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GST through an entity’s life cycle

Posted on by thriveadmin

Australia’s Goods and Services Tax, better known by its acronym of GST, will be celebrating its 21st birthday in 2021. Will it receive a birthday cake?

… If it is a cake shop, a cake from a cake shop that has sales tax, and it’s decorated and has candles as you say, that attracts sales tax, then of course we scrap the sales tax, before the GST is …

Former Liberal leader John Hewson’s answer to the question of
whether or not a birthday cake would cost more or less under
the proposed GST than sales tax, in the lead up to the 1993 Federal election

GST in Australia collects approximately $65 billion in net revenue and applies to 47 per cent of Australia’s national consumption.

The Government’s Budget data shows that GST is estimated to be the third largest source of taxation revenue at almost 14 per cent of total revenue:

Taxation (accrual) revenue as a percentage of total revenue (estimates)

Source: Parliament of Australia, Budget review 2019–20: Revenue

GST exemptions often lead to significant complexity and compliance costs for Australian businesses.

For example, a delicatessen/supermarket in Australia will sell olives, ham and cheese separately all GST-free to a customer but must charge GST when they sell an antipasto platter — comprising those ingredients — to the same customer.

GST considerations arise, and decisions need to be made, as an entity traverses the GST system throughout its entire life cycle — from the commencement of its enterprise (if any) to its exit from the system.

The first question is always: ‘does an enterprise exist?’ ― an entity is not required to be and cannot be part of the GST system unless carrying on an enterprise.

If an enterprise exists ― it must then be determined whether the entity has a choice or not in relation to three key variables for operating within the GST system:

  • Registration ― voluntary vs compulsory
  • Tax periods ― monthly vs quarterly (in limited circumstances ― annual)
  • Accounting/attribution method ― cash vs non-cash (accruals).

If a choice exists for any of these variables ― the entity and their adviser need to be aware of the factors which are relevant in deciding which option to use.

When an entity is in its set-up or commencement phase, GST issues which may require discussion include:

  • pre-establishment costs;
  • government taxes, fees or charges;
  • obtaining local council approvals;
  • insurance policies;
  • financing; and
  • requirements of GST documentation.

During the operating phase, issues which need to be contemplated include:

  • mixed versus composite supplies;
  • trading with associates;
  • adjustment events;
  • denied or restricted input tax credits;
  • lodgment and payment obligations; and
  • industry specific rules.

Particular difficulties arise on cessation of the enterprise in determining at what point of time potential GST liabilities on transactions involving former assets of the entity will cease, giving rise to potential GST liabilities. Other cessation issues include:

  • determining a concluding GST tax period;
  • compulsory vs voluntary cancellation;
  • adjustment events on cessation of registration; and
  • selling the enterprise as a GST-free going concern.

Further info and training

Join us as we discuss GST in our public sessions throughout the rest of February, along with our monthly Online Special Topic presentation!

GST – from the commencement of an enterprise to its closing dives into the GST tricks, traps and time bombs, that remain as relevant today for tax practitioners as they were on 1 July 2000. Each session comes with a supporting technical paper.

Registration options: 

A timely change to the FBT car parking exemption rules

Posted on by thriveadmin

[lwptoc]

Background

Car parking on site for employees is a commonly provided benefit — often provided perhaps without any thought to the FBT consequences. Whilst previously this inattention may not have mattered, a recent preliminary change in the ATO’s position, on when a car parking fringe benefit arises, increased the potential for a car parking fringe benefit to arise.

Luckily a timely change, announced in the 2020–21 Federal Budget and legislated by the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 (the Economic Recovery Act), has restored the status quo for many employers. This legislative change, effective 1 April 2021, will result in many employers now qualifying for a car parking fringe benefits exemption, where previously they did not.

Legislative context

In applying the FBT rules, it is necessary to identify the benefit first and then see if an exemption applies.

A ‘car parking fringe benefit’ is defined in s. 136(1) of the FBTA Act as a fringe benefit that is a ‘car parking benefit’.

Broadly, under s. 39A of the FBTA Act, a person provides a ‘car parking benefit’ on a particular day when, between 7.00am and 7.00pm:

  1. a car is parked at a work car park for the minimum parking period;
  2. an employee uses the car in connection with travel between their place of residence and primary place of employment at least once on that day;
  3. the work car park is located at or in the vicinity of the primary place of employment, on that day;
  4. a commercial parking station is located within a one kilometre radius of the work car park used by the employee;
  5. the lowest representative fee charged by any commercial parking station for all-day parking within a one kilometre radius of the work car park exceeds the car parking threshold;
  6. the parking is provided to the employee in respect of their employment; and
  7. the parking is not excluded by the regulations.

A car parking benefit provided in respect of an employee is exempt, under s. 58GA of the FBTA Act, where:

  • the car is not parked at a commercial parking station;
  • the employer is not a public company or a subsidiary of a public company;
  • the employer is not a government body; and
  • for the income year ending before the start of the FBT year, the employer’s assessable income is less than $10 million or alternatively, it is a ‘small business entity’ (SBE) as defined in s. 328-110 of the ITAA 1997.

What’s changing?

Preliminary change in ATO position

On 13 November 2019, the Commissioner issued draft Taxation Ruling TR 2019/D5 titled Fringe benefits tax: car parking benefits (the draft Ruling), setting out the Commissioner’s preliminary views on when the provision of car parking is a ‘car parking benefit’ for the purposes of the FBTA Act.

The Commissioner’s view in the draft Ruling, which will replace TR 96/26 once finalised, now recognises that a car park, which satisfies all other requirements, can still be considered a ‘commercial parking station’ even if:

  • its contractual terms restrict who may use the car park, provided any member of the public that accepts these restrictions can use the car park;
  • its fee structure discourages all-day parking with higher fees.

The implication is that public car parks attached to hospitals, shopping centres and universities could potentially be a commercial car park. If these are in an employer’s one kilometre radius, a car parking fringe benefit may arise.

This is a departure from the Commissioner’s previous position which was that car parking facilities, with a primary purpose other than providing all-day parking, that usually charge penalty rates significantly higher than the rates chargeable for all-day parking at commercial all-day parking facilities are NOT commercial car parks.  The Commissioner specifically stated that parking provided for short term shoppers or hotel guests was not parking at a commercial car park. That view has now changed.

It is important to note, however, that it is a draft ruling and therefore reflects only the ATO’s preliminary position (and therefore is not binding on taxpayers or the Commissioner). In its ‘advice under development’ page for the draft Ruling, the ATO advises that:

  • it has received a significant number of submissions during consultation including feedback on the changed view for car parking stations that charge penalty rates to discourage all-day parking, and the potential impact of this changed view on employers;
  • in recognition of the fact that employers will require time to implement these changes following finalisation of the Ruling, it has determined that when the final Ruling is published, any changes in view from TR 96/26 will apply from 1 April 2021.

At the time of publication this ruling had not been finalised.

Legislative change

The Economic Recovery Act, which received Royal Assent 14 October 2020, makes amendments to extend the FBT exemption in relation to small business car parking.

These amendments introduce a new class of entities eligible for the exemption by including entities that would be SBEs if the $10 million threshold in the aggregated turnover test was instead $50 million.

