JobKeeper guide – sole traders

Enrolment is now open for the government’s $130 billion JobKeeper Payment scheme. The scheme supports businesses significantly affected by the coronavirus to help keep more Australians in jobs.

Below is a guide published by the Australian Taxation Office specifically for Sole Traders. We recommend that you seek the advice from a professional tax agent to determine how the JobKeeper payment applies to your specific business.

Key dates


  • From 20 April: enrol for JobKeeper payment.
  • By 30 April: enrol and pay your employees to claim JobKeeper payments for April.
  • 4 May onwards: identify your employees.
  • Each month: reconfirm eligibility.
  • If you need more time, you have until the end of May to enrol and identify your employees.


How to prepare


  • Check you meet the eligibility requirements, including the turnover test. The turnover calculation is based on GST turnover. This applies even if an entity is not registered for GST.
  • Consider whether you will nominate an eligible business participant.
  • Get a myGov account linked to the ATO online services if you don’t already have one.
  • To use the Business PortalExternal Link you will need a myGovID linked to your ABN in Relationship Authorisation Manager (RAM). You can find out how to set this up at ato.gov.au/mygovid.
  • Your registered tax or BAS agent can enrol, identify and declare for JobKeeper on your behalf using Online service for agents.
  • If you find it difficult to interact with us online and don’t use a registered tax or BAS agent, you can call us for assistance.

If you have employees, you need to also complete the following:

  • Check your employees meet the eligibility requirements and for which JobKeeper fortnights. You must pay your eligible employees in each JobKeeper pay period to claim the JobKeeper payment for that period.
  • Re-hire or re-engage employees you let go or stood down as well as pay them if you want to claim the JobKeeper payment for them.
  • Send the JobKeeper employee nomination notice to all your eligible employees to complete and return to you by the end of April if you plan to claim JobKeeper payments for April 2020. Keep it on file and you may also provide a copy to your registered tax or BAS agent if you are using one.
  • You can create your own employee nomination notice if it is not practical to have each employee complete and return the ATO version to you. This will allow you to use your own portal or communication channel to obtain this information.
  • You need to pay each eligible employee at least $1,500 (before tax) per JobKeeper fortnight or a combined payment of $3,000 by the end of April. JobKeeper fortnights start from 30 March.


Step 1: Enrol for the JobKeeper payment


You only need to complete this step once.

  • Log into ATO online services via myGov, or in the Business Portal using myGovID.
  • In the Business Portal, Select ‘Manage employees’ then the link for the JobKeeper payment. Fill in the JobKeeper enrolment form by confirming the required fields.


Required fields

A fall in turnover: your business has experienced or is likely to experience a fall in turnover of at least 30%

Month: the month from which your business experienced the fall in turnover or expects to experience a fall in turnover

Expected number of eligible employees: if enrolling for April 2020, the number of expected eligible employees for each JobKeeper fortnight in April.

If your business doesn’t have any employees, leave these fields as ‘0’.

Sole trader: if you are enrolling to receive the JobKeeper payment as a sole trader

Contact and financial institution details: your financial institution and contact details for payment

Notify all your eligible employees you have nominated them. You must do this by the end of April to claim JobKeeper payments for April.


Step 2: Identify and maintain your eligible employees


You or your registered tax or BAS agent can:

  • identify each eligible employee that you will claim the JobKeeper Payment for, and
  • maintain their details each month.

You only need to complete the identify step once. However, you need to maintain the list monthly and advise of changes to your eligible employees.

  • If you are nominating yourself as the eligible business participant, log into ATO online services via myGov, or the Business Portal using myGovID and confirm your details. You cannot nominate if you are an employee of another employer (other than a casual).

How to identify your eligible employees

If you don’t have employees:

  • Log in to ATO online services via myGov, or the Business Portal using myGovID to confirm that you don’t have any employees to identify.

