PERSONAL TAXATION

Personal tax cuts brought forward to 1 July 2020

In the Budget, the Government announced that it will bring forward to 1 July 2020 the personal tax cuts (Stage 2) that were previously legislated in 2018 to commence from 1 July 2022. The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated:

• Stage 2 tax rates – was 1 July 2022, now 1 July 2020; and
• Stage 3 tax rates – unchanged; to commence on 1 July 2024, as previously legislated.

The Government will bring forward the Stage 2 personal income tax cuts to 1 July 2020 (from 1 July 2022, as previously legislated in 2018). The Treasurer said this will see more than 11 million taxpayers get an immediate tax cut backdated to 1 July 2020.

From 1 July 2020:

• the top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
• the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000.

The new low income tax offset (maximum $700) has also been brought forward to 2020–2021, while the low and middle income tax offset (maximum $1,080) has been retained for 2020–2021.

Mr Frydenberg said more than seven million individuals are expected to receive tax relief of $2,000 or more for the 2020–2021 income year compared with the 2017–2018 tax settings. Low and middle income tax payers will receive relief of up to $2,745 for singles and $5,490 for dual income families.

Stage 3: from 2024–2025

The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time under the Government’s already legislated plan.

Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Low income offsets: new LITO brought forward and LMITO retained

The Government announced in the Budget that the new low income tax offset (LITO) will be brought forward to start as from the 2020–2021 income year. The new LITO was intended to replace the existing low income and low and middle income tax offsets as from 2022–2023. Although the existing LITO is scrapped, the low and middle income offset (LMITO) will be retained for 2020–2021.

Bringing forward the new LITO is a consequence of bringing forward to 2020–2021 the tax cuts that were scheduled to start in 2022–2023.

The maximum amount of the new LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.

CGT exemption for “granny flats”

The Budget confirms that the Government will put in place a “targeted” CGT exemption for granny flat arrangements.

Under the measure, CGT will not apply to the creation, variation or termination of a granny flat arrangement providing accommodation where there is a formal written agreement in place. The Budget states that it will apply to arrangements that provide accommodation for “older Australians or those with a disability”. There are no further details as to what constitutes “older” or “disability”.

The exemption will only apply to agreements that are entered into because of “family relationships or other personal ties” and will not apply to commercial rental arrangements.

It is intended that the measure commence from 1 July 2021 (ie next financial year), subject to the passage of necessary legislation.

The measure was earlier announced by the Treasurer and Assistant Treasurer on 5 October 2020, the day the Government also publicly released the Board of Taxation’s report on the taxation of granny flat arrangements (the report had been provided to the Government in November 2019). That report recommended the CGT exemption.

First Home Loan Deposit Scheme: additional 10,000 places

The Government will allocate an additional 10,000 places for first home buyers under the existing First Home Loan Deposit Scheme.

Under the existing Scheme, eligible first home buyers can obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5%. The Scheme provides a Government-backed guarantee equals to the difference between the deposit (of at least 5%) and 20% of the purchase price. Applications can be made as part of the standard home loan application process through participating lenders. The Scheme has already helped almost 20,000 first home buyers.

The Treasurer said eligible first home buyers will also be able to take advantage of the Federal Government’s First Home Super Saver Scheme and HomeBuilder. First home buyers may also be eligible for State and Territory grants and concessions.

The additional 10,000 places under the scheme will be provided from 6 October 2020. The additional guarantees will be available until 30 June 2021.

BUSINESS TAXATION

Small business tax concessions extended to medium businesses

The Budget confirmed the Government’s announcement on 2 October 2020 that a range of tax concessions currently available to small businesses (aggregated annual turnover under $10 million) will be made available to medium sized businesses (aggregated annual turnover of $10 million or more but less than $50 million). The extension of these concessions to medium businesses will be delivered in three phases:

• From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
• From 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees (note that an FBT exemption for retraining redeployed employees will also apply from 2 October 2020).
• From 1 July 2021:
• eligible businesses will be able to access the simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods;
• The time limit for the ATO to amend income tax assessments will be reduced from four to two years for eligible business for income years starting from 1 July 2021; and
• the ATO power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.

Outright capital assets deduction until 30 June 2022 for most businesses

Businesses with aggregated annual turnover of less than $5 billion will be enable to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022.

Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium sized businesses (with aggregated annual turnover of less than $50 million), full expensing will also apply to second-hand assets.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the current instant asset write-off rules. Businesses that hold assets eligible for the $150,000 instant asset write-off will have an extra six months (until 30 June 2021), to first use or install such assets.

Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Loss carry-back from 2019–2020, 2020–2021 and 2021–2022

The Government will allow eligible companies to carry back tax losses from the 2019–2020, 2020–2021 or 2021–2022 income years to offset previously taxed profits in 2018–2019 or later income years.

Corporate tax entities with an aggregated turnover of less than $5 billion will be able to apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.

The tax refund will be limited by requiring that the amount carried back to not exceed the earlier taxed profits and to not generate a franking account deficit. The tax refund will be available on election by eligible businesses when they lodge their 2020–2021 and 2021–2022 tax returns.

Companies that do not elect to carry back losses under this measure can carry losses forward as normal.

Instant asset write-off: minor change

Given the largesse of the new outright deduction for capital assets until 30 June 2022, the instant asset write-off rules have become temporarily irrelevant for most taxpayers (those with aggregated annual turnover of less than $5 billion).

Accordingly, there were no changes to the rules, other than a slight tweaking for costs relating to second-hand goods acquired by large businesses (with annual aggregated turnover between $50 million and $500 million).

The new outright deduction rules do not apply to second-hand goods, other than those acquired by small and medium businesses (with aggregated annual turnover of less than $50 million) – who can fully expense costs associated with second-hand goods.

For this reason, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the instant asset write-off provisions. The tweak is this: businesses that hold assets eligible for the $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

The following information sets out the rates and thresholds as they currently operate – but should be read in the context that the instant asset write-off rules are effectively irrelevant for most eligible assets purchased after 6 October 2020 until 30 June 2022. The rules set out three taxpayer categories.

Small business entities

Those taxpayers with aggregated turnover of less than $10 million and who satisfy the other tests in Subdiv 328-C of ITAA 1997 can qualify as small business entities for the purpose of the instant asset write-off rules. A depreciating asset is a low cost asset if its cost as at the end of the income year in which the taxpayer starts to use it, or installs it ready for use, for a taxable purpose is less than the relevant threshold: s 328-180.

For small business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

• 3 April 2019 to 11 March 2020 – the threshold is $30,000
• 12 March 2020 to 31 December 2020 – the threshold is $150,000.

The threshold is due to revert back to $1,000 on 1 January 2021 (although it has not been $1,000 since 2015).

Medium business entities

The next category of taxpayer for instant asset write off purposes is medium sized business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $50 million.

For medium business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

• 3 April 2019 to 11 March 2020 – the threshold is $30,000
• 12 March 2020 to 31 December 2020 – the threshold is $150,000.

There was an increase in the threshold from $30,000 to $150,000 when the COVID measures started. The instant asset write-off under s 40-82 will cease to be available to medium businesses from 1 January 2021.

Large business entities

The third category of taxpayer for instant asset write off purposes is large business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $500 million. The write-off has only been available to such entities while the COVID measures are in place.

For large business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:

• 12 March 2020 to 31 December 2020 – the threshold is $150,000.

As noted, taxpayers in this category have until 30 June 2021 to first use or install assets (rather than 31 December 2020). It otherwise ceases on 31 December 2020.

Depreciation rules still relevant

There were no changes to the capital allowance rules in the 2020–2021 Federal Budget. This means that the depreciation rules as currently legislated will not change.

