Hanoi cityscape

Cash flow assistance for businesses

The Government is also providing cash flow assistance for eligible businesses in the form of two separate measures.

Boosting cash flow for employers

Small and medium-sized businesses and not-for-profit entities, with an aggregated annual turnover of less than $50 million (usually based on their prior year’s turnover) that employ people, may be eligible to receive a total payment (in the form of a refundable credit) of up to $100,000 (with a minimum total payment of $20,000), based on their PAYG withholding obligations in two stages:

Stage 1 payment (credit)

Commencing with the lodgment of activity statements from 28 April 2020, eligible employers that withhold PAYG tax on their employees’ salary and wages will receive a tax-free payment equal to 100% of the amount withheld, up to a maximum of $50,000.

Eligible employers that pay salary and wages will receive a minimum (tax-free) payment of $10,000, even if they are not required to withhold PAYG tax.

The tax-free payment will broadly be calculated and paid by the ATO as an automatic credit to an employer, upon the lodgment of activity statements from 28 April 2020, with any resulting refund being paid to the employer.  This means that:

–  quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020; and

–  monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgments.

Note that, the minimum payment of $10,000 will be applied to an entity’s first activity statement lodgment (whether for the month of March or the March quarter) from 28 April 2020.

Stage 2 payment (credit)

For employers that continue to be active, an additional (tax-free) payment will be available in respect of the June to October 2020 period, basically as follows:

–  Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020, with each payment being equal to 50% of their total initial (or Stage 1) payment (up to a maximum of $50,000).

–  Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 activity statement lodgements, with each additional payment being equal to a quarter of their total initial (or Stage 1) payment (up to a maximum of $50,000).

Again, the ATO will automatically calculate and pay the additional (tax-free) payment as a credit to an employer upon the lodgment of their activity statements from July 2020, with any resulting refund being paid to the employer.

Editor: It should be noted that eligibility for the above payments is subject to a specific integrity rule that is designed to stamp out artificial or contrived arrangements that are implemented to obtain access to this measure.  In particular, if an employer or an associate enters into a scheme with the sole or dominant purpose of obtaining or increasing any of the above payments for a particular employer, for a period, the employer will not be eligible for any such payments for the relevant period.

Wages subsidies for apprentices and trainees

Employers with less than 20 full-time employees, who retain an apprentice or trainee (who was in training with the employer as at 1 March 2020) may be entitled to Government funded wage subsidies.

These will be equal to 50% of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020.

The maximum wage subsidy over the nine-month period will be $21,000 per eligible apprentice or trainee.

Employers can register for the subsidy from early April 2020.

Increasing the instant write-off threshold for business assets 

Broadly, the depreciating asset instant asset write-off threshold will be increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.

The measure applies to both new and second-hand assets first used or installed ready for use in the period beginning on 12 March 2020 (i.e., the date on which this measure was announced) and ending on 30 June 2020.

Small Business Entities (‘SBEs’)

Editor: These are businesses with aggregated turnover of less than $10 million.

SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $150,000, provided the relevant asset is first acquired at or after 7.30 pm on 12 May 2015, by legal time in the ACT, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020.

Additionally, SBEs will also be able to claim an immediate deduction for the following:

–       An amount included in the second element of the cost of (i.e., an improvement to) a depreciating asset that was first used or installed ready for use in a previous income year.  The amount of the second element cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.

–       If the balance of an entity’s general small business pool (excluding current year depreciation) is less than $150,000 at the end of the 2020 income year, a deduction can be claimed for this balance.

Medium Business Entities (‘MBEs’)

Editor: These are businesses with turnover of at least $10 million and less than $500 million.

MBEs can immediately deduct the cost of an asset in an income year if the asset has a cost of less than $150,000 and it was first acquired in the period beginning at 7:30pm, by legal time in the ACT, on 2 April 2019 and ending on 30 June 2020, and the taxpayer starts to use or have the asset installed ready for use for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2020.

Additionally, MBEs can also claim a deduction for certain amounts included in the second element of the cost of a depreciating asset, where the amount of the second element cost is less than $150,000, and is incurred on or after 12 March 2020 but before 1 July 2020.

The threshold will generally be applied to the GST-exclusive cost of an eligible asset (i.e., assuming the relevant business is entitled to an input tax credit for any GST included in the acquisition cost).