Accordingly, these amendments allow entities with an aggregated turnover of less than $50 million to be eligible for an exemption from FBT on car parking benefits provided to employees.

These amendments apply to car parking benefits provided to employees from 1 April 2021.

What do these changes mean?

Whilst the ATO’s view is far from finalised, it is comforting to know that the impact of any change in position will be sheltered somewhat by the legislative amendments that will take effect from 1 April 2021.

More generally however, increasing the turnover threshold for when employers will need to contemplate the FBT car parking rules will reduce compliance costs for these businesses and reduce their FBT liability.

Further info and training

Need assistance with preparing the FBT return this year? Our affiliate TaxEd is here to help!

Registrations are now open for the annual FBT Roadshow, where we will cover key issues that are relevant to Government and NFP employers when preparing the 2021 FBT return. 2020 was an interesting year in tax (to say the least!) and quite a bit of changes will be covered. Full details are listed in the links below.

If you prefer online learning, they are also offering a comprehensive webinar on two different dates.

Note: The FBT Roadshow is training specific for Government and NFP employees. If you’d like FBT training tailored to your organisation, please email us and we will be in touch.

Tax Yak – Episode 50: GST tricks, traps and time bombs

Posted on by thriveadmin

In this episode of Tax Yak, George Housakos yaks with Nick Kallinikios, Consulting Director at ShineWing Australia and GST Director at Cornwalls, about Australia’s Goods and Services Tax. Nick is an accredited GST specialist, having commenced his tax career at the ATO in 1983, before joining the in-house tax team at a big four bank for 12 years and for close to 20 years at a Big Four accounting firm where he led the national Indirect Tax practice. We will be taking a deep dive into GST tricks, traps and time bombs, that remain as relevant today in 2021 as they were on 1 July 2000, when GST was introduced into Australia.

Hosts: George Housakos & Nicole Rowan, Senior Tax Trainers @ TaxBanter

Guests: Nick Kallinikios, Consulting Director @ ShineWing Australia and Cornwalls

Recorded: 20 January 2020

The JobMaker Hiring Credit scheme explained

Posted on by thriveadmin

[lwptoc]

On 4 December 2020, the Treasurer registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 9) 2020 (the Amendment Rules) to set out the details of the JobMaker Hiring Credit scheme (the Scheme), which provides eligible employers with a payment of up to $200 per week in respect of each eligible employee, who works at least 20 hours per week, for a period of up to 12 months.

The Economic Recovery Package (JobMaker Hiring Credit) Amendment Act 2020, which was enacted on 13 November 2020, enables the Treasurer to make rules in relation to the Scheme. The Amendment Rules amend the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (which also contain the JobKeeper Payment rules) to incorporate the JobMaker provisions.

Important:
Also on 4 December 2020, the Commissioner registered a Legislative Instrument titled the JobMaker Hiring Credit Reporting Obligations Instrument 2020 which sets out what, how and when employers must report in relation to the Scheme. Our Banter Blog article JobMaker reporting obligations summarises this Instrument and the corresponding ATO guidance.

Summary of the JobMaker rules

The JobMaker periods

The JobMaker Hiring Credit will be available to eligible employers for a limited period. There will be eight ‘JobMaker periods’:


Interaction with the JobKeeper Payment scheme

The JobKeeper Payment scheme ends on 28 March 2021 and therefore it overlaps with the first two JobMaker periods.

An entity cannot participate in both the JobKeeper scheme and JobMaker scheme simultaneously. Specifically, an entity cannot participate in the JobMaker scheme if they are entitled to receive a JobKeeper payment in respect of an individual for a JobKeeper fortnight that begins during the JobMaker period.

The prohibition on JobKeeper fortnights that begin during a JobMaker period allows an entity to have a single JobKeeper fortnight end at the start of a JobMaker period. The ‘permitted’ JobKeeper fortnights are: (i) 28 September to 11 October 2020; and (ii) 4 January to 17 January 2021.

Permitting this overlap allows an entity to cease its participation in the JobKeeper scheme and begin its participation in the JobMaker scheme without requiring a ‘gap’ between the two schemes.

An entity that transitions from the JobKeeper scheme to the JobMaker scheme can employ an eligible employee during a JobMaker period for which the entity is not entitled to receive a payment under the JobMaker scheme.

The payment rates

The JobMaker Hiring Credit will be claimable at the following rates:

NoteNote:
The Northern Territory Government has announced, as part of its 2020–21 Budget, a supplement to the Commonwealth JobMaker Hiring Credit scheme. Eligible Territory small businesses will receive:

    • $100 per week for eligible employees between 30 and 35 years of age;
    • $200 per week for eligible employees over 35 years of age.

An eligible employee must be able to show that they were eligible for an Australian Government employment program, such as Jobseeker, Community Development Program or Jobactive, prior to 15 December 2020.

Employers can register for the scheme from 15 December 2020, and claims can be made from February 2021 on a quarterly basis. Payments will be made to eligible employers retrospectively on a quarterly basis.

Eligible employers

An employer qualifies for the payment for an ‘eligible additional employee’ (see below) in respect of a JobMaker period if it:

  • carries on a business in Australia, is a non-profit body pursuing its objectives principally in Australia or is a deductible gift recipient;
  • has an ABN;
  • is a registered PAYG withholder;
  • at claim time — has no outstanding income tax or GST returns that were due in the two years ending at the end of the period.

These conditions must be met from the time the employer notifies the Commissioner that it elects to participate in the scheme.

Important: There is no requirement that the business must have existed or commenced by 6 October 2020 or any other date. An employer may claim JobMaker payments from the period in which it first meets all of the eligibility requirements, regardless of when the business commenced.

Excluded and disqualified employers

Entities that have been subject to the major bank levy, government agencies, sovereign entities, and entities in liquidation or which have entered into bankruptcy are ineligible.

In addition, an entity is ‘disqualified’ for the Scheme for a period — and all subsequent periods — if:

  • at or before the end of the period — the entity terminates an employee’s employment, or reduces their ordinary hours of work; and
  • this is done, with one or more other actions, as part of a scheme for the sole or dominant purpose of the entity obtaining a JobMaker Hiring Credit payment, or increasing the amount to which the entity is eligible, for one or more periods. The ‘other actions’ may include engaging one or more eligible additional employees.

Eligible additional employees

An employer can only claim a JobMaker hiring credit for one or more eligible additional employees in respect of a JobMaker period. An eligible additional employee is an individual who meets the following criteria:

NoteNote:
The Explanatory Statement to the Amendment Rules state that the Scheme is targeted at younger people as they have been disproportionately impacted by the COVID-19 pandemic. While the 15 to 34 year old cohort represented around 40 per cent of those that are employed, it accounts for approximately 95 per cent of the total fall in employment between March and October 2020.

Excluded persons

The following persons are excluded from being an eligible additional employee:

Section 995-1(1) of the ITAA 1997 defines the relative of a person as the person’s spouse, the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person’s spouse; or the spouse of the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person’s spouse.

