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Some light reading for EOFY – Dr Seuss applies for JobKeeper

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Introduction

With 30 June 2020 a mere few sleeps away, now is the opportune time for accounting and tax professionals to enjoy some light-hearted relief from the ongoing challenges of a difficult 2020 financial year. The TaxBanter team presents the following poem that encapsulates the JobKeeper journey of an adviser.

 

Dr Seuss applies for JobKeeper

By Brian Kamenetzky, Senior Tax Trainer

 

I really don’t get these JobKeeper rules
And is the enrolment form really designed for fools?
But the prospect of the payment — yes, he drools
Maybe my accountant should work through these rules

And how many employees I’m meant to include
Means I miss two fortnights whilst I brood
And if you’re not a ‘long term casual’, you’re really screwed
But I’m a ‘business participant’ and such a dude!

And all these dates just drive me crazy
They always keep changing them, so I can’t be lazy
Its even worse than the Hampton Court Maz-ee
And leaves me stupefied and rather dazey!

And please be careful if it’s a ‘naughty’ scam
‘Cause you’ll find yourself in an awful jam
I’m kinda thinking … ‘to be slaughtered like a lamb’
And leave you feeling less than glam!

And what’s all this hype with the ‘decline in turnover’ test?
A ‘basic’ and ‘alternative’ set of rules – a veritable gabfest
And then there’s the ‘group structures’ rules to challenge the best
In a very smart adviser you’d better invest!

And Treasury and the ATO seemingly in a rift
And PCGs and LCR’s and the like leaving us all rather miffed
All a constant reminder that the goalposts will shift
No wonder my understanding continues to drift!

And then there’s the possibility of the TPB down your throat
And wouldn’t they just love to gloat
To cast you aside like a sinking boat
With a waterproof version of the ‘Code of Conduct’ to keep you afloat!

Then there’s the Fair Work stuff to do your head in
It leaves you breathless, your brain’s in a spin
‘Awards’ and ‘enabling directions’, do you lose or do you win?
It’s the employment law solicitors with the biggest grin!

So you’d better be careful that you get this all right
And build an audit trail with all your might
‘Cause if you don’t, you’re in for a helluva fight
And not much sleep each and every fortnight!

$150,000 instant asset write-off extended to 31 December 2020

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As part of its Economic Stimulus Package in response to COVID-19, the Government temporarily expanded access to the instant asset write-off (IAWO), under which businesses can claim an immediate deduction for certain expenditure incurred in relation to new depreciating assets and second element costs. The amendments contained in the Coronavirus Economic Response Package Omnibus Act 2020, which received Royal Assent on 24 March 2020, increased the asset cost threshold to $150,000 (from $30,000) and the aggregated turnover eligibility threshold to $500 million (from $50 million) for eligible expenditure incurred from 12 March 2020 to 30 June 2020.

The temporary thresholds, originally legislated to end on 30 June 2020, have now been extended to cease on 31 December 2020. The Treasury Laws Amendment (2020 Measures No. 3) Act 2020 received Royal Assent on 19 June 2020. From 1 January 2021, the asset threshold will revert to $1,000 and the turnover threshold will reduce to less than $10 million.

Businesses that have decided to defer asset investments until later in the year when the COVID-19 restrictions have lifted — and would not have acquired the asset by 30 June 2020 — may now benefit from the six-month extension. These businesses will be able to claim the IAWO for eligible assets in their 2020–21 tax returns.

However, while this of course applies to small business entities (SBEs) in relation to acquisitions of new assets, the temporary rules relating to the deduction of a general small business pool year end balance have not been extended beyond 30 June 2020.

An SBE can claim a deduction (under s. 328-210(1) of the ITAA 1997) for the entire balance of its general small business pool if the balance is less than the asset threshold at the end of the income year — for 2019–20, this threshold is $150,000.

The end date of the $150,000 threshold for the pool balance write-off has also been extended from 30 June 2020 until 31 December 2020. Since the pool balance is calculated on the final day of the income year, for most SBE taxpayers with a 30 June year end, the six-month extension has no practical effect. The threshold for the year ended 30 June 2021 reverts to $1,000. These entities will need to consider the pool balance deduction for the 2020 year end (see below).

Note that an SBE with a substituted accounting period (e.g. a subsidiary of a foreign parent entity) that ends between 1 July 2020 and 31 December 2020 will be able to utilise the $150,000 threshold for its pool balance deduction for its current income year.

Summary of the IAWO

 

IAWO - flow chart

 

Small business entities (SBEs) Medium business entities (MBEs) Large business entities (LBEs)
Claim IAWO under s. 328-180 s. 40-82 s. 40-82
Conditions

Definition — legislative reference

 Carrying on business

s. 328-110 of the ITAA 1997

 Carrying on business and not an SBE

s. 40-82(4) of the ITAA 1997

 Carrying on business and not an SBE

s. 40-82(4A) of the ITAA 1997
Aggregated turnover threshold < $10m ≥ $10m to < $50m ≥ $50m to
< $500m
Asset acquired 7.30pm (AEST) 12 May 2015 to 31 December 2020 7.30pm (AEST) 2 April 2019 to 31 December 2020 7.30pm (AEST)
2 April 2019 to 31 December 2020
First used / first installed ready for use 12 May 2015 to 11 March 2020 12 March 2020 to 31 December 2020 2 April 2019 to 11 March 2020 12 March 2020 to 31 December 2020 12 March 2020 to 31 December 2020
Asset cost threshold Per above diagram < $150,000 < $30,000 < $150,000 < $150,000
From 1 July 2020 Asset threshold reverts to $1,000 IAWO not available IAWO not available

The IAWO is available for both new and second-hand or used assets first used or installed ready for use within the relevant timeframe.

Note:
A significant feature of the temporary $150,000 is that this will enable businesses to immediately deduct the full cost of most business-related motor vehicle purchases, including luxury cars. While many makes of vehicles could certainly qualify for write-off under the previous $30,000, almost no vehicle purchases will be eligible once the threshold reverts to $1,000 on 1 January 2021.

The closing pool balance deduction for SBEs

SBEs may choose to depreciate assets using the pooling rules in Subdiv 328-D of the ITAA 1997 instead of claiming depreciation on individual assets under Div 40 of the ITAA 1997. The general small business pool is depreciated as though it was a single asset. Importantly, an SBE must choose to either apply all of the SBE depreciation provisions under Subdiv 328-D or use the normal  depreciation provisions under Div 40. This means an entity cannot use  the IAWO under Div 328 without using the pooling rules.