This is not a surprise, given the ability of pretty much all businesses to claim an outright deduction for new asset purchases from 7 October 2020 to 30 June 2022.

Note, though, that as part of its response to the COVID-19 pandemic, the Government had earlier enacted to allow businesses with aggregated turnovers of less than $500 million in an income year to deduct capital allowances for depreciating assets at an accelerated rate. This is a temporary measure – it is due to finish on 30 June 2021.

It is worth revisiting these rules because there may be acquisitions that may fall outside the outright deduction rules but still qualify for depreciation (eg certain second-hand goods). The rules still have an ongoing relevance for acquisitions made on or before 6 October 2020.

Due to the temporary nature of the concession, the measures were enacted in the Income Tax (Transitional Provisions) Act 1997 (TPA).

To be eligible for the accelerated depreciation, the depreciating asset must be (s 40-125 TPA):

• new and not previously held by another entity (other than as trading stock or for the purposes of reasonable testing or trialling) – this excludes most second-hand assets;
• first held on or after 12 March 2020 (a post-11 March 2020 asset); and
• first used or first installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021.

A depreciating asset will not qualify for the accelerated depreciation if (s 40-120(3) TPA):

• the decline in value of the asset has already been deducted under the instant asset write-off rules;
• the decline in value of the asset is worked out using low-value and software development pools; or
• the decline in value of the asset is worked using Subdiv 40-F of ITAA 1997 (ie certain primary production depreciating assets).

In terms of working out the accelerated depreciation, different rules apply depending on whether or not an entity is using the simplified rules for capital allowances for small businesses.

An entity with aggregated turnover of less than $500 million in the income year that does not use the simplified depreciation rules may deduct an amount at an accelerated rate for qualifying assets. The amount the entity can deduct in the income year the asset is first used or installed ready for use for a taxable purpose is:

• 50% of the cost (or adjustable value where applicable) of the depreciating asset; and
• the amount of the usual depreciation deduction that would otherwise apply but calculated after first offsetting a decline in value of 50%.

A small business entity (with aggregated turnover less than $10 million in the income year) that uses the simplified depreciation rules may deduct an amount equal to 57.5% (rather than 15%) of the taxable purpose proportion of the adjusted value of a qualifying depreciating asset added to the general small business pool in an income year.

Corporate residency test to be clarified

The Government will make technical amendments to clarify the corporate residency test.

The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

The Government said that the corporate residency rules are fundamental to determining a company’s Australian income tax liability. The ATO’s interpretation following the High Court’s decision in Bywater Investments Ltd v FCT (2016) 104 ATR 82 departed from the long-held position on the definition of a corporate resident. The Government asked the Board of Taxation to review the definition in 2019–2020.

This measure is consistent with the Board’s key recommendation in its 2020 report: Review of Corporate Tax Residency and will mean the treatment of foreign incorporated companies will reflect the position prior to the High Court’s decision in Bywater.

The measure will have effect from the first income year after the date of the enabling legislation receives assent, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew Ruling TR 2004/15: Residence of companies not incorporated in Australia — carrying on a business in Australia and central management and control).

FBT exemption for retraining redeployed employees

The Budget confirmed the Government’s announcement on 2 October 2020 that it will provide an FBT exemption for employer-provided retraining and reskilling benefits provided to redundant, or soon to be redundant, employees where the benefits are not related to their current employment.

Currently, FBT is payable if an employer provides training to its employees that is not sufficiently connected to their current employment. For example, a business that retrains their sales assistant in web design to redeploy them to an online marketing role in the business can be liable for FBT. By removing FBT, the Treasurer said employers will be encouraged to retain redundant employees to prepare them for their next career.

The FBT exemption will not extend to retraining acquired by way of a salary packaging arrangement or training provided through Commonwealth supported places at universities, which already receive a benefit, or extend to repayments towards Commonwealth student loans.

In addition, the Government said it will consult on allowing an individual to deduct education and training expenses they incur themselves where the expense is not related to their current employment. In this respect, the Government acknowledged that the current rules, which limit self-education deductions to training related to current employment, may act as a disincentive to individuals to retrain and reskill to support their future employment and career.

The FBT exemption will apply from 2 October 2020.

Note that an FBT exemption from 1 April 2021 will also apply for eligible businesses on car parking and multiple work-related portable electronic devices, such as phones or laptops.

The proposed FBT exemption for retraining employees follows a Senate Committee recommendation calling for eligible outplacement training to be included under the FBT exemption. The interim report by the Senate Select Committee on Financial Technology and Regulatory Technology recently called on the Government to explore the inclusion of eligible outplacement training under the FBT exemption for eligible start-ups.

FBT record-keeping: reducing compliance burden

To reduce the FBT compliance burden, the Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.

Currently, the FBT legislation prescribes the form that certain records must take and forces employers, and in some cases employees, to create additional records in order to comply with FBT obligations.

This measure will apply from the start of the first FBT year (1 April) after the date the enabling legislation receives assent.

R&D Tax Incentive changes

The Government has announced a number of changes to the R&D tax offset measures contained in the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 and deferred the start date of those measures to income years starting on or after 1 July 2021.

In broad terms, the Bill proposes:

• increasing the R&D expenditure threshold from $100 million to $150 million and making the threshold a permanent feature of the law;
• linking the R&D tax offset for refundable R&D tax offset claimants to claimants’ corporate tax rates plus a 13.5% premium;
• capping the refundability of the R&D tax offset at $4 million per annum; and
• increasing the targeting of the incentive to larger R&D entities with high levels of R&D intensity.

Refundable tax offset increased

For companies with an aggregated annual turnover of less than $20 million, the refundable R&D tax offset will be set at 18.5% above the claimant’s company tax rate (compared to 13.5% in the Bill).

Annual cap on cash refunds abandoned

The Government will not proceed with the measure proposed in the Bill to impose an annual cap on R&D tax offset refunds of $4 million (with any remaining offset amounts being treated as non-refundable carry-forward tax offsets).

The Bill provided an exclusion from the annual cap for eligible expenditure on clinical trials registered as R&D activities. This carve out acknowledged opportunities for growth in the medical technology, biotechnology and pharmaceutical sectors. The Budget Papers do not provide any guidance as to whether clinical trials will be given special recognition by other means under the R&D incentive rules.

R&D intensity bands reduced

The Bill makes provision for R&D premium offsets (above the company’s tax rate) tied to a company’s incremental R&D intensity (notional deductions/total expenses).

For companies with aggregated annual turnover of $20 million or more, the Government will reduce the number of R&D intensity tiers from three to two.

State COVID-19 business support grants: NANE income

The Federal Government announced that the Victorian government’s business support grants for small and medium business will be non-assessable, non-exempt (NANE) income for tax purposes. The Victorian Government announced the grants on 13 September.

The Federal Government will extend this arrangement to all states and territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.

A new power will be introduced in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income.

Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

JobMaker Hiring Credit

The Budget announced that the Government will provide $4 billion over three years from 2020–2021 to accelerate employment growth by supporting organisations to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

New jobs created until 6 October 2021 will attract the JobMaker Hiring Credit for up to 12 months from the date the new position is created.

To be eligible, the employee must have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one of the previous three months at the time of hiring.

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.

To attract the JobMaker Hiring Credit, the employee must be in an additional job created from 7 October 2020. To demonstrate that the job is additional, specific criteria must be met, requiring that there is an increase in:

• the business’s total employee headcount (minimum of one additional employee) from the reference date of 30 September 2020; and
• the payroll of the business for the reporting period, as compared to the three months to 30 September 2020.

Employer eligibility

Employers are eligible to receive the JobMaker Hiring Credit if they:

• have an ABN;
• are up to date with tax lodgment obligations;
• are registered for PAYG withholding;
• are reporting through Single Touch Payroll (STP);
• meet the “additionality criteria”;
• are claiming in respect of an eligible employee; and
• have kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of.

