As a part of the government's coronavirus economic response package, a provision was inserted into the Corporations Act 2001 to provide temporary relief (safe habour) for directors of financially distressed business from potential personal liability for insolvent trading. This was designed to counter the pressure on boards and directors to make quick decisions to enter into an insolvency process to mitigate the risks of insolvent trading during this economic downturn. If you're seeking to rely on this particular safe habour measure to protect yourself, any debt must be incurred: in the ordinary course of the company's business (ie it is necessary to facilitate the continuation of the business); during the 6-month period commencing from 25 March 2020 (or a longer period as prescribed by the regulations); and before any appointment of an administrator or liquidator during the temporary safe harbour application period. For holding companies, depending on whether certain conditions have been met, temporary relief may also extend to debts incurred by a subsidiary. Importantly, this temporary safe habour measure does not replace the existing safe habour provisions in the Corporations Act, and directors can still use those if they so wish. If you do choose to use the temporary relief regarding insolvency, remember you will bear the evidential burden to prove that the safe habour requirements have been met. It should also be noted that even though relief is provided from insolvent trading, this does not extend to relief from statutory and common law directors' duties. These duties include acting in the best interests of the company as a whole (ie interests of shareholders, creditors and employees), duty to act with care, diligence and good faith, and not to use a directors' position or information obtained as a director to gain an advantage or cause detriment to the company. Even if you're not a named director/officer of a company, these statutory and common law directors' duties may still apply to you if you have the capacity to significantly affect the financial standing of the company. While ASIC has recalibrated its regulatory priorities to focus on challenges posed by COVID-19 by suspending a number of near-term activities which are not time-critical, it will maintain enforcement activities and continue to investigate and take action where public interest warrants. According to ASIC, whether or not action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of making relevant decisions or incurring debts. Therefore, if you plan on using these safe habour provisions to get your business through the next 6 months, it may be prudent to seek the advice of an appropriately qualified adviser.
If your business is one of the tens of thousands of businesses to register for the JobKeeper payment early, there's good news, claims for the payment is now open. There are a few steps involved in claiming, so make sure you have all the relevant documents and supporting information before you start. Firstly, you will need to check whether your business and nominated employees (ie those who you're claiming the payment on behalf of) meet the eligibility requirements. To recap, an eligible employer is broadly one that has: carried on a business in Australia on 1 March 2020; employed at least one eligible employee on 1 March 2020; eligible employees are currently employed by the business for the fortnights the claims are for (including those who are stood down or rehired); the business has faced a fall in turnover of 30% for those businesses with an aggregated turnover of $1bn or less (note that businesses with an aggregated turnover of more than $1bn will need to demonstrate a 50% fall in turnover, while ACNC registered charities will only need to demonstrate a 15% fall in turnover). Note that the turnover calculation is based on GST turnover and applies even if your business is not registered for GST. If you're running your business as a sole trader, you'll also be eligible if your business has experienced a downturn according to the eligibility criteria. Remember the JobKeeper payment also applies to business owners that are actively engaged in the business or a director that is actively engaged in the business (including in the form of a company, trust or partnership). However, the payment is limited to one entitlement for each entity even if there are multiple business owners or participants. Secondly, you'll need to notify eligible employees that you intend to participate in the JobKeeper scheme. You'll also be required to send eligible employees an "Employee Nomination Notice" to complete and return to you to confirm that they agree to you being nominated as the employer to receive JobKeeper payments from. Thirdly, it is important to note that you will need to pay the minimum $1,500 to each JobKeeper eligible employee per fortnight starting from 30 March 2020 (ending 12 April 2020). Alternatively, you can make one combined payment of $3,000 for the first two fortnights paid by the end of April 2020. This means that you'll need to pay your employees first before the ATO pay your business in the first week of May 2020. Finally, when you've done all of the above, you will need to enrol for the JobKeeper using the Business portal and authenticate with myGovID.