The method for calculating the closing pool balance is illustrated in the following example. For these purposes assume that all assets are used 100 per cent for taxable (business) purposes.

As the closing pool balance as at 30 June 2020 (before depreciation) is less than $150,000, the SBE can deduct the entire balance of $65,000 in 2019–20.

Important:
Where the closing pool balance is deductible, it replaces the usual deduction based on the opening balance × 30% (and new additions × 15%). The SBE in the above example will not also claim the depreciation deduction as it will be deducting the closing balance (which includes the amounts which would otherwise be deductible as a depreciation charge).

Cars – the interaction of pooling and IAWO rules

Consider the following two scenarios as extensions of the above example.

  1. Assume that the taxpayer had purchased the car in 2017–18 at a cost of $19,000. Under the IAWO threshold for that year, which was $20,000, the taxpayer would have written off the entire $19,000 in 2017–18 and would not have added the car to the pool. In this case, when the taxpayer disposed of the car in 2019–20, there would have been no adjustment to the closing pool balance (and the opening pool balance also would not have included an adjustable value attributable to the car).
  2. Assume that the car was not eligible for the IAWO in the year of acquisition and therefore the above adjustment to the pool balance applies. After the SBE disposes of the car in 2019–20, it purchases a replacement car for $40,000 on or after 12 March 2020. If it is acquired and used (or made ready for use) by 31 December 2020, then the taxpayer will be able to immediately deduct the entire cost of the car in 2019–20 or 2020–21 and it will not be added into the pool.

However, if the replacement car is not purchased, or not used (or made ready for use), until after 31 December 2020, then the car will be added into the pool in the relevant income year. Within the pool, it will be depreciated at 15 per cent in the year of acquisition and at 30 per cent in subsequent income years.

Note:
The car depreciation limit ($57,581 for 2019–20 and $59,136 for 2020–21) continues to apply under the temporary IAWO rules regardless of whether the taxpayer depreciates assets under Div 328 or Div 40. That is, the write-off is capped at the car depreciation limit and the excess of the acquisition cost over the limit cannot be depreciated.

Opting out of the pooling rules

An entity may opt out of the Div 328 simplified depreciation rules. The consequences are:

  • newly acquired assets are not added into the pool and are instead depreciated under Div 40;
  • the small business pool still exists and it will continue to be depreciated at 30 per cent; and
  • the other Div 328 depreciation rules apart from the pooling rules on the existing pool are unavailable.

Lock-out rules

Prior to 7.30pm (AEST) 12 May 2015, ‘lock-out’ rules in s. 328-175(10)(b) of the ITAA 1997 were in place which prevented SBEs which opted out of the Div 328 simplified depreciation system to re-enter it for five years. The lock-out rules have been suspended from 7.30pm (AEST) 12 May 2015 to 31 December 2020 to enable more SBEs to access the IAWO under the increased thresholds.

The Explanatory Memorandum (at para. 4.39) confirms that for SBEs that have not adopted a substituted accounting period, the temporary suspension of the lock-out rule is extended to 30 June 2021.

However, if the taxpayer opts out in 2020–21, it will not be able to opt back in for five income years. This is because s. 328-180 of the Income Tax (Transitional Provisions) Act 1997 (the IT(TP) Act), in applying the lock-out rule in determining whether a taxpayer is eligible to re-enter simplified depreciation in any year after a year that includes 31 December 2020, all years before that year should be disregarded.

That is, if the taxpayer opted out in 2019–20, it can opt back in in 2020–21, but if it opts out in 2020–21, it cannot opt back in until 2025–26.

Note that the lock-out rule does not prevent a taxpayer from opting back into the rules in 2019–20 or 2020–21 if they previously opted out within the last five years.

Div 40 for SBEs – accelerated depreciation but no IAWO

Where an SBE taxpayer opts out of the simplified depreciation rules, it will use Div 40 to claim depreciation deductions in respect of newly acquired assets.

The SBE will not be able to claim IAWO deductions under s. 40-82. This is because the provision only applies to MBEs and LBEs.

However, the SBE may be able to utilise the temporary investment incentive (accelerated depreciation) in s. 40-120 of the IT(TP) Act. Subject to certain conditions, businesses with aggregated annual turnover of less than $500 million may deduct 50 per cent of the cost of an eligible new asset, where the entity first used or had the asset installed ready for the use for a taxable purpose between 12 March 2020 and 30 June 2021.

Franking considerations for base rate entities

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Lower corporate tax rates and maximum franking rates for base rate entities

The corporate tax rate for companies that are base rate entities (BREs) will be progressively reduced to 25 per cent by 2021–22. Companies that are not BREs are taxed at 30 per cent. In the first stage of the tax cut package, the rate for small business entities — with an annual aggregated turnover of $10 million — was reduced to 27.5 per cent in 2016–17. The BRE concept was introduced with effect from 2017–18, and the 27.5 per cent rate was extended to eligible companies with aggregated turnover of less than $25 million.

What is a base rate entity?

Under s. 23AA of the Income Tax Rates Act 1986 (ITR Act), a company is a BRE — and subject to the lower tax rate and lower maximum franking rate — if it satisfies the following conditions:

  • no more than 80 per cent of the company’s assessable income for the income year is base rate entity passive income (BREPI); and
  • the company’s aggregated turnover for the income year (worked out at the end of the year) is less than the relevant threshold for the year (i.e. $25 million for 2017–18 and $50 million from 2018–19).

BREPI — as defined in s. 23AB of the ITR Act — includes seven types of assessable income: corporate distributions (other than non-portfolio dividends); franking credits on those distributions; non-share dividends; interest; royalties; rent; a gain on a qualifying security; and net capital gains.

Maximum franking rates

As part of the corporate tax rate reduction package, from 2016–17, the maximum franking credit is calculated by reference to the company’s corporate tax rate for imputation purposes. For ease of reference, in this article, a company’s corporate tax rate for imputation purposes will be referred to as its maximum franking rate.

Very broadly, a company’s maximum franking rate is equal to the income tax rate that would apply to the company in the income year in which the distribution is made (the current year), assuming that the company’s aggregated turnover, BREPI and assessable income for the current year are equal to those of the immediate prior income year.

The maximum franking rate is not determined by reference to the rate at which the underlying profits were taxed in the prior income year in which the profits were actually derived, nor to the company’s BRE/non-BRE status in that prior year.

