Welcome to the June 2020 edition of the Spry Roughley Report.
As we enter the final days of the 2020 financial year and look forward to 2021, businesses are continuing to feel significant short and medium term uncertainty. What is clear is the need for business owners to remain vigilant to market conditions and move rapidly to capitalise on the opportunities that are arising and make sometimes difficult decisions to reform, hibernate or remove business units which may no longer be viable.
A lot of air time is being given to the future of the Government JobKeeper wage subsidy program originally scheduled to end on 30 September. Given that we are now at the end of June, it seems the Government is prepared to make good on their original promise to support for all qualifying businesses until 30 September.
At this stage it is unlikely that the nationwide JobKeeper scheme will continue beyond 30 September. There is significant evidence that the scheme is holding back the mobility of workers away from businesses which have excess or unproductive labour to businesses that are seeking engaged employees to support and continue their growth.
Still on Government stimulus, a quick reminder that JobKeeper receipts are taxable to the business and Cash Flow Boost payments are tax free (non-assessable non-exempt income). Both payment types should generally be accounted for as other income or Government assistance (grant) revenue. Owners of businesses operated by a trust and receiving cash flow boost should pay particular attention to their annual trust distribution minutes and consider additional resolutions to deal with the distribution of these amounts, as they may fall outside the normal definition of trust income.
The Government announcement for the extension of the increased ($150,000) instant asset write-off to include assets installed and ready for use by 31 December 2020 (previously 30 June 2020) has now been legislated. Whilst this measure may not induce unplanned capital expenditure, it is something business owners should keep in mind as they contemplate the timing of capital expenditure in the coming financial year. A quick reminder that this expanded asset write-off policy will not apply to businesses with aggregated turn-over of $500m or more. Eligible businesses will need to have the depreciation rights to the asset, so careful consideration and advice on any lease financing should be obtained.
For larger businesses, the small business payment times reporting framework passed through parliament this month bringing into law a new requirement for businesses with an annual total income over $100m to provide six monthly reports on their payment terms and practices for small business suppliers. The reports will be published by the regulator on a public register. The scheme is scheduled to start on 1 January 2021, however there is an 18 month penalty free transition period to enable larger businesses to update systems and processes.
On a final note, the Single Touch Payroll (STP) exemption for small employers has been extended to July 2021. Further information on this can be read below, however given the wide availability of low cost STP compliant software and the streamlining of compliance obligations brought about by STP, we continue to encourage all business owners to move to the STP system. If you need further assistance on this, give us a call.
Read on for the using detailed technical updates.
- Treasury revises down estimated JobKeeper cost by $60 billion – The ATO and Treasury have released a joint statement advising that the previous estimate of the number of employers who would access the JobKeeper program was significantly overstated.
- Snapshot of Federal COVID-19 pandemic measures – a wide array of Federal supports and arrangements are now in place, including tax-related business measures, superannuation options, social security measures, ATO concessions for individuals, SMSFs and businesses, and arrangements with various financial institutions.
- JobKeeper: measuring decline in turnover – The ATO has issued a non-binding ruling that explains various aspects of the "substantial decline in turnover" test for employer JobKeeper eligibility.
- STP exemption for small employers extended to July 2021 – In response to COVID-19, the ATO has extended the Single Touch Payroll exemption for small employers in relation to closely held payees.
- Foreign employment income and the impact of COVID-19 - The ATO has issued a fact sheet for taxpayers who have returned to Australia as a result of the COVID-19 pandemic, particularly to address their status in regards of the income tax exemption for foreign earnings.
- Rental properties and the impact of COVID-19 - The ATO has updated its webpage that addresses questions about residential rental properties and the financial impact of COVID-19
- Processing of super early releases resumes with extra risk filters – The ATO had identified a small number of third parties who could be susceptible to new techniques that criminals are using to try to steal personal data.