As a part of the second round of COVID-19 stimulus, the government allowed individuals in financial distress to access a tax-free payment of up to $20,000 from their superannuation. While it may be a lifeline for many in these harsh economic times, before you take up this early release offer, it is best to consult a qualified professional about eligibility and the potential future impacts this may have on your retirement as well as other options available. If you're thinking of consulting a qualified professional, but don't have an existing relationship with a financial adviser, you may now be able to go and see your registered tax agent to get the advice that you need. ASIC has provided a temporary AFS licensing exemption to allow registered tax agents to provide certain financial product advice to their existing clients about the early release of super under the Coronavirus condition. To qualify for the exemption, other conditions include unsolicited contact, maximum advice fee of $300, Record of Advice requirements, and disclosure of potential conflicts of interest, commissions and remuneration. The exemption only applies to registered tax agents who are neither an AFS licensee nor a representative of an AFS licensee. If your tax agent is already authorised under an AFS licence to provide this type of financial product advice, then they are required to comply with the providing entity relief requirements in the Instrument. The ATO will be accepting applications for early release of super by individuals impacted by COVID-19 from 20 April 2020. An individual can make one application to access up to $10,000 (tax-free) in the 2019-20 financial year (ie by 30 June 2020). A second application for up to $10,000 can be made in the 2020-21 year (ie from 1 July 2020) until 24 September 2020. Applications can either be made online through the myGov website or over the phone with the ATO for those unable to access online services. The application itself requires the person to certify that they are eligible and includes information about the consequences of making false applications. The ATO has recently run a social media campaign asking people to observe the spirit of the legislation and only apply to release their super to deal with the adverse economic effects of COVID-19. It notes that taxpayers should not withdraw their super early and recontribute it to gain a personal tax deduction. Other methods of taking advantage of early release that have been floating around in mass media including salary sacrifice schemes would also presumably not be acceptable.
As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the government legislated a measure to boost cash flow for employers. To recap, the measure ensures that an eligible employer receives an amount equal to 3 times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter – both subject to minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year. The cash flow boost payments are only available to entities that qualified as small or medium entities for the income year for which they have been most recently been assessed. In other words, entities that have turnover less than $50m. Put conversely, there will be no cash flow boost payments for entities that have turnover greater than $50m. Note, there is also a withholding requirement (ie the payment will only be made to entities that first notified the Commissioner that it has a withholding obligation through the lodgement of a BAS or IAS for the period). Therefore, the key to the system is the BAS that entities lodge for March, either monthly or quarterly. Pretty much everything will be automatically generated from that. That BAS determines how much is paid, and when it is paid. A word of caution, however. The headline numbers (and dates) can be a tad misleading. It is not a minimum $10,000 payment that will be received, it is a minimum gross credit of $10,000 that taxpayers will be entitled to (in respect of the March BAS). This credit will be offset against of the liabilities that appear on the BAS and any debits in a taxpayer's RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO. Even assuming that the ATO owes the taxpayer money (ie a refund), it will not be paid on 28 April, but rather within 14 days of lodging the BAS. So, any hopes that a taxpayer holds that an amount of $10,000 is to be deposited into its bank account on 28 April will not be met. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment. Another important feature to note in the legislation is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The Tax Office has stated a "scheme" for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.
In line with various concessions provided to businesses to soften the blow of the COVID-19 pandemic, the ATO has now released the following details of concessions for self-managed super funds (SMSFs) as well as advice: SMSFs temporarily reducing rent - due to COVID-19, many landlords are voluntarily giving their tenants a reduction in rent or a waiver of rent to help them survive the economic downturn. As a consequence, the ATO has said it will not take compliance action for the 2019-20 and 2020-21 financial years where an SMSF gives a tenant, who is also a related party, a temporary rent reduction during this period. In-house asset restrictions - according to the ATO, if at the end of the financial year, the level of in-house assets of a SMSF exceeds 5% of a fund's total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5% or below. It notes that this plan must be prepared before the end of the next following year of income. For example, if your SMSF exceeds the 5% in-house asset threshold at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. Although due to the uncertainly in global recovery, the ATO has stated that it will not undertake compliance action if the rectification plan was unable to be executed because the market has not recovered, or it was unnecessary to implement the plan as the market had recovered. Investment strategies - the ATO notes that investment strategies should be reviewed regularly (at least annually) and any decisions arising from the review documented. It says certain significant events such as a downturn in the market should also prompt a review and update of investment strategies if required. If during this uncertain time, you make short-term variations in your SMSF investment strategy (including specified asset allocations whilst adjusting investments), the ATO will not consider that a variation from the articulated investment approach. Super balance losses - the ATO advises that while realised losses arising in an SMSF may be available to the fund to deduct against realised gains in future years, these losses are not available to individual trustee or beneficiary to deduct in their personal tax returns. Just as you don't return any profit made in your SMSF as assessable income in your personal tax return, you cannot claim a deduction for the loss in your super balance, the ATO says.
Further to yesterday's post, the Australian Taxation Office ('ATO') has now announced a temporary simplified short cut method to make it easier for individual taxpayers to claim deductions for additional running expenses incurred (e.g., additional heating, cooling and lighting costs), as a result of working from home due to the Coronavirus pandemic.
Based on the announcement, the ATO will allow individuals to claim a deduction for all running expenses incurred during the period 1 March 2020 to 30 June 2020, based on a rate of 80 cents for each hour an individual carries out genuine work duties from home. This is an alternative method to claiming home running expenses under existing arrangements, which we had previously discussed.