Also excluded are employees who at any time between 6 April 2020 and 6 October 2020 were engaged other than as an employee — i.e. as a contractor — where they worked in a substantially similar role or performed substantially similar functions or duties.

Requirement to increase employment

The employer must also satisfy both the ‘headcount increase’ and ‘payroll increase’ conditions to ensure that the entity creates a substantive increase in overall employment levels.

The headcount increase requirement

The employer must have a ‘headcount increase’ for the period to prevent it from replacing existing employees with new employees who are eligible for JobMaker but without creating additional employment overall.

The employer has a headcount increase for the period if the number of employees at the end of the last day of the JobMaker period exceeds the entity’s ‘baseline headcount’ for the period. This increase in employees in comparison to the baseline headcount is the ‘headcount increase amount’.

Query — Who is included in the headcount?
The headcount includes all employees — full-time, part-time, casual, fixed-term and non-fixed term, regardless of whether they are eligible for JobMaker. The headcount excludes contractors and sub-contractors.

The baseline headcount

An entity’s baseline headcount for the first to the fourth JobMaker periods — i.e. from 7 October 2020 to 6 October 2021 — is the number of employees at the end of 30 September 2020.

As a very simple example, if between 30 September 2020 and the end of the relevant period an entity employs five eligible additional employees but two existing employees resign, the entity’s headcount has increased by three.

For the fifth to the eighth JobMaker periods — i.e. from 7 October 2021 to 6 October 2022 — the entity will need to increase its baseline headcount by the higher of the following:

Essentially, the headcount increase number for the periods in the second year of the scheme will be adjusted to reflect changes in headcount in the first year. The ATO will automatically calculate the adjusted baseline headcount and put it in the employer’s claim form for these periods. The ATO will provide information about how it calculates it at a future date.

Reference
For the specific details of how to calculate an entity’s headcount increase for a particular JobMaker period, refer to:

The payroll increase

The employer must have a ‘payroll increase’ for the period. The condition is satisfied for a JobMaker period if:

total payroll amount > baseline payroll amount

The total payroll amount is the sum of the payroll amounts for each of the entity’s employees for each pay cycle that ended during the JobMaker period.

The baseline payroll amount is the sum of those amounts for a reference period that ended on or immediately before 6 October 2020 (by reference to an equivalent number of pay cycles as the number of pay cycles in the JobMaker period).

The excess of the total payroll amount over the baseline payroll amount is known as the payroll amount.

NoteNote:
Where a new business began after 6 October 2020, the baseline payroll amount will be zero.

Where the business only started employing employees part way through the three months up to 6 October 2020, the baseline payroll will simply include the payroll expenses. The fact that it was only part of a period does not require any adjustments to be made.

Amounts included in payroll calculations

The amounts taken into account in these calculations are:

  • amounts paid by the entity to the employee by way of salary, wages, commission, bonuses or allowances;
  • PAYG amounts withheld by the entity from those payments;
  • salary sacrificed superannuation contributions; and
  • other salary sacrificed amounts.

Payments which do not count include:

  • government paid parental leave;
  • workers’ compensation absence;
  • reimbursement of expenses;
  • directors’ fees (that are not salary and wages);
  • lump sum payments (lump sum A, B, D and E);
  • exempt foreign income;
  • eligible termination payments;
  • fringe benefits provided to an employee which are not part of an effective salary sacrifice arrangement;
  • mandatory SG contributions.

Payroll includes and excludes the same items as for the wage condition for JobKeeper, although the period is worked out differently.

Payment

Calculating the payment for a period

The amount a qualifying entity may receive in relation to a JobMaker period is the lesser of the headcount amount for the period and the payroll amount for the period.

Important:
The ATO calculates the payment amount based on the information submitted by the employer. The employer does not need to calculate it themselves.

The ATO has provided a JobMaker Hiring Credit payment estimator spreadsheet for employers to use to estimate the amount to which they are entitled.

The headcount amount for a period

The headcount amount is worked out on a daily basis and recognises periods of partial employment.

Step 1 — Multiply the higher rate days for the period by $200, divide the result by 7 and round up to the nearest cent.

Step 2 — Multiply the lower rate days for the period by $100, divide the result by 7 and round up to the nearest cent.

Step 3 — add the results from steps 1 and 2.

Reduction based on maximum payable days

Where the total counted days is equal to or less than the maximum payable days for the period, the headcount amount in a JobMaker period is the sum of:

  • the amount derived by multiplying the ‘higher rate days’ for the period by $200, dividing the result by 7 (for the number of days in a week) and rounded up to the nearest cent; and
  • the amount derived by multiplying the ‘lower rate days’ for the period by $100, dividing the result by 7 (for the number of days in a week) and rounded up to the nearest cent.

However, if the total counted days (sum of the higher rate days and the lower rate days) exceeds the cap imposed by the maximum payable days, the counted days are reduced to the number of maximum payable days by:

  • reducing the lower rate days; then
  • reducing the higher rate days.

Accordingly, it is possible for the maximum payable days to cap the total counted days for a JobMaker period to the effect that there are only higher rate days used for the calculation and no lower rate days. After applying the cap imposed by the maximum payable days, the headcount amount is worked out according to the above formula.

The 12 month limit

The rules effectively impose a 12 month limit on the length of time for which an employer can receive JobMaker payments in respect of an eligible additional employee. For the purposes of calculating the number of higher rate and lower rate days, the entity must disregard any days that the employee was employed after the employee has been continuously employed by the entity for more than 12 months. This 12 month period begins on the day the eligible additional employee last commenced employment with the entity.

The employee will continue to be an eligible additional employee until the end of the JobMaker period in which the 12 month period ends.

For example, if a new employee commenced on 10 October 2020, they will be an eligible additional employee from 10 October 2020 until 6 January 2022 (because employment commenced less than 12 months prior to the first day of that period, being 7 October 2021). However, the calculation of the headcount amount for the period from 7 October 2021 to 6 January 2022 will not include any days after 10 October 2021. The employee ceases to be an eligible additional employee for the period commencing 7 January 2022.

The payroll amount for a period

The payroll amount for a period = the entity’s baseline payroll amount for the period less the entity’s total payroll amount for the period.

ATO payment of a claim

If the employer has lodged a claim for the period and the Commissioner is satisfied that the employer is entitled to the payment, the Commissioner must pay the entity as soon as is practicable.

Where there is an overpayment that results from an individual giving a notice to more than one entity, the individual may be jointly and severally liable to pay the overpayment and any general interest charge.

Claims will be paid by the ATO from February 2021 in relation to the first period (7 October 2020 to 6 January 2021).

Eligible employers must register with the ATO.

Reporting obligations

The JobMaker reporting and other administrative obligations for employers are outlined in our Banter Blog article titled JobMaker reporting obligations.

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 locations across Australia. Click here to find a location near you.

Our Upcoming February Tax Update, taking place next week, will be our first Tax Update of 2021.

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.

JobMaker reporting obligations

Posted on by thriveadmin

[lwptoc]

On 4 December 2020, the Treasurer registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 9) 2020 (the Amendment Rules) to set out the details of the JobMaker Hiring Credit scheme (the Scheme). These rules are summarised in our Banter Blog article titled JobMaker Hiring Credit scheme explained.

