109 – Tax Saving Tips – The Newsletter

James Murphy


Search this document:
← Issue 109 - Tax Saving Tips 2021

The Newsletter

Tax Legislation Update in an Easy-to-Read Format

 REGISTRATIONS NOW OPEN FOR JOBMAKER HIRING CREDIT

Eligible employers are now able to register for the new JobMaker Hiring Credit scheme, being administered by the ATO on behalf of the Government.

The JobMaker Hiring Credit payment is a wage subsidy paid directly to employers that will help to accelerate growth in the employment of young people during the COVID-19 economic recovery. The scheme is an incentive for businesses to employ additional job seekers aged 16 to 35 years.

Eligible employers can access the payment for up to 12 months for each eligible additional employee they hire between 7 October 2020 and 6 October 2021. They will be able to claim up to $200 a week for each additional eligible employee they hire aged 16 to 29 years, and up to $100 a week for those aged 30 to 35 years.

This means that an employer will be eligible for up to a total of $10,400 over the year for each eligible employee aged 16 to 29 years or $5,200 if aged 30 to 35 years.

The ATO has encouraged businesses to check their eligibility and take this first step to register for the scheme from this week and then employers will be ready to move to quickly make a claim in February 2021. You cannot claim if you are not registered.

New employees must have received the Parenting Payment, Youth Allowance (Other) or JobSeeker Payment for at least 28 consecutive days (or 2 fortnights) within the 84 days (or 6 fortnights) of being hired to allow for a claim to be made by the employer.

  • Employers and employees must meet eligibility requirements to receive the payment.
  • Employees must be aged 16 to 35 years.
  • Employees must have started employment between 7 October 2020 and 6 October 2021 (inclusive) and
  • Employees need to have completed a minimum average of 20 hours (worked or paid) per week during the time they were employed in the JobMaker period.

Key dates to remember…

  • The JobMaker Hiring Credit scheme started on 7 October 2020.
  • You may be able to claim for employees hired between 7 October 2020 and 6 October 2021.
  • You can register from 7 December 2020 through ATO online services, the Business Portal or your registered tax or BAS agent.
  • Claims for the first quarterly payment will open on 1 February 2021.
  • The last day you are able to claim for employees is 6 October 2021.
  • If you hire an employee on 6 October 2021, you are able to claim for payment to 6 October 2022.
  • The JobMaker Hiring Credit scheme will end on 6 October 2022.

LEGITIMATE BUSINESS BAILOUT OR RISKY PHOENIXING?

On 26.11.2020, the ATO warned business advisers about inappropriate dealings with pre-insolvency advisers. The ATO is aware that in today’s challenging economic conditions some advisers’ business clients may seek advice on whether to pause, change or permanently close their business.

While the vast majority of advisers do the right thing, some untrustworthy or unqualified advisers may offer inappropriate pre-insolvency advice to their clients. This advice may include illegal phoenix activity, and recommendations to remove their client’s assets before closing their business, for use in a copy of the original business.

Clients should check they are seeking or receiving advice from qualified professionals, such as an accountant, lawyer, registered liquidator, or a registered trustee.

They need to be wary of some of the common red flags of untrustworthy advisers, including:

  • Cold calling with offers of advice.
  • Unsolicited correspondence after court action by a creditor.
  • Advice to transfer assets to a third party without payment.
  • Refusal to provide advice in writing.
  • Suggestions they have a sympathetic liquidator who will protect a client’s personal interests/assets.
  • Advising that certain records be withheld from the bankruptcy trustee or liquidator.
  • Suggestions they deal with the liquidator/trustee on your client’s behalf.

The ATO is firmly of the view that if a client needs to wind up their company, they should be referred to a registered liquidator or registered trustee.

RETIREMENT INCOME REVIEW FINAL REPORT

On 20.11.2020, the Federal Government released the independent Retirement Income Review Final Report which confirms that “the Australian retirement income system is effective, sound and its costs are broadly sustainable.”

The Review also finds that Australia’s retirement income system is well placed to respond to the economic challenges posed by the COVID-19 pandemic.

The Review was recommended by the Productivity Commission in its report Superannuation: Assessing Efficiency and Competitiveness and comes 27 years after the establishment of compulsory superannuation.

The Review makes three over-arching observations about the system. Firstly, that the three pillars of the existing retirement income system, being the Age Pension, compulsory superannuation, and voluntary savings, continue to provide effective support to Australian retirees and are sustainable in the long term.