The 80 cents per hour method is designed to cover all deductible running expenses associated with working from home and incurred from 1 March 2020 to 30 June 2020, including the following:
- Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
- Cleaning costs for a dedicated work area.
- Phone and internet expenses.
- Computer consumables (e.g., printer paper and ink) and stationery.
- Depreciation of home office furniture and furnishings (e.g., an office desk and a chair).
- Depreciation of home office equipment (e.g., a computer and a printer).
This means that, under the 80 cents per hour method, separate claims cannot be made for any of the above running expenses (including depreciation of work-related furniture and equipment). As a result, using the 80 cents per hour method could result in a claim for running expenses being lower than a claim under existing arrangements (including the existing 52 cents per hour method for certain running expenses).
Furthermore, according to the ATO's announcement, under the 80 cents per hour method:
(a) there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a private study);
(b) multiple people living in the same house could claim under this method (e.g., a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method); and
(c) an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period. This record can include time sheets, diary entries/notes or even rosters.
As always if you need further clarification in relation to your personal situation please contact us.
With the majority of Australia now under lockdown to slow the COVID-19 pandemic, many employers are either encouraging their employees to work from home or have now instituted mandatory work from home policies. While working from home has its benefits, there may be extra expenses too, ranging from printing costs, the need for more internet data and perhaps even additional equipment. Depending on your circumstances, you may be able to claim a deduction for the additional running costs you incur, including expenses associated with heating, cooling and lighting in the area you are working from, work-related phone and internet, decline in value of a computer (work-related portion only), and decline in value of office equipment. To work out your expenses for heating, cooling, lighting, cleaning and the decline in value of furniture, you can either the fixed rate method or the actual value method. Under the fixed rate method, you keep records of your actual hours spent working at home for the year or keep a diary for a representative 4-week period to show your usual pattern of working from home. You can then claim a deduction at a rate of 52c for each hour that your work from home. The actual value method not only requires the keeping of a diary, you'll also need receipts to show the actual amount spent and will be required to work out the cost based on floor area as well as other factors. For phone and internet expenses, you can claim up to $50 without having to analyse your bills in detail. The rates you can use to work out the cost of your work calls are 25c for calls made from your landline, 75c for calls made from your mobile or 10c for text messages sent from your mobile. If you would like to claim more than $50, you will need to work out the percentage of work use over a 4-week period using a reasonable basis (ie the number of work calls made as a percentage of total calls). If you have a work issued computer or laptop, you cannot claim any decline in value for the computer, this also applies to any work issued office equipment such as additional screens, a keyboard or a mouse. However, if you have purchased your own equipment such as a telephone, a printer or a computer chair, you can claim the full cost of items up to $300 or decline in value (depreciation) for items over $300. This is provided the purchased equipment is used purely for work purposes. The depreciation that can be claimed depends on the effective life of the asset purchased and for any equipment that's used both for work and personal purposes, an apportionment may have to be undertaken. Work-related portion of other running expenses including computer consumables such a printer paper, ink and various stationery can generally be deducted outright.
In this latest round of Coronavirus stimulus, the government has bought out the big guns in an effort to help people keep their jobs amidst the economic downturn. The "JobKeeper Payment" is a part of a $130bn wage subsidy scheme that is designed to provide a fortnightly payment of $1,500 per employee. This new payment will be paid to employers, for up to 6 months for each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by the employer. Eligible employers include business structured through companies, partnerships, trusts, sole traders, and not-for-profits (including charities). Businesses with a turnover of less than $1bn must show that their turnover will be reduced by more than 30% relative to a comparable period a year ago (of at least a month) to be eligible for the payment. Businesses with a turnover of $1bn or more need to demonstrate that their turnover will be reduced by more than 50% relative to a comparable period a year ago (of at least a month). Employees that will be eligible for the payment are full-time and part-time employees, including stood down employees, self-employed individuals, and casual employees that have been with their employer for at least the previous 12 months. The eligible employee will also need to be either Australia residents, NZ citizens in Australia who hold a subclass 444 special category visa, migrants who are eligible for JobSeeker payment or Youth Allowance (Other). The program is now open for applications through the ATO, eligible employers need to include supporting information demonstrating the relevant downturn in the business. In addition, employers will also be required to report the number of eligible employees employed by the business to the ATO on a monthly basis. The first payments are expected to flow to eligible businesses in the first week of May as monthly arrears. According to the government, where employers participate in the scheme, they must pay eligible employees a minimum of $1,500 per fortnight before tax, even if the eligible employee ordinarily receives less than that amount. If an employee ordinarily receives more than $1,500, they should continue to receive their regular income according to their prevailing workplace arrangements. Individuals eligible for both the JobKeeper Payment and the JobSeeker Payment will only be eligible for one type of payment. In addition, where an employee has multiple employers, only one employer will be eligible to receive the payment. The employee will need to notify their primary employer to claim the JobSeeker Payment on their behalf. The claiming of the tax-free threshold will in most cases be sufficient notification that an employer is the employee's primary employer.
