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

Independent resolution process for small businesses now permanent

Small businesses now have another pathway to resolve tax disputes, with the ATO making its independent review service a permanent option for eligible small businesses (those with a turnover of less than $10 million) after a successful multi-year pilot.

The service’s original pilot commenced in 2018 and centered around income tax audits in Victoria and South Australia. It was expanded in 2020 to include income tax audits in all other Australian states and territories, along with other areas of tax including GST, excise, luxury car tax, wine equalisation tax and fuel tax credits.

“Small businesses who participated in our pilot told us they found the process to be fair and independent, irrespective of the independent review outcome, so this is a great result, and is a big part of why we are locking this service in permanently”, ATO Deputy Commissioner Jeremy Geale has said.

If your small business is eligible for a review of the ATO’s finalised audit findings, your ATO case officer will make contact and a written offer of independent review will be included in the audit finalisation letter.

Tip: An offer to use the independent review service won’t be the first opportunity you get to respond to an ATO audit. Initial findings will be disclosed in an interim paper, so you’ll have a chance to raise areas of disagreement before receiving the final audit letter.

If you wish to proceed with the review, you’ll need to contact the ATO through the relevant email address within 14 days of the date of the audit finalisation letter, clearly specifying and outlining each area of your disagreement with the audit position.

You’ll be asked to complete and return a consent form to extend the amendment period, which will allow the ATO to complete the review before the period of review for the relevant assessment ends.

Once your business obtains approval to use the review service, an independent reviewer will be allocated to the case and will contact you to discuss the process. This officer will be from a different part of the ATO to your audit case officer, and will not have been involved in the original audit.

It’s important to note that superannuation, FBT, fraud and evasion finding, and interest are not covered by the independent review service. If your dispute with the ATO relates to those areas, or if you don’t want to use the independent review service, your other options including lodging an objection or using an in-house facilitation service. You can also raise matters with the Inspector-General of Taxation and Tax Ombudsman or the Australian Small Business and Family Enterprise Ombudsman.

ATO focus in relation to JobKeeper

The ATO has recently announced it’s keeping an eye out for areas of concern in relation to JobKeeper, including what may constitute “fraudulent behaviour”.

It is paying special attention to situations where employers may have used the JobKeeper scheme in ways that avoided paying employees their full and rightful entitlements.

Businesses are being examined where the ATO is concerned they may have:

• made claims for employees without a nomination notice or have not paid their employees the correct JobKeeper amount (before tax);
• made claims for employees where there is no history of an employment relationship;
• amended their prior business activity statements to increase sales in order to meet the turnover test; or
• recorded an unexplained decline in turnover, followed by a significant increase.

Individuals are also being investigated where the ATO suspects they may have knowingly made multiple claims for themselves as employees or as eligible business participants, or made claims both as an employee and an eligible business participant.

ATO targets contractors who under-report income

More than 158,000 businesses have now reported all their payments made to contractors in the 2019–2020 year, and the ATO is using its Taxable Payments Reporting System (TPRS) to make sure the payments, totalling more than $172 billion, have been properly declared by both payers and recipients.

The TPRS captures data about contractors who have performed services including couriering (including food delivery), cleaning, building and construction, road freight, information technology, security, investigation and surveillance services.

The ATO is now using this data to contact contractors or their tax agents to ensure that they have declared all of their income, including any from part-time work, and is checking the GST registration status and Australian Business Numbers (ABNs) of contractors that are businesses to ensure their relevant obligations are met.

The ATO matches the contractor information provided by businesses in their taxable payments annual report (TPAR) to the figures in contractors’ own tax returns. Where discrepancies between business reports and contractor returns are identified, the ATO will send the contractor a letter in the first instance, prompting them to explain.

Tip: If you’ve forgotten to include income from contracting services in your tax return, an amendment can still be lodged to correct the mistake. Where we lodged your initial return as your tax agent, we can also complete an amendment to the return on your behalf – contact us today to find out more.

While it appears that the ATO won’t initially apply penalties or interest in relation to under-reported contracting income, contractors will still need to pay any additional tax owed, and it’s likely that people who ignore a letter from the ATO and fail to lodge an amended tax return will face penalties at a future date.

Can your business claim a tax deduction for bad debts?

April 2021 has been a closely observed month financially, with many government COVID-19 economic supports coming away. There’s no doubt that some businesses will find themselves owed debts that cannot be recovered from customers or other debtors.