Importantly, this increased threshold also continues to operate on a ‘per asset’ basis, which means that eligible businesses can immediately write-off multiple assets (as long as each of the assets individually satisfy the relevant eligibility criteria).

Currently, the instant asset write-off threshold is due to revert to $1,000 for small businesses (i.e., those with an aggregated turnover of less than $10 million) from 1 July 2020.

Accelerating depreciation deductions for new assets

Broadly, a new time-limited 15-month investment incentive (available for eligible assets acquired from 12 March 2020 up until 30 June 2021) will also be introduced to accelerate certain depreciation deductions for businesses with an aggregated turnover below $500 million.

The amount that an eligible entity can deduct in the income year in which an eligible depreciating asset is first used or installed ready for use is:

–       50% of the cost (or adjustable value where applicable) of the asset; and

–       the amount of the usual depreciation deduction that would otherwise apply (if it were calculated on the remaining cost of the asset).

Different rules will apply where an SBE is using the general small business pool (i.e., for assets not qualifying for the instant asset write-off).  In this case, an SBE may deduct an amount equal to 57.5% (rather than 15%) of the business-use portion of the cost of an eligible depreciating asset in the year is it allocated to the pool.

Unless specifically excluded, an eligible asset is a new asset that can be depreciated under Division 40 of the ITAA 1997 (i.e., plant and equipment and specified intangible assets, such as patents), where the asset satisfies all of the following conditions:

–       The asset is new and has not previously been held (and used or installed ready for use) by another entity (other than as trading stock or for testing and trialling purposes).

–       No entity has claimed depreciation deductions (including under the instant asset write-off) in respect of the asset.

–      The asset is first held, and first used or installed ready for use, for a taxable purpose, between 12 March 2020 and 30 June 2021 (inclusive).

Note that a depreciating asset is not an eligible asset where a commitment to acquire or construct the asset was entered into before 12 March 2020.

news-8

Reducing social security deeming rates

From 1 May 2020, the Government will be reducing both the upper and lower social security deeming rates by a further 0.25 percentage points. This is in addition to the recent 0.5 percentage point reduction, resulting in an overall reduction to the social security deeming rates of 0.75 percentage points.

On this basis, as of 1 May 2020, the upper deeming rate will be reduced from 3% to 2.25%, and the lower deeming rate will be reduced from 1% to 0.25%.

Editor: These reductions reflect the low interest rate environment and its impact on the income from savings.  Broadly speaking, the social security deeming rates apply (for ‘income test’ purposes) to determine the amount of income that an individual is ‘deemed’ (or taken to) earn from financial investments (e.g., cash deposits and listed securities), irrespective of the actual amount of income (e.g., interest income and dividend income) earned by the individual.  In most cases, the deeming rates apply for the purposes of applying the Age Pension ‘income test’. 

news-1

Early access to superannuation benefits

The Government will introduce a new compassionate ground of release that will allow individuals to access their superannuation entitlements where those benefits are required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements are satisfied:

–  The individual is unemployed.

–  The individual is eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.

–       On or after 1 January 2020 either:

–   the individual was made redundant; or

–   the individual’s working hours were   reduced by at least 20%; or

–   if the individual is a sole trader – their business was suspended or there was a reduction in the business’s turnover of at least 20%.

Under this new compassionate ground of release, eligible individuals will be able to access (as a lump sum) up to $10,000 of their superannuation entitlements before 1 July 2020, and a further $10,000 from 1 July 2020 (subject to a six-month time frame).

Eligible individuals who are looking to access their superannuation entitlements under the above new ground of release will be able to apply directly to the ATO through the myGov website (at www.my.gov.au) and certify that the relevant eligibility criteria is satisfied.

Editor: Importantly, such lump sum superannuation withdrawals under this new compassionate ground of release will not be taxable to the recipient (i.e., they will be tax-free).  Also, according to the Government, the amount withdrawn will not affect Centrelink or Veteran’s Affairs payments.

Reducing the minimum drawdown amounts for superannuation pensions

The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020 and 2021 income years.

Editor: This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (e.g., an account-based pension) will be reduced by half for these two income years.

news-36

Income support for individuals

Various measures have been introduced so as to provide a ‘safety net’ for individuals who are financially impacted by the Coronavirus.

