ATO tax time support: COVID-19 and natural disasters

The ATO has a range of year-end tax time options to support taxpayers who have been affected by the COVID-19 pandemic and recent natural disasters.

Income statements can be accessed in ATO online services through myGov accounts from 14 July. The ATO also reminds those who may have lost, damaged or destroyed tax records due to natural disasters that some records can be accessed through their myGov account or their registered tax agent. For lost receipts, the ATO can accept “reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents”. A justification may be required on how a claim is calculated.

The following provides a summary of tax treatment of different support schemes:

• JobKeeper – Payments received as an employee will be automatically included in the employee’s income statement as either salary and wages or as an allowance. However, sole traders who received JobKeeper payment on behalf of their business will need to include the payment as assessable income for the business.
• JobSeeker – Payments received will be automatically included in the tax return at the Government Payments and Allowances question from 14 July.
• Stand down payments – Employees receiving one-off or regular payments from their employer after being temporarily stood down due to COVID-19 should expect to see those payments automatically included in their income statement as part of their tax return.
• COVID-19 Disaster Payment for people affected by restrictions – The Australian Government (through Services Australia) COVID-19 Disaster Payment for people affected by restrictions is taxable. Taxpayers are advised to ensure they include this income when lodging their returns.
• Tax treatment of other assistance – The tax treatment of assistance payments can vary; the ATO website outlines how a range of disaster payments impact tax returns and includes guidance on COVID-19 payments, including the taxable pandemic leave disaster payment.
• Early access to superannuation – Early access to superannuation under the special arrangements due to COVID-19 is tax free and does not need to be declared in tax returns.

Assistant Tax Commissioner Tim Loh offered this piece of advice: “Even if you can’t pay, it’s still important to lodge on time. Once you lodge and have up-to-date records, [the ATO] can help you understand your tax position and find the best support for you.”

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-here-to-help-those-hit-by-COVID-19-and-natural-disasters/;

www.ato.gov.au/general/dealing-with-disasters/assistance-payments/#Taxtreatmentofdisasterreliefpayments;

www.ato.gov.au/General/COVID-19/Government-grants-and-payments-during-COVID-19/.

Hardship priority processing of tax returns

It’s tax time again and if your business is experiencing financial difficulties due to the latest lockdowns, the ATO may be able to help by processing your tax return faster and expediting the release of any refund to you. To be eligible for priority processing, you’ll need to apply to the ATO and provide supporting documents (within four weeks of your submission) outlining your circumstances. “Financial difficulty” may include many situations such as disconnection of an essential service, pending legal action or repossession of a business vehicle.

According to the ATO, financial difficulty may occur in many situations, including but not limited to business closure, disconnection of an essential service, repossession of a business vehicle, pending legal action for unpaid debts, court orders, settlements and other necessities the business is responsible for.

As the circumstances of financial difficulty may vary, the supporting documents may be general (eg bank notices, overdraft calls, staff pay records, or eviction notices) or specific (eg disconnection notice for an essential service, repossession notice of a vehicle, notice of impending legal action, payment schedules or other legal documents).

Businesses can apply for ATO priority processing over the phone or through their tax professional after the lodgment of the tax return in question. Once the initial request for priority processing is received by the ATO, the applicant will be notified and contacted if more information is required. Processing will take more time for businesses that have lodged several years’ worth of income tax returns of amendments at the same time, and those that have unresolved tax debts.

Before lodging any priority processing request, the taxpayer should check the progress of their return through online services, the phone or their tax professional. If the return is in the final stages of processing, they may not need to lodge a priority processing request as the return will be finalised before the ATO has had an opportunity to consider the request.

Remember, priority processing of a business tax return doesn’t guarantee a refund. If the business has outstanding tax or other debts with Australian government agencies, the credit from a return may be used to pay down those debts.

For businesses that do not qualify for priority processing but are still experiencing hardship, there are various options to assist with cashflow, including adjusting GST registration and reporting, as well as varying PAYG instalments. If the business’s GST turnover is less than $75,000 they may be able to either cancel their GST registration or remain registered but report and pay GST annually or monthly. To vary PAYG instalments when business income is reduced, the business can lodge a variation on the next BAS or instalment notice and the varied amount will apply to the remaining instalments for the income year.

In addition, if business funds have been frozen or if the business owes the ATO under $100,000, it may be possible to pay the tax by instalments or the business may be eligible for a payment deferral. Remember, however, that the ATO doesn’t have the discretion to vary super contribution due dates or waive the super guarantee charge for late payments, so care needs to be taken to avoid penalties in this area.

Workplace giving versus salary sacrifice donations

Have your clients made donations either through workplace giving or salary sacrifice arrangements with their employers? If so, and they want to claim a deduction in their tax returns, it’s important for them to know that the tax treatment differs depending on which method they used to make the donation.

Essentially, workplace giving is a streamlined way for employees to regularly donate to charities and deductible gift recipients (DGRs). Usually a fixed portion of the employee’s salary is deducted from the employee’s pay each pay cycle and the employer forwards the donation on to the DGR. However, the amount of the employee’s gross salary remains the same and, depending on the employer’s payroll systems, the amount of tax paid by the employee each pay period may or may not be reduced to take into account the donation.

On the other hand, under a typical salary sacrificing donation arrangement, the employee agrees to have a portion of their salary donated to a DGR in return for the employer providing benefits of a similar value to the employee. The employee’s gross salary is reduced by the salary sacrificed amount and the amount of tax paid by the employee each pay period will be reduced; the employer makes the donation to the DGR.

If an employee has made a donation under workplace giving, they are able to claim a deduction in their tax return. This is regardless of whether or not the employer reduced the amount of tax paid each pay cycle to account for the amount of the donation. The employer will provide the employee with a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made.

Alternatively, the employer will provide the total amount of donations the employee made for the year in the employee’s payment summary, under the “Workplace giving” section.

Those who have made a donation to a DGR under a salary sacrifice arrangement, however, are not entitled to claim a deduction in their tax return, since it is the employer that is making the donation to the DGR – not the employee. Therefore, it is prudent for your clients to check whether they’ve donated under workplace giving or a salary sacrifice arrangement before claiming any deductions for donations to DGRs this year.

For taxpayers who have made donations outside the workplace, remember that for a donation to be deductible it must be made to a DGR and truly be a gift or donation (ie voluntarily transferring money or property without receiving or expecting to receive any material benefit or advantage in return) of $2 or more. Although, if you receive a token item for a donation (eg a lapel pin, wristband, sticker etc), you are still able to claim a deduction.

Receipts must be kept for donations made outside of workplace giving programs; however, if taxpayers have made donations of $2 or more to “bucket collections” conducted by an approved organisation they may be able to claim tax deductions for gifts up to $10 without a receipt. It should also be noted that many crowdfunding campaigns and sites are not run by DGRs, and subsequently any donations made to those causes should be carefully examined – it’s likely they will not be deductible.