If your business is facing this type of unrecoverable debt, commonly known as a “bad debt”, you may be able to claim a tax deduction for the unrecoverable amount, depending on the accounting method you use.

If your business accounts for its income on an accruals basis – that is, you include all income earned for work done during the income year even if the business hasn’t yet received the payment by the end of the income year – a tax deduction for a bad debt may be claimable.

To claim a deduction for a bad debt, the amount must have been included in your business’s assessable income either in the current year tax return or an earlier income year. You’ll also need to determine that the debt is genuinely bad, rather than merely doubtful, at the time the business writes it off. Whether or not a debt is genuinely bad depends on the circumstances of each case, with the guiding principle being how unlikely it is that the debt can be recovered through reasonable and/or commercial attempts.

Tip: According to the ATO, making such attempts doesn’t always mean you need to have commenced formal proceedings to recover the debt. Evidence of communications seeking payment of debt, including reminder notices and attempts to contact the debtor by phone, mail and email, may be sufficient.

The next step in claiming a bad debt deduction is to write off the debt as bad. This usually means your business has to record (in writing) the decision to write off the debt before the end of the income year in which you intend to claim a deduction.

There may also be GST consequences for your business when writing off a bad debt. For example, if the business accounts for GST on a non-cash basis, a decreasing adjustment can be claimed where you have made the taxable sale and paid the GST to the ATO, but subsequently have not received the payment. However, the debt needs to have been written off as bad and have been overdue for 12 months or more.

Businesses that account for income on cash basis cannot claim a deduction for bad debts. This is because these businesses only include an amount in their assessable income when it’s received, which means the bad debts have no direct income tax consequences.

ATO data-matching: residency for tax purposes

The ATO has announced a new data-matching program that will use information collected from the Department of Home Affairs. It is designed to determine whether business entities and individuals are Australian residents for tax purposes, and whether they’ve met their lodgment and registration obligations.
This is in addition to the existing visa data-matching program, which has been operating for more than 10 years. The new program will include data from income years 2016–2017 to 2022–2023.

According to the ATO, the compliance activities from data obtained will largely be confined to verification of identity and tax residency status for registration purposes, as well as identifying ineligible claims for tax and superannuation entitlement. In addition to compliance activities, the data will be used to refine existing ATO risk detection models, improve knowledge of overall level of identity and residency compliance risks, and identify potentially new or emerging non-compliance and entities controlling or exploiting ATO methodologies.

The data collected will include full names, personal identifiers, dates of birth, genders, arrival dates, departure dates, passport information (including travel document IDs and country codes), and status types (eg visa status, residency, lawful, Australian citizen). It is expected that the personal information of approximately 670,000 individuals will be collected and matched each financial year.

NSW announces tougher penalties for payroll tax avoidance

The NSW Government has announced that it will introduce new legislation to increase penalties for payroll tax avoidance, as well as providing it with the ability to name taxpayers who have underpaid payroll tax on wages.

The changes are directed at those employers who underpay wages, which of course reduces the employers’ payroll tax liabilities, but also deprives workers of their due wages. Modelling suggests that
this amounts to $1.35 billion in wages per year Australia-wide, and affects some 13% of workers.

Revenue NSW will be able to reassess payroll tax more than five years after the initial tax assessment when wages have been underpaid.

The penalties will be increased five-fold in some instances. For example, penalties for making records known to contain false or misleading information and for knowingly give false or misleading information will both go up from $11,000 to $55,000.

ASIC extends deadlines for financial reports and AGMs

The Australian Securities and Investments Commission (ASIC) has announced that it will extend the deadline to lodge financial reports for listed and unlisted entities by one month for balance dates from 23 June to 7 July 2021 (inclusive). ASIC said the extension will help alleviate pressure on resources for the audits of smaller entities and provide adequate time for the completion of the audit process, taking into account the challenges presented by COVID-19 conditions. This relief will not apply to registered foreign companies.

ASIC will also extend its “no-action” position for public companies to hold their annual general meetings (AGMs) from within five months to within seven months after the end of financial years that end up to 7 July 2021.

The extensions don’t apply for reporting for balance dates from 8 January 2021 to 22 June 2021, as ASIC doesn’t consider there to be a general lack of resources to meet financial reporting and audit obligations. However, the regulator has said it will consider relief on a case-by-case basis.

Tax implications of having more than one job

With insecure, contract and casual work becoming increasingly common, particularly in the current COVID-19 affected economy, it’s no surprise that many young and not-so-young Australians may have income from more than one job. If you are working two or more jobs casually or have overlapping contract work, you need to be careful to avoid an unexpected end of financial year tax debt.

