THE NEWSLETTER
Tax Planning Opportunities for Everyday Business
BUDGET CHECKLIST
The 2020-21 Federal Budget was handed down on 6.10.2020 and our detailed analysis was uploaded on our website the following day.
How Are You Able to Benefit from The Changes?
- The amended income tax rates and changes to tax offsets are included in this edition. Depending on your earnings, you could have an additional $50-$60 a week in your pocket. Subject to the $25k contribution limit, if you salary sacrifice this amount into superannuation you will benefit in retirement.
- 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.
- 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.
- Full expensing also applies to second-hand assets for small and medium-sized businesses with aggregated annual turnover of less than $50 million.
Full expensing does not apply to second-hand assets for businesses with aggregated annual turnover of $50 million or more.
- If your company incurred losses in the year ended 30.6.2020, you may be delaying seeing your accountant. In the event your company had a tax liability for the FY 2019, it may be worth seeing your accountant sooner than later. This is because of the temporary loss carry-back effective 1.7.2019. This could result in a “clawback” of the company tax paid for FY 2019.
Under the existing rules, companies were required to carry losses forward to offset profits in future years.
The Government has announced that it will allow companies with aggregated annual turnover of less than $5 billion to carry back tax losses from 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in the 2018-19 or later income years.
Eligible corporate tax entities can elect to apply tax losses against taxed profit in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profit and cannot result in a franking account deficit.
The tax refund will be available on election by eligible companies when they lodge their 2020-21 and 2021-22 tax returns.
Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
- Consider taking advantage of the Jobmaker hiring credit. From 7.10.2020, the Government will pay a hiring credit for up to 12 months for each new job. This is available from 7 October to employers who hire eligible employees age 16 to 35.
The credit will be paid quarterly in arrears at the rate of $200 per week for those age 16 to 29, and $100 per week for those age 30 to 35. Eligible employees are required to work a minimum of 20 hours per week and receive the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one month out of three months prior to when they are hired.
To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created.
- If applicable consider taking advantage of the apprenticeship’s wages subsidy. From 5.10.2020 to 30.9.2021, employers will be able to claim a new Boosting Apprentices Wage Subsidy for new apprentices of trainees who commence during this period.
Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.
- Make family members aware of the first home loan deposit scheme. As part of the Government’s economic recovery plan, an additional 10,000 first home buyers will be able to purchase a new home sooner under the First Home Loan Deposit Scheme.
The First Home Loan Deposit Scheme has already helped almost 20,000 first home buyers purchase a home this year with a deposit as low as 5 per cent.
An additional 10,000 places will be provided from 6 October 2020 to support the purchase of a new home or a newly built home.
The Government recognises that saving a deposit has become a more significant barrier to entering the housing market than the ability to service a home loan.
Under the existing First Home Loan Deposit Scheme, eligible first home buyers can purchase a modest home with a deposit of as little as 5 per cent.
Building on the success of the existing scheme, an additional 10,000 first home buyers will be able to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5 per cent.
The additional guarantees will be available until 30 June 2021 and will drive more construction and support jobs as part of the Economic Recovery Plan.
Eligible first home buyers will also be able to take advantage of the Government’s First Home Super Saver Scheme and HomeBuilder, and first home buyers may also be eligible for state and territory grants and concessions.
Combined, the First Home Loan Deposit Scheme, Homebuilder and First Home Super Saver Scheme represent an unprecedented level of Government support for home buyers and the construction industry alike.
- Give your staff retraining without having to pay fringe benefits tax (FBT). The Government will provide an exemption from Fringe Benefits Tax (FBT) for employer-provided retraining and reskilling, for employees who are redeployed to a different role in the business. The exemption will apply from 2.10.2020.
Removing costly barriers to training as the economy rebuilds is essential to ensure Australian employees have the opportunity to reskill or retrain for the jobs that will come back as the economy reopens.
Currently, FBT is payable if an employer provides training to its employees that is not sufficiently connected to their current employment. For example, a business that retrains their sales assistant in web design to redeploy them to an online marketing role in the business can get hit with FBT. By removing FBT, employers will be encouraged to help workers transition to new employment opportunities within or outside their business.
The exemption will not extend to retraining acquired by way of a salary packaging arrangement or training provided through Commonwealth supported places at universities, which already receive a benefit.
In addition, the Government will consult on potential changes to the current arrangements for workers that undertake training at their own expense. The current rules, which limit deductions to training related to current employment, may act as a disincentive for Australians to retrain and reskill to support their future employment needs.
These changes will provide further support for training, building on the $1 billion JobTrainer program which will provide up to an additional 340,700 training places across the country for school leavers as well as provide opportunities for job seekers to upskill and reskill and get back to work as quickly as possible.
- If you genuinely engage in research and development (R+D), take advantage of the enhanced R+D tax offset.
