The Department of Education, Skills and Employment (DESE) has commenced a new data matching program with the ATO in relation to the Supporting Apprentices and Trainees (SAT) measure. The objective of the program is to confirm that an employer is eligible to receive the SAT subsidy and validate information provided by the employer. It also seeks to confirm that employers are not claiming both the SAT and JobKeeper at the same time for the same employee. To be eligible under SAT, an apprentice must have been in an Australian Apprenticeship with a small business as at 1 March 2020. The program has since been expanded to include medium-sized businesses who had an apprentice in place on 1 July 2020. Employers of any size who re-engage an eligible out of trade apprentice are also eligible to claim the SAT wage subsidy. Eligible employers under SAT can apply for a wage subsidy of 50% of the apprentices' or trainees' wage paid until 31 March 2021. It is estimated that data relating to around 117,000 apprentices and trainees and more than 70,000 employers will be transferred between DESE and the ATO. While the first data-matching activity is intended to be conducted as soon as possible, it is expected the program will be ongoing with data transfer to occur at regular intervals as required over the life of the measure. DESE will first provide the ATO with information relating to employers and apprentices that have been extracted from their systems. The ATO will then match that information against their own data holdings and provide information on employers that claimed eligibility for SAT as a small business or claimed the SAT wage subsidy and the JobKeeper at the same time for the same individual. To avoid mistakes, the ATO will be using sophisticated identity matching techniques which uses multiple details to obtain an identity match (eg name, address, date of birth). Additional manual processes may also be undertaken where a high confidence identity match does not occur. This involves an ATO officer reviewing and comparing third party data identity elements against ATO information on a one-on-one basis, seeking sufficient common indicators to allow confirmation (or not) of an individual's or business' identity. DESE will then use the information sourced from the ATO to verify its own data holding, and a manual process will be undertaken by a DESE officer to compare the information. All discrepancies and anomalies will be dealt with on a case-by-case basis. In instances where the DESE detects a discrepancy or an anomaly that requires verification, it will contact the business and provide them with an opportunity to verify the accuracy of the information on which the eligibility was based. According to the DESE, businesses will be given at least 28 days to respond and individual circumstances, if any, will be taken into consideration.
There are a lot more of us working from than ever before. So, can you claim all or some of the additional costs off your tax? There are 3 options for claiming working from home expenses. The question of whether it's all or some depends on the method chosen. First, employees working from home can calculate the deduction by using a fixed rate. This is set at 80 cents for each hour worked at home – the ATO calls this the "shortcut method". It was introduced as a result of the large number of people working from home due to COVID-19. Second, prior to the shortcut method being announced, the fixed rate was 52 cents for each hour worked at home. This can still be used. The third option is where all the actual costs are recorded and apportioned on the basis of the work-related proportion. It for largely used by people who have a home office, eg a doctor's consulting rooms within a private residence – so we won't focus on it now. However, please contact us if you think it may apply to you. The 80-cent rate is simple and easy. To qualify, a taxpayer must be working from home and must incur additional running expenses. For example, if a home computer had only ever been used for private purposes and is now being used to fulfil employment duties or in running a business, it would be an additional running expense. The ATO states that minimal tasks such as occasionally checking email or taking calls while at home will not qualify as working from home. The work must be "substantive ". The 80-cent rate covers all additional running expenses, including electricity and gas, cleaning, phone and internet. If this method is used, no other work from home expenses can be claimed. Taxpayers do not need to have a dedicated area to use the 80-cent rate. So, you can put the computer on the kitchen table, work away and claim the deduction. However, taxpayers will need to keep a record of the hours they have worked at home, which can be in the form of a diary (or timesheets, rosters etc). The 52-cent rate method also applies to what the ATO terms "running costs". It is 52 cents for each hour worked at home and is intended to cover the expenses such as electricity and gas, and the cost of repairs to home office equipment, furniture and furnishings. However, it is more important to know what the 52-cent rate does not cover. It excludes things like phone and internet, computer consumables and stationery and depreciation for items like phones, computers and laptops. If you want to claim for these expenses (like a new laptop), then you need to calculate their work-related use separately. This requires diaries, receipts, detailed phone accounts etc, but can give you a bigger deduction. To use the 52-cent rate, taxpayers must have a "dedicated work area", such as a home office.