Employers beware: increase in super guarantee

From 1 July 2021, the rate of super guarantee increased from 9.5% to 10%. Businesses using manual payroll processes should be careful that this change doesn’t lead to unintended underpayment of super, which may attract penalties. The rate employers should use to calculate super contributions depends on the date that they are paying their employees – it doesn’t matter if the work was performed in a different quarter. The new rate of 10% is the minimum percentage now required by law, but employers may pay super at a higher rate under an award or agreement.

Depending on how a business’s employment contracts are structured (eg a package, or base pay plus superannuation), the new extra 0.5% may either come from the employee’s existing gross pay or be extra payment on top of their salary.

Most payroll and accounting systems will have incorporated the increase in their super rate, but it’s always good to check. If your clients are still using a manual process to pay their employees, they will need to work out how much super to pay under the new rate. The process is fairly simple: they will just need to multiply an employee’s ordinary time earnings based on salary and wages paid in the quarter by 10% (or a higher rate if one applies under an award or agreement).

Remember, the rate used to calculate super contributions depends on the quarter that in which the business is paying its employees in. It does not matter if the work is performed in a different quarter. The 10% super guarantee applies to all super payments made after 1 July 2021.

Example

Trevor is an employee of Ian and is paid fortnightly. For the pay period ending 27 June 2021, Trevor’s ordinary time earnings for the fortnight are $2,000. Ian pays Trevor on 1 July 2021. The minimum super contribution for Trevor for the pay period ending 27 June 2021 is $200 (ie $2,000 × 10%). However, if Ian had made a payment on 27 June 2021, the minimum super contribution would have been $190 (ie $2,000 × 9.5%).

Now imagine that Trevor’s fortnightly pay period spans from 21 June 2021 to 5 July 2021, and Ian makes a payroll payment on 9 July 2021. Because the payment is made after 1 July 2021, the minimum super contribution Ian has to make on behalf of Trevor is still $200 (ie $2,000 × 10%); it does not matter that some of the work was performed in a different quarter.

Employers may not necessarily have to pay their employees’ super every pay cycle, but payment needs to be made at least four times a year (ie at least once each quarter). For the 1 July to 30 September quarter, super guarantee contributions are due by 28 October. Employers that miss this payment due date may be subject to the super guarantee charge and other penalties.

It should also be noted that some super funds, employment awards and contracts require employers to pay super more regularly than quarterly; therefore, various contractual obligations should be checked before moving to a quarterly remittance cycle.

This latest increase to 10% is by no means the last time the super guarantee rate will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year) the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023–2024 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

COVID-19 lockdown support: NSW, Vic and SA

If your business or employment income has been affected by recent COVID-19 related lockdowns in New South Wales, Victoria and South Australia, financial help is available from both the state and Federal governments. Depending on the length of the lockdown, businesses may be eligible to receive a co-funded small and medium business support payment, as well as various cash grants.

Federal support

Businesses

For small and medium businesses, depending on the length of the lockdown, the Federal government will fund up to 50% small and medium business support payments to be administered by the states. For example, under the scheme, eligible entities in NSW will receive 40% of their NSW payroll payments – at a minimum of $1,500 and a maximum of $10,000 per week – if their turnover decreases by 30% from an equivalent two-week period in 2019.

Businesses will need to have an annual turnover of between $75,000 and $50 million. Non-employing businesses (eg sole traders) will also be eligible; however, the maximum payment will be set at $1,000 per week. In order to receive the payment, businesses will be required to maintain their full-time, part-time and long term casual staffing levels as at 13 July 2021.

The Federal government will also seek to make various state business grants tax exempt and provide support for taxpayers through the ATO with reduced payment plans, waiving interest charges on late payments and varying instalments on request. For individuals, the COVID-19 disaster payment of up to $600 will be available in any state or territory where a lockdown has been imposed.

Individuals

Where lockdowns or movement restrictions are in place or local government areas have been declared “hotspots”, the Federal government’s COVID-19 Disaster Payment is also activated. Individuals are eligible this payment if they have lost between eight and 19 hours of work (for a payment of $375), or 20 or more hours of work (for a payment of $600) because of restrictions under a state public health order.

The payments will be made in arrears and anyone affected can apply through myGov. More information about these payments and how to claim is available on the Services Australia website at www.servicesaustralia.gov.au/individuals/services/centrelink/covid-19-disaster-payment.

Source: www.pm.gov.au/media/nsw-covid-19-support-package-0;

www.servicesaustralia.gov.au/individuals/services/centrelink/covid-19-disaster-payment;

https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/nsw-covid-19-support-package;

www.pm.gov.au/media/childcare-gap-fee-waiver-nsw-families-covid-affected-areas;

www.pm.gov.au/media/press-conference-kirribilli-nsw-6; www.pm.gov.au/media/vic-covid-19-support-package.

New South Wales

Eligible businesses with annual wages up to $10 million will be able to claim state government grants of between $7,500 and $15,000 under the business grants program. Smaller and micro businesses with turnover of between $30,000 and $75,000 that experience a decline in turnover of 30% will be eligible for a $1,500 payment per fortnight of restrictions.

Payroll tax waivers of 25% will be available for businesses that have Australian wages of between $1.2 million and $10 million and have experienced a 30% decline in turnover. In addition, payroll tax deferrals and interest free payment plans will be available.

Commercial, retail and residential landlords who provide rental relief to financially distressed tenants will be able to claim land tax relief equal to the value of rent deductions up to a maximum of 100% of the 2021 land tax liability. Residential landlords that are not liable for land tax may be able to claim a capped grant of up to $1,500 where they reduce rent for tenants.

Just as support for landlords has been ramped up, the NSW government will also be protecting tenants with a short-term eviction moratorium for rental arrears where a residential tenant suffers a loss of income of 25% due to COVID-19 and meets a range of other criteria. There will also be no recovery of security bonds, lockouts or evictions of impacted retail/commercial tenants prior to mediation.

Source: www.nsw.gov.au/media-releases/accelerated-2021-covid-19-business-support-grant-open;

www.nsw.gov.au/covid-19/businesses-sole-traders-and-small-not-for-profits;

www.smallbusiness.nsw.gov.au/resources/summary-covid-19-support-measures-micro-and-small-business;

www.service.nsw.gov.au/transaction/2021-covid-19-business-grant;

www.nsw.gov.au/media-releases/payroll-tax-reductions-and-deferrals-to-support-businesses; www.revenue.nsw.gov.au/.

Victoria

Businesses in Victoria will be provided with cash grants from the state government. These payments will be automatically made to eligible businesses and sole traders to minimise delays. The state government estimates that up to 90,000 business that previously received assistance payments in relation to previous lockdowns will receive the new cash grant of $3,000 for licensed hospitality venues and $2,000 for other businesses.

Source: www.premier.vic.gov.au/cash-support-victorian-businesses-during-lockdown.

South Australia

Small and medium-sized businesses that suffer a significant loss of income or were forced to close as a result of South Australia’s seven-day lockdown are being offered a $3,000 emergency cash grant as part of a $100 million business support package. The package also includes a new $1,000 cash grant for eligible small businesses that don’t employ staff (eg non-employing sole traders).