Implications for 30 June 2020

A company that paid tax at the rate of 30 per cent in a prior income year will have credited its franking account by $30 for every $100 of taxable income.

From 1 July 2020, the maximum franking rate for a BRE will drop to 26 per cent. Consider a situation where the company is taxed at 27.5 per cent in 2019–20. If those profits are paid out in 2020–21, the maximum franking rate for the company would be 26 per cent. This would result in some of the franking credits (i.e 2019–20 corporate tax paid) being trapped in the franking account and unable to be passed onto the shareholders (assuming there are no retained untaxed profits to which excess franking credits can be attached).

The same issue will arise when the corporate tax rate for BREs reduces to 25 per cent on 1 July 2021.

There are multiple options for companies to deal with the issue of decreasing maximum franking rates. Some of these are briefly discussed below.

Distributions in 2019—20 franked at 27.5 percent

To prevent franking credits from being trapped, a company could pay distributions to shareholders by 30 June 2020 franked at the maximum 27.5 per cent rate.

Making distributions to individuals

The effectiveness of making distributions to indivdual taxpayers would in part depend on the shareholders’ tax profiles — is there a shareholder on a lower marginal tax rate that would receive a refund of franking credits, or would a shareholder on a higher marginal rate be prepared to pay top-up tax on the distribution?

Also consider that where a fully franked dividend is paid to a non-resident shareholder, there is no dividend withholding tax payable and the shareholder is not assessable on the dividend in Australia (and cannot utilise the franking credits) — i.e. the corporate tax paid is the final tax on the profits underlying that distribution (although the shareholder may be subject to further taxation in their country of tax residence).

Making a distribution to another company

The company may have a corporate shareholder (other than in the capacity as a corporate trustee).

If the shareholder is itself a BRE, then it will be taxed on the distribution (and franking credits) at 27.5 per cent — but next year it may only be able to frank at 26 per cent. On the other hand, if the company shareholder is not a BRE, it will be taxed on the 2019–20 distribution at 30 per cent, but in 2020–21 it will also be able to make a distribution franked at 30 per cent.

Note

    • If the shareholder has a voting interest of at least 10 per cent, the distribution will be a non-portfolio dividend. Accordingly, the distribution and attached franking credits will not be BREPI to the shareholder.
    • If there is an interposed trust in between the two companies, income retains its BREPI/non-BREPI character when it is distributed from the trust to the corporate beneficiary. In particular, even if the trust holds at least 10 per cent in the company paying the distribution, when it passes the distribution onto its corporate beneficiary, that amount will be BREPI. This is because a dividend is a non-portfolio dividend — and not BREPI — only if it is paid from a company to another company.

Dividend access shares

Some companies issue dividend access shares, which entitle the holder to distributions without the rights of other classes of shares, such as the right to vote and to capital distributions. Dividend access shares may be effective in passing on franking credits which may otherwise not be utilised, but note that the ATO has previously indicated that it is focusing on dividend access share schemes that may contravene the general anti-avoidance rule in Part IVA of the ITAA 1936 (see for example TD 2014/1).

Retaining profits

The company may choose to retain its profits, perhaps for non-tax reasons. Here are some brief comments in relation to distributing the profits in future years and the utilisation of the trapped franking credits.

Distributing untaxed income

In future years, the company may be able to utilise the trapped credits if it can generate profits that are subject to exemption or concessional treatment, such as:

  • capital gains on pre-CGT assets;
  • the small business 50 per cent reduction;
  • the research and development tax offset.

Distribution when business ceases in a future year

The shareholder may wish to retain the profits in the company until the business ceases operations.

A dormant company that has ceased operations will not automatically be subject to the 30 per cent maximum franking rate. The maximum franking rate in the year of the distribution will depend on its turnover, BREPI and assessable income in the previous income year.

Assuming that the aggregated turnover in the income year prior to the distribution year is less than $50 million:

  • if the company was still trading and its BREPI did not exceed 80 per cent of its assessable income in the previous year, its maximum franking rate will be limited to the lower rate of 26 per cent or 25 per cent;
  • if it derived no income at all in the previous year, its BREPI will not exceed 80 per cent of assessable income, and accordingly its maximum franking rate will be limited to the lower rate of 26 per cent or 25 per cent;
  • if in the previous year it was only deriving bank interest, portfolio dividends or rental income, it will be able to access the 30 per cent maximum franking rate.

Further info and training*

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at 18 locations across Australia. Click here to find a location near you.

Online training

Face to face sessions 

These are only a few of our Public Session options. Click here to find a location near you.

^We will move these sessions to online delivery in the case of restrictions or safety concerns. Your safety is of utmost importance to us.

Tailored in-house training

We can also present these Updates at your firm (or through a private online session) with content tailored to your client base – please contact us here to submit an expression of interest or visit our In-house training page for more information.

Our mission is to offer flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

*This section was revised on 19 July 2021 to reflect our latest training sessions.

Trust distributions: The relevance of the resolution to tax outcome

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Background

What is the relevance of accounting to tax? Or maybe a better way to frame this question is to consider whether what we do in the accounts, or as part of the entity’s broader compliance activities, will impact the tax outcome.  One area where a connection is clear is with respect to trust distributions. How a distribution resolution is worded directly impacts the tax liability. It is important not because it determines what is taxable but because it is the basis for determining where the tax liability falls.

The tax law requires a presently entitled beneficiary to include in their assessable income (under s. 97(1)(a) of the ITAA 1936) a share of the net (i.e. taxable) income of the trust.  To establish this share of net income it is necessary to:

  • calculate the amount of income of the trust that the beneficiary is presently entitled to, as a percentage of the total distributable income; and
  • apply that percentage to the net income of the trust estate.

This is referred to as the proportionate approach.

The ATO identified in TD 2012/22 ‘the effect of the application of the proportionate approach in any particular case will depend on the facts and circumstances of that case, including the terms of the trust and, where relevant, any resolutions made by the trustee to appoint the income of the trust’.

The way a trustee resolves to distribute income (or perhaps more practically, that way the resolution is drafted), along with the definition of that income in the trust deed, will directly impact the amount of net income the beneficiary pays tax on.

Income for trust purposes

Depending on the specific terms of a trust deed and the extent of the discretion given to the trustee to determine otherwise, there may be three possibilities for determining the income of the trust.