This type of debt usually arises where a person with more than one job claims the tax-free threshold in relation to multiple employers, resulting in too little tax being withheld overall. To avoid that, you need to look carefully at how much you’ll be making and adjust the pay as you go (PAYG) tax withheld accordingly.

Currently, the tax-free threshold is $18,200, which means that if you’re an Australian resident for tax purposes, the first $18,200 of your yearly income isn’t subject to tax. This works out to roughly $350 a week, $700 a fortnight, or $1,517 per month in pay.

When you start a job, your employer will give you a tax file number declaration form to complete. This will ask whether you want to claim the tax-free threshold on the income you get from this job, to reduce the amount of tax withheld from your pay during the year.

A problem arises, of course, when a person has two or more employers paying them a wage, and they claim the tax-free threshold for multiple employers. The total tax withheld from their wages may then not be enough to cover their tax liability at the end of the income year. This also applies to people who have a regular part-time job and also receive a taxable pension or government allowance.

The ATO recommends that people who have more than one employer/payer at the same time should only claim the tax-free threshold from the employer who usually pays the highest salary or wage. The other payers will then withhold tax from your payments at a higher rate (the “no tax-free threshold” rate).

If the total tax withheld from of your employer payments is more than needed to meet your year-end tax liability, the withheld amounts will be credited to you when your income tax return is lodged, and you’ll get a tax refund. However, if the tax withheld doesn’t cover the tax you need to pay, you’ll have a tax debt and need to make a payment to the ATO.

Tip: If you have two or more incomes, for example from casual or contract jobs or because you get a pension and have part-time employment income, we can help you figure out your tax withholding arrangements and avoid a surprising bill at tax time.

Closely held payees: STP options for small employers

Small employers with closely held payees have been exempt from reporting these payees through single touch payroll (STP) for the 2019–2020 and 2020–2021 financial years. However, they must begin STP reporting from 1 July 2021.

Tip: STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO directly from their payroll or accounting software each time they pay their employees.

For STP purposes, small employers are those with 19 or fewer employees.

A closely held payee is an individual who is directly related to the entity from which they receive a payment. For example:

• family members of a family business;
• directors or shareholders of a company; and
• beneficiaries of a trust.

Small employers must continue to report information about all of their other employees (known as “arm’s length employees”) via STP on or before each pay day (the statutory due date). Small employers that only have closely held employees are not required to start STP reporting until 1 July 2021, and there’s no requirement to advise the ATO if you’re a small employer that only has closely held payees.

The ATO has now released details of the three options that small employers with closely held payees will have for STP reporting from 1 July 2021:

• option 1: report actual payments through STP for each pay event;
• option 2: report actual payments through STP quarterly; or
• option 3: report a reasonable estimate through STP quarterly – although there are a range of details and steps to consider if you take this option.

Tip: If your business will need to lodge through STP soon, we can help you find an easy and cost-effective STP-enabled solution, or we can lodge on your behalf. Whatever you choose, remember that STP reports can’t be lodged through ATO online services and isn’t a label on your BAS, so early preparation is needed.

ATO data-matching: JobMaker and early access to super

The ATO is kicking into gear in 2021 with another two data-matching programs specifically related to the JobMaker Hiring Credit and early access to superannuation related to COVID-19. While the data collected will mostly be used to identify compliance issues in relation to JobMaker and early access to super, it will also be used to identify compliance issues surrounding other COVID-19 economic stimulus measures, including JobKeeper payments and cash flow boosts.

As a refresher, the temporary early access to super measure allowed citizens or permanent residents of Australian or New Zealand to withdraw up to two amounts of $10,000 from their super in order to deal with adverse economic effects caused by the COVID-19 pandemic. The JobMaker Hiring Credit is a payment scheme for businesses that hire additional workers. Both measures have particular eligibility conditions to meet for access.

The ATO expects that data relating to more than three million individuals will be collected from Services Australia (Centrelink) for the temporary early access to super program, as well as data about around 450,000 positions related to JobMaker. Approximately 100,000 individuals’ data will also be collected from the state and territory correctional facility regulators.

While the data collected will primarily be used to verify application, registration and lodgment obligations as well as identify compliance issues and initiate compliance activities, the ATO will also use it to improve voluntary compliance, and to ensure that the COVID-19 economic response is providing timely support to affected workers, businesses and the broader community.