- Directors' duties still apply despite COVID-19 relief – ASIC has reminded companies, directors and officers to continue to reflect on their fundamental duties to act with due care, skill and diligence, and to act in the best interests of the company.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Fergus Roughley, Director
Spry Roughley Services Pty Limited
Liability limited by a scheme approved under Professional Standards Legislation
The ATO and Treasury have released a joint statement advising that the previous estimate of the number of employers who would access the JobKeeper program was significantly overstated. Treasury now estimates the number of employees covered under the JobKeeper program to be around 3.5 million (down from a previous estimate of 6.5 million). The estimated cost of JobKeeper has been revised down to around $70 billion (from the original $130 billion estimate).
The overstatement has been attributed to errors made when employers applied for JobKeeper. For example, when estimating their eligibility over 500 businesses with only a single eligible employee actually reported the dollar amount that they expected to receive per fortnightly JobKeeper payment (1,500) instead of the number of their eligible employees (1).
Importantly, this error has no consequences for JobKeeper payments already made, as payments under the scheme depend on the subsequent declaration that businesses make in relation to each and every eligible employee. This declaration does not involve estimates and requires an employer to provide the Tax File Number (TFN) for each eligible employee.
Employers must declare their eligible employees monthly in order to receive the ongoing payments. JobKeeper declarations for May must be made by 14 June 2020.
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- Cash flow boost payments: Tax-free payments of up to $100,000 are available for eligible small and medium sized entities and not-for-profits (including charities) that employ people, with a minimum payment of $20,000.
- Instant asset write-off: From 12 March to 30 June 2020, the threshold increases to $150,000 for business entities with aggregated annual turnover of less than $50 million.
Accelerated depreciation: Businesses with aggregated turnover of less than $500 million can deduct capital allowances for depreciating assets at an accelerated rate. This measure extends over the 2019–2020 and 2020–2021 income years.
- Research and Development (R&D) Tax Incentive: The Government has deferred the lodgment dates for R&D Tax Incentive applications for 2018–2019 until 30 September 2020.
- Superannuation early release: Eligible people affected by COVID-19 can apply to release (tax-free) up to $10,000 of their superannuation in 2019–2020 and up to $10,000 in 2020–2021.
- Temporary residents: Certain temporary residents impacted by COVID-19 may apply for early release of up to $10,000 of their super by 30 June 2020.
- Super pension drawdowns reduced: The minimum annual payment amounts for certain pensions and annuities have been temporarily reduced by 50% for 2019–2020 and 2020–2021.
- Fortnightly Coronavirus Supplement: This $550 supplement is available for six months for job seekers, sole traders, students and some others. It effectively doubles the current payment for new and existing social security recipients from 27 April 2020. It will be paid for six months to both existing and new recipients of the JobSeeker Payment, Sickness Allowance, Youth Allowance for jobseekers, Parenting Payment Partnered, Parenting Payment Single, Partner Allowance, Sickness Allowance and Farm Household Allowance.
- Stimulus payments for income support recipients: The first $750 cash stimulus payment has now gone out to 6.8 million eligible pensioners, carers, disability support pensioners, those on family tax benefits and concession card holders. A second $750 payment will be made from 13 July 2020 for eligible income recipients and concession card holders.
- Regional and sector support: The Government has set aside an initial $1 billion to support regions, communities and industries that have been disproportionately affected by the economic impacts of the pandemic, including those heavily reliant on industries such as tourism, agriculture and education.
- Deferring tax payments: Tax payment dates will be deferred by up to six months for tax amounts due through the BAS. This includes PAYG instalments, income tax assessments, FBT assessments and excise.
- Varying PAYG instalments: The ATO has allowed businesses to vary their PAYG instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made during the 2019–2020 financial year.
- ATO automatic lodgment deferrals: Company 2018–2019 income tax returns are now due by 5 June 2020 and SMSF 2018–2019 annual returns by 30 June 2020. For individuals, partnerships and trusts, 2018–2019 income tax returns can be lodged by the 5 June 2020 concessional due date. Finally, the due date for 2019–2020 FBT annual returns has been deferred to 25 June 2020.
- Working from home deductions: The ATO will accept tax deduction claims using a flat rate of 80c per hour, provided a diary of working hours is kept.