The 2020 Budget has been handed down and as expected, the government has brought forward the previously legislated stage 2 tax cuts from 1 July 2022 to 1 July 2020. Other measures include the bringing forward and retaining various low-income offsets, targeted CGT exemption for granny flats, and cash payments for some income support recipients. Personal tax cuts According to the Treasurer, stage 2 tax cuts will see more than 11m taxpayers get an immediate tax cut backdated to 1 July 2020. With Labor indicating that they will support the changes, from 1 July 2020, the top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000. In addition, the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000. The government projects that individuals are expected to receive tax relief of $2,000 or more for the 2020-21 income year compared with 2017-18 income years. Low-income offsets As a consequence of bringing forward the tax cuts, a new low-income tax offset (LITO) will also be brought forward to start from the 2020-21 income year. The new LITO was intended to replace the existing low income and low and middle income tax offsets from 2022-23. Although the existing LITO is scrapped, the low and middle income offset (LMITO) will be retained for 2020-21. The maximum amount of the new LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667. The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar. Targeted CGT exemption for granny flats The Government will put in place a "targeted" CGT exemption for granny flat arrangements from 1 July 2021 whereby CGT will not apply to the creation, variation or termination of a granny flat arrangement providing accommodation where there is a formal written agreement in place. However, it will only apply to arrangements entered into due to "family relationships or other personal ties" and the arrangement is to provide accommodation for "older Australians or those with a disability" Cash payments for some income support recipients Two $250 economic support payments will be made to eligible income support recipients including those on the age pension, disability support pension, carer payment, FTB, and various other concession card holders (eg pensioner concession card, Commonwealth Senior Health card holders, and eligible veterans' affairs concession cards). The payments will be made in November 2020 and early 2021.
The Treasurer has handed down his second Budget amid challenging economic conditions, it is perhaps no surprise that in a Budget "all about jobs" that there would be plenty of sweeteners for businesses. Some of the more salient measures announced include the extension of small business tax concessions, outright deductions of capital assets until 30 June 2022, loss carry-back, and clarification of the corporate residency test. Extension of small business tax concessions A range of tax concessions currently available to small businesses will be extended to medium sized businesses which includes businesses with an aggregated annual turnover between $10m and $50m. This extension will happen in 3 phases, with eligible businesses being able to immediately deduct certain start-up expenses and prepaid expenditure in phase 1 starting on 1 July 2020. Phase 2 will start on 1 April 2021 and include FBT exemptions on car parking and multiple work-related portable electronic devices. Phase 3 of the extension will occur from 1 July 2021 and will allow eligible businesses to use simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, reduce the time limit for the ATO to amend income tax assessments to 2 years, and expand the simplified accounting method determination for GST purposes. All other small business tax concessions will retain the current eligibility turnover thresholds. Outright deductions of capital assets The government will be allowing all businesses with an aggregate turnover of less than $5bn to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022. For small to medium sized businesses, a full deduction will apply to new and second-hand assets as well as cost of improvements to existing eligible assets. There is a limit for larger businesses on the deduction of second-hand assets. Loss carry-back Companies with aggregated turnover of less than $5bn will be able to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously tax profits in the 2018-19 or later income years. The tax losses applied against tax profits in a previous year will generate a refundable tax offset in the year in which the loss is made, however, the refund will be limited to the amount of earlier tax profits. The tax refund will be available by election for eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies do not have to use the loss carry-back and can choose to carry losses forward as normal. Clarification of corporate residency test The government has flagged that it will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has significant economic connection with Australia. This test will likely be satisfied where both the company's core commercial activities are undertaken in Australia and its central management and control is in Australia.