Modelled on similar schemes in Victoria, NSW and WA, the SA grants will apply to businesses with a payroll of less than $10 million, with an annual turnover of $75,000 or more (in 2020–2021 or 2019–2020) and whose turnover reduced by at least 30% over the seven days from 20 July 2021 as a result of the lockdown.

In addition, the SA Government said it will provide fully-funded income support payments of up to $600 per week for eligible workers in regional SA who live or work outside of the Commonwealth-declared “hotspot” local government areas, and are therefore not entitled to the Federal $375 or $600 per week COVID-19 Disaster Payment.

Source: www.pm.gov.au/media/commonwealth-income-support-way-sa-hotspots; www.premier.sa.gov.au/news/media-releases/news/cash-grants-lifeline-for-sa-small-businesses-and-income-support-payments-for-regional-workers.

Temporary COVID Disaster Payment now available

The Federal Government has announced a temporary COVID Disaster Payment to assist workers who reside or work in a Commonwealth declared hotspot, who are unable to attend work and earn an income as a result of state-imposed health restrictions that last for longer than one week.

The payment, available for Australian citizens, permanent residents and eligible working visa holders, is up to $500 per week for recipients who lose 20 hours or more of work, and $325 per week those who lose under 20 hours of work.

The payment is available in respect of the second and any subsequent weeks of restrictions to workers who:

• have liquid assets of no more than $10,000;
• have exhausted any leave entitlements (other than annual leave) or other special pandemic leave; and
• are not already receiving income support payments, business support payments, or the Pandemic Leave Disaster Payment.

Access to the payment is available through Services Australia from 8 June 2021.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/temporary-australian-government-assistance-workers.

Private health insurance rebates frozen

The Federal Government has once again quietly sought to freeze the private health insurance income thresholds for the private health insurance incentive, this time for another two years, with indexation of the thresholds to start up again from 1 July 2023. Most people with private health insurance takes the private health insurance incentive in the form of reduced premiums, although it can also be taken as a tax offset.

The income thresholds for private health insurance were originally meant to be indexed annually; however, since the government implemented the freezing of indexation, the income thresholds have remained at 2014–2015 levels for the various tiers. While the rebate percentages were adjusted annually on 1 April, the rebate percentage for the current year have remained the same as in the 2019–2020 year.

For individuals and families with private health insurance, this means that the rebate adjustment factor will remain the same as in the 2019–2020 income year, translating into a real-life cut in the rebated amount. This will be the case until the government completes its review into the MLS Medicare Levy Surcharge (MLS) Policy Settings.

According to the Commonwealth Ombudsman, private health insurance offerings for basic (Bronze) hospital cover plus extras for two adults and two young children range from $300 to $600 per month for the current year. Going with an average figure of $450 per month, the annual cost of the insurance would equate to roughly $5,400. Assuming the adults are under 65 and earning less than $180,000 as a family, the total rebate on the yearly premium would be: $5,400 × 25.059% = $1,354.

If the family applies the rebate in the form of reduced premiums for their cover, it would mean that instead of paying $450 per month they would pay $337 per month. However, because indexation is now frozen until 1 July 2023, if private health insurance prices increase next year in line with previous average increases, the same family earning the same amount of money will end up paying more for their private health insurance, because the rebate percentage will stay the same.

The average 2021 price increase for health insurance premiums was 2.74%, which was the lowest increase since 2001. However, most large insurers increased their prices above the average rate, with the maximum increase by a fund listed as 5.47%. According to some figures, health insurance premiums have increased by 57% in the last decade, while the consumer price index (CPI, or inflation) has only grown by 20%.

Extending from our example, if the average price of $450 per month increases by 5% for 2022, the family will be paying $22 extra per month before the rebate is applied. The total annual premium would be $5,670 and the total rebate on the yearly premium would be: $5,670 × 25.059% = $1,420.

Again, if the hypothetical family applies the rebate in the form of reduced premiums, they will end up paying $354 per month in 2022, which equates to $17 a month extra for the same policy with the same benefits, while they are earning substantially the same amount due to stagnant wages growth. Remember, this simple calculation doesn’t take in the fact of singles or families moving between tiers which would reduce their rebate even more.

Cryptocurrency trading is subject to tax: new ATO data-matching program

According to ATO estimates, over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, in fact this is not the case – capital gains tax (CGT) does apply where gains or losses are in the form of crypto-assets.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations”, ATO Assistant Commissioner Tim Loh has said. Mr Loh added that while it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.

This year the ATO will be writing to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.

“Gains from cryptocurrency are similar to gains from other investments, such as shares”, Mr Loh explained. “Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax and must be reported.”

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address”, Mr Loh said.

Alongside these communications to taxpayers, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.

The data items will include:

• client identification details (names, addresses, date of birth, phone numbers, social media accounts and email addresses); and
• transaction details (bank account details, wallet addresses, transaction dates, transaction time, transaction type, deposits, withdrawals, transaction quantities and coin type).

The ATO says that the objectives of the program are to:

• promote voluntary compliance by communicating how the ATO uses external data with its own “to help encourage taxpayers to comply with their tax and superannuation obligations”;
• identify and educate those individuals and businesses that may be failing to meet their registration and/or lodgment obligations and “assist them to comply”;
• gain insights from the data that may help to develop and implement treatment strategies to improve voluntary compliance (including educational or compliance activities, as appropriate);
• gain insights from the data to increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that have bought, sold or accepted payment via cryptocurrency;
• help ensure that individuals and businesses that trade or accept cryptocurrency as payment are fulfilling their taxation lodgment, reporting and payment obligations; and
• help ensure that individuals and businesses are fulfilling their tax and superannuation reporting obligations.

Source: www.ato.gov.au/Media-centre/Media-releases/Cryptocurrency-under-the-microscope-this-tax-time/;

www.legislation.gov.au/Details/C2021G00417.

ATO compliance: economic stimulus measures

Businesses that have accessed government economic stimulus measures need to take extra care this tax time. The ATO has announced that it will increase its scrutiny, conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation. While the ATO said it will continue to support businesses, most of whom are doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. All taxpayers that have used the schemes are encouraged to review their claims to ensure they are eligible, and that the amounts claimed are correct.

The loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020–2021 and 2021–2022 company tax returns. In essence, companies get to “carry back” losses to earlier years in which there were income tax liabilities, which may result in a cash refund or a reduced tax liability.

The temporary full expensing measure allows eligible businesses to immediately deduct the business portion of the cost of eligible new depreciating assets or improvements held and ready for use between 6 October 2020 and 30 June 2022. Eligible businesses also have access to the accelerated depreciation measure for the 2019–2020 and 2020–2021 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate.

Specifically, in relation to loss carry-back, the ATO will looking for businesses that are deliberately inflating their deductions or omitting some of their income to generate the appearance of losses. It will also look for signs of businesses entering into contrived schemes to obtain a benefit of the loss carry-back tax offset, such as shifting or creating losses through non-arm’s length dealings or shifting franking credits to a corporate entity (either directly or indirectly).