Despite the definition in the trust deed, the Commissioner is of the preliminary view that the statutory context in which the expression ‘income of the trust estate’ is used means that there are limits to the concept of ‘income’ of the trust estate. These limits are set out in draft ruling TR 2012/D1, where the Commissioner takes the preliminary view that where an income equalisation clause is used and an amount is included in the net income of the trust, but is not represented by a net accretion to the trust fund, this amount will not generally form part of the distributable income of the trust.

Resolutions and the determination of tax liability

To illustrate how these definitions of income interact with the determination of where the tax liability falls, TD 2012/22 contains examples highlighting how differences in the wording of the trustee resolution alter the determination of the tax liability under the proportionate approach.

The examples set out below (adapted from the examples in TD 2012/22) illustrate not only how taxable income will be allocated in the first instance, but also the implications where there is an amendment to the net income of the trust. The importance of considering the terms of the trust deed and whether an increase to the net income of a trust also affects the beneficiaries’ proportionate shares of the distributable income should not be underestimated.  Does the wording of the trustee’s resolution really do what it purports to do?

Example 1 — Trustee assessed on omitted income

Facts

  • Under the trust deed for the Riverdale Family Trust, ‘income’ is defined to be the same as the net income calculated for tax purposes. The deed does not contain any provision enabling the trustee to determine a different amount to be the income of the trust.
  • The net income for the 2019–20 income year is $120,000, which consists of interest and net rental income.
  • The trustee resolved to distribute $40,000 to each of the beneficiaries Ann, Ben and Cy and they were each assessed on that amount.
  • The deed contained no provisions dealing with the situation where the trustee failed to appoint some or all of the income of the trust estate by a particular time.
  • Subsequently, the Commissioner determined on audit that the trustee had omitted $9,000 interest income in calculating the net income.
  • The net income and the trust income were therefore $129,000. However, as the trustee had distributed only $120,000, there was $9,000 of trust income to which no beneficiary was presently entitled.
  • The corresponding share of net income ($9,000) is therefore assessed to the trustee under 99A of the ITAA 1936.

Summary — Assessable amounts

Summary - assessable amounts

Example 2 — Default beneficiary clause

Assume the same facts as for Example 1, except that the trust deed provides that in the event of the trustee failing to appoint income by a particular time it is taken to be appointed to certain beneficiaries (commonly referred to as default beneficiaries).

In this case, the $9,000 would be assessed proportionately to those default beneficiaries as shown in the table below.

Example 2 — Default beneficiary clause

Example 3 — Omitted income to balance beneficiary

Assume the same facts as for Example 1, except that the trustee resolved to distribute $40,000 to each of Ann, Ben and Cy and the balance to David. On the basis of this resolution, the additional $9,000 net income would be assessed to David. Ann, Ben and Cy would each remain assessable to $40,000.

Example 4 — Present entitlement to proportion of income

Assume the same facts as for Example 1, except that the trustee resolved to distribute one-third of the trust income to each of Ann, Ben and Cy.

On the basis of this resolution, each beneficiary is presently entitled to one-third of the trust’s income (being the same as the net income determined on audit). That is, each beneficiary is presently entitled to 1/3 × $129,000 = $43,000.

Example 5 — Present entitlement to equal proportion of income

Facts

  • The trust deed of the Surrey Trust equates the income of the trust with its s. 95 of the ITAA 1936 net income unless the trustee determines it to be a different amount. The trustee did not make any other determination of income.
  • On 30 June 2020, the trustee resolved to distribute the income of the trust equally between two individual beneficiaries, Daisy and Rose. The trustee further resolved that should the Commissioner later include any amount in the assessable income of the trust, that amount is deemed to be distributed on 30 June 2020 to Bouquet Pty Ltd.
  • The trust income tax return lodged by the trustee for the 2019–20 income year showed the net income as $100,000 consisting of business income.
  • The Commissioner later determined that the income from the business carried on by the trustee was understated by $20,000.
  • This meant that net income of the trust and the income of the trust was (and had always been) $120,000. All that had changed was the trustee’s understanding of what those amounts were.

Summary — Assessable amounts

The table below shows the amounts that Daisy and Rose are each assessable on under the proportionate approach.

Summary - Assessable Amounts Table 2

As the trustee’s resolution effectively dealt with all of the income of the trust by distributing the income to Daisy and Rosy equally, there was nothing in respect of which the further resolution in favour of Bouquet Pty Ltd could operate.

Summary of outcomes when net income is amended

The outcomes from the above examples, and TD 2012/22 more generally, can be summarised as follows:

Summary of outcomes when net income is amended

During the consultation for TD 2012/22, the wording of effective trustee resolutions were discussed by the NTLG Trust Consultation Subgroup.  In the draft minutes of the 18 September 2012 meeting at item 6.2 the issue of formulaic resolutions was raised.  For example are the following effective to confer present entitlement?

  1. An amount of trust income (to the maximum extent it is available) that would ensure that Beneficiary A’s share of the net (taxable) income of the trust as determined under s. 97 does not exceed $30,000; or
  2. An amount of trust income (to the maximum extent it is available) that would ensure that Beneficiary B’s total taxable income for the income year does not exceed $80,000.

The ATO conceded that the first type of formulaic resolutions would generally be effective to create the purported entitlements, however, determined that they would not include an example in TD 2012/22 using such a resolution due to their ‘ostensible purpose of ensuring certain tax outcomes as opposed to particular trust entitlements’. Importantly however, this type of formulaic resolution may not direct any amendment to the net income to the desired beneficiary, unless there is a corresponding adjustment to the distributable income of the trust. A case on point is Donkin’s case discussed below.

Unsurprisingly the ATO does not generally accept resolutions of the second type as being effective to create a present entitlement to the income of the trust by 30 June.

Donkin’s case — amended assessment

The critical importance of understanding the trust deed and whether the wording of the trustee’s resolution is effective, particularly in the context of an amended assessment, was highlighted in the recent Tribunal case: Donkin & Ors and FCT (Donkin’s case).

In Donkin’s case, the trustee (using the first type of the above formulaic resolution) resolved that the trust’s distributable (trust law) income for the year should be distributed to each of the four individual beneficiaries in such amount as was required to equate to a specified amount of assessable income, for example in the 2012 income year:

  • each of the two minor beneficiaries — So much of the trust law income as is required to equate to $416 assessable income;
  • Mrs Donkin — So much of any further trust law income as is required to equate to $79,000 assessable income;
  • Mr Donkin — So much of any further trust law income as is required to equate to $350,000 assessable income; and
  • corporate beneficiary — The balance (if any).