Secondly that there is a need to improve understanding of the system so that all Australians can make the most of their assets in retirement. Thirdly, that the system would benefit from a clear objective in order to guide future policy and provide a framework for assessing its performance.

The Final Report also makes a number of key observations with respect to each of the system’s three pillars, including:

  • The Age Pension, compulsory superannuation and voluntary savings results in most Australians achieving adequate retirement outcomes.
  • The Age Pension provides a strong safety net to those who retire with small superannuation balances.
  • The Age Pension reduces income inequality among retirees, as low-income retirees receive the largest Age Pension payments.
  • Superannuation assists middle income earners to smooth their income over their lives. Without compulsory superannuation, middle income earners would not save enough for retirement.
  • More efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the Superannuation Guarantee (SG).
  • The weight of evidence suggests an increase in the SG rate will result in lower wages growth, impacting standards of living.
  • There are a number of ways that individuals can significantly boost their retirement incomes without having to increase their superannuation contributions, including more effectively drawing on superannuation assets, achieving better-after-fee returns and accessing equity in their home.
  • Voluntary contributions provide flexibility for those outside the compulsory system to contribute to superannuation, such as the self-employed and those who have had interrupted working careers.
  • The Government’s early release policy, enabling Australians to access up to $20,000 of their superannuation across two years, has cushioned the economic impact of COVID-19.

Through its work, the review has established a fact base that will improve understanding of how the retirement income system operates, better informing public policy and the retirement outcomes delivered to Australians.

Importantly, the Review provides confirmation of the policy direction being pursued by the Morrison Government with respect to the importance of increasing the efficiency of the superannuation system and lifting home ownership rates – both identified as key drivers of an adequate retirement income.

Specifically, the Government’s ‘Your Future, Your Super’ reforms will simplify and enhance member engagement with their superannuation and increase the efficiency of the superannuation system through lowering fees and improving returns, benefiting Australians by $17.9 billion over the next 10 years.

Additionally, given the importance of home ownership to the financial security and wellbeing of Australians in retirement, the Government will continue to support measures to allow more Australians to buy their first home sooner, including through our First Home Loan Deposit Scheme, First Home Super Saver Scheme and HomeBuilder.

The Government will continue to carefully consider the observations made in the Review together with the findings of related reviews including the Aged Care Royal Commission and remaining recommendations of the Productivity Commission’s report into Superannuation.

The focus of the media coverage on the report was on whether the staggered legislated increases to the superannuation guarantee to 12% would now take place. While the economic and fiscal arguments will play out in 2021, it is considered likely the proposed increases will now be scrapped and that the superannuation guarantee will remain at 9.5%.

HOMEBUILDER SUCCESS SEES PROGRAMME EXTENDED

The Federal Government has extended the HomeBuilder programme which is driving demand in the construction sector by supporting the construction of new homes and home renovations.

HomeBuilder will remain demand driven and will be extended from 1 January 2021 to 31 March 2021 which is expected to support the construction or major rebuild of around 15,000 homes.  This is in addition to the 27,000 homes the scheme is already expected to support, bringing it to a total of around 42,000 homes across Australia.

According to Prime Minister Scott Morrison and Treasurer Josh Frydenberg:

  • HomeBuilder is a key part of my government’s Economic Recovery Plan for Australia and is keeping people in jobs and putting Australians’ dream homes within reach.
  • It is critical we keep the momentum up for Australia’s economic recovery.
  • Extending HomeBuilder will mean a steady pipeline of construction activity to keep tradies on the tools.
  • The Homebuilder program has delivered the stimulus the housing sector needed.
  • The sector is worth $100 billion dollars a year to the Australian economy or around 5 per cent of GDP and more than a million people are employed in the sector across Australia.
  • The success of this program has not only meant an increase in work on the ground to keep the pipeline of construction flowing but it has also protected jobs in the construction sector as well as across the economy.

HomeBuilder has been adjusted for the building and housing market’s conditions, and after consultation with the construction sector.

For all new build contracts signed between 1 January 2021 and 31 March 2021:

  • Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder: and
  • The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000, respectively.

In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020.

Up until 29.11.2020, data showed HomeBuilder had already had around 24,000 applications, on track to exceed expected take up levels.

This announcement also builds upon the extension of the First Home Loan Deposit Scheme announced in the Budget, which delivered 10,000 guaranteed loans to allow first home buyers to obtain a loan to build a new home, or purchase a newly built home, with a deposit of as little as five per cent.

