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/.

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.

 

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.