Quoting paragraph 15 of the decision the definition of income was:

‘Income’ in respect of any Financial Year shall include so much of the receipt, profit or gain (or any part thereof) of the Trust Fund for the Financial Year which is assessable income for the purposes of the Tax Act that the Trustee in his discretion

(It should be noted the decision ended its extract of the definition there.)

So while the deed appeared to have an equalization clause of sorts, this definition of income effectively allowed the trustee, at his discretion, to include amounts in trust income which were assessable income for the purposes of the ITAA.

During the relevant years the trustee made a valid determination of income.

Interestingly, this determination of income did not have the effect of ensuring income of the trust was its s. 95 income, but instead it set income at an amount by reference to the taxable income ascertained by the trustee at the time. It was observed that this had ‘the effect of fixing the individual beneficiaries’ respective shares of net income as the proportion to which the specified amounts of “assessable income” bore to the trust’s s. 95 net income as ascertained by the trustee’. This is not the same as an equalisation clause that would increase distributable income if the taxable income was increased.

Amending the assessment

The Trust’s net income was increased and the Commissioner, relying on the decision in Bamford, issued amended assessments to, or for, the individual beneficiaries increasing their taxable incomes by amounts based on their share or percentage entitlement to the trust law income of the trust.

The Taxpayers contended that the effect of the resolutions was that the corporate residuary beneficiary was assessable to the increase in net income of the trust and that the amount of each individual beneficiary’s share of the net income remained constant.

The Tribunal accepted the Commissioner’s construction of the resolutions that the increase in the net income of the trust did not alter either the amount of or the entitlements to the distributable income.

The Tribunal found that the Commissioner was correct in his application of the decision in Bamford, and assessing the individual beneficiaries to the increased net income in the same proportions as he calculated they shared in the trust law income according to the resolutions.

Take away

Present entitlement to distributable income of the trust, or no present entitlement, determines where the liability for tax on the net income of the trust will fall. The interaction between the trust deed (in particular the definition of income) and the wording of the resolution will determine present entitlement.

The beneficiaries who are presently entitled to trust income will be liable for the tax on their corresponding proportion of the trust’s net income. If there is no one who is presently entitled to the trust income then it is the trustee who will be assessed.

Working backwards by first establishing the amount which we want to be taxed to a beneficiary — e.g. because the amount is under a threshold to which a lower rate of tax applies — may be effective to establish the proportion of the distributable income to which the beneficiary is presently entitled. Once that is established it will be applied to determining the share of net income which is assessable to the beneficiary. If the net income of the trust increases, this will not change the amount of or their shares of distributable income.

Understanding this interaction, and then carefully drafting the resolutions, will determine where the tax liability falls.

Further training

Interested in diving deeper into this topic? Check out our Special Topic presentation – Relevance of accounting for tax purposes.

Purchase the session or recording here:

 

Tax Yak – Episode 43: Public practice from a client’s point of view

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In this episode of Tax Yak, the Michaels yak with Ollie Visser about about his experience in public practice and now as a CFO of a large firm. The discussion covers client relationship management and how to improve the relationship with clients. Further Ollie and the Michaels discuss how clients best utilise their accountant to make decisions and mitigate risk. Finally, the group discusses recent changes in the business landscape due to COVID 19 and how this might affect public practice in the long term. The podcast concludes with a head to head between Ollie and Michael Bode in another round of TaxBanter Trivia.

Hosts: Michael Bode, Michael Messner

Guest: Ollie Visser, CFO @ Video Pro Group

Recorded: 28 May 2020

Year end 2020 tax planning – foreign residents and sale of main residence

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The significance of 30 June 2020 for foreign residents selling their Australian home

On 9 May 2017, as part of its 2017–18 Federal Budget, the Government announced that it would remove the ability of foreign residents to access the CGT main residence exemption (MRE) in Subdiv 118-B of the ITAA 1997. On 12 December 2019, the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 was enacted.

The measures apply retrospectively to CGT events happening on or after 7.30 pm (AEST) on 9 May 2017. The changes only affect non-resident individual taxpayers (not residents or temporary residents).

A transitional rule will not deny the MRE to a taxpayer who held the dwelling immediately before that time if:

  • they are a non-resident at the time of the CGT event;
  • they held an ownership interest in the dwelling at all times from immediately before the announcement until immediately before the CGT event happens; and
  • the CGT event happens on or before 30 June 2020.

The transitional rule was designed to allow affected taxpayers until 30 June 2020 to sell their former Australian homes without losing access to the full or partial MRE that they would have been entitled to under the former law.

Nevertheless, there may be foreign resident clients who decide to delay the sale of their property until after 30 June 2020, despite the MRE potentially no longer being available to them. Reasons for such a decision may include the following:

  • Australia’s domestic travel restrictions and bans on public inspections and auctions have limited the opportunity to sell at the desired price in a timely manner;
  • tenants in home quarantine following overseas travel or a suspected or confirmed case of COVID-19 have not allowed private property inspections to be conducted for a period of time;
  • the foreign resident owner is considering returning to Australia to live due to the impact of the Coronavirus on their current job or living conditions in their country of residence;
  • the foreign resident owner’s plans (e.g. travel, a change of job, a property purchase) have been delayed or cancelled due to the Coronavirus and they now do not wish to sell the property until there is greater certainty in their revised plans.

The following case study sets out some key matters to consider, regardless of whether the taxpayer sells their property by 30 June 2020 or after that date.

Case study

Facts

Sarah is a lawyer. She commenced her career in Melbourne and purchased a townhouse for $620,000 on 1 July 2017 (contract date). Sarah moved into the townhouse in October 2017, shortly after settlement.

In January 2019, Sarah became engaged to a Canadian citizen, Tom, who had been working in Melbourne for several years on secondment from his Canadian employer. Tom was scheduled to return to his employer’s Vancouver office in August 2019. Sarah decided to move to Vancouver with him on a permanent basis.

Sarah secured a permanent role with a law firm in Vancouver commencing in August 2019.

During June and July 2019, Sarah sold or otherwise disposed of her belongings, closed her Australian bank accounts and cancelled local memberships. She accepted a tenant in her townhouse on a 12 month lease commencing on 1 August 2019. At that time, the market value of the townhouse was $760,000. Sarah and Tom flew to Vancouver on 1 August 2019.

Sarah received advice from a registered tax agent that she became a non-resident for Australian tax purposes on 1 August 2019.

Question

Sarah and Tom married in Vancouver in December 2019. They had been living in an inner-city rental apartment since their arrival. They have decided to purchase a suburban family home in Vancouver. To assist in financing this purchase, Sarah disposed of her townhouse for $800,000 on 1 May 2020 (contract date).