In relation to temporary full expensing and/or accelerated depreciation, the ATO notes the following behaviours which will attract its attention:

• entering into contrived schemes to obtain a benefit of a temporary full expensing deduction, including schemes involving:
• manipulation of aggregated turnover;
• non-commercial transactions involving the transfer of an asset between related entities;
• artificially inflating the cost of assets (including inappropriate valuations) through non-arm’s length dealings;
• claiming deductions for assets acquired solely for a non-business purpose or failing to take into account any portion of non-business use;
• deliberately misclassifying or reclassifying excluded assets (eg reclassifying capital works and buildings as eligible assets under temporary full expensing or Div 43 capital works and buildings as eligible assets under accelerated depreciation);
• deliberately inflating the amount of accelerated depreciation deduction by applying the incorrect adjustable value or effective life;
• failing to take into account the car limit when calculating the deduction; and
• lacking evidence to substantiate the claim (including the cost of assets) such as invoices, contracts, supplier agreements or independent valuations.

The ATO notes that it will review claims for loss-carry back, temporary full expensing and accelerated depreciation as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. Where cases of concerning or fraudulent behaviours are identified, it will actively pursue the claims including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

Personal use assets and collectables in SMSFs

Contrary to some popular beliefs, a self managed superannuation fund (SMSF) can invest in collectables such as artworks, jewellery and wine, as well as personal use assets such as boats, classic cars and other vehicles. However, investment in these assets must occur in keeping very strict and specific rules in order to qualify, and thus care should be taken to avoid breaches of super rules in relation to owning collectables and personal use assets in SMSFs.

To start with, collectables and personal-use assets encompass a wide range of assets, including:

• artworks (paintings, sculptures, drawings, engravings, photographs etc);
• jewellery;
• antiques;
• artefacts;
• coins, medallions or bank notes in certain circumstances (eg coins, bullion coins and bank notes are considered collectables if their value exceeds their face value);
• postage stamps or first-day covers;
• rare folios, manuscripts or books;
• memorabilia;
• wine/spirits etc;
• motor vehicles and motorcycles;
• recreational boats; and
• memberships of sporting or social clubs.

The SMSF is allowed to invest in any of these collectable or personal use assets, provided such items are acquired for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. In addition, the investment must also satisfy the following criteria:

• it must comply with all other relevant investment restrictions, including the sole purpose test;
• the decision on where the item is stored must be documented and a written record kept;
• the item(s) must be insured in the fund’s name within seven days of the fund acquiring it;
• where an item is subsequently transferred to a related party, it must be at the market value as determined by a qualified, independent valuer; and
• the items must be unencumbered.

First and foremost, these rules mean that whatever collectable or personal use asset is purchased by the SMSF, it cannot be used by members or related parties in any capacity. To show how far this rule goes, the ATO cites an example of a classic car: if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain the car or to perform restoration work.

These rules also mean that any collectable or personal use asset owned by the SMSF cannot be stored on or in the private residence of any member or related party (this includes all parts of a private dwelling, as well as the land on which the private residence is situated and all other buildings on that land, such as garages or sheds). However, the asset can be stored – but not displayed – in premises owned by a related party that are not their private residence.

For example, an artwork that is an SMSF investment cannot be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard or another similar storage area. Additionally, the artwork (or other collectable/personal use asset) can be leased to unrelated parties on arm’s length terms.

The ability to obtain insurance must also be considered where an SMSF is going to invest in collectables or personal use assets. It is a requirement that the items are insured within seven days, under either separate policies or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but is unable to obtain insurance, the ATO will need to be notified.

Are you ready for Tax Time 2021?

Don’t jump the gun and lodge too early

Tax time 2021 is almost here, but it’s likely to be anything but routine. Many individuals on reduced incomes or who have increased deductions may be eager to lodge their income tax returns early to get their hands on a refund. However, as always the ATO is warning against lodging too early, before all your income information becomes available. It’s important to remember that employers have until the end of July to electronically finalise their employees’ income statements, and the same timeframe applies for other information from banks, health funds and government agencies.

With so many different types of incomes and expenses affecting tax obligations this income year, the ATO is taking a range of different approaches to support taxpayers and the community through tax time. In addition to updating published information on its website, the ATO encourages taxpayers to search its online “ATO community” forum, which operates 24 hours a day and contains “ATO-endorsed” responses.

For most people, income statements have replaced payment summaries. So, instead of receiving a payment summary from each employer, the income statements will be finalised electronically and the information provided directly to the ATO. The income statement can be accessed through myGov and the information is automatically included in the tax return for people who use myTax. Tax agents also have access to this information.

According to the ATO, it is important to wait until the income statement is finalised before lodging a tax return to avoid either delays in processing or a tax bill later on. The income statement will be marked “tax ready” on myGov if it is finalised. Other information from banks, health funds and government agencies is also expected to be ready by the end of July and will be automatically inserted into the tax return.

If you still choose to lodge early, the ATO advises carefully reviewing any information that is pre-filled so that you can confirm it is correct and that you wish to use it. Early lodgers will also be required to acknowledge that their employers may finalise their income statement with different amounts, meaning that the lodger may need to amend the tax return and additional tax may be payable.

The ATO will start full processing of 2020–2021 tax returns on 7 July 2021, and expects to start paying refunds from 16 July 2021.

How COVID-19 has changed work-related expenses

COVID-19 has changed many people’s work situations, and the ATO expects their work-related expenses will reflect this during tax time in 2021. In 2020 tax returns, around 8.5 million Australians claimed nearly $19.4 billion in work-related expenses.

Last year, the value of car and travel expenses decreased by nearly 5.5%, but there was a slight increase (around 2.6%) in clothing expenses. This increase was driven by front-line workers’ first-time need for things like hand sanitiser and face masks.

“Our data analytics will be on the lookout for unusually high claims this tax time”, Assistant Commissioner Tim Loh has said. “We will look closely at anyone with significant working from home expenses, that maintains or increases their claims for things like car, travel or clothing expenses. You can’t simply copy and paste previous year’s claims without evidence.”

The ATO does know that some of these “unusual” claims may be legitimate, and wants to reassure people who have evidence to explain their claims that they have nothing to fear. It also recognises that tax rules can be confusing and sometimes people make mistakes on their returns while acting in good faith.

During 2020, the ATO had to shift its focus to getting stimulus benefits out the door as quickly as possible to support the many Australian businesses in need. In 2021 it will continue supporting individuals and businesses through this challenging time, while recommencing its focus on addressing unreasonable work-related expenses claims.

Working from home expenses

The temporary shortcut method for working from home expenses is available for the full 2020–2021 financial year. This allows an all-inclusive rate of 80 cents per hour for every hour people work from home between 1 July 2020 and 31 June 2021, rather than needing to separately calculate costs for specific expenses.

All employees need to do is multiply the hours they worked at home by 80 cents, keeping a record such as a timesheet, roster or diary entry that shows the hours worked at home.

Remember – the shortcut method is temporary. To claim part of an expense over $300 (such as a desk or computer) in future years, people still need to keep their receipts.