Centrelink and the ATO have commenced a new data matching program in relation to the use of Single Touch Payroll (STP) data. Broadly, the program will involve the exchange of STP data from the ATO to Centrelink (or Services Australia) in relation to individuals that have a client relationship with the agency. The data will then be matched against Centrelink held records and information. For the purposes of this data matching program, clients of Centrelink include: an individual who is in receipt of or claiming a payment or service such as an income support payment, family assistance payments, low income card, and a child support paying parent. a related individual of the above, whose income may have an effect on the payability or ongoing entitlement to a payment of the individual above. This includes a partner/ex-partner, or a debtor (eg a non-current client who has an outstanding debt to Centrelink and where it is their responsibility to repay a debt). The data matching program will apply for the 2019-20 and 2020-21 financial years and it is estimated that around 460m pay events related to STP will be exchanged in relation to approximately 10-12 million individuals. This figure may fluctuate depending on the economic impacts of COVID-19 and associated supports (ie JobSeeker). Data exchanged in the program will consist of basic identifying information including name, date of birth, postal address, gender, and assigned CRN (or TFN for Child Support). Once an individual has been matched using the basic identifying information, a more detailed exchange of STP information will follow including employers' ABN and contact information, year to date salary and wages (ie income, allowances, deductions, and employment termination payments), and pay period details (ie start and end dates, and payment dates). Note the employment commencement and cessation dates will be used to identify when the sharing of STP data is no longer necessary. Centrelink notes that data quality mechanisms will be implemented in this data matching program meaning that ATO will only provide data for mutual clients where it has "high confidence" that they have identified the correct individual. If an individual cannot be confirmed as a mutual client of interest of both the ATO and Centrelink, no STP data will be exchanged. Safeguards will be present where key data elements fail validation or there is unexpected or out of order payroll processing of STP data. This consists of quarantining the data from use or flagging the data to minimise misinterpretation. According to Centrelink, matching data is one of the key controls it uses to manage the risk of fraud and non-compliance. Specifically, in this case, this data matching program will: deter behaviours so individuals adhere to their obligations; support existing enforcement and recovery activities; and enable Centrelink to provide early intervention to educate customers about what information needs to be provided to meet their income reporting obligations.
With the country officially in recession, the ATO is getting ready to help businesses that are struggling due to the economic downturn caused by COVID-19. It expects that for the 2019-20 and 2020-21 years, many businesses that ordinarily turn a profit may be making a loss, and for some businesses it may be the first time that they are making a loss. Businesses that find themselves in a loss-making position are urged to keep proper records to ensure that they can claim the deduction they are entitled to. For sole traders or individual partners in a partnership, you may be able to offset your business losses against other assessable income (eg salary and wages or investment income) in the same income year if you meet at least one of the non-commercial loss requirements. If you do not meet any of the non-commercial loss requirements you can defer the loss or carry it forward and offset it when you next make a profit from your business. Businesses set up under a company structure that make a tax loss can generally carry forward that loss as long as they want and claim a deduction for when the business makes a profit in a future year. Generally, records will need to be kept for 5 years for most transactions, however, if a tax loss is fully deducted in a single income year, records will only need to be kept for 4 years from that income year. When calculating a business loss for the year, the ATO wants all taxpayers to double check their calculations to ensure that the expenses claimed are related to the business activity, apportionment (if any) has occurred, no private expenses have been claimed, and the amount is correct. Further, it notes that some deductions can't be used to create or increase a tax loss such as donations, gifts, and personal super contributions, so business owners should be careful. Business owners with businesses still temporarily closed due to COVID-19 restrictions nevertheless need to keep up with tax and super obligations according to the ATO. It says those businesses can ask for additional time or support if needed either from their tax professionals or from the ATO. For business owners intending to permanently close their businesses, any outstanding tax obligations will still need to be dealt with. For example, outstanding activity statements and instalment notices will need to be lodged, a final activity statement and final tax return will also need to be lodged in order for the ATO to finalise the account and issue any refunds your business is entitled to. The ATO says it is ready to assist businesses navigate the economic conditions caused by COVID-19, including not applying penalties and interest in certain circumstances.