The Government announced further enhancements to the Research and Development Tax Incentive. The changes will apply for income years starting on or after 1.7.2021:
- for companies with an aggregated turnover below $20 million, the refundable R&D tax offset rate will be increased to a 18.5% premium to the company’s corporate tax rate. Note the previously proposed cap on $4 million annual cash refunds will not proceed
- for companies with aggregated turnover of $20 million or more, the number of R&D intensity tiers (which measures the company’s R&D expenditure as a proportion of total expenses for the year) will be reduced from three to two, and the non-refundable R&D tax offset will be increased as follows:
| R&D intensity | Non-refundable R&D tax offset |
| 0-2% | Corporate tax rate + 8.5% |
| >2% | Corporate tax rate + 16.5% |
Reforms from the 2019-20 MYEFO announcement will be retained, including the proposal to increase the limit for R&D expenditure which is eligible for the R&D tax incentive from $100 million to $150 million per annum.
- Consolidate your superannuation into one account safe in the knowledge you will never have the hassle of dealing with multiple accounts.
This is because commencing 1.7.2021, the Your Future, Your Super package will improve the superannuation system by:
Having your superannuation follow you: preventing the creation of unintended multiple superannuation accounts when employees change jobs.
Making it easier to choose a better fund: members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings.
Holding funds to account for underperformance: to protect members from poor outcomes and encourage funds to lower costs. The Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members. Persistently underperforming products will be prevented from taking on new members.
Increasing transparency and accountability: The Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require superannuation funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings
- If you are a medium sized business with a turnover of between $10 million and $50 million, for the first time you will have access to up to ten small business tax concessions. The changes are estimated to support an additional 20,000 businesses and their employees.
The expanded concessions, as part of the 2020-21 Budget will apply in three phases:
From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
From 1 April 2021, eligible businesses will be exempt from the 47 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.
From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021.
In addition, from 1 July 2021, the Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.
JOBMAKER PLAN – BRINGING FORWARD THE PERSONAL INCOME TAX PLAN
While the tax scales contained in our annual publication were correct at the date of publication, COVID-19 resulted in the Federal Government delaying its 2020-21 Federal Budget until 6.10.2020. Here are the changes.
The Government has announced that stage 2 of its Personal Income Tax Plan will be brought forward and apply for the 2020–21 income year. The low- and middle-income tax offset will continue to be available for the 2020–21 income year but will not apply for the 2021–22 income year and later years.
Threshold changes
If enacted the measure will:
- increase the low-income tax offset (LITO) from $445 to $700 and adjust the phase out rules
- increase the top threshold of the 19% personal income tax bracket from $37,000 to $45,000, and
- increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
These changes will result in the following tax rates for the 2020–21 income year for individuals who are Australian residents.
| Resident tax rates for 2020–21 | |
| Taxable income | Tax on this income |
| 0 to $18,200 | Nil |
| $18,201 to $45,000 | 19cents for each $1 over $18,200 |
| $45,001 to $120,000 | $5,092 plus 32.5cents for each $1 over $45,000 |
| $120,001 to $180,000 | $29,467 plus 37cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45cents for each $1 over $180,000 |
Note: Changes are also proposed for the thresholds of foreign resident individual taxpayers and working holiday makers. If enacted the new tax rates will be as shown in the table below.
| Foreign resident tax rates for 2020–21 | |
| Taxable income | Tax on this income |
| $0 – $120,000 | 32.5cents for each $1 |
| $120,001 – $180,000 | $39,000 plus 37cents for each $1 over $120,000 |
| $180,001 and over | $61,200 plus 45cents for each $1 over $180,000 |
| Working holiday maker tax rates 2020–21 | |
| Taxable income | Tax on this income |
| 0 to $45,000 | 15% |
| $45,001 to $120,000 | $6,750 plus 32.5cents for each $1 over $45,000 |
| $120,001 to $180,000 | $31,125 plus 37cents for each $1 over $120,000 |
| $180,001 and over | $53,325 plus 45cents for each $1 over $180,000 |
Low income tax offset
The proposal would also increase the low-income tax offset (LITO) from a maximum amount of $455 to $700 per annum for the 2020–21 income year and future years.
As a non-refundable offset, any unused low-income tax offset cannot be refunded. The low-income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If not all the offset is used to reduce the tax payable, there is no refund of any unused portion.
*There are also changes proposed to the phase out rules.
| Proposed phase out rules | |
| Taxable income | Tax on this income |
| $37,500 or less | $700 |
| Between $37,501 and $45,000 | $700 minus 5cents for every dollar above $37,500 |
| Between $45,001 and $66,667 | $325 minus 1.5cents for every dollar above $45,000 |
Low- and middle-income tax offset
Under the previous legislation, the low- and middle-income tax offset (LMITO) was to be repealed when the relevant threshold changes came into effect and the LITO was increased. Under the Government’s announcement, LMITO will continue to be available for the 2020–21 income year then removed for the 2021–22 income year and later years.
