouble. The total extra income of your side business is going to be dependent not just on the amount earned, but also the amount of deductions made.

Be sure to claim all business expenses whether that’s the cost of buying stock, heating your office or any of the many other expenses you might incur.

Additionally, a common pitfall for new business owners is failing to put aside money to pay their taxes.

Proactive management of your cash flow to set money aside for future tax bills is necessary.

If your customers are slow to pay your invoices, you’ll struggle to pay your debts and you definitely don’t want to be in debt to the ATO.

 

Source: https://www.nestegg.com.au/earn-money/tax-refund 

Explanatory Memorandum – September 2021

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Single Touch Payroll update

Phase 2 coming soon

The ATO is expanding the information that businesses send through Single Touch Payroll (STP). From 1 January 2022, most employers will be required to send additional information such as the commencement date of employment and cessation date of employment for employees, their reasons for leaving employment and work type (eg full-time, part-time). The basic information about salary and wages and super liability information in Phase 1 of the STP rollout will also be further drilled down in Phase 2, moving away from just reporting the gross amounts.

STP was originally introduced in 2016 as a way for employers to report their employees’ tax and super information to the ATO in real time. Most employers, regardless of the number of their employees, were required to start reporting from 1 July 2021 – this included small employers with closely held/related payees. However, employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP.

In Phase 1, the information sent to the ATO through STP included basic salaries and wages, PAYG withholding and super liability information. The amount of information sent to the ATO is being expanded in Phase 2, which has a mandatory starting date of 1 January 2022. From that date, each employee included in the STP report will need to have either a TFN or an ABN attached, as well as an employment commencement date.

Additional information will also need to be provided on the employment basis of employees according to their work type. Types include, for example, full-time, part-time, casual, labour hire, voluntary agreement (ie a contractor to bring work payments into the PAYG withholding system), death beneficiary or non-employee (ie a contractor who is included for voluntary reporting of super liabilities only).

According to the ATO, the Phase 2 report will also include a six-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments. For example, it’ll let the ATO know whether they are regular employees that have the tax-free threshold applied or not. It will also let the ATO know if they are in special categories of employee, such as actors, horticulturists/shearers, working holiday makers, seasonal workers, foreign residents or seniors.

The basic information about salary and wages and super liability information will also be further drilled down. Instead of reporting the gross amount, employers will need to report the following separately:

  • gross salary and wages;
  • paid leave – including annual, long service, personal/carer, rostered days off (RDOs), study leave, compassionate leave, family and domestic leave, paid parental leave, workers’ compensation, ancillary and defence leave, and cash-out of leave in service;
  • allowances – including cents-per-kilometre, award transport payments, laundry, overtime meal allowance, domestic or overseas travel, tool allowances, qualification and certification allowances, task allowances and other allowances;
  • overtime – including on-call, stand-by or availability allowances, call-back payments, excess travel etc;
  • bonuses and commissions;
  • directors’ fees – including remuneration paid to both working and non-working directors;
  • lump sum W – return to work payment; and
  • salary sacrifice – including reporting pre-sacrifice amounts as well as separate reporting of salary sacrifice.

While most of this increase in information will be automatically taken care of in most employers’ software solutions, the increased stratification of reporting requires more attention to be paid to payroll to ensure all the information entered into the system is correct.

Closely held employees reporting exemption through STP

The ATO registered legislative instrument Taxation Administration – Single Touch Payroll – 2019-20 and 2020-21 Income Years Closely Held Payees Exemption 2021 on 28 July 2021. This instrument exempts certain entities from the requirement to report through STP on payments made to closely held payees. The exemption applies in the 2019–2020 and 2020–2021 income years, and the instrument is taken to have commenced on 1 July 2019. It had earlier been issued in draft form.

Small employers with closely held payees have already been exempt from reporting these payees through STP for the 2019–2020 and 2020–2021 financial years via ATO administration, and this is what the instrument now formally implements.

For these purposes, small employers are those with 19 or fewer employees. A closely held payee is an individual who is directly related to the entity from which they receive a payment.  For example:

  • family members of a family business;
  • directors or shareholders of a company; and
  • beneficiaries of a trust.

The ATO offers the following three options for reporting payments made to closely held payees from 1 July 2021.

Option 1: report actual payments for each pay event

Small employers can report actual payments to closely held payees through STP on or before the date of payment. In other words, whenever the small employer makes a payment to a closely held payee, they report the information on or before each pay event.

Option 2: report actual payments quarterly

Small employers can choose to report any closely held payees on a quarterly basis. However, such employers must continue to report information about all of their other employees via STP on or before payday.

This quarterly option does not change the due date for:

  • notifying and paying PAYG withholding on activity statements;
  • making super guarantee contributions for any closely held payees.
Option 3: report a reasonable estimate quarterly

This reporting option allows small employers to report reasonable year-to-date amounts for their closely held payees quarterly. Not unexpectedly, there is more detail surrounding this option.

The ATO will remit any failure to withhold penalty a small employer may incur if it:

  • reports year-to-date withholding amounts and tax withheld for a closely held payee that is equal to or greater than 25% of the payee’s total gross payments and tax withheld from the previous finalised payment summary annual report (PSAR) across each quarter of the current financial year in its quarterly STP reports;
  • report and pay the tax withheld on time.

It is important that small employers do not underestimate amounts reported for their closely held payees. If an ATO review identifies that a small employer made payments to closely held payees equalling more that 25% of their total gross payments for the last financial year and did not report this through STP, the entity may:

  • be liable for super guarantee charge (SGC) and have to lodge SGC statements (if it did not make sufficient contributions during a quarter);
  • not be able to deduct the payment for income tax; and
  • be liable for penalties and interest.
Correcting information

Quarterly reporters have until the due date of their next quarterly STP report to correct a closely held payee’s year-to-date information.

If a closely held payee will not be included in a following quarterly STP report, the small employer must either:

  • include them in its current quarterly STP report with corrected year to date amounts; or
  • lodge an update event by the relevant due date for quarterly activity statement with the corrected year to date amount for the payee.
Finalisation declarations

Small employers with only closely held payees have up until the due date of the closely held payee’s individual income tax return to make a finalisation declaration for a closely held payee.

Small employers can make a finalisation declaration for a closely held payee at any time during the financial year (eg for closely held payees who have ceased employment). They must make a finalisation declaration for arm’s length employees by 14 July.

Tax time 2021: rental property pitfalls

This tax time, the ATO is again closely monitoring claims in relation to rental properties. As with previous years, it’s on the lookout for rental property owners who do not declare all their income and capital gains from selling property. Other areas of concern include claims for interest charges on personal loans, and deductions for capital works.