The new Coronavirus supplement

A new six-month ‘Coronavirus supplement’ of $550 per fortnight will be paid to individuals who are currently eligible for certain income support payments, including the:

–       Jobseeker Payment;

–      Youth Allowance; and

–       Parenting Payment (Partnered and Single).

Furthermore, it appears that this new (additional) supplement will be paid to eligible individuals as part of their existing income support payments (e.g., Jobseeker Payment and Youth Allowance).

Expanding access (and eligibility) to certain income support payments

For the period that the Coronavirus supplement is paid, the Government will also expand access to certain income support payments (e.g., the Jobseeker Payment, the Youth Allowance Jobseeker and the Parenting Payment) for eligible individuals.

For example, a new category of Jobseeker Payment and Youth Allowance Jobseeker will become available for eligible individuals financially impacted by the Coronavirus.

According to the Government, this could include, for example, permanent employees who are stood down or lose their employment; sole traders; the self-employed; casual workers; and contract workers who meet the income tests, as a result of the economic downturn due to the Coronavirus.

Additionally, asset testing for the JobSeeker Payment, the Youth Allowance Jobseeker and the Parenting Payment will be waived for the period of the Coronavirus supplement.  Income testing will still apply to the person’s other payments, consistent with current arrangements.

Tax-free payments of $750 to eligible recipients

The Government will be providing two separate $750 tax-free payments (referred to as ‘economic support payments’) to social security, veteran and other income support recipients and to eligible concession card holders.

The first $750 payment will be available to individuals who are residing in Australia and are receiving an eligible Government payment, or are the holders of an eligible concession card, at any time from 12 March 2020 to 13 April 2020 (inclusive).  This payment will be made automatically to eligible individuals from 31 March 2020.

The second $750 payment will be available to individuals who are residing in Australia and are receiving one of the eligible Government payments or are the holders of one of the eligible concession cards on 10 July 2020 (except for those receiving an income support payment that qualifies them to receive the $550 fortnightly Coronavirus supplement).  This payment will be made automatically to eligible individuals from 13 July 2020.

Each of the $750 payments will be exempt from income tax and will not count as income for the purposes of Social Security, the Farm Household Allowance and Veteran payments.

tax-data-cross-link

Government’s Stimulus Package in response to the Coronavirus

Editor: What a changed world we are living in as we all try to navigate the challenges arising from the current Coronavirus Pandemic, including protecting the health and safety of our friends and family, and the viability of our businesses, employment and investments.

The purpose of this communication is to provide you with an update relating to the Government’s Economic Stimulus Package in response to the Coronavirus.  Our office will continue to apply its available resources to assist and support you where we can through this uncertain period as we attempt to survive the ever changing restrictions we are all dealing with.

The following is a broad summary of the key aspects of the Federal Government’s stimulus package in response to the Coronavirus, as recently announced and enacted.

These measures were implemented via various Bills introduced into Parliament, which very quickly received Royal Assent on 24 March 2020 (including the Coronavirus Economic Response Package Omnibus Bill 2020), so as to give effect to the Government’s stimulus package.

news-45

Valuing car parking fringe benefits

Where businesses provide car parking fringe benefits to their employees, the taxable value of these benefits must be calculated correctly to ensure they are meeting their fringe benefits tax (‘FBT’) obligations, regardless of the method used.

The ATO has advised they may directly contact businesses who have engaged an arm’s length valuer, as required under the ‘market value method’.

According to the ATO, in some instances, valuers have prepared reports using a daily rate that doesn’t reflect the market value, meaning the taxable value of the benefits is significantly discounted or even reduced to nil.

The ATO wants businesses to understand that engaging an arm’s length valuer does not mean they’ve met all the requirements for working out the taxable value of their car parking fringe benefits.

It is actually the business’s responsibility to confirm the basis on which valuations are prepared, and they are expected to examine any valuation they suspect is incorrect or which considerably reduces their liability.

Editor: We can help check if a valuation report required under the market value method meets the ATO’s requirements.

