The SMSF Sector Has Been Growing By $62,400 Every Minute

The SMSF sector has been growing by $62,400 every minute

The latest annual statistical report from APRA has been released, covering the 2020 income year but only made public at the end of January 2021.

The SMSF sector has been growing by $62,400 every minute

Total superannuation industry assets were $2.9 trillion as at 30 June 2020. Of this total, $1.9 trillion was held by APRA-regulated superannuation entities and $0.7 trillion was held by self-managed superannuation funds (SMSFs), which are regulated by the ATO. The remaining $210 billion comprised exempt public sector superannuation schemes ($147 billion) and the balance of life office statutory funds ($63 billion).

The report of course mainly focuses on APRA-regulated superannuation funds in the retail and industry sectors, but the APRA statistics also make passing mention of the SMSF sector.

Over the five years from June 2015 to June 2020, this sector grew in total assets from $569 billion to $733 billion — an increase of $164 billion. For a bit of fun, you can think of that equalling roughly $89.8 million each day, $3.7 million each hour, or $62,404.87 every minute.

In terms of numbers, SMSFs over that period grew from 533,000 to 593,000 — a jump of 60,000 funds (therefore an establishment rate of just shy of 33 new funds every day).

As mentioned, the total size of the entire superannuation market is $2.9 trillion. The largest share of this pot of gold is held by industry funds, with 26% of the total. But a close second is the small funds sector, which includes SMSFs, small APRA funds and single-member approved deposit funds (ADFs), with a 25.6% share of the total. Next comes public sector funds (23.6%), retail funds (20.7%) and last are corporate funds, holding just 2%.

The statistics show that the annual rate of return for APRA-regulated entities for the year ended June 2020 was -0.9%. The five year average annualised rate of  return to June 2020 was 5.3%, and the 10 year average annualised rate of return to June 2020 was 6.9%.

The number of member accounts decreased by 11.7% over the year ended 30 June 2020, from 26.4 million to 23.3 million. This trend was driven to a significant extent, APRA says, by sweeps of inactive low-balance accounts made by the ATO under the Protecting Your Superannuation Package reforms. The average account balance for APRA funds at 30 June 2020 was $86,903. The average account balance was $77,479 for females and $95,257 for males.

 

Related Link:

APRA releases superannuation statistics for September 2020

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

New Director Identification Number Regime May Be Just Around The Corner

New Director Identification Number regime may be just around the corner

The Director Identification Number (DIN) regime may have been lost in many business owners’ peripheral vision, or even dropped off the radar completely, as it has been on the horizon for some time. But it is worth keeping in mind the ramifications of the measure, as the details could become important sooner than many realise, even before this year is out.

New Director Identification Number regime may be just around the corner

The legislation putting the regime in place has already been passed in June last year, but the scheme is not yet in operation. This is initiated by “proclamation”, which is required to happen within two years of the legislation becoming law.

The regime is part of the government’s “modernising business registers” program, which is intended to lessen corporate phoenix activity – the process of continuing business activity of a company that has been liquidated to avoid its debts — with the DIN regime increasing accountability by making directors traceable.

DINs will be recorded in a database that will be administered and operated by a registrar from an existing (yet to be determined) government agency. The registrar will have the power to issue DINs (once satisfied of a director’s identity) and the responsibility of recording, cancelling or re-issuing DINs. The Administrative Appeals Tribunal will have jurisdiction to review decisions made by the registrar.

Under the scheme, directors will be required to have their identity verified and have a unique and permanent identifier issued to them. Companies will need to put processes in place to ensure that all existing directors apply for a DIN within the prescribed timeframe once the regime is implemented. Also, companies will need to ensure that director appointment processes include the necessary steps for new directors to apply for a DIN. The number will continue to apply even if a director leaves their position.

Within the first 12 months following implementation, new directors will have 28 days after appointment as a director to apply for a DIN. Following this time, individuals must apply for a DIN before becoming a director. For existing directors, transitional provisions should provide a period during which they will need to obtain a DIN.

The regime is expected to have other benefits such as increasing the accessibility of important information that may assist administrators and liquidators. It is anticipated that the public will be able to search the registry and view a director’s profile, including any historic relationships with different companies. For example, if the director has had past involvement with insolvent trading, that information will be available on the registry.

The legislation introduced both civil and criminal penalties for a failure to apply for a DIN within the required time frame, with criminal penalties for deliberately providing false identity information or a false DIN to a government body and intentionally applying for multiple DINs.

The procedures and documents required to obtain a DIN are not included in the legislation, and will probably be set out in a separate announcement in the coming months. However administrative changes introduced by the scheme may have practical implications when appointing directors on an urgent basis. For this reason, businesses need to be aware of the coming changes so they will be ready to implement procedures to ensure compliance with the law and the timely appointment of directors.

 

Related Link:

Modernising Business Registers and Director Identification Numbers

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

 

Taken Goods for Private Use? Here’s the Latest Values.

Taken goods for private use? Here’s the latest values.

The ATO knows that many business owners naturally help themselves to their trading stock and use it for their own purposes.

Taken goods for private use? Here’s the latest values.

This common practice can occur in businesses such as butchers, bakers, corner stores, cafes and more.

It regularly issues guidance for business owners on the value it expects will be allocated to goods taken from trading stock for private use. The table at right shows these values for the 2019-20 income year.

The basis for determining values is the latest Household Expenditure Survey results issued by the Australian Bureau of Statistics, adjusted for CPI movements for each category.

Note that the ATO recognises that greater or lesser values may be appropriate in particular cases, and where you are able to provide evidence of a lower value, this should be used.

Type of  business Amount ($) 

(ex GST) for adult/child

>16 years

Amount ($) 

(ex GST) for child 4-16 years

Bakery 1,350 675
Butcher 850 425
Restaurant/cafe (licensed) 4,640 1,750
Restaurant/cafe (unlicensed) 3,500 1,750
Caterer 3,790 1,895
Delicatessen 3,500 1,750
Fruiterer/ greengrocer 880 440
Takeaway food shop 3,440 1,720
Mixed business

(incl milk bar, general store, convenience store)

4,260 2,130

 

Related Resource:

TD 2020/1

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Unexpected lump sum payment in arrears? There’s a tax offset for that!

Unexpected lump sum payment in arrears? There’s a tax offset for that!

Unexpected lump sum payment in arrears? There’s a tax offset for that!

A lump sum payment in arrears is a payment you may receive that relates to earlier income years. The tax offset that can be utilised with these sorts of payments works to alleviate the problem of a taxpayer being expected to pay more tax in a year when a lump sum of back payments is received — where they would be disadvantaged by paying more tax than if the income had been spread over several income years.

The general rule is that employment income is assessable in the income year it is received, regardless of the period the payment covers. This is still the case, however the tax offset works to restrict the amount of tax payable to the same “marginal” rate that would have applied if it were “received” in the tax year or years it relates to.

As the lump sum payment in arrears (LSPIA) is taxable in the year you receive it, it can impact your tax and non-tax entitlements such as:

  • student loans
  • child support and welfare payments.

You may also find that as a result you:

  • are in a higher tax bracket and pay more tax than you would have if you received the amount when you earned it
  • are in the same tax bracket and pay the same amount of tax as you would have if you received the amount when you earned it
  • are in a lower tax bracket and pay less tax than you would have if you received the amount when you earned it. 
  • have a new or increased Medicare levy surcharge obligation, because the lump sum pushes you over a Medicare levy surcharge threshold.

The ATO says taxpayers may be able to access the tax offset for certain payments, which usually relate to employment, compensation or welfare payments. To be eligible for the tax offset, a LSPIA must be 10% or more of your taxable income in the year of receipt after you deduct any:

  • amounts that accrued in earlier years (that is, this payment)
  • amounts received on termination of employment in lieu of annual or long service leave
  • employment termination payments (ETPs)
  • income stream and lump sum superannuation payments
  • net capital gains
  • any taxable professional income that exceeds the average taxable professional income.

The ATO notes that the calculation of this tax offset is complex, therefore, there is no online calculator.

 

Related Link:

Lump sum payments in arrears tax offsets

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

A Hand Up for Small Businesses on Cash Flow

A hand up for small businesses on cash flow

The ATO has produced a “Cash Flow Coaching Kit”, which is a free resource and designed as a value-add advisory tool for small business owners. It does not replace any existing accounting or financial tools, although it can be used to complement software accounting packages.

A hand up for small businesses on cash flow

With its tailored coaching conversations about cash flow management, the ATO’s kit can be particularly useful in times of financial stress. Cash flow problems continue to be a major issue for small businesses, and may indeed be more so after the past year of COVID woes.

Research shows: 

  • almost half of small businesses are under financial pressure within the first year, and this often increases into years two and three of business
  • 60% of small businesses cease operating within their first three to four years
  • 90% of small business failures are due to poor cash flow
  • small businesses who manage their cash flow effectively are more likely to succeed.

 

The resources in the kit can help small business owners better understand the actions they can take to manage their cash flow. This includes:

  • learning the fundamental concepts of cash flow
  • understanding how cash flows in and out of your business and ways to assess business viability
  • scenario planning to identify possible actions to improve performance by increasing cash in or reducing cash out in your business.

cash flow coaching kit

 

Related Link: 

Cash Flow Coaching Kit

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Vehicle Benefit FBT Treatment Changes Under COVID-19

Vehicle FBT changes under COVID-19

The special circumstances that coronavirus has thrown our way looks like having some very practical outcomes on certain areas of fringe benefits tax. One of the most prevalent and well-established category of fringe benefits centres on the provision and use of vehicles. The parking of a car, for instance, is a benefit that comes with very specific conditions regarding the taxable values that attract FBT.

Vehicle FBT changes under COVID-19

A work car park closes

If, on a particular day, a business’s office is closed due to COVID-19 and therefore the work car park is also closed, the employer will not have provided a car parking benefit as there will be no car space available for use by an employee for more than four hours between 7.00am and 7.00pm on that day.

The time during which the work car park is closed will not form part of the availability periods used to calculate the taxable value of a car space under the statutory method.

 

Closure of nearby commercial parking stations

If all of the commercial parking stations within a one kilometre radius of a business premises are closed on a particular day due to COVID-19, there will be no car parking benefits provided.

 

Reduced rates at commercial parking stations

If, on for example 1 April 2020, the lowest fee charged by all of the commercial parking stations within a one kilometre radius of a business premises for all-day parking was less than $9.15, the employer will not have provided a car parking benefit. For example, this may occur where all of the commercial parking stations have discounted their all-day parking rate due to COVID-19.

However, the reduced fee must not be substantially greater or less than the average of the lowest fee charged by a commercial parking station operator in the four weeks prior to 1 April 2020 or the four weeks after 1 April 2020. The ATO holds that the reduced fee is disregarded for the purpose of determining the lowest fee charged by a nearby commercial parking station if it does not meet this requirement.

 

Car returned to employer’s business premises

An employer won’t provide a car fringe benefit where a car is not supplied for an employee’s private use or taken to be available for an employee’s private use.

During a period of COVID-19 restrictions, a car that has been provided to an employee is not taken to be available for the employee’s private use if all the following apply:

  •  the car is returned to the business premises
  • the employee cannot gain access to the car
  • the employee has relinquished an entitlement to use the car for private purposes.

The ATO says some factors that indicate a car is not taken to be available for an employee’s private use during these restrictions include where:

  • the employer requests that the car be returned to the business premises
  • the employee does not have physical access to the car
  • the business consistently enforces a policy that an employee cannot gain access to the car
  • if the employee has made a choice to surrender the car, they cannot change that choice and obtain the ability to access the car
  • the car is returned to the business premises and the employer applies the car to a different purpose (although a separate car benefit may arise if the car goes to another employee who applies it for private use).

 

Garaging work cars at an employee’s homeGaraging work cars at an employee’s home

An employer may have been garaging work cars at employees’ homes due to COVID-19.

The employer may not have an FBT liability depending on:

  • the type of vehicle
  •  how often the car is driven, and
  •  the calculation method they choose for car benefits.

 

Log books 

A business’s employees’ driving patterns may have changed due to the effects of COVID-19. If an employer uses the operating cost method, they may have an existing log book. They can still rely on this log book to make a reasonable estimate of the business kilometres travelled. They can also choose to keep a new logbook that’s representative of business use throughout the year.

 

Related Link:

COVID-19 and fringe benefits tax

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Update Your ABN … or Miss Out!

Update your ABN … or miss out!

Government agencies regularly access data contained in the ABN registration, and where this is not up-to-date the taxpayer may be missing out on stimulus measures, grants, and other government support.

This became painfully evident during the 2019-20 bushfires, and is now re-surfacing during COVID-19 when it was found that a concerning amount of ABN data was out-of-date.

The ATO and the Australian Business Register are making efforts to remind businesses and relevant taxpayers that it is essential to ensure ABN registration details are accurate and completely up-to-date.

It is a business owner’s responsibility to make sure this is done. Once a business owner is aware of a change to the business, details on the register must be altered within 28 days. Updating ABN details will ensure:

  • the right people have the right permissions to act on behalf of a business
  • government agencies have current information – for example, if emergency services need to contact businesses during natural disasters
  • the entity is ready for new government services when they become available.

The fastest way to update details is through ABR online services. All changes made to your ABN online will take effect immediately. There is also a paper form that can be completed, and we can get a copy of this for you should you need it. Proof of identity may be required when you make changes to ABN details.

Note that a business can’t update:

  • business names
  • legal names for individuals and sole traders who need to contact the ATO directly
  • legal names for companies registered with the Australian Securities & Investments Commission (ASIC).

 

Related Resource:

Australian Business Register

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Natural Disasters and Help with Your Tax

Natural Disasters and Help with Your Tax

Now that we are into bushfire season, and with flooding events having already occurred, it is perhaps timely to be reminded that as well as the more obvious immediate devastation inflicted on people’s property, destructive events such as fires or floods can also mean loss of income for the affected people. This can come about not only directly, but also in terms of damage done to workplaces, income-earning tools of trade, vehicles and essentials such as computers and other equipment.

Natural Disasters and Help with Your Tax

The ATO says that if you are affected by natural disaster, such as bushfires, floods or storms, there is generally no need to worry about your tax affairs right away. It says it will give you time to deal with your more immediate problems first, and has a dedicated phone number (1800 806 218) to provide information about what support it can offer.

MORE TIME TO LODGE, PAY AND RESPOND

The ATO says that your tax obligations can generally be put to one side until you have dealt with the immediate effects of the disaster – whether you are affected yourself or are helping those affected. It can allow more time to settle tax debts, or if you are unable to lodge your return or activity statement, or cannot immediately deal with any other correspondence that may be currently on the table.

The ATO also says that if a business owner is unable to lodge a superannuation guarantee charge (SGC) statement, it can give you more time to lodge, although you will still be liable for the SGC and the nominal interest component will continue to accrue. You may be able to vary the amount of your next instalment if you are liable to pay under the Pay-As-You-Go instalments system.

EARLY ACCESS TO YOUR MONEY

If you are expecting a refund from an income tax return or activity statement, the ATO may be able to arrange for your refund to be issued as a priority. In limited circumstances, you may be able to access your superannuation to assist you and your dependants, but special consideration will need to be sought.

ASSISTANCE PAYMENTS

After a natural disaster, it may be the case that you receive assistance from government authorities, charitable institutions, employers, your family, a trade union or other sources. Most one-off assistance payments are tax free, but regular Centrelink payments remain taxable.

DAMAGED OR DESTROYED PROPERTY

If your property is damaged or destroyed in a disaster, you may receive an insurance payout if you had appropriate cover. How this is treated for tax purposes depends on the type of property and whether or not the property is income-producing. Repairs to income-producing properties are generally tax deductible in the year you incur them. However, this depends on the work you do restores it to its original condition or goes beyond remedying the damage to the point where it is an improvement or a complete replacement. Significant capital gains tax concessions may also apply. Talk to us for guidance in this regard.

RECONSTRUCTING YOUR TAX RECORDS

If your records have been lost or destroyed — whether you are an individual, in business, or responsible for a self-managed superannuation fund — talk to this office about how we can help. The ATO can also provide assistance to help reconstruct your tax records and make reasonable estimates where necessary.

