Client Alert – June 2022

What’s next on the agenda for the government?

With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years.
 
One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia.
 
During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care and retaining the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.
 
Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.
 

Tax time 2022: ATO focus areas

Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure Australians are doing the right thing and paying the right amount of tax.
  
Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time. People who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.
 
While the ATO receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals, so it’s important to ensure you include it all as well.
 

Tip: If you need help this tax time, we have the expertise to help you report all the right information and maximise your deductions. Contact us today.

Some of the traditional areas the ATO is focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares.
 
Any deductions you claim must be backed by evidence – people who deliberately attempt to increase their refunds by falsifying records or don’t have evidence to substantiate their claims will be subject to “firm action”.
 
For people who are working from home or in hybrid working arrangements and claim related expenses, the ATO will be expecting to see a corresponding reduction in other expenses you claim, such as car, clothing, parking and tolls expenses.
 
With the intense flooding earlier this year, some rental property owners may have received insurance payouts. These, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.
 
Lastly, the ATO’s keeping a close eye on people selling property, shares and cryptocurrency, including non-fungible tokens (NFTs). Any capital gains need to be included in your tax return so you pay the right tax on them. But if you’ve recently sold out of cryptocurrency assets you may have a capital loss, which can’t be offset against other income such as salary and wages, only against other capital gains.
 

Single Touch Payroll: Phase 2

While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software.
 

TIP: Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run.
 

Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems needs to be reported through the payroll software. For example, while many newer businesses may have employee start date information handy, older businesses may have trouble finding exact records, particularly for long-serving employees. In those instances, a default commencement date of 01/01/1800 can be reported.
 
Employers need to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN isn’t available, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.
 
Employers also need to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement, is a death beneficiary, or is a non-employee. The report generated for STP Phase 2 includes a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from their payments. Most STP solutions will automatically report these codes, but it’s a good idea to understand what the codes are to ensure that they’re correct.
 
Income and allowances are also further drilled down – instead of reporting a single gross amount of an employee’s income, employers need to separately report on their gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments and salary sacrifice amounts.
 
If your DSP has a deferral in place, you don’t need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.
 

ATO resumes collecting aged debts

Taxpayers with aged debts that the ATO had paused collecting or put on hold during the COVID-19 pandemic should be aware that offsetting aged debts against tax refunds or credits has now resumed. The aged debts can be offset either from ATO accounts or credits from other government agencies, although a debt will not be offset if the only available credit relates to a Family Tax Benefit amount.
 

Tip: “Aged debts” is a collective term the ATO uses for uneconomical non-pursued tax debts that it’s placed on hold and has not undertaken any recent action to collect. These debts don’t typically show up on taxpayers’ online accounts as an outstanding balance.
 

Usually when a debt is put on hold, the ATO notifies the taxpayer via a letter that the debt collection has been paused, although any credits the taxpayer is entitled to will be offset against the debt. The ATO reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection.
 
While most taxpayers (or their tax agents) should have received their aged debts letter by now, some may not have received anything, due to a change of address or patchiness in the postal service. The first clue for them that they may have an aged debt could be when they notice that their refund is less than expected or a credit on one account is less than it should be.
 
To avoid surprises, if you’re unsure whether you have an aged debt you can check ATO Online Services for a transaction with the description “non-pursuit” on your statement of account. If you have multiple accounts (for example, a business and an individual account), remember to check them all.
 

Operation Protego: detecting GST fraud

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, to warn the business community not to engage with fraudulent behaviour and to encourage those who may have fallen into a criminal’s trap to make a voluntary disclosure.
 
Recently, the ATO has seen a rise in the number of schemes where people invent fake businesses in order to submit fictitious business activity statements (BASs) and obtain illegal GST refunds. The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts.
 
It’s possible that not all of the individuals involved in these refund schemes know they’re doing something illegal. Ads for schemes falsely offering to help people obtain loans or government disaster payments from the ATO have been on the rise on social media platforms. But ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.
 

Tip: The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort.
 

Government disaster payments are administered through Services Australia if they are Federal government payments, or through various state and territory government bodies if they are state or territory government payments.
 
Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details. People who may have shared myGov login details for themselves or their businesses with scheme operators are encouraged to contact the ATO for assistance.
 

More ATO action on super guarantee non-compliance

Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO will prioritise engaging with taxpayers that have SG debts, irrespective of the debt value.
 
The Australian National Audit Office (ANAO) recently issued a report on the results of an audit on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance. Overall, the ANAO report found that the ATO activities have been only partly effective. The report notes that while there is some evidence that the ATO’s compliance activities have improved employer compliance, the extent of improvement couldn’t be reliably assessed.
 
Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.
 
The ATO has responded to say that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced, and its focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.
 
The ATO says it’s already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. It will continue to investigate every complaint in relation to unpaid SG amounts, and take action where non-payment is identified. The actions available include imposing tax and super penalties, as well as recovering and back-paying unpaid super to employees. The ATO will also be increasing transparency of compliance activities and employer payment plans, so that affected employees can be aware when to expect super back-payments.

TIP: If you have issues with making super guarantee payments to your employees or would like to make a voluntary disclosure before a potential ATO audit, we can help. Contact us today.

Client Alert – May 2022

Employees vs contractors: more clarity coming

For many businesses, the line between employees and contractors is becoming increasingly blurred, partly due to the rise of the gig economy. However, businesses should be careful, as incorrectly classifying employees as contractors may be illegal and expose the business to various penalties and charges.

Recently, the High Court handed down a significant decision in a case involving the distinction between employees and contractors. In the case, a labourer had signed an Administrative Services Agreement (ASA) with a labour hire company to work as a “self-employed contractor” on various construction sites. The Full Federal Court had initially held that the labourer was an independent contractor after applying a “multifactorial” approach by reference to the terms of the ASA, among other things. The High Court, however, overturned that decision and held that the labourer was an employee of the labour hire company.

The High Court held that the critical question was whether the supposed employee performed work while working in the business of the engaging entity. That is, whether the worker performed their work in the labour hire firm’s business or in an enterprise or business of their own.

As a result of the decision, the ATO has said it will review relevant rulings, including super guarantee rulings on work arranged by intermediaries and who is an employee, as well as income tax rulings in the areas of PAYG withholding and the identification of employer for tax treaties.

Movement at the FBT station: COVID-19 tests, car parking

FBT is generally seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.

RATs for employees

The 2022–2023 Federal Budget included a measure, now passed into law, to make costs for taking a COVID-19 test to attend their workplace tax-deductible for individuals from 1 July 2021.

COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees are considered benefits under the FBT regime.

However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero. The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.

Neat solution. Well, apart from the catch: employee-level declarations could be required when the provision of a RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).

Where a RAT is provided as an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).

In case collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend your time, we see three options at this stage:

• assess the potential application of the minor benefit rule to your situation;
• explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
• use an automated, electronic declaration tool to take some pain out of the process.

“Commercial parking station” definition

As a reminder:

• a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
• there must be a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
• “all-day parking” means parking continuously for at least six hours between 7 am and 7 pm.

The scope of the term “commercial parking station” is therefore fundamental to determining if an employer has taxable car parking benefits.

Broadly, a commercial parking station is one where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.

The ATO issued a ruling in 2021 that no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking (usually charging significantly higher rates) are not commercial parking stations. This was to apply from 1 April 2022.

In effect, this would bring facilities like shopping centre car parks and hospital car parks into the definition of a “commercial parking station”. For employers with only that type of parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.

The Federal Government has announced it will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits, which is closer to the original policy intent of the car parking FBT provisions. The readjusted definition would then apply from 1 April 2022 instead.

ATO urges vigilance: new TFN and ABN scams

The ATO is urging people and businesses to be vigilant following an increase in reports of fake websites offering to provide tax file numbers (TFN) and Australian business numbers (ABN) for a fee but failing to provide those services.

The fake TFN and ABN services are often advertised on Facebook, Twitter or Instagram. The scammers use the fraudulent websites they advertise to steal both money and personal information.

Tip: The ATO and Australian Business Register (ABR) do not charge fees for providing a TFN or an ABN. It’s free, quick and easy to use government services online to apply for a TFN through the ATO, or apply for an ABN through the ABR.

The ATO is also still seeing scammers impersonating the ATO, making threats, demanding the payment of fake tax debts or claiming a TFN has been “suspended” due to fraud.

In 2021, more than 50,000 people reported various ATO impersonation scams, with victims losing a total of more than $800,000.