There are no changes to the amount of LMITO or the eligibility thresholds and as such LMITO is applied as outlined in the following table:
| Low and middle tax offset | |
| Taxable income | Offset |
| $37,000 or less | $255 |
| Between $37,001 and $48,000 | $255 plus 7.5cents for every dollar above $37,000, up to a maximum of $1,080 |
| Between $48,001 and $90,000 | $1,080 |
| Between $90,001 and $126,000 | $1,080 minus 3cents for every dollar of the amount above $90,000 |
As a non-refundable offset, any unused low- and middle-income tax offset cannot be refunded. The low- and middle-income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If all of the offset is not used to reduce the tax payable, there is no refund of any unused portion.
2020–21 administrative treatment
PAYG Withholding
The ATO has published updated tax withholding schedules as the amendments have passed Parliament.
This will allow the tax cuts to be reflected in people’s take-home pay.
The ATO will publish updated tax withholding schedules at ato.gov.au/taxtables as soon as possible.
The ATO will work closely with providers of payroll software and employers to ensure that the reduced withholding associated with the threshold changes and the increase of LITO is reflected in software as soon as practicable.
PAYG instalments
The proposed changes to thresholds have not been included when calculating PAYG Instalment shown on the September quarter Activity Statements. The changes will be reflected in the December Activity statements if the legislation is enacted or if there is clear bipartisan support for the measure. In most cases this will result in a wash-up of any over payments that occurred for earlier periods.
Vary your PAYG instalments
In line with their current position, if you chose to vary your PAYG instalments for the 2020–21 income year to reflect the proposed tax cuts the ATO will not apply penalties or charge interest for excessive variations if you have made your best attempt to estimate your end of year tax liability. General interest charges may apply to outstanding PAYG instalment balances.
You should review your tax position regularly throughout the year and vary your PAYG instalments as your situation changes.
SIMPLIFYING ACCESS TO CREDIT FOR CONSUMERS AND SMALL BUSINESSES
As part of their economic recovery plan the Federal Government is reducing the cost and time it takes consumers and businesses to access credit.
Credit is the lifeblood of the Australian economy, with billions of dollars in new credit extended to households and businesses in Australia each month.
- The Government considers: it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend, and businesses can invest and create jobs.
- Consumer credit has now evolved into a regime that is overly prescriptive, complex, and unnecessarily onerous on consumers.
- The system will be simplified by moving away from a “one-size-fits-all” approach while at the same time strengthening consumer protections for those that need it.
Key elements of the reforms include:
- Removing responsible lending obligations from the National Consumer Credit Protection Act 2009, with the exception of small amount credit contracts (SACCs) and consumer leases where heightened obligations will be introduced.
- Ensuring that authorised deposit-taking institutions (ADIs) will continue to comply with APRA’s lending standards requiring sound credit assessment and approval criteria.
- Adopting key elements of APRA’s ADI lending standards and applying them to non-ADIs.
- Protecting consumers from the predatory practices of debt management firms by requiring them to hold an Australian Credit Licence when they are paid to represent consumers in disputes with financial institutions.
- Allowing lenders to rely on the information provided by borrowers, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle.
- Removing the ambiguity regarding the application of consumer lending laws to small business lending.
These changes will make it easier for the majority of Australians and small businesses to access credit, reduce red tape, improve competition, and ensure that the strongest consumer protections are targeted at the most vulnerable Australians.
The Government will consult publicly with stakeholders before finalising any legislation required to implement the reforms.
COVID-19 AND FURTHER PAYROLL TAX SUPPORT
Further COVID-19 support has been provided by State Government to assist some employers in relation to their applicable State payroll taxes:
- The NSW Government will grant further deferrals of payment of payroll tax for all employers for the outstanding liability for the 2019-20 financial year and the payments for July, August, and September until October 2020. There is an option of paying the outstanding liability in full or entering into an instalment plan after October 2020.
- The Victorian Government will defer payroll tax for businesses with payrolls up to AUD10 million (based on their 2019-20 financial year annual reconciliation returns) for the full 2020-21 financial year until the 2021-22 financial year.
- The Western Australian Government confirms that payments made to employees under the JobKeeper scheme will continue to be exempt from payroll tax until 28 March 2021.
- The Queensland Government has announced the following:
– a two-month payroll tax waiver for July and August 2020 for businesses with annual Australian taxable wages up to AUD6.5m, and
– allowing businesses to pay off existing payroll tax deferred liabilities over the course of 2021.