What are the relevant tax issues for Sarah to consider for the 2019–20 income year in relation to the disposal?

Key discussion points

Residency

The first issue that needs to be considered is whether Sarah is a resident or non-resident for Australian tax purposes at the time of the CGT event arising from the sale of the townhouse — i.e. 1 May 2020. In this case, Sarah has been a non-resident since 1 August 2019.

Foreign resident CGT withholding

At settlement, 12.5 per cent of the proceeds — $100,000 — have been forwarded to the ATO on Sarah’s behalf under the foreign resident CGT withholding regime.

Once Sarah has completed her Australian income tax return for the year ended 30 June 2020, the withheld amount will be available as a credit towards any tax payable.

Main residence exemption

Although Sarah disposed of her townhouse prior to 30 June 2020, the transitional rule in relation to the removal of the MRE does not apply. This is because she did not own the townhouse immediately before 7.30 pm (AEST) on 9 May 2017.

Therefore, the new rules apply and she cannot apply the MRE to any portion of the capital gain.

Capital gain on disposal

Sarah makes a capital gain of $180,000 on the disposal of her townhouse (proceeds $800,000 less cost base $620,000).

The market value as at 1 August 2019 is not relevant in this calculation. The cost base of the property is not reset to the market value at the time it was first used to produce income because the MRE rules do not apply.

Discount percentage

The relevant discount percentage is calculated depending on when the asset was acquired and when the taxpayer became a non-resident. Section 115-115 of the ITAA 1997 provides for three different scenarios where the taxpayer was a foreign resident at the time of the disposal. The formula applicable to Sarah is:

main residence

Sarah’s taxable capital gain is therefore $180,000 reduced by 36.7277992 per cent to $113,890.

Reconciliation

Sarah is eligible for the discount for the portion of the capital gain that accrued during her 761 days of Australian residency and not eligible for the discount for the portion of the capital gain that accrued during her 275 days of non-residency.

The capital gain of $180,000 × 761 residency days ÷ 1,036 total days = capital gain of $132,220.  If the discount of 50 per cent was applied, the taxable discount gain would be $66,110.

However, the part of the capital gain attributable to the 275 non-residency days is not subject to discounting at all. That is, $180,000 × 275 ÷ 1036 days = $47,780.

Therefore, Sarah’s taxable capital gain is $66,110 + $47,780 = $113,890.

Note
The calculation of a taxable capital gain on disposal of a main residence may take into account the overall proportion of the ownership period during which the property was the taxpayer’s main residence, but it does not generally require the gain to be attributed to a specific period of time, with two key exceptions:

    • deemed acquisition at the time the property was first used to produce income in the MRE calculation rules ( s. 118-192); and
    • the calculation of the applicable discount percentage for foreign or temporary residents under s. 115-115 — the discount is restricted to only the days on which the taxpayer was a resident.

Alternative scenarios for consideration

Sarah acquired property before 9 May 2017

If Sarah had owned the townhouse immediately before 7.30 pm (AEST) on 9 May 2017, and the disposal occurred:

  1. By 30 June 2020 — the transitional rule would apply and Sarah would have been entitled to apply the MRE. Sarah would be able to utilise the six year absence rule in s. 118-145 to reduce her taxable capital gain to nil.

The deemed market value cost base (as at 1 August 2019) rule provided in s. 118-192 would also be available but unnecessary in this situation as she had rented out the property for fewer than six years and did not own another property during that time.

  1. After 30 June 2020 — the transitional rule would not apply and the taxable capital gain would not be reduced by the MRE.

Assuming that she did not become a foreign resident until after she acquired the property, the capital gain (reduced by the partial MRE if applicable) would also be eligible for discounting at a rate of less than 50 per cent. The actual discount percentage under s. 115-115 would depend on the date of acquisition and the date that Sarah became a non-resident. For example, if Sarah had acquired the property in May 2015 whilst a resident and then became a non-resident May 2016, she would be entitled to a partial discount for the capital gain attributable to the period of her residency (one year).

Reference
The ATO has prepared a CGT discount worksheet to assist in calculating the applicable CGT discount for a foreign resident.

Sarah became a foreign resident before 8 May 2012

The date that Sarah became a foreign resident is relevant because the CGT discount rules for foreign residents changed with effect from 8 May 2012.

Where Sarah became a foreign resident AND acquired the property before 8 May 2012, Sarah may have been eligible to choose to effectively ‘reset’ the cost base of the townhouse to its market value on 8 May 2012 for the purposes of calculating the discount percentage (but not for calculating the gross capital gain). Under this approach, the CGT discount takes into account the capital gain accrued prior to 8 May 2012.

Where Sarah became a foreign resident before 8 May 2012 but did not acquire the townhouse until after that date, she would not have been entitled to any discount percentage at all (assuming she did not resume Australian tax residency at any time before the disposal).

 

The interaction between the recent changes to the MRE for foreign residents and the CGT discount rules for foreign residents can be explained in detail for current in-house clients as an alternative special topic. Please contact our admin team at enquiries@taxbanter.com.au to change your monthly special topic.

If you’re not a TaxBanter client and you’re interested in this presentation, feel free to email us and our team can send through further information about how our team can tailor this training to your organisation.

 

Tax Yak – Episode 42: Not-for-profits and the economic stimulus measures

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In this episode of Tax Yak, Michael Doran of TaxEd speaks with Jennifer Moltisanti of the Australian Taxation Office about the range of economic stimulus measures to support Not-for-profits. This episode will assist accounting practitioners to manage tax related matters for their NFP and charity clients, including eligibility, enrolment and reporting for the JobKeeper payment scheme.

Resources:

Host: Michael Doran

Guest: Jennifer Moltisanti, Assistant Commissioner, Not-for-Profit Centre and Government

Recorded: 28 May 2020

Tax Yak – Episode 41: Eligible Business Participant vs Employee

Posted on by thriveadmin

Lee and the two Michaels discuss when an eligible business participant under Jobkeeper legislation could in fact be an employee and what the consequences, advantages and disadvantages of this would be. They discuss the underlying legislation, applicable case law, rulings and the potential approach from the ATO on this matter.

To finish off the episode they engage to see who takes the tax trivia crown for this episode.

Host: Michael Bode

Guest: Lee-Ann Hayes and Michael Messner, Senior Tax Trainers

Recorded: 15 May 2020

How does the ATO obtain taxpayer information?