The ATO has data-matching programs in place that collect detailed information about properties and owners for income years all the way from 2018–2019 to the 2022–2023. These programs expand the rental income data collected directly from third-party sources, including sharing economy platforms, rental bond authorities and property managers.

“People should remember that there’s no such thing as free real estate when it comes to their tax returns”, Assistant Commissioner Tim Loh has said. “Our data analytics scrutinise returns for rental deductions that seem unusually high. We will ask questions, and this may lead to a delay in processing your return.”

According to the ATO, in the 2019–2020 financial year over 1.8 million taxpayers owned rental properties and claimed $38 billion in deductions. While the ATO acknowledges that most taxpayers do the right thing and are able to justify their claims, it notes that over 70% of the 2019–2020 returns selected for review of rental information have subsequently had adjustments made.

The most common mistake that rental property owners and holiday homeowners make is not declaring all their income and capital gains from selling the property. This shortfall will obviously be tackled with information obtained from data-matching programs, but also sophisticated data analytics which will single out tax returns with unusually high rental deductions.

Another area of concern this tax time includes claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (eg to buy a car, pay off the mortgage of the house you’re living in etc), then you cannot claim interest on that part of the loan.

Taxpayers should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear to the property are immediately deductible if they’re replacing or fixing an existing item (eg a broken toilet or showerhead), the cost of upgrading the property or areas of the property (eg a kitchen or bathroom renovation) would be considered capital works and any deduction needs to be spread over a number of years.

For short-term stay property owners who have been affected by COVID-19 and travel restrictions, the ATO notes that if your plans to rent out the property in 2020–2021 were the same as in previous years, you will be able to claim the same proportion of expenses, although taxpayers can only do this if the property was not used privately. For example, if you, your family members, or friends have stayed at the property for free or at a reduced rate, you will not be able to claim some or all of the expenses relating to that period.

Rental property owners who have provided rental concessions to their tenants in the form of either reduced or deferred rent due to COVID-19 impacts will only need to declare the rent that has been received. Normal expenses can still be claimed on the property as long as the reduced rent was determined at arms’ length and in line with current market conditions.

New sharing economy reporting regime proposed

The government is seeking to legislate compulsory reporting of information for sharing economy platforms in order to more easily monitor the compliance of participants, while at the same time reducing the need for ATO resources. This would encompass any platforms that allow sellers and buyers to transact in a variety of sectors, although the reporting requirement would not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, title of real property is transferred, or the supply is a financial supply.

As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term “sharing economy”, it is usually taken to involve two parties entering into an agreement for one to provide services, or loan personal assets, to the other in exchange for payment. Examples of platforms in a wide variety of sectors include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer, to name a few.

With the rapid expansion of various sharing economy platforms, the government’s Black Economy Taskforce has noted that without compulsory reporting, it would be difficult for the ATO to gain information on compliance of sharing economy participants without the use of targeted audits. Putting formal reporting requirements in place would align Australia with international best practice.

On the back of the Taskforce’s report, the government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO.

This new compulsory reporting regime would apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply.

Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if they relate to a ride-sourcing or a short-term accommodation service, unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report, unless an exemption applies.

While the ATO will ultimately be responsible for determining the exact information to be reported, at a minimum, the following information is expected to be required once reporting commences:

  • seller’s identification information, including full legal name, date of birth, primary address, bank account details, ABN, TFN, telephone and email details; and
  • consideration and transaction information, including total gross and net payments to seller, GST attributable to gross payments, total fees/commissions withheld, GST attributable to total fees/commissions, property address (if a transaction relates to rental of real property), and period for which property is booked during the reporting period.

It is expected only the aggregate or total transactions relating to a seller over the reporting period will need to be provided; that is, information will not need to be provided on a transactional basis. Again, while the ATO will ultimately determine the frequency of reporting, the initial reporting is expected to be on a biannual basis (ie 1 July to 31 December, and 1 January to 30 June) with the relevant information to be reported by 31 January and 31 July respectively.

The government is hoping that with the introduction of this new reporting regime it is able to boost tax receipts, and by extension government coffers, by stamping out tax non-compliance (whether deliberate or unintentional) by those participants in the sharing economy.

Reminder: super changes for the 2021 financial year

The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will also be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute up to the amount they released without it counting towards their non-concessional cap.

Previously, if you made super contributions above the annual non-concessional contributions cap, you were able to automatically gain access to future year caps if you were under 65 at any time in the financial year. The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

With the passing of the flexibility in super legislation, individuals aged 65 and 66 who were previously unable to access the bring-forward arrangement in relation to non-concessional contributions are now permitted to do so.

For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can access a cap of up to $330,000 under the bring forward arrangement.

From 1 July 2021, the excess contributions charge is also removed. Previously, any individual who exceeded their concessional contributions would have been liable to pay the excess concessional contributions charge as well as the additional tax due when the excess contributions were withdrawn and included in their assessable income. The charge was approximately 3%, and was calculated from the start of the income year in which the excess contributions were made up until the day before the tax was due to be paid.

Individuals who make concessional contributions exceeding their cap on or after 1 July 2021 will no longer be liable to pay the excess concessional contributions charge. They will, however, still be issued with a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

With the fast-moving COVID-19 situation last year, many individuals lamenting a lack of financial support from the government early on opted to withdrawal money from their super as a lifeline. Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not all of the individuals who applied to have their super released ended up needing to use it once the government ramped up its financial support programs (including JobKeeper, JobSeeker and the cash flow boosts). From 1 July 2021, those individuals who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.

COVID-19 recontribution amounts are not a new type of contribution; rather, they are a personal contribution that receives a treatment to exclude it from an individual’s non-concessional contribution cap. Individuals can make COVID-19 recontributions to any fund of their choice where the fund rules allow. Each COVID-19 recontribution amount must be detailed on a separate approved form and cannot exceed $20,000 per approved form.

COVID-19 recontribution amounts will need to be reported by super funds to the ATO via MATS as a personal contribution. The ATO has requested that super funds record and hold the required information until it finalises the functionality to enable funds to use the Bulk Data Exchange facility via the Business Portal. The ATO is working through the process for self managed super funds (SMSFs) and will advise about that in due course.

Client Alert – September 2021

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Single Touch Payroll update

Phase 2 coming soon

The ATO is expanding the information that businesses send through Single Touch Payroll (STP). From 1 January 2022, most employers will be required to send additional information such as the commencement date of employment and cessation date of employment for employees, their reasons for leaving employment and work type. The basic information about salary and wages and super liability information in Phase 1 of the STP rollout will also be further drilled down in Phase 2, moving away from just reporting the gross amounts.

According to the ATO, the Phase 2 report will also include a six-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments.

STP was originally introduced in 2016 as a way for employers to report their employees’ tax and super information to the ATO in real time. Most employers, regardless of the number of their employees, were required to start reporting from 1 July 2021.

Employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP, and small employers that make payments to closely held payees are exempt from reporting these payees through STP for the 2019–2020 and 2020–2021 financial years.

While the Phase 2 increase in information will be automatically taken care of in most STP software solutions, the increased stratification of reporting may require you to pay more attention to your business’s payroll, to ensure all the information you enter into the system is correct.

Tax time 2021: rental property pitfalls

This tax time, the ATO is again closely monitoring claims in relation to rental properties. The ATO has data-matching programs in place that collect detailed information about properties and owners for income years all the way from 2018–2019 to the 2022–2023. These programs expand the rental income data collected directly from third-party sources, including sharing economy platforms, rental bond authorities and property managers.

In the 2019–2020 financial year over 1.8 million taxpayers owned rental properties and claimed $38 billion in deductions. While most taxpayers do the right thing and are able to justify their claims, the ATO notes that over 70% of the 2019–2020 returns selected for review of rental information needed adjustments.

The most common mistake that rental property owners and holiday homeowners make is not declaring all their income, and their capital gains from selling property.

Another area of concern involves claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (eg to buy a car or pay off the mortgage of the house you’re living in), then you can’t claim interest on that part of the loan.

You should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear are immediately deductible if you’re replacing or fixing an existing item (eg a broken toilet), the cost of upgrading the property or areas of the property is considered capital works and any deductions need to be spread over a number of years.

New sharing economy reporting regime proposed

The government is seeking to legislate compulsory reporting of information for sharing economy platforms in order to more easily monitor the compliance of participants, while at the same time reducing the need for ATO resources.

As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term “sharing economy”, it’s usually taken to involve two parties entering into an agreement for one to provide services, or to loan personal assets, to the other in exchange for payment. Examples of platforms include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer, to name a few.

With the rapid expansion of various sharing economy platforms, the government’s Black Economy Taskforce has noted that without compulsory reporting, it is difficult for the ATO to gain information on compliance without undertaking targeted audits. Putting formal reporting requirements in place will align Australia with international best practice.

The government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO.

This new compulsory reporting regime would apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply.

Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if they relate to a ride-sourcing or a short-term accommodation service, unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report, unless an exemption applies.

The initial reporting is expected to be biannual (1 July to 31 December, and 1 January to 30 June) with electronic service operators required to report the relevant information by 31 January and 31 July respectively.

Reminder: super changes for the 2021 financial year

The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute it without hitting their non-concessional cap.

Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year.

The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.

More support for NSW businesses as Premier declares ‘national emergency’

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Projections from earlier in the week by the Population Interventions Unit at the University of Melbourne estimated that Sydney’s stay-at-home orders would need to be extended into September to get the latest outbreak under control, meaning businesses could be facing prolonged closure.

On Friday, facing yet another day of rising case numbers, NSW Premier Gladys Berejiklian declared the situation as a “national emergency”.

While some business owners have said the new federal and state support grants are not sufficient to weather lockdown losses, with many calling for the reinstatement of JobKeeper, new details have emerged about the payroll tax reduction and the deferral scheme announced by the state government earlier this month.

According to a new statement issued by the state treasurer, any business that carries a payroll tax liability now has the option to defer lodgement and payment of their 2020–21 annual reconciliation until 7 October 2021.

Payroll tax customers who are ordinarily required to lodge monthly returns will also have the option of deferring their returns due in August and September until 7 October 2021.

Moreover, anyone who chooses to defer their payments is eligible for an interest-free payment plan of up to 12 months.

Additionally, businesses with annual wages between $1.2 million and $10 million that can prove a 30 per cent decline in turnover over a similar period in 2019 are set to receive a 25 per cent reduction in their 2021–22 payroll tax.

Businesses across NSW are eligible for the reductions and deferrals.

Parliament Passes Bill on Tax-Free COVID-19 Support Payments

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The Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 finally passed both houses without amendment on Monday after the Senate agreed not to insist on a transparency measure which would have forced businesses to disclose how much they received in JobKeeper wage subsidies.

Under the new law, COVID-19 Disaster Payments dating back to its introduction on 3 June will now be non-assessable non-exempt income, meaning recipients will take home more than they did under the $90 billion JobKeeper wage subsidy program, which was taxed.

Workers who lose 20 or more hours of work a week will receive $750 a week, while those who lose between 8 and 20 hours will receive $450.

COVID-19 Disaster Payment recipients can now expect to be better off by $90 a week compared with the JobKeeper wage subsidy, based on an annualised $39,000 income of $750 each week.

The newly passed bill will also ensure that COVID-19 business support payments will be treated as non-assessable non-exempt income.

Business support payments will only be tax-free if they are made under a program declared eligible by Treasurer Josh Frydenberg and were received in the 2021–22 financial year.

Entities must also have an aggregated turnover of less than $50 million to be eligible for the concessional tax treatment, putting it at odds with NSW’s JobSaver program which was recently expanded to businesses with an annual turnover of up to $250 million.

Information and data from the ATO will also now be shared with the relevant states and territories administering COVID-19 business support programs.

Finally, the bill will also give Treasurer Josh Frydenberg powers to authorise additional COVID-19 payments to businesses affected by state or territory lockdowns between 1 July 2021 and 31 December 2022.

Michael Croker, tax leader at Chartered Accountants Australia and New Zealand, believes the Treasurer now has ace up his sleeve as states continue to enter snap lockdowns to combat the spread of COVID-19.

 

Source: https://www.accountantsdaily.com.au/tax-compliance/16021-parliament-passes-bill-on-tax-free-covid-19-support-payments

Explanatory Memorandum – August 2021

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ATO tax time support: COVID-19 and natural disasters

The ATO has a range of year-end tax time options to support taxpayers who have been affected by the COVID-19 pandemic and recent natural disasters.

Income statements can be accessed in ATO online services through myGov accounts from 14 July. The ATO also reminds those who may have lost, damaged or destroyed tax records due to natural disasters that some records can be accessed through their myGov account or their registered tax agent. For lost receipts, the ATO can accept “reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents”. A justification may be required on how a claim is calculated.

The following provides a summary of tax treatment of different support schemes:

  • JobKeeper – Payments received as an employee will be automatically included in the employee’s income statement as either salary and wages or as an allowance. However, sole traders who received JobKeeper payment on behalf of their business will need to include the payment as assessable income for the business.
  • JobSeeker – Payments received will be automatically included in the tax return at the Government Payments and Allowances question from 14 July.
  • Stand down payments – Employees receiving one-off or regular payments from their employer after being temporarily stood down due to COVID-19 should expect to see those payments automatically included in their income statement as part of their tax return.
  • COVID-19 Disaster Payment for people affected by restrictions – The Australian Government (through Services Australia) COVID-19 Disaster Payment for people affected by restrictions is taxable. Taxpayers are advised to ensure they include this income when lodging their returns.
  • Tax treatment of other assistance – The tax treatment of assistance payments can vary; the ATO website outlines how a range of disaster payments impact tax returns and includes guidance on COVID-19 payments, including the taxable pandemic leave disaster payment.
  • Early access to superannuation – Early access to superannuation under the special arrangements due to COVID-19 is tax free and does not need to be declared in tax returns.