The government has recently reintroduced a Bill to Parliament that proposes to increase the maximum number of allowable members from 4 to 6. The contents of the Bill were previously contained in the 2018-19 Budget and introduced into Parliament before being unceremoniously dropped due to lack to support from the Opposition at that time. The reintroduced Bill proposes to amend the relevant sections of the superannuation legislation to require an SMSF to have fewer than 7 members (currently it is fewer than 5) to satisfy the definition of an SMSF. This change, according to the government will provide flexibility to many SMSFs with aging members and those with larger families. By allowing more members, it is envisaged that families with up to four children can be a part of a single-family super fund to implement intergenerational solutions for managing long-term investments. It would also allow better planning around contribution caps and transfer balance account limits. For example, allowing 6 members in an SMSF could provide opportunities to improve cash flow by using the contributions of younger members to make pension payments to members in retirement phase, without needing to sell a long-term investment, whether that be a property or a stake in a business. Currently, the only option for families with more than 4 members is to create 2 SMSFs which increases compliance costs and complexity. Even though the proposal to allow more members in an SMSF is seen to be largely advantageous, anyone contemplating utilising this once it becomes law should be careful. One obvious drawback is that each member of an SMSF must also be a trustee of the fund, hence adding extra members will have implications for the fund's trustee arrangements. As an example, if a current 2 member SMSF (a couple of retirement age) add 3 of their adult children to the fund, it can add complexity to the fund's management and investment strategy as well as impact on who controls the fund in the event of a dispute. This is especially relevant in the event of the death of a member, as the surviving trustees have considerable discretion as to the payment of the deceased's super benefits (subject to any binding death benefit nomination). There have been many cases in recent years involving trustees of SMSFs after the death of the member mostly involving whether the deceased's super benefits ought to be paid to certain parties. Some of these cases have proceeded all the way to the Supreme Courts of their respective states, costing considerable time and money. Therefore, any decision to add extra members if this proposal becomes law should be carefully considered and not taken lightly.
The Federal Government has announced that it will extend the special rules applying to bankruptcy actions and director personal liability claims. The rules were implemented in March to prevent a wave of bankruptcies and court actions being caused by the pandemic economic downturn, before businesses had a chance to recover – the end date extended from 28 September to 31 December 2020. Normally, the bankruptcy rules apply to a debt of $5,000 or more. While the concessions in place, this is $20,000. In addition, if a creditor flags its intention to present a debtor's petition, the debtor is protected from enforcement action for 6 months (normally it is 21 days). There are also rules designed to protect directors of companies personally, termed a "safe harbour". It provides directors with relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business. Directors otherwise have an overriding duty to prevent insolvent trading. A director may rely on the safe harbour in relation to a debt incurred by the company if the debt is incurred: in the ordinary course of the company's business; during the period starting on 24 March and ending on 31 December 2020; and before any appointment of an administrator or liquidator of the company during this period. A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business. For example, a director taking out a loan to move some business operations online or to continue to pay employees during the pandemic. For companies struggling to pay their debts, the extension will be a welcome relief. The concessions are designed to provide time for businesses to get back on their feet and trade their way out of difficulty. A word of caution for those of you with customers struggling to pay debts – the extension may not be the remedy to their problems. The question is – can a customer get back on his or her feet? It might be sensible to review all debts and debtors to see if a different payment scheme is called for, eg pre-payments (with discounts), a retainer or annual fee, or a pre-agreed fixed monthly payment through direct debit. This is something that may be negotiated with long-standing customers or clients with whom you have a good understanding.