PROPOSED CHANGES TO FRINGE BENEFITS TAX RECORD-KEEPING

The government has proposed that it will provide the Commissioner of Taxation with the power to allow employers to rely on alternative records, such as existing corporate records where adequate to finalise their fringe benefits tax (FBT) returns. This would be an alternative to employee declarations and other prescribed records.

If enacted the change will have effect from the start of the first FBT year (1 April) after the date of royal assent of the legislation, which cannot be earlier than 1 April 2021.

DOCUMENTATION IS ESSENTIAL FOR SUCCESSFUL R&D CLAIMS

Royal Wins Pty Ltd and Innovation and Science Australia (ISA) [2020] AATA 4320

This recent Administrative Appeals Tribunal’s (AAT) decision demonstrates the importance of taxpayers appropriately documenting a hypothesis prior to the commencement of research and development (R&D) activities. The hypothesis must have an element of uncertainty that is formulated for the purposes of being validated or invalidated through the process of experiments. Clearly documentation for R&D must be contemporaneous, following a systematic progression of work in order to satisfy the legislative criteria. Relevant expert evidence should also be obtained in order to argue the case. If the AAT is only presented with evidence from one expert, that unopposed evidence, is likely to be accepted.

This case involved the taxpayer’s entitlement to have certain activities registered as core or supporting R&D activities for the purposes of the Tax Act. Deputy President Molloy found in favour of Innovation and Science Australia (ISA) on the basis that due to the lack of adequate documentation, he was unable to determine what work was done, when it was done, that Royal Wins had started with a hypothesis or that it had undertaken a systematic progression of work based on the principles of established science.

For those contemplating R&D activities, reading the judgement online will confirm the importance of complying with the requirements of legislation and properly documenting the research activities each step of the way.

This of course all needs to be carefully planned prior to the commencement of activities.

All too often either advisers or participants decide it is a good idea to access the R&D tax incentives well after activities have commenced. This can be problematic.

R&D TAX INCENTIVE: UPDATED GUIDE TO INTERPRETATION

AusIndustry has released an updated Guide to Interpretation to assist companies in determining whether their research and development (R&D) activities are eligible for R&D tax incentive.

The updated Guide seeks to incorporate recent judicial guidance and use clearer language, including by updating key terms such as the definition of “hypothesis” and “new knowledge”.

NEW RULES TO DETECT, TRACE AND BLOCK SCAM CALLS

Most of us have had to deal with scam calls. On 2.12.2020, the Australian Communications and Media Authority (ACMA) registered new rules that require Telcos to detect, trace and block scam calls. The Reducing Scam Calls Code, developed by the Telco industry, was a direct recommendation of the ACMA’s Combating Scams Action Plan.

The new initiative come as the Australian Competition and Consumer Commission’s (ACCC) Scamwatch found that Australians lost at least $36 million to scam calls in 2020, with scam calls accounting for 46 per cent of all scams reported.

Scam calls impersonating the ATO form a significant portion of all scams, with the ACMA completing a three-month trial with Telcos earlier this year to block spoofed calls that appear to originate from legitimate ATO phone numbers.

In 2019, the ATO received over 107,000 reports of such spoofed calls from the community.

The ACMA has worked closely with Telcos and peak body Communications Alliance to develop the new rules and successfully pilot initiatives to reduce the scale and impact on Australians of scam calls. Major Telcos report blocking over 30 million scam calls across the last 12 months as they undertook work to trial the identification and reduction of scam calls.

According to Chair of the ACMA’s Scam Telecommunications Action Taskforce Fiona Cameron

  • The code is a significant step toward providing better protections for consumers and making Australia a ‘hard target’ for scammers.
  • The code is a unique and ground-breaking contribution to global regulatory efforts to prevent the harms caused by scammers. It is a holistic, end-to-end framework for effective scam reduction activity.
  • There is no silver bullet to reduce scams, but these new rules place clear obligations on industry to do more to protect their customers and build confidence that it is safe to answer a ringing phone.

ACCC Scamwatch data reveals Australians lost over $35.6 million to scam calls in 2020. Scam calls accounted for 46 per cent of all scams reported.