Assistant Tax Commissioner Tim Loh offered this piece of advice: “Even if you can’t pay, it’s still important to lodge on time. Once you lodge and have up-to-date records, [the ATO] can help you understand your tax position and find the best support for you.”

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-here-to-help-those-hit-by-COVID-19-and-natural-disasters/;

www.ato.gov.au/general/dealing-with-disasters/assistance-payments/#Taxtreatmentofdisasterreliefpayments;

www.ato.gov.au/General/COVID-19/Government-grants-and-payments-during-COVID-19/.

Hardship priority processing of tax returns

It’s tax time again and if your business is experiencing financial difficulties due to the latest lockdowns, the ATO may be able to help by processing your tax return faster and expediting the release of any refund to you. To be eligible for priority processing, you’ll need to apply to the ATO and provide supporting documents (within four weeks of your submission) outlining your circumstances. “Financial difficulty” may include many situations such as disconnection of an essential service, pending legal action or repossession of a business vehicle.

According to the ATO, financial difficulty may occur in many situations, including but not limited to business closure, disconnection of an essential service, repossession of a business vehicle, pending legal action for unpaid debts, court orders, settlements and other necessities the business is responsible for.

 

As the circumstances of financial difficulty may vary, the supporting documents may be general (eg bank notices, overdraft calls, staff pay records, or eviction notices) or specific (eg disconnection notice for an essential service, repossession notice of a vehicle, notice of impending legal action, payment schedules or other legal documents).

Businesses can apply for ATO priority processing over the phone or through their tax professional after the lodgment of the tax return in question. Once the initial request for priority processing is received by the ATO, the applicant will be notified and contacted if more information is required. Processing will take more time for businesses that have lodged several years’ worth of income tax returns of amendments at the same time, and those that have unresolved tax debts.

Before lodging any priority processing request, the taxpayer should check the progress of their return through online services, the phone or their tax professional. If the return is in the final stages of processing, they may not need to lodge a priority processing request as the return will be finalised before the ATO has had an opportunity to consider the request.

Remember, priority processing of a business tax return doesn’t guarantee a refund. If the business has outstanding tax or other debts with Australian government agencies, the credit from a return may be used to pay down those debts.

For businesses that do not qualify for priority processing but are still experiencing hardship, there are various options to assist with cashflow, including adjusting GST registration and reporting, as well as varying PAYG instalments. If the business’s GST turnover is less than $75,000 they may be able to either cancel their GST registration or remain registered but report and pay GST annually or monthly. To vary PAYG instalments when business income is reduced, the business can lodge a variation on the next BAS or instalment notice and the varied amount will apply to the remaining instalments for the income year.

In addition, if business funds have been frozen or if the business owes the ATO under $100,000, it may be possible to pay the tax by instalments or the business may be eligible for a payment deferral. Remember, however, that the ATO doesn’t have the discretion to vary super contribution due dates or waive the super guarantee charge for late payments, so care needs to be taken to avoid penalties in this area.

Workplace giving versus salary sacrifice donations

Have your clients made donations either through workplace giving or salary sacrifice arrangements with their employers? If so, and they want to claim a deduction in their tax returns, it’s important for them to know that the tax treatment differs depending on which method they used to make the donation.

Essentially, workplace giving is a streamlined way for employees to regularly donate to charities and deductible gift recipients (DGRs). Usually a fixed portion of the employee’s salary is deducted from the employee’s pay each pay cycle and the employer forwards the donation on to the DGR. However, the amount of the employee’s gross salary remains the same and, depending on the employer’s payroll systems, the amount of tax paid by the employee each pay period may or may not be reduced to take into account the donation.

On the other hand, under a typical salary sacrificing donation arrangement, the employee agrees to have a portion of their salary donated to a DGR in return for the employer providing benefits of a similar value to the employee. The employee’s gross salary is reduced by the salary sacrificed amount and the amount of tax paid by the employee each pay period will be reduced; the employer makes the donation to the DGR.

If an employee has made a donation under workplace giving, they are able to claim a deduction in their tax return. This is regardless of whether or not the employer reduced the amount of tax paid each pay cycle to account for the amount of the donation. The employer will provide the employee with a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made.

Alternatively, the employer will provide the total amount of donations the employee made for the year in the employee’s payment summary, under the “Workplace giving” section.

Those who have made a donation to a DGR under a salary sacrifice arrangement, however, are not entitled to claim a deduction in their tax return, since it is the employer that is making the donation to the DGR – not the employee. Therefore, it is prudent for your clients to check whether they’ve donated under workplace giving or a salary sacrifice arrangement before claiming any deductions for donations to DGRs this year.

For taxpayers who have made donations outside the workplace, remember that for a donation to be deductible it must be made to a DGR and truly be a gift or donation (ie voluntarily transferring money or property without receiving or expecting to receive any material benefit or advantage in return) of $2 or more. Although, if you receive a token item for a donation (eg a lapel pin, wristband, sticker etc), you are still able to claim a deduction.

Receipts must be kept for donations made outside of workplace giving programs; however, if taxpayers have made donations of $2 or more to “bucket collections” conducted by an approved organisation they may be able to claim tax deductions for gifts up to $10 without a receipt. It should also be noted that many crowdfunding campaigns and sites are not run by DGRs, and subsequently any donations made to those causes should be carefully examined – it’s likely they will not be deductible.

Employers beware: increase in super guarantee

From 1 July 2021, the rate of super guarantee increased from 9.5% to 10%. Businesses using manual payroll processes should be careful that this change doesn’t lead to unintended underpayment of super, which may attract penalties. The rate employers should use to calculate super contributions depends on the date that they are paying their employees – it doesn’t matter if the work was performed in a different quarter. The new rate of 10% is the minimum percentage now required by law, but employers may pay super at a higher rate under an award or agreement.

Depending on how a business’s employment contracts are structured (eg a package, or base pay plus superannuation), the new extra 0.5% may either come from the employee’s existing gross pay or be extra payment on top of their salary.

Most payroll and accounting systems will have incorporated the increase in their super rate, but it’s always good to check. If your clients are still using a manual process to pay their employees, they will need to work out how much super to pay under the new rate. The process is fairly simple: they will just need to multiply an employee’s ordinary time earnings based on salary and wages paid in the quarter by 10% (or a higher rate if one applies under an award or agreement).