On the same day, the Commissioner registered a Legislative Instrument titled the JobMaker Hiring Credit Reporting Obligations Instrument 2020 (the Instrument) which sets out what, how and when employers must report in relation to the Scheme. This article outlines employers’ administrative obligations as set out in the Instrument and in ATO guidance.

Registration 

Employers must register with the ATO before making a JobMaker claim, using Online services or the Business Portal. They do not need to be registered before hiring eligible employees.

Employers can register at any time before the end of their first claim period.

The reporting requirements

The Amendment Rules require the employer to:

  • notify the Commissioner, in the approved form, of its election to participate by the end of the period — e.g. notice for the first JobMaker period must be provided by 6 January 2021; and
  • give information about the entitlement for the period to the Commissioner in accordance with the requirements in the Instrument.

The following summarises the notification and reporting requirements in the Instrument and the ATO guidance.

Part 1 — Employee reporting prior to claim

If an employer is subject to Single Touch Payroll (STP) reporting, it must give certain information to the Commissioner for the JobMaker period before the reporting deadline:

The employee details to be reported are:

  • tax file number;
  • date of birth;
  • full name;
  • date employment commenced (if during the JobMaker period);
  • date employment ceased (if during the JobMaker period);
  • whether the employee met the average hours of work requirement.

As the information is used to populate the claim form and in calculating the employer’s claim, a JobMaker Hiring Credit payment claim cannot be made until it is provided to the ATO through STP. This information will be populated in the claim form within 72 hours and used to calculate the employer’s claim.

The ATO is developing specifications setting out the JobMaker functionality for STP-enabled software. Information will become available on the ATO website.

Employers that are exempt from STP are to provide the above required information when making a JobMaker claim. They must be up to date with their PAYG withholding obligations due in the two years ending on the last day of the JobMaker period before making the claim. Generally, this will mean that the employer’s Business Activity Statement lodgments will need to be up to date.

Part 2 — Information to be provided as part of claim

When an employer makes a claim for a JobMaker Hiring Credit payment, it must provide the following details in relation to the period:

  • the total payroll expenses for the period;
  • the baseline payroll amount for the period;
  • the total headcount at the end of the period;
  • the baseline headcount for the period;
  • confirmation that each employee included in the claim calculation is an eligible additional employee (including that the minimum hours test has been satisfied);
  • a declaration that the information is true and correct, made by the lodger (the employer or an authorised agent);
  • an electronic signature (if using the ATO’s online services) or proof of record ownership (if providing information via phone for those exempt from STP reporting); and
  • the details of the employer’s financial institution account.

How and when to report claim information

An employer must lodge the claim information via ATO Online services for Individuals, ATO Online Services for Business, Business Portal or Online Services for Agents or the Business Portal as part of the claims process, unless the employer is exempt from reporting through STP.

The information for a JobMaker period must be submitted during the corresponding claim period:

Important:
No exemptions or extensions are available. Once the claim period has ended, an employer can no longer make a claim for that period. Claim information cannot be amended after the claim period but amendments can be made during the claim period.

Other administrative matters

The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Act) established the legislative framework under which the Commissioner has general administration of the JobKeeper Payment scheme and now the JobMaker Hiring Credit scheme. Therefore, the provisions in the Act which apply to JobKeeper in relation to matters including payments, liability for repaying overpayments, record keeping and contrived schemes will also apply to JobMaker. The ATO may issue specific guidance on how it will administer these rules in the JobMaker context.

JobMaker employee notice

Eligible employees must complete a JobMaker employee notice as part of the eligibility requirements.

The notice must be completed before the employer makes a claim and the employer must receive a separate notice for each eligible employee for whom they intend to make a claim.

The ATO does not require the employee’s signature but the employer may choose to request it.

Employers may use the ATO’s JobMaker employee notice, or they may create their own employee notice containing the required information.

Reference:
The ATO’s JobMaker employee notice and guidance for creating an employee notice are here.

Payment

JobMaker payments are made in arrears following each JobMaker period. The ATO states that employers can generally expect to receive their payment within five days of their claim being processed.

Overpayments

An employer that receives a JobMaker amount to which it was not entitled or that was more than the entitlement is liable to repay the amount plus General interest charge (GIC).

If any overpayment results from an individual giving a notice to more than one entity, the individual may be jointly and severally liable to pay the overpayment and any general interest charge.

Record keeping

The ATO advises that employers should keep records of employment and hours worked by employees. Employers do not need to provide employee notices to the ATO but should retain them for their records.

If the ATO reviews an employer’s assessment of their eligibility, it will request supporting documentation which may include:

  • the JobMaker employee notice;
  • employment records — e.g. a contract, payslips, payroll data, rosters and time sheets;
  • business diaries, appointment books and logbooks; and
  • invoices and records prepared for other business purposes.

Integrity rule — contrived schemes

The Act allows the Commissioner to determine that an entity never became entitled to the payment, or that the amount to which the recipient was entitled was a different amount where the entity entered into or carried out the scheme for the sole or dominant purpose of obtaining or increasing the amount of the JobMaker payment.

ATO compliance action

The ATO states that it will check for concerning and fraudulent behaviour and claims, and will actively pursue those claims.

Behaviours that will concern the ATO include:

Businesses that have:

  • manipulated employee headcounts or payroll amounts;
  • made claims for employees that are not genuinely employed or have not been in paid work for the required average 20 hours per week;
  • knowingly made claims for employees who did not receive income support payments as required before they commenced employment;
  • knowingly made claims for employees who are not between 16 and 35 years old;
  • attempted to manipulate the reported age of employees;
  • knowingly made claims for relatives or close associates;
  • engaged in phoenix-like behaviour by starting a new business in order to access payments;
  • transferring or hiring new employees to a new employment entity within a consolidated group to access JobMaker payments and/or continue to access JobKeeper payments; or
  • reduced hours or terminated employment of existing employees for the purpose of accessing JobMaker payments for new employees.

Employees who have:

  • falsely declared receipt of income support payments for 28 days within the 84 days before commencing employment; or
  • falsely declared their age.

Intermediaries, including tax or BAS agents, that have:

  • provided aggressive planning advice or otherwise facilitated access to JobMaker payments to ineligible clients; or
  • exhibited any of the above behaviours in their own affairs.

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 locations across Australia. Click here to find a location near you.

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.

JobKeeper cases on backpay and backdated ABNs

Posted on by thriveadmin

[lwptoc]

Two cases decided in December 2020 provide much needed guidance as to the operation of specific aspects of the JobKeeper scheme.

The Full Federal Court judgment in Qantas Airways Limited v Flight Attendants’ Association of Australia [2020] FCAFC 227 means that employers may reduce the necessary ‘top-up’ JobKeeper payment to an employee for a fortnight by any payments made in arrears during that fortnight in relation to work performed prior to that fortnight.

Meanwhile, in Apted and FCT [2020] AATA 5139 the Tribunal confirmed that an ABN with an effective date no later than 12 March 2020 will satisfy the eligibility requirement to hold an active ABN on that date, even if the application to reactivate (or register) a backdated ABN was granted after that date.