- FBT: If entities provide or pay for goods or services to assist employees who are sick or are at risk of becoming sick with COVID-19, this will generally be exempt from FBT if the benefit is provided for their immediate relief.
- Switching to monthly GST reporting: Businesses on a quarterly reporting cycle can elect to switch their GST reporting and payment to a monthly cycle to get a quicker GST refund.
- Bank loan deferrals: Banks will defer loan repayments for six months for small businesses with total business loan facilities up to $10 million who need assistance because of COVID-19.
- Bank assistance for JobKeeper: The major banks have agreed to set up a dedicated hotline for customers needing to access bridging finance to pay their staff ahead of receiving money under the JobKeeper program. The banks have also agreed to expedite the processing of those JobKeeper applications.
The ATO has a range of regularly updated webpages that provide answers to common COVID-19 support questions, including on:
- JobKeeper for employers, and for employees;
- income tax impacts for people who work and earn money overseas but have returned to Australia because of COVID-19; and
- tax considerations and other financial impacts for residential rental property owners, including rent and loan payment changes, and personal use of short-term accommodation like holiday houses.
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Businesses (including sole traders and charities) must have suffered a "substantial decline" in turnover to qualify for the JobKeeper Payment of $1,500 per eligible employee. The basic decline in turnover test requires an entity to measure its projected GST turnover for a turnover test period in 2020 and compare this to the current GST turnover for a relevant comparison period in 2019. In particular, the entity needs to allocate supplies made, or likely to be made, to a turnover test period or relevant comparison period based on when the supply is made or is likely to be made, and to then determine the value of those supplies. Any shortfall is to be expressed as a percentage. If this equals or exceeds specified thresholds, the entity satisfies the decline in turnover test.
The ATO has recently issued Law Companion Ruling LCR 2020/1, a non-binding ruling that explains various aspects of the test and sets out practical compliance approaches for calculating turnover.
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The ATO has extended the Single Touch Payroll (STP) exemption for small employers in relation to closely held payees from 1 July 2020 to 1 July 2021 in response to COVID-19.
A "small employer" is one that has 19 or fewer employees, and a "closely held payee" is someone who is directly related to the business, company or trust that pays them, such as family members of a family business, directors or shareholders of a company or beneficiaries of a trust.
This STP exemption for closely held payees applies automatically and small employers do not need to apply to the ATO to access it. However, employers should keep records to support their decision to apply the concession.
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Processing of COVID-19 early release of superannuation applications has now resumed, with the ATO adding extra risk filters for all files that are delivered to super funds. These release requests had been temporarily paused between 8 May and 11 May 2020 so that the ATO could consider enhancements to its systems to help protect individuals' personal data.
Assistant Treasurer Michael Sukkar recently reported that the ATO had identified a small number of third parties who could be susceptible to new techniques that criminals are using to try to steal personal data. The ATO has now worked with these third parties to help them make security enhancements, Mr Sukkar said, and the resulting additional risk filters will be applied on all files before they are delivered to super funds.
You should always be vigilant about how you store and share your personal information. Your myGov login details should never be shared with anyone, and you should be wary of phone calls, emails or text messages that request personal information. The ATO will never send you a direct link to log on to MyGov or other ATO online services.
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The Australian Securities and Investments Commission (ASIC) has reminded companies, directors and officers faced with COVID-19 challenges to reflect on their fundamental duties to act with due care, skill and diligence, and to act in the best interests of the company.
ASIC Commissioner John Price has said the impacts of COVID-19 will require many companies to focus on and, most likely, recalibrate aspects of their corporate strategy, risk-management framework, and funding and capital management, among other things. This will require directors to reflect on which stakeholders' interests need to be factored into decisions – including employees, investors and creditors. This is still the case even in areas where temporary relief has been provided from specific obligations under the law.
ASIC will maintain its enforcement activities and continue to investigate and take action where the public interest warrants it. Whether action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of taking relevant decisions or incurring debts.
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Spry Roughley Chartered Accountants
(+612) 9891 6100
(+612) 9635 4782