THE NEWSLETTER
Tax Planning Opportunities for Everyday Business
HOW TO CLAIM TEMPORARY FULL EXPENSING AND LOSS CARRY BACK THIS TAX TIME
Temporary full expensing and loss carry back are two JobMaker Plan temporary measures you may be eligible to claim for your business in your 2020-21 tax return.
To claim, or opt-out of, temporary full expensing or claim loss carry back you will need to complete additional labels in your tax return.
Temporary Full Expensing
You will need to include:
- whether you are choosing to opt-out of temporary full expensing for some, or all your eligible assets
- the number of assets you are claiming or opting out for
- the value of the assets (if applicable)
- the total amount of your temporary full expensing deduction
- whether you are using the alternative income test (corporate entities)
- information about your aggregated turnover.
Loss Carry Back
Eligible corporate entities (companies, corporate limited partnership, or public trading trust) will need to provide the information to make their choice to carry back losses, confirm eligibility, and calculate the refundable tax offset being claimed.
This includes information such as:
- your opening and closing franking account balance
- your aggregated turnover for each loss year
- the amounts of your tax losses that you are carrying back.
You can start preparing early by reviewing:
- the information you will need to determine your aggregated turnover
- your franking account.
The ATO website has information about how to check your eligibility and complete your claims.
For further information on the Instant Asset Write-Off, please refer to our analysis of the Federal Budget.
TAXPAYER DENIED A TAX DEDUCTION FOR SELF EDUCATION EXPENSES
Khan and Commissioner of Taxation [2021]
In this Administrative Appeals Tribunal case (AAT) the taxpayer undertook training courses in the view of obtaining new employment with a new employer.
After being advised about his employment termination as an aircraft maintenance technician, the taxpayer enrolled in several training courses related to aircraft maintenance. The taxpayer claimed the expenses as tax-deductible self-education expenses, but the commissioner denied the deduction.
The ATO held that, when the training courses were undertaken, the taxpayer’s employment was terminating and there was no prospect of continuing his employment with his employer. It was held that the taxpayer had incurred these expenses to obtain new employment. This means the expenses were not connected with his assessable income derived from his existing employment. As there could be no basis that his employment would benefit from this training, the self-education expenses were not tax-deductible.
SAPTO AND MEDICARE LEVY CONCESSION DISALLOWED
Dodson and Commissioner of Taxation [2021] AATA 484
In this Administrative Appeals Tribunal (AAT) case it has held that a taxpayer was ineligible for the Senior and Pension Tax Offset (SAPTO).
The taxpayer received an Australian government pension that was a tax-exempt carer payment for the care she provided for her adult son, was under the age pension age, and did not receive a pension pursuant to the Veterans’ Entitlements Act 1986 (Cth). The AAT found that the taxpayer was ineligible for the SAPTO as she did not satisfy the requirement for her assessable income to include a social security pension as required under section 160AAAA(2) of the Income Tax Assessment Act 19636 (Cth). The carer payment she received was a tax-exempt government payment. As the taxpayer was not entitled to the SAPTO, she was also no entitled to the associated Medicare levy concession.
TAXPAYER’S NET CAPITAL GAIN INCLUDED PROCEEDS REMITTED TO ANOTHER PARTY
ZBFF V FCT [2021] AATA 275
A taxpayer includes a net capital gain in assessable income. The question in this Administrative Appeals Tribunal case was whether an agreement to remit an amount from sale proceeds could reduce the amount of a net capital gain.
The AAT held that a taxpayer’s capital gain on the sale of a property was not reduced by remitting the sale proceeds to another party under an agreement.
In this case, a discretionary trust of which the taxpayer was a beneficiary purchased a property from a friend of the taxpayer, “Mr Green”, for $1.4 million. The sale included an agreement to, later either to sell the property back to Mr Green or on-sell the property at the direction of Mr Green. In the event of a sale, the trust would pay the net proceeds to Mr Green.
In 2016 the trust sold the property for $2.45 million with the net proceeds being remitted to Mr Green as per the agreement.
The taxpayer said that no capital gain would arise from the sale. The payment to Mr Green would have the effect of either increasing the property’s cost base or reducing the capital proceeds. The Commissioner disagreed and increased the net capital gain by the amount of the remittal.
The Commissioner’s decision was affirmed by the AAT holding the existence of the agreement did not affect the tax treatment of the sale proceeds. The capital proceeds were the whole amount under the contract for sale irrespective of the agreement between the taxpayer and Mr Green.
The taxpayer’s alternative argument that the payment of the proceeds to Mr Green increased the cost base was also rejected. The AAT determined the payment to Mr Green was not fifth element expenditure to “preserve or defend your ownership of, or rights to” the property as there was no interest in the property that Mr Green may plausibly have. Moreover, the payment of proceeds would not have contributed to the first element of the cost base as it was never money that the taxpayer was required to pay to Mr Green.
TRIO PENALISED OVER $9.4 MILLION FOR THEIR ROLES IN TAX EXPLOITATION SCHEME
The ATO is dedicated to identifying and disrupting arrangements that exploit the tax system.
One investigation, which the Promoters Program took to the Federal Court, uncovered a tax exploitation scheme promoted by a solicitor, financial planner, and accountant.
Investigations by the ATO found Dr Bruce Rowntree, Mr Rinaldo Manietta, and Mr Peter Donkin exploited their positions as advisers to promote a scheme in which they marketed Emission Reduction Purchase Agreements to clients on the wrongful basis of claiming a full deduction on credits that did not exist. Roughly 200 individuals and businesses used this scheme.
The trio charged their clients a 15% non-refundable deposit as a fee. In return, they promised an immediate reduction to their clients’ taxable income and a consequential tax saving that far exceeded their initial deposit.