The Qantas case

The JobKeeper minimum payment guarantee

Section 789GDA of the Fair Work Act 2009 (the FW Act) provides that an employer must ensure that the total amount payable to an eligible employee in respect of a JobKeeper fortnight is at least the greater of the following:

  • the amount of JobKeeper payable to the employer for the employee for the fortnight; and
  • the amounts payable to the employee in relation to the performance of work during the fortnight.

About the case

The case concerned two proceedings which were heard together:

  • an appeal by Qantas Airways Limited and QF Cabin Crew Australia Pty Limited against the Flight Attendants’ Association of Australia who cross-appealed; and
  • an appeal by Qantas Airways Limited and Qantas Ground Services Pty Ltd against the Transport Workers’ Union of Australia and the Australian Municipal, Administrative, Clerical and Services Union who both cross-appealed.

In this article, the appellants are collectively referred to as ‘Qantas’ and the respondents as ‘the unions’.

The issue
Qantas regularly paid overtime amounts to employees in arrears during JobKeeper fortnights that commenced after the work was performed.

The core issue in this case can be set out in this very simplistic example (this is not based on actual facts but is merely illustrative):

Qantas owed $500 of overtime payments to an employee, Sally, for overtime work that she performed in February 2020. In mid-March, Qantas stood down Sally indefinitely due to flight cancellations. Sally agreed to be an eligible employee of Qantas for JobKeeper purposes commencing 30 March 2020. In accordance with its pay cycle, Qantas paid the $500 to Sally during the JobKeeper fortnight commencing 30 March 2020. It also made a further payment of $1,000 such that the total amount it paid to Sally for that fortnight was $1,500.

Sally did not perform any employment duties during that fortnight. There is no suggestion that the payment in arrears breached the terms of any applicable employment contract or award.

The question before the Court concerned the meaning to be given to the words ‘amount payable’ in the phrase ‘the amounts payable to the employee in relation to the performance of work during the fortnight’ in s. 789GDA(2)(b) of the FW Act.


Qantas’s position: Qantas contended that expression means the amount that would ordinarily be payable to the employee during the fortnight in relation to the performance of work. In the example, this means that the $500 payment for work performed in February 2020 counted towards the minimum payment guarantee for Sally. Qantas was required to make a ‘top-up’ payment of only $1,000 to Sally to satisfy the minimum amount of $1,500 for the fortnight commencing 30 March 2020.

The unions’ position: The unions contended that the expression means the amount that was earned by the employee in relation to the performance of work during the fortnight. In the example, this meant that the $500 payment in arrears did not count towards the minimum payment guarantee. Qantas should have made a ‘top-up’ payment of $1,500 to satisfy the JobKeeper rules — on top of the $500 for work performed prior to 30 March 2020.

The primary judge, in a Federal Court judgment dated 24 September 2020, concluded that it means the amount that was both payable to and earned by the employee in relation to the performance of work during the fortnight.

The Full Court’s decision

The majority of the Full Court allowed Qantas’s appeal. Jagot and Wheelahan JJ held that there was ambiguity but preferred Qantas’s construction of s. 789GDA(2) for reasons including:

  • The word ‘payable’ takes its ordinary meaning of liable or required to be paid. The source of the obligation was in the contract or industrial instrument.
  • The ‘manipulation’ suggested by the unions (i.e. overtime being payable in arrears) was in accordance with Qantas’s obligations under the applicable industrial instruments and reflected its ordinary pay cycle.
  • The fact that s. 789GDA(2)(b) was copied from s. 323(1) of the FW Act indicated that Parliament did not intend the same phrase in two sections to have different meanings. The phrase in s. 323(1) means only that the employer is liable to pay the amounts to the employee.
  • Note 2 to s. 789GDA refers to incentive-based payments, allowances and leave payments, none of which are necessarily related to work performed. This suggests that the focus of the provision is not the work performed by the employee during the fortnight, but the amount which is payable by the employer.
  • The purpose of the JobKeeper scheme was to provide a wage subsidy and not to impose a new obligation on employers to pay what the employee had earned in the fortnight irrespective of whether or not that amount would be payable under the contract or industrial instrument.

Bromberg J, dissenting, preferred the unions’ construction — i.e. ‘amounts payable’ is concerned with liability in a JobKeeper fortnight for performance of work in that fortnight.

Implications

The Full Court’s decision means that Qantas will not be required to backpay hundreds of workers, as payments in arrears count towards the minimum payment requirement. Under the overturned decision of the single judge, Qantas would not have been able to count these amounts and would therefore have had to make larger top-up payments to reach the minimum JobKeeper amount per fortnight. The overturned decision had also meant that if an employee was not paid for work performed in a fortnight in the same fortnight, then those amounts will not count towards the minimum payment guarantee in any fortnight.

This decision will potentially have implications for other businesses which, like Qantas, had furloughed or significantly reduced the work hours of its employees and were therefore liable to pay a top-up JobKeeper amount for a fortnight, and — critically — was also making payments in arrears for work actually performed prior to the relevant fortnight. Such businesses, which may have been preparing to backpay workers extra top-up payments in light of the Federal Court decision in September, may now no longer have to do so (but check the application of the JobKeeper and Fair Work rules to each business’s specific circumstances).

On 14 January 2021, the Flight Attendants’ Association of Australia and others lodged an application for special leave to appeal to the High Court against the decision of the Full Federal Court.

The Apted case

The ABN condition — JobKeeper eligibility

Section 11 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the Rules) contains the JobKeeper scheme eligibility criteria for an entity, including the following integrity rule:

The facts

The Taxpayer — Mr Apted — operated a business as a sole trader. He retired in 2018 and cancelled his ABN registration. In mid-2019, he came out of retirement and resumed his business. However, he did not reactivate his ABN at that time due to a misunderstanding of the no-ABN withholding rules.

On 31 March 2020, the Taxpayer successfully applied to reinstate the ABN with an effective date of 31 March 2020.

In April 2020, the Taxpayer lodged a JobKeeper application for himself as a business participant in relation to his business. The Commissioner advised the Taxpayer he was not eligible for Jobkeeper as he:

  • did not register for an ABN on or before 12 March 2020; or
  • registered for an ABN on or before 12 March 2020 and applied a later start date.

The Taxpayer subsequently applied for the Commissioner to exercise his discretion to allow an entity further time to meet the requirement to have had an ABN on 12 March 2020. The Commissioner did not grant the request because the ABN was not active as at 12 March 2020 and the reactivation had occurred after that date.

In June 2020, the Registrar of the Australian Business Register (ABR) agreed to adjust the ABR to amend the effective date of the reactivated ABN to 1 July 2019 (when the Taxpayer resumed his business). However, the Commissioner maintained his position that the Taxpayer was ineligible for JobKeeper as he did not hold an active ABN on 12 March 2020, but rather, had reactivated a dormant ABN after that date.

The Tribunal’s decision

The Tribunal found that the Taxpayer did have an active ABN on 12 March 2020 for the purposes of s. 11 of the Rules.

The integrity rule assumes a level of confidence in the integrity of the ABN registration process. That process includes a determination by the Registrar of the date of effect, including one which predates the application. The Tribunal was not provided with any evidence to suggest the ABN registration process lacked integrity or rigour.

