FURTHER CHANGES TO JOBKEEPER
Following the introduction of stage four restrictions in metropolitan Melbourne and stage three restrictions across regional Victoria, the Morrison Government has taken steps to ensure more businesses qualify for JobKeeper.
Key adjustments include:
- A change to the employee reference date – from 3 August 2020 the relevant date of employment for an eligible employee will move from 1 March to 1 July 2020, expanding employee eligibility.
- A change to the turnover reference period – to be eligible for JobKeeper post 28 September 2020, organisations will only have to demonstrate that their actual turnovers have significantly declined in the previous quarter.
As a result, organisations that are able to demonstrate a significant decline in turnover in the September 2020 quarter will be able to access the JobKeeper extension in the December quarter. An organisation able to demonstrate the requisite decline in turnover in the December 2020 quarter would be able to access the JobKeeper extension in the March 2021 quarter.
The JobKeeper Payment – Implications for Annual Leave and Statutory Superannuation
This taxable payment received by the employer maintains the employment relationship and entitlements such as annual leave and sick leave will continue to accrue.
The Fair Work Act JobKeeper provisions mean a qualifying employer can:
- Request an eligible employee to take paid annual leave (as long as they keep a balance of at least two weeks)
- Agree in writing with an eligible employee for them to take annual leave at half pay for twice the length of time.
To make an agreement about using annual leave under the Fair Work Act JobKeeper provision, a qualifying employer will need to:
- Qualify and enrol in the JobKeeper Scheme
- Be entitled to JobKeeper payments for the employee to whom the agreement applies
- Be a national system employer in the Fair Work System
Agreements under Fair Work Act JobKeeper provisions can only be made about using annual leave, not other types of leave.
Currently any agreements made under the new JobKeeper provisions end on 28.9.2020.
If an employer asks the employee to take annual leave, the employee must consider the request. They cannot unreasonably refuse it.
Employees who are on annual leave continue to accrue their usual leave entitlements while they are on leave, and the period of leave counts as service.
For payments (or parts of payments) to employees in excess of an employee’s usual wages, superannuation is not required to be paid. This situation may arise where:
- An employee’s usual wages are less than $1,500 per fortnight (superannuation would be payable on the part of the $1,500 payment necessary to cover the employee’s wages, but not on any windfall balance); or
- Employees have been stood down without pay (superannuation will not be payable on the $1,500 JobKeeper payment paid to employee as it is not paid as ordinary times earnings for work that has been undertaken).
Otherwise employees will be entitled to statutory superannuation.
On 21.7.2020, Treasury released the fact sheet Extension of the JobKeeper Payment (JKP) which sets out the details of JobKeeper 2.0, as follows:
JobKeeper Payments will now be payable until 28 March 2021
JKPs will now be made beyond 27.9.2020 with two separate extensions, being:
- Extension period 1 – which covers the seven JobKeeper fortnights that commence on 28.9.2020 and end on 3.1.2021; and
- Extension period 2 – which covers the JobKeeper fortnights that commence on 4.1.2021 and end on 28.3.2021.
While employers will generally qualify for JKPs in the same way, it is important to note that they will need to separately satisfy a new Decline in Turnover Test for both Extension Period 1 and Extension Period 2 as outlined in the example below.
JKPs will now be made at two different rates
Where an employer, sole trader, or an eligible entity with an eligible business participant (‘EBP’), qualifies for a JKP, they will either be paid at the:
- Full rate ($1,200); or
- Reduced rate ($750).
An employer will be paid at the full rate if, in the four weeks of pay periods before 1.3.2020 (also now 1.7.2020, see above), the employee was working in the business or not-for-profit for 20 hours or more a week on average.
A sole trader EBP, or an eligible entity with an EBP, will be paid at the full rate if the EBP was actively engaged in the business for 20 hours or more per week on average in the month of February or June 2020.
Where the employee (or EBP) did not achieve the 20-hour average, the JKP will be made at the reduced rate. However, the Commissioner will have a discretion to set out an alternative test where an employee’s or EBP’s hours were not usual during the February 2020 reference period.
Recent Changes to JobKeeper Worked Examples
We have outlined the changes above which these case studies expand on.
Carmen owns and runs the City Café. Carmen started claiming the JobKeeper Payment for her eligible staff and herself as a business participant when the JobKeeper Payment commenced on 30 March 2020. At the time, Carmen estimated that the projected GST turnover for City Café in April 2020 would be 70 per cent below its actual GST turnover in April 2019. To be eligible for the JobKeeper Payment from 30 March 2020 to 27 September 2020, Carmen needed to show the turnover for the City Café was estimated to decline by at least 30 per cent.
As a monthly BAS lodger, Carmen submitted her BAS for the City Café in April, May, and June.