Remember, the rate used to calculate super contributions depends on the quarter that in which the business is paying its employees in. It does not matter if the work is performed in a different quarter. The 10% super guarantee applies to all super payments made after 1 July 2021.

Employers may not necessarily have to pay their employees’ super every pay cycle, but payment needs to be made at least four times a year (ie at least once each quarter). For the 1 July to 30 September quarter, super guarantee contributions are due by 28 October. Employers that miss this payment due date may be subject to the super guarantee charge and other penalties.

It should also be noted that some super funds, employment awards and contracts require employers to pay super more regularly than quarterly; therefore, various contractual obligations should be checked before moving to a quarterly remittance cycle.

This latest increase to 10% is by no means the last time the super guarantee rate will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year) the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023–2024 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

COVID-19 lockdown support: NSW, Vic and SA

If your business or employment income has been affected by recent COVID-19 related lockdowns in New South Wales, Victoria and South Australia, financial help is available from both the state and Federal governments. Depending on the length of the lockdown, businesses may be eligible to receive a co-funded small and medium business support payment, as well as various cash grants.

Federal support

Businesses

For small and medium businesses, depending on the length of the lockdown, the Federal government will fund up to 50% small and medium business support payments to be administered by the states. For example, under the scheme, eligible entities in NSW will receive 40% of their NSW payroll payments – at a minimum of $1,500 and a maximum of $10,000 per week – if their turnover decreases by 30% from an equivalent two-week period in 2019.

Businesses will need to have an annual turnover of between $75,000 and $50 million. Non-employing businesses (eg sole traders) will also be eligible; however, the maximum payment will be set at $1,000 per week. In order to receive the payment, businesses will be required to maintain their full-time, part-time and long term casual staffing levels as at 13 July 2021.

The Federal government will also seek to make various state business grants tax exempt and provide support for taxpayers through the ATO with reduced payment plans, waiving interest charges on late payments and varying instalments on request. For individuals, the COVID-19 disaster payment of up to $600 will be available in any state or territory where a lockdown has been imposed.

Individuals

Where lockdowns or movement restrictions are in place or local government areas have been declared “hotspots”, the Federal government’s COVID-19 Disaster Payment is also activated. Individuals are eligible this payment if they have lost between eight and 19 hours of work (for a payment of $375), or 20 or more hours of work (for a payment of $600) because of restrictions under a state public health order.

The payments will be made in arrears and anyone affected can apply through myGov. More information about these payments and how to claim is available on the Services Australia website at www.servicesaustralia.gov.au/individuals/services/centrelink/covid-19-disaster-payment.

Source: www.pm.gov.au/media/nsw-covid-19-support-package-0;

www.servicesaustralia.gov.au/individuals/services/centrelink/covid-19-disaster-payment;

https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/nsw-covid-19-support-package;

www.pm.gov.au/media/childcare-gap-fee-waiver-nsw-families-covid-affected-areas;

www.pm.gov.au/media/press-conference-kirribilli-nsw-6; www.pm.gov.au/media/vic-covid-19-support-package.

New South Wales

Eligible businesses with annual wages up to $10 million will be able to claim state government grants of between $7,500 and $15,000 under the business grants program. Smaller and micro businesses with turnover of between $30,000 and $75,000 that experience a decline in turnover of 30% will be eligible for a $1,500 payment per fortnight of restrictions.

Payroll tax waivers of 25% will be available for businesses that have Australian wages of between $1.2 million and $10 million and have experienced a 30% decline in turnover. In addition, payroll tax deferrals and interest free payment plans will be available.

Commercial, retail and residential landlords who provide rental relief to financially distressed tenants will be able to claim land tax relief equal to the value of rent deductions up to a maximum of 100% of the 2021 land tax liability. Residential landlords that are not liable for land tax may be able to claim a capped grant of up to $1,500 where they reduce rent for tenants.

Just as support for landlords has been ramped up, the NSW government will also be protecting tenants with a short-term eviction moratorium for rental arrears where a residential tenant suffers a loss of income of 25% due to COVID-19 and meets a range of other criteria. There will also be no recovery of security bonds, lockouts or evictions of impacted retail/commercial tenants prior to mediation.

Source: www.nsw.gov.au/media-releases/accelerated-2021-covid-19-business-support-grant-open;

www.nsw.gov.au/covid-19/businesses-sole-traders-and-small-not-for-profits;

www.smallbusiness.nsw.gov.au/resources/summary-covid-19-support-measures-micro-and-small-business;

www.service.nsw.gov.au/transaction/2021-covid-19-business-grant;

www.nsw.gov.au/media-releases/payroll-tax-reductions-and-deferrals-to-support-businesses; www.revenue.nsw.gov.au/.

Victoria

Businesses in Victoria will be provided with cash grants from the state government. These payments will be automatically made to eligible businesses and sole traders to minimise delays. The state government estimates that up to 90,000 business that previously received assistance payments in relation to previous lockdowns will receive the new cash grant of $3,000 for licensed hospitality venues and $2,000 for other businesses.

Source: www.premier.vic.gov.au/cash-support-victorian-businesses-during-lockdown.

South Australia

Small and medium-sized businesses that suffer a significant loss of income or were forced to close as a result of South Australia’s seven-day lockdown are being offered a $3,000 emergency cash grant as part of a $100 million business support package. The package also includes a new $1,000 cash grant for eligible small businesses that don’t employ staff (eg non-employing sole traders).

Modelled on similar schemes in Victoria, NSW and WA, the SA grants will apply to businesses with a payroll of less than $10 million, with an annual turnover of $75,000 or more (in 2020–2021 or 2019–2020) and whose turnover reduced by at least 30% over the seven days from 20 July 2021 as a result of the lockdown.

In addition, the SA Government said it will provide fully-funded income support payments of up to $600 per week for eligible workers in regional SA who live or work outside of the Commonwealth-declared “hotspot” local government areas, and are therefore not entitled to the Federal $375 or $600 per week COVID-19 Disaster Payment.

Source: www.pm.gov.au/media/commonwealth-income-support-way-sa-hotspots; www.premier.sa.gov.au/news/media-releases/news/cash-grants-lifeline-for-sa-small-businesses-and-income-support-payments-for-regional-workers.

Client Alert – August 2021

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ATO tax time support: COVID-19 and natural disasters

The ATO has a range of year-end tax time options to support taxpayers who have been affected by the COVID-19 pandemic and recent natural disasters.

Income statements can be accessed in ATO online services through myGov accounts from 14 July.

The ATO also reminds those who may have lost, damaged or destroyed tax records due to natural disasters that some records can be accessed through their myGov account or their registered tax agent. For lost receipts, the ATO can accept “reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents”. A justification may be required on how a claim is calculated.