Newly established businesses

Newly established businesses and businesses with no employees at the reference date of 30 September 2020 can claim the JobMaker Hiring Credit where they meet the criteria. The minimum baseline headcount is one, so employers who had no employees at 30 September 2020 or whose business was created after this reference date will not be eligible for the first employee hired, but will be eligible for the second and subsequent eligible hires.

Supporting small business and responsible lending

The Budget confirmed that the Government will implement reforms to support consumers and businesses affected by COVID-19 to facilitate Australia’s economic recovery. The reforms are designed to reduce regulatory burden to ensure a timely flow of credit and resolution for distressed business. These include:

• introducing a new process to enable eligible incorporated small businesses in financial distress to restructure their own affairs;
• simplifying the liquidation process for eligible incorporated small businesses;
• support for the insolvency sector;
• introducing a standard licensing regime for debt management firms who represent consumers in dispute resolution processes with credit providers;
• removing duplication between the responsible lending obligations contained in the National Consumer Credit Protection Act 2009 and the Australian Prudential Regulation Authority (APRA) standards and guidance for authorised deposit-taking institutions (ADIs) and establishing a similar new credit framework for non-ADIs;
• enhancing the regulation of small amount credit contracts and consumer leases to ensure that the most vulnerable consumers are protected.

Wage subsidy for new apprentices

The Government will provide a capped 50% wage subsidy to businesses who take on a new Australian apprentice from 5 October 2020 to 30 September 2021.

It will be available to employers of any size or industry, Australia-wide, regardless of geographic location or occupation. There are two important caps:

• it is limited to 100,000 new apprentices or trainees in total; and
• the 50% subsidy will be limited to $7,000 per quarter ($28,000 per annum).

More information can be found on the Department of Education, Skills and Employment website. The payment will be paid in respect of commencing or recommencing apprentices; that is, it will be possible to re-employ former apprentices whose employment had been terminated.

The scheme will run from 5 October 2020 to 30 September 2021. The measure was earlier announced by the Prime Minister on 5 October 2020. The Department of Education, Skills and Employment states that the start date for claims is 1 January 2021; that is, payments will be made in arrears.

SOCIAL SECURITY

$250 cash payments for income support recipients

The Government will pay two $250 economic support payments for eligible income support recipients and concession card holders. The payments will be made from November 2020 and early 2021 to eligible income support recipients and concession card holders, including:

• Age Pension;
• Disability Support Pension;
• Carer Payment;
• Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment);
• Carer Allowance (not in receipt of a primary income support payment);
• Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment);
• Commonwealth Seniors Health Card holders; and
• eligible Veterans’ Affairs payment recipients and concession card holders.

The $250 cash payments are tax exempt and will not count as income support for social security purposes. These cash payments follow the two $750 stimulus payments in April and July 2020 for social security and veteran income support recipients and concession card holders.

Paid Parental Leave: alternative work test

The Government announced in the Budget that it is also supporting new parents whose employment was interrupted by the COVID-19 pandemic by introducing an alternative Paid Parental Leave work test period for a limited time.

Under normal circumstances, parents must have worked 10 of the 13 months prior to the birth or adoption of their child to qualify, but that is being temporarily extended to 10 months out of the 20 months for births and adoptions that occur between 22 March 2020 and 31 March 2021. This measure is estimated to allow about 9,000 mothers to regain eligibility for Parental Leave Pay and allow a further 3,500 people to claim Dad and Partner Pay.

SUPERANNUATION

Super reforms: accounts to be stapled to members; best financial interests duty; other

The Government will provide $159.6 million to implement reforms to superannuation to improve outcomes for super fund members.

The Your Future, Your Super package, which will seek to reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, includes:

• YourSuper portal – the ATO will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal;
• stapled accounts – an existing superannuation account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers;
• MySuper benchmarking – from July 2021, APRA will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming. Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022. The funding for this initiative will be met through an increase in levies on regulated financial institutions; and
• super trustees – best financial interests duty – to improve transparency and accountability of super funds, the Government will legislate to compel super trustees to also act in the best “financial” interests of their members.

The Treasurer said this package of reforms will help improve the $3 trillion superannuation system, and save members $17.9 billion over 10 years, by:

• having an individual’s super follow them – preventing the creation of unintended multiple superannuation accounts when employees change jobs. Instead, an individual’s super will follow them so that a new employer will pay their super contributions into the individual’s existing account;
• making it easier to choose a better fund – members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings. It will show a member’s current super accounts and prompt them to consider consolidating accounts if they have more than one;
• holding funds to account for underperformance – to protect members from poor outcomes and encourage funds to lower costs, the Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members by 1 October 2021. Persistently underperforming products will be prevented from taking on new members; and
• improving transparency and accountability – the Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require super funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.

All measures will commence by 1 July 2021.

Stapled accounts: how they will work

The first phase of the reforms is proposed to commence on 1 July 2021. Employers will no longer automatically create a new superannuation account in their chosen default fund for new employees when they do not decide on a super fund. Instead, employers will obtain information about the employee’s existing super fund from the ATO, if it is not provided by the employee. The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay super contributions into the employee’s account.

The second phase of the reforms will see the ATO provide a new service for employers. As of 1 July 2022, the ATO will enable digital software providers to give employers the option to automate the communications between the employer’s payroll system and the ATO system. Once this new service is adopted, it will remove the need for the employer to manually enter into their payroll system their employees’ superannuation fund details, reducing business administration costs.

Under both phases, if an employee does not have an existing super account (eg is new to the workforce) and does not make a decision regarding a fund, the employer will pay the employee’s super into their nominated default super fund.

Super trustees: best financial interests duty

The Government will legislate to compel super trustees to act in the best financial interests of their members. Consistent with the recommendation of the Productivity Commission to clarify what it means for a trustee to act in members’ best interests, the Government said it will put beyond doubt that trustees must act in the best financial interests of members. The measure seeks to remove ambiguity on how super trustees should be spending members’ money.

It will also give effect to the statement in the Explanatory Memorandum to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 that “RSE [Registrable Superannuation Entity] licensees will have a heightened obligation to act in the best financial interests of members that accept the default option”.

In addition to strengthening the duty owed by trustees, the onus on demonstrating compliance with the new duty will be reversed so that trustees must establish that there was a reasonable basis to support their actions being consistent with members’ best financial interests.

To ensure that the best financial interests duty is complied with by super funds, these changes will be accompanied by anti-avoidance measures, to ensure payments from the super fund to a third party (including an interposed or a related entity) do not undermine the intent of the changes. No materiality threshold will apply to the new duty.

The penalty provisions introduced by the Government under the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 will apply for breaches of the new duty for both the trustee and individual directors.

Super Guarantee: no change to rate increase set for July 2021

The Budget did not announce any change to the timing of the next Super Guarantee (SG) rate increase. The SG rate is currently legislated to increase from 9.5% to 10% from 1 July 2021, and by 0.5% per year from 1 July 2022 until it reaches 12% from 1 July 2025.

Prior to the Budget, there was speculation as to whether the Government may consider delaying this legislated SG rate increase in the interest of promoting spending and jobs, at the expense of workers’ retirement savings. Association of Superannuation Funds of Australia (ASFA) modelling has previously suggested that an average income earner aged 30 today, and on a $70,000 salary would have $71,600 less when retiring at 67 if the SG stays at 9.5%.

While the Budget did not announce any change to the start date for the SG rate increase, the Government probably does not need to decide this policy issue until next year’s Federal Budget in May 2021, ahead of the 1 July 2021 legislated change date for the SG rate.

Do you or your business need help?