  • Scams have a devastating impact on their victims and scammers are unscrupulous in taking advantage of people. They quickly adapt to changing circumstances, as we have seen, for example, in scam activity targeting Australians during the COVID-19 pandemic.
  • Industry’s initial efforts to block scams are an encouraging step towards the substantial and sustained work required before consumers will see a real reduction in scam calls.
  • The end game is to stop scammers in their tracks wherever possible and the ACMA will enforce this code to make sure Telcos are meeting their obligations to their customers.
  • Under the new rules, Telcos must also publish information to assist their customers to proactively manage and report scam calls, share information about scam calls with other Telcos, and report identified scam calls to authorities.
  • The new rules build on recent scam reduction and awareness-raising activities by the ACMA, including the introduction of new measures to fight mobile number fraud earlier this year and the recent release of comprehensive consumer awareness resources.
  • Reports of mobile porting fraud have markedly decreased since new rules were introduced in April 2020, however ACMA are still closely monitoring industry compliance with the new obligations.
  • Phone scams are a current ACMA compliance priority, and Telcos will face penalties of up to $250,000 for breaching ACMA directions to comply with the code.

If you think you have been scammed, contact your bank and phone company immediately and report it to Scamwatch.

For information on how to spot – and stop – phone scams visit:  acma.gov.au/scams

THE ATO – A STEP AHEAD?

The ATO’s data matching capacities continues to expand with well over one billion transactions between checked each year.

The main focus is on the issue of understatement of income in tax returns. Income may be understated by excluding the business sales, investment income, capital gains or foreign income.

The ATO collects data from employers, banks, share and trust registries and health insurance funds. Below are some additional third-party sources, outlining information provided to the ATO, and the ATO responses to that information.

  • Sharing Economy Providers (e.g., Uber, Ola, Airbnb)
    Information on payments to participants is provided to the ATO to ensure that income is correctly included in income tax returns and that participants have an ABN and are registered GST where required.
  • Online Selling platforms (e.g., eBay, Gumtree)
    The ATO reviews the quantity and value of on-line sales to ensure taxpayers are compliant with GST and ABN registrations, reporting income and lodgements, and up to date with payment of tax liabilities.
  • Merchant Facilitators (e.g., banks) and Specialised Payment Systems (e.g., PayPal)
    The ATO receives electronic payments processed for business, including total debit and credit card payments received by the entity. This information is used to ensure compliance with all tax obligations.
  • AUSTRAC and International Treaty partners
    The ATO receives information about foreign source income and ensures this has been declared in the taxpayers’ income tax return.
  • Australian Crypto Currency Designated Service Providers
    Purchase and sale information is provided to the ATO. The ATO uses this data to confirm that taxpayers including crypto currency transactions in income tax returns.
  • State motor vehicle registering bodies
    The ATO receives information about motor vehicles sold, newly registered, or transferred. The ATO focus is on GST compliance, Fringe Benefits tax compliance and expensive motor vehicles purchased, not commensurate with income reported.
  • State Title offices
    Property details, transfer price and buyer and seller information on the sales and transfer of real property are provided to the ATO via appropriate channels. The ATO uses this information to ensure compliance with capital gains tax (CGT) and GST compliance.

Taxpayers need to be aware that significant penalties may apply where income is not properly disclosed. In yesteryear, some taxpayers used to “run the gauntlet” and tax a chance. This is not recommended.

TAX AVOIDANCE TASKFORCE HIGHLIGHTS 2019-20

The Tax Avoidance Taskforce ensures tax is paid in Australia. The ATO audits some of the biggest taxpayers operating in Australia, including multinational enterprises, large public and large private businesses (and associated individuals).

Through the taskforce, the ATO raised $4.3 billion in liabilities and collected nearly $2.5 billion in cash from audits in the 2019–20 financial year. The taskforce has surpassed its commitment to government in each year since it began.

Over the first four years of the taskforce, the ATO has:

  • raised $18.2 billion in liabilities against public groups, multinationals, wealthy individuals and associated private groups (including trusts and promoters)
  • collected over $10.8 billion.

The ATO believes the response from the large business market has been encouraging. Taxpayers are now seeking to manage and prevent tax risks in their business by adopting robust tax governance arrangements, including proactive and open engagement with the ATO.

The ATO continues to encourage and support private, public, and multinational entities to engage with them early and to effectively manage tax risk.

Highlights for 2019–20.

Highlights of the Tax Avoidance Taskforce contribution for 2019–20 include:

  • Compliance activities generated $2.7 billion in tax liabilities and $1.6 billion in audit yield from large public groups and multinational corporations, wealthy individuals, and private groups.
  • The multinational anti-avoidance law (MAAL) has been successfully implemented, with the restructures resulting in:
  • more than $8 billion additional taxable sales being booked in Australia
  • an estimated additional $850 million of GST paid
  • an estimated $80 million in business-to-consumer net GST since July 2016.
  • To date the ATO has engaged with over 600 of the largest private groups. Of these, 262 engagements were completed with taxpayers who willingly adopt robust tax governance practices to manage and prevent tax risks. There were 54 Top 500 groups with $7.35 billion tax assured across multiple years.
  • The ATO engaged with over 900 of the Top 1,000 large public groups, with 790 reviews finalised and over 130 reviews in progress.