The promoters have now been ordered to pay over $9.4 million. The solicitor, who was central to the creation, operation, and marketing of the schemes, has been ordered to pay $7.75 million, while the financial planner has been penalised $1.455 million and the accountant (who has appealed the decision), ordered to pay $210,000.
According to the ATO, the penalties handed down reflect the seriousness of the conduct and the scale of the scheme. The behaviour of the promoters, who received significant financial benefits for their actions, showed little regard for their clients who trusted their advice.
The bottom line: if it’s too good to be true then look out!
FURTHER GUIDANCE ON PSI AND PSB RULES
On 9.4.2021, the ATO released a draft ruling, TR 2021/D2, that consolidates and updates earlier guidance material on the operation of the personal service income and personal service business rules (TR 2001/7 and TR 2001/8). PCG 2021/D2 also contains useful guidance on this subject.
TR 2021/D2 reflects the various court and tribunal decisions that have shed light on these provisions over the last 20 years and contains 40 worked examples.
Those subject to the personal service income (PSI) and personal services business (PSB) include lawyers, accountants, medical practitioners, architects, engineers, business consultants, and IT professionals. With the ardent emergence of the gig economy, we expect the number of businesses affected by these rules to increase. Please refer to pages 106-108 of our annual publication.
HOMEBUILDER EXTENDED TO SUPPORT MORE JOBS
The Federal Government has extended the construction commencement requirement for the successful HomeBuilder program from six months to 18 months for all existing applicants, bringing the total level of expected Government support for the construction sector under the program to $2.5 billion.
More than 121,000 Australians have applied for the grant which is expected to support around $30 billion of residential construction projects.
The HomeBuilder program was specifically designed to protect tradies’ jobs and catalyse economic activity in the construction industry, particularly residential construction, in response to the downturn caused by the COVID-19 pandemic.
The Government’s decision to provide existing applicants with an additional 12 months to commence construction responds to unanticipated delays in the construction industry caused by COVID-19 related supply constraints including delays in global supply chains and recent natural disasters.
The extension will only apply to existing applicants and provide an additional 12 months to commence construction from the date that the building contract was signed. All applicants who signed contracts during the HomeBuilder eligibility period between 4 June 2020 and 31 March 2021 will have this extension applied to them.
PROPOSED FRINGE BENEFITS TAX EXEMPTION – RETRAINING AND RESKILLING
Last year, the government announced it will introduce an FBT exemption for employer-provided retraining and reskilling benefits provided to redundant (or soon to be redundant) employees where the benefits may not be related to their current employment.
It is proposed that this exemption will not apply for retraining acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth supported places at universities, which already receive a benefit. It will not extend to repayments towards Commonwealth student loans.
If enacted this measure is intended to apply from the announcement (that is, from Friday, 2 October 2020). The government released exposure draft legislation and explanatory materials on 16 April 2021, with responses accepted until 29 April 2021. You lodge your FBT return applying the current legislation and amend, if necessary, when the announced changes become law.
FAMILY ASSISTANCE PAYMENTS
If you receive the Child Care Subsidy and Family Tax Benefit payments from Services Australia, you and your partner must lodge their 2019–20 Individual tax returns by 30 June 2021. Lodgment deferrals with the ATO do not alter this requirement.
If you were entitled to Family Tax Benefit but did not receive any payments in the 2019–20 financial year, you will also need to lodge a lump sum claim with Services Australia by 30 June 2021.
Services Australia needs your income details to balance payments for Child Care Subsidy and Family Tax Benefit.
If tax return lodgement is not made by 30 June 2021:
- Those receiving Child Care Subsidy may:
- – lose their ongoing entitlement
- – receive a debt from Services Australia and have to repay the amount received in the 2019–20 financial year.
- Those receiving Family Tax Benefit may:
- – miss out on additional payments
- – receive a debt from Services Australia and have to repay the amount received for the 2019–20 financial year
- – have their fortnightly payments stopped.
If applicable, you can notify the ATO if lodgement is not required. The ATO can then confirm with Services Australia that you are not required to lodge. You can also do this using the Centrelink online service or Express Plus mobile app.
Services Australia can assist those who have special circumstances preventing them or their partner from lodging before the deadline.
The takeout is that it is necessary to move quickly to ensure your entitlement to these benefits.
HOME OFFICE EXPENSES
For many of us, this will be the second tax year that will involve larger tax deductions for home office expenses due to COVID-19. The ATO has advised that the temporary shortcut method is again available to those claiming working from home deductions this year.
The temporary shortcut method was created at the height of the pandemic last year to respond to the sudden influx of makeshift home workspaces.
While many have shifted back to the office, many of us have opted to continue working from home at least one day a week.
The working from home shortcut method allows claims at the all-inclusive rate of 80 cents per hour, rather than needing to do complex calculations for specific items.
According to the ATO:
- The shortcut method is straightforward; just multiply the hours worked at home by 80 cents.
- The only proof you need is a record of the number of hours you have worked from home, such as a timesheet.
- The temporary shortcut method can be claimed by multiple people living under the same roof and, unlike existing methods, does not require a dedicated work area.
- The shortcut is all-inclusive. You cannot claim the shortcut and then claim for individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.
- Taxpayers can still claim under the existing arrangements if they choose.
For those who chose an existing method, the ATO encourages taxpayers to do their research and keep good records. Keeping track of each individual expense and calculating the work-related use of each one can be fiddly so be organised. If in doubt, seek guidance.