JobKeeper

Payments received as an employee will be automatically included in the employee’s income statement as either salary and wages or as an allowance. However, sole traders who received JobKeeper payment on behalf of their business will need to include the payment as assessable income for the business.

JobSeeker

Payments received will be automatically included in the tax return at the Government Payments and Allowances question from 14 July.

Stand down payments

Employees receiving one-off or regular payments from their employer after being temporarily stood down due to COVID-19 should expect to see those payments automatically included in their income statement as part of their tax return.

COVID-19 Disaster Payment

The Australian Government (through Services Australia) COVID-19 Disaster Payment for people affected by restrictions is taxable. Taxpayers are advised to ensure they include this income when lodging their returns.

Other assistance

The tax treatment of assistance payments can vary; the ATO website outlines how a range of disaster payments impact tax returns and includes guidance on COVID-19 payments, including the taxable pandemic leave disaster payment.

Early access to superannuation

Early access to superannuation under the special arrangements due to COVID-19 is tax free and does not need to be declared in tax returns.

Hardship priority processing of tax returns

If your business is experiencing financial difficulties due to the latest lockdowns, the ATO may be able to help by processing your tax return faster and expediting the release of any refund to you. To be eligible for priority processing, you’ll need to apply to the ATO and provide supporting documents (within four weeks of your submission) outlining your circumstances. “Financial difficulty” may include many situations such as disconnection of an essential service, pending legal action or repossession of a business vehicle.

You can apply for ATO priority processing over the phone or through your tax professional after the lodgment of the tax return in question. Once the initial request for priority processing is received, you’ll be notified and contacted if more information is required. Processing will take more time for businesses that have lodged several years’ worth of income tax returns of amendments at the same time, and those that have unresolved tax debts.

Before lodging any priority processing request, check the progress of your return through online services, over the phone or by contacting us as your tax professional. If the return is in the final stages of processing, you may not need to lodge a priority processing request – the return will be finalised before the ATO has an opportunity to consider the request.

Workplace giving versus salary sacrifice donations

Have you made donations either through workplace giving or salary sacrifice arrangements with your employer? If so, and you want to claim a deduction in your tax return, it’s important to know that the tax treatment differs depending on which method you used to make the donation.

Essentially, workplace giving is a streamlined way for employees to regularly donate to charities and deductible gift recipients (DGRs). Usually a fixed portion of your salary is deducted from your pay each pay cycle and your employer forwards the donation on to the DGR. However, the amount of your gross salary remains the same and, depending on your employer’s payroll systems, the amount of tax you pay each pay period may or may not be reduced to take into account the donation.

On the other hand, under a typical salary sacrificing donation arrangement, you agree to have a portion of your salary donated to a DGR in return for your employer providing you with benefits of a similar value. Your gross salary is reduced by the salary sacrificed amount and the amount of tax you pay each pay period will be reduced. Your employer makes the donation to the DGR.

If you’ve made a donation under workplace giving, you can claim a deduction in your tax return. This is regardless of whether or not your employer reduced the amount of tax you paid each pay cycle to account for the amount of the donation. Your employer will give you a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made. Alternatively, your employer will provide the total amount of donations you made for the year in your tax time payment summary, under the “Workplace giving” section.

If you’ve made a donation to a DGR under a salary sacrifice arrangement, however, you’re not entitled to claim a deduction in your tax return, since it’s your employer that is making the donation to the DGR – not you.

If you make donations outside the workplace, remember that for a donation to be deductible it must be made to a DGR and truly be a gift or donation of $2 or more. You can still claim a deduction if you receive a token item in recognition of your donation (eg a lapel pin, wristband or sticker).

Employers beware: increase in super guarantee

From 1 July 2021, the rate of super guarantee increased from 9.5% to 10%. Businesses using manual payroll processes should be careful that this change doesn’t lead to unintended underpayment of super, which may attract penalties.

The new rate of 10% is the minimum percentage now required by law, but employers may pay super at a higher rate under an award or agreement.

Most payroll and accounting systems will have incorporated the increase in their super rate, but it’s always good to check. If your business is still using a manual process to pay your employees, you’ll need to work out how much super to pay under the new rate.

This latest increase to 10% is by no means the last time the super guarantee rate will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year) the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023–2024 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

COVID-19 lockdown support: NSW, Vic and SA

If your business or employment income has been affected by recent COVID-19 related lockdowns in New South Wales, Victoria and South Australia, financial help is available from both the state and Federal governments. Depending on the length of the lockdown, businesses may be eligible to receive a co-funded small and medium business support payment, as well as various cash grants.

Federal support

For small and medium businesses, depending on the length of the lockdown, the Federal government will fund up to 50% small and medium business support payments to be administered by the states.

Non-employing businesses (eg sole traders) will also be eligible.

The Federal government will also seek to make various state business grants tax exempt and provide support for taxpayers through the ATO with reduced payment plans, waiving interest charges on late payments and varying instalments on request.

For individuals, the COVID-19 Disaster Payment will be available in any state or territory where a lockdown has been imposed under a state public health order.

New South Wales

Eligible businesses will be able to claim state government grants under the business grants program. Smaller and micro businesses that experience a specified decline will be eligible for a payment per fortnight of restrictions.

Payroll tax waivers will be available for certain businesses, as well as payroll tax deferrals and interest free payment plans.

Commercial, retail and residential landlords who provide rental relief to financially distressed tenants will be able to claim land tax relief. Residential landlords that are not liable for land tax may be able to claim a capped grant where they reduce rent for tenants.

The NSW government will also be protecting tenants with a short-term eviction moratorium for rental arrears
where a residential tenant suffers a loss of income due to COVID-19 and meets a range of other criteria. There will also be no recovery of security bonds, lockouts or evictions of impacted retail/commercial tenants prior to mediation.

Victoria

Businesses in Victoria will be provided with cash grants from the state government. These payments will be automatically made to eligible businesses and sole traders to minimise delays. The state government estimates that up to 90,000 business that previously received assistance payments in relation to previous lockdowns will receive the new cash grants.

South Australia

Small and medium-sized businesses that suffer a significant loss of income or were forced to close as a result of South Australia’s seven-day lockdown are being offered an emergency cash grant as part of a $100 million business support package. The package also includes a new cash grant for eligible small businesses that don’t employ staff.

In addition, the SA government will provide fully-funded income support payments for eligible workers in regional SA who live or work outside of the Commonwealth-declared “hotspot” local government areas, and are therefore not entitled to the Federal COVID-19 Disaster Payment.

NSW announces small business support grants: How to access the funds

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The NSW government is offering small businesses support grants to help alleviate cash flow constraints while trading is restricted, targeted particularly at sole traders and non-for-profit organisations, with expanded criteria to assist most hospitality and tourism operators.