ATO focus in 2020–21.

During 2020–21, the focus is on specialist large market advisors that promote and implement tax avoidance schemes, and engage in uncooperative, misleading, and obstructive behaviour, including the misuse of legal professional privilege (LPP) during reviews and audits.

  • The ATO is developing new best practice guidance for LPP claims and principles for large market advisors, supporting more robust self-governance. Where tax avoidance arrangements are identified, the ATO will issue Taxpayer Alerts to advise taxpayers of their concerns.
  • Continually improving data, analytics, risk, and intelligence capabilities to identify and manage tax avoidance risk. The significant progress on data accessibility and risk detection services has improved the ATO’s ability to target compliance work and deliver on taskforce objectives. This work will be expanded over the next three years to deliver cutting edge technology and advanced analytics capabilities to manage and interrogate their extensive data resources.

LAMBOURNE AND COMMISSIONER OF TAXATION (TAXATION) [2020] AATA 4562 (12.11.2020)

In November, The Administrative Appeals Tribunal (AAT) found that the expenses claimed by a taxpayer were not incurred in gaining or producing his assessable income meaning a taxation deduction was denied.

The taxpayer employed as an electronics technician within the Navy, had claimed work expenses deductions for work-related clothing (i.e., Navy uniform) and other work-related expenses for items for use on-board the naval ship (e.g., electronic items, fitness equipment, polarised glasses). According to the Commissioner these items were purchased at the taxpayer’s discretion and had no nexus with the gaining or producing of the taxpayer’s income.

The AAT found that there was no evidence that the taxpayer would not have continued to be paid in relation to his duties if he had not purchased and supplied these items. The AAT considered the taxpayer’s expenditure in relation to these items, simply provided a benefit to the Navy and his fellow sailors rather than being incurred in the course of producing his assessable income.

If the ATO prevails its view, then the takeout from this is that a clear distinction needs to be drawn between “discretionary” and necessary expenditure.

The decision has created some controversy with the Tax Institute’s General Manager Of Tax Policy And Advocacy, Scott Treatt, contending the Commissioner’s arguments suggested that there was a new principle at play, requiring employers to direct employees to purchase items before they could be deductible and that the AAT’s comments suggested that there was a new test in that entitlement to work-related deductions being dependent on whether or not taxpayers would continue to be paid if they had not purchased the items.

According to the former ATO assistant Commissioner, Mr Treatt:

  • It would appear the argument put forward by the ATO and the comments by the tribunal are not only inconsistent with established case law, but they are also inconsistent with the guidance material otherwise set out by the ATO.
  • Cases such as Lambourne are worked on for some time within the ATO. They progress through audit and the objection team as well.
  • While a taxpayer has a right to their day in court, the ATO, in reaching their decisions, must have had internal technical support for these principles to find their way to a court of law to test.
  • Minds within the ATO must have been turned to consider what would happen to the administration of the system should the ATO win or lose.
  • The Tax Institute had approached the ATO for clarification to seeking out its intention on work-related expenses.

However, in response to the National Tax Liaison Group, the ATO denied that the ATO’s view of s8-1 or Taxation Ruling TR 2020/1 had changed noting that employer requirements do not determine deductibility.

It remains to be seen whether the taxpayer appeals, and we will keep you informed.

JOBKEEPER UPDATE

On 30.11.2020, the Federal Government released preliminary data on JobKeeper 2.

Announced in March 2020, the first phase of JobKeeper supported more than 3.6 million workers and around 1 million businesses, with payments totalling nearly $70 billion for the 13 JobKeeper fortnights to 27 September 2020.

Following a re-test of business eligibility for the second phase of JobKeeper, for the two JobKeeper fortnights in October, around 500,000 entities have had applications processed covering more than 1.5 million employees/eligible business participants (ATO data, current as at 26 November 2020).

The preliminary data indicates that around 450,000 fewer businesses and around 2 million fewer employees qualified for JobKeeper in October than in September.

Around 86 per cent of workers qualified for the Tier 1 payment of $1,200 per fortnight, with around 14 per cent on the Tier 2 payment of $750 per fortnight.

These preliminary October JobKeeper figures suggest an improvement on the 2020-21 Budget assumption of 2.2 million recipients for the December quarter, with around 700,000 fewer employees/eligible business participants covered by the Payment in October due to their employer no longer meeting the required decline in turnover test.