If you or your business need help with your financial arrangements during this difficult time, we can help you to work out which of the many coronavirus (COVID-19) related payments, concessions and arrangements apply to you, and how you can best make use of them. Contact us today.

Treasury revises down estimated JobKeeper cost by $60 billion

The ATO and Treasury have released a joint statement advising that the previous estimate of the number of employers who would access the JobKeeper program was significantly overstated. Treasury now estimates the number of employees covered under the JobKeeper program to be around 3.5 million (down from a previous estimate of 6.5 million). The estimated cost of JobKeeper has been revised down to around $70 billion (from the original $130 billion estimate).

The overstatement has been attributed to errors made when employers applied for JobKeeper. For example, when estimating their eligibility over 500 businesses with only a single eligible employee actually reported the dollar amount that they expected to receive per fortnightly JobKeeper payment (1,500) instead of the number of their eligible employees (1).

Importantly, this error has no consequences for JobKeeper payments already made, as payments under the scheme depend on the subsequent declaration that businesses make in relation to each and every eligible employee. This declaration does not involve estimates and requires an employer to provide the Tax File Number (TFN) for each eligible employee.

Tip: Employers must declare their eligible employees monthly in order to receive the ongoing payments. JobKeeper declarations for May must be made by 14 June 2020.

Snapshot of Federal COVID-19 pandemic measures

Tax-related business measures

• Cash flow boost payments: Tax-free payments of up to $100,000 are available for eligible small and medium sized entities and not-for-profits (including charities) that employ people, with a minimum payment of $20,000.
• Instant asset write-off: From 12 March to 30 June 2020, the threshold increases to $150,000 for business entities with aggregated annual turnover of less than $50 million.
• Accelerated depreciation: Businesses with aggregated turnover of less than $500 million can deduct capital allowances for depreciating assets at an accelerated rate. This measure extends over the 2019–2020 and 2020–2021 income years.
• Research and Development (R&D) Tax Incentive: The Government has deferred the lodgment dates for R&D Tax Incentive applications for 2018–2019 until 30 September 2020.

Superannuation

• Superannuation early release: Eligible people affected by COVID-19 can apply to release (tax-free) up to $10,000 of their superannuation in 2019–2020 and up to $10,000 in 2020–2021.
• Temporary residents: Certain temporary residents impacted by COVID-19 may apply for early release of up to $10,000 of their super by 30 June 2020.
• Super pension drawdowns reduced: The minimum annual payment amounts for certain pensions and annuities have been temporarily reduced by 50% for 2019–2020 and 2020–2021.

Social security and support

• Fortnightly Coronavirus Supplement: This $550 supplement is available for six months for job seekers, sole traders, students and some others. It effectively doubles the current payment for new and existing social security recipients from 27 April 2020. It will be paid for six months to both existing and new recipients of the JobSeeker Payment, Sickness Allowance, Youth Allowance for jobseekers, Parenting Payment Partnered, Parenting Payment Single, Partner Allowance, Sickness Allowance and Farm Household Allowance.
• Stimulus payments for income support recipients: The first $750 cash stimulus payment has now gone out to 6.8 million eligible pensioners, carers, disability support pensioners, those on family tax benefits and concession card holders. A second $750 payment will be made from 13 July 2020 for eligible income recipients and concession card holders.
• Regional and sector support: The Government has set aside an initial $1 billion to support regions, communities and industries that have been disproportionately affected by the economic impacts of the pandemic, including those heavily reliant on industries such as tourism, agriculture and education.

ATO concessions

• Deferring tax payments: Tax payment dates will be deferred by up to six months for tax amounts due through the BAS. This includes PAYG instalments, income tax assessments, FBT assessments and excise.
• Varying PAYG instalments: The ATO has allowed businesses to vary their PAYG instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made during the 2019–2020 financial year.
• ATO automatic lodgment deferrals: Company 2018–2019 income tax returns are now due by 5 June 2020 and SMSF 2018–2019 annual returns by 30 June 2020. For individuals, partnerships and trusts, 2018–2019 income tax returns can be lodged by the 5 June 2020 concessional due date. Finally, the due date for 2019–2020 FBT annual returns has been deferred to 25 June 2020.
• Working from home deductions: The ATO will accept tax deduction claims using a flat rate of 80c per hour, provided a diary of working hours is kept.
• FBT: If entities provide or pay for goods or services to assist employees who are sick or are at risk of becoming sick with COVID-19, this will generally be exempt from FBT if the benefit is provided for their immediate relief.
• Switching to monthly GST reporting: Businesses on a quarterly reporting cycle can elect to switch their GST reporting and payment to a monthly cycle to get a quicker GST refund.

Financial institutions

• Bank loan deferrals: Banks will defer loan repayments for six months for small businesses with total business loan facilities up to $10 million who need assistance because of COVID-19.
• Bank assistance for JobKeeper: The major banks have agreed to set up a dedicated hotline for customers needing to access bridging finance to pay their staff ahead of receiving money under the JobKeeper program. The banks have also agreed to expedite the processing of those JobKeeper applications.

Tip: The ATO has a range of regularly updated webpages that provide answers to common COVID-19 support questions, including on:

• JobKeeper for employers, and for employees;
• income tax impacts for people who work and earn money overseas but have returned to Australia because of COVID-19; and
• tax considerations and other financial impacts for residential rental property owners, including rent and loan payment changes, and personal use of short-term accommodation like holiday houses.

JobKeeper: measuring decline in turnover

Businesses (including sole traders and charities) must have suffered a “substantial decline” in turnover to qualify for the JobKeeper Payment of $1,500 per eligible employee. The basic decline in turnover test requires an entity to measure its projected GST turnover for a turnover test period in 2020 and compare this to the current GST turnover for a relevant comparison period in 2019. In particular, the entity needs to allocate supplies made, or likely to be made, to a turnover test period or relevant comparison period based on when the supply is made or is likely to be made, and to then determine the value of those supplies. Any shortfall is to be expressed as a percentage. If this equals or exceeds specified thresholds, the entity satisfies the decline in turnover test.

The ATO has recently issued Law Companion Ruling LCR 2020/1, a non-binding ruling that explains various aspects of the test and sets out practical compliance approaches for calculating turnover.

STP exemption for small employers extended to July 2021

The ATO has extended the Single Touch Payroll (STP) exemption for small employers in relation to closely held payees from 1 July 2020 to 1 July 2021 in response to COVID-19.

tip: A “small employer” is one that has 19 or fewer employees, and a “closely held payee” is someone who is directly related to the business, company or trust that pays them, such as family members of a family business, directors or shareholders of a company or beneficiaries of a trust.

This STP exemption for closely held payees applies automatically and small employers do not need to apply to the ATO to access it. However, employers should keep records to support their decision to apply the concession.

Processing of super early releases resumes with extra risk filters

Processing of COVID-19 early release of superannuation applications has now resumed, with the ATO adding extra risk filters for all files that are delivered to super funds. These release requests had been temporarily paused between 8 May and 11 May 2020 so that the ATO could consider enhancements to its systems to help protect individuals’ personal data.

Assistant Treasurer Michael Sukkar recently reported that the ATO had identified a small number of third parties who could be susceptible to new techniques that criminals are using to try to steal personal data. The ATO has now worked with these third parties to help them make security enhancements, Mr Sukkar said, and the resulting additional risk filters will be applied on all files before they are delivered to super funds.

Tip: You should always be vigilant about how you store and share your personal information. Your myGov login details should never be shared with anyone, and you should be wary of phone calls, emails or text messages that request personal information. The ATO will never send you a direct link to log on to MyGov or other ATO online services.

Directors’ duties still apply despite COVID-19 relief

The Australian Securities and Investments Commission (ASIC) has reminded companies, directors and officers faced with COVID-19 challenges to reflect on their fundamental duties to act with due care, skill and diligence, and to act in the best interests of the company.