The temporary shortcut method can be claimed by multiple people living under the same roof and (unlike the existing methods) doesn’t require people to have a dedicated work area at home.

The shortcut is all-inclusive. A person can’t claim the shortcut and then claim for individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.

People who choose not to use the shortcut method for working from home expenses can instead:

• claim 52 cents per work hour at home for the heating, cooling, lighting and cleaning of a dedicated work area and the decline in value of office furniture and furnishings, then calculate the work-related portion of telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device; or
• claim the actual work-related portion of all home running expenses, which needs to be calculated on a reasonable basis.

Remember, to claim any work-related expense, the employee must have spent the money themselves and not been reimbursed by their employer. The expense must be directly related to earning income (not a private expense), and the employee must have kept any necessary records (a receipt is best).

If claiming working from home expenses using the fixed rate or actual cost methods (rather than the shortcut method), employees cannot claim:

• personal expenses like coffee, tea and toilet paper – while they might usually be supplied by an employer at the office, they aren’t directly related to earning the employee’s income;
• expenses related to children’s education, such as online learning courses or laptops;
• large expenses up-front – any asset that costs over $300 (either in total or per item), such as a computer, can’t be claimed immediately but should be spread out over a number of years.

Employees also generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. Working from home doesn’t mean the home is a place of business for tax purposes. Claiming occupancy expenses may mean having to pay capital gains tax when selling the home, even if it is the main residence.

Personal protective equipment

If a person’s specific work duties require physical contact or close proximity to customers or clients, or their job involves cleaning premises, they may be able to claim personal protective equipment (PPE) items such as gloves, face masks, sanitiser or anti-bacterial spray.

This includes industries like healthcare, cleaning, aviation, hair and beauty, retail and hospitality.

To claim PPE, the employee needs to have bought the item for use at work, paid for it themselves, kept a record (such as a receipt) and not been reimbursed by their employer.

Car and travel expenses

If an employee is working from home due to COVID-19 but needs to travel to their regular office sometimes, they cannot claim the cost of travel from home to work, because these are still private expenses.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-warns-on-copy-pasting-claims/;

www.ato.gov.au/Media-centre/Media-releases/Working-from-the-kitchen-bench—Here-s-how-you-sort-your-tax/;

www.ato.gov.au/Tax-professionals/Prepare-and-lodge/Tax-Time-2021/Overview-of-key-changes/.

ATO data-matching targets rental property owners

The ATO has announced that it will run a new data-matching program to collect property management data for the 2018–2019 to 2022–2023 financial years, and will also extend the existing rental bond data-matching program through to 30 June 2023.

Each year the ATO conducts reviews of a random sample of tax returns to calculate the difference between the amount of tax it has collected and the amount that should have been collected – this is known as a “tax gap”. For the 2017–2018 year the ATO estimated a net tax gap of 5.6% ($8.3 billion) for individual taxpayers, with rentals making up 18% of the gap amount. The new and extended data-matching programs are intended to address this gap, making sure that property owners are reporting their rental income correctly and meeting their related tax obligations.

In comparison, the net tax gap in 2018–2019 for high wealth groups was 7.4%, for medium businesses it was 6.2% and for medium businesses it was 11.5%.

The information obtained under the two data-matching programs will include property owner identification details such as unique IDs, individual/non-individual names, addresses (residential and postal), email addresses, contact numbers, BSB numbers, bank account numbers, bank account names, and business contact names and ABNs (if applicable).

Rental property details will include addresses, dates that properties were first available for rent, periods of leases, commencement and expiration dates of leases, amounts of rental bond held, numbers of weeks each rental bond represents, amounts of rent payable for each period, periods of rental payments (weekly, fortnightly or monthly), types of dwellings, numbers of bedrooms, rental income categories, rental income amounts, rental expense categories, rental expense amounts and net rent amounts.

The programs will also obtain details of the property managers involved, including business names, managing agents’ full names, business addresses (including internet addresses), email addresses, contact numbers, ABNs and licence numbers.

Rental bond data will be acquired biannually from state and territory rental bond regulators, and property management data will be acquired from property management software providers.

It is expected that records relating to around 1.6 million individuals will be obtained each financial year as part of the property management program, and records of an estimated 350,000 individuals will be obtained under the rental bond program. Due to the nature of the data collected, the ATO expects some overlap.

The ATO will use the vast amount of data collected to perform detailed analytics for its compliance programs, ensuring that taxpayers who own income-producing property are meeting their obligations to report the correct amount of income in their tax returns. It will also identify taxpayers disposing of income-producing properties, which will trigger a CGT event. The ATO notes that it will use historical rental bond data to support CGT cost base calculations if necessary.

While the data collected from the programs will be retained for seven years from receipt of the final instalment of verified data from data providers, the ATO’s general compliance approach will align with the standard periods for review (commonly two years for individuals and small businesses) and recordkeeping (usually five years). In cases of fraud or evasion, however, there is no time limit for amending an assessment.

Source: www.ato.gov.au/General/Gen/Property-management—2018-19-to-2022-23-financial-years/.

Can I be released from my tax debts?

As the economy adjusts to the removal of most COVID-19-related government support measures, coupled with the slow national vaccination rollout and mostly closed international borders, there is no doubt that many Australians are facing financial difficulties in the immediate short term. If your clients have a tax debt that is compounding their financial difficulties, there may be a solution – they may be able to apply to be permanently released from the debt, provided they meet certain criteria.

According to the ATO, to be released from a tax debt a taxpayer needs to be in a position where paying those debts would leave them not able to provide for themselves, their family or others that they’re responsible for. This includes providing items such as food, accommodation, clothing, medical treatment and education.

Debts that the ATO can consider for release include income tax, PAYG instalments, FBT and FBT instalments, Medicare levy and surcharge amounts, certain withholding taxes, and some penalties and interest charges associated with these debts.

This type of debt release only applies to individuals and trustees of the estate of a deceased person. Other entities such as companies, trusts and partnerships are not eligible and would need to apply for other ATO support, such as negotiating a payment plan or extra time to lodge or pay the tax owed. In addition, only certain tax can be considered for release; for example, the ATO cannot release debts in relation to GST, PAYG withholding, excess contributions tax, Div 293 liabilities and director penalty notices.

When someone applies to be released from a tax debt, the ATO will look at their household fortnightly income and expenditure to determine if they have the ability to pay all or part of the debt, and will set up a payment plan if required. It will also look at the person’s household assets and liabilities including their residential home, motor vehicle, household goods, tools of trade, savings for necessities, collections etc. and identify whether the sale of a particular asset could repay all or part of the tax debt.

Even when the ATO has established that the payment of a tax debt would cause the taxpayer serious hardship, it will nevertheless look at other factors within that person’s control that may have contributed to this hardship. For example, it will consider how the tax debt arose and whether the person has disposed of funds or assets without providing for tax debts, as well as their compliance history. It will also check whether the person may have structured their affairs to place themselves in a position of hardship (eg by placing assets in trusts or related entities).