The lower-than-forecast take-up of the JobKeeper Payment extension in October is further evidence that Australia’s recovery from this once-in-a-century pandemic is well underway.

Recent economic data shows that outside Victoria, employment has recovered to be less than one per cent below March levels with some 650,000 jobs created in the past five months nationwide.

These are encouraging numbers.

$10K CASH BAN BILL KILLED IN THE SENATE

On 3.12.2020, the Senate unanimously agreed to discharge the Currency (Restrictions on the Use of Cash) Bill 2019 designated to tackle the black economy and tax evasion by banning businesses from engaging in large cash transactions.

On 3.12.2020, One Nation senator Malcolm Roberts moved that the bill be discharged.

Assistant Treasurer Michael Sukkar acknowledged the impact of COVID-19 on small businesses and the broader economy.

According to Mr Sukkar:

  • As we progress through to the recovery stage, we recognise now is not the time to impose an additional burden on small business.
  • The government is implementing a number of measures to tackle serious organised crime, as well as increasing the resources of the serious and organised crime program, a cross-agency program of work comprising the ATO, Commonwealth, state and territory policing, and other law enforcement agencies, working to disrupt serious organised crime in Australia.

In our view, it is very unlikely this legislation will be revived in 2021.

AAT DECISION ON BACKDATED ABNS

On 21 December 2020, the Administrative Appeals Tribunal (AAT) handed down its decision in Apted and Federal Commissioner of Taxation (Tribunal reference 2020/4562).

This case involves eligibility for the JobKeeper Allowance.

AAT decision

The AAT held that the applicant did meet the requirement to have an ABN on 12 March 2020, in circumstances where the ABR Registrar decided to reactivate a previously cancelled Australian business number (ABN) after 12 March 2020 and backdated the reactivation to have effect on or before 12 March 2020.

The ATO, having considered the decision and its implications decided on 18.1.2021 to appeal the decision in the Federal Court.

The AAT’s decision has not changed the need to satisfy all the other eligibility conditions. If your JobKeeper application was declined because you did not meet the requirement to have an ABN on 12 March 2020, and you are satisfied that you meet all other eligibility requirements, the ATO will be providing updates over the coming weeks.

The ATO will provide further information on your next steps once we have considered the AAT decision and its implications.

bO2 READERS’ QUESTIONS AND ANSWERS….

Question 1

Subject: Closing of super fund.

Facts of the matter.

  1. We have 2 super funds; both have 2 members myself and my wife. We both are in pension mode.
  2. Super fund 1 has cash only and has concessional contribution part.
  3. Super fund (2) is made of non-concessional contribution only. It has property, cash, and some small number of shares. This is the fund we draw pension for ourselves.
  4. I am employee of my company but thinking of terminating it soon and may work part time as sole trader after 3-6 months later.
  5. We both have decided to draw the whole amount out from fund one (1) which has cash only to use for our personal needs now.
  6. Our pension will continue from 2nd fund.

My questions are:

  1. What will be the correct procedure?
  2. The cash is needed at this moment, so can we withdraw all the cash and paperwork can be done as continuation? 

Answer

Once you reach 65, you can access your super benefit at any time whether you have retired or not.

You may access your super benefit when you reach 65 as a lump sum withdrawal. A lump sum withdrawal is simply an amount accessed from your SMSF that is not a pension payment.

You can make lump sum withdrawals whenever you like from your super fund once you have turned 65.

There is no maximum lump sum amount if you are aged over 65 and you are free to access all your super benefit as desired.

Not tax is payable on lump sum withdrawals made after 65.

Question 2

Subject: Forced closure for South Australian Businesses

I have clients that have had to close their business for 6 days due to SA COVID restrictions.

Our question is do they still have to pay their staff under Fairwork, or can they force them to take leave?

Most are no longer on JobKeeper payments, therefore Fairwork changes can not apply?

Answer

Firstly, they need to see if the employees can work from home if they can then they should allow them, second is there any alternative work they can do, if not they can then stand them down under the provisions of the Fair Work Act 2009.

If they stand them down, they then have an obligation to offer them annual leave or any other time in lieu they may have.

Question 3 

Subject : Cash Flow Boost.

My client is on accruals. Do I account for the Cash Flow Boost via Journal Entry at 30 June or do I only account for the Cash Flow Boost NANE when received which is in the next Financial Year?

The way I see it the CFB is an addition to the BAS & does not form part of the BAS so it should not be accrued. Is my logic correct?