ASIC Commissioner John Price has said the impacts of COVID-19 will require many companies to focus on and, most likely, recalibrate aspects of their corporate strategy, risk-management framework, and funding and capital management, among other things. This will require directors to reflect on which stakeholders’ interests need to be factored into decisions – including employees, investors and creditors. This is still the case even in areas where temporary relief has been provided from specific obligations under the law.

ASIC will maintain its enforcement activities and continue to investigate and take action where the public interest warrants it. Whether action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of taking relevant decisions or incurring debts.

Federal Budget night shifts to 6 October 2020

The Australian Government recently announced that this year’s Federal Budget will not be handed down until 6 October 2020. In making the announcement, Treasurer Josh Frydenberg said that this postponement is intended to “provide more time for the economic and fiscal impacts of the coronavirus, both in Australia and around the world, to be better understood”.

The Client Alert team will work to bring you a special Budget edition on the evening of 6 October, outlining key announcements of the 2020–2021 Federal Budget to assist you in dealing with your clients’ queries.

A little Budget history

Since 1994, with a few exceptions, Australia’s Federal Budget has been handed down by the Treasurer on the second Tuesday in May. Exceptions were made in 1996, when an election and a change of government occurred in March and the Budget was handed down in August; in 2016, when the Budget was handed down on the first Tuesday in May because the government was considering calling call a double dissolution election; and most recently in 2019, when a Federal election was called for 18 May and the Budget was presented on 2 April.

Between 1901 and 1993 the Budget was presented in August, on the first Tuesday night of Parliament’s spring session.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/2020-21-budget-announcement.

Coronavirus cash flow boost payments explained

As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the Australian Government has legislated a measure to boost cash flow for employers. Put simply, the cash flow boost payments are intended to support employment by providing Federal support for employers through the tax system. This is admirable yet is likely to prove complex to administer.

Small to medium employers who intend to claim the “cash flow boost payment” (a minimum of $10,000 and a maximum of $50,000) and hoping to receive an injection of cash should beware. The “payment” is not actually a payment; rather, it is a credit that will be offset against the liabilities that appear on the business activity statement (BAS) and any debits in a taxpayer’s running balance account (RBA). While this is still likely to support employment by reducing the amount businesses have to pay to the ATO, anyone hoping to get a cash injection will be sorely disappointed.

The measure ensures that an eligible employer receives an amount equal to three times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter. Both are subject to a minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year.

The cash flow boost payments are only available to entities that qualified as small or medium entities (ie with turnover less than $50 million) for the income year when they were most recently assessed. There will be no cash flow boost payments for entities with turnover greater than $50 million. There is also a withholding requirement – the payment will only be made to entities that first notified the ATO that they have a withholding obligation through the lodgment of a BAS or an instalment activity statement (IAS) for the period.

Therefore, the key to the system is the BAS that entities lodge for March (either monthly or quarterly). That BAS will determine how much is paid, and when it is paid.

A word of caution, however. The headline numbers (and dates) can be a tad misleading. This “boost” measure is not a minimum $10,000 payment – instead, it is an entitlement to a minimum gross credit of $10,000 in respect of the March BAS. This credit will be offset against the liabilities that appear on the BAS and any debits in a taxpayer’s RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO.

Even assuming that the ATO owes the taxpayer money, that refund will not be paid on 28 April, but rather within 14 days of lodging the BAS. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment.

Another important feature to note is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The ATO has stated that a “scheme” for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.

Source: www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers/.

Understanding the JobKeeper Payment scheme

Federal Treasurer Josh Frydenberg registered the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 on 9 April 2020. These statutory rules set out the actual rules and taxpayer requirements for the JobKeeper Payment scheme, which will be administered by the ATO. The statutory rules complement the JobKeeper Payment legislation, the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, which was passed by Parliament on 8 April 2020.

The JobKeeper Payment scheme commenced on 30 March and will finish on 27 September 2020. It will operate on a fortnightly basis. The first fortnight commenced on 30 March and the last will end with the fortnight ending on 27 September. Employers and eligible recipients must qualify on a (rolling) fortnightly basis.

Businesses (including sole traders and charities) must have suffered a “substantial decline” in turnover due to the COVID-19 pandemic to be entitled to the payment of $1,500 for each eligible employee. Critically, it is a condition of entitlement that the business has paid salary and wages of at least that amount to the employee in the fortnight.

The government will pay the JobKeeper Payment within 14 days of the end of the calendar month in which the fortnight(s) end(s). According to the fact sheets Treasury has released, employers will be paid “shortly after the end of each calendar month”, for fortnights ending in that month. This means that the first JobKeeper Payment will not be made until (at least) the first week of May.

An entity is not eligible for the JobKeeper Payment if another employer is claiming it for the same employee.

Definition of a JobKeeper fortnight

An employer receives a JobKeeper Payment in respect of each “JobKeeper fortnight” in which they are entitled to the payment.

Each of the following is a JobKeeper fortnight:

• the fortnight beginning on 30 March 2020; and
• each subsequent fortnight, ending with the fortnight ending on 27 September 2020.

This means that the JobKeeper scheme commences on 30 March 2020 and ends on 27 September 2020 – a period of 26 weeks. This means the last fortnight in respect of which a JobKeeper Payment may be paid (under the current rules) is the fortnight commencing on 14 September 2020 and ending on 27 September 2020.

Entities that qualify

For an entity to be eligible for the scheme, there are tests that must be met as at 1 March 2020 and other tests that must be satisfied on a rolling fortnightly basis.

Entities that carried on a business at 1 March 2020 or charities that “pursued [their] objectives” at that time will qualify, provided that they also satisfy the decline in turnover test.

However, the following are specifically excluded:

• entities that had a levy imposed under the Major Bank Levy Act 2017 imposed for any quarter ending before 1 March 2020;
• an entity that is an Australian Government agency (or a wholly owned subsidiary of one);
• an entity that is a local governing body (or a wholly owned subsidiary of one);
• if the entity is a sovereign entity;
• if the entity is a company – a liquidator or provisional liquidator has been appointed in relation to the company; or
• if the entity is an individual – a trustee in bankruptcy has been appointed to the individual’s property.

The exclusion for local government bodies and government agencies means that councils will not be covered by the JobKeeper Payment scheme.

Qualifying employers must apply to the ATO in the approved form and become registered under the scheme prior to the end of a JobKeeper fortnight. Employers must then notify all employees in writing that they have elected to participate in the scheme and that their eligible employees will all be covered by the scheme.

Decline in turnover test

The decline in turnover test is linked to the GST turnover test in Div 188 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), in particular the projected GST turnover – which will take into account anticipated decline in revenue. There are a number of technical modifications to ensure that the test applies as intended.

The test requires an entity to measure its projected GST turnover and compare it to a “relevant comparison period”. Any shortfall is to be expressed as a percentage. If this equals or exceeds the following thresholds, the entity satisfied the decline in turnover test:

• for ACNC-registered charities: 15%;
• for entities with turnover less than $1 billion: 30%;
• for entities with turnover greater than $1 billion: 50%.

Note that universities, schools and local councils will not be covered by the 15% rate.

The $1 billion threshold is determined by reference to “aggregated turnover” as defined in s 328-115 of the Income Tax Assessment Act 1997 (ITAA 1997). This includes the annual turnover of any entity that is connected with or an affiliate of the business.

The turnover test period must be a calendar month that ends after 30 March and before 1 October 2020, or a quarter that starts on 1 April or 1 July 2020. The relevant comparison period must be the period in 2019 that corresponds to this turnover test period. For example, an entity can make the comparison by comparing the whole of the month of March 2020 with March 2019, or by comparing the quarter beginning on 1 April 2020 with the quarter beginning on 1 April 2019.