FUEL TAX CREDITS FOR INDIVIDUALS, BUSINESSES AND OTHERS

Following a disaster, you may need to use taxable fuel (such as diesel or petrol) for generating electricity for domestic purposes; you may then be eligible to claim fuel tax credits. Businesses that are registered for goods and services tax (GST) can claim credits for the fuel tax included in the price of fuel used in eligible business activities to run machinery, plant, equipment and heavy vehicles. Non-profit organisations that are not registered for GST can claim credits for fuel used in operating emergency vehicles or vessels. Natural Disasters and Help with Your Tax- Fast Help

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

SINGLE TOUCH PAYROLL When Your Reporting Can Cease

SINGLE TOUCH PAYROLL When Your Reporting Can Cease

A business may no longer be required to lodge single touch payroll (STP) reports for a number of reasons. These are if your business no longer has employees, has ceased trading, has changed structure, is not paying employees for the rest of the year, or has paused due to COVID-19. Depending on your business’s situation and circumstances, what you need to do may be different.

SINGLE TOUCH PAYROLL When Your Reporting Can Cease

NO LONGER EMPLOYING STAFF

If you cease employing staff and continue trading without employees, you must submit a finalisation declaration to the ATO for all your employees as part of your STP reporting.

Once you do this, the ATO will pre-fill the employees’ income tax returns and display the information as “tax ready” in their myGov at the end of the financial year. You can make a finalisation declaration at any time during the financial year when you have ceased employing.

When you have finalised your STP obligations, you can cancel your pay-as-you-go (PAYG) withholding registration to let the ATO know that you are no longer employing staff.

If you are a sole trader, the requirements will be different. Ask this office for guidance if this is your situation.

 

CLOSING A BUSINESS

If you are ceasing trade, before you close your business and cancel your Australian business number (ABN), you must bring all your lodgement obligations up to date, including STP reporting.

As part of your STP reporting, you will need to make an STP finalisation declaration for all of your employees. Once you do this, the ATO will pre-fill the employees’ income tax returns and display the information as “tax ready” in their myGov at the end of the financial year.

You can make a finalisation declaration at any time during the financial year. When you have finalised your STP obligations, you can cancel your PAYG withholding registration to let the ATO know that you are no longer employing staff. Once this is done, you should cancel your goods and services tax (GST) and ABN registrations so the ATO knows you have ceased trading. Of course we can help you with all of this.

It is important that you finalise all outstanding STP reporting before you cancel your ABN and your software subscription, in order to meet your STP obligations. If you’re a company but no longer carry on a business, you can choose to keep your ABN registration. However, you must cancel your GST and PAYG withholding registration and lodge an STP finalisation declaration.

 

CHANGES TO YOUR BUSINESS STRUCTURE

If your business structure changes, the ABN and branch under which you have been generating your STP reporting may change. If this occurs, you must: 

  • finalise your STP reporting under the ABN and branch you have been using for your STP reporting
  • start your STP reporting under the new ABN and branch using zero year-to-date employee amounts.

It is important to finalise your STP reporting  under the ABN and branch before you lose access to it, or it is cancelled or deregistered.


NO PAYMENTS TO EMPLOYEES FOR THE REST OF THE YEAR
       

If you won’t be paying any employees for the rest of the financial year, or for a period greater than your reporting obligations, you should lodge a “No requirement to report” notification. To do this, lodging via the ATO’s Business Portal, select: “Manage employees”, then “STP deferrals and exemptions”, and select “No requirement to report”.

 

PAUSING YOUR BUSINESS DUE TO COVID-19

If your business has been paused due to COVID19 and, at present, you are not employing and not receiving JobKeeper payments, you should lodge a “No requirement to report” notification (as per the above process).

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Using SMSF to Acquire Assets from A Related Party

Using SMSF to Acquire Assets from A Related Party

Using SMSF to Acquire Assets from A Related Party

 

Can SMSF acquires residential property from related party?

Under the legislation of SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993, the trustee of a self-managed superannuation fund (SMSF) is not allowed from intentionally acquiring residential property from a related party of the fund, unless it is acquiring a business real property.

 

How to define a business real property?

As per ATO guidance – SMSFR 2009/1, property that is considered ‘Business Real Property’ can be acquired from a related party.

Business real property must:

  • Be real property
    • Any freehold or leasehold interest.
    • Any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer.
    • A demountable placed on land would not qualify as it is not real property in its own right.
      • If a structure is not a permanent part of the land, it is not real property in the true sense.
    • Does not include items such as plant, machinery, motor vehicles, etc.
  • Satisfy the “business use test”
    • Wholly and exclusively used in one or more businesses to the exclusion of other types of use.

The term “wholly and exclusively” means:

      • Used to an appreciable degree.
      • Minor part of property may not be used at all.
  • There are a few exceptions where a residential portion of the property is required for the business to sufficiently run, therefore, the property will still be considered business real property.

Examples:

    • Motels, Boarding houses & B&B.
    • Farms With up to 2 hectares of residential land.

 

Who is related party?

The definition of a “related party” is not restricted to individuals; it is in fact, much more far-reaching than that. Section 10 of the SIS Act specifies a related party to be any of the following:

  • A member of the fund
  • A standard employer-sponsor of the fund
  • A Part 8 associate of an entity referred to in either of the above

Many clients may not have doubts in regards to a member or a standard employer-sponsor of the fund, except part 8 associate of an individual. A part 8 associate of a member is of the following:

  1. A relative including but not limited to children, spouse, parents and lineal descendant;
  2. Other members of the SMSF;
  3. For a single member SMSF, any other trustee, or director of a corporate trustee;
  4. A business partner to the SMSF
  5. Spouse or child of the business partner
  6. A trustee of trust where the member controls the trust
  7. A company with major voting interest is held by the member or any other Part 8 associate of the member.

 

Can residential property be defined as Business Real Property?

In short answer, yes, but it is in limited circumstances as referred to the following example.

Mr Wood owns 20 residential units that are leased to long-term residents. Mr Wood manages and maintains the flats on a full-time basis living on the income generated from the leases. The units are not mortgaged. Mr Wood would like his SMSF to acquire some of the units rather than sell the units to a non-related party. The scale of the operation together with the elements of repetition and purpose indicate that Mr Wood is carrying on a property investment business. Even though the tenants use the properties for their own private or domestic purposes, this use remains incidental and relevant to Mr Wood’s property investment business. Consequently, Mr Wood’s interest in the property on which the units are built is business real property. Provided the acquisition takes place at market value, the units may be acquired by the SMSF without contravening the related party asset acquisition rule in section 66 SIS Act 1993.

 

Key Take Away

A business real property is a real property that is actively used in a business. Receiving rental income from an investment property is likely a form of receiving passive income. However, Mr Wood’s business scale is a vital factor to prove that he is carrying on a business.

In addition, SMSF is a special investment vehicle and is not supposed to carry on a business, it is important to consult SMSF specialists before you make investment decisions.

For any technical questions, or to find out about how our services can support your investment, please contact our team.

 

ATO Guidance:

SMSFR 2009/1: Self Managed Superannuation Funds Ruling

SMSFR 2010/1: Self Managed Superannuation Funds Ruling

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Getting A Tax Valuation From The ATO

Getting a tax valuation from the ATO

Not every individual situation fits neatly with the tax laws as they stand — sometimes a taxable item’s known value (and therefore the tax that applies to it) may need to be determined.

Getting a tax valuation from the ATO

Many tax laws require the taxpayer to determine the market value of something. Common instances include:

  • for individuals – transfers of real estate or shares between related parties, such as family members
  • for employees – non-cash benefit transactions, such as gifts or other benefits such as car parking
  • for small businesses – transfers of assets to related parties, or passing the asset threshold tests for the small business capital gains tax concessions
  • for property developers – the GST margin scheme
  • for businesses – consolidation events
  • for all taxpayers – many anti-avoidance provisions.

Particularly for capital gains tax purposes, there are a number of instances where a valuation may be necessary. In doing this, there are two choices:

  • ask the ATO to provide the valuation, or
  • provide the ATO with a valuation of the item and ask it to confirm that valuation.

The ATO may take the option to use a professional valuer to undertake or review your own valuation. The valuer usually charges the ATO a fee, which the law allows it to pass onto you. Consequently, if you apply for a private ruling requiring a valuation, it is also required that you pay for the work of the valuer.

The ATO says that for tax purposes, the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it. However, there are some exceptions. For example, only a professional valuer may undertake a market valuation for GST margin scheme purposes or for determining non-monetary consideration for GST purposes.

Acceptable valuations

Except for the most straightforward valuation processes, valuations undertaken by people experienced in their field of valuation would be expected to provide more reliable values than those provided by non-experts.

According to legal precedent, experts who assess market value should have specific knowledge, experience and judgement in that particular field. While professional qualifications may add weight to the valuer’s opinion, they should also display personal integrity and competence. To ensure the objectivity of the report, the valuer should be independent of the party commissioning the report.

The valuation process should be adequately documented; if it isn’t, the ATO may not accept the resulting value as a market value.

Whenever the ATO uses a professional valuer, it will first give an estimate of how much the valuer will charge. This amount is generally required to be paid before the ATO will proceed. If however the valuation work has already started, it will generally be required that you pay for the work already undertaken.

If you provide the ATO with a valuation that meets the requirements set out in ATO guidance Market valuation for tax purposes , it will generally cost less to confirm it than to undertake a new valuation.

If the ATO decides that the valuation you have provided is not acceptable, before it issues a private ruling the ATO will ask if you want to either:

  • submit a new valuation for review, or
  • ask the ATO to provide the valuation.

You will need to pay any further costs the professional valuer charges to the ATO. And if the ATO does not receive any such advice, it generally will issue a private ruling stating that your valuation is not acceptable and that it will not provide an alternative valuation.

What happens when applying for a private ruling about the value of an item?

When the ATO receives an application for a private ruling that asks to determine or confirm the value of a thing, the following occurs:

  • if it needs to use a professional valuer, before it starts the valuation process it will tell you, and ask you to agree in writing, to use a professional valuer
  • it will ask for your input when selecting and instructing a valuer
  • it will ask the professional valuer to provide a quote for the work – either to value the thing, or to review the valuation that has been supplied
  • the ATO will provide a copy of the valuer’s quote, which contains
    • the cost of their work
    • the time it will take to provide a report
    • any additional information they require to complete the work.

For complex valuation cases, the valuer may need to do the work in stages. In these situations, they will provide a quote for each stage before starting work on it. And before the valuer starts work, the ATO will ask you to:

  • pay the estimated amount for the relevant stage, and
  • provide any additional information the valuer requests.

Within 28 days of receiving the quote, you need to pay the quoted amount, which may be the whole amount or the amount for the stage in question.

The ATO generally does not ask the valuer to do the work until payment is received. Once the ATO receives your payment, it will:

  • ask the valuer to start the work, and
  • send you a receipt for your payment.

The receipt the ATO issues is also a tax invoice – for which you may be able to claim the GST included in the valuer’s fee as a GST credit. Also note that as the cost of the valuation work is considered to be a cost of managing your tax affairs, it may be deductible for income tax purposes.

The ATO will tell you:

  • when the valuation is finished or confirmed, and
  • if there are any changes to the final cost of the valuation or review.

It will then either:

  • refund any extra amount you paid, or
  • ask you to pay any shortfall.

If there is a shortfall, this will need to be paid this before the ATO will provide your private ruling. Generally however, it can complete your private ruling within 28 days of receiving the valuer’s report.

Private rulings involving a valuation may take longer than other private rulings because of the possibility of having to engage a professional valuer. Generally, the ATO will make contact within 14 days of receiving such an application to discuss an appropriate reply date.

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

JobMaker Hiring Credit: What You Need to Know

JobMaker hiring credit What you need to know

JobMaker hiring credit What you need to know

The JobMaker Hiring Credit scheme was passed into law in mid-November 2020. JobMaker was part of the 2020-21 Federal Budget, and will operate until 6 October 2021. It is designed to improve the prospects of young individuals getting employment, by incentivising employers to hire them, following the devastating impact of COVID-19 on the labour market.

The scheme will be backdated to commence on 7 October 2020 and provide eligible employers with the following payments for up to 12 months for new jobs created for which they hire the following young workers:

  • $200 a week for hiring a worker aged 16 to 29 on at least 20 hours a week, and
  • $100 a week for those aged 30 to 35.

Although the scheme is slated to run for just 12 months, that period is the hiring period – not the payment period. Eligible employers who hire an eligible employee on the last day of the scheme (6 October 2021), may be eligible for hiring credits for the subsequent 12 months until 6 October 2022.

EMPLOYER ELIGIBILITY

The criteria are broad (for example, having an ABN, being registered for PAYG withholding, being up-to-date with lodgement obligations, reporting through STP), however some employers are specifically excluded, as follows:

  • employers who are claiming JobKeeper
  • entities in liquidation or who have entered bankruptcy
  • federal, state, and local government agencies (and entities wholly owned by these agencies)
  • employers subject to the major bank levy
  • sovereign entities (except those who are resident Australian entities owned by a sovereign entity).

JOBMAKER PERIODS

Entitlement to a JobMaker Hiring Credit payment is assessed in relation to three-month periods known as “JobMaker periods”. These periods are relevant for the purposes of the additional criteria (see below). Each of the following is a JobMaker period (inclusive):

Period 1 7 October 2020 to 6 January 2021
Period 2 7 January 2021 to 6 April 2021
Period 3 7 April 2021 to 6 July 2021
Period 4 7 July 2021 to 6 October 2021
Period 5 7 October 2021 to 6 January 2022;
Period 6 7 January 2022 to 6 April 2022
Period 7 7 April 2022 to 6 July 2022
Period 8

7 July 2022 to 6 October 2022

ADDITIONAL CRITERIA

Key to the scheme is that employers must have hired additional eligible employees. The additional criteria for the first four JobMaker periods requires that there is an increase in:

  • the business’s total employee headcount (minimum of one additional employee) from the reference date of 30 September 2020; and 
  • the payroll of the business for the reporting period, as compared to the three-months to 30 September 2020.

The following is an example provided by Treasury for an increase in headcount:

Lisa employs two new staff, Emma aged 28 and Jessica aged 32, who both start on 7 January 2021 and meet the employee eligibility requirements.

Angus resigns from his job at Lisa’s business, effective as at 7 January 2021. When claiming for the March quarter reporting period (7 January 2021 to 6 April 2021), Lisa again compares her current situation to her baseline:

  • On 30 September 2020, her baseline headcount was 2 and her quarterly payroll was $30,000.
  • On 6 April 2021, her headcount was 4 and her payroll for the reporting period was $52,000.

For the March quarter reporting period, as her headcount is 2 above her baseline, Lisa can claim for the 2 additional positions. Lisa notifies the ATO through STP of the commencement of Emma and Jessica on 7 January 2021, and that Angus was no longer employed as at 7 January 2021.

ELIGIBLE EMPLOYEES

These are those who commenced employment between 7 October 2020 and 6 October 2021; were aged between 16 and 35 years at the time they commenced employment; have worked an average of 20 hours a week for each whole week the individual was employed by the qualifying entity during the JobMaker period. 

Additionally the worker must have met the preemployment condition, which requires that for at least 28 of the 84 days (that is, for 4 out of 12 weeks) immediately before the commencement of employment of the individual, the individual was receiving at least one of the following payments:

  •  parenting payment
  • youth allowance (except if the individual was receiving this payment on the basis that they were undertaking full time study or was a new apprentice), or
  • JobSeeker payment.

Note that the new worker must be in a genuine employment relationship. For example, “non-arm’s length” employees will not be considered eligible employees. This includes family members of a family business, directors of a company and shareholders of a company.

PARTICIPATION AND NOTIFICATION REQUIREMENTS

To be entitled to the JobMaker Hiring Credit payment in relation to a JobMaker period, employers must have notified the Commissioner in the approved form of its election to participate in the scheme no later than by the end of the period that the entity first elects to participate. For example, for an entity that elects to participate for the JobMaker period of 7 January 2021 to 6 April 2021, the notice must be provided to the Commissioner by 6 April 2021.

The reporting requirements will include the details of employees that have commenced or ceased employment during a JobMaker period and the entity’s payroll amount. The Commissioner will also specify that the information must be provided through the STP.

Related Link:

JobMaker Hiring Credit scheme

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

What Is a Recipient Created Tax Invoice?

What is a recipient created tax invoice?

Tax invoices are an essential element of Australia’s taxation system, and serve both to collect taxation revenue related to the goods and services on which GST is levied as well as record the credits that are  claimable by eligible businesses.

A business registered for GST will generally be required to hold a tax invoice for any transaction in order for an input tax credit to be claimed. The tax invoice can usually only be issued by the entity that made the taxable supply, however there are circumstances where, in order to secure access to input credit claims, the receiver of the services or goods can generate such an invoice. This is known as a recipient-created tax invoice (RCTI).