Answer

We certainly agree with your logic – it is not an accrual arising from the business activities of the entity.

In the event these are “Special Purpose” financial reports (with little anticipated review by third parties), I would not accrue.

The entitlement to the second cash flow boost payment was crystallised after lodgement of the June 2020 BAS which of course occurred after year end.

While it is not mandatory to accrue, some Practitioners may validly choose to do so on the basis the lodgement of the BAS  was a mere formality.

Of course, the second cash flow payment involves a portion of the payment being attributed to tax period ended 30.6.2020.

This will be either 50% of half the amount of the second cash flow boost payment where the entity lodges its BAS on a quarterly basis, or 25% where the entity lodges its BAS on a monthly basis.

Effectively you have a choice.

Question 4

Subject: Unfranked or Franked Dividend on DIV7A Loans?

Company has franking credit balances of $145,705.68.

 

Div 7A loan agreement in place for : IN FY2020:
  Principal Interest Minimum repayment
1. Div7A 2018
Div7A 18 balances $71,247.04   $12,150.02 $4,475.98 $16,626.00
  2. Div7A 2019
Div7A 19 balances $82,865.53   $11,457.27 $5,062.73 $16,520.00
   
Div7A 20 balances $148,081.37  

 

My Questions are:

  1. Client wants to pay off the loan balances from dividend, whether the repayment amounts each year are Unfranked dividend or franked dividend?
  2. What will be the journal entry for above?
  3. What will be the amounts of dividend?
  4. Director/shareholder is taking out $90k gross wages annually, what will be the treatment of dividend in his personal tax return?
  5. If the 2018 loan became been partially paid , can he pay it off earlier out of his pocket? What happed if he does this?
  6. When can he pay himself, franked dividend keeping in mind he has 90k wages?
  7. Can he pay himself franked dividend, even if DIV7A loans are in place?
  8. Can the repayments be made by way of journal entry, i.e., by capitalising the repayment onto the loan balance?

Answer

  1. The repayment amounts are the net dividend without the franking credits attached.
  2. Dr dividend paid (P&L appropriation accounts) and Cr Loan account.
  3. It is up to the client, but the marginal tax rates should be pointed out to client i.e., over $180k = 47%.
  4. In our view the minimum dividend should be $65,250 with a franking credit of $24,750 to reflect the company tax rate for FY2020 of 27.5%   In our example above and assuming no other income or tax deductions – the taxable income becomes $180k (90k + $65,250 + $24,750) with a franking tax credit of  $24,750.
  5. If the client has funds to pay down some of  this loan account, he/she should be actively encouraged to do so.
  6. If the 2020 tax return has not been lodged, in practice this can be done by journal. Urgent action is required to deal with these loans.
  7. Yes, having a Div 7A loan does not preclude a dividend as long as minimum payments have been made.

 

Question 5

Subject: Budget 2020 – Request for Confirmation on Information

I have received a booklet titled “Budget 2020” from the Liberal Party of Australia recently, and I would like confirmation on an item stating  Asset Write Off:

Over 99% of businesses will be able to write off the full value of any eligible asset they purchase for their business. This will be available for small, medium and larger businesses with a turnover of up to $5 billion until June 2022.”

Answer

Yes, this is broadly correct.

“Eligible asset” includes second-hand assets if your aggregated turnover is less than $50 million.

This is a temporary full expensing incentive which enhances the instant asset write-off.

Question 6

Could you please explain what this means?

This is from bO2 newsletter issue #108.

  1. There is temporary full expensing for the purchase of capital assets between 6.10.2020 and 30.6.2022. If your business has a genuine need for new equipment, you could directly benefit from this. Business with aggregated annual turnover below the relevant threshold will be able to deduct the full cost eligible capital asset acquired from 7:30pm AEDT on 6.10.2020 and first used or installed by 30.6.2022.
  2. Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets for businesses with aggregated annual turnover of less than $5 billion.

I own a small agricultural business with a turnover under $5 million.

The instant asset write-off for eligible business is $150,000 until Dec 2020 with the ATO.

Are the above 2 points referring to an instant write-off of assets that are directly connected to your source of income?

Answer

The confusion is understandable but there is no contradiction as such.

To clarify the $150k instant asset write-off was the latest form of this incentive announced in March 2020 in response to the Covid 19 pandemic.

In the October 2020 Federal Budget the “temporary full expensing incentive” (outlined above) was announced with the aim of further stimulating the economy.

This should be viewed as an enhancement of the instant asset write-off which still exists.