APRA CLARIFIES ‘WORK TEST’ FOR SUPERANNUATION CONTRIBUTIONS
In October, the Australian Prudential Regulation Authority (APRA) confirmed individuals whose incomes are subsidised by the JobKeeper scheme will be considered by registrable superannuation entities (RSE) to be ‘gainfully employed’ for the purpose of the ‘work test’, and can therefore make personal superannuation contributions.
This was contained within an updated set of frequently asked questions for superannuation on their response to COVID-19.
According to APRA, RSE licensees need not distinguish between individual members who are working reduced hours or those who have been stood down, and can assume that all members whose incomes are subsided by the JobKeeper scheme satisfy the ‘work test’ for the purpose of voluntary superannuation contributions.
ATO UPDATE: JOBKEEPER 80-HOUR THRESHOLD FOR EMPLOYEES
The ATO recently updated guidance on the 80-hour test for higher rate of JobKeeper payment.
This provides more information on the treatment of leave.
An employee will satisfy the 80-hour threshold, if in their 28-day reference period, the total of the following is 80 hours or more:
- actual hours they worked
- hours they were on paid leave
- hours they were paid for absence on a public holiday
According to the ATO, if an eligible employee satisfies the 80-hour threshold, the employer can claim the tier 1 (higher) payment rate for them.
If they do not meet the 80-hour threshold, the employer can only claim the tier 2 (lower) payment rate for them.
SHARES AND UNIT RECORDS DATA
If you are looking for information concerning purchases and sales of shares, the data may already be with your tax agent.
The ATO is now sharing over 20 million shares transactions for 800,000 taxpayers. Share purchase and sale information from 1 July 2017 is available on Online services for agents to help them prepare clients’ income tax returns.
It is important you verify this information separately as not all transactions may be recorded if:
- an organisation has not supplied data yet
- ATO processing has not yet been completed
- the ATO has received data that could not be matched to your clients with high confidence
- the data did not pass all validation processing checks.
It is still vital that you retain records for shares, units, and stapled security transactions.
DUAL RESIDENT OF AUSTRALIA
Commissioner of Taxation v Pike [2020] FCAFC 158
This Full Federal Court case has upheld the decision of the Primary Judge which considered the tax residency of an individual. The Court agreed with the primary judge’s finding that the taxpayer was a “resident” of Australia for the income years ended 30.6.2009 to 30.6.2016 within ordinary concepts. The Court also agreed with the primary judge’s consideration of the tie-breaker rule in the double tax agreement (DTA) between Thailand and Australia from 2009 to 2014.
EICHMANN: FULL COURT HOLDS THAT LAND IS A SMALL BUSINESS ACTIVE ASSET
As a preface, this case is important because for an entity to access the valuable capital gains tax (CGT) small business concession, the item being disposed of must be an “active asset” being used by a small business.
This Full Federal Court decision follows on 23.9.2020 Administrative Appeals Tribunal (AAT) and Federal Court decisions in Eichmann v FCT [2019] AATA 162 and The Full Federal Court in Eichmann v FCT [2020] FCAFC 155 allowed the taxpayer’s appeal of the Federal Court decision.
The Federal Court decision
The Federal Court, allowed the ATO appeal against the AAT’s decision, holding that land used for storage was not an active asset for the purposes of the small business capital gains tax (CGT) concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997). Derrington J held the use of the land by the taxpayer to store work-related materials for later use in business activities was “in relation to” the carrying on of the business not “in the course” of that business therefore the statutory test in section 152-40 of the ITAA 1997 was not satisfied and the land was not an active asset. The taxpayer appealed.
The Full Court decision
The Full Court of McKerracher, Steward, and Stewart JJ allowed the taxpayer’s appeal.
On the question of construction of the statutory test in section 152-40, the Full Court accepted the taxpayer’s contention that small business relief in Division 152 should be construed beneficially and not restrictively in order to promote the purpose of the concessions in the Division.
Carefully reviewing the language in section 152-40, the Full Court said it is necessary to:
- determine the use of the particular asset
- determine the course of the carrying on of a business; and
- see whether the asset was used in the course of the carrying on of that business.
In applying section 152-40 Full Court said:
“These inquiries involve issues of fact and degree. But because s. 152-40 should be construed beneficially, no narrow approach to the consideration of these issues should be applied. We also observe that, for these purposes, the legislature has not used language which might confine these inquiries. It has not, although it could have, referred to the “ordinary” course of a business or to the “day to day” course of a business; it has not used the words “direct” or “integral” to qualify the word “in”. It is sufficient if the asset is used at some point in the course of the carrying on of an identified business.”
Unlike the view of the Federal Court and submissions of the ATO the Full Court held:
- it is incorrect to read into section 152-40 an inference requiring there to be a very close, direct, or integral connection between the use of the asset and the carrying on of a business
- section 152-40 does not require the use of the relevant asset to take place within the day to day or normal course of the carrying on of a business. Narrowing the qualification in this way was not supported by the language of the provision and was inconsistent with the need to construe its language beneficially.