Three different grant amounts will be available for small businesses depending on the decline in turnover experienced during the restrictions: $10,000 for a 70 per cent decline, $7,000 for a 50 per cent decline and $5,000 for a 30 per cent decline.

According to Premier Gladys Berejiklian, the funds, which are expected to hit accounts from next month, may be used to service expenses such as rent, utilities and wages, for which no other government support is available.

Applauding the NSW government’s latest announcement, Business NSW chief executive Daniel Hunter said the package is well targeted and is one of the “fastest and largest” business support packages from any state in response to the pandemic.

Larger businesses haven’t been ignored either, with a number of state government taxes and charges deferred, with payments due later in the year.

Dine & Discover vouchers will also be extended until 31 August and can now be used at takeaway venues, so long as that food is delivered and not picked up.

How do the grants work?

The grants will be divided into two streams:

  1. Small Business COVID-19 Support Grant. Available to businesses and sole traders with a turnover of more than $75,000 per annum but below the NSW government 2020–21 payroll tax threshold of $1,200,000 as at 1 July 2020.

These businesses must have fewer than 20 full-time equivalent employees and an Australian business number (ABN) registered in New South Wales or be able to demonstrate they are physically located and primarily operating in New South Wales. Full criteria will be available in coming days on the Service NSW website.

  1. Hospitality and Tourism COVID-19 Support Grant. Available to tourism or hospitality businesses that have a turnover of more than $75,000 and an annual Australian wages bill of below $10 million, as at 1 July 2020.

These businesses must have an Australian business number (ABN) registered in New South Wales or be able to demonstrate they are physically located and primarily operating in New South Wales. Full criteria will be available in coming days on the Service NSW website.

Businesses will be able to apply for the grants through Service NSW from later in July and will need to show a decline in turnover across a minimum two-week period after the commencement of major restrictions on 26 June.

 

Source: https://www.mybusiness.com.au/finance/8245-nsw-announces-small-business-support-grants-how-to-access-the-funds?

Lost paper receipts see 1 in 4 SMEs miss out by thousands

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A new report conducted by Aussie fintech company Slyp and big four bank NAB surveyed over 300 businesses to identify the impact paper receipts have on SMEs come tax time.

According to the research, 25 per cent of those surveyed have lost up to $10,000 by simply misplacing receipts. A further 8 per cent of those said they’ve lost between $10,000 and $100,000.

A whopping 62 per cent of SMES surveyed said they lose paper receipts at tax time, with those that do collate them noting it’s the most time-consuming part of the tax process (42 per cent). A further 39 per cent said fact-checking paper receipts is the most time-consuming part.

“Australian small business owners are incredibly hard working and the data shows that, for many, paper receipts can add undue stress and complication to tax time,” Tania Motton, NAB executive for business banking, said.

“81.1 per cent of small businesses say the availability of digital receipts would improve their tax-time process.”

Commenting further, CEO and co-founder of Slyp Paul Weingarth said: “The tax-time process is time-consuming for small businesses and it’s clear that there’s a disconnect between the current manual process and the tools that small businesses are using.

“Three-quarters (75 per cent) of Australian small businesses say they’d like to change the way that they process paper receipts in the next financial year and more than two-thirds (69.6 per cent) say they’d be more inclined to purchase through a retailer that provided digital receipts.”

Please ask our office about the use of Dext (previously Receipt Bank) software and how to process this software within your xero accounting system. Clients that currently use Dext have described this software as an invaluable tool.

 

Source: https://www.mybusiness.com.au/tax-accounting

 

Explanatory Memorandum – July 2021

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Temporary COVID Disaster Payment now available

The Federal Government has announced a temporary COVID Disaster Payment to assist workers who reside or work in a Commonwealth declared hotspot, who are unable to attend work and earn an income as a result of state-imposed health restrictions that last for longer than one week.

The payment, available for Australian citizens, permanent residents and eligible working visa holders, is up to $500 per week for recipients who lose 20 hours or more of work, and $325 per week those who lose under 20 hours of work.

The payment is available in respect of the second and any subsequent weeks of restrictions to workers who:

  • have liquid assets of no more than $10,000;
  • have exhausted any leave entitlements (other than annual leave) or other special pandemic leave; and
  • are not already receiving income support payments, business support payments, or the Pandemic Leave Disaster Payment.

Access to the payment is available through Services Australia from 8 June 2021.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/temporary-australian-government-assistance-workers.

Private health insurance rebates frozen

The Federal Government has once again quietly sought to freeze the private health insurance income thresholds for the private health insurance incentive, this time for another two years, with indexation of the thresholds to start up again from 1 July 2023. Most people with private health insurance takes the private health insurance incentive in the form of reduced premiums, although it can also be taken as a tax offset.

The income thresholds for private health insurance were originally meant to be indexed annually; however, since the government implemented the freezing of indexation, the income thresholds have remained at 2014–2015 levels for the various tiers. While the rebate percentages were adjusted annually on 1 April, the rebate percentage for the current year have remained the same as in the 2019–2020 year.

For individuals and families with private health insurance, this means that the rebate adjustment factor will remain the same as in the 2019–2020 income year, translating into a real-life cut in the rebated amount. This will be the case until the government completes its review into the MLS Medicare Levy Surcharge (MLS) Policy Settings.

According to the Commonwealth Ombudsman, private health insurance offerings for basic (Bronze) hospital cover plus extras for two adults and two young children range from $300 to $600 per month for the current year. Going with an average figure of $450 per month, the annual cost of the insurance would equate to roughly $5,400. Assuming the adults are under 65 and earning less than $180,000 as a family, the total rebate on the yearly premium would be: $5,400 × 25.059% = $1,354.

If the family applies the rebate in the form of reduced premiums for their cover, it would mean that instead of paying $450 per month they would pay $337 per month. However, because indexation is now frozen until 1 July 2023, if private health insurance prices increase next year in line with previous average increases, the same family earning the same amount of money will end up paying more for their private health insurance, because the rebate percentage will stay the same.

The average 2021 price increase for health insurance premiums was 2.74%, which was the lowest increase since 2001. However, most large insurers increased their prices above the average rate, with the maximum increase by a fund listed as 5.47%. According to some figures, health insurance premiums have increased by 57% in the last decade, while the consumer price index (CPI, or inflation) has only grown by 20%.

Extending from our example, if the average price of $450 per month increases by 5% for 2022, the family will be paying $22 extra per month before the rebate is applied. The total annual premium would be $5,670 and the total rebate on the yearly premium would be: $5,670 × 25.059% = $1,420.