Note second-hand assets are eligible if the turnover is less than $50 million.

Question 7

Subject: Cash Bonuses

The business partners are considering handing out cash bonuses to all their staff. They would prefer not to go through wages, so employees are not taxed.

It is a one-off cash bonus, some employees $1,000, others $5,000.

They are happy to register for fringe benefits tax if required. Is this the best way to go?

Answer

If you want to pay them cash… that is fine but keep it as part of wages.

Make a cash withdrawal – then determine the PAYG circumstances.

For instance, if someone’s marginal tax rate is 34.5% and they are receiving $5,000 then the calculation becomes:

$5,000 divided by (1 – .345)  =   $7,633.59

This means for them to receive $5,000 net…  the PAYG is $7,633.59 less $5,000 = $2633.59.

If you register for FBT  and make the payment as a fringe benefit, you will effectively cost in the highest marginal tax (47%) into the equation.

It is far better to keep it legitimate within the salaries/wages system and factor in the PAYG withholding tax.

Question 8

Subject:  Land Tax Enquiry

We seem to recall reading that an individual who owns two properties one of which is rented can nominate for land tax purposes which property is to be liable even though not occupied as their home.

If this is correct can an individual now living in a nursing home who only owns  one property which is rented out, nominate the rental property as their home and thus exempt from land tax  .

The enquiry relates to property situated in NSW.

Answer

Only under very limited circumstances.

There may be some hope under the living away from home exemption.

As suggested, this is limited…

To qualify you must:

  • – Have lived there for at least 6 months before moving away.
  • – Not own another principal place of residence.
  • – Only earn income from the property to cover basic expenses such as rates, water, and other amenities.
  • – Not lease the property out for more than 6 months in a calendar year.

 

From the above it is suggested that if there is a full-time tenant living there paying commercial rent, then land tax will be payable.

Question 9

Subject: The JobKeeper Extension

  1. If the business experienced a minor drop in turnover in the September 2020 quarter, (e.g., not a 30% drop) however then did experience a drop of 30% or more in the December 2020 quarter, is it still eligible for the JobKeeper extension?
  2. Is the JobKeeper extension tier of 20hours a week inclusive of unpaid lunch breaks?

We have employees working which does not include lunch breaks e.g., a 7.6 h day plus lunch and smoko breaks.

Answer

 

Question 10

Subject: Forex Investment Loss

Our client engaged in Forex Trading and incurred following expenses; (FY 2019)

  • Training fee $35,000 (borrowed from bank to pay).
  • Interest on borrowings $2,500.
  • Travel expenses related to training $1,500.
  • Trading loss $1,000.

Since she is not in a business of Forex Trading, we are aware the above expenses are not tax deductible, except for the trading loss as the ATO website suggests forex trading is accounted on revenue account.

My questions are:

  1. Can the training fee, interest on loan and trading loss be carried forward as investment loss instead?
  2. If not can she claim trading loss of $1000 as instant tax deduction?

Answer

Most small traders are usually dealing with CFDs which are on revenue account.

Without full details it sounds as if this will be quarantined as a non-commercial loss to  be offset against future income.

The training course, interest and travel are not tax deductible.

In our view, there has been no capital gains tax event for there to be a capital loss to be carried forward.

There is the faint possibility the course, interest and travel represent “black hole” expenditure which is deductible over 5 years.

For this to happen,  you need to demonstrate a business is being carried on and while this is doubtful, you may wish to apply for a ruling.

Question 11

Subject: Pensioner – employee/contractor?

We are taking someone on as a contractor for one day a week to carry out, telephone liaison, organise weekly meetings and data entry only.

They are a pensioner and we have made them aware of their Centrelink/pension payments and how they can be affected if we pay them more than their assessable income will allow. They have told us that it is not an issue, they just want a fair hourly rate for their value to the business.

Can you please tell me what we would be paying them if we had to classify them as an employee as it will give us an idea as to what to pay them as a contractor?

Answer

We will not give that advice as it is hiding an employment contract, the work is that of an employee and would be classified as sham contracting.

Sorry about that!

Question12

Subject: Instant asset write-off

When does the 150% investment allowance on machinery end ? It is available on the purchase of second-hand machinery, tractors, 4-wheel drives for a primary producer ?

Answer

There is not a 150% investment allowance, but an instant asset write-off – also termed “full expensing” after the changes made in the October Federal Budget.

The incentive ends on 30 June 2022 and if your turnover is less than $50 million,  it applies for the purchases of the second-hand items, you suggest.