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The ATO’s power to access taxpayer information

The ATO’s wide-ranging formal and informal information gathering powers are supported by an arsenal of powerful computers, connections with other government bodies and an array of sanctions to assure cooperation, which collectively give it a broad and detailed view of the taxpayer population.

It is well known that the ATO has legislative powers — often referred to as ’coercive powers’ — to  issue notices to request and obtain information from taxpayers and their advisers.

Currently, the ATO’s generally preferred strategy is to request information from taxpayers using a cooperative approach without involving the use of its statutory powers unless necessary.

Through mandatory reporting of a vast range of payments and transactions by the payers, payees, government bodies and other third parties, the ATO also has access to vast amounts of data about taxpayers that are held by third parties, including from overseas.

These developments, mainly over the past decade, mean that the scales between the taxpayer and the Commissioner in relation to information gathering have now arguably tipped in favour of the Commissioner. Further, the statutory burden of proof rests on the taxpayer.

However, the ATO’s access powers are not unlimited. Taxpayers and their advisers need to know their rights and the protections available to them in the face of such broad powers and resources.

Why is the burden of proof — and record keeping — important?

In a Tribunal review or Federal Court appeal in relation to a tax assessment, Pt IVC of the TAA imposes a statutory burden on the taxpayer to prove:

  • that the assessment is excessive or otherwise incorrect; and
  • what the assessment should have been.

There is a legal presumption that a Commissioner’s assessment is correct unless the taxpayer produces evidence to prove what it should be.

Therefore, it is imperative that taxpayers retain records (business and personal) in relation to their tax affairs to support their position in the case of an ATO review or audit, or Tribunal / Court proceedings.

In addition, it is a legal requirement to keep records (generally for five years) — penalties apply for non-compliance.

What are the Commissioner’s powers?

Formal power to issue a notice

The Commissioner has three distinct formal powers to issue:

  1. a notice to give information
  2. a notice to attend and give evidence
  3. a notice to produce documents

Note: The Commissioner is permitted to issue a formal notice to a third party (e.g. a bank) without seeking the express consent of a taxpayer beforehand.

The Commissioner’s powers extend to obtaining a taxpayer’s electronic information.

Clients may consider bringing their own legal representation or other professional adviser to a meeting when responding to a notice to attend and give evidence (i.e. an interview).

Care should be exercised in order to ensure that each of the particulars in the formal notice is responded to in full.

Formal power to access premises

Authorised ATO officers have the power to enter the premises of taxpayers or third parties (e.g. advisers) and to have ‘full and free’ access to documents and other property on the premises.

The Courts have held that the Commissioner’s power of ‘full and free access’ to all buildings and documents is an unrestricted right, subject only to its exercise being in good faith.

Upon entry to premises, each ATO officer is required to show the occupier of the premises their written authorisation upon request by the occupier.

Are there penalties for not complying with a notice or denying access?

Penalties for not complying with a notice or denying access to premises and documents include financial penalties and/or up to two years’ imprisonment.

The Commissioner’s informal powers

The ATO states that it prefers to gather taxpayer information by ‘simply requesting it from you’. It is within the Commissioner’s general powers of administration to request and obtain information without using formal powers. However, if the ATO cannot obtain the information in a cooperative way, it may use its formal powers. The ATO may also use formal powers at the outset in certain circumstances.

Reference: ATO online guide titled ‘Our approach to information gathering’ (QC 56551).

The Commissioner’s powers to obtain third party data

The ATO has a number of mechanisms through which it may gather a taxpayer’s information from third parties, including:

Managing information requests

Questions to consider when managing document requests

Upon the receipt of a request — whether formal or informal — for information and/or documents, consider the following questions:

  1. Should only the information that has been specifically asked for be provided or is there additional information which should be provided to assist the taxpayer?
  2. Does any of the requested information seem irrelevant to the dispute? If so, the taxpayer can ask for clarification about why the information is relevant.
  3. How should the response be phrased and relevant documents packaged, to give the most favourable view to the taxpayer’s position?
  4. Is there contemporaneous documentation or other evidence to support the response or is the statement merely an unsupported assertion by the taxpayer?
  5. Does legal professional privilege, the accountants’ concession, the corporate board concession, or any other privileges or immunities apply to limit disclosure of any documents?

Good record-keeping practices when managing information requests

The taxpayer and their adviser should apply appropriate procedures, for example, to ensure that:

  • a copy of all documents provided to the ATO is kept in a separate file, with a cross-reference to the location of the original document;
  • all responses are provided within the relevant timeframe, or where it is not possible, the ATO is notified as soon as possible, and prior to the due date, and an extension arranged;
  • all communications with the ATO, including phone calls and interviews, and the provision of documents and other information, are documented;
  • a record is kept of the electronic data accessed by the ATO; and
  • a scribe is present at each meeting with the ATO in order to accurately document matters discussed.

Should a settlement be considered?

The ATO may seek information or documents at any time, including prior to compliance activity, or during a specific review or audit. Where there is a possibility of entering a settlement with the ATO, it should always be considered on its merits, as they form a critical part of holistic dispute resolution strategy.

A written settlement agreement executed with the Commissioner may serve to expedite disputes where the client and/or the ATO make concessions on what they consider is the legally correct position. In addition, there may be implications for the client’s administrative, time and financial costs in protracting a dispute, including potentially extensive information-gathering tasks that may be required to satisfy the ATO’ information requests.

 

Interested in more information on this topic? We can help!
Click below for details and registration info for our special topic webinar, ATO Access Powers.
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JobKeeper – new rules and ATO guidance

Posted on by thriveadmin

Looking for the latest coverage on JobKeeper? Check out our new JobKeeper 2.0 blog!

Background

The Banter Blog article titled The JobKeeper Payment, published on 17 April 2020, outlined the operation of the Government’s $130 billion JobKeeper Payment scheme which was enacted on 9 April 2020 (the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Act)). On the same day, the Treasurer registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the Rules), which set out the Treasurer’s rules to give effect to the JobKeeper scheme.

Since the previous Banter Blog article was published, the landscape has been rapidly changing, with substantial amendments to the JobKeeper payment rules registered on 1 May 2020, and as the ATO continuously issues new guidance.

This article provides links and brief details of the new information to assist practitioners and their clients to locate these resources.

Note:
This article does not provide technical analysis and is not an exhaustive reference to ATO guidance.