It was suggested that even if the Full Court’s construction of section 152-40 was not correct and the Federal Court’s construction was allowed, the Full Court would still “characterise the use of the appellant’s property as bearing a ‘direct functional relevance to the carrying on of the normal day to day activities’ of the business here”. The taxpayer’s property served the function of being a necessary place for storage of plant and equipment of the business and this function bore a direct relationship to the activities of that business.
UK CITIZEN ON WORKING HOLIDAY VISA WAS AUSTRALIAN RESIDENT
Gurney v Full Commissioner of Taxation AATA 3813 30.9.2020
This Administrative Appeals Tribunal case shows how important demonstrated intention can be in determining residency status. In this case it was found that a UK citizen on a working holiday visa was a resident of Australia while here… saying that having a temporary intention to live in Australia was sufficient for him to be a resident in Australia.
The taxpayer was a British passport holder who came to Australia on 18.12.2015 on holiday, remaining here until 2.1.2016.
Prior to arriving in Australia he had applied for a long-term skilled entrant visa that could have allowed him live and work in Australia for an extended period but that application was withdrawn after he realised that its processing time normally exceeded four months.
Instead on 29.2.2016, he obtained a working holiday visa allowing him to remain in Australia until 28.2.2017. He came back to Melbourne, Australia on 28.2.2016 with the intention of staying and working in Australia long term.
This was demonstrated by him securing longer term accommodation and making it his home. Prior to leaving the UK, he had disposed of all his assets except some books stored at his parents. His sole bank account there only held a nominal balance.
The taxpayer applied for several jobs in Melbourne as a civil engineer with the job application stating his visa status and that he was looking for entry level employment. The job applications also indicated he would seek sponsorship to continue when his visa expired. After some temp positions, he secured longer term employment at the Bayside City Council. In order to change his visa status, in August 2016, the taxpayer unsuccessfully sought sponsorship from the Council.
The taxpayer and his girlfriend in August and September 2016, made reservations for a holiday in Sri Lanka in November 2016 , then flying from Sri Lanka to the UK on 19.12.2016 for Christmas holidays with the taxpayer’s parents in England.
The reservations were made at a time fares were cheap with the taxpayer unsure whether his employment situation in Australia would be long term. While in the UK, the taxpayer abandoned his Australian plans and secured long term employment there.
The Commissioner assessed the taxpayer for the income earned in Australia at non-resident rates on the basis the taxpayer was a UK resident, domiciled with a permanent place of abode there. This was disputed by the taxpayer contending he was a resident, first as an objection to the assessment and then before the AAT which held that at the relevant times the taxpayer was a resident of Australia. It said this conclusion was allowed in circumstances where the intention to live in Australia is temporary. Crucially the taxpayer had come to Australia with the intention to live here indefinitely. That intention remained until it became clear around October 2016 that he would not be unable to alter his employment and visa arrangements to achieve his objectives.
While in Australia, the taxpayer’s connection with England was historical, which was not sufficient to constitute residence there within the ordinary meaning of the word.
bO2 READERS QUESTIONS AND ANSWERS…………..
Question 1
I have a company client which is in receipt of the JobKeeper Funding from the Cwlth Government.
An employee of the company has taken some Annual Leave whilst in receipt of the JobKeeper allowance which is in excess of their normal weekly wage…under the NSW Hairdressers Award. About $460.00 gross before tax.
The question has arisen by my client……is the Leave Loading payment based on the payment effective for the employee’s annual leave i.e. the JobKeeper payment, or is the leave loading only paid on what would have been the normal Annual Leave payment had it been paid on the usual weekly payment for the employee ( about $460.00 gross )?
Are they just paid the $600.00 because it is more anyway, or is it $600.00 plus leave loading on $460.00?
Answer
Annual leave loading is paid on the wage that would be normally earned during non-COVID-19 non JobKeeper payments.
Annual leave loading is only payable on the $460.00.
Yes, they are paid $600 as that amount is greater than $460 plus Leave loading.
Question 2
I have an employee who wishes to be paid out a portion of his annual leave entitlement.
Can you please advise if the annual leave pay-out is part of the annual leave accrual?
I am not certain it would be as it is a payment in addition to his ordinary time hours therefore if included, he would exceed his 20 days annual leave entitlement accrual.
Answer
It depends on what award the employee is covered by as to the allowance of how much annual leave an employee can cash in.
When you cash it in you do not accumulate annual leave on the cashed in portion you only accumulate on the leave you take, but rightly so you only accumulate 20 days a year.
Question 3
Thank you for your latest glossy Tax Essentials Manual. I have some questions regarding tax returns that are now due.