Top 4 no-go expenses
If you chose to claim your working from home expenses through the fixed-rate or actual cost methods, remember you still cannot claim:
- Personal expenses like coffee, tea, and toilet paper. While they might normally be supplied by your employer, they still are not directly related to earning your income.
- Expenses related to your child’s education, such as online learning courses or laptops.
- Large expenses up-front. Any asset that costs over $300 (either in total or per item), such as a computer, cannot be claimed immediately. Instead, these claims should be spread out over a number of years.
- Employees generally cannot claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes, and rates. Working from home does not mean your home is a place of business for tax purposes. If you claim occupancy expenses, you may have to pay capital gains tax when you sell your home, even if it is your main residence.
Three different methods for 2020–21
You can choose one of three ways to calculate your additional running expenses for this tax time:
- Claim a rate of 80 cents per work hour at home for all your working from home expenses.
- Claim a rate of 52 cents per work hour at home for the heating, cooling, lighting, and cleaning of your dedicated work area and the decline in value of office furniture and furnishings. Then calculate the work-related portion of your telephone and internet expenses, computer consumables, stationery, and the decline in value of a computer, laptop, or similar device.
- Claim the actual work-related portion of all your running expenses, which needs to be calculated on a reasonable basis.
Remember, to claim any work-related expense, you must have spent the money yourself and not been reimbursed, the expense must be directly related to earning income (not a private expense), and you must have kept any necessary records (a receipt is best).
ATO DRAFT GUIDANCE ON ALLOCATION OF PROFESSIONAL FIRM PROFITS
In March, the ATO released for public comment a draft Practical Compliance Guideline (PCG 2021/D2) on the allocation of a professional firm’s profit or income in calculating the assessable income of the individual professional practitioner.
There was a lengthy confidential consultation process a number of professional associations participated in.
The ATO has indicated it will focus on arrangements where the compensation received by the individual is artificially low and the arrangements are not commercial. Accordingly, the draft contains “gateway tests” and a “risk scoring” table which professional firms should use to gauge whether their practice structure might attract ATO scrutiny.
Structures categorised as high risk under the new guidelines have until 30 June 2023 to adjust.
FCT V TRAVELEX LIMITED [2021] HCA 8
The High Court has allowed the Commissioner’s appeal regarding when interest on a taxpayer’s overpaid GST liability begins to accrue. The court found that the Commissioner was not obliged to pay interest on refunded GST as the refund did not create a running balance account surplus.
ARE YOU USING YOUR ABN?
Keeping up to date with your tax, super, and business registration obligations helps the ATO know your business is active and you need an Australian business number (ABN).
If you have not used your ABN for a while, the ATO may contact you about cancelling your ABN. They may also contact you about your ABN if your business situation has changed.
Your ABN data is a vital source of information for businesses, the government, and the community. ABN data provides important business details so that government agencies can deliver support measures, including during unfortunate events.
To ensure you do not miss out on government support, it is essential you regularly review your ABN details and keep them up to date. You should cancel your ABN if your business is no longer operating so that government agencies can tailor their support to those that need it.
It is important to check that you have listed the physical address of your business.
You can check and update your ABN details online at any time or contact us if you need further assistance.
PAYING YOUR TAX BILL JUST GOT EASIER
The ATO has announced improvements on how you can use and manage your credit or debit card details in Online services for business, making it easier to pay your tax or super bill.
The new payment features allow you to:
- – add and manage up to three credit or debit cards in your account profile
- – set up a payment plan with automatic direct debits from a card
- – make one-off payments using a card.
Online services for business offer a simplified process to make it easier for you to create a payment plan if you owe less than $100,000.
If you set up a payment plan in Online services for business, the system will give you a recommended plan. The plan will include an upfront amount to pay as well as your instalment amounts. You can accept the recommended plan, or tailor it to your needs.
When setting up your payment plan, you can opt-in to receive reminders for your payment plan instalments via SMS or email.
If you are worried, you’ll have difficulty paying on time, or are having trouble setting up a payment plan online, contact the ATO and they can help you.
THERE IS $13.8 BILLION IN LOST AND UNCLAIMED SUPER. COULD ANY OF IT BE YOURS?
While many Australians have been reunited with lost and unclaimed super in the past 12 months, around $13.8 billion in Australians’ hard-earned wages is waiting to be claimed.
Data released by the ATO for the financial year ending June 2020 shows that the Government’s reforms have had a big impact, reducing unclaimed super by $7 billion compared to 30 June 2019. But there is more to be done.
Workers may have lost or unclaimed super if they have:
- Changed their name.
- Moved jobs or changed addresses.
- Forgotten to update details with their super fund in the last few years.
Lost super occurs when members have lost contact with their fund or the member’s account has been inactive for a period of time. By law, the fund is required to transfer certain accounts to the ATO, which then becomes ‘unclaimed super money’.
Unlike super funds, the ATO does not charge fees, and thanks to reforms passed by the Morrison Government, proactively consolidates any unclaimed super into an eligible, active super account where possible.
According to Minister Jane Hume
- There remains around $13.8 billion in unclaimed super, and all Australians should take a moment to log in to the ATO via MyGov and check if it’s yours- it only takes a moment.
- Recent reforms empower the ATO to do this proactively and without fees.
From 1 November 2019 to 28 February 2021 almost 3.3 million accounts worth almost $4.3 billion have been proactively reunited and paid out to their rightful owners.
This includes approximately 2.3 million accounts worth $3.7 billion that have been transferred into individuals’ active super accounts, and approximately 995,000 accounts worth $573 million paid proactively into individuals’ bank accounts – a power that only the ATO has.
Further information about lost and unclaimed superannuation is available on the ATO website.