Changes to the rules

Amending Rules No. 2

On 1 May 2020, the Treasurer registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020 (Amending Rules No. 2).

The Amending Rules No. 2 refine and clarify elements of the JobKeeper scheme. In particular, they:

  • provide a modified decline in turnover test for certain group structures (see below) involving the use of employer entities (service entities);
  • adjust the way in which Commonwealth payments are treated when calculating a university’s turnover;
  • extend the scheme to certain public funds that undertake overseas aid and disaster relief;
  • adjust the way in which payments made by the government and the United Nations are treated when calculating a charity’s turnover;
  • include a notification requirement to confirm that all eligible employees of a participating entity must be given the opportunity to agree to be nominated;
  • impose additional requirements that must be met for individuals who were 16 or 17 years old on 1 March 2020 to be eligible nominees;
  • extend the JobKeeper scheme to include religious practitioners that are not employees; and
  • make various consequential and minor technical amendments.


Modified test for employer entities

The modified decline in turnover test will apply to an employer entity that is a member of a consolidated group or a consolidatable group (for the purposes of Div 703 of the ITAA 1997), or a GST group (for the purposes of Div 48 of the GST Act). Very broadly, in calculating its decline in turnover, the employer entity may choose to replace its turnover figures with the sums of the turnovers of the group members to which it supplies employee labour services. The ATO has also released an online fact sheet titled Modified basic test for group employer entities (QC 62132) to provide guidance on how to apply the modified test.

New ATO guidance

The Commissioner’s alternative decline in turnover tests

On 23 April 2020, a Legislative Instrument titled Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020 was registered. The Legislative Instrument sets out alternative decline in turnover tests (the alternative tests) where there is not an appropriate relevant comparison period in 2019. There is a separate alternative test for each of seven classes of entities.

Note:
If an entity satisfies the basic test, it does not need to also satisfy an alternative test. Further, an alternative test cannot make the entity ineligible, if the entity is eligible under the basic test.

The ATO’s updated web guidance on the alternative tests provides worked examples for some of the alternative tests.

Each alternative test has eligibility criteria that must be met in order for the entity to apply the test.

One of the alternative tests applies to a scenario where the entity’s turnover has ‘substantially increased’ over a period of three, six or 12 months. In determining the increase in turnover over a 12-month period, where the test month is April 2020, the ATO states:

[t]o test if your entity’s current GST turnover increased since the start of April 2019, compare the current GST turnover for March 2019 with the current GST turnover for March 2020.

This clarifies common questions about which months to compare to determine eligibility (i.e. whether the March 2020 turnover should be compared to the turnover for April 2019 or March 2019).

PCG 2020/4 — Schemes in relation to the JobKeeper payment

Practical Compliance Guideline PCG 2020/4 (the Guideline) provides guidance on how the ATO will apply their compliance resources to schemes to obtain access to the JobKeeper payment, or an increased amount of a JobKeeper payment.

Section 19 of the Act, under the heading ‘Contrived Schemes’, provides that the Commissioner may determine that an entity was never entitled to a JobKeeper payment or was entitled to a different amount, where any entity entered into or carried out a scheme for the sole or dominant purpose of enabling the entity claiming JobKeeper to obtain or increase its entitlement to the JobKeeper payment.

The Guideline indicates that the Commissioner will particularly be concerned in circumstances where:

  • the entity’s business is not significantly affected by external factors beyond its control; and/or
  • the entity access or increases JobKeeper payment entitlements in excess of those that would maintain pre-existing employment relationships.

The eight examples in the Guideline cover:

  • the types of schemes to which the Commissioner would be likely to apply his compliance resources — Examples 1, 2, 3 and 8; and
  • the types of schemes in relation to which there is a low risk that the Commissioner would apply his compliance resources — Examples 4, 5, 6 and 7

 

PS LA 2020/1 — Commissioner’s discretion to allow further time to register for an ABN or provide notice of assessable income or supplies

Law Administration Practice Statement PS LA 2020/1 (the Practice Statement) applies for the purposes of satisfying the eligibility criteria for the cash flow boost or the JobKeeper payment in respect of an eligible business participant.

Relevantly, for both purposes, the entity must have:

  • had an ABN on 12 March 2020 (or a later time allowed by the Commissioner);
  • either:
    • had an amount included in its assessable income in the 2018-19 income year in relation to it carrying on a business, or
    • made a taxable supply in a tax period starting on or after 1 July 2018 and ending before 12 March 2020; and
  • given the Commissioner notice on or before 12 March 2020 (or a later time allowed by the Commissioner) that the amount of income should be so included, or that the entity had made the taxable supply.

The Practice Statement provides guidance on the relevant circumstances that should be taken into account when the Commissioner is considering whether to grant further time for an entity.

The Practice Statement assists in answering common questions in respect of those entities that had not lodged a 2019 income tax return by 12 March 2020 — e.g. where they commenced business after 30 June 2019, or are subject to a tax agent extension for lodgment until 15 May 2020 — and also had not lodged a BAS by 12 March 2020 or are not required to (for example, because they are not required to be registered for GST).

The Commissioner does not have the discretion to extend the date by which an entity can derive an amount of assessable income or make a taxable supply. The Commissioner can only extend the date by which notice is provided. Therefore the Commissioner cannot exercise the discretion in respect of all entities who do not satisfy the notification requirement.

If an entity needs to speak to the ATO about their eligibility, more information about this in relation to the cash flow boost is on the ATO website at the below links. Essentially, you need to contact the ATO and provide more information.

There is currently no corresponding information in relation to the JobKeeper payment, however it is likely that the same principle would apply — i.e. contact the ATO and provide additional information.

LCR 2020/1 — decline in turnover test

Law Companion Ruling LCR 2020/1 (the Ruling) is intended to assist in working out when an entity has met the decline in turnover test, including in the identification of relevant supplies, allocation of supplies to relevant periods and the value of each supply.

As an alternative to allocating a supply to a relevant period and then determining its value based strictly on the time the supply is made (which may be difficult to determine), the Commissioner will allow an entity to use the following alternative methods:

  • accrual accounting;
  • GST attribution basis; or
  • income tax accounting — where the entity is not registered for GST.

The Ruling states that it supplements guidance on the ATO’s website and that ‘[i]t is not our intent to focus compliance resources on circumstances where you have already used guidance on our website in good faith to determine whether you satisfy the decline in turnover test.’

 

Need further guidance on the JobKeeper Payment? We can help.
Click below for details and registration info for a comprehensive JobKeeper training session. Group discounts are available.

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