Super transfer balance cap increase from 1 July 2021

If you’re nearing retirement and have a large amount in your transfer balance account, it may be wise to delay until 1 July 2021 to take advantage of the upcoming pension transfer cap increase from $1.6 million to $1.7 million due to indexation.

At the time you first commence a retirement phase superannuation income stream, your “personal transfer balance cap” is set at the general transfer balance cap for that financial year.

Essentially, the transfer balance cap is a lifetime limit on the total amount of super that you can transfer into retirement phase income streams, including most pensions and annuities, so a larger cap amount means you can have a bit more money in your pocket throughout your retirement.

This cap amount takes into account all retirement phase income streams and retirement phase death benefit income streams, but the age pension and other types of government payments and pensions from foreign super funds don’t count towards it.

The ATO has confirmed that when the general transfer balance cap is indexed to $1.7 million from 1 July 2021, there won’t be a single cap that applies to all individuals. Rather, every individual will have their own personal transfer balance cap of between $1.6 million and $1.7 million, depending on their circumstances.

Tip: Commencing a pension is a complex area and care needs to be taken to get it right for a comfortable retirement. Talk to us today to find out how we can help.

Your Future, Your Super legislative changes

The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 has been introduced to Parliament to implement some of the “Your Future, Your Super” measures announced in the 2020–2021 Federal Budget. Treasurer Josh Frydenberg has said the measures are intended to save $17.9 billion over 10 years by holding underperforming super funds to account and strengthening protections around people’s retirement savings. The changes include:

• “stapling” your chosen super fund so it follows you when you change jobs, and you don’t end up paying fees for multiple accounts;
• requiring funds to pass an annual performance test, and report underperformance to fund regulators and members;
• strengthening trustees’ obligations to only act in the best financial interests of fund members; and
• creating an interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ super.

COVID-19 and FBT: updated ATO advice

The ATO has updated its COVID-19 and fringe benefits tax (FBT) advice, providing a useful outline of some issues that may arise due to an employer’s response to COVID-19.

Tip: Although the following summary deals with FBT specifically, it is worth thinking through the related income tax consequences. Contact us to find out more.

Working from home devices

Items provided to employees to allow them to work from home (or otherwise offsite) due to COVID-19 will usually be exempt from FBT if they are primarily used by employees for work.

Also, the minor benefits exemption or the otherwise deductible rule may apply if an employer:

• allows an employee to use a monitor, mouse or keyboard that they otherwise use in the workplace;
• provides them with stationery or computer consumables; or
• pays for their phone and internet access.

The minor benefits exemption may apply for minor, infrequent and irregular benefits under $300.

In addition, the otherwise deductible rule may allow an employer to reduce the taxable value of benefits by the amount that an employee can claim as a once-only deduction.

Garaging work cars at employees’ homes, and logbooks

Employers may have been garaging work cars at their employees’ homes due to COVID-19. There may not be an FBT liability depending on:

• the type of vehicle;
• how often the car is driven; and
• the calculation method chosen for car benefits.

Employees’ driving patterns may have changed due to the effects of COVID-19. If an employer uses the operating cost method, it may have an existing logbook. If so, the employer can still rely on this logbook to make a reasonable estimate of the business kilometres travelled. However, the employer can also choose to keep a new logbook that is representative of its business use throughout the year.

The issue of logbooks is also addressed in more detail in the COVID-19 and car fringe benefits fact sheet.

There is also a separate ATO fact sheet on these matters.

Emergency accommodation, food and transport

An employer will not have to pay FBT if it provides emergency accommodation, food, transport or other assistance to an employee where:

• the benefit is emergency assistance to provide immediate relief; and
• the employee is, or is at risk of being, adversely affected by COVID-19.

An employer will also not have to pay FBT for benefits that are considered “emergency assistance”.

Items that help protect employees from COVID-19

An employer may need to pay FBT on items it gives employees to help protect them from contracting COVID-19 while at work. These include gloves, masks, sanitisers and antibacterial spray.

The ATO says, however, that these benefits are exempt from FBT under the emergency assistance exemption if employers provide them to employees who:

• have physical contact with – or are in close proximity to – customers or clients while carrying out their duties; or
• are involved in cleaning premises.

Where employment duties are not of this kind, the minor benefits exemption may apply if an employer provides an employee with minor, infrequent and irregular benefits under the value of $300.

Emergency health care

There is a limited exemption from FBT if an employer provides emergency health care to an employee who us affected by COVID-19.