Australians can find lost superannuation in just a few clicks via the ATO, through MyGov. This could put thousands of dollars back in their super funds – ready to earn the magic of compounding interest in the super system. More information on the ways to search for lost and unclaimed super can be found on the ATO website.
bO2 READERS’ QUESTIONS AND ANSWERS…………..
Question 1
Subject: Withholding Clearance – House Sold Over $750k
Query please – client sold a house and was one day late with the certificate of clearance, so $50K was withheld.
Spoke to the ATO and they said I cannot lodge a 2021 tax return now (by paper) to recoup the funds – the client needs the money now, not in say July / August / Sept 2021
Is there some way around this ??? – I am sure I have in the past lodged tax returns prior to the end of the tax year
Answer
We suggest there is no way around this, and your clients will need to wait for their money.
Lodging tax returns before the end of the year in the past was possible when people were going overseas and there was some certainty, they would not derive additional income.
Question 2
Subject: Deferred Commercial Losses & Capital Gains
We have a new client they are a small family partnership. The previous accountant has deferred all the losses from the business activity. I believe this may have built up to approximately $200,000, for both partners.
I suspect this was to enable the client to receive the Age Pension.
Apart from a small holding of shares and age pension they have no other income.
The business activity was beef cattle farming. On 1 May 2019, they sold their property and made a capital gain.
Of the 4 non-commercial loss tests to pass, it shows that they easily passed the real assets test as the property was sold for $1,400,000.
Due to moving and being ill, they have not lodged their 2019 or 2020 Tax return yet.
Can the unused non-commercial losses (the ones that were deferred) be used to offset the capital gains?
The MTG points out at 16-020.
Paragraph 2
“The loss may be carried forward and offset against assessable income from the business in the next year that the business is carried on (future year).”
Is the capital gain, (on the sale of the business asset), business income, and therefore, the losses are applicable?
Are we best to get a private ruling or a commissioner’s discretion?
Answer
It is clear that some business activity was being undertaken.
There was no need to quarantine the losses as one of the four tests for a commercial business was met.
To claim the losses, against the capital gain, it is suggested you will need to meet the test for a primary production business – the Commissioner has published guidelines on this, and we would also refer you to page 39 of our annual publication.
If you are able to establish there was a genuine primary production business being carried on, then this opens up the possibility of the land being an “active asset” for the CGT Small Business Concessions.
this means it was an active asset for at least 7.5 of the last 15 years or half the time the land was owned if more than 15 years – meaning it must have been used in the cattle farming business.
In such circumstances, the capital gain will be eliminated.
Question 3
Subject: – Entitled School Holidays and (LWP)
Two employees have been doing extra days/hours for the entire term 1.
Regarding the 2 weeks holidays approaching (in which we do not work) are they entitled to be paid for the hours they have worked during term 1 or do they go back to their normal hours?
Also, we have an employee that has been absent (LWP) from work. Do they get paid for the 2 weeks (school holidays)?
Answer
When they do not work, they get paid normal hours.
Where the person is on authorised leave without pay (LWP), they do not get paid.
Question 4
Subject: Maximum Franking Credit For 2020/21
I know that the small company tax rate will be reduced to 26% from the year 2021/22. So far, the company has franking account balance on 30/06/2020 as below:
Total profit $190,000 Tax (27.5%): $52250 all paid.
If the company wants to distribute $100,000 profit to its shareholders(two),
In this case, it is my understanding that the franking credit (FC) will be $27500.
Can the company pay more than the amount (27.5k)?
In 2021/22, when the company distributes the previous profit (90k), do I use 26% or 27.5 for the FC?
It is honestly very confusing for me to calculate the franking credit.
Answer
If you distribute a $100,000 (50k each) as a net dividend to its two shareholders, the situation for each shareholder (if 50% each) will be as follows:
Net dividend $50,000
Franking credit 18,965.50
Taxable dividend 68,965
The franking credit reflects the 27.5% company tax rate.
After 1.7.2021 we expect the franking credit rate will be 26% and this has been confirmed in the May Federal Budget.
Question 5
Subject: Employee Moving to China
One of our employees is moving to China and will still work for us remotely. Is there anything we need to consider for tax purposes under this situation?
Do we still need to withhold PAYG tax? Although the employee will be in another country, she will still have her TFN and Australian banking account.
Answer
In the event the team member remains an employee:
- Medicare levy will not be payable due to non-residency.
- There is no obligation on employers to pay statutory superannuation (9.5%) to non-resident employees for work they do outside of Australia.
Given this, you may wish to consider whether the worker can be classified as a contractor.
If the worker does not work under your control and direction, chooses their hours of work after being assigned tasks, and is able to delegate their work, then there is an argument that the person is a contractor.
This may be preferable to both parties, with the remote location and change of residency adding further weight to the argument.
If she is a genuine contractor (refer to our comments), regarding the need to withhold PAYG tax, the answer is no.
Also key, is whether this is a genuine change of residency or just an extended absence.
Question 6
Subject: Termination Pay
A quick question on an employee’s termination pay.
A staff member worked full time before their maternity leave. Due to the COVID impact and their young child, changed to a different position and worked reduced hours after their return.
However, the new role is no longer available, and the business has decided to pay them their redundancy and in lieu of notice entitlements. I would like to be advised if, in this situation, both the redundancy and in lieu of notice payments should be processed per the reduced ordinary hours?
Please clarify if the same principle/rate applies to both the redundancy and the in lieu of notice payment? My understanding of in lieu of notice is that staff can either work through the notice period or the employer is to pay the amount equal to the period of notice.
Answer
The same principle/rate applies to both the redundancy pay and the in lieu of notice payment. It depends on how the hours were reduced if they were reduced because of JobKeeper then the old hours apply, if they were reduced because of seeking changes then it would be at the reduced rate.