Tips to protect yourself from scammers

• Know your tax affairs – You will be notified about your tax debt before it is due. Check if you have a legitimate debt by logging into your myGov account or calling your tax agent. Find the contact details for the ATO or your tax agent independently by searching online or using your own paper records – don’t trust details provided by possible scammers.
• Guard your personal and financial information – Be careful when clicking on links, downloading files or opening attachments. Only give your personal information to people you trust and don’t share it on social media.
• If you’re not sure, don’t engage – If a call, SMS or email leaves you wondering if it’s genuine, don’t reply. You can phone the ATO’s dedicated scam line on 1800 008 540 to check if it is legitimate. You can also verify or report a scam online at www.ato.gov.au/scams and visit ScamWatch at www.scamwatch.gov.au to get information about scams (not just tax scams).
• Know legitimate ways to make payments – Scammers may use threatening tactics to trick you into paying fake debts via unusual methods. For example, they might demand pre-paid gift cards or transfers to non-ATO bank accounts. To check that a payment method is legitimate, visit www.ato.gov.au/howtopay.

Federal Budget fuel excise reduction: will all businesses benefit?

The uncertainty around availability of fuel has seen fuel prices soar across Australia. The 2022–2023 Federal Budget proposed an answer for this by way of a temporary (six-month) reduction to fuel excise.

The six-month reduction is now law, and will end at midnight on 28 September 2022.

For petrol and diesel, this means an excise reduction from 44.2 to 22.1 cents per litre, which is already being felt by users at the pump. But who will actually benefit from this Budget promise and what does it mean for businesses claiming fuel tax credits (FTCs)?

Snapshot: who will benefit?

  Individuals:

• all fuel uses of individuals – benefit of 22.1 cents per litre.

Businesses:

• businesses operating light vehicles on public roads – benefit of 22.1 cents per litre;
• businesses operating heavy vehicles on public roads – benefit of 4.3 cents per litre;
• businesses operating vehicles on private roads – no benefit; and
• businesses using fuel for non-vehicle use (auxiliary, machinery, plant and equipment) – no benefit.

What should businesses do?

For businesses that currently claim FTCs, it’s important to understand the impact of these changes on their FTC entitlement and to adjust their FTC process accordingly.

We expect there will be increased complexity for businesses claiming FTCs in the first few weeks of the temporary measure and the weeks following its conclusion. This is because the changes in fuel excise are expected to trickle through from fuel suppliers depending on where businesses are located and how they purchase their fuel. Businesses will be required to determine which rate of fuel excise has been applied to fuel purchases to determine the rate of fuel tax credit available.

ATO’s COVID-related support for SMSFs

Because of the financial impacts of COVID-19, trustees of a self-managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.

In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years.

This generally includes not taking any compliance action against an SMSF and not requiring the SMSF auditor to report related contraventions in the following areas:

• where an SMSF trustee or a related party of the SMSF offered rental relief to a tenant due to COVID-19;

Tip: Temporary changes to a lease agreement for rental relief need to be properly documented, together with the reasons for those changes. A formal variation of the lease may need to be executed.

• where a plan to get the value of SMSF’s in-house asset holdings below 5% of the fund’s total assets couldn’t be executed in time because of COVID-19;
• where a fund offered loan repayment relief because the borrower was experiencing difficulty repaying the loan because of COVID-19;
• where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period; and
• where a fund has a limited recourse borrowing arrangement (LRBA) with a related party lender, and the lender offered COVID-19 loan repayment relief to the fund.

Trustees must properly document all of these sorts of relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

Client Alert – April 2022

Director ID – Guests Accounting Information Sheet

Support for flood-ravaged areas

The recent devastating flooding in South East Queensland and parts of New South Wales has left many people homeless, caused vast amounts of property damage and has sadly led to loss of life. While the clean-up effort continues in many areas, there is some immediate financial help available for those affected, including the Disaster Recovery Payment and Disaster Recovery Allowance.

Those who need immediate help can apply for the Australian Government Disaster Recovery Payment. This is one-off financial assistance of $1,000 per eligible adult and $400 for each eligible child aged under 16. This includes Australian resident individuals in various local government areas who have been seriously injured, lost their homes, have had their homes/major assets directly damaged, or those who have lost immediate family members as a direct result of the floods. The payment is also available to eligible New Zealand visa holders (Subclass 444) who have been affected by the floods.

Australian residents and eligible New Zealand visa holders may also be eligible to apply for the Disaster Recovery Allowance. This is a short-term payment for a maximum of 13 weeks. Eligible individuals will need to be 16 years or over, have lost income as a direct result of the storms/floods, and earn less than the average Australian weekly income in the weeks after the income loss.

Flood-impacted small businesses will receive an automatic BAS lodgment deferral – although general interest charge (GIC) may still apply to deferred payments – and can apply for a refund of previously paid PAYG instalments. Any GST refunds will also be “fast-tracked”.

Tip: If your small business needs help in deferring your tax obligations due to the floods, we can help liaise with the ATO on your behalf and work out the best plan for your situation. We can also help guide you through information about the available support payments for individuals and families.

Temporary full expensing of assets extended

The availability of temporary full expensing of depreciating assets for business has been extended for another year until 30 June 2023. This measure was originally introduced in 2020 as a part of the Federal Government’s COVID-19 business rescue package, aimed at encouraging business investment by providing a cash flow benefit. As originally introduced, the measure was due to end on 30 June 2022.

Businesses with an aggregated turnover below $5 billion or those that meet an alternative eligibility test can deduct the full cost of eligible depreciating assets of any value that are first held and first used or installed ready for use for a taxable purpose from 6 October 2020 until 30 June 2023.

For small business entities with an aggregated turnover of less than $10 million, the temporary full expensing of depreciating asset rules has been effectively replaced with simplified depreciation rules for any assets first held and used or installed ready for use for a taxable purpose between 6 October 2020 and 30 June 2023. This means that the full cost of eligible depreciating assets, as well as costs of improvements to existing eligible depreciating assets, can be fully deducted.

Not all costs relating to assets qualify for temporary full expensing. For example, building and other capital works, as well as software development pools do not generally qualify. Second-hand assets that would otherwise meet the eligibility conditions also do not qualify for temporary full expensing if the entity that holds them has an aggregated turnover of $50 million or more.

Special rules also apply to cars, where the temporary full expensing is limited to the business portion of the car limit.

Tip: If you want to take advantage of temporary full expensing, contact us first to make sure the assets your business is planning to purchase will meet the eligibility requirements.

Record-keeping education in lieu of ATO financial penalties

If you run a small business and are found by the ATO to have made unintentional record-keeping mistakes, you could face having to pay an administrative penalty. However, this could soon change under a proposed new law that would give ATO the power to issue a direction to complete an approved record-keeping education course instead. Legislation to implement this measure has been introduced into Parliament but not yet passed.

This proposed change originated as a part of the Black Economy Taskforce’s final report, which found that tax-related record-keeping obligations should be made clearer for businesses, and that the ATO should have a range of administrative sanctions available at its discretion for breaches of the rules.

Under the proposed new law, the ATO may issue a tax-records education direction in appropriate situations, which will require the appropriate person within a business to take a specified, approved course of education and provide the ATO with evidence of completion. This would be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps or variations in levels of digital literacy, or where the ATO reasonably believes that the entity has made a genuine attempt to comply with their obligations.

The tax-records education direction would not be available to businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will still be applied, and if there is evidence of serious non-compliance, the ATO may also consider criminal sanctions.

FHSS maximum releasable amount increased

The maximum amount that individuals can take out of their superannuation under the First Home Super Saver Scheme (FHSS) will be increased to $50,000 for any release requests made on or after 1 July 2022. The scheme was originally envisaged as a tax-effective way for first home buyers to save for a deposit, and the increase in the maximum releasable amount presumably reflects the rapidly escalating housing price increases. The scheme is available to both first home buyers and those intending to build their first home, subject to certain conditions of occupation.

The first step in releasing eligible funds is to obtain a FHSS Determination from the ATO which sets out the maximum amount that an individual can have released under the scheme. It’s imperative to make sure you’ve finished making all your voluntary contributions under the scheme before applying for a Determination, and of course, to check the accuracy of the Determination issued by the ATO.

There is a limit of $15,000 of eligible contributions that can be released each financial year (up to a total limit of $30,000 currently, or $50,000 from 1 July 2022).

TIP: To access part your super under the scheme, you must have a FHSS Determination from the ATO before any contract to purchase or build is signed.

When you have a FHSS Determination and subsequently sign a contract to purchase, a valid release request must be given to the ATO within 14 days. After the release of money, if you haven’t signed a contract to purchase or construct a home within 12 months, the ATO will generally grant an extension for a further 12 months automatically. You also have the choice to recontribute the amount back into your super fund, or to keep the money and pay a flat 20% tax on assessable FHSS released amounts.

Downsizer contributions: age limit change

To help those nearing retirement boost their super balances, people aged 65 and over can currently make downsizer contributions to their super of up to $300,000 from the proceeds of the sale of their home.

Tip: Downsizer contributions don’t count towards the super contribution caps, but do count towards the transfer balance cap, which applies when your super is moved into the retirement phase.