What is a recipient created tax invoice?

Note however that an RCTI can only be issued in circumstances that are ATO approved. The circumstances are typically those where for commercial or practical reasons it is appropriate for the recipient of a supply to calculate and/or issue an invoice. Government grants and trade-in contracts are typical RTCI examples.

You can issue an RCTI if:

  • you and the supplier are both registered for GST
  • you and the supplier agree in writing that you may issue an RCTI and they will not issue a tax invoice
  • the agreement is current and effective when you issue the RCTI
  • the goods or services being sold under the agreement are of the type that the ATO has determined can be invoiced using an RCTI.

Your written agreement can either be a separate document specifying the supplies, or you can embed this information or specific terms in the tax invoice.

To be valid, an RCTI must contain sufficient information to clearly determine the requirements of tax invoices and show the document is intended to be a recipient-created tax invoice, not a standard tax invoice.

In addition it must detail the purchaser’s identity or ABN. If GST is payable, it must also show that it’s payable by the supplier. As the recipient, you must:

  • issue the original or a copy of your RCTI to the supplier within 28 days of one of the following dates
    • the date of the sale
    • the date the value of the sale is determined 
  • retain the original or a copy of the RCTI
  • comply with your obligations under the tax laws.

You will need to stop issuing RCTIs once any of the requirements for issuing RCTIs are no longer met.

The ATO has supplied a template that you can use to generate an RCTI. See www.ato.gov.au/Forms/ Recipient-created-tax-invoices, or ask us for a copy.

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Claiming Interest Expenses for Rental Properties

Claiming Interest Expenses for Rental Properties

Interest is a common deduction claimed by taxpayers. Generally, interest is seen as being inherently deductible where it is incurred in gaining or producing assessable income.

An established factor from court cases is that the deductibility of interest depends on the purpose of and use of borrowing the principal. Interest expenses will not be deductible where money is used for a purpose that does not produce income, even if the money is borrowed by being secured over rent-producing property.

For rental properties, if you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. However, the property must be rented, or genuinely available for rent, in the income year for which you claim a deduction.

If you have a loan you used to purchase a rental property and also for another purpose, such as to buy a car, you cannot repay only the portion of the loan related to the personal purchase. Any repayments of the loan are apportioned across both purposes.

 

What can you claim?

You can claim the interest charged on the loan you used to:

  • purchase a rental property
  • purchase a depreciating asset for the rental property (for example to purchase a new air conditioner for the rental property)
  • make repairs to the rental property (for example roof repairs due to storm damage)
  • finance renovations on the rental property
  • you can also claim interest you have pre-paid for up to 12 months in advance.

Claiming Interest Expenses for Rental Properties

 

What can’t you claim?

You cannot claim interest:

  • for the period you used the property for private purposes, even if it’s for a short period of time
  • on the portion of the loan you use for private purposes when you originally took out the loan, or if you refinanced
  • on a loan you used to buy a new home if you do not use the new home to produce income, even if you use your rental property as security for the loan
  • on the portion of the loan you redraw for private purposes, even if you are ahead in your repayments.

 

Rental property owners should remember three simple steps when preparing their return:

Include all the income you receive

This includes income from short term rental arrangements (eg a holiday home), sharing part of your home, and other rental-related income such as insurance payouts and rental bond money you retain.

Get your expenses right

  • Eligibility – claim only for expenses incurred for the period your property was rented or when you were actively trying to rent the property on commercial terms.
  • Timing – some expenses must be claimed over a number of years.
  • Apportionment – Apportion your claim where your property was rented out for part of the year or only part of your property was rented out, where you used the property yourself or rented it below market rates. You must also apportion in line with your ownership interest.

Keep records to prove it all

You should keep records of both income and expenses relating to your rental property, as well as purchase and sale records.

 

Examples

Claiming part of the interest incurred

Kosta and Jenny take out an investment loan for $350,000 to purchase an apartment they hold as joint tenants. They rent out the property for the whole year from 1 July. They incur interest of $30,000 for the year. Kosta and Jenny can each make an interest claim of $15,000 on their respective tax returns for the first year of the property.

Interest incurred on a mortgage for a new home

Zac and Lucy take out a $400,000 loan secured against their existing home to purchase a new home. Rather than sell their existing home they decide to rent it out. They have a mortgage of $25,000 remaining on their existing home which is added to the $400,000 loan under a loan facility with sub-accounts; that is, the two loans are managed separately but are secured by the one property.

Zac and Lucy can claim an interest deduction against the $25,000 loan for their original home, as it is now rented out. They cannot claim an interest deduction against the $400,000 loan used to purchase their new home as it is not being used to produce income even though the loan is secured against their rental property.

Interest incurred on funds redrawn from the loan halfway through the year

Tyler has an investment loan for his rental property with a redraw facility. He is ahead on his repayments by $9,500, which he can redraw. Halfway through the year, Tyler decides to redraw the available amount of $9,500 and buys himself a new TV and a lounge suite.

The outstanding balance of the loan at that time is $365,000 and total interest expense incurred until then is $9,300. The total interest for the year is $19,000. Tyler can only claim the interest expense on the portion of the loan relating to the rental property using the following calculation: Total loan balance – redraw amount = rental property loan portion: 

That is: $365,000 – $9,500 = $355,500

To work out how much interest he can claim, he does the following calculation in respect of the period following the redraw:

Total interest expenses x (rental property loan portion ÷ loan balance at the time of the redraw) = deductible interest

That is: $9,700 x ($355,500 ÷ $365,000) = $9,448

Tyler can claim interest of $18,748, being $9,300 plus $9,448.

 

Related Source:

Rental Properties Borrowing Expenses 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Small Business CGT Concessions: Goal Posts Moved on Vacant Land and Active Assets

Small business CGT concessions: Goal posts moved on vacant land and active assets

Businesses wanting to claim CGT concessions for active assets may find hope in a recent Full Federal Court decision on a long-contested vacant land case.

Small business CGT concessions: Goal posts moved on vacant land and active assets

In 2007, the Administrative Appeals Tribunal (AAT) ruled that vacant land on which two shipping containers had been placed for storing business records did not qualify as an “active asset” for the purposes of the CGT small business concessions.

The AAT said that it could not accept that “the allowance of passively storing old records in two containers placed on the property can be regarded as using the land in the course of carrying on a business”, (that is, as an “active asset”, which is one of the conditions required to access the concession). However, following a recent decision of the Full Federal Court, the same conclusion may not be reached today.

In the recent case, the taxpayer sold adjacent land next to his home, which he used for storing work tools, work vehicles, equipment and materials for his building, bricklaying and paving business. The land also contained two large sheds, had a two-metre high brick wall and was gated. In addition, the taxpayer visited the land several times a day in between jobs to collect tools or other items to use in jobs.

In overturning the earlier decision to not allow the small business CGT concession to apply to the situation outlined above, the Full Federal Court unanimously held that the land was an “active asset” on the basis of a plain meaning of the legislation – namely, whether the asset was “used in the course of the carrying on of the identified business”. 

In doing so, it also emphasised the CGT small business concessions “should be construed beneficially rather than restrictively in order to promote the purpose of the concessions” and that the relevant legislation does not require the use of the asset to take place within the day-to-day or normal course of the carrying on of a business.

Accordingly, the Full Federal Court found that the judge in the first instance had erred in finding that the use of the asset must have “a direct functional relevance to the carrying on of the normal day-to-day activities of the business”.

The decision of the Full Federal Court now raises the strong prospect (if it did not already exist) that a business that purchases any form of real property (for example, vacant land or strata-titled space) to store and access business records would qualify for the concessions.

One could also readily imagine that, given the  coronavirus-induced  downturn in business, that an enterprise that, say, usually uses equipment on a day-to-day basis may acquire a vacant block of land to temporarily store the machinery that is not currently in use and also qualify for the concession.

Finally, consider the following scenario. A transport company that is currently operating at less than full capacity acquires vacant tracts of cheap land to park its trucks until the crisis subsides (and which it, say, visits regularly to ensure that the vehicles remain in some operational condition). Under the principles established by this decision, it would seem that this land would qualify as an active asset.

Of course it is recommended that advice be sought, as the small business CGT concessions are neither simple nor straightforward (and it can be seen that even the courts have come to varying conclusions).

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

 

Calling Time Out on Your Business? Some Essentials You’ll Need to Know

Calling time out on your business? Some essentials you’ll need to know

When you first went into business, either buying an established enterprise or starting from scratch, probably the last thing on your mind was the day you would close the door for the last time.

Calling time out on your business? Some essentials you’ll need to know

In a way, a business ending is inevitable, whether through the outcomes of COVID-19, retirement, health or, in another scenario, pursuing another career. But it’s important for you to know what’s involved when you come to the time when you close your business, as this can go a long way to smoothing the transition.

For starters, it’s important that all your tax issues are finalised before you cancel your Australian business number (ABN), which ceases that business. This allows the ATO to finalise your business’s account and issue any refunds that may be owing.

STEP 1: LODGEMENT AND PAYMENT

Make sure all lodgement and payment obligations are met, including:

  • outstanding activity statements
  • outstanding instalment notices
  • final fringe benefits tax returns
  • final income tax returns.

STEP 2: REFUNDS

Request any refunds for accounts with a final tax position in credit.

STEP 3: CANCEL PAY-AS-YOU-GO (PAYG) WITHHOLDING REGISTRATIONS

You can do this by phoning the ATO’s business line (13 28 66) and speak to a customer service representative, or complete an Application to cancel registration form (ask for “NAT 2955”). Or we can do this for you.

STEP 4: CANCEL THE ABN

This step must be completed after the first three steps, and will stop any problems with refunds being delayed and the need for the ATO to contact you (or this office on your behalf). The ABN needs to be cancelled within 28 days of your ceasing business through the Australian Business Register.

Cancelling the ABN will:

  • cancel registrations for goods and services tax (GST), luxury car tax, wine equalisation tax, fuel tax credits
  • cancel AUSkeys linked to the ABN
  • end all authorisations for the business in Relationship Authorisation Manager, preventing access to the online services using myGovID.

After cancelling the ABN, it will pay to keep in mind that you may have a PAYG instalment obligation through to the date of ceasing business, and may still receive instalment activity statements. You are able to vary your PAYG instalment amount if the amount or rate the ATO calculated doesn’t reflect your circumstances.

STEP 5: RECORD KEEPING

You need to keep business records for five years from when they were prepared or obtained, or from when the transactions or acts those records relate to were completed, whichever is later.

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

A Run-Down of the New Loss Carry Back Measure

A run-down of the new loss carry back measure

The last Federal Budget carried with it a number of tax changes that were designed to assist the Australian economy recover from the impact of the COVID-19 pandemic.

A run-down of the new loss carry back measure

Among the changes announced was the temporary re-introduction of the loss carry back rules for corporate tax entities (it was previously briefly in force for 2012-13). The ability to carry a loss backwards simply means that a loss incurred in one year can be, effectively, claimed as a tax deduction in a prior year when tax was paid.

The outcome is that the entity carrying the loss back will obtain a refund of tax in relation to the year when tax was paid. Some jurisdictions in the world, other than Australia, have the ability to carry losses backwards as a permanent feature of their tax system. At present, the changes set out below will only be in existence for a couple of years.

The explanatory memorandum to the enacting legislation states that under the temporary loss carry back refundable tax offset rules, a corporate tax entity with an aggregated turnover of less than $5 billion can choose to carry back a tax loss for the 2019-20, 2020-21 or 2021-22 income years and apply it against tax paid in a previous income year as far back as the 2018-19 income year.

The choice to claim a loss carry back tax offset is an alternative to carrying tax losses forward as a deduction for future income years. But note that only tax losses can be carried back — capital losses cannot be carried back because the capital gains tax regime operates on a “realisation” basis.

 

A STRATEGY OPENS

The Federal Government has introduced the ability for most entities (not only companies) to be able to fully expense an eligible depreciating asset (under various conditions) if it is held for the first time after Budget night on 6 October 2020 and before 1 July 2022.

The ability to fully expense, for tax purposes, the cost of a depreciating asset opens up the opportunity, for otherwise profitable companies, to be in a tax loss due to the purchase of a significant asset. If this occurs, the company may then be able to carry back the loss created from the purchase of the asset to a prior year where tax has been paid — the result of which could be a refund of tax.

No doubt there will be many incorporated business owners or boards of directors of companies that will be contemplating this strategy. It is way to save tax and receive a refund of tax without any fear of the general anti-avoidance rule of income tax applying.

 

THE MECHANISM

The benefit of being able to carry back a tax loss is delivered to the relevant entity by way of a refundable tax offset. In order to claim the tax offset, the taxpayer must be a “corporate tax entity” throughout the relevant income year and in the period between the loss year and the profit year that the loss is carried back to.

The corporate tax entity must have an aggregated turnover of less than $5 billion. The concept of “aggregated turnover” broadly takes in the turnover of connected and affiliated entities and adds this to the turnover of the particular corporate tax entity.

The choice to carry back losses must be made “in the approved form”. It is expected that this will be part of the tax returns for the years ending 30 June 2021 or 30 June 2022, depending on the circumstances. Accordingly, the tax offsets that will flow from the carrying back of losses will only be received following the lodgement of the tax returns for those years.

Carrying back tax losses is optional, and so it follows that if losses are made in one year and are carried back, there is no compulsion to carry back losses from a following year.

The new loss carry back rules contain an “integrity rule” (an anti-avoidance provision). There is some detail in these rules, however broadly the rules try to ensure that some continuity of ownership can be satisfied — that is, that the entity that incurred the loss should also be the one that has access to any benefits from these losses. An entity cannot carry back losses that have been transferred between companies. Also amounts of tax offsets to which a corporate tax entity is entitled, and which may in some circumstances be converted into an amount of a tax loss, cannot be carried back.

The aim of such integrity rules is to try to hold off what could be called egregious behaviour. In a very basic form, an example of the egregious behaviour at which the integrity rule is aimed can be as follows:

  • Shares in a company are sold to another party who will gain control of the company.
  • This occurs between the beginning of the gain year to which losses are to be carried back and the end of the loss year.
  • Then an entity, other than the company, obtains a financial benefit that is calculated by reference to a loss carry back offset to which the company is entitled.
  • A not incidental purpose of the share sale is to enable the company to obtain a loss carry back tax offset. 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

ATO Takes Aim at ‘You-Scratch-My-Back’ Auditing Arrangements

ATO takes aim at ‘you-scratch-my-back’ auditing arrangements

It has long been an accepted standard that the auditor of an SMSF needs to be independent of that fund, and be a third party entity to the SMSF.

ATO takes aim at ‘you-scratch-my-back’ auditing arrangements

This requirement is written into the relevant legislation. There have of course been breaches of this requirement, and instances where auditors and/or fund trustees have suffered administrative penalties or even disqualification for non-compliance in this area.

The more blatant breaches of the requirement to use a third party auditor involve someone auditing their own SMSF, or the fund of close family members. But another concern for the ATO relates to auditors who enter into arrangements that reflect that old idiom “you scratch my back, I’ll scratch yours”. The ATO has labelled these as reciprocal auditing arrangements, and has issued a warning about them.

It says that such arrangements arise where two or more auditors, each with their own SMSFs, agree to audit the other’s fund. The ATO likens the situation to the scenario of a two-partner practice where one partner takes on the work of auditing an SMSF of which the other partner is trustee.

In the view of both the ATO and ASIC, there is no realistic safeguard available for these very cosy arrangements, and no other way to view them than being non-independent.

But the ATO has identified another form of a reciprocal arrangement that it is taking active steps to closely scrutinise. This is where there can be two accounting practitioners who are also SMSF auditors. They each offer services and prepare the accounts for a number of SMSF clients, and come to an understanding that each will audit the funds that are on the other one’s books.

The concern the ATO has (and ASIC agrees with it) is the threat to independence from these reciprocal arrangements. The ATO says the problems that can arise include:

  • self-interest – an SMSF auditor may be influenced to vary their audit opinion or not report a contravention if they perceive this will influence the outcome of the audit on their own fund or if they fear a potential loss of business as a result
  • familiarity – an SMSF auditor having a close relationship with, or a high regard for, the other auditor may be influenced to ignore certain issues or to undertake a cursory and inadequate SMSF audit
  • intimidation – the other auditor’s knowledge or their industry contacts may influence the auditor to not report certain issues and to apply less scrutiny to the audit.