Following on from the Federal government's $17.6bn stimulus package unveiled last week for the coronavirus (COVID-19), some State governments have announced various concessions to support businesses and keep the local economy moving during this difficult and uncertain time.
- NSW - businesses with payrolls of up to $10m will have their payroll tax waived for 3-months. In addition, the government will also seek to bring forward the next round of payroll tax cuts by raising the threshold limit to $1m starting the 2020-21 financial year. For small businesses including bars, cafes, restaurants and tradies, the government will waive a range of fees and charges.
- Queensland - a new $500m concessional loan facility will be available and comprise of loans of up to $250,000 with an initial interest-free period for businesses to retain staff. In addition, payroll tax deferral of 6-months will be extended to all affected businesses across the state.
- Western Australia - household fees and charges will be frozen until at least 1 July 2021 (including electricity, water, motor vehicle charges, emergency services levy, and public transport fares). The energy assistance payment will be increased to $600 for eligible concession cardholders including pensioners. Small to medium businesses with a payroll between $1m and $4m will receive a one-off grant of $17,500 and the payroll tax threshold increase to $1m will also be brought forward to 1 July 2020. In addition, affected employers that pay $7.5m or less in Australian Taxable Wages can also apply to defer payment of their 2019-20 payroll tax until 21 July 2020.
- Tasmania - small businesses in the hospitality, tourism, seafood and exports sectors with a turnover of less than $5m will have access to interest-free loans for the purpose of purchasing equipment or restructuring business operations. Payroll tax will be waived for this financial year for hospitality, tourism and seafood industry businesses. Other affected small to medium businesses with an annual payroll of up to $5m in Australian Wages can also apply to have their payroll tax payment waived. A youth employment payroll tax rebate scheme will be implemented from 1 April 2020 and a one-off $5,000 grant will be provided to businesses that hire an apprentice or trainee. There will also be emergency relief payments to individuals and families as well as various other grants and measures to help the tourism sector, communities, front line workers, and metal health organisations.
ATO has recently announced that it will implement a series of administrative measures to assist taxpayers experiencing financial difficulty as a result of the coronavirus (COVID-19) pandemic. The measures that will apply is similar to those for taxpayers affected by the bushfires. However, one important point of difference is that while the bushfire measures applied automatically to particular geographical areas, assistance for those impacted by COVID-19 will not be automatically implemented. As such, taxpayers that have been affected will need to contact the ATO to discuss their situation in order to come up with a tailored support plan. Businesses on a quarterly reporting cycle for GST will be able to change their reporting and payment to monthly in order to get quicker access to GST refunds. However, the ATO notes that businesses can only make the change from the start of a quarter, so any changes now will take effect from 1 April 2020, and once a change is made you must keep reporting monthly for 12 months before you can elect to revert back to quarterly reporting. Additionally, businesses registered for fuel tax credits that change to a monthly GST reporting cycle will also need to claim fuel tax credits monthly. Another thing to note is that changing your GST reporting cycle to monthly doesn't mean you have to change your PAYG withholding reporting cycle, each is managed separately. Businesses that are quarterly PAYG instalment payers can vary their PAYG instalments on activity statement for the March 2020 quarter. To do this, they must lodge a revised activity statement before the instalment due date and before their tax return is lodged. Any business that vary their PAYG instalment rate or amount may also be eligible to claim a refund for any instalments made for the September and December 2019 quarters. In addition to the above, the ATO will defer by up to 4 months the payment date of amounts due through the BAS (including PAYG instalments), income tax assessments, FBT assessments and excise. It will also consider remitting any interest and penalties applied to tax liabilities incurred after 23 January 2020 for any businesses affected by COVID-19. Taxpayers that need help with paying existing and ongoing tax liabilities are encouraged to contact the ATO to arrange a low-interest payment plan. The ATO has also clarified that emergency accommodation, food, transport, medical or other assistance provided by employers to employees affected by COVID-19 may be exempt from FBT depending on the circumstances. However, despite the concessions offered, it notes that employers will still need to meet their ongoing super guarantee obligations for their employees. The ATO says by law, it cannot vary the contribution due date or waive the super guarantee charge where super guarantee payments are late or unpaid.