As part of a suite of measures introduced to provide more flexibility for those contributing to super, from 1 July 2022 the age limit for those making downsizer contributions will be decreased to include individuals aged 60 years or over. Optimistically, the government expects this decrease in the age threshold will encourage more older Australians to downsize sooner and “[free] up the stock of larger homes for younger families”.

If you or your spouse are thinking of selling the family home to capture a premium, especially in regional areas, some other criteria must be satisfied so you can to make a downsizer contribution to your super, including:

the location of the home must be in Australia;

Each person individual can make the maximum contribution of $300,000, so for a couple a total contribution of $600,000 can be made. However, the total contribution amount cannot be greater than the total proceeds from the sale of the home. If a home is owned only by one spouse and is sold, the spouse who didn’t have ownership can also make a downsizer contribution or have one made on their behalf, provided all other requirements are met.

Work test scrapped for super contributions: under 75s

From 1 July 2022, people aged between 67 and 75 will be able to make non-concessional and salary-sacrificed contributions to their superannuation without the need to pass the work test or satisfy the work test exemption criteria. The removal of the work test from that date also allows people aged under 75 to access the bring-forward of non-concessional contributions in some cases, which may allow you to access up to three times the annual non-concessional contributions cap in a single year. Personal contributions will also be affected, although now instead of having to pass the work test to contribute, the work test only applies if a deduction is sought.

These changes are designed to provide older Australians with more flexibility to contribute to their super and add to their comfort in retirement.

Contribution caps will still apply to any contributions made to your super.

To pass the work test, an individual must be gainfully employed for at least 40 hours during a consecutive 30-day period in each income year in which contributions were made. It’s an annual test, which means that once it is met, the individual can make contributions for that entire income year.

Tip: If you’re between the ages of 67 and 75, now is the perfect time put a plan in place to grow your super. Contact us to find out more about how you can take advantage of these changes.

Client Alert – March 2022

Important information for company directors

Work-related COVID-19 tests may be deductible

After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of polymerase chain reaction (PCR) tests at many COVID-19 testing sites, the Federal Government is hoping for some good press with the announcement that it intends to legislate to make both PCR tests and RATs tax-deductible for individuals who buy them for a work-related purpose.

According to the government’s proposal, deductibility of tests would take effect from the beginning of the 2021–2022 tax year (that is, starting 1 July 2021) and would be ongoing. Individuals will also be able to deduct the cost of a test regardless of whether they are required to attend the workplace or have the option to work remotely. How much you might benefit from this proposal will depend on your individual tax rate and circumstances.

For businesses that can obtain enough RATs for their workforce, the government has also proposed to make COVID-19 tests provided by employers to employees exempt from FBT, if they are used for work-related purposes. This essentially means the tests would be excluded from the definition of a fringe benefit, and employers would not have to pay FBT on the costs of tests given to their employees in a work-related context.

With the Federal election fast creeping up, there doesn’t seem much time for this proposal to be introduced in Parliament and passed into law. There is also uncertainty as to whether a possible Labor government would champion this specific tax-deductibility measure, in particular due to Labor’s election pledge to provide free RATs to all Australians through Medicare.

Tip: In the interim, the ATO recommends that people and businesses incurring work-related expenses for COVID-19 tests keep clear records (eg receipts), to make claiming straightforward should the purchases become deductible in the future.

Natural love and affection: commercial debt forgiveness

The ATO has recently finalised its stance on the issue of commercial debt forgiveness – in particular, the “natural love and affection” exclusion.

A commercial debt is any debt where interest payable is deductible, or would be deductible if interest were payable, but for certain statutory restrictions. Under the commercial debt forgiveness provisions, if a taxpayer’s obligation to pay their debt is released, waived, or otherwise extinguished, the amount forgiven will be deducted from the taxpayer’s current and future tax deductions. Specifically, the amount forgiven will reduce prior-year revenue losses, prior-year net capital losses, undeducted balances of other expenditure being carried forward for deduction, and the CGT cost base of other assets held, in that order.

Given that forgiving commercial debts may mean a business will have to pay more tax, it can be advantageous if debts the business has forgiven are not captured under the commercial debt forgiveness provisions. The exclusions available include forgiveness of some debts relating to bankruptcy or by will, and a person’s forgiveness of a debt for reasons of natural love and affection for the debtor.

The natural love and affection exclusion to commercial debt forgiveness previously didn’t require the creditor who forgave a debt to be a “natural person”. This meant that a company, through its directors, could forgive the debts of an individual, giving the reason of natural love and affection for the individual, and this would not have been considered a commercial debt forgiveness, meaning a lower tax bill for the company.

Tip: The term “natural person” is usually used to distinguish individual human beings from corporations (which can still be “legal persons”).

In February 2019 the ATO released a draft determination which explicitly stated that the exclusion for debts forgiven for reasons of natural love and affection requires the creditor to be a natural person. This has recently been confirmed in the finalised determination.

While the ATO states that a debt-forgiving creditor must be a natural person and the object of their love and affection must be one or more other natural persons, there is no requirement that the debtor must also be a natural person. For example, this means that the exclusion could apply in circumstances where the debtor is a company, such as where a parent forgives a debt they are owed by a company that is 100% owned by their child or children.

According to the ATO, whether a creditor’s decision to forgive a debt is motivated by natural love and affection for a person needs to be determined on a case-by-case basis.

Last chance to claim the loss carry-back

Businesses that need a little more financial help will have one last opportunity to claim the loss carry-back in their 2021–2022 income tax returns. And businesses that have an early balancer substituted account period (SAP) for the 2021-22 income year are eligible to claim the loss carry-back offset before 1 July 2022.

The loss carry-back is a refundable offset that effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. It may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO. Eligible businesses include companies, corporate limited partnerships and public trading trusts.

A business may be eligible if it made a tax loss in 2021, carried on a business with an aggregated turnover of less than $5 billion, had an income tax liability in 2019 or 2020, and has met all of its lodgment obligations for the five prior income years.

Loss carry-back can either be claimed through standard business reporting enabled software, where it has the additional loss carry-back labels required, or by using the paper copy of the company tax return 2021 and attaching a schedule of additional information to report the extra aggregated turnover and loss carry-back labels required.

The ATO has developed a loss carry-back tax offset tool to assist businesses claiming the loss carry-back before 1 July 2022. Once all of the relevant information is provided, the tool will first determine whether the business is eligible to claim the loss carry-back tax offset, then calculate the maximum amount of tax offset available. It will also provide a printable report of the labels which will need to be completed.

Tax debts may affect business credit scores

The ongoing COVID-19 pandemic has caused uncertainty in many parts of the economic and has led to what many experts term a “two-speed economy”: while some businesses are recovering well, others continue to suffer from the effects. If your business has had issues paying debts, or you’ve prioritised trade debts ahead of tax debts, it’s important to remember that it may lead to penalties and have a lasting impact on the business.

The best option is to engage with the ATO to manage business debts. Failure to get in touch with the ATO to come to an arrangement will not only affect the potential penalties imposed, but may also affect your business’s credit score.

Laws were passed in 2019 which allow the ATO to disclose information about overdue business tax debts to credit reporting agencies. The intended effects include reducing unfair financial advantages obtained by businesses that do not pay their tax on time, and encouraging businesses to engage with the ATO to manage their tax debts to avoid having those debts disclosed.

To protect taxpayers, the laws passed contained some safeguards. Not all tax debts can be disclosed, and even if a business debt satisfies the requirements for reporting, where exceptional circumstances apply to the situation the ATO may still have the discretion to not report the debt information to credit reporting agencies. “Exceptional circumstances” may include, but are not limited to, family tragedy, serious illness and the impact of natural disasters. The ATO will assess claims of exceptional circumstances on a case-by-case basis.

General cash flow issues or financial hardship are not considered to be exceptional circumstances, but if you’re experiencing these issues it’s best to make contact with the ATO as soon as possible.

Before any debt is disclosed to credit reporting agencies, the ATO must send your business a written notice setting out the criteria that the business has met and the debt information that will be disclosed. The letter will also outline the steps to avoid having the tax debt reported, which you need to take within 28 days of receiving the notice.

Contributions into SMSFs: minimum standards

There are many compliance obligations for trustees of self-managed superannuation funds (SMSFs). One of the simplest but most important is ensuring that contributions from members can be accepted into the fund. This involves reporting the tax file numbers (TFNs) of members to the ATO, ensuring non-mandated contributions are not accepted for members over a certain age, and observing certain restrictions on in specie (asset) contributions.

Broadly, whether a contribution to an SMSF can be accepted depends on the type of contribution, the age of the member making the contribution, certain caps, and whether the fund has the TFN of the member.

When a member joins an SMSF, they need to provide their TFN, which then needs to be passed on to the ATO through the registration process. If a TFN is not provided, the fund cannot accept certain member contributions, including personal contributions, eligible spouse contributions and super co-contributions. Employer contributions, including salary sacrifice contributions and other assessable contributions, may also be liable for additional income tax of 32% on top of the 15% tax already paid.