In addition to the valuation report, businesses need a declaration relating to the FBT year that includes the:

  • number of car parking spaces available to be used by employees;
  • number of business days; and
  • daily value of the car parking spaces.
tax

Further STP developments

Editor: In an indication of the far-reaching changes that Single Touch Payroll (‘STP’) will be bringing, Treasury has recently finished consulting on draft legislation that expands the data that may be collected through STP by the ATO (as announced in the 2019/20 Budget).

The legislation, if enacted, will broaden the amounts that employers can voluntarily report under the STP rules, to include employer withholding of child support deductions from salary or wages and child support garnishee amounts from salary or wages that are paid to the Child Support Registrar.

Amendments will also be made to ensure that if employers choose to report under STP to the Commissioner of Taxation, they do not also have to report the amounts to the Child Support Registrar.

STP and employer clients

The ATO has advised that over 580,000 small employers have made the transition to STP reporting, and they are encouraging tax practitioners to help any clients who have yet to engage with STP reporting make the transition now.

They will also send reminders to small employers who are not yet reporting through STP.

Editor: So if you receive any such correspondence and/or simply want to discuss this with us, please call our office.

news-22

SMS scam targeting natural disaster victims

The ATO is warning the community about a new SMS scam which promises an 8% bonus on 2020 tax returns to victims of recent natural disasters.

The scam text message says: “Due to natural disasters, Australians are entitled to an 8% bonus on their tax return. Please begin the process by filling out the form below. Link: https://my.gov.verification-digital.com.”

ATO Assistant Commissioner Karen Foat said this is a classic case of fraudsters impersonating the ATO in an effort to collect personal information from people like names, addresses, emails, phone numbers and online banking login details.

This particular scam includes a link to a fake myGov website which looks genuine.

Over the past few years the ATO has seen an increasing number of reports of scammers contacting members of the public pretending to be from the ATO by SMS, email, and phone, and the scammers are becoming more and more sophisticated.

“Last year, over 15,000 people reported to us that they provided scammers with their personal identifying information”, Ms Foat said.

“If you receive an SMS, call, or email and aren’t sure if it’s genuine, it’s OK to not respond.”

The ATO does send SMS and emails, and also makes phone calls to taxpayers, but note that the ATO does not project their phone number onto the recipient’s caller ID — so people can be sure that, if there’s a number on their caller ID, it’s not the ATO calling.

news-36

Employer’s requirements and the deductibility of WREs

Some employees may wonder whether a work-related expense (or ‘WRE’) becomes deductible merely because their employer specifically requires the employee to incur the expense.

Importantly, the ATO’s recent draft ruling on the deductibility of work-related expenses reiterates that an employer’s requirements do not determine the question of deductibility.

Specifically, a number of examples contained in the draft ruling confirm that a WRE expense may be deductible without an employer requiring the expenditure.  For example, a taxpayer incurring expenditure in relation to a course directly connected to their current employment (without their employer’s specific support) may still be in a position to claim self-education deductions.

Alternatively, expenses may be non-deductible despite an employer’s specific directions, such as a restaurant requiring its waiters to dress in ‘black and whites’, or support such as where an employer encourages a dental practice receptionist to undertake a ‘Certificate in Dental Assisting’ so as to open up a new career opportunity.

tax-data-cross-link

Court confirms ATO’s position on foreign income tax offsets

The ATO has welcomed the decision of the High Court to basically uphold the decision of the Full Federal Court in a case which the ATO won, in relation to foreign income tax offsets (‘FITO’).

An Australian tax resident had sold some US investments and paid US tax on the gains.

The taxpayer was then basically taxed on half of those gains in his assessable Australian income (i.e., the gains were eligible for the CGT discount in Australia).

The taxpayer included the whole of the US tax paid in his FITO to offset against his Australian income tax.

However, when determining the FITO available, the ATO only allowed the proportion of the US tax paid that related to the capital gain included in his Australian assessable income.

The Full Federal Court affirmed the ATO’s position.

“This decision reminds taxpayers that they can only claim the foreign income tax offset to the extent that the capital gain is assessable in Australia, rather than the full amount assessed in a foreign jurisdiction,” Deputy Commissioner Tim Dyce said.

“We believe that others may have similarly incorrectly claimed the foreign income tax offset.  Now is the time to review any claim and make any necessary voluntary amendments as we intend to commence compliance activity on this issue in the near future.”