Once the decline in turnover test is satisfied, the entity does not need to retest its turnover in later months. However, if an entity does not qualify for one month (or quarter), it can test in a later month (or quarter) to determine if the test is met and can become eligible from that time.

Despite the fact that an entity does not need to retest its turnover once the decline in turnover test is satisfied, an entity that has qualified for the JobKeeper Payment must, within seven days of the end of that month, notify the ATO of its current GST turnover for that month and its projected GST turnover for the following month.

Deductible gift recipients (DGRs) are required to include gifts received or likely to be received that are tax deductible to the donor under s 30-15 ITAA 1997. Charities that are registered with the Australian Charities and Not-for-profits Commission (ACNC) but are not DGRs must instead include gifts received or likely to be received that are made by way of monetary donations, property with a value of more than $5,000 and listed Australian shares. For either type of entity, gifts received from an associate are not included in their turnover.

There will undoubtedly be ATO guidance on this.

The turnover numbers must be reported to the ATO before any payments will start, although there is a transitional rule for the first two JobKeeper fortnights.

There is scope for the ATO to apply an alternative test to different classes of entities, by way of legislative instrument. For example, where a business or non-profit organisation was not in operation a year earlier, or where the turnover a year earlier was not representative of the usual or average turnover (eg because the entity was newly established or its turnover is typically highly variable). Although no legislative instrument had been made as at the time of writing, the following example (adapted from an example in the explanatory statement to the statutory rules) shows how the alternative test would apply.

Example

Milly’s Farms carries on a farming and retail flower sales business in Australia. It was subject to a severe drought from 2018 until September 2019 that reduced the amount of flowers it could grow. It returned to normal crop output in January 2020. Its retail flower sales became significantly affected in March 2020.

It assesses its eligibility for JobKeeper Payments on 3 July 2020 based on a projected GST turnover from its farming activities for the quarter beginning on 1 July 2020 of $2 million. The corresponding period is the quarter beginning on 1 July 2019 – a period in which Milly’s Farms was severely affected by drought. Because of the effects of the drought, Milly’s Farms had a much lower than usual 2019 GST turnover of $2.5 million. The July 2020 quarter turnover falls short of the July 2019 quarter turnover by $500,000, which is 25% of the July 2019 quarter turnover. This does not exceed the specified percentage of 30%, so the basic decline in turnover test is not satisfied.

However, because of the effects of the drought on farming businesses, the ATO is satisfied that there is not an appropriate relevant comparison period for an entity that carried on a farming business. Instead, for these entities, the ATO determines an alternative test for which the relevant comparison period is the corresponding quarter in 2017. The ATO determines that the alternative test will be satisfied in these circumstances where the entity can show a 30% shortfall in turnover (for entities with less than $1 billion aggregated annual turnover) when compared to one of these alternative periods.

In the quarter beginning on 1 July 2017, Milly’s Farms had a current GST turnover of $4 million. This represents a shortfall of 50% when compared to its projected GST turnover for the quarter beginning on 1 July 2020. This exceeds the specified percentage of 30%, so the alternative decline in turnover test is satisfied.

Eligible employees

An individual must be employed for a JobKeeper fortnight to be eligible for that fortnight. In addition, as at 1 March 2020 the employee must:

• be aged 16 or over;
• be an employee or a long-term casual employee of the entity (12 months of regular and systematic employment); and
• be an Australia resident, as determined by reference to the Social Security Act 1991, or the Income Tax Assessment Act 1936 (ITAA 1936) where the person holds a Subclass 444 (Special Category) visa.

The 1 March date is important, as it allows employees who were retrenched after that date but then subsequently rehired (possibly on the basis of the announcement of the scheme) to be eligible for the JobKeeper Payment. However, if an employee was only engaged after 1 March, that employee would not be eligible for the scheme, because they were not an employee of the eligible employer as at 1 March 2020.

There are some specific exclusions. A person is excluded from being an eligible employee if:

• parental leave pay is payable to the individual and the individual’s paid parental leave period overlaps with, or includes, the fortnight;
• at any time during the fortnight, the individual is paid dad and partner pay; or
• all of the following apply:
• the individual is totally incapacitated for work throughout the fortnight;
• an amount is payable to the individual under, or in accordance with, an Australian workers’ compensation law in respect of the individual’s total incapacity for work; and
• the amount is payable is respect of a period that overlaps with, or includes, the fortnight.

The test is specifically that a person must be employed by an eligible employer “at any time” in the fortnight. The person does not need to be employed for the full fortnight.

There is also a requirement that eligible employees have provided a notice to their employer agreeing:

• to be nominated by the employer as an eligible employee of that employer under the JobKeeper scheme;
• that they have not agreed to be nominated by another employer; and
• that (if they are employed as a casual employee with this employer) they do not have permanent employment with another employer.

An eligible employee who is employed by one or more qualifying employers will need to choose one employer that will receive the JobKeeper Payments for their employment.

Once an employee has nominated an employer and the employer has received JobKeeper Payments in respect of the employee and has paid the employee, the employee cannot nominate a different employer. If for any reason, the employment relationship between an eligible employee and their nominated employer ends, the employee will not be able to have another employer qualify for the JobKeeper Payments in respect of their new employment. The advice then would be to look at eligibility for the JobSeeker Payment.

Wage condition

Employers must satisfy what is termed the “wage condition” to be entitled for a JobKeeper Payment. This is satisfied in respect of an individual for a fortnight if the sum of the following amounts equals or exceeds $1,500:

• amounts paid by the employer to the individual in the fortnight by way of salary, wages, commissions, bonuses or allowances;
• amounts withheld by the employer from payments made to the individual in the fortnight under the PAYG provisions (specifically, s 12-35 in Sch 1 to the Taxation Administration Act 1953);
• contributions made by the employer in the fortnight to a superannuation fund or a retirement savings account (an RSA) for the benefit of the individual, if the contributions are made under a salary sacrifice arrangement (within the meaning of the Superannuation Guarantee (Administration) Act 1992);
• other amounts that, in the fortnight, are applied or dealt with in any way if the individual agreed:
• for the amount to be so applied or dealt with; and
• in return, for amounts covered by salary and wages etc for the individual for the fortnight to be reduced (including to nil).

If the regular payment period is longer than a fortnight, these payments are allocated to each fortnight on a reasonable basis. For example, if an employee is paid monthly, it would presumably be reasonable to multiply the monthly amount by 12 and then divide that amount by 26.

The effect of these rules is as follows:

• If the employer pays the employee $1,500 or more in income per fortnight before tax, the JobKeeper Payment will assist the employer to continue operating by subsidising all or part of the employee’s income.
• If the employer would otherwise pay the employee less than $1,500 in income per fortnight before tax, the employer must pay the employee, at a minimum, $1,500 per fortnight before tax using the JobKeeper Payment.
• If the employee has been stood down, the employer must pay the employee, at a minimum, $1,500 per fortnight before tax using the JobKeeper Payment.

Sole traders, partners, etc

There are special rules that enable sole traders (entities that do not have employees as such) to obtain the JobKeeper Payment. The statutory rules refer to such entities as “business participants”.

The ATO states that sole traders and some other entities (such as partnerships, trusts or companies) may be entitled to the JobKeeper Payment scheme under what is termed the “business participation entitlement”. However, not-for-profit organisations are not included.

The entity may be eligible for the JobKeeper Payment scheme if it has a non-employee individual – an “eligible business participant” – who is actively engaged in the operation of the business. The entity must meet all other relevant requirements.

The ATO makes the important point that officially under the scheme it is the entity – not the eligible business participant – which receives the JobKeeper Payment. However, this distinction is moot for a sole trader, who is both the business entity and an eligible business participant, and does receive the JobKeeper Payment themselves.