If an SMSF mistakenly accepts a contribution it should not have, the fund must return it within 30 days of becoming aware of the error. Failure to comply with the time limit does not affect the fund’s legal obligation to return contributions.

Even if a member has provided their TFN, the type of a contribution combined with the age of the member can affect what is acceptable. For example, mandated employer contributions such as super guarantee contributions from a member’s employer can generally be accepted at any time, regardless of the member’s age or the number of hours they work. Non-mandated contributions largely cannot be accepted if a member is aged 75 years or older.

Lastly, there are restrictions on when an SMSF can accept an asset as a contribution from a member. These are referred to as “in specie contributions”, which just means contributions to the fund in the form of a non-monetary asset. Generally, an SMSF must not intentionally acquire assets from related parties to the fund; however, there are some specific exceptions.

SMSFs investing in crypto-assets: be informed and keep records

According to the Australian Securities and Investments Commission (ASIC), there has recently been a surge of promoters encouraging individuals to set up self-managed superannuation funds (SMSFs) in order to invest in crypto-assets. ASIC warns people to be aware that while crypto-asset investments are allowed for SMSFs, they are high risk and speculative, as well as being an attractive area for scammers targeting uninformed investors.

For example, late last year ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs.The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.

Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test.

Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people, licensed or otherwise.

SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so.

If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO.

Tip: The ATO started its first crypto data-matching program in April 2019, comparing taxpayer self-reported income to cryptocurrency transaction data for the 2015–2020 financial years. This program was expanded mid-last year to cover the 2021–2023 financial years.

The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a taxpayer’s tax return for an unlimited period where it considers fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description.

Client Alert – February 2022

COVID-19 vaccination rewards: tax implications

Amidst the Omicron COVID-19 wave and with our governments shortening booster dose intervals, many businesses are encouraging their employees and customers to get either vaccinated or get their booster dose by offering rewards or incentives. While this is an effective way to help employees and customers stay safe and businesses to stay open, it’s important to consider that there may be some tax consequences involved.

If your business provides free or discounted goods, services, vouchers, gift cards, rewards points or other non-cash benefits to everyone who has had their COVID-19 vaccinations, those benefits will not be subject to FBT, even if your employees take part in the program. This is because the benefit isn’t provided in respect of your employees’ employment. Providing these types of non-cash benefits only to your employees may be subject to FBT; however, a benefit with a value under $300 may qualify for a minor benefit exemption.

If a non-cash benefit provided to your employees doesn’t qualify for the minor benefit exemption, a reduction in taxable value of FBT may be available if the benefit is an “in-house” one. Generally, an in-house benefit is something identical or similar to the benefits you provide to customers in the ordinary course of business – for example, clothes given by a clothing retailer.

TIP: If your business provides transport or pays for an employee’s transport to get their COVID-19 vaccination or booster, the travel would be considered work-related preventative health care, which is exempt from FBT.

If you give your employees a cash payment for getting vaccinated, your business will need to report it via Single Touch Payroll (STP) as part of each employee’s salary or wages, withhold tax from the amount under PAYG withholding, and include the amount in each employee’s ordinary time earnings for the purposes of determining super contributions.

TIP: If you’ve already given vaccination-related benefits or payments to your employees, it’s likely the ATO will need to know. We can assist – contact us today.

Free mental health support for small business

The Federal Government has announced additional funding to extend the availability of free mental health support to small business owners dealing with the current pandemic and recent natural disasters.

The NewAccess for Small Business Owners Program, developed and provided by Beyond Blue, provides free, confidential, one-on-one mental health support by phone or video call to small business owners, including sole traders. The coaches are former small business owners themselves, so they understand the unique challenges that small businesses face, including family and financial pressures.

The sessions use Low-intensity Cognitive Behavioural Therapy (LiCBT) work, tailored to your needs, to help you recognise the ways you think, act and feel, and to separate from unhelpful thoughts. You’ll learn practical skills to manage stress and get back to feeling like yourself.

More information about the NewAccess for Small Business Owners program is available by calling 1300 945 301 or on the Beyond Blue website at www.beyondblue.org.au/newaccess-sbo.

The Small Business Debt Helpline is run by Financial Counselling Australia. It’s a free service for small business owners in financial difficulty, and offers independent, confidential and impartial support to navigate issues including avoiding bankruptcy, negotiating payment plans, debt waivers, grant applications and insolvency.

The helpline’s professional financial counsellors offer a listening ear and practical business advice. They don’t sell anything or work on commission.

You can contact the Small Business Debt Helpline by calling 1800 413 828 or see the Small Business Debt website at https://sbdh.org.au/.

Changes to recovery loan scheme for small and medium enterprises

As a part of an economic package to help businesses recover from the impacts of the COVID-19 pandemic, the Federal Government provided low-cost credit to qualifying small and medium enterprises (SMEs) through the SME Recovery Loan Scheme. When it was first introduced, and until 31 December 2021, the government essentially guaranteed 80% of the loan amount. However, from 1 January 2022, as restrictions have eased, the government guarantee has been reduced from 80% of the loan amount to 50% of the loan amount. The eligibility conditions have also been slightly fine-tuned, with the scheme now due to end on 30 June 2022.

Eligible small and medium businesses with up to $250 million turnover can access up to $5 million in total from participating lenders.

Loans can be unsecured or secured and will generally be for terms of up to 10 years, with an optional repayment holiday period of up to 24 months. A loan can be used for a range of business purposes, including investment support or refinancing the pre-existing debt of an eligible borrower.

The maximum rate will be capped at around 7.5%, with flexibility for interest rates on variable rate loans to increase if market interest rates rise over time. Participating lenders can offer any suitable product to eligible businesses except for credit cards, charge cards, debit cards or business cards.

Need more money in retirement?

Retirees who own their own home and need more money in retirement can now access the Home Equity Access Scheme, run through Services Australia. The scheme was previously known as the Pensions Loans Scheme. Along with its new name, the scheme’s fortnightly interest rate has been lowered to 3.95% per annum. To access the scheme, there’s no need for you or your partner to be on the Age Pension, although certain other requirements need to be met, including being of at Age Pension age and owning real estate in Australia that can be used as security for the loan.

There are costs associated with starting and stopping the scheme – for example, Services Australia will place a charge or caveat on the property offered as security for the loan, and you’ll need to pay the costs involved. These costs don’t need to be paid upfront but can be added to the loan balance.

TIP: The scheme is flexible, which means you can stop receiving payments at any time and make repayments at any time, but regular repayments aren’t required. Rather, you have the choice to wait to pay the loan, legal costs and accrued interest in full when you sell the property you’ve used as security.

Payments under the scheme will continue until you reach your maximum loan amount. This amount depends on your age, your partner’s age (if you have one), and the market value of the property used as security. For example, for a single person aged 70 who has a home with a market value of $800,000, the maximum loan amount available under the scheme is $246,400.

Income protection insurance in super: beware of offsets

Insurance within super is usually the most cost-effective way for an individual to cover themselves in the event of a mishap. Most super funds typically offer three types of insurance for their members: life cover, total and permanent disability (TPD) and income protection insurance (or salary continuance cover).

Life cover (death cover) pays a lump sum or income stream to beneficiaries upon your death, or in the event of a terminal illness. TPD insurance pays you a benefit if you become seriously disabled and are unlikely to work again. Income protection insurance pays a regular income for a specified period, ranging from two years to five years, or up to a certain age, if you can’t work due to temporary disability or illness.

Recently, the Australian Securities and Investments Commission (ASIC) reviewed the practices of five large super funds that provide default income protection insurance on an opt-out basis to their members, accounting for around 2 million MySuper member accounts.

Overall, ASIC found that most income protection insurance policies contain “offset” clauses, which mean that the insurance benefit is reduced or “offset” if you receive other kinds of income support. This is used as a way to reduce incentives for you to delay your return to work as a result of receiving more income while disabled than when working.

The review also found large variations between super funds in the types of income offset against income protection benefits.

ASIC found that trustees were not proactively giving members clear explanations about when insurance benefits would or would not be paid as a result of offsets. This information is obviously relevant when you’re considering whether to opt out of default income protection insurance, and if you make an insurance claim.

ASIC’s concern isn’t that the offset clauses exist, but that relevant information to explain the clauses was not available in website communications or in welcome packs, and the clauses were only described in technical and legalistic language in insurance guides.

TIP: You can get more information on ASIC’s MoneySmart website about what to look for when considering income protection insurance through super: see https://moneysmart.gov.au/how-life-insurance-works/income-protection-insurance.