- Page 2 of Losses Schedule. Do we need to satisfy the ‘business continuity test, what is the test?
- What is a ‘superannuation income stream’, Item 7 In Tax return for individuals?
- Are we required to lodge a ‘reportable tax position schedule’, Item 25 in Company tax return?
Answer
- The business continuity test applies for companies – means you carry on the same business at the time the loss was incurred and at the time the loss is recouped.
You cannot derive new income from a transaction of a kind that you did not engage in when the loss was incurred or similarly from a new business activity.
The ATO applies this test strictly. You may however meet the continuity of ownership test – (greater than 50%) – if this is the case then you do not have to meet the continuity of business test.
- SuperStream is the way businesses must pay employee superannuation guarantee contributions to super funds. With SuperStream money and data are sent electronically in a standard format.
The ATO can see this in real time.
- The Reportable Tax Position is a schedule contained in the company tax return. Whether it applies to you will be evident from criteria in the Company Tax Instructions published annually by the ATO.
Question 4
I have a question about the JobKeeper extension. Can you still get JobKeeper part 2 if you have an actual drop in turnover of 29%?
Answer
The requirement is 30%. Given you are so close to the required turnover decline carefully consider:
- The definition is GST turnover, so we are dealing with taxable supplies
- Carefully peruse for non-assessable deposits which may have been included in error
- Check for deposits for work yet to be done which has not been invoiced.
There may be items you can exclude.
Question 5
Need your advice in relation to GST on goods we import from overseas.
We import goods such as materials and software from overseas companies.
When we receive an invoice for e.g. AUD $55,000 ,I’m wanting to know how can we account for GST when the invoice does not display the GST amount separately?
Answer
Generally, GST is payable before the goods are released by customs.
You should obtain clear written evidence that the GST has been paid. This can be ascertained by a review of customs documentation.
Clearly if you negotiated a price for $50,000 – then paid $55,000… it would appear that the GST has been paid.
However never assume this and always have the documentation on file to verify this.
We acknowledge an overseas supplier will not always issue a tax invoice in the prescribed format. Also check whether your company is participating in the deferred GST scheme.
The scheme allows you to defer the payment of GST on taxable importations until the first activity statement you lodge after the goods are imported.
Question 6
In calculating GST turnover to qualify for JobKeeper do you include the sale price of a business vehicle?
If not, how will you exclude it from the sales figure on the BAS return or will the ATO declaration for JobKeeper allow for adjustments of this type of transaction?
Answer
All the eligibility criteria deal with “GST turnover.” There does not appear to be exclusions.
The sale of a business vehicle by a GST registered entity is a taxable supply and included in GST turnover for calculating falls in turnover for JobKeeper 2 purposes.
Question 7
My question regarding GST when returning a car.
The facts of the matter are as follows:
- Mercedes C250 was bought in January 2018 on an agility program for approximately $57,778 including GST.
- GST component on this car was recovered in the BAS, in the first quarter of 2018.
- Monthly payments on this car were agreed and regularly paid monthly until December 2019.
- In December 2019, (almost two years on) the car was returned, and they valued it at $45,000.00 residual value.
- The price of the new car, C300 purchased in December 2019 was $57,966 including GST this. This car was also purchased on an agility program, and monthly payments where agreed upon for two years ($936.00 per month for 24months with some residual value).
My Question is:
“Does the $45,000 of the previous car balloon value (which was more than the expected residual value after two years of payments, therefore there were no out of pocket expenses and I only had to return the car). Does that $45,000 have any component of GST in it, in other words is it inclusive of GST?”
Answer
An entity registered for GST has just sold a business asset (Merc) for $45,000.
Just as you were able to claim the GST input tax credits on the purchase, in turn the sale has GST implications.
The amount is inclusive of GST and you need to remit 1/11th i.e. $4,091 to the ATO on your next BAS.
Question 8
I have a client who was operating a gym business as a sole trader when COVID-19 hit.
He qualified for JobKeeper as an Eligible Business Participant and we are now looking to see if he will qualify for the Extension to JobKeeper.
As his gym business income fell, he found a new type of business to get involved in.
He is still running the gym, and this is still operating at less than 30% of last year’s turnover. His new sales business is also run through his sole trader ABN.
As he has this additional business income now from the new business, would this mean that even though his gym would still qualify for the JobKeeper extension, that all his income from all sources needs to be added together to determine his eligibility for JobKeeper?
Answer
In general, eligibility for JobKeeper 2 compares turnover for the September 2020 quarter against the turnover of the September 2019 quarter. If the decline in turnover is more than 30%, then eligibility is maintained.
The new sales business will be included in the calculation of turnover because it is on the same ABN.
There are a number of alternative tests for newly formed businesses from 1.10.2020 under JobKeeper 2, you should also explore those to see if your client qualifies.