The Tribunal also found that it was within its jurisdiction to review the Commissioner’s exercise of the discretion to allow a later date. While it was not necessary for it to determine this issue, the Tribunal addressed the question because this was a test case to provide guidance on the administration of the ABN rule. The Tribunal further concluded that if its decision that the Taxpayer had an active ABN on 12 March 2020 was wrong, then the discretion should be exercised in the Taxpayer’s favour.

The Tribunal observed that most entities in the Taxpayer’s position will not require the Commissioner to consider exercising the discretion, and instead will be more appropriately dealt with by engaging with the established ABN registration process. Provided the ABN has a date of effect that pre-dates 12 March 2020, even if the registration or re-registration was granted retrospectively after that date, the integrity rule will be satisfied. In other cases, entities which have to rely upon the exercise of the discretion have access to Tribunal review.

The ATO’s position

The ATO has published an interim Decision Impact Statement (DIS) on the Apted case. The DIS states that the decision is inconsistent with the Commissioner’s view. In particular, the Commissioner considers that:

  • whether an entity had an ABN is to be determined by reference to whether an entity had an active ABN on 12 March 2020 — i.e. this is a point-in-time test and a backdated ABN will not meet the requirement;
  • his discretion is not reviewable by the Tribunal, although judicial review may be sought; and
  • a favourable exercise of the discretion was not appropriate. The Commissioner’s view on when the discretion would be appropriately exercised is outlined in PS LA 2020/1.

The Commissioner has filed an appeal to the Full Federal Court in respect of the Tribunal decision. Pending the conclusion of the appeal:

  • where an entity’s eligibility can otherwise be resolved in a manner favourable to them, those decisions will continue to be made; and
  • the ATO will postpone finalising decisions in circumstances where eligibility might depend on the view of the Full Court. However, if the entity would like a decision to be made over this time, the ATO will do so in line with PS LA 2020/1.

The Cash Flow Boost rules contain an identical requirement to have an ABN on 12 March 2020 (or a later time allowed by the Commissioner). The Commissioner intends to apply the same approach as outlined here to the Cash Flow Boost.

Further info and training

TaxBanter’s upcoming February Tax Update will discuss the reasoning of these decisions.

Future outcomes of the appeal applications will be covered in Tax Updates in future months.

Bills status – January 2021

Posted on by thriveadmin

[lwptoc]

With most tax professionals now returning to work after the holiday break, this is the ideal time to do a stocktake of the status of recent tax, superannuation and related Bills which may affect tax practitioners and their clients in 2021. This article summarises the legislation which is still before Parliament, as well as measures which have been recently enacted or which the Government has declared will not proceed.

The final Parliamentary sitting for 2020 ended on Thursday, 10 December. Both Houses will return on Tuesday, 2 February 2021.

Bills currently before Parliament

Bills before the Senate

Bill Summary Start date
Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 Increases the SMSF membership limit from four to six First 1 Jan, 1 April, 1 July or 1 Oct after Royal Assent
Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 Bringing forward non-concessional contributions cap 1 July 2020
Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 Facilitate the closure of eligible rollover funds (ERFs) and allow the Commissioner to reunite amounts received from ERFs with active accounts Day after Royal Assent
Crimes Legislation Amendment (Economic Disruption) Bill 2020 Criminal law changes relating to money-laundering and proceeds of crime Day after Royal Assent

Bills before the House of Representatives

Bill Summary Start date
Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 Changes to the Corporations Act 2001 in relation to financial service providers’ ongoing fee arrangements and disclosure of lack of independence 1 July 2021
Treasury Laws Amendment (2020 Measures No. 4) Bill 2020 Various, including: making refunds of large-scale generation shortfall charges non-assessable non-exempt income; and measures to facilitate the closure of the Superannuation Complaints Tribunal Various

 

Status of other recent Bills

Bills not proceeding

The Government has recently announced that these proposed measures will not proceed:

Bill Summary Notes
Currency (Restrictions on the Use of Cash) Bill 2019 New criminal offences for entities that make or accept cash payments of $10,000 or more Discharged from the Notice Paper on 3 December 2020
Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 R&D tax incentive changes

  • These proposed measures will not proceed because R&D changes were included in the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 — see below
 Discharged from Notice Paper on 9 November 2020

 

Recently enacted legislation

The following legislation received Royal Assent in the final quarter (October to December) of calendar year 2020:

Act Summary Start date Royal Assent date
Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 Various 2020–21 Federal Budget measures including: accelerating personal tax cuts (threshold and changes to the low income tax offset / low and middle income tax offset); temporary loss carry back; increasing the SBE turnover threshold for certain concessions; R&D tax incentive changes; temporary full expensing of depreciating assets

 Various 14 October 2020
Economic Recovery Package (JobMaker Hiring Credit) Amendment Act 2020 Amends the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 to allow for the making of rules including the JobMaker Hiring Credit

 14 November 2020 13 November 2020
Treasury Laws Amendment (2020 Measures No. 5) Act 2020 Make State/Territory grants for eligible COVID-19 affected businesses non-assessable non-exempt income; amend the superannuation unclaimed money and lost members rules to allow direct payment to certain New Zealand schemes Various 11 December 2020
Corporations Amendment (Corporate Insolvency Reforms) Act 2020 Changes to the Corporation Act 2001, including: debt restructuring process for small companies; simplified liquidation process for creditors’ voluntary winding up; expanded use of electronic documents and signatures Mainly 1 January 2021 15 December 2020
Treasury Laws Amendment (2020 Measures No. 6) Act 2020 Various, including: amendments relating to temporary full expensing and Backing Business Investment (BBI) measures; incentivising charities to join the National Redress Scheme

  • Read this Banter Blog article for detail about the changes to temporary full expensing and BBI
 Various
(1 Jan 2021 for temporary full expensing)		 17 December 2020
Financial Sector Reform (Hayne Royal Commission Response) Act 2020 Implements various recommendations of the Hayne Royal Commission, including in relation to anti-hawking; insurance products; trustees of superannuation funds 1 January 2021 17 December 2020
Export Market Development Grants Legislation Amendment Act 2020 Change the EMDG scheme from a reimbursement model to a grants program To be proclaimed 17 December 2020

 

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 locations across Australia. Click here to find a location near you.

Our Upcoming February Tax Update will include the most recent of the 2020 legislative developments.

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.

Temporary full expensing opt-out Bill has passed Parliament

Posted on by thriveadmin

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On 10 December 2020, the Treasury Laws Amendment (2020 Measures No. 6) Bill 2020 (the Bill) passed both Houses of Parliament. It now awaits Royal Assent. The Bill makes changes to the temporary full expensing and Backing Business Investment (BBI) measures by:

  • permitting entities to opt out of temporary full expensing and the BBI incentive on an asset-by-asset basis;
  • introducing an alternative eligibility test for the temporary full expensing measure to extend the incentive to businesses which would otherwise fail the turnover test; and
  • introducing a new balancing adjustment event where a written off asset is not used for the principal purpose of carrying on a business.