Client Alert – December 2021 – January 2022

ATO Medicare exemption data-matching continues

The ATO has announced the extension of its Medicare exemption statement data-matching program. This program has been conducted for the last 12 years and has now been extended to collect data for the 2021 through to 2023 financial years. It is estimated that information relating to approximately 100,000 individuals will be obtained each financial year.

If you live in Australia as an Australian citizen, a New Zealand citizen, an Australian permanent resident, an individual applying for permanent residency or a temporary resident covered by a ministerial order, then you are eligible to enrol in Medicare and receive healthcare benefits. However, this also means you need to pay Medicare levy at 2% of your taxable income to partly fund the federal scheme.

The Medicare exemption statement (MES) is a statement that outlines the period during a financial year that an individual was not eligible for Medicare. It can be obtained from Services Australia. Individuals who are not eligible for Medicare will then be exempt from paying the Medicare levy in their tax returns.

The information that will be obtained as part of the ATO’s extended data-matching program includes MES applicants’ identification details, entitlement status and approved entitlement period details.

In previous years of this data-matching program, the ATO was able to verify around 87% of the Medicare exemptions claimed in individual tax returns without needing to contact the taxpayers directly. However, the remaining 13% of taxpayers (around 11,000 individuals) who claimed Medicare exemptions were subjected to ATO review.

Building delays may cost you in more ways than one

Most of Australia has been experiencing a building boom, fuelled by government policy such as the HomeBuilder scheme and a general desire to make our living spaces better as we spend more time working, educating, and living at home. However, with global supply chains and transport routes disrupted due to the effects of COVID-19, there have been well publicised material shortages and builder collapses in the sector. If you’re building or substantially renovating your home, any related delays you experience may also end up costing you when you decide to sell.

For most individual Australian tax residents, there’s an automatic exemption from CGT for the capital gain (or loss) that arises when you sell your home, known as the “main residence exemption”. Generally, the home must have been your main residence for the entire ownership period; however, exemptions may apply where you’ve had to move out while building, renovating, or repairing.

The related building concession allows you to treat a dwelling as your main residence from the time that the land was acquired for a maximum period of up to four years, applying from either the time you acquire the ownership interest in the land or the time you cease to occupy a dwelling already on the land. If it takes more than four years to construct or repair the residence, you may only be entitled to a partial main residence exemption. This means that if you later sell the residence, the period when you didn’t live there during construction or renovation will be subject to CGT.

If you’re unable to complete your main residence construction or renovation project within the four-year maximum timeframe either due to the builder becoming bankrupt or due to severe illness of a family member, you may be able to apply to the ATO for discretion to extend the four-year period, so you don’t get penalised financially.

Cryptocurrency scams on the rise

As investing in cryptocurrency becomes more popular in Australia, there is also a corresponding increase in the number of scams being reported. Due to the unregulated nature of cryptocurrency and the recent failure of two Australian cryptocurrency exchanges, this investment space has become a risky free-for-all, with Scamwatch estimating that around $35 million was lost to cryptocurrency scams in the first half of 2021. If you’re one of the unlucky ones to have been scammed, depending on the circumstances you may be able to claim a capital loss deduction.

Cryptocurrency scams come in a variety of forms, the most common being impersonation, where scammers pretend to be from a reputable trading platform and have legitimate-looking digital assets – like fake trading platforms which look like the real thing and email addresses that impersonate a genuine company – to lure people in. Investors who fall into this trap will usually see the initial money they invested skyrocket on fake trading platforms and may even be allowed to access a small return. Once people are hooked, though, the scammers will typically ask for further investments of large sums of money before cutting off contact and disappearing completely.

Tip: If you think you’ve been scammed, you should contact your bank or financial institution as soon as possible. You can also make reports to Scamwatch and to the Australian Securities and Investments Commission (ASIC). Finally, you can contact IDCARE, a free, government-funded service, if you suspect identity theft.Contact us for more information and assistance.

Are crypto scam losses tax deductible?

Whether you can deduct a loss all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely you can claim a capital loss. This is likely to also apply if the cryptocurrency you own is stolen in a scam.

Unfortunately, it’s unlikely that a deduction can be claimed for people who have been scammed into handing over money for supposed “cryptocurrency investment” in schemes where no actual cryptocurrency ownership occurred. This is because they have not technically lost an asset, as they did not own the cryptocurrency in the first place, and the money invested is not considered a capital gains tax (CGT) asset under Australian tax law.

Take care with small business CGT concessions

Recently, the ATO has noticed that some larger and wealthier businesses have mistakenly claimed small business capital gains tax (CGT) concessions when they weren’t entitled. By incorrectly applying the concessions, these businesses were able to either reduce or completely eliminate their capital gains. The ATO has urged all taxpayers that have applied the small business CGT concessions to check their eligibility. Primarily, this means that the business should meet the definition of a CGT small business entity or pass the maximum net asset value test.

Australia’s tax law provides four concessions to enable eligible small businesses to eliminate or at least reduce the capital gain on a CGT asset, provided certain conditions are met.

Tip: If you run a small business and are thinking of retiring or selling the business, we can help you work out whether you qualify for the CGT concessions, and how to use them optimally to reduce or eliminate potential capital gains.

To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6 million. Failing that, the business must qualify as a “CGT small business entity”. That is, it must be carrying on a business, and have an aggregate turnover of less than $2 million.

The CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. Shares in a company or trust interests in a trust can also qualify as active assets.

Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another, in some cases eliminating the entire capital gain.

ATO concerns on luxury car tax

The ATO has issued an alert warning taxpayers that it is investigating certain arrangements where entities on-sell luxury cars without remitting the requisite luxury car tax (LCT) amount.

Businesses and individuals who sell cars valued over a certain threshold (the luxury tax threshold) in the course of their business are subject to luxury car tax (LCT).

This is a requirement if your business is registered or required to be registered for GST. LCT doesn’t just apply to instances where a dealer is selling a car to an individual or a business – it also applies in instances where a business sells or trades in a car that is a capital asset.

Tip: For the 2021–2022 financial year, the luxury car thresholds are $79,659 for fuel-efficient vehicles and $69,152 for all other vehicles. If your business buys a car with a GST-inclusive value above these thresholds, you are generally liable to pay LCT.

If you’re the seller of a luxury car, whether or not it’s within your usual course of business, you’re required to charge LCT to the recipient, report the associated LCT amount in your BAS and remit it to the ATO by your BAS payment date. You can’t legitimately avoid LCT by selling a luxury car to an employee, associate, or employee of your associate for less than market value, or by giving it away. The LCT value of the car in those situations will always be the GST-inclusive market value.

The ATO is currently investigating arrangements where a chain of entities that progressively on-sell luxury cars have improperly obtained LCT refunds and evaded remitting LCT. Usually, in this arrangement, one of the entities claims a refund of LCT while creating a consequential liability to another entity in the supply chain. One or more of the participating entities down the chain will then not correctly report and pay their LCT liabilities. Finally, these entities will be liquidated to thwart ATO compliance or recovery action.

These arrangements are concerning because they can result in luxury cars being sold without income tax and GST obligations being met. For example, luxury cars could be sold to end-users at more competitive prices with generally higher profit margins, disadvantaging legitimate businesses in the market that are meeting all their tax obligations.

Up and coming changes to super

Recently, a number of significant superannuation changes were proposed in Parliament as a part of the government’s plan to enhance super outcomes for Australians.

Work test and bring-forward rule changes

Currently, individuals aged between 67 and 75 either need to pass the “work test” or satisfy the work test exemption criteria if they want to make non-concessional and salary sacrifice contributions to their super. The amendments would allow individuals aged between 67 and 75 to make certain non-concessional contributions and salary sacrifice contributions without meeting the work test. Also, individuals aged under 75 could access bring-forward non-concessional contributions.

Lowered downsizer contributions age

Current downsizer contribution measures allow individuals aged 65 or over to make a contribution into super of up to $300,000 from the proceeds of selling their home. The government is seeking to reduce the lower eligibility age to 60.

Increased maximum releasable amount for first home buyers

The First Home Super Saver Scheme was designed to help first home buyers save for a deposit by allowing them to make voluntary concessional and non-concessional contributions into super, and later withdraw those eligible contributions and associated earnings to purchase a home.

Currently, the maximum amount releasable from super is $30,000. The proposed changes would increase that maximum to $50,000, although the amount of voluntary contributions eligible to be released in any single financial year would not change from $15,000.

Removing super guarantee minimum threshold

Currently, an employer does not have to pay super guarantee for an employee who earns less than $450 in a calendar month with that employer. This threshold was originally introduced to minimise employers’ administrative burden. However, with the technological advancement of single touch payroll (STP), the government no longer sees a need for the threshold, which is increasingly affecting young, lower-income, part-time and female workers, and has proposed removing it, so that employers must pay super guarantee to all employees.