Question 9
There appears to have been a change to legislation relating to CGT for non-residents who sell property while non-resident.
My client, an Australia citizen who is currently an expat working overseas, is planning on moving back to Victoria in January 2021 and becoming an Australian resident again. He intends to move back into his property in Victoria and use it as his principal place of residence. My client owns no other property. Below is a timetable of my client’s occupancy:
- Property purchased in March 2010 and was occupied as Principal Place of Residence for 12 months to February 2011.
- Client moved in with parents and property was rented from March 2011 to December 2012.
- Client moved back in the property as principal place of residence from Jan 2013 to Sep 2013.
- Client moved overseas as an expat non-resident and has been renting the property since September 2013.
- Intends to move back into the property and become resident in Victoria in January 2021.
Does the 6-year PPOR absence and CGT exemption still apply if my client moves backs into the property and becomes an Australian resident and then subsequently sells the property?
Also, if my client moves back into the property and sets up all bills, water, gas electricity, but can’t find a job in Melbourne and is required to relocate to another Australian city, does the 6-year Principal Place of Residence CGT exemption reset and a new 6-year period apply?
Or is the exemption for a total of 6 years over the ownership? I believe the 6-year period resets every time the property is occupied as a PPOR?
In the example above, if my client moved back into the property as his PPOR then sells within a 6-year period from January 2021, I believe my client would only be liable for CGT for 16 months from Sep 2020 to Jan 2021, as my client has moved back into the property and reset the 6-year exemption in step 3?
My understanding is that if a dwelling is reoccupied as the main residence, the six-year exemption resets. Thus, another six years of exemption is available from the date it next becomes income producing. Is there a minimum period my client would have to live in the house to reset it as my Principal Place of Residence from January 2021?
Answer
To answer your questions in order:
- Clearly the PPR in this period
- 6-year temporary absence applies
- PPR obviously
- 6-year temporary absence applies until September 2019
- Property again becomes PPR
In the event the client moves back into the property in January 2021, a property that has been owned for 10 years and 10 months will have the PPR exemption apply for 9 years and 6 months up until that point.
Clear evidence must exist for occupation (electoral roll, gas, power, internet, phone et al) and Australian residency for tax purposes must be clearly established prior to that in any case.
In the event the client is forced to move interstate to secure employment, the six-year PPR absence will be freshened up but once again the above evidence is crucial along with evidence of Victorian job applications.
There is no minimum period as such, but the evidence should establish there was a genuine intention to resume residence in Victoria.
For instance, if the client only made several job applications and only lived in the residence for say a fortnight… that is something the ATO might challenge.
In the event the client made say 35 job applications over 6 months in a very tough Victorian job market and then was offered a very good position in Sydney deciding to move there… then we suggest this would not be a problem.
Question 10
In 1989 client bought a larger home property .
They are now downsizing and plan to subdivide a block of land from the property title and sell it separately to the home block .
What is the cost base of the subdivide block for capital gains purposes ?
- An apportionment of the land value in 1989
- A valuation of the block at the date of subdivision
Answer
The answer is a reasonable cost base apportionment of the purchase cost of the land in 1989.
That is the true cost base. There is no basis to argue option B.
Question 11
We recently achieved settlement with an insurance company over our claim for damages caused by a fire from a neighbouring property.
A sum of $52,000 was paid, comprised as follows: It has been suggested that the total amount of $52,000 should be included in this year’s income, is this true?
| Item | Cost claimed | Adjusted cost |
| Fencing | 53,585 | 26,792.50 |
| Removal of fencing | 14,500 | 8,000 |
| Poly water pipe | 341 | 310 |
| Pipe fittings | 135 | 262.10 |
| Pine posts | 673
121 |
38 @ avg. $26.92 =
1,022.96 |
| Hydraulic hose on harrow | 495.77 | 172.43
383.34 |
| Topsoil | 14,500 | 14,500 |
| fertiliser | 1,160 | 1,160 |
| Total | 85,466.07 | 52,000 (approx.) |
Answer
Thank you for being a loyal subscriber down the years – it is much appreciated.
From past correspondence we understand you operate a primary production business. If this is the case, then you would have been able to claim the insurance premiums as a tax deduction.
Just as these premiums are tax deductible… then so are the insurance proceeds assessable income.
However, we do not consider you will have to pay tax on this assessable income. The repairs and restoration you will have to undertake will be an allowable tax deduction.
Even without the COVID-19 instant asset write-offs, there are generous tax concessions for primary producers.
In the event there is any unclaimed depreciation for items destroyed then of course this can be completely written off as a tax deduction.
In the event you had ceased your business of primary production prior to the fire then the proceeds would not be assessable.
Question 12
My client in Victoria has a private company CML Pty Ltd. They have taken a $20,000 loan from the company and want to open a clothes business (MP) .