If an employer pays for its employee’s ongoing medical or hospital expenses, FBT applies. However, if an employer pays to transport an employee from the workplace to seek medical help, that cost is exempt from FBT.

Flu vaccinations for employees working from home

Providing flu vaccinations to employees is generally exempt from FBT because it is work-related preventative health care.

COVID-19 testing

COVID-19 testing also qualifies for the FBT exemption for work-related medical screening, under ceration conditions.

Cancelled events

An employer will not have to pay FBT if it is required to pay non-refundable costs for cancelled events that its employees were due to attend.

However, an employer may have to pay FBT if its employees were required to pay for their attendance at the cancelled event and the employer reimbursed them. This would be an expense payment fringe benefit – unless the otherwise deductible rule applies.

ATO updates on new JobKeeper arrangements

The ATO has also released an array of new and updated information sheets addressing the changes to JobKeeper. Here is a summary of some main points to consider.

Actual decline in turnover test

The ATO states that the actual decline in turnover test can be satisfied in two ways, using:

• the basic test; or
• the alternative test.

The basic test involves the comparison of actual GST turnover for the relevant comparison periods (eg September 2020 to September 2019). Generally, businesses will use the basic test. The option of an alternative test has been made available for some cases where the normal comparison period is not appropriate. There is also a modified basic test for group employer labour entities.

The actual decline test is similar to the “original” decline in turnover test, except that:

• it must be used for specific quarters only;
• actual sales made in the relevant quarter must be used, not projected sales, when working out GST turnover; and
• sales must be allocated to the relevant quarter in the same way a business would report those sales to a particular BAS (if registered for GST).

Decline in turnover tests

The ATO states that existing JobKeeper participants have already satisfied the original decline in turnover test, and do not need to satisfy it again. They do, however, need to satisfy the actual decline in turnover test.

New participants also need to satisfy the actual decline in turnover test. Although they need to satisfy the original decline in turnover test, they will satisfy it if they satisfy the actual decline in turnover test – and they can enrol on that basis.

Employers now unable to claim JobKeeper should notify their eligible employees. Employees should also be advised that the employer is no longer obligated to pay them the amount equivalent to JobKeeper. Those employees will not be eligible to be nominated for JobKeeper by any other entity.

There is no obligation to do monthly reporting during extension period in which an employer is not eligible to receive JobKeeper.

JobKeeper key dates

For the JobKeeper fortnights starting 28 September 2020 and 12 October 2020 only, the ATO is allowing employers until 31 October 2020 to meet the wage condition for all employees included in the JobKeeper scheme. In addition, to claim payment for the September JobKeeper fortnights, employers must have enrolled by 30 September.

80-hour threshold for employees

The ATO states that a full-time employee who has been employed for their full 28-day reference period will usually satisfy the 80-hour threshold.

However, closer examination may be required for eligible employees who are:

• part-time;
• long-term casual;
• not paid on an hourly basis; and/or
• stood down.

If an employee has been stood down, an alternative reference period may apply to them.

Any overtime performed by an employee in the course of their employment in their 28-day reference period will count towards the 80-hour threshold. It is the actual hours of overtime performed that count; that is, if a penalty rate loading applies, it does not increase the number of hours counted.

Eligible employees

Employers cannot claim for employees who:

• were first employed after 1 July 2020;
• left employment before 1 July 2020 (except in limited circumstances);
• have been, or have agreed to be, nominated by another employer (except in limited circumstances); or
• are casual employees, unless they were employed by the employer on a regular and systematic basis during the 12-month period that ended 1 July 2020.

If employees have multiple employers, they can usually choose which employer they want to be nominated by. However, if employees are long-term casuals and have other permanent employment, they must choose their permanent employer. They can’t be nominated for the JobKeeper payment by more than one employer.

Employers must also have given a JobKeeper employee nomination notice to any additional employees who first become eligible on or after 3 August 2020 using the 1 July test. This should have been given to any newly eligible employees by 24 August 2020. If not already done, the ATO says it should be done as soon as possible.

Extended COVID-19 support and relief measures

JobKeeper

The end date of the JobKeeper scheme has now been extended from 27 September 2020 to 28 March 2021, as announced by Prime Minister Scott Morrison on 21 July 2020. The relevant legislation also amends tax secrecy provisions in relation to JobKeeper and extends certain provisions of the Fair Work Act 2009 implemented in response to COVID-19.