The ATO has indicated that approved SMSF auditors who continue to engage in reciprocal auditing arrangements will be subject to increased scrutiny. It warns that referral to ASIC may result if it considers SMSF auditors have failed to meet independence requirements.

 

Related Source:

Reciprocal auditing arrangements

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

JobKeeper Extension’s Alternative Turnover Tests

JobKeeper extension’s alternative turnover tests

JobKeeper extension’s alternative turnover tests

The extension of the JobKeeper scheme is now based on current GST turnover, not projected turnover.

The basic test compares year-on-year turnover. If there were events or circumstances outside the usual business settings that resulted in your relevant comparison period in 2019 (September or December 2019 quarter) not being appropriate, then an alternative test may apply.

However, if an entity satisfies the basic test, it does not need to satisfy an alternative test. Also, you only need to satisfy one of the alternative tests listed below even if more than one could apply.

The alternative turnover tests can be used to determine whether an entity has satisfied the actual decline in turnover test for the September 2020 quarter or the December 2020 quarter.

The ATO has provided alternative turnover tests for those businesses that don’t fit the usual parameters, which can then be applied to qualify for JobKeeper payments. The following are scenarios that may fit a number of situations. Ask us if these may help you business qualify.

  • Business that started after the comparison period started but before 1 March 2020
  • Business acquisition or disposal that changes the entity’s turnover
  • Business restructure that changed the entity’s turnover
  • Business that has had a substantial increase in turnover
  • Business affected by drought or natural disaster
  • Business that has an irregular turnover
  • Sole trader or small partnership with sickness, injury or leave
  • Business that temporarily ceased trading during the relevant comparison period. 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Rounding Of GST Where Fractions Of A Cent Result

JobKeeper extension’s alternative turnover tests

Rounding of GST where fractions of a cent result

 

The ATO has devised special rounding conventions where an amount of GST includes a fraction of a cent.

 

Although it labels these conventions “rules”, there is no obligation for parties on either side of a transaction to follow them, as the ATO states: “You and your customer do not need to use the same rounding rules.”

Where there is only one taxable sale on a tax invoice, the amount of GST should be rounded to the nearest cent (rounding upwards from 0.5 cents).

Where there is more than one taxable sale on a tax invoice, there are two conventions, dubbed by the ATO as the “total invoice rule” and the “taxable supply rule”: 

1. TOTAL INVOICE RULE

Under this rule, the unrounded amounts of GST for each taxable sale should be totalled and then rounded to the nearest cent (again rounding up from 0.5 cents). Alternatively, if all the taxable sales on a tax invoice
include an amount of GST that is exactly one 11th of the price, the business may choose to add up the GST- exclusive value of each taxable sale, calculate GST on that amount, and then round to the nearest cent.

2. TAXABLE SUPPLY RULE

This rule deems that the business needs to work out the amount of GST for each individual taxable sale. Where the unrounded amount of GST has more decimal places than a standard accounting system can record, the amount should be rounded up or down as appropriate. Then the individual amounts are added up, and this total is rounded to the nearest cent (again rounding up from 0.5 cents).

 

Related link:

Rounding of amounts of GST

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

The Investment Option That Can Hide Unexpected GST

The Investment Option That Can Hide Unexpected GST

The Investment Option That Can Hide Unexpected GST

New residential property is a popular investment for many, and can be especially so for self-managed superannuation funds, however the ATO is concerned that not every investor in residential property is fully aware that it is an option that may bring with it unexpected GST obligations.

 

The ATO says that from 1 July 2018, most purchasers must withhold an amount from the contract price at the date of settlement and pay it directly to the ATO. The sale price is paid to the property supplier. This applies to:

  • new residential premises
  • land that could be used to build new residential property (“potential residential land”).

Purchasers who engage a representative when buying new residential property will need to complete a signed declaration so the representative can lodge two required forms and pay GST on behalf of the purchaser.

Purchasers who have a GST withholding obligation must complete and lodge two forms:

  • when they sign the contract, lodge Form one: GST property settlement withholding notification using information from the supplier notification (see below)
  • when the property settles
    • lodge Form two: GST property settlement date confirmation, and
    • pay the GST withheld amount.

Ask us if you require these forms.

If there were any mistakes on Form two, the ATO should be contacted to have it cancelled before lodging a new form. If multiple properties are bought, lodging a new form for each property transaction will be required.

 

SUPPLIER NOTIFICATION

To complete Form one, the supplier (seller/vendor) needs to give the buyer a “supplier notification” so the purchaser knows whether or not there is a GST withholding obligation.

If there’s an obligation to withhold GST, the supplier notification must include:

  • the name and ABN of all suppliers
  • GST branch number (if applicable)
  • the amount of GST to be withheld (rounded down to the nearest dollar)
  • when the GST must be paid
  • GST-inclusive contract price (plus the GST inclusive market value of non-monetary considerations).

A supplier’s written notice can be relied on:

  • when it states a purchaser isn’t required to pay an amount to the ATO. In most states and territories the standard contract of sale clearly states if a purchaser is required to withhold GST or not
  • if the purchaser is unaware of an error on the notice and the supplier doesn’t tell them.

However, if the purchaser or their representative knows that a supplier is registered for GST and selling new residential premises, the ATO considers it unreasonable not to withhold and pay an amount to it at settlement.

The ATO has stated that it won’t retrospectively penalise purchasers who acted reasonably if it’s later found that a supplier hasn’t met their obligations.

 

Related Links:

GST at settlement

Supplier notification

 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Both Tax and SMSF Audits on Still on ATO’s Radar, But Some Leniency Given

Both Tax and SMSF Audits on Still on ATO’s Radar, But Some Leniency Given

While the ATO has lately been focusing on the rollout of stimulus measures, it has also flagged that audit work is not off the table completely.

In late July, when the ATO fronted a parliamentary Senate Select Committee on COVID-19, its representative said plans were to start tax audits sometime between September and October 2020. Time and efforts however were diverted to the rollout of the JobKeeper scheme and other stimulus measures, with the ATO sourcing staff for this work by redeploying people from initiating audits, saying it had been a “conscious choice” not to initiate new audits during the peak of the pandemic.

But that, as they say in the classics, was then — and this is now. The takeaway for everyone is that audits will not go away, and will come at some point, so taxpayers and SMSF trustees need to have their affairs in order.

It may therefore be worth recapping some of the main triggers for tax audits, which includes:

  • falling outside the ATO’s small business benchmarks
  • discrepancies between tax return income, and the income declared throughout the year on activity statements
  • failing to lodge activity statements or returns on time
  • underpayment of superannuation guarantee
  • lifestyle assets not matching income
  • business vehicles, but no FBT return is lodged, and
  • consistently showing operating losses.

For the SMSF sector, “reciprocal” SMSF auditing (where two auditors agree to audit each other’s funds) are expected to be an ATO focus when auditing gets back into full swing. 

In January 2020, the Australian Professional Ethical Standards Board (the body that oversees and issues standards that SMSF professionals should comply with) released guidelines regarding independence. These guidelines specifically spelled out a potential new direction regarding the independence standards expected for SMSF auditing practices. The guidelines state that an auditor cannot audit an SMSF where the auditor, their staff or firm has prepared its financial statements, unless it is a “routine or mechanical service”.

For firms that provide both accounting and auditing services, it may come down to many firms making a choice between providing one service or the other. The thing to be aware of is that the ATO has already flagged that the issue is already on its radar. It has however said it is not going to “commit compliance resources” until at least 2021.

 

No penalties for asset valuations if insufficient evidence

In the meantime, the ATO has stated that that it will not impose penalties if it is satisfied that an SMSF trustee finds it difficult to obtain the required valuation evidence for fund assets due to the impacts of COVID-19.

“If we are satisfied this was due to the impacts of COVID-19, the contravention will not result in penalties,” the ATO says. “Instead the trustee will receive a letter from us advising them to ensure they comply with our valuation guidelines and have supporting valuation evidence by the time of their next audit if possible, as repeated contraventions can lead to penalties.”

The rules state that it is not the auditor’s role to determine the market value of the fund’s assets but that it is the trustee’s responsibility to provide documents requested by their auditor which supports the market valuation for their assets. This is the area that is subject to ATO leniency for the COVID-19 conditions.

The ATO does advise however that auditors should consider the need to modify their audit report and lodge an auditor/actuary contravention report (ACR), if necessary, during the 2020 and 2021 financial years. The ACR should include the reasons why the trustee was unable to obtain the appropriate evidence. 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

ATO’s Cyber Safety Checklist

塔州会计师事务所

Scammers never seem to rest, with even the lastest JobKeeper iteration coming in for some scam treatment.

 

In a new update the ATO reports that it is receiving reports of email scams about JobKeeper and backing business investment claims. “The fake emails say we’re investigating your claims. They ask you to provide valuable personal information, including copies of your driver’s licence and Medicare card.”

 

During this time of heightened scam activity, the ATO is encouraging individuals and businesses to:

  • Use multi-factor authentication where possible and don’t share your password with anyone
  • Run the latest software updates to ensure operating systems security is current
  • Secure your private wi-fi network with passwords (not the default password) and do not make financial transactions when using public wi-fi networks
  • Exercise caution when clicking on links and providing personal identifying information
  • Only access online government services via an independent search – not via emails or SMS
  • If in doubt, call the ATO on an
  • independently sourced number to
  • verify an interaction
  • Educate your staff on cyber safety and
  • scams.

 

To report a data breach or scam visit online security 

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

 

What the “Full Expensing” Write-Off Deduction Means for Business

What the “full expensing” write-off deduction means for business

What the “full expensing” write-off deduction means for business

The Federal Budget measure of allowing businesses to fully write-off eligible assets is a boon to Australian businesses, even though the measure is temporary.

Just to recap, businesses with aggregated annual turnover of less than $5 billion will be able 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.

Full expensing” in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small- and medium-sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second-hand assets.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off. Also businesses that hold assets eligible for the existing $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The rules that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended.

 

Some existing conditions remain

The small business entities capital allowance provisions has always contained a section that permits assets that cost below a certain value to be written off 100% in the year the asset is first used or is installed ready for use for a taxable purpose. Initially, this amount was $1,000 but it has been subject to significant change in recent years.

On 12 March 2020, the Federal Government made announcements about stimulus packages intended to ameliorate the impending economic impact of COVID19. If, in the period beginning on 12 March 2020 and ending on 30 June 2021, a small business taxpayer started to hold an asset and started to use it or have it installed ready for use for a taxable purpose, and the asset cost $150,000 or more, the decline in value deduction in relation to the asset for the year is 57.5% with the remaining amount being added to the general small business pool.

The new full expensing rules, applicable from Budget time on 6 October 2020, means that there is no limit on the cost of an eligible asset that can be written off by 100%. The backing business investment initiative will still be applicable to assets costing $150,000 or more and that were held and installed ready for use in the period 12 March 2020 to 6 October 2020.

The general small business pool is, broadly, a running total of the costs of fixed assets acquired by a small business entity that have not yet been depreciated and deducted for tax purposes. The pool, due to its method of operation, spreads the cost of assets over a number of years for tax purposes. The pool balance is added to when new assets are acquired and reduced when depreciation tax deductions are claimed, and balancing adjustment events occur. The “termination value” of an asset to which a balancing adjustment event has occurred is subtracted from the pool.

The small business capital allowance provisions have always contained a de-minimus provision that permits the total value of the pool to be written off when it falls below a certain value.

 

Meeting the required conditions

A number of conditions must be satisfied for assets to be full expensed. First of all the asset must be used in a business. Accordingly the full expensing of assets does not apply to an employee who has purchased a work-related asset. Also no balancing adjustment event must occur to the asset in the current year.

Note also that some assets are excluded such as capital works and assets allocated to a software development pool.

In most circumstances, a depreciating asset is “held” when the taxpayer becomes the legal owner of the asset, which is frequently not at the time of purchase or order. The taxpayer must start to use the asset, or have it installed ready for use, for a taxable purpose in the year (“the current year”) in which the taxpayer wants to write-off 100% of the cost of the asset.

 

Anti-avoidance provision

It must be the case that the entity did not have a pre-commitment to acquire the asset prior to Budget night on 6 October 2020. Further, the asset must not have been held prior to that time. If a business had already entered into a commitment or had, in fact, purchased such an asset prior to that time, there is an obvious tax planning technique that could be engaged in to enable the new full expensing rules to apply to the asset.

The strategy targeted is where an order is cancelled and the business enters into a new purchase contract after 6 October. If an asset had already been held, the asset can be sold and a new one purchased after that time. Due to this, the new rules contain an anti-avoidance provision that seeks to prevent this type of tax planning where the asset acquired after Budget night on 6 October 2020 is “identical or substantially similar” to the asset that was purchased or held prior to that time. Also, the actions engaged in by the taxpayer must be for the purpose of ensuring the asset started to be held at or after Budget time. 

 

Other considerations

One important point is that when an asset on which full expensing has been claimed is later disposed of for consideration, that the full amount of the consideration will need to be returned as assessable income due to a balancing adjustment event.

So, the new full expensing legislation does not give a taxpayer any extra tax deductions. It just gives them sooner than before.

For most business entities, particularly small businesses, the depreciation recognised for accounting purposes is often equal to that claimed for tax purposes. With assets being able to be fully expensed for tax purposes, it could come about that a business will re-consider whether this is the best accounting policy. The full expensing of assets obviously lowers profits and might, artificially, put a business into a loss situation.

Depending on who uses the financial statements of the business, having a poor accounting result may not be desirable. For example, financiers might prefer to see a better accounting outcome than might result if full expensing of assets is adopted for accounting purposes.

In arm’s length partnerships, a proper accounting for the depreciation of fixed assets may give a more palatable outcome when it comes to distribution of profits. If partners are being admitted or are departing, the business owners may prefer a profit and loss statement that shows a fair depreciation of fixed assets rather than an artificial tax number.

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Federal Budget 2020-21

Federal Budget(20-21)

We all understand that budgets are an exercise in predicting the future. Given what has happened in 2020, gazing into the crystal ball and extracting something reliable is fraught with difficulty.

Federal Budget (20-21)

The Treasury has given its best estimate, but we also need to appreciate that budgets are usually never 100% on target — that’s the nature of budgets. The question is, by how much? It will be remembered as Australia’s biggest spending budget with a forecast deficit of $214 billion for the 2021 fiscal year.

The big news for business is the temporary full expensing of capital assets. From now until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.

As expected, the adjustments to tax rates that were originally due for implementation in the year ending 30 June 2023 have been brought forward to apply from 1 July 2020. Below is a table of the new tax rates.

The third stage of the tax cuts which are to apply from 1 July 2024 will still apply from that date. Additionally:

  • The Low and Middle Income Tax Offset (LMITO) will be retained for the 2020-21 income year.
  • The Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will  then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

 

BUSINESS BUSINESS

FBT exemption to support retraining and reskilling

The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for retraining and reskilling benefits provided by employers to redundant, or soon- to-be redundant, employees where the benefits may not be related to their current employment.

Currently FBT is payable where an employer provides training to redundant or soon-to-be redundant employees and that training does not have sufficient connection to their current employment. This measure will provide an FBT exemption for a broader range of retraining and reskilling benefits, incentivising employers to retrain redundant employees to prepare them for their next job.

 

Reducing the FBT compliance burden of record keeping

In a most welcome move, the Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns.

Individual tax rates for residents

2020–21; 2021–22; 2022–23; 2023–24 tax thresholds
Taxable income Rate (%) Tax on this income
$0 – $18,200 0 Nil
$18,201 – $45,000 19 19c for each $1 over $18,200
$45,001 – $120,000 32.5 $5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000 37 $29,467 plus 37c for each $1 over $120,000
$180,001 + 45 $51,667 plus 45c for each $1 over $180,000

Increase to small business entity turnover threshold

The Government will expand access to a range of small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.

Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will, for the first time, have access to up to 10 further small business tax concessions in three phases:

  • From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure. 
  • From 1 April 2021, eligible businesses will be exempt from the 47% fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees. This concession already exists in the FBT law but now multiple work-related items can benefit from the concession.
  • From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise- equivalent customs duty monthly on eligible goods under the small business entity concession.
  • Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs. 
  • From 1 July 2021, the Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

 

R&D TAX INCENTIVER&D TAX INCENTIVE

For small companies – those with aggregated annual turnover of less than $20 million – the refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed.