One important thing to note is that, in the ATO’s view, if a person has other debts (either business or private) that they are not able to pay, then releasing them from a tax debt will not improve their financial hardship situation; therefore, the ATO will likely decide against granting a release from the tax debt.

Source: www.ato.gov.au/General/Support-to-lodge-and-pay/In-detail/Release-from-your-tax-debt/.

ATO’s discretion to retain refunds extends to income tax

As a part of a suite of measures introduced by the government to combat phoenixing activities, the ATO now has the power to retain an income tax refund where a taxpayer (including both businesses and individuals) has outstanding notifications. The discretion to retain refunds previously only applied in relation to notifications under the business activity statement (BAS) or petroleum resources rent tax (PRRT) but has now been expanded.

This new extension of powers applies to all notifications that must be given to the Commissioner of Taxation under Australian tax law (eg income tax returns) but does not include outstanding single touch payroll (STP) or instances where the Commissioner requires verification of information contained in a notification.

The ATO notes that its new powers to retain refunds will not be taken lightly and will only be exercised where the taxpayer has been identified as engaged in “high-risk” behaviour and/or phoenixing activities.

Examples of high-risk behaviours include (but are not limited to):

• poor past and/or current compliance with tax and superannuation obligations (registration, lodgment, reporting, recordkeeping and on-time payments);
• poor behaviours and governance in managing tax and super risks;
• the number of, and the circumstances around, any bankruptcies or insolvencies;
• tax-related penalties and sanctions imposed including director penalty notices;
• connection with advisers who are subject to disciplinary actions or sanctions relating to tax and super laws;
• past information provided which reasonably indicated fraud or evasion, intentional disregard or recklessness; and
• the likelihood of participation in or promotion of aggressive tax planning arrangements, tax avoidance schemes, fraud or evasion or criminal activity.

Illegal phoenix activity is when a company shuts down to avoid paying its debts. A new company is then started to continue the same business activities, without the debt.

Indicators of phoenix behaviour by the taxpayer, and its associates or controllers, include (but are not limited to):

• cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements;
• assets being dissipated, stripped, transferred and/or other actions with the intention to defeat creditors ahead of abandonment, winding-up or deregistration;
• a director associated with prior liquidations and/or deregistrations or prior instances of insolvency;
• transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements;
• backdating of the resignation of a director, appointment of “straw” directors, or abandonment of a company without a resident director;
• the concealment of the role of a shadow or de facto director; and
• the concealment or destruction of company records.

The ATO will consider the totality of the circumstances when it exercises the discretion to retain a refund. It will also weigh the seriousness of the behaviour identified against any potential adverse consequences for the taxpayer.

In general, the ATO advises its officers to consider exercising the discretion to retain a refund where there are reasonable grounds to believe that a taxpayer:

• has a running balance account (RBA) surplus or other credit that has not been applied against a tax debt of the taxpayer;
• has an outstanding notification that they are required to give under a tax law (other than the BAS or PRRT provisions) and the outstanding notification affects or may affect the amount of the refund; and/or
• is engaged in high-risk and/or phoenix behaviour.

Once the ATO decides to use its discretion to retain a refund, it will be retained until either the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever event happens first. There are also circumstances where the taxpayer can apply to have the retained amount refunded and/or apply to have the decision reviewed.

2021 FBT returns are due

Businesses that have provided fringe benefits to their employees should be aware that the 2021 FBT return (for the period 1 April 2020 to 31 March 2021) is due, and payment of any associated FBT liability is required immediately.

For businesses that prepare their own returns, lodgment of the return can be made up until 25 June 2021 without incurring a failure to lodge on time penalty. However, the associated FBT liability must have been paid by 21 May 2021, and a general interest charge will apply to any payments made after that date.

Businesses that have not paid FBT before are required to make the payment in a lump sum for the year on 21 May. This also applies where a business paid FBT in the previous year, but the liability was less than $3,000. For those that paid $3,000 or more in the previous year, the FBT liability will be paid in quarterly instalments with the business’s activity statements in the following year, with the balancing payment to be made on 21 May.

A business is required to lodge an FBT return if it had an FBT liability for the year, or if the business did not vary FBT instalments to nil for the year and did not have an FBT liability. Lodging the return will ensure that any FBT instalment credits the business paid during the year will be refunded. If the business is registered with the ATO as an FBT payer and its FBT taxable amount is nil with no instalments paid during the year, the business can lodge a Notice of non-lodgment – fringe benefits tax instead of the FBT return.

This non-lodgment form will not only notify the ATO that the business’s FBT liability is nil, but also avoid the ATO seeking an FBT return from the business later on. In addition, the form can be used to notify the ATO that a business will not be required to lodge an FBT return for future years, and/or to cancel the business’s FBT registration.

Businesses should be aware that while there have been a lot of recent announcements about changes to FBT, many of these proposed changes are not yet law. In those instances, businesses are required to apply the current legislation at the time, and make the appropriate amendments later when the changes do become law.

For example, the government recently announced an FBT exemption for retraining and reskilling benefits that employers provide to redundant (or soon to be redundant) employees where the benefits may not be related to their current employment. While this change is intended to apply from the date of the announcement once the legal change is enacted, the ATO notes that businesses are required to apply the current legislation to this latest FBT return and amend it later if necessary.

Similarly, businesses should be aware of the application dates of recently enacted law changes. The change to allow businesses with less than $50 million in turnover to access certain existing FBT small business concessions do not apply for the 2021 FBT year; rather, they apply to benefits provided to employees from 1 April 2021 onwards (ie the 2022 FBT year).

In addition, at the time of writing, the ATO has not yet finalised its ruling on car parking fringe benefits that deals with changes to contemporary commercial car parking arrangements and various decisions of the Federal Court. This means that the view from the withdrawn ruling will continue to apply until the new ruling is issued. The ATO estimates that a final ruling will be published by mid-June 2021, with the changes to apply from 1 April 2022.

Beware: phishing and investment scams on the rise

Emails impersonating myGov

The ATO and Services Australia have issued a warning about a new email phishing scam doing the rounds. The emails claim to be from “myGov” and include screenshots of the myGovID app. myGovID can be used to prove who you are when accessing Australian government online services.

The scam emails ask people to click a link to fill in a “secure form” on a fake myGov page. The form requests personal identifying information and banking details.

This new phishing scam contains classic warning signs that it is not legitimate, including spelling errors and the request to “verify your identity” by clicking a link. The ATO has confirmed this scam is all about collecting personal information rather than gaining access to live information via myGov or myGovID. ATO systems, myGov and myGovID have not been compromised.

The ATO and myGov do send emails and SMS messages, but they will never include clickable hyperlinks directing people to a login page for online services.

“In the lead up to tax time, we expect to see more of these malicious attempts to harvest identity details. So we encourage everyone to be on alert and take the time to remind family and friends to be on the lookout and stay safe online”, said ATO Assistant Commissioner Ben Foster.

What to do

If you’ve opened an email that looks suspicious, don’t click any links, open any attachments or reply to it.