The temporary full expensing rules allow businesses with a turnover of up to $5 billion an immediate deduction for eligible expenditure on depreciating assets incurred from 7.30 pm AEDT on 6 October 2020 (the Budget time) until 30 June 2022. The provisions are set out in new Subdiv 40-BB of the Income Tax (Transitional Provisions) Bill 1997 (the IT(TP) Act).

The BBI measure allows businesses with turnovers of up to $500 million to accelerate the decline in value of eligible new assets between 12 March 2020 and 30 June 2021. The provisions are in new Subdiv 40-BA of the IT(TP) Act.

Opting out of temporary full expensing and BBI

Before the legislative amendments, the temporary full expensing and BBI measures applied to all eligible assets of an eligible entity. Entities are now allowed to make an irrevocable choice to opt out of temporary full expensing and the BBI incentive on an asset-by-asset basis.

Accordingly, an entity can choose not to apply these regimes to calculate the decline in value for a particular eligible asset, while continuing to use those rules for other assets, but it cannot revoke that choice once it is made.

The effect of making the choice

If the entity opts out either regime for an asset it may then apply the general capital allowances rules for that asset.

In the case of temporary full expensing, the entity makes the choice for a particular depreciating asset for each of the 2020–21 and 2021–22 income years.

In the case of the BBI incentive, the entity makes the choice for a particular asset for an income year and subsequent income years. As a result, the BBI rules automatically cease to apply to that asset in the next income year (without the need to opt out for that later income year) as the choice is irrevocable.

How does the choice apply to SBEs?

It is critical to note that if a small business entity (SBE) depreciates assets under the SBE capital allowances rules in Subdiv 328-D of the ITAA 1997, the new choice to opt out of temporary full expensing is not available.

The temporary full expensing provisions only apply to entities which use the ‘normal’ depreciation rules in Div 40 of the ITAA 1997. However the legislation which introduced Subdiv 40-BB also removed the $150,000 cap for the instant asset write-off (IAWO) for SBEs in s. 328-180 of the ITAA 1997. This effectively allowed SBEs which use Subdiv 328-D to also immediately write-off the cost of assets with no cost limit albeit under the IAWO provisions and not under Subdiv 40-BB.

* There are some differences between the IAWO and temporary full expensing which are not covered in this article.

The new choice to opt out of temporary full expensing (i.e. in Subdiv 40-BB) does not extend to the uncapped IAWO in s. 328-180. SBEs using Subdiv 328-D must continue to fully deduct the cost of all eligible assets under s. 328-180.

Therefore SBEs can only opt out of full expensing where they have opted out of Subdiv 328-D and depreciate under Div 40 for the income year.

Critical point: Pooled assets remain in the pool and, as per s. 328-220 of the ITAA 1997, the taxpayer must continue to use Subdiv 328-D to calculate depreciation deductions for these pooled assets.

Find out more about how the temporary full expensing and IAWO rules apply to SBEs, including the implications for the year end balance of the low value pool, in Capital Allowances Revisited.

Making the choice

The choice to opt out of temporary full expensing and/or the BBI incentive must be made in the approved form and given to the Commissioner by the day the entity lodges its tax return for the relevant income year. The Commissioner may determine the manner in which the choice is to be made and this may for example be by way of a disclosure in the income tax return or the capital allowances schedules. The ATO is yet to advise on how the choice is to be made.

Extending the availability of full expensing

The Bill also allows more entities to be eligible for full expensing.

The $5 billion aggregated turnover eligibility test includes the turnovers of entities connected with the taxpayer and of the taxpayer’s affiliates.

Therefore some entities — for example, the Australian operations of multinational groups — were precluded from accessing full expensing even if their turnover as an independent business entity was less than $5 billion.

The legislative changes retain the original eligibility test and introduce an alternative test. The company only needs to satisfy one of the tests (in practice, if it satisfies the original test it will also satisfy the alternative test).

The new alternative test

An entity satisfies the alternative test for an income year if:

  • the entity is a corporate tax entity at any time in the income year;
  • the entity’s total ordinary and statutory income other than non-assessable non-exempt income is less than $5 billion for either the 2018–19 or the 2019–20 income year (including entities with substituted accounting periods in lieu of 30 June 2020 but only those with income years ending on or before 6 October 2020); and
  • the total cost of certain depreciating assets first held and used, or first installed ready for use, for a taxable purpose in the 2016–17, 2017–18 and 2018–19 income years (combined) exceeds $100 million.

NoteNote:
The requirement to have a minimum total cost of depreciating assets for the three previous income years ensures that eligible entities have a track record of making substantial investments in Australia.

Additional exclusions for entities qualifying under the alternative test

The Bill introduced new exclusions which only apply to entities which qualify under the alternative test. The previously existing exclusions will apply to all entities regardless of whether they qualify under the original test or the alternative test.

The following table summarises which exclusions apply to a qualifying entity:

Balancing adjustment where asset not used for carrying on business or not in Australia

The Bill also introduced a balancing adjustment event into the temporary full expensing provisions. Broadly, the event occurs if a depreciating asset that has been fully written off under the incentive subsequently:

  • ceases to be used for the principal purpose of carrying on a business — e.g. it is wholly or principally applied for private use; or
  • is not used principally in Australia — i.e. it remains overseas or is relocated overseas.

The first element of cost is modified so that it is the asset’s termination value at the time of the event and the temporary full expensing deduction is clawed back.

The temporary full expensing rules will no longer apply to work out the decline in value for that asset for a later income year. However the entity may claim any other capital allowances it is entitled to for that asset (for example, under the general capital allowances rules for the proportion of business use).

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 locations across Australia. Click here to find a location near you.

Our Upcoming Special Topic “Capital Allowances Revisited” will also cover this article’s topic in depth.

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.

Tax Yak – Episode 49: Role of the Australian Small Business and Family Enterprise Ombudsman in small business tax matters

Posted on by thriveadmin

In this episode of Tax Yak, Neil Jones yaks with Dr Craig Latham, Deputy Ombudsman for the Australian Small business and Family Enterprise Ombudsman (ASBFEO). The role of the ASBFEO in small business tax matters may not be well known and Neil and Craig explore the way that the ASBFEO can support small businesses, particularly in tax disputes.

Host: Neil Jones, Director & Senior Tax Trainer @ TaxBanter

Guests: Dr Craig Latham, Deputy Ombudsman for the Australian Small business and Family Enterprise Ombudsman

https://www.asbfeo.gov.au/

Recorded: 8 December 2020

Temporary full expensing of depreciating assets

Posted on by thriveadmin

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The new temporary full expensing rules provide businesses with a turnover of up to $5 billion with an immediate deduction for 100 per cent of the cost of eligible depreciating assets.

The provisions are set out in new Subdiv 40-BB of the Income Tax (Transitional Provisions) Act 1997. Temporary full expensing was announced as part of the Federal Government’s 2020–21 Budget handed down on 6 October 2020 enacted by the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020, which received Royal Assent on 14 October 2020.

A summary of the temporary full expensing rules

Which entities are eligible?

Entities which satisfy the definition of a small business entity (SBE) in s. 328-110 of the ITAA 1997 — including that they carry on a business — assuming that the annual aggregated turnover threshold of $10 million was instead $5 billion.