For larger companies – those with aggregated annual turnover of $20 million or more – the Government will reduce the number of intensity tiers from three to two. This will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D.

The R&D premium ties the rates of the non-refundable R&D tax offset to a company’s incremental R&D intensity, which is R&D expenditure as a proportion of total expenses for the year. The marginal R&D premium will be the claimant’s company tax rate plus:

  • 8.5 percentage points above the claimant’s company tax rate for R&D expenditure between 0% and 2% R&D intensity for larger companies.
  • 16.5 percentage points above the claimant’s company tax rate for R&D expenditure above 2% R&D intensity for larger companies.

The Government will defer the start date so that all changes to the program apply to income years starting on or after 1 July 2021, to provide businesses with greater certainty as they navigate the economic impacts of the COVID-19 pandemic.

 

TEMPORARY “FULL EXPENSING” DEDUCTION FOR BUSINESSESTEMPORARY “FULL EXPENSING” DEDUCTION FOR BUSINESSES

Businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT 6 October 2020 (Budget night) and first used or installed by 30 June 2022.

“Full expensing” in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small- and medium-sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second- hand assets.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off. Businesses that hold assets eligible for the existing $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended.

 

 CORPORATE RESIDENCY TEST TO BE CLARIFIEDCORPORATE RESIDENCY TEST TO BE CLARIFIED

The Government will make technical amendments to clarify the corporate residency test. The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

 

TEMPORARY LOSS CARRY-BACKTEMPORARY LOSS CARRY-BACK

The Government will allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018- 19 or later income years.

Under these measures, corporate tax entities with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.

The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit.

The tax refund will be available on an election basis by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

 

VICTORIA’S BUSINESS SUPPORT GRANTS TO BE NANEVICTORIA’S BUSINESS SUPPORT GRANTS TO BE NANE

The Federal Government will make the Victorian Government’s business support grants for small- and medium-sized business – as announced on 13 September 2020 – non-assessable, non-exempt (NANE) income for tax purposes.

The Federal Government will extend this arrangement to all states and territories on an application basis. Eligibility would be restricted to future grants program announcements for small- and medium-sized businesses that are facing similar circumstances to Victorian businesses.

The Government will introduce a new power in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income. Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

 

SuperannuationSUPERANNUATION

Unintended superannuation accounts erode members’ balances through unnecessary fees and insurance premiums. For the first time, Australians will automatically keep their superannuation fund when they change employers. “Stapling” the super fund to the employee will ensure that their super follows them when they change jobs, stopping the creation of unintended multiple accounts.

Commencing 1 July 2021, the Your Future, Your Super package will improve the superannuation system by:

  • Having your superannuation follow you; preventing the creation of unintended multiple superannuation accounts when employees change jobs.
  • Making it easier to choose a better fund; members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings.
  • Holding funds to account for underperformance; to protect members from poor outcomes and encourage funds to lower costs the Government will require superannuation products to meet an annual objective performance Those that fail will be required to inform members. Persistently underperforming products will be prevented from taking on new members.
  • Increasing transparency and accountability; the Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require superannuation funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.

 

Housing HOUSING

First home buyers

An additional 10,000 first home buyers will be able to purchase a new home sooner under the extension to the First Home Loan Deposit Scheme. The additional 10,000 places will be provided in 2020-21. This will allow first home buyers to secure a loan to build a new home or purchase a newly built dwelling with a deposit of as little as 5%, with the Government guaranteeing up to 15% of a loan.

Boost for housing supply

The Government will increase its guarantee of the National Housing Finance and Investment Corporation (NHFIC) by $1 billion, enabling NHFIC to increase its bond issuance into the wholesale capital market.

Exempting granny flat arrangements from CGT

A targeted capital gains tax (CGT) exemption for granny flat arrangements will be provided where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability.

This measure arises from concerns that the current CGT rules impede the creation of formal and legally enforceable granny flat arrangements. It’s aimed at removing these CGT impediments and reducing the risk of abuse to vulnerable older Australians. However, the proposed measures will only apply to agreements that are entered into because of family relationships or other personal ties, and will not apply to commercial rental arrangements.

 

Employment and trainingEMPLOYMENT AND TRAINING

JobMaker Hiring Credit

A new JobMaker Hiring Credit scheme will be available to employers from 7 October 2020 for each new job they create over the next 12 months for which they hire an eligible young person. For each eligible employee, employers will receive for up to 12 months:

  • $200 a week if they hire an eligible young person aged 16 to 29 years; or
  • $100 a week if they hire an eligible young person aged 30 to 35 years. 

Eligible young job seekers will have received JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one of the previous three months at the time of hiring. Employers must demonstrate that they have increased their overall employment to receive this payment for up to 12 months for each position created. To claim the JobMaker Hiring Credit, employers need to report their employees’ payroll information to the ATO through Single Touch Payroll.

Job Trainer

The $1 billion JobTrainer Fund matches funding between the Commonwealth and state and territory governments. The fund will support up to 340,700 additional free or low-fee training places in areas of genuine need.

Adding to the $2.8 billion Supporting Apprentices and Trainees Wage Subsidy, which supports existing apprentices and trainees through to 31 March 2021, the Government is adding a further $1.2 billion in a Boosting Apprenticeships Wage Subsidy, which will support up to 100,000 new apprentices and trainees by paying a 50% wage subsidy, up to a cap of $7,000 per quarter, for commencing apprentices and trainees at businesses of all sizes, in all industries. But it runs out 30 September 2021.

Regional recovery and tourism

The Government will invest over $250 million for a Regional Tourism Recovery Package. Regional communities will see $200 million in grants through the Building Better Regions Fund, with $100 million of the fund earmarked for tourism-related infrastructure projects that will boost regional tourism.

Tourism regions particularly hard hit by the international border closures, like Tropical North Queensland and Tasmania, will benefit from $51 million over two years to attract domestic visitors. Also $100 million over two years will go towards Regional Recovery Partnerships to coordinate investments with other levels of government and support recovery, diversification and growth in 10 regions across Australia such as the Snowy Mountains, Kangaroo Island, and the Hunter.

A commitment of $50.3 million will go towards expanding the Rural Health Multidisciplinary Training Program and investing in increased training and infrastructure for the rural health workforce. Capability on the ground will also be improved through $5.7 million in new support for Building Resilient Regional leaders.

To make sure primary producers can get their high- quality perishable products into overseas markets while flights remain limited, the Government is providing an additional $317 million to the International Freight Assistance Mechanism.

To aid farmers, $156 million over four years will help them recover from the current drought and prepare for future droughts. This includes $19.6 million to extend the National Drought and North Queensland Flood Response and Recovery Agency for another year. It will also provide a further $2 billion in drought concessional loans.

The Government is also providing targeted support to the fishing and forestry industries by waiving $10 million of fees on Australia’s fishing industry, and $25 million to haul salvaged logs to timber mills that survived the bushfires.

The Government will provide $17.4 million to expand the Relocation Assistance to Take Up a Job Program, including for those who temporarily relocate to take up agriculture work.

 

ManufacturingMANUFACTURING

The Modern Manufacturing Strategy will see $1.3 billion go to the Modern Manufacturing Initiative. With this funding, the Government will co-invest with leading manufacturers to help them achieve scale, commercialise world-leading research, and connect to international markets. Another $107 million is to be directed at a Supply Chain Resilience Initiative to identify and address supply chain vulnerabilities.

Small and medium manufacturers can access $52.8 million in a second round of the Manufacturing Modernisation Fund. This will help manufacturers scale- up, invest in new technologies, create and maintain jobs and upskill their workers. A further $50 million is being provided to Industry Growth Centres to deliver immediate support to manufacturing priority industries.

 

 Environment ENVIRONMENT

The Government is banning the export of waste plastic, paper, tyres and glass. It will invest $249.6 million over four years to modernise recycling infrastructure, reduce waste and recycle more. This includes a $190 million Recycling Modernisation Fund, which will invest in new infrastructure to sort and recycle plastic, paper, tyres and glass waste. Another $47.4 million will be dedicated to protect marine health.

 

Health and Families HEALTH AND FAMILIES

The Government has invested $3.2 billion in personal protective equipment (PPE) and it is also providing $112 million for the continuation of Medicare-rebated telehealth services for GP, allied health and specialist consultations to ensure ongoing access to essential health services.

It is providing an additional $746.3 million to support senior Australians in aged care, workers and providers to respond to the COVID-19 pandemic. This includes $245 million for a COVID-19 Support Payment to assist providers with additional costs and $205.1 million for the Workforce Retention Bonus Payment for frontline aged care workers.

Further support for older Australians who wish to stay at home for longer will be provided through $1.6 billion for an additional 23,000 home care packages across all package levels.

Additional funding will provide access to an extra 10 Medicare-subsidised psychological therapy sessions for people with a mental health care plan.

Funding for the National Disability Insurance Scheme (NDIS) has been guaranteed, as the Government is providing a further $3.9 billion to the NDIS.

Funding of $102 million over four years from 2020- 21 for veteran mental health and well-being initiatives includes:

  • $94.3 million to improve mental health outcomes and ensure high-quality care for our older veterans and their families by increasing fees paid to mental health, social work and community nursing providers
  • $7.4 million to expand Open Arms counselling services and the Coordinated Veterans’ Care program.

The Government will invest $453 million to extend the National Partnership Agreement on Universal Access to Early Childhood Education until the end of 2021. In 2020-21, it will pay approximately $9 billion in the means-tested Child Care Subsidy payments.

Budget-Details

 

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

2020-21 Lodgment Rates and Thresholds

2020-21 Lodgment Rates and Thresholds

To save you having to laboriously search for the right tax rate or relevant threshold, the essential information is right here in one place.

This guide includes tax rates, including individual minor and non-resident rates, corporate rates, offset limits and benchmarks, rebate levels, allowances, and essential super as well as FBT rates and thresholds (including current gross-up factors) and student loan repayment rates. There is also essential Medicare information and foreign currency exchange information.

Individual tax rates

Individual tax rates for residents

2019-20 Tax thresholds
Taxable income Rate (%) Tax on this income
$0 to $18,200 0 Nil tax payable
$18,201 to $37,000 19 19c for each $1 over $18,200
$37,001 to $90,000 32.5 $3,572 plus 32.5c for each $1 over $37,000
$90,001 to $180,000 37 $20,797 plus 37c for each $1 over $90,000
$180,001 and above 45 $54,097 plus 45c for each $1 over $180,000
2020-21 Tax thresholds
Taxable income Rate (%) Tax on this income
$0 to $18,200 0 Nil tax payable
$18,201 to

$45,000

19 19c for each $1 over

$18,200

$45,001 to

$120,000

32.5 $5,092 plus 32.5c for each $1 over $45,000
$120,001 to

$180,000

37 $29,467 plus 37c for each $1 over $120,000
$180,001 and above 45 $51,667 plus 45c for each $1 over $180,000

Individual tax rates for non-residents

2019-20 Tax thresholds
Taxable income Rate (%) Tax on this income
$0 to $90,000 32.5 32.5c for each $1
$90,001 to $180,000 37 $29,250 plus 37c for each $1 over $90,000
$180,001 and above 45 $62,550 plus 45c for each $1 over $180,000
2020-21 Tax thresholds
Taxable income Rate (%) Tax on this income
$0 to $120,000 32.5 32.5c for each $1
$120,001 to

$180,000

37 $39,000 plus 37c for each $1 over $120,000
$180,001 and above 45 $61,200 plus 45c for each $1 over $180,000

2020-21 Resident minors’ tax rate on eligible taxable income

Taxable income Tax on this income
Up to $416 Nil
$417 to $1,307 66% for the part over $416
$1,308 and above 45% on the entire amount

2020-21 Non-resident minors’ tax rate on eligible taxable income

Taxable income Tax on this income
Up to $416 32.5% on the entire amount
$417 to $663 $135.20 + 66% for the part over $416
$664 and above 45% on the entire amount

Tax Offsets

Tax offsets for individuals

2020-21 Low Income Tax Offset
Taxable income Tax offset
Up to $37,500 $700
$37,501 to $45,000 $700 – (5% of excess over

$37,500)

$45,001 to $66,667 $325 – (1.5% of excess over $45,000)
$66,668 and above Nil
2020-21 Low and Middle Income Tax Offset
Taxable income Tax offset
Up to $37,000 $255
$37,001 to $48,000 $255 plus 7.5c for each $1 over $37,000
$48,001 to $90,000 $1,080
$90,001 to $126,000 $1,080 less 3c for each $1 over $90,000
$126,001 and above Nil
2020-21 Senior Australian and Pensioners Tax Offset (SAPTO)
Family status Maximum tax offset Shade-out income threshold Cut-out income threshold
Single $2,230 $32,279 $50,119
Married or de facto (each) $1,602 $28,974 $41,790
Separated due to illness

(each)

$2,040 $31,279 $47,599
Note: Offset entitlements reduce by 12.5c for each $1 of rebate income in excess of the shade-out threshold. No entitlement when rebate income reaches the cut-out threshold.

Corporate tax rates

2020-21 Corporate entity tax rates

Rate

Private and public companies  (base rate entities) 26%
Private and public companies (other) 30%
Public trading trusts  (base rate entities) 26%
Public trading trusts (other) 30%
Life Insurance companies
  Ordinary class 30%
  Complying superannuation class 15%
Non-profit companies (base rate entities)
  First $416 of taxable income Nil
  Taxable income $417 to $832 55% of excess over $416
  Taxable income $833 and above 26%
Non-profit companies (other)
  First $416 taxable income Nil
  Taxable income $417 to $915 55% of excess over $416
  Taxable income $916    and above 30%

FBT rates and thresholds

FBT rates and thresholds

FBT and gross-up rates
FBT year Rate Type 1 Type 2
2019-20 47% 2.0802 1.8868
2020-21 47% 2.0802 1.8868

Car fringe benefits

Statutory formula method 
The statutory fraction is 20%
Taxable value of a fringe benefit of a motor vehicle other than a car (c/km basis)
FBT year ending 0 to 2500cc Over 2500cc Motor- cycles
31 March 2020 55c 66c 16c
31 March 2021 56c 67c 17c
Record keeping exemption
2020-21            $8,853 2019-20            $8,714
FBT – Benchmark interest rate
2020-21             4.80% 2019-20              5.37%
Car parking threshold
2020-21               $9.15 2019-20              $8.95

Division 7A – Benchmark interest rate

2020-21              4.52% 2019-20              5.37%

Improvement threshold

2020-21         $155,849 2019-20        $153,093

Cents per km car rates

2020-21     72c per km 2019-20     68c per km

Motor vehicles

2020-21

2019-20

Luxury car tax limit $68,740 $67,525
Fuel efficient luxury car tax limit $77,565 $75,526
Car depreciation limit $59,136 $57,581
Maximum input tax credit claim for cars $5,376 $5,234

Medicare

Medicare

2020-21 Medicare levy
Levy is 2% of an individual’s taxable income.
2019-201 Medicare levy for families  with dependants
Number of dependants2 Family taxable income $
Nil levy payable Reduced levy shade-in range

(10% of excess over nil band)

Normal 2% payable
0 To

$38,474

$38,475  to $48,092 $48,093 and above
1 To

$42,007

$42,008  to $52,508 $52,509 and above
2 To

$45,540

$45,541  to $56,924 $56,925 and above
3 To

$49,073

$49,074  to $61,340 $61,341 and above
4 To

$52,606

$52,607  to $65,757 $65,758 and above
5 To

$56,139

$56,140  to $70,173 $70,174 and above
6 To

$59,672

$59,673  to $74,589 $74,590 and above
1: And later years unless amended.

2: For more than 6 dependant children and/or students add $3,533 per child/student.

2019-201 Medicare levy surcharge
Income*: Single Income*: Family** Rate
$0-$90,000 $0-$180,000 0%
$90,001-$105,000 $180,001-$210,000 1%
$105,001-$140,000 $210,001-$280,000 1.25%
$140,001 & above $280,001 & above 1.5%
*  Includes taxable income, reportable fringe benefits, reportable super contributions, net investment losses, exempt foreign income and any net amount subject to family trust distribution tax.

**Threshold increases by $1,500 for each additional dependent child after the first.

2019-201 Medicare levy reduction threshold
Taxable income Medicare levy payable
$0 to $22,801 Nil
$22,802 to $28,501 10% of excess over $22,801
$28,502 & above 2% of taxable income
2019-201 Medicare levy threshold: Individuals who qualify for the SAPTO2
Taxable income Medicare levy payable
$0-$36,056 Nil
$36,057-$45,069 10% of excess over $36,056
$45,070 & above 2% of taxable income
1: The taxable income ranges and rates for 2020-21 are expected to be released in June 2021.