Question 7
Subject: Staff Covid/Flu Shot Obligations?
We have a staff member who has been encouraged to have the Astra Zeneca Vaccine. “As recommended by my doctor and due to existing medical condition, I need to have Vaccine (Astra Zeneca).”
It is for the entire day so have asked if they can submit the day off as sick leave?
If everyone wants a day off to have their Vaccine, where do we stand, Personal (Sick leave)? Can the business choose for it to be paid from the employee’s annual leave also?
The Fairwork website states especially that personal leave can be taken when employees are “unfit” for work, not for a medical check-up or vaccination.
What if someone wants to get the flu shot? It is not covered under sick/personal leave according to what I have read.
Can you advise if this is possible?
Answer
Firstly, a business can never choose for any payment to be taken from an individual’s annual leave unless it is mutually agreed to by the employee, otherwise, it is personal (sick leave).
While you are correct in what Fairwork is saying, this is during the norm, so what it comes down to is that it depends on your company’s policy relating to Personal/Sick leave.
In many instances, where employees have chosen to receive this significant vaccine (Covid), businesses have opted for supporting their employees by eliminating the need to choose between earning their wages and protecting their well-being.
They have done this by making allowances and by providing them with a personal day/ sick day off to recover in case of reaction, etc. as paying 1 day’s personal day/sick day off is better prevention than if they were to contact Covid and require the further use of this leave.
This has been done on a case-to-case basis especially for those with underlying health issues, this is critical.
Regarding the regular annual flu shot, some companies or businesses opt to have this done for their employees in-house during work hours. Otherwise, the employee can be paid sick leave if the business so chooses to, or if the lost time is only a couple of hours, possibly offer time in lieu.
Question 8
Subject: Calculating LSL
An employee started on 29.5.12 then become permanent 27.8.12. When calculating LSL what date do I calculate from?
Answer
The Long Service Leave Act 1955 (the Act) provides full-time, part-time, and casual workers (or any combination of these throughout the period of service) in NSW to 2 months (8.6667 weeks) paid long service leave on completion of 10 years’ service. Section 4(2)(a3) of the Act defines a month as 4 1/3 weeks (4.3333 recurring).
So, to answer your query, you would calculate from the start date of 29.5.12, as it is based on the period of service.
Question 9
Subject: Paid Personal Leave
I have a question regarding personal leave regulations.
In the last couple of years, there was a period that paid personal leave for part-time employees was increased to 10 days.
Can you please tell me when that started & finished?
Answer:
The decision was overturned by the High Court so there is no effect moving forward.
Question 10
Subject: Sick Leave
Scenario: A staff member requires time off for ill-health but has no sick leave accrued and is minus 27 hours.
If we do not pay them for this time off, is it recorded as sick leave, even though they are not paid for it? If so, do we then still deduct the sick leave amount from their sick leave hours creating more negative hours?
Answer
It is recorded as leave without pay (LWP) if they have no accumulated sick leave.
Question 11
Subject: Industry-Specific Redundancy
An employee that has handed in their resignation and I am after some advice as to whether they are entitled to a redundancy payment on termination.
They are employed under the Building & Construction General Onsite Award 2010 and is currently employed as a trainee surveyor. When they first started with the company they were employed as a Civil Construction Trainee Cert III. After completing this, rolled into a Civil Construction Trainee Cert IV before rolling into their current position as a Trainee Surveyor.
From what I can see under the Award clause 40 notes that an exception applies to those identified under Sections 123(1) and 123(3) of the Fair Work Act 2009. Section 123(1) d – an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period or is, for any reason, limited to the duration of the training arrangement.
Based on this, will we need to pay redundancy?
Answer
Yes, you will have to pay redundancy.
The Building and Construction General On-site Award 2010 contains an industry-specific redundancy clause that is unique to the building and construction industry.
The Award defines ‘redundancy’ as a situation where an employee ceases to be employed by an employer to whom this award applies, other than for reasons of misconduct or refusal of duty.
The redundancy provision is triggered where either of the following occurs:
- A construction employee is made redundant by their employer.
- An employee resigns after having been employed for 12 months or more.
Where an award has an industry-specific redundancy provision, the redundancy pay provisions of the Fair Work Act 2009 do not apply.
Unlike the provisions of the Fair Work Act 2009, the Building and Construction General On-site Award 2010 does not contain an exemption for small business employers. The employee at clause 41 of the award is entitled to a redundancy if you do not pay into a scheme.
The table below should assist in working out the payment.
Redundancy Pay
(a) A redundant employee will receive redundancy/severance payments, calculated as follows, in respect of all continuous service with the employer:
| Period of continuous service with an employer | Redundancy/severance pay |
| 1 year or more but less than 2 years | 2.4 weeks’ pay plus for all service in excess of 1 year, 1.75 hours pay per completed week of service up to a maximum of 4.8 weeks’ pay |
| 2 years or more but less than 3 years | 4.8 weeks’ pay plus, for all service in excess of 2 years, 1.6 hours pay per completed week of service up to a maximum of 7 weeks’ pay |
| 3 years or more than but less than 4 years | 7 weeks’ pay plus, for all service in excess of 3 years, 0.73 hours pay per completed week of service up to a maximum of 8 weeks’ pay |
| 4 years or more | 8 weeks’ pay |
Question 12
Subject: Car Parking Benefits
Please advise if when using the statutory formula method for calculating FBT payable, if we should be using Type 1 or Type 2.
Please provide an extract from the legislation if possible.