Again, if the hypothetical family applies the rebate in the form of reduced premiums, they will end up paying $354 per month in 2022, which equates to $17 a month extra for the same policy with the same benefits, while they are earning substantially the same amount due to stagnant wages growth. Remember, this simple calculation doesn’t take in the fact of singles or families moving between tiers which would reduce their rebate even more.

Cryptocurrency trading is subject to tax: new ATO data-matching program

According to ATO estimates, over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, in fact this is not the case – capital gains tax (CGT) does apply where gains or losses are in the form of crypto-assets.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a license to ignore their tax obligations”, ATO Assistant Commissioner Tim Loh has said. Mr Loh added that while it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.

This year the ATO will be writing to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.

“Gains from cryptocurrency are similar to gains from other investments, such as shares”, Mr Loh explained. “Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax and must be reported.”

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address”, Mr Loh said.

Alongside these communications to taxpayers, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.

The data items will include:

  • client identification details (names, addresses, date of birth, phone numbers, social media accounts and email addresses); and
  • transaction details (bank account details, wallet addresses, transaction dates, transaction time, transaction type, deposits, withdrawals, transaction quantities and coin type).

The ATO says that the objectives of the program are to:

  • promote voluntary compliance by communicating how the ATO uses external data with its own “to help encourage taxpayers to comply with their tax and superannuation obligations”;
  • identify and educate those individuals and businesses that may be failing to meet their registration and/or lodgment obligations and “assist them to comply”;
  • gain insights from the data that may help to develop and implement treatment strategies to improve voluntary compliance (including educational or compliance activities, as appropriate);
  • gain insights from the data to increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that have bought, sold or accepted payment via cryptocurrency;
  • help ensure that individuals and businesses that trade or accept cryptocurrency as payment are fulfilling their taxation lodgment, reporting and payment obligations; and
  • help ensure that individuals and businesses are fulfilling their tax and superannuation reporting obligations.

Source: www.ato.gov.au/Media-centre/Media-releases/Cryptocurrency-under-the-microscope-this-tax-time/;

www.legislation.gov.au/Details/C2021G00417.

ATO compliance: economic stimulus measures

Businesses that have accessed government economic stimulus measures need to take extra care this tax time. The ATO has announced that it will increase its scrutiny, conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation. While the ATO said it will continue to support businesses, most of whom are doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. All taxpayers that have used the schemes are encouraged to review their claims to ensure they are eligible, and that the amounts claimed are correct.

The loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020–2021 and 2021–2022 company tax returns. In essence, companies get to “carry back” losses to earlier years in which there were income tax liabilities, which may result in a cash refund or a reduced tax liability.

The temporary full expensing measure allows eligible businesses to immediately deduct the business portion of the cost of eligible new depreciating assets or improvements held and ready for use between 6 October 2020 and 30 June 2022. Eligible businesses also have access to the accelerated depreciation measure for the 2019–2020 and 2020–2021 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate.

Specifically, in relation to loss carry-back, the ATO will looking for businesses that are deliberately inflating their deductions or omitting some of their income to generate the appearance of losses. It will also look for signs of businesses entering into contrived schemes to obtain a benefit of the loss carry-back tax offset, such as shifting or creating losses through non-arm’s length dealings or shifting franking credits to a corporate entity (either directly or indirectly).

In relation to temporary full expensing and/or accelerated depreciation, the ATO notes the following behaviours which will attract its attention:

  • entering into contrived schemes to obtain a benefit of a temporary full expensing deduction, including schemes involving:
  • manipulation of aggregated turnover;
  • non-commercial transactions involving the transfer of an asset between related entities;
  • artificially inflating the cost of assets (including inappropriate valuations) through non-arm’s length dealings;
  • claiming deductions for assets acquired solely for a non-business purpose or failing to take into account any portion of non-business use;
  • deliberately misclassifying or reclassifying excluded assets (eg reclassifying capital works and buildings as eligible assets under temporary full expensing or Div 43 capital works and buildings as eligible assets under accelerated depreciation);
  • deliberately inflating the amount of accelerated depreciation deduction by applying the incorrect adjustable value or effective life;
  • failing to take into account the car limit when calculating the deduction; and
  • lacking evidence to substantiate the claim (including the cost of assets) such as invoices, contracts, supplier agreements or independent valuations.

The ATO notes that it will review claims for loss-carry back, temporary full expensing and accelerated depreciation as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. Where cases of concerning or fraudulent behaviours are identified, it will actively pursue the claims including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

Personal use assets and collectables in SMSFs

Contrary to some popular beliefs, a self managed superannuation fund (SMSF) can invest in collectables such as artworks, jewellery and wine, as well as personal use assets such as boats, classic cars and other vehicles. However, investment in these assets must occur in keeping very strict and specific rules in order to qualify, and thus care should be taken to avoid breaches of super rules in relation to owning collectables and personal use assets in SMSFs.

To start with, collectables and personal-use assets encompass a wide range of assets, including:

  • artworks (paintings, sculptures, drawings, engravings, photographs etc);
  • jewellery;
  • antiques;
  • artefacts;
  • coins, medallions or bank notes in certain circumstances (eg coins, bullion coins and bank notes are considered collectables if their value exceeds their face value);
  • postage stamps or first-day covers;
  • rare folios, manuscripts or books;
  • memorabilia;
  • wine/spirits etc;
  • motor vehicles and motorcycles;
  • recreational boats; and
  • memberships of sporting or social clubs.

The SMSF is allowed to invest in any of these collectable or personal use assets, provided such items are acquired for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. In addition, the investment must also satisfy the following criteria:

  • it must comply with all other relevant investment restrictions, including the sole purpose test;
  • the decision on where the item is stored must be documented and a written record kept;
  • the item(s) must be insured in the fund’s name within seven days of the fund acquiring it;
  • where an item is subsequently transferred to a related party, it must be at the market value as determined by a qualified, independent valuer; and
  • the items must be unencumbered.

First and foremost, these rules mean that whatever collectable or personal use asset is purchased by the SMSF, it cannot be used by members or related parties in any capacity. To show how far this rule goes, the ATO cites an example of a classic car: if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain the car or to perform restoration work.

These rules also mean that any collectable or personal use asset owned by the SMSF cannot be stored on or in the private residence of any member or related party (this includes all parts of a private dwelling, as well as the land on which the private residence is situated and all other buildings on that land, such as garages or sheds). However, the asset can be stored – but not displayed – in premises owned by a related party that are not their private residence.

For example, an artwork that is an SMSF investment cannot be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard or another similar storage area. Additionally, the artwork (or other collectable/personal use asset) can be leased to unrelated parties on arm’s length terms.

The ability to obtain insurance must also be considered where an SMSF is going to invest in collectables or personal use assets. It is a requirement that the items are insured within seven days, under either separate policies or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but is unable to obtain insurance, the ATO will need to be notified.