SMSF trustees: reminder to apply for director IDs

Directors of corporate trustees of self-managed superannuation funds (SMSFs) should be aware that the director identification regime is now in force. Depending on when you became a director, the deadline for application is either November 2022 or within 28 days of the appointment. The application process itself is easy and can be done online through the new Australian Business Registry Services (ABRS). Once you receive it, your 15-digit identification number will be permanently linked to you even if you change companies, stop being a director, change your name or move interstate or overseas.

The director ID regime was implemented as a way to prevent the use of false or fraudulent director identities, make it easier for external administrators and regulators to trace directors’ relationships with companies over time, and identify and eliminate director involvement in unlawful activity, such as illegal phoenix activity.

Tip: Each director needs to submit a separate application for their own director ID.

To apply for your director ID, you first need to set up myGovID, which is different to myGov. The myGovID is an app that you need to download onto your smart device and confirm your identity in using standard documents (drivers licence, passport, etc). You’ll then be able to log on to a range of government services, including the online director ID application with the ABRS.

To complete the director ID application, you need to provide additional information such as your tax file number (TFN), residential address, and/or details from two additional specified documents to verify your identity, such as: bank account details; ATO notice of assessment; super account details; a dividend statement; Centrelink payment summary; or PAYG payment summary.

Once you receive your director ID, you need to pass it onto the record-holder of the corporate trustee, which may be the company secretary, another director, a contact person or an authorised agent of the company. If the corporate trustee changes or you become the director of another company, you will need to pass on this information to the new corporate trustee or the other company.

Client Alert – November 2021

ATO scrutinising gifts or loans from overseas

The ATO has recently issued an alert warning taxpayers against disguising undeclared foreign income as gifts or loans from related overseas entities, including family and friends. It says it has continued to encounter situations where Australian resident taxpayers have derived amounts of income or capital gains offshore that are assessable, but the taxpayers have failed to declare the amounts in their income tax returns.

TIP: If you’re an Australian resident for tax purposes, your worldwide income (not just money you make from Australian sources) is assessable and should be reported to the ATO in your annual tax return.

The ATO will now be looking closely at arrangements where taxpayers are aware of their residency status and the tax implications that flow from it but attempt to avoid or evade tax of their foreign assessable income by disguising amounts as either gifts or loans from a related overseas entity.

If family or friends who live overseas have provided a genuine monetary gift or loan to you or your business, you should keep as much supporting documentation as possible about it. This is because if there is any uncertainty about whether particular amounts are genuine gifts or loans, the ATO will form a view based on all of the available evidence.

Contemporaneous and complete records should include detailed financial records, full loan documentation, formal identification of the giver and any declarations they made about the money in their country of residence. A deed of gift or a statutory declaration may not be accepted as conclusive evidence.

Inheritances also count as “gifts”. If you receive an inheritance from overseas, a certified copy of the person’s will or a distribution statement for the estate should be a part of your recordkeeping.

New data matching program: government payments

A new data matching program designed to identify and address non-compliance with tax and super obligations is under way in relation to government payments for the 2018–2019 to 2022–2023 income years. It covers most services that the Commonwealth Government pays third-party program providers to deliver.

The ATO will obtain data from Comcare, the Department of Health, the National Disability Insurance Agency, the National Indigenous Australian Agency, the Department of Home Affairs, the Department of Veterans’ Affairs and the clean energy regulator. This will add to the information the ATO currently receives from government entities through the taxable payments annual report (TPAR).

This means that contractors, subcontractors and consultants in any type of business structure (sole trader, company, partnership or trust) that receive payments from government under these agencies’ programs may be subject to extra scrutiny.

It is estimated that 36,000 service providers will be captured under this program each financial year. Of that number, approximately 11,000 will be individuals and the rest will be companies, partnerships, trusts and government entities.

TIP: If you’re a service provider under one of the affected government programs, you should ensure you’re meeting all your registration and lodgment obligations. We can help review your records and correct any problems, so you don’t get a surprise letter from the ATO.

Do you need a Director Identification Number?

Directors of companies will soon have to enrol in the Director Identification Number regime. This requires current and future directors to apply for director identification numbers (DIN) which will be permanently linked to the individual, even if they are no longer a director. It is hoped the regime will make it easier to trace relationships across companies and reduce instances of phoenixing and other illegal activity. Most existing directors will have until 30 November 2022 to apply for the DIN through the ATO.

The Director Identification Number regime came into force late in 2020 as a tool for the Federal Government to reduce phoenixing and black economy activities.

Tip: Illegal phoenix activity is when a company shuts down to avoid paying its debts. A new company is then started to continue the same business activities, without the debt.

Individuals that operate under the Corporations Act 2001 and became a director on or before 31 October 2021 are required to apply for a DIN before the end of the transitional period, which is between 4 April 2021 and 30 November 2022.

Directors who operate under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 and became a director on or before 31 October 2021 will have even more time to apply for a DIN – until 30 November 2023 (with a transition period between 4 April 2021 and 30 November 2023). Any individuals who are appointed directors between 1 November 2021 and 4 April 2022 will have within 28 days of their appointment to apply for the DIN, and from 5 April 2022 individuals seeking to become directors will need to apply for a DIN before their appointment.

Any conduct that undermines the DIN requirement will be subject to civil and criminal penalties. This includes deliberately providing false identity information, intentionally providing a false DIN or intentionally applying for multiple DINs.

Directors will be able to use the new Australian Business Registry Services (ABRS) online services to register from 1 November 2021. Sign-ins and director identity verification will be conducted using the myGovID app.

COVID-19 relief for SMSFs extended

Due to the ongoing economic impacts of COVID-19 on large parts of Australia, the ATO has announced the extension of various COVID-19 relief measures for trustees of self-managed superannuation funds (SMSFs). The relief previously only applied to the 2019–2020 and 2020–2021 financial years but will now also be available for the 2021–2022 financial year.

SMSF residency test

To be a complying super fund and receive tax concessions, SMSFs must be an “Australian super fund” at all times during the year. This requires, among other things, for the central management and control of the SMSF (i.e. individual trustees, or directors of a corporate trustee) to ordinarily be in Australia. Under the relief, a fund will still meet this requirement even if its central management and control is temporarily outside of Australia for up to two years.

Rental relief

If an SMSF or a related party has continued to provide rental relief based on the current market conditions, whether it be a rental reduction, waiver or deferral to a tenant, the ATO will provide relief in the form of not taking any compliance action against the fund. However, this is predicated on the rental relief being offered on commercial terms, and there being proper documentation with regards to the arrangement.

Loan repayment relief

For loan repayment relief provided by an SMSF to a related or unrelated party due to the financial impacts of COVID-19, where the relief is offered on commercial terms and the changes to the loan agreement are properly documented, the ATO will provide relief on similar terms as the interim rental relief – that is, it will not take any compliance action against the fund. This will also apply to limited recourse borrowing arrangements (LRBAs).

In-house assets

Where an SMSF exceeds the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, trustees must still prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022. However, the ATO has said it will not take any compliance action where the plan has not been executed by the due date as a result of the market not having recovered, or in some cases the plan may be unnecessary because of market recovery.

PAYG variations

The ATO has confirmed that its penalty and interest relief for excessive PAYG variations applies to SMSFs that continue to be impacted by COVID-19 during 2021–2022. The ATO will not apply penalties or interest for excessive variations of PAYG instalments during the 2021–2022 income year, provided that the taxpayer has taken reasonable care to estimate their end-of-year tax.

Audits

The ATO has also extended to 2021–2022 its existing COVID-19 relief in the Addendum to the Auditor/actuary contravention report (ACR). The ACR relief for 2021–2022 will apply for rental relief (including rental reductions, waivers and deferrals), loan repayment relief (including for LRBAs), and in-house assets.

TIP: If you’re a trustee of an SMSF and you or your fund’s members have been affected by COVID-19, we can help you work out the potential tax implications and relief available and put the proper documentation in place.

Client Alert – October 2021

Federal COVID-19 support developments

Additional financial support for childcare providers

The Prime Minister and the Minister for Education and Youth recently announced new support measures for childcare providers that are impacted by extended COVID-19 lockdowns.

Childcare services in Commonwealth-declared hotspots will be eligible for new fortnightly payments of 25% of their pre-lockdown revenue, and outside school hours care (OSHC) services will be eligible for fortnightly payments of 40% of pre-lockdown revenue.

This measure will apply to services seven days after the hotspot is declared, where state and territory governments have directed families to keep their children at home. Where children are still allowed to attend childcare, the supports will kick in four weeks after the hotspot declaration.

The new payments will immediately benefit services in affected areas of Sydney, the ACT and Melbourne. Other services will become eligible after seven days of lockdown, with payments backdated to 23 August. The support will then be available for services that meet the criteria in any future extended lockdowns.

Payments are made available directly to providers. Families in affected areas are not required to do anything.