Answer
The difference between a Type 1 fringe benefit and a Type 2 fringe benefit is whether the amount is entitled to a GST credit. Type 1 fringe benefits are a GST taxable supply with an entitlement to a GST credit whereas, with Type 2 fringe benefits, the provider of the benefit is unable to claim a GST credit.
As a commercial organisation entitled to claim GST credits your markup rate is 2.0802.
Refer to page 109 of our annual publication.
Also, see www.ato.gov.au -Fringe benefits tax – a guide for employers -Chapter 16 – Car parking fringe benefits.
Question 13
Subject: Proposed Merging Superfund
My client has a superannuation fund with defined benefits and member contributions with an employer.
The employer proposed to merge with another super fund with an accumulation merger fund.
My client question from me is :
What is advantage and disadvantage of merging proposed fund?
Answer
We assume your client has a choice.
Usually, a defined benefit fund has a formula that determines your final benefit, rather than an investment return.
This could be a percentage of your final salary.
Most super funds of this type are corporate or public sector funds with many closed to new members.
Usually, employers are keen to get super members out of defined benefits into accumulation funds.
Your client needs to see a financial planner.
It will be necessary to determine how good the defined benefit is compared to the accumulation amount on offer.
Other factors will include the client’s health, years to retirement, risk profile, and financial needs.
Your client needs to make a considered, informed decision after weighing up all the benefits.
Question 14
Subject: What Company Rate?
Could you please confirm what company rate is applicable on the following?
Distribution from a Family Trust to a Company. All income is from a trading business within the Trust.
As more than 80% of the income, being distributed from the discretionary trust to the company is not passive income.
Can you please advise what tax rate is applicable if the trading distribution is from a unit trust?
Also, can you confirm that the company tax rate in this scenario is at 27.5% for the year 2020?
Answer
For the year ended 30 June 2020 the company tax rate for base rate entities is 27.5% (26% in 2021).
To be a base rate entity your turnover must be less than $50 million and…no more than 80% of your income can be passive income.
Receiving a discretionary distribution is passive income.
If the company does not qualify as a base rate entity, then the normal 30% company tax rate applies. Given more than 80% of the income is a discretionary trust distribution and as outlined this is passive income…
The situation here is that income retains its character as it flows through a trust.
This the case whether it is a unit (fixed) or discretionary trust.
Due to this, it is possible for a company receiving a distribution from a trading trust to be a base rate entity.
Since this was TRADING income, we confirm that in the year ended 30 June 2020 the applicable tax rate is 27.5%.
Question 15
Subject: Distributions of a Discretionary Trust
Can you please advise if a Family Discretionary Trust (owned by son) can distribute trading profit to a Company (owned by father)?
Answer
This is quite possible, but you need to refer to the clause of beneficiaries in the trust deed to determine if the father’s company is an eligible beneficiary.
Question 16
Subject: Semi-Retirement.
Scenario: The seller has been in practice as a sole trader for over 27 years, just turned 60, and starting to prepare for semi-retirement.
A colleague has had discussions about buying 50% of the business and eventually owning 100% down the track so are putting this in place intending to buy in on 1 July 2021.
The buyer does not hold a tax agents’ licence at this stage but is in the process of getting this organised. A consultant has been engaged to assist with agreements etc. during this transition.
The colleague already has a Company and Discretionary Trust which could possibly be a shareholder in a new company with both involved.
What is the best structure going forward also do you have any advice on how to minimise CGT issues on the sale of 50% and then down the track the further sale?
Answer
Consider selling as a sole trader, the 50% interest in the firm would qualify as an active asset.
The seller could then roll over their partnership interests into a company.
Note, we suggest doing this immediately after the sale.
We would recommend against using a partnership of individuals, as partners can be jointly and severally liable.
CGT on the sale will be covered under the small business concessions, by the active asset 50% discount, followed by the individual 50% discount along with the retirement exemption to cover the balance.
Given the seller is over 55 years of age, they do not have to have to place the funds for the retirement exemption deduction into a super fund – they effectively have a choice.
If a rollover is correctly done into a company, then they will enjoy the existing concessions.
When retiring, they will be able to sell the shares in the business and enjoy the abovementioned concessions or the 15-year exemption.
The incoming partner will have his thoughts, and these will need to be considered.
Question 17
Subject: Capital Gain Tax
Background
The taxpayer is a family trust which has owned a small shopping centre with 5 shops for 25 years.
All shops have been leased out for the last 25 years. One shop has been leased to a related entity.
The family trust sold the shopping centre in August 2020 with a profit of 2 million dollars.
Tax Issue
Can the family trust claim 20% of the CGT exemption under The Small Business Active Asset Exemption (for the one shop that has been leased to the related entity)?
Answer
In the event the one shop is not on a separate title and only derives 20% of the total rentals received, we suggest that the shop in question will fail the active asset test.
This is because the main use of the shopping centre is to derive rent.
We do not have the full facts before us, and you may wish to apply for a private ruling or seek specialist advice.
Question 18
Subject: Trading v Business Name
Could you please advise on the following, or advise who to contact for information?
We have a family trust – XYZ Family Trust who has a trustee company XYZ Trading Pty Ltd. The business will trade out of the family trust, which will have an ABN & TFN. The trading name the family trust wishes to use is the trustee company name – XYZ Trading P/L. Is this ok to do without registering a separate business name – the person we spoke to from ASIC advise they will not allow us to register the business name under the family trust ABN as it is the company name. The company will not have an ABN as it is not trading.
To clarify simply, they wish to have XYZ Trading P/L on stationery, vehicles, etc – but we will lodge tax returns, etc under XYZ Family Trust – entity XYZ Trading P/L as trustee for XYZ Family Trust.
Answer
There is no need to register a business name as the company name is registered with ASIC.