Eligible business participant

A non-employee individual is an eligible business participant of an entity for a JobKeeper fortnight if all of the following conditions are met; namely, that the individual:

• is not employed by the entity;
• is actively engaged in the business carried on by the entity (at 1 March 2020 and for the relevant JobKeeper fortnight);
• is one of the following (again as at 1 March 2020 and for the individual fortnight):
• a sole trader;
• a partner in the partnership;
• an adult beneficiary of the trust;
• a shareholder or director in the company; and
• as at 1 March 2020, was aged at least 16 and was an Australian resident (within the meaning of s 7 of the Social Security Act 1991), or a resident for income tax purposes and the holder of a special category (Subclass 444) visa;
• is not receiving government parental leave pay or dad and partner pay; and
• is not currently totally incapacitated for work and receiving payments under an Australian workers’ compensation law in respect of a total incapacity to work.

The ATO states that an eligible business participant cannot also be an employee (other than a casual employee) of another entity. If a sole trader is both a long-term casual employee of another business and an eligible sole trader, they can choose to either let their employer claim the JobKeeper Payments on their behalf or they can claim as a sole trader, but not both.

Importantly, only one eligible business participant can be nominated by an entity. This means that a business entity must choose which eligible business participant to nominate, and that entity is only entitled to one JobKeeper Payment per fortnight. This requirement does seem stringent when it comes to entities other than sole traders (eg partnerships or trusts).

The ATO has issued a JobKeeper Nomination Notice on its website. However, this should be not be used if an entity is intending to claim JobKeeper payments for an eligible business participant. Rather, a different nomination process will be required.

Eligible entities

An entity is eligible if it carried on a business in Australia as at 1 March 2020 and it satisfies the decline in turnover test for the relevant period.

In addition, it must have had an ABN as at 12 March 2020 and have lodged, on or before 12 March 2020:

• a 2018–2019 income tax return showing that it had an amount included in its assessable income in relation to it carrying on a business, or
• an activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing that the entity made a taxable, GST-free or input-taxed sale.

The ATO has the discretion to allow an entity to obtain an ABN after 12 March 2020 where it was running an active business before 12 March 2020 but was not required to have an ABN to operate it.

An entity cannot claim JobKeeper Payments for an individual if there is already a JobKeeper claim being made by another business or employer for that individual.

Payment

The amount of an entity’s JobKeeper Payment for an individual for a fortnight is $1,500.

The statutory rules note that, for the avoidance of doubt, the fact that the ATO pays an entity a payment does not mean the entity is actually entitled to it, therefore ensuring the door to recovery is kept well open.

No payment will be made after 30 September 2021. Entitlement to a payment may be cancelled, revoked or varied by later legislation.

Superannuation

There are no changes to superannuation in the JobKeeper statutory rules, but the explanatory statement to the rules does flag that amendments will need to be made (through regulations made under the Superannuation Guarantee (Administration) Act 1992).

The regulations will ensure that an employer will only need to make superannuation contributions for any amount payable to an employee in respect of their actual employment, disregarding any extra payments made by the employer to satisfy the wage condition for getting the JobKeeper Payment.

For example, if the work actually done by an employee over a period entitled them to be paid $1,000 but the employer instead paid them $1,500 to satisfy the wage condition for a JobKeeper fortnight, then the employer will only be required to make superannuation contributions in relation to $1,000. Similarly, any liability to superannuation guarantee charge that the employer would have for not making sufficient superannuation contributions would be calculated by reference to that $1,000 base.

An employer will still be required to make the same superannuation contributions for an employee whose pay exceeds the JobKeeper Payment. For example, if an employee is entitled to be paid $2,000 for their work, the employer will continue to be required to make contributions in relation to that amount, irrespective of whether they were eligible to receive the JobKeeper Payment in relation to the employee.

Transitional rules

There is a transitional rule that allows the ATO to make an “advance payment” for the JobKeeper fortnights ending in the month of April without being satisfied that the entity is entitled to that payment. This was necessary to ensure that payments in respect of the first and second JobKeeper fortnights (starting on 30 March 2020 and 13 April 2020 respectively) could be made quickly to assist entities affected by the pandemic. Otherwise, entitlement only arises for those JobKeeper fortnights and later fortnights in which eligible employers are registered under the scheme before the end of a JobKeeper fortnight.

However, before the ATO can make an advance payment under the transitional rule:

• the entity must have notified the ATO in the approved form of its election to participate in the scheme; and
• the ATO must be satisfied, on the basis of the information the entity provides, that it is reasonable in the circumstances to make the payment.

Generally, an employer must notify the ATO in the approved form of its election to participate in the scheme before the employer can be entitled to a payment for a fortnight. This election generally needs to be provided to the ATO before the end of a JobKeeper fortnight for the employer to be entitled to a payment for that fortnight.

However, there is a different timing rule where the employer wishes to participate in the scheme and receive the first or second JobKeeper Payments. Where this is the case, the employer has until the end of the second JobKeeper fortnight, that is, 26 April 2020, to provide the ATO with its election to participate. This gives employers more time to comply with the election requirement and means that fewer employers will miss out on receiving the first JobKeeper payment (given that generally the scheme only applies prospectively to elections to participate).

The ATO points out that to qualify for the first JobKeeper Payment (to be received in May), eligible entities can make one combined payment of $3,000 for the first two fortnights, paid by end of April 2020. It is worth remembering that salary and wages operates on a cash basis; that is, the amount has to be received by the employee. The employer cannot accrue the liability and then pay it to the employee after receiving the JobKeeper Payment.

Integrity issues

Businesses, individuals and entities that deliberately enter into contrived arrangements with the sole or dominant purpose of reducing their turnover in order to gain access to or increase their JobKeeper Payments will not be entitled to the payment or the increased payment. The general interest charge (GIC) will apply on any overpayment under s 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020. In addition, significant administrative and criminal penalties may apply.

Records

An entity is not entitled to a JobKeeper Payment (or any other coronavirus economic response payment) unless it satisfies various pre-payment and post-payment record-keeping requirements. Relevant records must be in English, or readily accessible and easily convertible into English, and must be kept for five years after the payment is made.

Review of decisions

Various decisions of the ATO in relation to the JobKeeper Payment (and any other coronavirus economic response payments) – for example, that an entity is not entitled to a payment for a period or in relation to the amount of a payment – are subject to the objection and appeal provisions in Pt IV of the Taxation Administration Act 1953.

Tax consequences

The statutory rules do not state that a JobKeeper Payment is exempt income or non-assessable non-exempt (NANE) income. The payment will therefore be assessable as a subsidy. However, as a payment forms part of wages paid to the employee, a deduction for the payment is available under s 8-1 of ITAA 1997.

GST does not apply in relation to JobKeeper Payments made to employers, because the payments are not consideration for supplies made by employers to the government.

Source: https://www.legislation.gov.au/Details/F2020L00419; www.ato.gov.au/Business/Business-bulletins-newsroom/Employer-information/JobKeeper-Payment-is-here/..

ATO opens applications for early release of super

The ATO has released its application form for the early release of superannuation by individuals impacted by COVID-19. From 20 April, an individual can make one application to access up to $10,000 (tax-free) in the 2019–2020 financial year (ie they must make the application by 30 June 2020). A second application for up to $10,000 can be made in the 2020–2021 year (ie from 1 July 2020) until 24 September 2020.

An application can be made by:

• the member authenticating themselves through the myGov website and completing the application form in ATO Online; or
• for those who are unable to access online services, the individual calling the ATO, confirming their identity and completing the application over the phone.