2: The pensioner tax offset and the senior Australians tax offset were merged from 1 July 2012.

Superannuation

2020-21 Superannuation rates & thresholds

SLS1 low rate cap amount (indexed) $215,000
SLS1 untaxed plan cap amount (indexed) $1,565,000
Life benefit ETP 2 cap (indexed) $215,000
Death benefit ETP 2 cap (indexed) $215,000
Tax-free part of a genuine redundancy payment or early retirement scheme payment (indexed) $10,989
For each completed year  of service add $5,496
Government co-contribution (max $500)
    Lower income threshold $39,837
    Higher income threshold $54,837
Transfer balance cap $1.6m
Contribution caps
    Concessional (indexed) $25,000
    Concessional

(temporary, non-indexed)

$25,000
    Non-concessional $100,000
    CGT cap (indexed) $1,565,000
    Non-concessional with bring      forward option (non-indexed) Up to $300,000
Division 293 threshold for high income earners $250,000
Carry forward concessional contributions – total superannuation balance at end of previous financial year Less than $500,000
Work test exemption – total superannuation balance at end of

previous financial year

Less than $300,000
1: Superannuation Lump Sum (SLS)

2: Employment Termination Payment (ETP)

2020-21 Super rates and thresholds cont

Superannuation Guarantee (SG)
   Prescribed minimum employer     contribution rate 9.50%
   Maximum contribution base     (per SG quarter) $57,090
Minimum account based pension withdrawal
   Under 65 years 2%
   65 to less than 75 years 2.5%
   75 to less than 80 years 3%
   80 to less than 85 years 3.5%
   85 to less than 90 years 4.5%
   90 to less than 95 years 5.5%
   95 years and over 7%
Transition to retirement maximum withdrawal 10%

2020-21 Preservation age table

Date of birth
   Before 1 July 1960 55
   1 July 1960 to 30 June 1961 56
   1 July 1961 to 30 June 1962 57
   1 July 1962 to 30 June 1963 58
   1 July 1963 to 30 June 1964 59
   1 July 1964 or later 60

Foreign currency exchange rates

Foreign currency exchange rates for the financial year ended 30 June 2020

Country Average rate for the year Nearest actual rate at year end Currency
Foreign currency equivalent to $1 Australian
China NA 4.8523 Yuan
Europe 0.6217 0.6111 Euro
Japan 74.3606 73.9400 Yen
New

Zealand

1.0736 1.0703 NZ dollar
Singapore 0.9512 0.9576 Singapore dollar
UK 0.5462 0.5586 Pound sterling
USA 0.6878 0.6863 US dollar
Note: For a complete list of countries, see the 2020-21 Tax Summary at 22.340.

Study and training loan repayment thresholds

2020-21 Study and training loan repayment thresholds and rates: HELP, VSL, SFSS, SSL, ABSTUDY SSL AND TSL

HELP repayment income Rate
Below $46,620 Nil
$46,620 to $53,826 1.0%
$53,827 to $57,055 2.0%
$57,056 to $60,479 2.5%
$60,480 to $64,108 3.0%
$64,109 to $67,954 3.5%
$67,955 to $72,031 4.0%
$72,032 to $76,354 4.5%
$76,355 to $80,935 5.0%
$80,936 to $85,792 5.5%
$85,793 to $90,939 6.0%
$90,940 to $96,396 6.5%
$96,397 to $102,179 7.0%
$102,180 to $108,309 7.5%
$108,310 to $114,707 8.0%
$114,708 to $121,698 8.5%
$121,699 to $128,999 9.0%
$129,000 to $136,739 9.5%
$136,740 and above 10.0%

 

Note: All information is current as at 8 October 2020.

Disclaimer: This tool is a guide only. Independent legal, financial and/or tax advice is recommended.

 

mnygroup.com.au

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

 

SMSF Regulations To Allow Six Members Under New Legislation

A bill has been introduced into Parliament that partially implements a measure to allow an increase in the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six.

First floated in the 2018-19 Federal Budget, the remainder of the measure is to be implemented through regulations. The bill also amends provisions that relate to SMSFs and small APRA funds to ensure continued alignment with the increased maximum number of members for SMSFs.

The reasoning behind the move is that SMSFs are often used by families as a vehicle for controlling their own superannuation savings and investment strategies. For families with more than four members, the only real options in the incumbent arrangements are to create two SMSFs (which incur extra costs) or place their superannuation in a large fund. The government says the change will help large families to include all their family members in their SMSF.

In some instances, the number of individual trustees that a trust can have may be limited to less than five or six trustees by state legislation. Such rules could prevent some or all members of a fund with five or six members from being individual trustees. In such cases, the members of a fund can use a corporate trustee in order for the superannuation fund to meet, or continue to meet, the amended definition of an SMSF.

Currently, if an SMSF has more than one director member, its accounts and statements for a year of income must be signed by at least two members in their capacity as individual trustees or as a director of a corporate trustee. As there cannot be more than four members of an SMSF under the current rules, these requirements ensure that all members sign the accounts and statements of SMSFs with one or two members.

For SMSFs with three or four members, at least half of the members must sign its accounts and statements for an income year.

Under the updated requirements, an SMSF with one or two directors or individual trustees must have its accounts and statements signed by all of those directors or trustees. For all other SMSFs (that is, those with between three and six directors or trustees), the accounts and statements of the SMSF must be signed by at least half of the directors or individual trustees.

This approach maintains the standard under the previous provisions for funds that have between one and four directors or trustees, and extends the requirement that at least half of the directors or trustees sign the accounts and statements of an SMSF with either five or six directors or trustees.

Note that at the time of writing the change to allow six members was not yet law

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Fears of Div 7A Danger From COVID-relaxed Loan Repayments Unfounded

The ATO has clarified its position regarding loans, and the repayments of loans that may have been put on hold for the period that COVID-19 has a grip on the economy and our lives.

An important sidebar to the ATO’s announcement is the implications regarding Division 7A — just in case you have had some stress about possible Div 7A outcomes because a creditor has not insisted on payment.

Deemed Dividend in Normal Circumstances

In normal circumstances, if a private company forgives a debt, it is considered a deemed dividend under Division 7A — “a debt is forgiven if a reasonable person would conclude a creditor will not insist on payment or rely on the borrower’s obligation to pay”.

But the ATO states that “allowing more time to replay a debt due to COVID-19 will not result in the debt being treated as forgiven”.

Further, it says: “If a creditor only postpones an amount payable and the debtor acknowledges the debt, a debt is not considered forgiven. This is unless there is evidence that the creditor will no longer rely on the obligation for repayment.”

Note also that just before the new financial year, the ATO issued an announcement entitled Request to extend time to make minimum yearly repayments for COVID-19 affected borrowers. It said, in part: “As a result of the COVID-19 situation, we understand that some borrowers are facing circumstances beyond their control. To offer more support, we’ll allow an extension of the repayment period for those borrowers who are unable to make their MYR” (minimum yearly repayment).

Relating as it does to a possible inability of borrowers under Division 7A loan agreements to make the minimum yearly repayment required due to the COVID19 economic situation, the announcement provided a procedure whereby a borrower who is unable to make repayments on a Division 7A loan can request an extension of time to make the minimum yearly repayment.

The benchmark interest rate for Div 7A purposes, by the way, is 4.52% for the income year ending 30 June 2021, the ATO has announced, and is relevant to private company loans made or deemed to have been made after 3 December 1997 and before 1 July 2020 and to trustee loans made after 11 December 2002 and before

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

New Data Matching Programs Initiated By The Federal Government

Over the first quarter of this financial year, the government has initiated two new data matching programs, using data that the ATO holds.

How ATO data matching program works

Data matching involves bringing together data from different sources and comparing it. For example, records from different agencies or businesses are compared, with the results possibly identifying people who are being paid benefits to which they may not be entitled, or people who may not be paying the right amount of tax.

Data matching in the past

For the ATO’s part, it can collect data from financial institutions or other agencies and match this with its own information, which is sourced from income tax returns, activity statements and other tax records. In the past, data matching activities have focused on, for example:

  • the total credit and debit card payments received by businesses
  • information on sellers using online selling platforms
  • details of payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator.

The ATO then matches this data with information held in its databases to identify any discrepancies.

This time however, the focus is to be on data held by Services Australia (the government body that became the executive agency in February this year in the Social Services portfolio responsible for health, social and welfare payments and services — known by most as Centrelink).

New data matching programs

Of the two new programs, one will be looking specifically at comparing information held by the ATO in relation to the JobKeeper payment and information reported to Services Australia’s “customers” in relation to social security payments.

The aim, as described in the notice announcing the program, is to uncover people who may be registered for both the JobKeeper program and social security payments, and “identify social security customers who may need extra support to correctly declare their income, to help prevent them getting an overpayment”.

A “protocol document” describing the program was developed in consultation with the Office of the Australian Information Commissioner, where it is stated: “This program involves the agency receiving a data file from the ATO which will contain a list of all employees who have been nominated for JobKeeper payment by an eligible employer. The agency will then undertake a matching process of this data against the agency’s social security payment customers and claimants.”

It says the matching process compares the following fields of data of each payee:

  • tax file number
  • family name
  • given name
  • additional name (other name)
  • date of birth.

The other exchange of data involves comparing information held by the ATO in relation to Single Touch Payroll (STP) and Services Australia’s databases. The aim this time is to enable:

  • comparison of pre-filling employer details (as reported through STP) onto Services Australia online services for review by customers,
  • the supporting of timely confirmation of employment and establishment of child support employer withholdings (where appropriate),
  • the identifying where there is a significant difference between STP income and the estimate the customer has provided to Services Australia, and nudging the customer to suggest that they revisit their income estimate,
  • the supporting of existing debt recovery processes, including the contacting of customers with whom contact has been lost,
  • analysis of the data with a view to improving Service Australia’s processes.

Again a protocol document describing the program was provided, which states that the data matching program “will exchange personal information and employer/ employee relationship and payroll data between Services Australia and the ATO where there is a mutual relationship for the individual”.

It says part of the objectives of the exercise is to:

  • support customers by prompting them to update their income estimates to assist them to receive the right rate of payment at the right time
  • reduce employer burden by minimising the contact that employers must have with Services Australia to provide payroll information for activities like:
    • establishing child support employer withholding and
    • existing debt recovery processes
  • assist Services Australia with discussion with noncurrent customers to determine their capacity to repay a debt.

ATO advice

ATO advice, if anyone thinks they’ve made a mistake or left something out, is to contact either the ATO or their registered tax adviser to correct the mistake or to amend any previously supplied data. “You can also make a voluntary disclosure – we may reduce or even waive penalties if you make a disclosure before we contact you,” the ATO says.

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

JobKeeper Rules, Conditions and Payment Rates Have Changed

Legislation has been put in place to extend the JobKeeper scheme beyond its original sunset date, although the rates of payment and certain other details have been altered. The scheme is now to run until March next year, with one version lasting until 3 January and another version in place from then until 28 March.

Enrollment

Businesses that have been enrolled in JobKeeper do not need to re-enrol to participate in the extended scheme, but the decline in turnover test has now changed from projected GST turnover to actual GST turnover. The decline in turnover percentage remains unchanged at 30% (or 15% for not-for-profits and 50% for entities with more than $1 billion aggregated turnover).

Re-test of Eligibility

Businesses will need to re-test their eligibility with reference to their actual turnover in the September quarter 2020 to be eligible for JobKeeper fortnights 14 to 20 (28 September 2020 to 3 January 2021).

Businesses are generally expected to assess eligibility based on details reported in their BAS, with alternative arrangements put in place for businesses that are not required to lodge a BAS.

Lodgement Time Frame

Worth noting however is that as the deadline to lodge a BAS for the September quarter or month is in late October, and the December quarter or month BAS deadline is in late January for monthly lodgers or late February for quarterly lodgers (or later under tax agent extensions), businesses will need to assess their eligibility for JobKeeper in advance of the BAS deadline. This may indeed put a great deal of pressure on businesses to complete their turnover results for the September 2020 quarter, but rest assured we are here to help.

Businesses will need to retest their eligibility with reference to their actual turnover in the December quarter 2020 to be eligible for JobKeeper fortnights 21 to 26 (4 January 2021 to 28 March 2021).

As with the first version of JobKeeper, the ATO will have discretion to set out alternative tests that would establish eligibility in specific circumstances where it is not appropriate to compare actual turnover in a quarter in 2020 with actual turnover in a quarter in 2019. The wage condition, based on the tier into which the eligible employee or business participant falls (see below), will continue to be required.

JobKeeper Fortnights 14 & 15

For JobKeeper fortnights 14 and 15, the ATO has extended until 31 October 2020 the time a business has to pay employees in order to meet the wage condition, so that they have time to first confirm their eligibility for the JobKeeper payment. And note that businesses that did not previously join the original JobKeeper scheme can join the new version of JobKeeper if they meet the eligibility criteria.

Payment Amount and Period

The new JobKeeper is a two-tiered payment arrangement based on average hours worked, on an employee-by-employee basis, in the four weeks of pay periods before either 1 March 2020 or 1 July 2020. See the table below for the payment tiers.

The period with the higher number of hours worked is to be used for employees with 1 March 2020 eligibility.

Payments for eligible business participants will be based on the same two-tiered payment arrangement, however the hours of active engagement to determine the payment rate will be based on the month of February 2020 only.

Businesses will be required to nominate which payment rate they are claiming for each of their eligible employees (or business participants). Employers must notify eligible employees of the payment to which they are eligible within seven days of notifying the ATO.

Business Participant

The ATO will have discretion to set out alternative tests where an employee or business participant’s hours were not “usual” during the February and/or June 2020 reference periods. For example, this will include where the employee was on leave, volunteering during the bushfires, or not employed for all or part of February or June 2020.

Other eligibility criteria for employees and eligible business participants will be consistent with the first version of the JobKeeper rules, bearing in mind the  “1 July 2020” amendments (about eligible employees).

JobKeeper is a two-tiered payment arrangement

20 hours or more Less than 20 hours
JobKeeper fortnights 14 to 20 $1,200 $750
JobKeeper fortnights 21 to 26 $1,000 $650

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Electronic Execution of Documents During COVID-19

Electronic Execution of Documents During COVID-19

The COVID-19 pandemic has prompted state and territory governments to temporarily ease the manner in which documents are executed.

It is now possible under multiple jurisdictions to sign and witness certain documents electronically or via audio visual links. The changes address difficulties in executing documents amid social distancing and stay-at-home restrictions. However the requirements for signing and witnessing documents are highly prescriptive and specific to each state and territory, and you may need to seek legal advice as required depending on your individual situation.

Electronic Execution of Documents During COVID-19

CONTRACTS

Federal legislation and similar legislation in each state and territory provides that electronic signatures are able to be used to validly sign most contracts. While specific requirements in each state and territory vary, a valid electronic signature must usually satisfy three broad requirements:

 

  • Identification: a recipient must be able to identify the person signing the contract and confirm their intention to be bound by it.
  • Reliability: the method used to sign the document must be reliable. This is determined by considering all relevant circumstances and the purpose for which the electronic signature is required.
  • Consent: the recipient must consent to the document being signed electronically.

Note that there are state and territory-specific exemptions (such as in relation to certain property transactions) and you may need to seek legal advice depending on your particular situation.

DEEDS, STATUTORY DECLARATIONS AND AFFIDAVITS

Victoria

The Victorian Government introduced special regulations specific to the COVID-19 pandemic. The Victorian regulations are highly prescriptive in relation to witnessing, signing and the use of video links for certain documents.

These regulations are due to expire on 24 October 2020, and at the time of writing the state government was yet to announce whether they will be extended.

Key changes regarding the remote execution of deeds, powers of attorney, wills, affidavits and statutory declarations include:

  • deeds can now be signed electronically in accordance with the requirements of the Electronic Transactions (Victoria) Act 2000, subject to other legislative requirements
  • in relation to transactions that are governed by the Electronic Transactions (Victoria) Act 2000:
    • witnessing signatures by audio visual link is now permitted, subject to the witness writing a statement that they observed the signing by audio visual link
    • signatures are now valid across separate copies of documents
  • declaring a statutory declaration is now permitted by audio visual link for the purposes of the Oaths and Affirmations Act 2018.