For each of these, her actual turnover was as follows:
|Total for September quarter||400,000||600,000|
Decline for September quarter: 33 per cent
The actual turnover decline for September 2020 quarter was still greater than 30 per cent, so City Café was eligible for the JobKeeper Payment for the period of 28 September 2020 to 3 January 2021. Business continued to improve for the City Café, and actual turnover for the December 2020 quarter was 20 per cent less than the December quarter 2019, so the City Cafe was no longer eligible to claim the JobKeeper for the second extension period starting from 4 January 2021.
Working out the JobKeeper Payment rate to be claimed
In the scenario above, Carmen also needs to calculate how much to claim for each of her staff, and for herself as a business participant.
As Carmen was working full-time at the café herself throughout February 2020, she is entitled to claim $1,200 per fortnight from 28 September 2020 to 3 January 2021, as an eligible business participant.
She has three full-time employees who are also eligible to be paid $1,200 per fortnight because they each worked 20 hours or more per week throughout February 2020.
Carmen has an employee, Chris, who works part-time with different hours every other week: 14 hours one week; and 22 hours the next week. During the two pay fortnights prior to 1 March 2020, Chris was employed for 36 hours in each fortnight. On average, Chris worked less than 20 hours per week for City Café. Carmen is eligible to claim $750 per fortnight for Chris, from 28 September 2020 to 3 January 2021.
Cathy is an eligible employee who worked on a long-term casual basis during February 2020. To determine what rate of JobKeeper Payment to claim for Cathy, Carmen looks at pay records for the two fortnightly pay periods before 1 March 2020. She sees that Cathy was employed on average less than 20 hours per week, so Carmen claims $750 per fortnight for Cathy, from 28 September 2020 to 3 January 2021.
Carmen also started employing Charles from September 2020. Because Charles was not employed at City Café on 1 March 2020, Carmen cannot claim the JobKeeper Payment for Charles.
Melissa is a sole trader running a florist. She does not have employees. Melissa’s business has been in operation for several years. The economic downturn due to the Coronavirus has adversely affected Melissa’s business, and she expects that her business turnover will fall by more than 30 per cent compared to a typical month in 2019.
Melissa will be able to apply for the JobKeeper Payment and would receive $1,500 per fortnight before tax, paid on a monthly basis.
Worker with multiple jobs
Michelle currently works two permanent part-time jobs, earning $1,000 a fortnight at an art gallery during weekdays, and $1,000 a fortnight at the local café on the weekend. The gallery has recently closed, and Michelle has been stood down without pay under the Fair Work Act. Michelle continues to work at the café delivering take-away orders.
Michelle can only receive the JobKeeper Payment from the employer she nominates as her primary employer. As Michelle only claims the tax-free threshold from her job at the art gallery, this will be treated as her nomination of the art gallery as her primary employer.
The art gallery is eligible for the JobKeeper Payment. The art gallery will pass the JobKeeper Payment on to Michelle, so she will receive $1,500 per fortnight before tax. During the application
process, the art gallery will notify the ATO that Michelle receives the payment from them. The art gallery is also required to advise Michelle that she has been nominated to the ATO as an eligible employee to receive the payment.
The café is not eligible to receive the JobKeeper Payment for Michelle. The $1,000 a fortnight that Michelle receives from her job at the café does not change her entitlement to the JobKeeper Payment she receives from the art gallery.
Employee made redundant after 1 July and later rehired by same business
Miles worked as a permanent part-time personal trainer at a gym for six months earning $1,200 a fortnight and was made redundant on 20 March 2020.
In response to the announcement of the JobKeeper Payment, the gym re-engages Miles, so they are well placed to resume their operations once the Coronavirus restrictions are lifted.
Under the JobKeeper Payment he will receive $1,500 a fortnight before tax. Miles will need to advise Services Australia of his income so that he does not incur a debt that he will then need to repay. He is no longer eligible for the JobSeeker Payment and the Coronavirus Supplement from Services Australia as a result of receiving the JobKeeper Payment.
DESPITE ATO’S RELIEF FOR DIV 7A LOANS REAL CARE NEEDS TO BE TAKEN
In late June, the ATO disclosed that borrowers who had cashflow issues because of COVID-19 and were unable to meet their minimum yearly repayments in respect of Division 7A (Div 7A) loans by 30 June 2020 were able to apply to defer their minimum yearly repayments for 12 months until 30 June 2021.
This required ATO approval which if granted would mean that a higher minimum repayment would be required for the 2021 financial year. Although interest would need to be paid, it would not be capitalised.
Essentially Division 7A in section 109RD of I.T.A.A 1936 gives the ATO power to deem an assessable dividend to a shareholder of a private company which has attempted to make tax free distributions of profits to the shareholder or an associate of the shareholder.
This deemed dividend can be harsh in that it does not allow franking credits to attach to the dividend.