From 27 September until March 2021, there will be a two-tiered JobKeeper payment:

• for the December quarter, payments will be reduced from $1,500 to $1,200 per fortnight per employee, or $750 for workers employed for less than 20 hours a week; and
• for the March quarter, payments will be $1,000 per fortnight, or $650 for workers employed for less than 20 hours a week.

The employment reference date has also been extended from 1 March to 1 July 2020 via a change in the statutory rules.

The law now requires that an eligible financial service provider issues a written certificate that relates to a specified employer, stating that the employer satisfied the 10% “decline in turnover test” for the designated quarter applicable to a specified time.

Coronavirus Supplement

The period for payment of the COVID-19 Supplement has now been extended from 25 September to 18 December 2020, but at the reduced rate of $250 per fortnight (down from $550). This measure was announced by Federal Treasurer Josh Frydenberg on 21 July 2020. A further instrument will be made to extend the COVID-19 Supplement from 19 December to 31 December 2020.

The income-free area is temporarily increased to $300 a fortnight for certain JobSeeker Payment recipients for the period 25 September 2020 to 31 December 2020, and the partner income taper rate for JobSeeker Payment recipients has been adjusted.

COVID-19 early release of super

As part of the Economic and Fiscal Update in July 2020, the Government announced that it would extend the application period to allow those dealing with adverse economic effects of COVID-19 to access up to $10,000 of their super (tax-free) for the 2020–2021 year. This has now been achieved, allowing an application via the myGov website to access $10,000 of super until 31 December 2020 (extended from 24 September).

Bankruptcy concessions and director liability safe harbour extension

The Government has announced that it will extend its temporary insolvency and bankruptcy protections until 31 December 2020. Federal Treasurer Josh Frydenberg said that regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

ASIC grants hardship relief for withdrawals from frozen funds

The Australian Securities and Investments Commission (ASIC) has announced new relief measures for operators of managed funds to facilitate withdrawals by members who are facing financial hardship during the COVID-19 pandemic.

The conditional relief will apply to all responsible entities (REs) of registered managed investment schemes (MIS) that have become “frozen funds”.

At times of extreme market volatility, some managed funds may need to suspend redemptions and freeze funds to protect the interests of the members as a whole. A fund is frozen when the responsible entity has suspended or cancelled redemptions to prevent withdrawals from destabilising their fund. When a fund is frozen members will generally not have access to their investments for a period of time. This does not necessarily mean that there has been a loss of asset value or that investors will not get their money back eventually.

The relief measures will ease some of the statutory restrictions on REs and improve access to investments by members who meet specific hardship criteria. REs will still have to act in the best interests of members.

Super choice of fund and enterprise agreements

With recent changes to Australia’s superannuation law, the “choice of super fund” regime now extends to employees covered by enterprise agreements and workplace determinations made from 1 January 2021.

Federal Treasurer Josh Frydenberg has said this will allow another 800,000 people to make choices about where their super guarantee contributions are invested, representing around 40% of all employees covered by a current enterprise agreement. The measure was originally announced as part of the Government’s response to the Murray Financial Services Inquiry (FSI) in October 2015.

Super guarantee amnesty now closed

The ATO has reminded employers that the superannuation guarantee (SG) amnesty closed on 7 September 2020. The amnesty enabled employers to self-correct historical SG underpayments, without incurring the normal penalties, for SG shortfalls from 1 July 1992 until 31 March 2018.

Any amnesty applications received by the ATO after 11:59pm on 7 September will not qualify for the amnesty and but instead will be treated as a standard lodgment of a super guarantee charge (SGC) statement.

The ATO will notify late applicants in writing of the quarters that aren’t eligible for the SG amnesty and charge the administrative component ($20 per employee per quarter), also considering whether to remit the additional SGC penalty (up to 200%). A minimum penalty of 100% will apply if the ATO subsequently commences an audit in respect of non-disclosed quarters covered by the amnesty.

The ATO will issue a notice of amended assessment with the increased SGC amount owing. Any SGC payments made after 7 September 2020 are not deductible, even if they relate to SG shortfalls disclosed under the amnesty.

To retain the benefits of the amnesty, the law requires an eligible employer to pay the outstanding SGC amount in full or enter into a payment plan with the ATO. Note that the SGC amount disclosed in an amnesty application must be paid to the ATO (not the employee’s super fund).

Amnesty payments made after 7 September 2020 are not deductible (including amounts paid under a payment plan after 7 September). If an employer is subsequently unable to maintain payments under a payment plan, the ATO will disqualify the employer from the amnesty and remove the amnesty benefits for any unpaid quarters.