New South Wales & Australian Capital Territory

The NSW Government introduced regulations this year that permit the witnessing and signing of documents via audio visual links. Relevant documents include deeds, statutory declarations, wills, powers of attorney and affidavits.
Similarly in the ACT, amended regulations also allows the witnessing of documents by audio visual link – namely affidavits, wills and general or enduring powers of attorney.
These laws state that the relevant documents can be witnessed via audio visual link if the witness, in summary:

  • observes the person signing in real time
  • confirms the signature was witnessed by signing the document or a copy of the document
  • is reasonably satisfied the document that the witness signs is the same document (or a copy of the document), signed by the signatory, and
  • endorses the document (or a copy of that document) by writing a statement specifying the method used to witness the signing in accordance with the particular legislation.

Queensland

The Queensland Government introduced new legislation and amended existing regulations to broadly allow deeds to be converted into electronic documents and electronically signed. Subject to complying with the requirements of the Queensland regulations, certain deeds no longer need to be witnessed.

Further, the new rules provide for the ability for affidavits, declarations and powers of attorney to be witnessed by audio visual link.

Tasmania

Limited witnessing of documents (including statutory declarations) is now permitted via audio visual link pursuant to new legislation introduced this year. The witness must, in summary:

  • observe the person signing in real time
  • confirm the signature was witnessed by signing the document (or a copy)
  • be reasonably satisfied the document the witness signs is the same document (or a copy of that document), signed by the signatory, and
  • endorse the document (or a copy) by stating the signing was in accordance with the legislation.

Western Australia, South Australia & the Northern Territory

The Western and South Australian governments (save as noted below) and the Northern Territory have enacted little or no legislation prescribing remote witnessing and electronic signing of documents in response to COVID19. This may change in the future as the pandemic situation evolves.
The South Australian Government has however extended the classes of persons who may witness statutory declarations.

FURTHER INFORMATION

The Australian Government Solicitor’s fact sheet provides a comprehensive summary of the requirements that corporations and company officers must satisfy when executing documents remotely. Search for “Australian Government Solicitor Fact Sheet 38”.

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

COVID-19 Issues for Companies and Trusts

money issues arising from covid-19 for companies and trusts
money issues arising from covid-19 for companies and trusts

With many having received cash flow boost and JobKeeper payments, there can arise some unique issues where these amounts are received within a trust or company.

Matters Covered in This Article

COVID-19 payments and some issues for companies and trusts
With many having received cash flow boost and JobKeeper payments, there can arise some unique issues where these amounts are received within a trust or company.

COVID-19 and trust liquidity issues
The ATO has highlighted the fact that due to COVID-19, a trustee may experience liquidity issues that may affect a trust’s ability to satisfy a beneficiary’s entitlement. This may happen where financial institutions impose restrictions that affect the way a trustee can deal with its assets.

Where you stand with vehicles and the boosted instant asset write off
The extension of the instant asset write-off from $30,000 to $150,000 until 31 December 2020, as part of the Federal Government’s COVID-19 stimulus measures, provides an opportunity to look at its application to motor vehicles.

Download PDF Version

COVID-19 payments and some issues for companies and trusts

The cash flow boost and JobKeeper payment have been flowing to eligible businesses for some time now. These stimulus payments have differing tax treatments, which are:

  • the cash flow boost is paid as a credit and is nonassessable non-exempt income, and also free from GST (because it does not represent consideration for a supply)
  • the JobKeeper payment is paid directly into a recipient’s nominated bank account on completion of monthly reporting obligations. JobKeeper is assessable income, not subject to GST, and not included in activity statements.

Trust distributions

What constitutes trust income is determined by the trust deed or by the trustee where permitted under the trust deed.

It is a common misconception that the trust income available for distribution is equal to the taxable income of the trust. However, this will only be the case where the trust deed defines trust income to equal taxable income, or the trustee, where discretion permits, determines that to be the case.

Cash flow boost

When considering payments received under the cash flow boost, if the trust deed or the trustee determine that non-assessable nonexempt income does not form part of trust income, the cash flow boost will not be distributable. However, where such overt restrictions are not present, or where the trust deed or the trustee determine that non-assessable nonexempt income can be distributed, the cash flow boost may be available for distribution to the beneficiaries.

JobKeeper

JobKeeper payments will form part of the taxable income of the trust and would be expected to also be trust income as may be defined by the trust deed or the trustee. Where JobKeeper is received for eligible employees, the amount paid to the employees, and therefore the associated expense/deduction must be equal to or more than the amount of JobKeeper payment. Therefore, no net trust or taxable income would arise. However, JobKeeper amounts received for eligible
business participants do not need to be paid to the eligible business participant, as the wage condition does not apply. Therefore, the amounts could be retained within the trust and form part of the trust income distributed at year end.

Franking credits

As the cash flow boost amounts are non-assessable non-exempt income, no tax arises on these amounts and it follows that no franking credits will be generated by these amounts. Whether the boost amounts can be paid out as a franked dividend by the recipient company will depend on the balance in the franking account of the company involved and the amount of its accumulated profits.

Company beneficiaries

A key plank of the JobKeeper payment is that a minimum of $1,500 per fortnight
amount must be paid to employees (which is then reimbursed to the employer at month-end). However, where the recipient of an amount is an eligible business participant, there is no requirement for the amount to be paid to that individual. Instead, it can be retained in the company or trust as the case may be. Where a trust does retain the amount, it will then form part of the trust law income to be distributed by the trust to any beneficiary at year-end (see earlier). Where a trust receives JobKeeper payments and distributes these amounts to a company beneficiary, this can have consequences as to whether that beneficiary then qualifies as a base rate entity for the purposes of qualifying for the lower company tax rate. To recap, to qualify as a base rate entity, a company must not only have an aggregated turnover of less than $50 million, but no more than 80% of its assessable income can be base rate entity passive income. This income consists of the following:

  • (a) corporate distributions and franking credits on these distributions
  • (b) royalties and rent
  • (c) interest income (though some exceptions apply)
  • (d) gains on qualifying shares
  • (e) net capital gains, and
  • (f) an amount included in the assessable income of a partner in a partnership or beneficiary of a trust, to the extent that it is traceable (directly or indirectly) to an amount that is base rate entity income under
    categories (a) to (e).

Trust distributions received by corporate beneficiaries need to be dissected into their base rate entity component, and their non-base rate entity component.
In this case of cash flow boost, it would not count as assessable income in any case and therefore would be disregarded for the purposes of the 80% test. On
the other hand, JobKeeper is assessable income, but not passive income for the purposes of the 80% test. Therefore, the JobKeeper component of trust distributions to a company will improve the chances of the company meeting the 80% test (because it will be assessable income, and not base rate entity passive income). It will therefore qualify the company as a base rate entity for the purposes of accessing the lower 27.5% corporate tax rate (decreasing to 26% from 2020-21).

JobKeeper amendments

There have been some changes made to JobKeeper since our last newsletter. Businesses will need to meet one of the declines in turnover tests for the September 2020 quarter alone (rather than for both the June and September quarters as announced in July) to be eligible for JobKeeper for the period 28 September 2020 to 3 January 2021. Beyond that, businesses will have to meet the decline in turnover tests for the December 2020 quarter to be eligible for JobKeeper for the period 4 January to 28 March 2021. For the eligible employee test, the reference date for assessing which employees are eligible for JobKeeper is now 1 July 2020 (previously 1 March) with effect from fortnight 10 (3 August 2020). The reference period for employees regarding their hours worked to determine their tier of payment will be the two fortnightly pay periods prior to 1 March 2020 or 1 July 2020. The period with the higher number of hours is to be used for employees who were eligible at 1 March 2020. The ATO had already extended the wage condition deadline to 31 August for fortnights 10 and 11.

Business can claim previous year tax losses

If your business has made tax losses in years to the current one, but you haven’t yet offset all those losses, you can still carry these forward and claim a deduction for them in a later year — as long as you meet all the requirements of the tax law. Your business structure will affect how you can claim business tax losses from the current year or previous years. If you are:

  • a sole trader or an individual partner in a partnership, you can generally offset your current or prior year business losses against other income in the same income year (subject to the non-commercial business loss rules that may prevent you from doing so);
  • operating your business through a trust, losses must be carried forward by the trust indefinitely until they are offset against future trust income (they cannot be distributed to beneficiaries) – and, furthermore, there are strict requirements that must be met for the trust to be able to use the losses itself;
  • operating through a company, you must meet fairly onerous “continuity of ownership” tests or the “same business” test in order to be able to claim current and/or prior year losses.

It is important to be aware that the ATO expects taxpayers to consider each tax loss separately if you are looking at more than one tax loss across multiple years.

If you carry forward a prior year business loss to the current year or a future year, make sure you have correctly applied your past business losses before lodging a tax return. Check that:

  • you have accurately reconciled carried forward losses from a prior year to a later year (errors can occur when poor record keeping of losses accumulate)
  • you haven’t mis-characterised expenses such as capital expenditure and CGT losses as normal business expenses (because, for example, CGT losses can only be offset against CGT gains)
  • if your business is a specific entity, such as a private company, that you have considered the relevant tests linked to same or similar business tests when applying prior year losses to a current year, where the business ownership or the nature of the business activity has sufficiently changed (as indicated above).

Remember, we are here to help if you have any questions about claiming business losses.


COVID-19 and trust liquidity issues

The ATO has highlighted the fact that due to COVID-19, a trustee may experience liquidity issues that may affect a trust’s ability to satisfy a beneficiary’s entitlement. This may happen where financial institutions impose restrictions that affect the way a trustee can deal with its assets.

The ATO states that where a present entitlement arose before any effect of COVID-19, in circumstances that were not a reimbursement agreement, trustees may need to make subsequent arrangements to meet the requirements of the financial institution. If that occurs, these arrangements will not invalidate that entitlement nor trigger other taxation impediments.

“For present entitlements conferred at the end of the last tax year, the law will apply based on the facts presented,” it says. “We won’t undertake compliance action to consider the validity of an entitlement … in circumstances where a trustee is affected by liquidity issues due to COVID-19 and unable to satisfy the entitlement.”

The ATO also reminds trustees of the importance of complying with the terms of their trust deeds. It says that for cases under review, it will continue to apply the law. Further, the ATO says that its compliance approach is intended to provide relief and certainty to trustees and associated private groups who experience genuine liquidity difficulties as a result of COVID-19, and assures affected parties that it will monitor behaviour to ensure this approach works as intended.


Where you stand with vehicles and the boosted instant asset write off

The extension of the instant asset write-off from $30,000 to $150,000 until 31 December 2020, as part of the Federal Government’s COVID-19 stimulus measures, provides an opportunity to look at its application to motor vehicles.

Note that in addition to the higher write off amount, the business turnover threshold test for eligibility was increased to also apply (from March 2020 until 31 December 2020) to businesses with an aggregated turnover of less than $500 million.

As with all assets that are eligible for the instant asset write-off, the vehicle must be first acquired between 2 April 2019 and 31 December 2020 and must be “used or installed ready for use” in a business from 12 March 2020 to 31 December 2020. This means, for example, that if the taxpayer purchases the vehicle in the income year ended 30 June 2020, an instant asset write-off deduction will not be available in that income year unless it was also “first used or installed ready for use” in a business in that same income year.

What it means for a vehicle to be “used or installed ready for use” will be a question of fact depending on the nature of the vehicle and the business in which it is used (and will, presumably, at least require the vehicle to be registered and located on the business premises in a workable state).

However it must be emphasised that there is a car limit that applies to the maximum amount of instant asset write-off deduction that can be claimed. For the 2019-20 income tax year, this amount is $57,581. For the 2020-21 income year this amount is $59,136.

For these purposes, a car is defined as a vehicle designed to carry a load less than one tonne and fewer than nine passengers (which means the car limit will not apply if the vehicle carries a load of one tonne or more or carries nine passengers or more).

Furthermore, the one tonne limit relates to the maximum load of the vehicle (that is, the payload capacity), which is the vehicle’s gross vehicle mass reduced by its basic kerb weight. This is the vehicle’s weight with a full tank of fuel, oil and coolant plus the spare wheel, tools (including jack) and any factory-installed options (but excluding the weight of passengers, goods or accessories). This test is relevant to the purchase of a dual cab ute that is also often designed so it can be put to family use as well.

The car limit applies to the “first element” of the cost of the vehicle — which basically means that “second element” costs are essentially later capital improvements made to the vehicle that are incurred after beginning to hold the vehicle for income use. These however may also be entitled to the instant asset write-off deduction in their own right, and would be the case whether they are incurred either in the same income year in which the vehicle is purchased (as the instant asset write-off applies to multiple assets) or in a later income year.

But it should also be noted that as the car limit applies to the first element of the cost of the car, any second element cost expenditure that, say, increases the carrying capacity of the car to more than one tonne does not affect the original application of the car limit to the original purchase of the vehicle.

Other matters to note include:

  • You cannot claim the excess cost over the car limit that is denied the instant asset write-off deduction under any other depreciation rules or the general deduction provisions.
  • With all assets eligible, the instant asset write-off deduction is limited to the business portion use of the car in the income tax year (for example, using the car limit of $57,581 for the 2019-20 income tax year, if the vehicle is used 60% for business use, the total amount that can be claimed under the instant asset write-off in that year is $34,549 – being 60% of $57,581).
  • You cannot claim both the instant asset write-off in respect of a vehicle (or any asset) and the 50% accelerated depreciation rate for the same vehicle.

COVID-19 and SMSF rental relief

The Federal Government announced a six-month moratorium on evictions of commercial and residential tenants during the COVID-19 health pandemic. This moratorium (and its accompanying code of conduct leasing principles) will inevitably affect SMSFs, which are reasonably heavily invested in real property, according to statistics.

Leasing principles

A moratorium on evictions means that SMSF landlords face the real prospect of tenants falling behind on their rent. However, this does not mean that the tenant is not required to pay rent during the moratorium period. Rather, broadly speaking, parties are encouraged and indeed required to negotiate a rental reduction, deferrals, or rent-free periods if the tenant needs. In terms of commercial rents, a mandatory code has been developed and applies if a tenant or landlord is eligible for JobKeeper payments and has a turnover of less than $50 million. The code includes a common set of principles that must be adhered to, including:

  • landlords must not terminate leases for nonpayment of rent during the COVID-19 pandemic (or reasonable recovery period)
  • tenants must stay committed to their lease terms (subject to amendments)
  • landlords must offer reductions in rent (as waivers or deferrals) based on the tenant’s reduction in trade during COVID-19
  • benefits that owners receive for their properties (eg reduced charges, land tax, deferred loan payments from banks) should be passed on to the tenant proportionately.

However, granting rental relief – where not carefully justified and documented – can present considerable compliance risks for SMSF landlords. This includes fines of up to $12,600 per trustee and/or in serious instances the SMSF being deemed non-complying, in which case the value of its assets as at the commencement of the income year could be taxed at 45%.

Non arm’s length tenants

Where the property is held by the SMSF and the tenant is a “related party” of the SMSF trustee, unless care is taken, evidence gathered, and the arrangement is properly documented, there is a real risk that, in granting rental relief, breaches of the following provisions of the SIS Act may result.

  • The sole purpose test. In granting rental relief, the SMSF trustee may not be deemed to be acting with the sole purpose of maximising the retirement benefits of members of the fund, but rather acting to assist the related party with their rental expenses.
  • The arm’s length test. In granting rental relief to a related party, it may be considered that the fund is not maintaining all investments and transactions at arm’s length, in the same way as they would deal with an unrelated party.
  • In-house asset test. In providing rent relief, is the SMSF providing a loan to the related party tenant? In the unlikely event that this loan exceeds 5% of the value of the fund’s assets, the fund can be deemed to be non-complying.
  • Prohibition against lending or providing financial assistance to a member or relative. In granting relief to the tenant member or relative, could it still be said that the arrangement is still on commercial or arm’s length terms so as to avoid being deemed “financial assistance”?

It is, however, important to note that the ATO updated its auditor/actuary contravention report (ACR) instructions for the 2019-20 income year to state SMSF auditors will not be required to report in the ACR breaches of the sole purpose test and in-house provisions that may occur as a result of COVID-19 rent relief measures.

Arm’s length tenants

Although the risk is less acute, with potentially only the sole purpose test in play, the same careful evidence gathering and documentation is recommended where rental relief is granted to a party who is not related to the SMSF trustee. Unless it can be demonstrated that the relief granted was actually still in the broader interests of the SMSF, then a breach of the rules is a possibility.