The questions I have are:
- Should this be set up differently not as a Sole Trader? Perhaps as a Trust Account?
- Would a MP Trust Account be appropriate? How would it work?
- Should MP be set up as a company instead like CML Pty Ltd with a MP Trust Account? How would it work?
Bottom line is they need a structure that can be insured for public liability and removes liability from them personally. They also need to be able to employ people who can be paid from company funds. Importantly, they need the sales revenue to be reused to purchase more stock to grow the business. And finally, once the shop starts to make profit, they need to be able to share the profit with investors.
They need something to be set up quickly. If it is hard, they can continue to operate as a Sole Trader until end of financial year and on 1 July 2021 change the business to a new business structure as by then it would have proven whether the business will be a success and requiring an appropriate structure to grow it.
Answer
Definitely a second structure should be set up for this.
We would suggest a company structure which would only take 24 hours to set up.
If there are other investors (as opposed to lenders) then they could be issued shares in the company.
In these volatile times a sole trader structure should be avoided.
Question 13
Can I please clarify. If I have a salary worker who is receiving a car allowance in her package, do I withhold PAYG Withholding on this and pay super?
Also if I’m paying cents per KM to another employee for his travel, do I withhold PAYG Withholding and pay super?
Thank you
Answer
PAYG withholding must be deducted from the car allowance.
As the car allowance relates to the employee’s ordinary hours of work, it falls within the definition of “ordinary times earnings” under Superannuation Guarantee ruling 2009/2.
This means superannuation at 9.5% is payable on the allowance.
The situation is different with a cents per kilometre payment to an employee.
Here the employer merely re-imburses an employee for an expense they have actually incurred, there is no PAYGW and no superannuation payable on this re-imbursement.
Question 14
Could you please help with clarifying the following?
Payments made by the ATO as an Income Boost via the BAS System.
- Are these to be included in the BAS Gross Income as Tax free?
- If so, do they come into calculation whilst applying for an extension of JobKeeper?
Answer
We believe that you refer to the cashflow boost.
It is a non-assessable government subsidy. It is not reportable (NT) item in the context of BAS reporting.
It does not form part of GST turnover when you determine your eligibility for JobKeeper Extension.
Question 15
Just a query please – will we still need to advise ATO each month from 1st November the actual income for October, and the forecast for November ???
Seems to me to be silly when we are now looking at the quarterly figures July to Sept 2020 v’s 2019 which if down by 30% allows payments of $1200 f/n from Oct to Dec.
Answer
Yes, this requirement is ongoing. We are in very unusual times.
Question 16
My client is looking to buy a residential house on a 1,000 sqm piece of land. His plan is to initially rent the existing house while he seeks planning permission to build 4 units on the land. Once he has received planning permission, he intends to build the 4 units and either rent or sell the units on completion (still undecided at this stage).
What is the best way my client should structure this acquisition with GST in mind?
He is looking to buy and engage the builder all in his personal name. Is there a way my client can structure (e.g. in a unit trust) reclaim the GST on the build inputs if he is on-selling and will he have to pay the ATO GST on the sale noting these will be residential properties?
At what point would my client need to be GST registered to benefit from the margin scheme?
He is going to bid in auction and wants to understand if he needs to be registered at the time of initial purchase or if it is it ok to register after the purchase once he has received planning and is certain he is going ahead with the build? He does not want to register for GST unnecessarily if he decides not to go ahead with the purchase.
Can he benefit from the margin scheme if he buys in his own name or does the acquisition have to be in a corporate entity? He has an ABN but is not GST registered currently.
Answer
As there is the possibility of some or all units being sold, it is recommended that your client register for GST to ensure the margin scheme can be claimed on the purchase contract.
There is absolutely no question that your client is conducting an enterprise meaning there are GST implications.
If your client thinks he can rent out the units for a period and then sell them GST free, then you need to refer to GSTR 2003/3 which deals with “sales of new property.”
We refer you to the guidelines in para 22 which mentions section 40-75 and then para 26 and subsection 40-75 (1)(a). We suggest GST will be payable by the eventual purchaser
In the event there is a change of use… i.e. he proceeds on the basis he is going to sell but decides to rent long term, then there will be an increasing adjustment (a clawback) to the GST input tax credits claimed .
We cannot be more specific until your client is sure of his intentions.
Your client may also wish to consider a purpose-built entity for the development – possibly a trustee company with an underlying discretionary trust.
The margin scheme will automatically apply to anyone registered or required to be registered in these circumstances.
So, date of registration for GST is not crucial.
The 7% withheld by the purchaser and paid to the ATO under the margin scheme will be adjusted when the BAS including the sale are lodged by your client
Your calculations are broadly correct but check the profit margin and discuss with your client as the margins appear to be thin.
The margin scheme is available to corporate entities and individuals alike.