The best way to check if the ATO or another government service has actually sent you a communication is to visit the myGov site, my.gov.au, directly (without clicking an emailed link) or to download the myGovID app. You can then log in securely and check your myGov inbox and linked services.

If you’ve received a suspicious email and mistakenly clicked a link, replied and/or provided your myGov login details or other information, you should take immediate action.

Change your myGov password and if you’ve provided your banking details, contact your bank.

Advice and support, such as identity recovery services, are available by phone on Services Australia’s Scams and Identity Theft Helpdesk, 1800 941 126 (Monday to Friday, 8 am to 5 pm AEST).

Suspicious SMSs and emails that claim to be from myGov or government services can be reported to ScamWatch at www.scamwatch.gov.au/get-help/protect-yourself-from-scams.

Source: www.ato.gov.au/Media-centre/Media-releases/Warning-about-myGov-impersonation-email-scam/.

Cold calls and emails encouraging superannuation rollovers

The Australian Securities and Investments Commission (ASIC) has recently advised it is aware of scams that target Australians and encourage them to establish self managed superannuation funds (SMSFs).

People are cold-called or emailed, and scammers pretending to be financial advisers encourage the transfer of funds from an existing super account to a new SMSF, claiming it will lead to high returns of 8% to 20% (or more) per year.

In fact, people’s super balances are instead transferred to bank accounts controlled by the scammers.

Scammers use company names, email addresses and websites that are similar to legitimate Australian companies that hold an Australian financial services licence. They even use a “legitimate” company to ensure the SMSF is properly established and compliant with Australian laws, including creating a separate SMSF bank account set up in the investor’s name.

The scammers then transfer money from the existing super fund, either with or without the knowledge of the investor, and steal it by using the real identification documents the person has provided to set up the SMSF in an account fully controlled by the scammers.

What to look out for

If you’re contacted by any person or company who encourages you to open an SMSF and move funds, you should always make independent enquiries to make sure the scheme is legitimate. This is especially true if you weren’t expecting the phone call or email!

Always verify who you are dealing with before handing over your identification documents, personal details or money.

Be wary about providing your personal identification documents to people you don’t know. Red flags include things like the website containing spelling errors, changing addresses or disappearing; processes that involve speaking to different people who sound the same; and email addresses and contact details that change. Some scammers copy legitimate websites and use names lifted from the internet.

For more information about investment scams and what to look out for, see Moneysmart’s investment scams page at https://moneysmart.gov.au/investment-warnings/investment-scams.

Source: https://asic.gov.au/about-asic/news-centre/news-items/scam-alert-self-managed-super-fund-rollover/.

Fake news articles touting cryptocurrency investments

ASIC has also received an increased number of reports from people who have lost money after responding to advertisements promoting crypto-assets (or cryptocurrency) and contracts for difference (CFD) trading, disguised as fake news articles.

Some advertisements and websites falsely use ASIC logos or misleadingly say the investment is “approved” by ASIC.

A common scam tactic is promoting fake articles via social media. They look realistic and impersonate real news outlets like Forbes Business Magazine, ABC News, Sunrise and The Project.

Once someone clicks on these advertisements or fake articles, they’re directed to a site that is not linked with the impersonated publication, and asked to provide their name and contact details. Scammers then get in contact, promising investments with unrealistically high returns.

Many of these scams originate overseas. Once money has left Australia it’s extremely hard to recover, and banks and ASIC are unlikely to be able to get it back.

What to look out for

Crypto-assets are largely unregulated in Australia and are high-risk, volatile investments. Don’t invest any money in digital currencies that you’re not prepared to lose, and always seek professional advice when making investment decisions.

Remember that most reputable news outlets, and especially government-funded broadcasters like the ABC, don’t offer specific investments as part of their news coverage.

ASIC does not endorse or advertise particular investments. Be wary of any website or ad that says the investment is approved by ASIC or contains ASIC’s logo – it’s a scam. ASIC does not authorise businesses to use its name and branding for promotion.

What to do

If you’ve transferred funds by bank transfer or credit card to someone you think may be a scammer, you should contact your financial institution immediately – they may be able to reverse the transaction. Unfortunately, however, your bank or credit union won’t be able to help if you’ve paid scammers via crypto-assets.

To help ASIC disrupt scammers and warn others, you can use the regulator’s website at https://asic.gov.au/about-asic/contact-us/how-to-complain/ to report any scams or suspicious investment offers you come into contact with.

Source: https://asic.gov.au/about-asic/news-centre/news-items/asic-warns-against-fake-news-articles-promoting-investment-scams/.

2021/22 Federal Budget

1.     Personal income tax changes

1.1        Retaining  the  Low  and  Middle  Income  Tax  Offset (‘LMITO’) for the 2022 income year

The Government has announced that it will retain the LMITO for one more income year, so that it will still be available for the 2022 income year. Under current legislation, the LMITO was due to be removed from 1 July 2021.

The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers and is available in addition to the Low Income Tax Offset (‘LITO’).

The LMITO is proposed to apply as follows for the 2022 income year.

Consistent with current arrangements, the LMITO will be applied to reduce the tax payable by individuals when they lodge their tax returns for the 2022 income year.

1.2        Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

• The threshold for singles will be increased from $22,801 to $23,226.
• The family threshold will be increased from $38,474 to $39,167.
• The threshold for single seniors and pensioners will be increased from $36,056 to $36,705.
• The family threshold for seniors and pensioners will be increased from $50,191 to $51,094.

For each dependent child or student, the family income thresholds increase by a further $3,597, up from the previous amount of $3,533.

1.3        Modernising the individual tax residency rules

The Government has announced that it will replace the individual tax residency rules with a new, modernised framework.

The primary test will be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.

Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers.

The new framework is based on recommendations made by the Board of Taxation in its 2019 report to Government, ‘Reforming individual tax residency rules – a model for modernisation’. According to the Government, this new framework will be easier to understand and apply in practice, deliver greater certainty, and lower compliance costs for globally mobile individuals and their employers.

This measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

1.4        Reducing compliance costs for individuals claiming self-education expense deductions

The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education.

Currently, the first $250 of a prescribed course of education expense is not tax deductible. Removing this $250 exclusion is expected to reduce compliance costs for individuals claiming self- education expense deductions.

This measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

1.5        Employee Share Schemes – removing ‘cessation of employment’ as a taxing point and reducing red tape

The Government will remove the ‘cessation of employment’ taxing point for tax-deferred Employee Share Schemes (‘ESS’) that are available for all companies.

This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.

Currently, under a tax-deferred ESS, where certain criteria are met, employees may defer tax until a later tax year (‘the deferred taxing point’). The deferred taxing point is the earliest of:

• cessation of employment;
• in the case of shares, when there is no risk of forfeiture and no restrictions on disposal;
• in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal; and
• the maximum period of deferral of 15

This change will remove the ‘cessation of employment’ taxing point (i.e., point (a) above) and result in tax being deferred until the earliest of the remaining taxing points (i.e., points (b) to (d) above).