Justification

To establish a strong case for granting rental relief, SMSF trustees should obtain sufficient evidence including the following where applicable:

  • The financial circumstance of the tenant. In terms of evidencing this, it may take the form of:

Their eligibility for JobKeeper (which itself requires evidence of a downturn in turnover)

Year-to-date financial statements

Cashflow forecasts

A report from the tenant’s registered tax agent that the tenant is experiencing COVID-19- related financial difficulties that may impact their ability to pay the agreed rate of rent

  • Government restrictions that may impact the tenant long-term, such as those imposed on large restaurants where, even when they are permitted to open, social distancing requirements in the venue may still nonetheless impact capacity and profitability
  • Any comparable rental relief that is being offered by arm’s length landlords to their tenants
  • The difficulty in leasing out the property to a new tenant, should the current tenant default on the lease. The location of the property, or the type of property may mean that retaining the current tenant – even with rental relief – is in the long-term best interests of the SMSF, particularly where the current tenant has an otherwise good history in terms of paying on time and looking after the property
  • to the above point, if the property was untenanted, it may be more difficult to obtain insurance cover. Additionally, untenanted properties are arguably more vulnerable to break-ins and natural deterioration/rundown.

It is important that any rental relief that is granted is proportionate to the above, and that the new arrangement is properly documented by amending the lease agreement between the parties, including the reasons for any reductions. In summary, where the related-party lender provides any relief to the SMSF that is not comparable to an arm’s-length arrangement (that it may offer unrelated parties in these fraught economic times), then the ATO may then apply the non-arm’s length rules to tax any net income or future capital gain from the property (for the entire future period of ownership) at the top individual marginal tax rate. Whether these provisions are applied may ultimately depend on whether the SMSF can justify with documented evidence that the decision to alter repayment terms is done on a commercial basis as if the parties were unrelated.

Forms of support that may need compliance consideration

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Claiming A Deduction For Transport Expenses When Carrying Bulky Equipment

Claiming a deduction for transport expenses when carrying bulky equipment

As a general rule, expenses relating to travel between home and work (and vice versa) are non-deductible. A number of exceptions to this principle exist, including for situations that require bulky equipment be transported to and from work.

Claiming a deduction for transport expenses when carrying bulky equipment

In order for transport expenses to be deductible under this “bulky equipment” exception, it is usually necessary that all of the following conditions are satisfied. The taxpayer will also need to substantiate the expenses by keeping appropriate records of the travel, such as the time, dates, distance, etc.

Criteria to be satisfied

1. You have bulky equipment that is necessary for you to earn your income (eg saws, electrical cords, toolbox and the like for carpenters).

Claiming A Deduction For Transport Expenses When Carrying Bulky Equipment

2. The equipment’s bulkiness is such that there is no other practicable way of taking it to where you earn your income other than by your private motor vehicle.

Claiming A Deduction For Transport Expenses When Carrying Bulky Equipment

3. The travel expenses are necessitated by the need to carry the bulky equipment to the place where income is earned (rather than your choice to travel by motor vehicle).

Claiming A Deduction For Transport Expenses When Carrying Bulky Equipment

4. No secure area is provided for keeping the bulky tools safe at the place of work. If you choose to carry the bulky equipment with you despite safe keeping at the worksite being available, no deduction will be allowable.

Claiming a deduction for transport expenses when carrying bulky equipment

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Rental Property: Tax Approach Adjusts for COVID-19

The COVID-19 pandemic has placed property owners, and tenants in many cases, in unfamiliar territory. Many tenants have been paying reduced rent or ceased paying because their income has been adversely affected.

Rental property Tax approach adjusts for COVID-19

While rental income may be reduced, owners will continue to incur normal expenses on their rental property and will still be able to claim these expenses in their tax return as long as the reduced rent charged is determined at arms’ length, having regard to the current market conditions. This applies whether the reduction in rent was initiated by the tenants or the owner.

Also remember that many banks have moved to defer loan repayments for stressed mortgagees. In these circumstances, rental property owners are still able to claim interest being charged on the loan as a deduction, even if the bank defers the repayments.

 

Short-term rentals

In circumstances where COVID-19 has adversely affected demand, including the cancellation of existing bookings for a short-term rental property, deductions are still available provided the property was still genuinely available for rent.

If owners decide to use the property for private purposes, or offer the property to family or friends for free, offered it to others in need or stopped renting the property out, the ability to claim deductions is lost for those respective periods.

To determine the proportion of expenses that can be claimed for short-term rental properties affected by COVID-19, or indeed bushfires and other natural disasters, a reasonable approach is to apportion expenses based on the previous year’s usage pattern. That is unless an owner can show it was genuinely available for rent for the relevant period. See also below for some common mistakes with short-term rentals.

 

Deductions for vacant land no longer available

For the 2020 year, expenses for holding vacant land are no longer deductible for individuals intending to build a rental property on that land where the dwelling is not yet built. This also applies to land for which you may have been claiming expenses in previous years.

However, this does not apply to land that is used in a business, or if there has been an exceptional circumstance like a fire or flood leading to the land being vacant.

This can be a difficult area in regard to taxation, so further advice may be an option to consider.

 

General common rental property mis-steps

Travel to rental propertiesTravel to rental properties

Residential property owners can’t claim any deductions for costs incurred in travelling to residential rental property unless they are in the rare situation of being in the business of letting rental properties.

Incorrectly claiming loan interestIncorrectly claiming loan interest

Taxpayers that take out a loan to purchase a rental property can claim interest (or a portion of the interest) as a tax deduction. However directing some of the borrowed funds to personal use, such as paying for living expenses or going on a holiday, is not deductible use. The ATO uses data and analytics to look closely and ensure that deductions are only claimed on the portion of the loan that relates directly to the rental property.

Capital works and repairsCapital works and repairs

Repairs or maintenance to restore something that’s broken, damaged or deteriorating in a property  you already rent out are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.

Initial repairs for damage that existed when the property was purchased can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.

Short term rentalsShort-term rentals

The ATO reports that it often finds taxpayers with short term rental properties claiming for 100% of their expenses when they actually use the property for their own use or provide it to family and friends for free or at a reduced rate. Properties need to be rented out or be genuinely available for full rent to claim a deduction.

Factors such as reserving the property or leaving it vacant over peak periods, not charging the market rate and the types of terms and conditions of the bookings are all taken into consideration when deciding if active and genuine efforts are being made to ensure a property is available for rent.

If a property is not genuinely available for rent, the ATO expects that deductions will be limited to the days when it is. If you are allowing friends or family to stay in the property at a reduced price, you need to limit your deductions to the amount of rent received for these periods.

Don’t forget to include all your rental income, especially from sharing economy platforms. The ATO matches data received from these providers to information in tax returns, and has in the past followed up on discrepancies uncovered. And one last point is to not to forget any possible CGT implications on sale.

Investment property ownership ATO data

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This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

The JobKeeper Scheme Gets An Update, Plus An Extension

The JobKeeper scheme gets an update, plus an extension

The JobKeeper payment, which was originally due to end after 27 September, will now continue to be available to eligible businesses (including the self-employed) until 28 March 2021. However there are some changes to consider.

The JobKeeper scheme gets an update, plus an extension

The JobKeeper payment rate of $1,500 per fortnight for eligible employees and business participants will be reduced to $1,200 from 28 September 2020 and to $1,000 per fortnight from 4 January 2021. Also, from 28 September, lower payment rates will apply for employees and business participants who worked less than 20 hours per week prior to 1 March 2020 (see below)— first dropping to $750, and then $650 from 4 January 2021.

Businesses claiming JobKeeper will be required to demonstrate that they have suffered an ongoing significant decline in turnover using actual GST turnover (rather than projected GST turnover) from 28 September.

Claimants will need to reassess their eligibility with reference to their actual GST turnover in the June and September quarters 2020, and will need to demonstrate that they have met the relevant decline in turnover test in both of those quarters to be eligible for the JobKeeper payment from 28 September 2020 to 3 January 2021.

A further re-assessment of turnover will be required from 4 January 2021. Businesses will need to demonstrate that they have met the relevant decline in turnover test with reference to their actual GST turnover in each of the June, September and December quarters 2020 to remain eligible for JobKeeper from 4 January 2021 to 28 March 2021.

To be eligible for JobKeeper under the extension, the decline in turnover tests remain at previous JobKeeper eligibility levels:

  • 50% for those with an aggregated turnover of more than $1 billion;
  • 30% for those with an aggregated turnover of $1 billion or less; or
  • 15% for Australian Charities and Not for profits Commission- registered charities (excluding schools and universities).

If a business does not meet the additional turnover tests for the extension period, this does not affect their eligibility prior to 28 September. Also new recipients can continue to apply for the JobKeeper payment, provided they meet the existing eligibility requirements and the additional turnover tests during the extension period. Other eligibility rules for businesses and their employees remain unchanged.

THE JOBKEEPER PAYMENT RATE

From 28 September 2020 to 3 January 2021, the JobKeeper payment rates will be:

  • $1,200 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working in the business for 20 hours or more a week on average, and for eligible business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020; and
  • $750 per fortnight for other eligible employees and business

From 4 January 2021 to 28 March 2021, the JobKeeper rates will be:

  • $1,000 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working in the business for 20 hours or more a week on average and for business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020; and
  • $650 per fortnight for other eligible employees and business participants.

ADDITIONAL TURNOVER TESTS

Very important to note is that because the September turnover must be based on actual GST supplies, the accounting for relevant businesses will need to be kept up-to-date.

In order to be eligible for the first JobKeeper extension period of 28 September 2020 to 3 January 2021, businesses will need to demonstrate that their actual GST turnover has significantly fallen in both the June quarter 2020 (April, May and June) and the September quarter 2020 (July, August, September) relative to comparable periods (generally the corresponding quarters in 2019).

Very important to note is that because the September turnover must be based on actual GST supplies, the accounting for relevant businesses will need to be kept up-to-date.

In order to be eligible for the second JobKeeper extension period of 4 January 2021 to 28 March 2021, businesses will again need to demonstrate that their actual GST turnover has significantly fallen in each of the June, September and December 2020 quarters relative to comparable periods (generally the corresponding quarters in 2019).

The ATO will have discretion to set alternative tests that would establish eligibility in specific circumstances where it is not appropriate to compare actual turnover in a quarter in 2020 with actual turnover in a quarter in 2019. We may be able to provide assistance should your circumstances require such application.

Businesses will generally be able to assess eligibility based on details reported in your BAS, with the ATO stating when it announced the JobKeeper extension that alternative arrangements will be put in place for businesses not required to lodge a BAS (for example, if a member of a GST group).

As the deadline to lodge a BAS for the September quarter or month is in late October, and the December quarter (or month) BAS deadline is in late January for monthly lodgers or late February for quarterly lodgers, businesses will need to assess their eligibility for JobKeeper in advance of the BAS deadline in order to meet the wage condition (which requires them to pay their eligible employees in advance of receiving the JobKeeper payment in arrears from the ATO). Again, the ATO will have discretion to extend the time to pay employees in order to meet the wage condition, so that businesses have time to first confirm their eligibility for JobKeeper.

And just to be clear, in case there is any doubt, if a business fails a decline in turnover test in respect of the June, September and December 2020 quarters, this does not mean that a business that has been claiming the JobKeeper subsidy needs to repay any of the money that has been paid to it.

EMPLOYEES

Only one employer can claim the JobKeeper payment in respect of an employee. The self‐employed will be eligible to receive JobKeeper where they meet the relevant turnover test, and are not a permanent employee of another employer.

But the eligibility rules for employees remain unchanged. This means you are eligible if you:

  • are currently employed by an eligible employer (including if you were stood down or re-hired)
  • were for the eligible employer (or another entity in their wholly-owned group) either:             

            a full-time, part-time or fixed-term employee at 1 March 2020; or

            a long-term casual employee (employed on a regular and systematic basis for at least 12 months) as at 1 March 2020 and not a permanent employee of any other employer.

  • were aged 18 years or older at 1 March 2020 (if you were 16 or 17 you can also qualify for fortnights before 11 May 2020, and continue to qualify after that if you are independent or not undertaking full time study).
  • were either:

          an Australian “resident” for social security purposes; or

          an Australian “resident” for taxation

  • were not in receipt of any of these payments during the JobKeeper fortnight:

          government parental leave or Dad and partner pay; or

          a payment in accordance with Australian worker compensation law for an individual’s total incapacity for

Employees will continue to receive the JobKeeper payment through their employer during the period of the extension if they and their employer are eligible and their employer is claiming JobKeeper — but remember the rates are to change as set out above.

Note that as there has been no change to the Australian residency requirements for eligible employees, international students and temporary visa holders will continue to not be eligible for the JobKeeper subsidy.

However in better news, currently a person whose wages are being subsidised by JobKeeper payments cannot also obtain JobSeeker support. This is because the JobKeeper subsidy is taken into account when assessing the eligibility of an individual for JobSeeker payments. Under the new arrangements it may be possible for such individuals to also claim JobSeeker payments. An individual can earn just over $1,200 per fortnight and still receive the full coronavirus supplement of $250 under the new arrangements. 

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Has Your Super Fund Got You Covered For Insurance?

Has Your Super Fund Got You Covered For Insurance

With COVID-19 - maybe not

From 1 July 2019, the government adopted new rules that aim to prevent the unnecessary erosion of people’s retirement savings through inappropriate insurance arrangements.

Has Your Super Fund Got You Covered For Insurance

As part of the rules, super providers, excluding SMSFs and small APRA funds, are unable to provide insurance by default when an account has been inactive for more than 16 months. Generally, a member holds an inactive super account if the account has not received any contributions or rollovers for 16 months or longer.

From 1 April 2020, additional rules were introduced to stop super providers automatically providing insurance cover on an opt-out basis to members where:

  • a new member is aged less than 25 years old
  • the member holds an account with a balance below $6,000

This exemption allows trustees to continue to provide insurance on an opt-out basis where:
However, the dangerous occupation exemption recognises that certain occupations carry a higher degree of risk, such as (but not limited to) emergency service workers.

  • the member is employed in a dangerous occupation
  • it is reasonable to expect that the contributions paid into the product will be for the member’s employment in that occupation, and
  • the fund trustee has notified APRA in writing that the exception will apply to the product and the election is in force.

Prior to those changes coming into effect, most super funds (other than SMSFs and small APRA funds) automatically provided life and TPD insurance cover to members upon joining the fund. Some of those funds also automatically offered income protection insurance as default insurance and required a member to opt out of it if the member didn’t deem it necessary for them.

Under the new rules, if a member with an inactive low balance super account (below $6,000) in a large APRA regulated super fund wants to keep their insurance, they will need to tell their super fund (that is, ask for the insurance to be provided) or contribute to that super account. If no action is taken, their insurance will be cancelled automatically, and the member’s super account will be transferred to the ATO to protect their account from fee erosion.

Also, insurance cover will not be provided by a large APRA regulated super fund for a new member aged under 25 unless they:

  • write to their fund to request insurance through their super
  • work in a dangerous job and the trustee determines that the dangerous occupation exemption applies. The new member can, however, choose to cancel this cover if they do not want it.

COVID-19 impact on insurance cover

As part of its economic response package to the COVID-19 pandemic, the government implemented a new temporary measure to allow individuals affected by COVID-19 to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21 (further extending the deadline to apply for this last option — see below).

Given the recent changes to insurance arrangements for members of large APRA-regulated funds (as outlined earlier), the new early release measures could see some of those members losing their income protection and life and total permanent disability insurance cover if they fully withdraw or end up with a super balance that drops below $6,000.

Many people are also at risk of having their insurance automatically cancelled if their large APRA-regulated fund account(s) is considered inactive because they are unable to contribute for a continuous period of 16 months as a result of financial stress due to the coronavirus pandemic.

While the latest changes to insurance arrangements do not apply to SMSFs, withdrawing super early may also affect SMSF members who have a secondary APRAregulated fund that provides them with insurance cover. They are, therefore, also at risk of losing their insurance cover in those funds if their APRA-regulated fund account(s) has a balance below $6,000 or is considered inactive due to no contributions for a continuous period of 16 months.

It is, unfortunately, expected that the new law changes would likely leave hundreds of thousands of people facing the COVID-19 crisis without life, disability or income protection at a time they may need insurance more than ever.

Given insurance cover inside superannuation is a secure way of protecting fund members against the financial strain that serious illness, injury or death can cause, it is critical for people who intend accessing their super early to consider the impact on their insurance and be aware of the implications before withdrawing. 

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.