State and territory COVID-19 support developments

Australian Capital Territory

Expanded and additional support will be available for businesses affected by COVID-19 lockdowns, in the form of two grant programs:

• COVID-19 Business Support Grants: An additional COVID-19 Business Grant Extension payment of $10,000 for employing businesses and $3,750 for non-employing businesses will be available to businesses eligible for the existing Business Support Grants and in industries “still significantly impacted by the health restrictions”.
• COVID-19 Tourism, Accommodation Provider, Arts and Events and Hospitality Grants: Further one-off grants will be available in October to eligible businesses in the tourism, accommodation provider, arts and events and hospitality industries.

Queensland

Federal and state funded emergency support packages worth $52.8 million will be available to assist Queensland businesses suffering due to the NSW–Queensland border restrictions, and to provide targeted support to tourism and hospitality businesses facing significant hardship. These special hardship grants will be available from mid-October.

South Australia

The COVID-19 Tourism and Hospitality Support Grant will be available for businesses in eligible tourism and hospitality sectors, and other sectors such as performing arts, creative artists, taxis and car rental, that have already received the COVID-19 Additional Business Support Grant.

There is also a new COVID-19 Business Hardship Grant for certain employing businesses that haven’t been eligible for previous business grant support since July 2021.

In addition, the SA government is increasing its Major Events Support Grant, to provide up to $100,000 for large cancelled or postponed events where more than 10,000 attendees were expected.

Tasmania

The existing Business Support Package will be boosted from $20 million to $50 million, with grants of up to $50,000 available to eligible businesses across two funding rounds.

In addition, the Tasmanian government will offer eligible tourism and hospitality industry businesses payroll tax relief, waived vehicle registration and passenger transport accreditation fees and waived Parks & Wildlife license fees. Businesses can apply immediately.

Victoria

New regulations have been made to provide relief under the Commercial Tenancy Relief Scheme for small and medium-sized commercial tenants struggling with rent payments. Eligibility has been broadened, and businesses will get relief in the form of a rent reduction proportionate to the amount of turnover lost due to COVID-19.

The Victorian Small Business Commission will provide information so that landlords and tenants can negotiate an agreement, and free mediation for those who need assistance.

Land tax relief will be available to help landlords that are doing the right thing by eligible tenants, and eligible small landlords can apply for payments from a $20 million hardship fund.

Western Australia

WA tourism businesses impacted by COVID-19 will soon be able to apply for funding support under a new joint Commonwealth–State program. About 3,500 businesses will be eligible for grants of up to $10,000, including tourism operators, accommodation providers and travel agents.

Closing a business? Don’t forget the GST registration

If the current prolonged lockdowns and economic conditions have prompted you to sell or close your business, it’s important to be aware of the need to cancel the related GST registration within a certain period, unless your business is in a specific industry or performs a specific role.

TIP: Generally, you must cancel your GST registration within 21 days if you sell or close your business. If you change your business structure, for example from a partnership structure to a company structure, you must still cancel your GST registration within 21 days, unless the old entity carries on another business.

Cancelling a GST registration will also cancel other registrations such as fuel tax credits, luxury car tax and wine equalisation tax, even if the ABN is not cancelled. If you’re registered for PAYG, PAYG instalments or have FBT obligations, you will need to keep lodging business activity statements (BASs) even if you cancel your GST registration.

While you can usually cancel your GST registration from a date you choose (which should be the last day you want your previous business to be registered), you cannot cancel the registration retrospectively if you were still operating on a GST-registered basis after that date. Similarly, if you choose a cancellation date and then continue to operate on a GST-registered basis, you will not be able to cancel the registration.

When you cancel your business’s GST registration, you’ll need to lodge any outstanding BASs and complete a final GST activity statement which should include all sales, purchases and importations made in the final tax period. This should include the sale of the business, sale of any of business assets, adjustments for any assets held after cancellation, and/or any other adjustments. If you operate on a cash basis, all the sales and purchases that still need to be attributed from a previous tax period must be recorded.

If you’re cancelling a GST registration because the business has been restructured, sold or closed, the associated ABN must also be cancelled. If a company was not restructured, sold or closed, but simply no longer carries on a business, the GST registration must still be cancelled but there’s a choice to keep the ABN registration active.

New stapled super changes coming for employers

Employers get ready – there’ll soon be an extra step involved when it comes to hiring new employees. From 1 November 2021, employers will need to determine if a new employee has a “stapled” super fund and request the details from the ATO where a new employee has not nominated a super fund.

A stapled super fund is essentially an existing super account that is linked – or “stapled” – to an individual and follows them throughout their job changes.

Currently, when a new employee starts a new job they are eligible to choose the super fund that their super guarantee contributions will go to. If they do not choose their own fund, the super contributions will be paid into the employer’s default fund. The stapling change aims to reduce unnecessary account fees by avoiding having a new super account opened every time a person starts a new job.

To ensure you’re ready for this change, check ATO online services to confirm that your business has the required access levels. You’ll need to have the “Employee Commencement Form” permission in order to request a stapled fund.

After 1 November you’ll still need to offer your eligible employees a choice of super fund and pay their super into the account they nominate – that part of your obligations doesn’t change. However, if your employee doesn’t choose a fund, you’ll need to request the stapled fund details from the ATO. In most cases, a request can be made after you’ve submitted a TFN declaration or a Single Touch Payroll (STP) pay event linking the new employee to your business.

Responses will usually be received through the online portal in minutes. The ATO will also notify the associated employee of the stapled fund request and the fund details provided.

Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply if your business fails to meet the “choice of super fund” obligations.

MySuper performance test results and new super comparison tool

This year marks the beginning of annual performance tests on MySuper products, run by the Australian Prudential Regulation Authority (APRA). The tests were introduced as part of the Federal government’s Your Future, Your Super reforms, aiming to hold super funds to account for underperformance and enhance industry transparency. The first annual test of 76 MySuper products from various super funds or registrable superannuation entities found that

13 products failed to meet the benchmark. These products will need to notify their members of the failed test and make the improvements needed to ensure they pass next year’s test.

A new interactive online super comparison tool, YourSuper, is also now available on the ATO website and via MyGov. It displays a table of MySuper products ranked by fees and net returns (updated quarterly), and you can compare up to four MySuper products at a time in more detail.

The performance tests conducted by APRA only relate to MySuper products, which are basic super accounts without unnecessary features and fees. Registrable superannuation entities usually offer multiple products in addition to MySuper products, so don’t panic if you see the name of your super fund on the list of underperforming products. However, if you see the name of your specific product or receive a letter indicating that the fund you’re in has failed the APRA performance test, it may be time to investigate the reasons why or switch to a different product.

Client Alert – September 2021

Single Touch Payroll update

Phase 2 coming soon

The ATO is expanding the information that businesses send through Single Touch Payroll (STP). From 1 January 2022, most employers will be required to send additional information such as the commencement date of employment and cessation date of employment for employees, their reasons for leaving employment and work type. The basic information about salary and wages and super liability information in Phase 1 of the STP rollout will also be further drilled down in Phase 2, moving away from just reporting the gross amounts.

According to the ATO, the Phase 2 report will also include a six-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments.

STP was originally introduced in 2016 as a way for employers to report their employees’ tax and super information to the ATO in real time. Most employers, regardless of the number of their employees, were required to start reporting from 1 July 2021.

Employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP, and small employers that make payments to closely held payees are exempt from reporting these payees through STP for the 2019–2020 and 2020–2021 financial years.

While the Phase 2 increase in information will be automatically taken care of in most STP software solutions, the increased stratification of reporting may require you to pay more attention to your business’s payroll, to ensure all the information you enter into the system is correct.

Tip: Not sure how the STP Phase 2 changes might apply to your business? Contact us today for more information.

Tax time 2021: rental property pitfalls

This tax time, the ATO is again closely monitoring claims in relation to rental properties. The ATO has data-matching programs in place that collect detailed information about properties and owners for income years all the way from 2018–2019 to the 2022–2023. These programs expand the rental income data collected directly from third-party sources, including sharing economy platforms, rental bond authorities and property managers.

In the 2019–2020 financial year over 1.8 million taxpayers owned rental properties and claimed $38 billion in deductions. While most taxpayers do the right thing and are able to justify their claims, the ATO notes that over 70% of the 2019–2020 returns selected for review of rental information needed adjustments.

Tip: The ATO guidance makes it clear there’s no intention to penalise property owners whose rental income or property costs have been negatively affected by COVID-19. We can help you report the right information in your return this tax time.

The most common mistake that rental property owners and holiday homeowners make is not declaring all their income, and their capital gains from selling property.

Another area of concern involves claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (eg to buy a car or pay off the mortgage of the house you’re living in), then you can’t claim interest on that part of the loan.

You should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear are immediately deductible if you’re replacing or fixing an existing item (eg a broken toilet), the cost of upgrading the property or areas of the property is considered capital works and any deductions need to be spread over a number of years.