This provides a level of protection from others being able to register the business name.
You may wish to consider registering trademarks if applicable.
The trustee company would indeed hold the business name if this were required.
It is correct that the trustee’s name should be disclosed on stationery and letterheads.
The trust lodges a form T (Trusts) taxation return.
For an explanation of how Trusts work please refer to pages 30 and 31 of issue 106.
Question 19
Subject: -Accruing Personal Leave
Does a permanent employee (teacher)accrue personal leave in any of the following circumstances?
- During 2 weeks of school holidays throughout the year.
- Being paid Jobkeeper.
- During the shutdown period (4 weeks annual leave + Loading).
Answer
Yes, to each situation.
All full-time permanent teachers shall accrue fifteen (15) days paid sick leave per annum over the course of a year. The entitlement is fully cumulative with the balance at 31 December each year rolled into the entitlement for the following year.
The JobKeeper scheme does not affect an employee’s entitlement to accrue paid sick or carer’s leave under the National Employment Standards and the relevant award. Employees continue to accrue paid sick and carer’s leave as usual.
Question 20
Subject: Cryptocurrency
Can you please provide some details on calculating cryptocurrency?
Answer
In broad terms, if a person is not in the business of trading in cryptocurrency… then we are dealing with capital gains tax.
In the event the individual deals in contracts less than 12 months apart, then there will be no CGT 50% discount.
Net sales proceeds less total cost of acquisition = capital gain on the transaction.
For cryptocurrency held longer than 12 months apply the discount if applicable.
If a person is in the business of trading in cryptocurrency, then apply the same principles you would to a share trader.
An experienced colleague in your office can assist you with this.
Question 21
Subject: Leave Entitlements
Employee (A) started with us in 2020 to replace Employee (B) when they went on maternity leave.
Employee (A) worked 38 hours until the end of 2020.
This year 2021, Employee (A) has been contracted to do only 17.5 hours as Employee (B) has returned part-time.
Due to staff shortages, Employee (A) has been working every day since.
How do I calculate Employee (A)’s personal leave entitlements?
Do I calculate the normal 38 hours from last year separately to the contracted 17.5 hours from this year or do these extra hours accrue as well?
Answer
You are correct – you do two separate calculations.
One for the hours of annual leave accumulated from full-time employment and the other from part-time employment.
In the event, the employee reverted to full-time employment, factor this in as well and adjust the calculation for those relevant weeks.
Question 22
Subject: Motor Vehicle Lease
Our client is planning to lease a Motor Vehicle which has a purchase price of $185,000.
There also is an option to buy out the vehicle at the end of the lease for the amount equivalent to the residual amount.
Does the car limit of $57,581 apply here since it is not a hire purchase but simply a lease?
Answer
Clearly, we are dealing with a luxury car – here the lease is treated as a notional sale and loan transaction for income tax purposes.
A leased car whether new or second hand which exceeds the car limit in the financial year the lease was granted (2020-21 $59,136), is generally a luxury car.
The first element of the cost of the car to the lessee is the amount lent by the lessor to the lessee for the car… is taken to be the car’s market value at the start time of the lease.
The actual lease payments made by the lessee are divided into notional principal and finance charge components. That part of the finance charge component applicable to the particular period may be deductible to the lessee.
The lessee cannot claim a tax deduction for the notional principal lease payments.
The lessee is generally treated as the holder of the luxury car and entitled to claim a deduction for the decline in value of the car. This is limited to the relevant motor vehicle deprecation cost limit – see above.
if the value of the car is under the depreciation cost limit, there is no cap on lease payments.
Question 23
Subject: Exercising Power as Mortgagee
My question is on what the best way may be to take over or recall property under a mortgage?
The real issue is that they (a family member) have a bank loan for the total amount which is in our name using our house only as security. Meaning their Title has a mortgage registered to us.
Background…
The property was purchased in May 2019 and in late 2020 completed the subdivision which had been started by the previous owner.
Lot 2 completed house (PPR), lot 1 unfinished house as an outer shell to lock up.
In July 2020, special Government permission was granted on compassionate grounds to join their spouse in America. They had air tickets and Government approval to travel back to Australia in November 2020, but the plane was cancelled as with subsequent flights.
They had to leave America when their visa ran out and are now in Mexico.
After being trapped overseas for over ten months (mainly in hotels) with so many costs arising, do not need the burden of owning the property, so want to sell their permanent place of residence (which needs work to be able to put on the market).
Option 1: As mortgagee could we take over the PPR house (lot 2) and/or the unfinished house (lot 1)? We would need to complete all works and then sell the two properties. Would we have to pay Stamp Duty and/or Land Tax as the mortgagee recalling the property under the mortgage? Would we have to pay Capital Gains on the sale?
Option 2: We have a Self-Managed Super Fund. Could we put the completed house property and/or the unfinished house property into our SMSF? What would be the issues regarding Stamp Duty, Land Tax, and Capital Gains? Would it be worthwhile? If we took over the house, we would need to complete the renovations to then sell or rent it out.
Answer
We make the following general comments.
At the time of completion of the subdivision, the purchase costs (the cost base) need to be allocated between the lots on a commercial basis.
You correctly point out that they are trapped overseas due to Covid 19 – this is not a preference, and it is important that they continue to lodge taxation returns on the basis they remain an Australian tax resident.
This allows them to maintain the possibility of the 6-year temporary absence for CGT principal place of residence exemption purposes.
Regarding any real estate agent quotes, you may wish in this market to get a second opinion and possibly do some market research of your own.
Exercising your power as mortgagee… lodging a writ of possession does not mean you pay stamp duty.