The application form requires the person to certify that they are eligible and includes information about the consequences of making false applications. The individual will then proceed to:

• review a list of open accounts they have and the last account balance reported for each account (in most cases at 30 June 2019);
• input the amount they would like to release from each account – the total amount cannot exceed $10,000, but there are otherwise no limitations on what the individual can input;
• input the details of the bank account (account name, BSB and number) they would like the money paid into; and
• authorise the ATO to provide the information to the super fund and the super fund to release the money into that account.

The ATO has run a social media campaign asking people to observe the intention of the legislation and only apply to release their super to deal with the adverse economic effects of COVID-19. For example, the ATO says taxpayers should not withdraw their super early and recontribute it to gain a personal tax deduction.

Individuals have been able to login into myGov and register interest in the coronavirus early release of super measure with the ATO. The ATO has been contacting these individuals via SMS or email now that the application form is available to complete. As at 2 April 2020, 361,000 individuals had registered an interest in the measure.

Eligible individuals should carefully check their super account balances to ensure there are sufficient funds available to claim. If a member makes an application and the fund has insufficient money to fulfil the application, the ATO says the member will not be able to make a second application for the balance from another fund/account in that financial year. They will also not able to seek the balance in the 2020–2021 financial year above the $10,000 cap.

If an application is rejected by the ATO, the member will be notified via their MyGov account in two to three days.

Notification process for super funds

It will take one to two business days for super funds to receive notifications directly from the ATO about their members, with funds expecting to start receiving notifications from 21 April 2020. The ATO will be providing the details to funds in an electronic data file that funds will need to download via the Bulk Data Exchange (BDE) channel and process. The government expects funds to process the payments and release the amounts to individuals “as soon as possible”. The current process for existing categories of compassionate release of super will continue as is.

The ATO and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have confirmed that super funds will be able to rely on the ATO’s customer verification under a proposed anti-money laundering and counter-terrorism financing (AML/CTF) regime rule.

Separate arrangements will apply for applications by members of self managed super funds (SMSFs). The ATO will issue a determination to the member (instead of the super fund) advising of their eligibility to release an amount. When the SMSF receives the determination from the member, the SMSF trustee is then authorised to make the payment.

Unclaimed super payment deferral

The ATO will grant super funds a deferral of the scheduled statement day and payment day for 31 December unclaimed money day accounts. The 30 April 2020 due date will be deferred to 31 October 2020.

The ATO is providing this deferral to allow funds to focus on assisting members who may be looking to release amounts from their super under the coronavirus condition for early release. The deferral extends the period within which unclaimed superannuation money (USM) accounts can be reported and paid. Any fund wanting to continue with their USM reporting as planned can do so. Funds may want to consider continuing reporting and paying USM for certain categories (such as where a member is 65 years or older) where it would be in the member’s interests. The ATO said it will not proceed with hyper-care arrangements for this USM period (including proactive consolidation).

Electronic release authority statements

During the COVID-19 period, the ATO says it will allow super funds to submit electronically release authority statements (RASs) and end benefit notices (EBNs) in relation to the First Home Super Saver (FHSS) scheme and excess contributions, and for Div 293 purposes.

Super accounts available for release

A member can request amounts up to a total of $10,000 from multiple funds at the application stage, as follows:

• The available fund accounts (excluding those in retirement phase) will be displayed via myGov and the member can choose multiple accounts and the amount to be approved for release from each account.
• There are no restrictions on the amount a person can request for release from any account, except the $10,000 overall yearly limit.
• A member can request more than the account balance displayed to them in the application.
• There is a limit of $10,000 in the one application per financial year.

A member cannot add a new fund to myGov when applying; only matched accounts reported to the ATO through the Member Account Attribute Service (MAAS) will be displayed.

The application form will display all open accounts except those in retirement phase. A member can only apply for one determination per financial year. For example, a member can request $1,000 from one fund and another $9,000 from another fund as long as they do so in the same application. Members will not be able to make a subsequent application if they do not request or receive the full amount approved in their first application for that financial year.

Proportioning rule

While a released amount is non-assessable non-exempt income (NANE) for the individual, the ATO notes that the payment is subject to the proportioning rule in s 307-125 of the Income Tax Assessment Act 1997 (ITAA 1997). Therefore, individuals with multiple super accounts still need to consider the underlying tax components of their different super interests when choosing which accounts to release from.

Generally, a taxpayer with multiple super interests should consider nominating the release amount to be paid from the interest with the largest taxable component. However, take care if looking to maintain an unrestricted non-preserved component, as any benefit payment from a particular super interest will be cashed out first from the unrestricted non-preserved component.

For accounts where a member’s tax-free component is actually higher than the entire accumulation balance itself (as a result of negative returns), it may be helpful to maintain some of that interest in the accumulation phase so that it can be used to absorb any future investment earnings (which would otherwise be effectively added to the taxable component). However, there is no one-size-fits-all approach, so it is necessary to consider the operation of the proportioning rule on the future payment of benefits for a member’s particular circumstances.

Pension accounts

The ATO notes that super amounts cannot be released from a pension account under the coronavirus early access condition of release.

The recent amendments to allow early access to super under the coronavirus condition of release do not vary the circumstances in which pension payments may be made from a transition to retirement income stream (TRIS), or the circumstances in which an amount commuted from a TRIS can be cashed out of the superannuation fund. Hence, the ATO says no amounts in excess of what is already allowed to be cashed from a TRIS can be released under the coronavirus condition.

However, a member whose TRIS comprises preserved or restricted non-preserved benefits may be able to commute the TRIS back to the accumulation phase within the superannuation fund (in accordance with the rules of the fund and the pension). In this case, the ATO says the preserved and restricted non-preserved amounts may then be eligible to be released under the coronavirus condition for early release. As an individual can only apply once in each financial year, it is important to first commute a pension amount back to accumulation before applying to the ATO.

Payment by fund

Funds are required to make the payment tax-free “as soon as practicable”. The ATO acknowledges that there may be occasions when a fund will need to contact the member to meet that obligation. In those scenarios, a fund can use the ATO’s provision of details (POD) service to obtain current contact details for a member.

Funds are not required to issue PAYG statements showing a proportion of the payment to be taxable component – untaxed element. The payment is not a “withholding payment” and an amount is not required to be withheld from the payment as it is NANE (s 12-1(1A) of Sch 1 to the Taxation Administration Act 1953). There is no requirement to report back to the ATO where a fund is unable to pay part or all of the money requested under the early release provisions.

The ATO will makes determinations based on self-assessment, but if a fund identifies a case suspected to be at high risk of fraud, it should be reported to the ATO for confirmation of the best approach to manage it. Any compliance activity will be followed up by the ATO directly with the individual.

Non-regulated funds and defined benefit funds

Members of non-regulated funds will need to apply directly to their own scheme/fund for early release of super. If an individual applies to the ATO for the release of an amount from an exempt public sector superannuation scheme (EPSSS), the ATO will process the application, make a determination and send a notification to the EPSSS. It will be up to the EPSSS to decide how to respond to the notification and what action to take.

When an individual applies, they will be presented with all open accounts that are not in retirement phase. This will include defined benefit accounts. The ATO will process the application and notify the defined benefit fund. It is up to the defined benefit fund to decide whether or not to release the amount. As an individual can only apply once in each financial year, it is important to first check whether a defined benefit fund can or will release amounts before applying to the ATO.

ATO-held super

An individual cannot apply for a determination to release super amount held by the ATO. If the individual is not eligible for a direct payment of ATO-held super, they will need to request a transfer of the ATO-held super into an account held by a super provider on their behalf before requesting its release.

Source: www.ato.gov.au/Super/APRA-regulated-funds/In-detail/News/CRT-Alerts/2020/CRT-Alert-004/2020—COVID-19-economic-response-package—early-release-of-super/.