The government's super guarantee amnesty has now officially ended. If your business applied to the ATO and the application was received on or before the cut-off date of 7 September, your work isn't done yet. Remember, to retain the benefits of the amnesty, your business is required to either pay the amount in full or enter into and adhere to a payment plan for any unpaid amounts. So, if the ATO has advised your business that the disclosure you made was eligible for the amnesty, you must pay the super guarantee charge (SGC) amount disclosed in the amnesty application directly to the ATO. It shouldn't be paid to your employees' super funds or through a clearing house. Due to the current economic situation, it is understandable that many businesses are unable to make such payments in full. If your business finds itself in that situation, you can contact the ATO to establish a payment plan which allow you to retain the benefits of the amnesty. According to the ATO, payment plans include arrangements which have flexible payment terms and amounts and can be adjusted if your circumstances change. If you're on a payment plan, keep in mind that you can only claim a tax deduction for eligible amnesty payments made from 24 May 2018 to 7 September 2020. Any payments made after 7 September are not tax deductible. In situations where businesses are unable to maintain the agreed upon payment plan, the ATO notes that they will be disqualified from the amnesty and any amnesty benefits will be removed for unpaid quarters. Businesses will be notified in writing that their disclosure is disqualified from the amnesty and will have to pay the usual administrative and other penalties. If your business made an application for amnesty that was received by the ATO after 7 September 2020, it will be treated as a standard lodgement of a SGC statement. The ATO will notify your business in writing of the quarters that aren't eligible for the amnesty and charge you the administration component of $20 per employee per quarter. In addition, the ATO will consider your individual circumstances and decide whether the Part 7 penalty (up to 200%) should be remitted. The ATO has recently outlined a 4-step penalty remission process including consideration of a business' attempt to comply with SGC obligations, compliance history, other mitigating factors and circumstances (eg voluntary action prior to compliance action, illness of key employee etc), and any exceptional circumstances (eg natural disaster, severe illness etc).
If your small business has not only survived but thrived during the pandemic, you may be considering a change of business structure, typically from sole trader to more complex arrangements such as a company or trust structures. Any changes should be well thought-out and carefully implemented to avoid costly mistakes. Most small businesses are sole traders with the individual as the owner and controller of the business. While it is the simplest and cheapest business structure, sole traders are legally responsible for all aspects of the business. This means that debts and losses cannot be shared with other individuals, and while you can employ workers in your business, you cannot employ yourself. Hence, as a sole trader you cannot claim deductions for money taken from the business as "wages" even if you think of them as wages. Usually, as a sole trader, you would use your individual tax file number when lodging your income tax return, and report all your income using the section of business items to show your business income and expenses. The tax you pay will be at the same income tax rates as individual taxpayers although you may be eligible for the small business tax offset. If your business is ready to move to a more complex structure, a company structure may be for you. A company is a legal entity within itself and pays tax at the company rate which may be lower than the personal tax rate you would pay as a sole trader. It may also be eligible for small business concessions and provides some asset protection. The downside of a company structure includes higher set-up and administration costs and additional reporting requirements. Some of the common mistakes made by sole traders moving to a company structure include reporting income for the wrong entity (ie continuing to report income as a sole trader) and personal use of business bank accounts. As the company is a separate legal entity the money that the company earns belong to the company and individuals that control the business cannot take money out of the business except as a formal distribution of the profits or wages. If you decide to convert your sole trader structure into a company structure, you should be aware that if you use company assets as a director or shareholder, it must be treated as a benefit. Div 7A or FBT provisions could apply if you do not treat these benefits correctly. Setting up a trust is perhaps the most expensive option when considering a change in business structure as a formal deed is required outlining how the trust will operate and there are formal yearly administrative tasks for the trustee. Note a trustee is legally responsible for the operation of the trust and can be an individual or a company, but you opt for a company as a trustee, there will be additional set up costs. However, the benefit of a trust is the flexibility it affords the trustee to distribute income amounts to adult beneficiaries depending on the trust deed. In addition, if all trust income is distributed, the trust is not liable to pay tax and each beneficiary reports the income in their own tax return which may be advantageous if one or more beneficiaries are on a lower tax bracket.