You may well ask why a working director/shareholder would not simply pay themselves wages and/or take dividends which would have franking credits (for the company tax paid) attached. First of all, there is a significant differential between highest marginal tax (47%) and company tax of 26.5%.
So, the franking credits may not be sufficient to cover the tax on the dividend.
Payments of wages will give to rise to PAYG liabilities along with WorkCover and statutory superannuation which may not be welcome in tough times.
However, allowing a debit loan (you owe the company) to build up in tough times can lead to a liquidator chasing you personally for the money if the company fails.
In the toughest of tough times, discipline must be maintained.
If directors are unable to make their repayments as a result of COVID-19, then the ATO has stated they can apply for an extension as long as certain conditions are met.
For those affected it is necessary to apply for the extension online using the approved form providing:
- Information about the loan and the amount of the shortfall, which is the amount of the minimum repayment the borrower is unable to pay.
- Details of the circumstances in which the shortfall has arisen — that is, why the borrower was unable to pay.
It will not be enough to indicate the borrower could not pay because of cash-flow issues. It will be necessary to demonstrate that they did not have the funds, or they did not have any assets that they could realise in order to make the repayment.
INCREASING THE INSTANT ASSET WRITE OFF
From 12 March 2020, the Government increased the instant asset write off (IAWO) threshold from $30,000 to $150,000 and expanded access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
In 2017-18 there were more than 360,000 businesses that benefited from the IAWO, claiming deductions to the value of over $4 billion.
On 9 June 2020, the Government announced it would extend the $150,000 instant asset write-off by six months until 31 December 2020 to give eligible businesses additional time to invest. This extension has been legislated.
The IAWO threshold
The higher IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
The IAWO is due to revert to $1,000 for small businesses (turnover less than $10 million) from 1.1.2020.
The Government is expanding access so that more businesses can take advantage of the IAWO. The annual turnover threshold for businesses is increasing from $50 million to $500 million.
Expanding the threshold will mean an additional 5,300 businesses who employ around 1.9 million Australians will be able to access the IAWO for the first time.
This proposal applies from announcement until 31.12.2020, for new or second-hand assets first used or installed ready for use in this timeframe.
Example 1 — Business benefits from increased asset threshold
Owen owns a company, ON Point Farms Pty Ltd, through which he operates a farming business in the Central Wheat Belt of Western Australia. ON Point Farms Pty Ltd has an aggregated annual turnover of $25 million for the 2019-20 income year. On 1 May 2020, Owen purchases a second-hand tractor for $140,000, exclusive of GST, for use in his business.
Under existing tax arrangements, ON Point Farms Pty Ltd is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the tractor using an effective life of 12 years. Choosing to use the diminishing value method, ON Point Farms Pty Ltd would claim a tax deduction of $3,899 for the 2019-20 income year.
Under the new $150,000 instant asset write-off, ON Point Farms Pty Ltd would instead claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019-20 income year, $136,101 more than under existing arrangements. At the company tax rate of 27.5 per cent, Owen will pay $37,427.78 less tax in 2019-20.
This will improve ON Point Farms Pty Ltd.’s cash flow and help his business withstand and recover from the economic impact of the Coronavirus.
Example 2 — Business benefits from increased turnover threshold
Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business in Brisbane. Sam’s Specialty Roasters Pty Ltd has an aggregated annual turnover of $150 million for the 2019-20 income year. On 1 May 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.
Under existing tax arrangements, Sam’s Specialty Roasters Pty Ltd is not eligible for the instant asset write-off and instead would depreciate the conveyor belts using an effective life of 15 years. Choosing to use the diminishing value method, Sam’s Specialty Roasters Pty Ltd would claim a total tax deduction of $4,456 for the 2019-20 income year.
Under the new $150,000 instant asset write-off, Sam’s Specialty Roasters Pty Ltd would instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2019-20 income year, $195,544 more than under existing arrangements. At the company tax rate of 30 per cent, Samantha will pay $58,663.20 less tax in 2019-20.
This will improve Sam’s Specialty Roasters Pty Ltd.’s cash flow and help her business withstand and recover from the economic impact of the Coronavirus.
Backing Business Investment (BBI)
The Government is introducing a time limited 15-month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions. The key features of the incentive are:
- Benefit — deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
- Eligible businesses — businesses with aggregated turnover below $500 million; and
- Eligible assets — new assets that can be depreciated under division 40 of the income tax assessment act 1997 (i.e. Plant, equipment and specified intangible assets, such as patents) acquired after announcement and first used or installed by 30 June 2021. Does not apply to second-hand division 40 assets, or buildings and other capital works depreciable under division 43.
Businesses with aggregated turnover below $500 million, purchasing certain new depreciable assets.
Applies to eligible assets acquired after announcement and first used or installed by 30 June 2021.
Example 3 — Middle-sized business benefits from the BBI
J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020-21 income year. On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business.