New sharing economy reporting regime proposed

The government is seeking to legislate compulsory reporting of information for sharing economy platforms in order to more easily monitor the compliance of participants, while at the same time reducing the need for ATO resources.

As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term “sharing economy”, it’s usually taken to involve two parties entering into an agreement for one to provide services, or to loan personal assets, to the other in exchange for payment. Examples of platforms include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer, to name a few.

With the rapid expansion of various sharing economy platforms, the government’s Black Economy Taskforce has noted that without compulsory reporting, it is difficult for the ATO to gain information on compliance without undertaking targeted audits. Putting formal reporting requirements in place will align Australia with international best practice.

The government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO.

This new compulsory reporting regime would apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply.

Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if they relate to a ride-sourcing or a short-term accommodation service, unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report, unless an exemption applies.

Tip: It’s expected that only the aggregate or total transactions relating to a seller over the reporting period will need to be provided; that is, information will not need to be provided on a transactional basis.

The initial reporting is expected to be biannual (1 July to 31 December, and 1 January to 30 June) with electronic service operators required to report the relevant information by 31 January and 31 July respectively.

Reminder: super changes for the 2021 financial year

The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute it without hitting their non-concessional cap.

Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year.

The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

Tip: For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can now access a cap of up to $330,000.

Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.

Client Alert – August 2021

ATO tax time support: COVID-19 and natural disasters

The ATO has a range of year-end tax time options to support taxpayers who have been affected by the COVID-19 pandemic and recent natural disasters.

Income statements can be accessed in ATO online services through myGov accounts from 14 July.

The ATO also reminds those who may have lost, damaged or destroyed tax records due to natural disasters that some records can be accessed through their myGov account or their registered tax agent. For lost receipts, the ATO can accept “reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents”. A justification may be required on how a claim is calculated.

Tip: Even if you can’t pay, it’s still important to lodge on time. We can help you understand your tax position and find the best support for you.

JobKeeper

Payments received as an employee will be automatically included in the employee’s income statement as either salary and wages or as an allowance. However, sole traders who received JobKeeper payment on behalf of their business will need to include the payment as assessable income for the business.

JobSeeker

Payments received will be automatically included in the tax return at the Government Payments and Allowances question from 14 July.

Stand down payments

Employees receiving one-off or regular payments from their employer after being temporarily stood down due to COVID-19 should expect to see those payments automatically included in their income statement as part of their tax return.

COVID-19 Disaster Payment

The Australian Government (through Services Australia) COVID-19 Disaster Payment for people affected by restrictions is taxable. Taxpayers are advised to ensure they include this income when lodging their returns.

Other assistance

The tax treatment of assistance payments can vary; the ATO website outlines how a range of disaster payments impact tax returns and includes guidance on COVID-19 payments, including the taxable pandemic leave disaster payment.

Early access to superannuation

Early access to superannuation under the special arrangements due to COVID-19 is tax free and does not need to be declared in tax returns.

Hardship priority processing of tax returns

If your business is experiencing financial difficulties due to the latest lockdowns, the ATO may be able to help by processing your tax return faster and expediting the release of any refund to you. To be eligible for priority processing, you’ll need to apply to the ATO and provide supporting documents (within four weeks of your submission) outlining your circumstances. “Financial difficulty” may include many situations such as disconnection of an essential service, pending legal action or repossession of a business vehicle.

Tip: Priority processing of a business tax return doesn’t guarantee a refund. If your business has outstanding tax or other debts with Australian government agencies, the credit from a return may be used to pay down those debts.

You can apply for ATO priority processing over the phone or through your tax professional after the lodgment of the tax return in question. Once the initial request for priority processing is received, you’ll be notified and contacted if more information is required. Processing will take more time for businesses that have lodged several years’ worth of income tax returns of amendments at the same time, and those that have unresolved tax debts.

Before lodging any priority processing request, check the progress of your return through online services, over the phone or by contacting us as your tax professional. If the return is in the final stages of processing, you may not need to lodge a priority processing request – the return will be finalised before the ATO has an opportunity to consider the request.

Workplace giving versus salary sacrifice donations

Have you made donations either through workplace giving or salary sacrifice arrangements with your employer? If so, and you want to claim a deduction in your tax return, it’s important to know that the tax treatment differs depending on which method you used to make the donation.

Essentially, workplace giving is a streamlined way for employees to regularly donate to charities and deductible gift recipients (DGRs). Usually a fixed portion of your salary is deducted from your pay each pay cycle and your employer forwards the donation on to the DGR. However, the amount of your gross salary remains the same and, depending on your employer’s payroll systems, the amount of tax you pay each pay period may or may not be reduced to take into account the donation.

On the other hand, under a typical salary sacrificing donation arrangement, you agree to have a portion of your salary donated to a DGR in return for your employer providing you with benefits of a similar value. Your gross salary is reduced by the salary sacrificed amount and the amount of tax you pay each pay period will be reduced. Your employer makes the donation to the DGR.

If you’ve made a donation under workplace giving, you can claim a deduction in your tax return. This is regardless of whether or not your employer reduced the amount of tax you paid each pay cycle to account for the amount of the donation. Your employer will give you a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made. Alternatively, your employer will provide the total amount of donations you made for the year in your tax time payment summary, under the “Workplace giving” section.

If you’ve made a donation to a DGR under a salary sacrifice arrangement, however, you’re not entitled to claim a deduction in your tax return, since it’s your employer that is making the donation to the DGR – not you.

If you make donations outside the workplace, remember that for a donation to be deductible it must be made to a DGR and truly be a gift or donation of $2 or more. You can still claim a deduction if you receive a token item in recognition of your donation (eg a lapel pin, wristband or sticker).

Tip: It’s important to note that many crowdfunding campaigns and sites are not run by DGRs, so any donations made to those causes should be carefully examined before claiming them – it’s likely they won’t be deductible.

Employers beware: increase in super guarantee

From 1 July 2021, the rate of super guarantee increased from 9.5% to 10%. Businesses using manual payroll processes should be careful that this change doesn’t lead to unintended underpayment of super, which may attract penalties.

The new rate of 10% is the minimum percentage now required by law, but employers may pay super at a higher rate under an award or agreement.

Most payroll and accounting systems will have incorporated the increase in their super rate, but it’s always good to check. If your business is still using a manual process to pay your employees, you’ll need to work out how much super to pay under the new rate.

Tip: The rate you should use to calculate your employee’s super contributions depends on the date that you are paying your employees – it doesn’t matter if the work was performed in a different quarter. The new rate applies to all super payments made after 1 July 2021.

This latest increase to 10% is by no means the last time the super guarantee rate will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year) the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023–2024 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

COVID-19 lockdown support: NSW, Vic and SA

If your business or employment income has been affected by recent COVID-19 related lockdowns in New South Wales, Victoria and South Australia, financial help is available from both the state and Federal governments. Depending on the length of the lockdown, businesses may be eligible to receive a co-funded small and medium business support payment, as well as various cash grants.

Federal support

For small and medium businesses, depending on the length of the lockdown, the Federal government will fund up to 50% small and medium business support payments to be administered by the states.

Non-employing businesses (eg sole traders) will also be eligible.

The Federal government will also seek to make various state business grants tax exempt and provide support for taxpayers through the ATO with reduced payment plans, waiving interest charges on late payments and varying instalments on request.

For individuals, the COVID-19 Disaster Payment will be available in any state or territory where a lockdown has been imposed under a state public health order.

New South Wales

Eligible businesses will be able to claim state government grants under the business grants program. Smaller and micro businesses that experience a specified decline will be eligible for a payment per fortnight of restrictions.

Payroll tax waivers will be available for certain businesses, as well as payroll tax deferrals and interest free payment plans.

Commercial, retail and residential landlords who provide rental relief to financially distressed tenants will be able to claim land tax relief. Residential landlords that are not liable for land tax may be able to claim a capped grant where they reduce rent for tenants.

The NSW government will also be protecting tenants with a short-term eviction moratorium for rental arrears where a residential tenant suffers a loss of income due to COVID-19 and meets a range of other criteria. There will also be no recovery of security bonds, lockouts or evictions of impacted retail/commercial tenants prior to mediation.

Victoria

Businesses in Victoria will be provided with cash grants from the state government. These payments will be automatically made to eligible businesses and sole traders to minimise delays. The state government estimates that up to 90,000 business that previously received assistance payments in relation to previous lockdowns will receive the new cash grants.

South Australia

Small and medium-sized businesses that suffer a significant loss of income or were forced to close as a result of South Australia’s seven-day lockdown are being offered an emergency cash grant as part of a $100 million business support package. The package also includes a new cash grant for eligible small businesses that don’t employ staff.

In addition, the SA government will provide fully-funded income support payments for eligible workers in regional SA who live or work outside of the Commonwealth-declared “hotspot” local government areas, and are therefore not entitled to the Federal COVID-19 Disaster Payment.