Entities with an annual aggregated turnover of $50 million or more are subject to some restrictions (see below).

depreciating assetsNote
The full deduction will automatically apply for an eligible taxpayer in respect of eligible expenditure. The taxpayer cannot make a choice or election to opt in or out of the concession.

When is the eligibility period?

A full deduction can be taken for eligible expenditure incurred from 7.30 pm AEDT on 6 October 2020 (‘the Budget time’) until 30 June 2022.

Which assets are eligible?

A depreciating asset qualifies for full expensing if, after the Budget time and on or before 30 June 2022, the entity:

  • starts to hold the asset; and
  • starts to use the asset, or have it installed ready for use, for a taxable purpose.

Further, no balancing adjustment can happen to the asset in the income year (for example, it is not sold in the year in which the full expensing is applied).

An asset is not eligible for full expensing if:

  • the capital allowances rules in Div 40 of the ITAA 1997 do not apply to it (for example, if it is trading stock, a capital works asset or a CGT asset);
  • the asset is not used or located in Australia for the principal purpose of carrying on a business;
  • the expenditure is allocated to a low-value pool or a software development pool; or
  • the expenditure is deductible to the entity or another entity under the primary production depreciation rules in Subdiv 40-F of the ITAA 1997. Note that SBE taxpayers which use the simplified depreciation rules in Subdiv 328-D can choose to depreciate primary production assets under either Subdiv 40-F or Subdiv 328-D — there are some differences between the regimes.

Limitations for entities with turnover of at least $50 million

Entities with aggregated turnover of $50 million or more cannot fully deduct the cost of an asset where the entity had made a commitment in relation to the asset prior to the Budget time — even if the entity did not start to hold, and to use or have it installed ready for use, until after that time.

These entities also cannot fully deduct the cost of a second-hand asset — including the cost of a licence relating to a second-hand asset.

For entities with aggregated turnover of less than $50 million, the full expensing is available for assets which are acquired either new or second-hand. The provisions include some specific rules relating to what constitutes a second-hand asset.

How much is the deduction?

The decline in value — the amount that can be fully expensed for the income year — depends on when the asset starts to be used or installed ready for use for a taxable purpose.

Where the asset starts to be used or installed ready for use for a taxable purpose in the same income year as it started to be held — the amount the entity can claim in that income year is the sum of:

  • the cost of the asset (the first element of cost); and
  • the amount paid during the income year to bring the asset to its present condition and location, such as the cost of improvements (the second element of cost).

Where the asset starts to be used or installed ready for use for a taxable purpose in a later year — i.e. it starts to be held during 2020–21 and used or installed ready for use during 2021–22 — the amount the entity can claim in 2021–22 is the sum of:

  • the opening adjustable value of the asset for 2021–22; and
  • any amount included in the second element of cost in 2021–22.

 

Important
The full expensing of the second element of cost may apply to both post-Budget depreciating assets and existing depreciating assets that an entity holds between Budget time and 30 June 2022.

NoteNote
In calculating the amount to be fully expensed, any amount incurred after 30 June 2022 is disregarded.

Changes to the $150,000 instant asset write-off

The Act also amended the $150,000 instant asset write-off (the IAWO) — for business entities with an annual aggregated turnover of less than $500 million — to require that the asset:

  • is first used or installed ready for use by 30 June 2021 — this has been extended from 31 December 2020; and
  • is acquired by 31 December 2020 — this has not changed.

The cost of a car that is first used or installed ready for use during the 2020–21 income year may be deductible — up to the car depreciation limit ($59,136) — under either the IAWO or the full expensing measure. However, where both regimes apply, the full expensing takes priority.

Implications for simplified depreciation for SBEs

SBEs with an annual aggregated turnover of less than $10 million can choose to apply the simplified depreciation rules in Subdiv 328-D of the ITAA 1997.

Under the temporary full expensing rules, SBEs that apply the simplified depreciation rules will deduct:

  • the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between the Budget time and 30 June 2022;
  • the second element of cost of these assets and of existing eligible depreciating assets incurred during this period; and
  • the balance of their general small business pool.

Deferral of the recommencement of the lockout rules

The ‘lockout rules’ that prevent SBEs from accessing the simplified depreciation regime for five years after they opt out of that regime will continue to be suspended for the 2020–21 and 2021–22 income years.

Comment

Interaction with other concessions

The staged application of the various capital investment incentives and concessions, and the inconsistent eligibility criteria and timeframes across these regimes, means that there is an array of rules that might apply in relation to the acquisition of a particular asset.

Where an amount is immediately deductible in full under temporary full expensing and another regime, e.g. the IAWO, the temporary full expensing measure takes precedence.

The IAWO is generally more restrictive for the following reasons:

  • a cost threshold of $150,000 — there is no upper cost limit for full expensing;
  • the IAWO is only available to entities with an annual aggregated turnover of less than $500 million — the turnover threshold for full expensing is $5 billion;
  • the asset must be first used or installed ready for use by 30 June 2021 — it is 30 June 2022 for full expensing; and
  • the asset must be acquired by 31 December 2020 — it is 30 June 2022 for full expensing.

However, in some circumstances, an immediate deduction will be available under IAWO where it is not available under the full expensing rules:

  • where an entity with turnover of between $50 million and $500 million acquires a second-hand asset; or
  • where an entity acquired, or first used or installed ready for use, the asset on or after 12 March 2020 and prior to the Budget time.

From 1 July 2021, the IAWO threshold will revert to $1,000. Therefore for the 2021–22 income year, a business entity will only be able to immediately write-off the cost of a newly acquired asset  > $1,000 if eligible under the full expensing rules.

In addition, the Backing Business Investment Incentive applies to eligible businesses with an aggregated turnover of less than $500 million in the 2019–20 and 2020–21 income years — that is, there is an overlap with the IAWO concessions. This incentive allows eligible businesses to claim depreciation on a new asset at an accelerated rate.

Planning considerations

The temporary full expensing measure applies automatically — as do the IAWO and Backing Business Investment Incentive. The taxpayer cannot choose to depreciate the cost of an eligible asset over a number of years as though the full expensing rules did not exist.

A larger deduction is not always what a business entity wants. It is critical to keep in mind that a deduction is of less value if it merely creates a carry-forward loss.

For sole traders this can be particularly pertinent as a write-off can mean the loss of a tax-free threshold for a year, meaning that fully expensing an asset’s cost could actually leave them in a worse position over time.

As it is not possible to elect out of the concession and with the overlay of other capital investment concessions, tax planning is all the more important in 2020–21. The automatic application of the concession to low-value and small business pooling will also need to be factored into this planning.

Tax agents are facing enough complexity in their examination of fixed asset registers in the completion of 2019–20 tax returns — 2020–21 is on track to eclipse that. It does, however, provide practitioners with an opportunity to navigate clients through potentially significant tax savings through careful capital asset investment planning.

Further info and training*

You can check out the recording of our special presentation,
Temporary expensing of depreciable assets – simple, right?

Our Senior Tax Trainers Lee Ann Hayes and Michael Bode will explore the consequences of significant depreciation changes.

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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.

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