Under existing tax arrangements, J Construction Solutions Pty Ltd could claim 30 per cent depreciation in the first year (based on the asset’s effective life of 6⅔ years).
Under the new BBI, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020-21 income year. This consists of 50 per cent of the concrete pump’s value under the new BBI ($500,000) plus 30 per cent of the remaining $500,000 under existing depreciation rules ($150,000). This is $350,000 more than under existing tax arrangements.
At the company tax rate of 30 per cent, J Construction Solutions Pty Ltd will pay $105,000 less tax in the 2020-21 income year (30 per cent of $350,000). This extra tax benefit is worth $14,000 to J Construction Pty Ltd over the asset’s life (at an interest rate of 5 per cent).
This will improve J Construction Solutions Pty Ltd.’s cash flow and lower the after-tax cost of the concrete pump to the business.
Example 4 — Small business benefits from the BBI
Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business on the North Coast of New South Wales. NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019-20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.
Under existing tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their small business simplified depreciation pool. Under the pooling rules, NC Transport Solutions Pty Ltd would deduct 15 per cent of the asset’s value upon entry to the pool, leading to a tax deduction of $39,000 for the 2019-20 income year.
Under the new BBI, NC Transport Solutions Pty Ltd would instead claim an up-front deduction of 50 per cent of the truck’s value ($130,000) before placing the asset in their small business simplified depreciation pool. Joan and Bruce would then claim a further 15 per cent deduction on the depreciated value of the truck ($19,500). As a result of the two deductions, Joan and Bruce are able to claim a deduction totalling $149,500 in the 2019-20 income year, $110,500 more than under existing arrangements. At the company tax rate of 27.5 per cent, Joan and Bruce will pay $30,387.50 less tax in the 2019-20 income year.
This will improve NC Transport Solutions Pty Ltd.’s cash flow and help Joan and Bruce’s business withstand and recover from the economic impact of the Coronavirus.
NEW RULES FOR THE SHARING AND GIG ECONOMY INTERNATIONAL IMPLICATIONS
In July 2020, the OECD released the “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy”.
This provides a framework to be enacted in relevant individual tax jurisdictions allowing collection of information from digital platforms on the sellers of accommodation (such as Airbnb), transport (Uber), food delivery (Uber Eats) and other task- or time-specific services. This automatic exchange of information among participating countries will allow the information to find its way to the tax administrations of the country of residence of the seller of the services, as well as of the country where rental accommodation is situated if different, and will be used to check whether the income has shown up in a local tax return. This information can also be used to pre-fill the relevant tax return. The expected implementation time is 2-5 years.
ATO REMINDS BUSINESSES PAYING CONTRACTORS TO CHECK IF THEY NEED TO LODGE TAXABLE PAYMENTS ANNUAL REPORT
The Australian Taxation Office (ATO) has reminded businesses that pay contractors for certain services that they needed to lodge a Taxable Payments Annual Report (TPAR) with the ATO by 28 August 2020.
This is the first year that businesses that pay contractors to provide road freight, information technology, security, investigation, or surveillance services may need to lodge a TPAR with the ATO. This is in addition to those businesses providing building and construction, cleaning, or courier services that are already required to report.
- In response to COVID-19 many businesses have had to quickly adapt, and many have needed to contract out more services. According to the ATO, the TPAR helps shed light on payments to contractors not doing the right thing.
- Businesses should take the time to check if they need to lodge a TPAR and to make sure it was lodged with the ATO by 28 August 2020. The ATO website ato.gov.au/TPAR has information that businesses or their advisers can use to quickly determine if they need to lodge a TPAR.
- Many restaurants, cafés, grocery stores, pharmacies and retailers have started paying contractors this year to deliver their goods to customers as a result of COVID-19. These businesses may not have previously needed to lodge a TPAR. However, if the total payments received for these deliveries or courier services are ten per cent or more of the total annual business income, they need to lodge.
- The ATO uses information reported on the TPAR to make sure that businesses are complying with their tax obligations, for example, being registered for GST if required, lodging BAS and income tax returns, and using valid ABNs, reporting the correct amount of income and then paying the right amount of tax.
- The ATO has also been working directly with head contractors in the building and construction industry across the country to ensure the success of the taxable payments reporting system (TPRS) which has led to a $56 million reduction in amounts paid to sub-contractors without a valid ABN from 2016–17 to 2018–19 financial years.
- The ATO is also actively encouraging the use of the ABN Lookup tool which is a quick and easy way to ensure the contractor you are working with is quoting a valid ABN on their invoices. Additionally, some commercial software providers have now integrated automated ABN checking into their accounting software packages, which makes ABN checking more streamlined during the year as well as when it comes time to lodge the TPAR. This sustained effort has led to a $500 million improvement in reporting of payments to valid ABNs across the building and construction industry.
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