You may obtain legal advice on this, but it would be preferable if they retain ownership of lot 1 for CGT purposes.
To the extent you may be expending considerable funds on lot 2, you may wish to acquire the property for your own security.
Your (family member) would be assessable for any capital gain on the sale.
In the event you completed the construction in a quick turnaround you would be taxable on the profit you make on the sale.
In the event you held the asset for longer than 12 months, then there is the possibility of the CGT 50% discount applying.
If you moved into Lot 2 there is the possibility of your obtaining the principal place of residence exemption.
All the above scenarios are dependent on the exact facts and circumstances.
A SMSF cannot purchase residential property formerly owned by a fund member or associate.
Question 24
Subject: Pay Rates
Could you please advise if there is a specific award to be followed in regard to employee pay rates in the accounting/tax industry? E.g., Accountants and support team members.
Answer
Junior admin staff may fall under various clerical awards.
Accountants normally negotiate a salary with increases tied to individual performance and productivity.
Question 25
Subject: Tax Within an Inheritance
Question re; inheritance/capital gains tax/any tax within an inheritance
A parent dies leaving a home, cash, the deposit in a nursing home, and life insurance policies equally to 5 children.
The deceased was in residential care for almost 3 years. But the house was in the deceased name and principal place of residence till moving into the home.
Are there any capital gains tax implications on sale/gift of residence/ any of the items to be inherited to beneficiaries as the property left, was the principal place of residence till the deceased went into residential care?
Does the time in residential care (as property no longer the principal place of residence) …negate the tax-free inheritance status?
If the house is gifted to one beneficiary and they then sell it in a few years…is there any capital gains tax liable… And who pays it?
Rather than gift if the beneficiaries purchase property within the estate…
Would it be best to sell the home at public auction (therefore at genuine market price) …sell the home to someone other than a beneficiary, then distribute shares of the home as dictated by the Will so the capital gain (if any), will be paid by the estate…before it is distributed to the beneficiaries?
If there is capital gains tax due, would it be better to make a more realistic value of the home within the probate valuation…so when the property is sold the difference in cost price base to market value would be less? Probate tax would be lower to pay than capital gain.
If the property was gifted then sold by the beneficiary some years later…are the beneficiaries who gifted/took lesser value for home initially…still liable to pay their original share (20%) capital gain tax…or once gifted/sold at the lesser value…does their liability cease for the capital gain, regardless of how big a gain it is?
Answer
Under section 118-145 ITAA 1997, you can apply the six-year temporary absence to the sale of the home in order to maintain the principal place of residence (PPR) exemption for CGT purposes.
If one beneficiary takes legal ownership, they will be deemed to have acquired the property at market value – in a rising property market they will be assessable on subsequent capital gains unless the property is their PPR.
Unless one of the beneficiaries wishes to pay market value for the property (say… the mean of two independent valuers), then public auction as you suggest is the best option.
As stated above there should be no CGT.
With respect the “gifting” you suggest may not be realistic. There are five siblings who each appear to have an equal interest in this property and the remaining assets of the estate.
It would appear the property needs to be sold. This should occur within two years of the date of death. Failure to do so could result in CGT on the increase in value since the date of death.
In the event the estate encounters difficulties in administration, then the Commissioner may have a discretion to extend the two years but do not count on it.
Question 26
Subject: Capital Gains Tax
Scenario:
- Unit Trust with Two Family Trusts – Beneficiaries
- Family Trust has beneficiaries who are working full time.
- Unit trust has invested in Commercial Properties for a regular / active income.
- Unit Trust now wants to sell one of the properties and will incur capital gain.
Questions:
- Can Unit Trust receiving rent from the commercial properties be treated as conducting business?
- If yes, can rent received be considered as “sales?
- Trading activity (Receiving rent from Commercial properties) can be classified as small business activity?
- If yes, can roll over benefit of capital gains be availed, by investing the proceeds of the sale of the property by the Unit Trust, in another commercial property?
Answer
We believe it highly unlikely that the commercial property will be eligible as an active asset in order to meet the CGT Small Business Concessions.
You do not disclose how many properties your client owns – if it only two or three then there is little likelihood the client could be in the business of owning rental properties.
The main use is clearly to derive rental income.
If these are just normal commercial tenancies, there is little prospect of success here – refer to Taxation Ruling 97/11 for guidance.
Question 27
Subject: Capital Gains Tax on An Estate
I have an interesting capital gains tax matter.
In summary a holiday house was purchased by my clients (husband and wife) together with the wife’s parents.
It was purchased as tenants in common, but each half joint tenants.
Initially the property was used only as a holiday cottage, but sometime later my clients sold their residence and moved into the “holiday home”.
They subsequently moved out at which time the parents moved in as their permanent residence.
When their mother passed away, the father remained there for some time, but eventually moved into assisted living retirement home until his passing.
I understand the property is now in the hands of the father’s estate.
My clients now wish to purchase the property (I assume their father’s share) from the estate and would like to know the exposure to capital gains tax on the estate’s share of the property disposal to my clients.
Answer
The Estate simply calculates the days of occupancy by the parents on their 50% share and divides this by the total days of ownership up to the last surviving parent’s death.
This assumes of course that the father had a temporary absence from the dwelling of less than 6 years when he moved into the nursing home – this allows the period spent in care to be included in days of occupancy.
Of course, the 50% individual discount will apply to the Taxable Capital Gain.
There is no question that the Estate must assume responsibility for paying the CGT on the sale of the last surviving parent’s 50% interest for the simple reason that it was not the parents’ PPR the entire time.
For there to be no further CGT implications after the date of death, the Estate has two years to dispose of its share in the property but in exceptional circumstances the Commissioner has a discretion to extend this.