In addition to this change, the Government will also reduce red tape for ESS:

• where employers do not charge or lend to the employees to whom they offer ESS – by removing regulatory requirements for ESS; and
• where employers do charge or lend – by streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per

This measure aims to help Australian companies to engage and retain the talent they need to compete on a global stage, consistent with recommendations from the Global Business and Talent Attraction.

1.6        Exemption  for   pay   and   allowances  for   Operation Paladin

The Government will provide a full income tax exemption for the pay and allowances of Australian Defence Force (‘ADF’) personnel deployed to Operation Paladin.

Operation Paladin is Australia’s contribution to the United Nations Truce Supervision Organisation, with ADF personnel deployed in Israel, Jordan, Syria, Lebanon and Egypt.

This measure ensures that personnel are subject to consistent tax treatment regardless of the operational area of Operation Paladin to which they are deployed.

The exemption will apply from 1 July 2020 (i.e., from the 2021 income year).

2.     Changes affecting business taxpayers

2.1        Temporary full expensing extension

In the prior year (2020/21) Federal Budget, the Government announced amendments to allow businesses with an aggregated turnover of less than $5 billion to access a new temporary full expensing of eligible depreciating assets until 30 June 2022. Temporary full expensing became law when Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 received Royal Assent on 14 October 2020.

In the 2021/22 Federal Budget, the Government has announced that temporary full expensing will be extended by 12 months to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses.

2.2        Temporary loss carry-back extension

In the prior year (2020/21) Federal Budget, the Government announced amendments to introduce a temporary loss carry-back measure. Broadly, this initial measure allowed ‘corporate tax entities’ with an aggregated turnover of less than $5 billion to carry back tax losses made in the 2020, 2021 and/or 2022 income years to claim a refund of tax paid (by way of a tax offset) in relation to the 2019, 2020 and/or 2021 income years. The rules relating to the temporary loss carry-back regime have been enacted and are contained in Division 160 of the ITAA 1997.

In the 2021/22 Federal Budget, the Government has announced that the loss carry-back measure will be extended to allow eligible companies (i.e., with aggregated turnover of less than $5 billion) to also carry back (utilise) tax losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income year.

Consistent with the current law, the tax refund available under this measure is limited by requiring that the amount carried back is not more than the earlier taxed profits and does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

2.3        Digital economy strategy (including self-assessing the effective life of intangible depreciating assets)

The Government will provide $1.2 billion over six years from 2022 for the Digital Economy Strategy, to support Australia to be a leading digital economy and society by 2030. From an income tax, investment incentive perspective, the Digital Economy Strategy includes the following:

• The Government will allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has

The tax effective lives of such assets are currently set by statute. Allowing taxpayers to self- assess the tax effective life of an asset will allow for a better alignment of tax outcomes with the underlying economic benefits provided by the asset. It will also align the tax treatment of these assets with that of most tangible assets.

Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.

• The Government will provide $18.8 million over four years from 2022 for a Digital Games Tax Offset to provide a 30% refundable tax offset for qualifying Australian digital games expenditure ongoing from 1 July 2022, with the criteria and definition of qualifying expenditure to be determined through industry
• The Government will provide $200.1 million over two years from the 2022 income year to develop and transition government services to a new, enhanced myGov platform, providing a central place for Australians to find information and services

2.4        Debt recovery for small business

The Government has announced that it will allow small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (the ‘Tribunal’) to pause or modify ATO debt recovery actions, such as garnishee notices and the recovery of general interest charge or related penalties, where the debt is being disputed in the Tribunal.

Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system, which can be costly and time consuming. It is expected that applying to the Tribunal instead of the courts will save small businesses at least several thousands of dollars in court and legal fees and as much as 60 days of waiting for a decision.

These new powers for the Tribunal will be available in respect of proceedings commenced on or after the date of Royal Assent of the enabling legislation.

2.5        Tax treatment of qualifying storm and flood grants

The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.

Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.

3.     Superannuation related changes

3.1        Removing the work test for voluntary contributions

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps.

Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

Currently, individuals aged 67 to 74 years (inclusive) can only make voluntary contributions (both concessional and non-concessional) to their superannuation fund, or receive contributions from their spouse, if they satisfy the work test (subject to a limited work test exemption). Generally, to satisfy the work test, an individual must be working for at least 40 hours over a period of not more than 30 consecutive days in the income year the relevant contribution is made.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

3.2        Reducing the age limit for downsizer contributions

The Government will reduce the age limit from which downsizer contributions can be made by eligible individuals, from 65 to 60 years of age.

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to their superannuation fund, of up to $300,000 per person, following the disposal of an eligible dwelling, where certain conditions are satisfied. Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution, for the contribution to qualify as a downsizer contribution.

3.3        Removing    the    $450    per    month    threshold    for Superannuation Guarantee (‘SG’) eligibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

3.4        Relaxing the residency requirements for Self-managed Superannuation Funds (‘SMSFs’)

The Government will relax residency requirements for SMSFs and small APRA-regulated funds by:

• extending the central control and management test safe harbour from two years to five years for SMSFs; and
• removing the active member test for both types of

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

This measure will allow SMSF members and small APRA fund members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA regulated funds.

3.5        Exiting legacy retirement products

The Government has announced that it will allow individuals the temporary option to exit and convert from a specified range of legacy retirement products (together with any associated reserves) into more flexible and contemporary retirement products, for a two-year period.

The products covered by this measure include market-linked, life-expectancy and lifetime products that were first commenced before 20 September 2007 from any provider (including an SMSF), but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps.

This measure will permit full access to all of the product’s underlying capital, including any reserves, as part of transitioning into a more flexible and contemporary retirement product.

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds, and the commuted reserves will be taxed as an assessable contribution.

3.6        Changes to the First Home Super Saver (‘FHSS’) scheme

The Government has announced that it will make the following changes to the FHSS scheme.

3.6.1     Increasing the maximum releasable amount to $50,000

The Government will increase the maximum releasable amount of voluntary concessional and non- concessional contributions under the FHSS scheme from $30,000 to $50,000, to assist first home buyers in raising a deposit more quickly.

Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.

This change will apply from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022.

Under the current FHSS scheme, an eligible individual can apply to have a maximum of $15,000 of their voluntary contributions from any one income year included in their eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years, together with an amount of earnings that relate to those contributions.

3.6.2     Changes to improve the operation of the FHSS scheme

The Government will make four technical changes to the legislation underpinning the FHSS scheme to improve its operation as well as the experience of first home buyers using the scheme.

These four changes will apply retrospectively from 1 July 2018, and will assist FHSS scheme applicants who make errors on their FHSS scheme release applications by:

• increasing the discretion of the Commissioner of Taxation to amend and revoke FHSS scheme applications;
• allowing individuals to withdraw or amend their applications before receiving a FHSS scheme amount, and allow those who withdraw to re-apply for FHSS scheme releases in the future;
• allowing the Commissioner of Taxation to return any released FHSS scheme money to superannuation funds, provided that the money has not yet been released to the individual; and
• clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as a fund’s non-assessable non-exempt income and does not count towards the individual’s contribution