If you do have employees, you can identify your eligible employees in one of the following ways:

Directly into your payroll software by 30 April 2020

If you use STP enabled payroll software updated with JobKeeper functionality:

  • Update each eligible employee in your payroll software and lodge via your payroll software. Speak to your software provider to find out how.
  • Log in to ATO online services through myGov or the Business Portal using myGovID to confirm the number of eligible employees.

ATO online services using myGov or the Business Portal

Choose one of the following four options, depending on your circumstances.

1. If you use STP enabled payroll software that does not offer JobKeeper functionality and you have 200 employees or less
  • Log in to the ATO online services via myGov, or the Business Portal using myGovID.
  • Identify eligible employees for each JobKeeper fortnight.
    • Select eligible employees from a list of employees prefilled from your STP pay reports.
    • Add up to 40 employees that are potentially eligible but not prefilled, if required.
     
2. If you don’t have STP enabled payroll software and you have 40 employees or less
  • Log in to ATO online services via myGov, or the Business Portal using myGovID.
  • Identify eligible employees for each JobKeeper fortnight by entering their tax file number and date of birth.
3. If you don’t have STP enabled payroll software and you have more than 40 employees
4. If you use STP enabled payroll software that does not offer JobKeeper functionality and you have more than 200 employees
  • Manually create a JobKeeper allowance in your STP enabled payroll software (refer to your payroll software provider for details) and lodge a pay report to the ATO via your software.

Alternatively, you can either:

  • Ask us for a prefilled JobKeeper report via the Business Portal Transfer file functionality. You will need to identify your eligible employees in this report and return the report to us via file transfer.
  • Alternatively you can use the JobKeeper Payment Guide sample payload files – Blank file (XLS, 11KB)This link will download a file and Example file (XLS, 11KB)This link will download a file – to produce your own JobKeeper report and provide it back to the ATO by uploading via the Business Portal Transfer file function.


Step 3: Make a business monthly declaration


Each month, you must reconfirm the eligibility of your business and your reported eligible employees.

You must also provide information as to your current and projected GST turnover. This is not a retest of your eligibility, but rather an indication of how your business is progressing under the JobKeeper Payment scheme.

You or your registered tax or BAS agent can make the business monthly declaration.

Each month:

  • Log in to ATO online services via myGov, or the Business Portal using myGovID to
    • provide your current and projected GST turnover
    • re-confirm your contact and bank details for payment.
     

If you have employees, you will also need to:

  • ensure you have paid your eligible employees at least $1,500 per eligible employee per fortnight.
  • review the number of eligible employees for each JobKeeper fortnight
  • update your eligible employees if any of your eligible employees change or leave your employment.

The JobKeeper Payment Scheme



The JobKeeper payment is open to eligible employers to enable them to pay their eligible employee’s salary or wages of at least $1,500 (before tax) per fortnight.

Eligible employers will be reimbursed a fixed amount of $1,500 per fortnight for each eligible employee.



Employers, the key dates and key actions over the next few weeks to receive the JobKeeper payment are crucial! 

The objective?

  • Get the cash,
  • Get it as quickly as possible, and
  • Get it right

In order to achieve this the following “Get Ready” instructions will assist in ensuring that this can be achieved;

“Get Ready” Instructions

  1. Check if you, as an employer, and your nominated employees meet the eligibility requirements.
  2. Notify eligible employees that you (their employer) intend to participate in the JobKeeper scheme.
  3. Send your eligible employees the JobKeeper Employee Nomination Notice to complete and return by end of April to confirm that they agree to you being nominated as the employer to receive JobKeeper payments from. Do this ASAP.
  4. Keep the Employee Nomination Form on file for five years and provide a copy to your registered tax agent if you use one.
  5. Continue to pay the minimum $1,500 before tax to each eligible employee per JobKeeper fortnight. The first fortnight starts on 30 March and ends on 12 April. Alternatively, you can make one combined payment of $3,000 for the first two fortnights paid by end of April 2020. Eligible employees must have been paid $1,500 per fortnight in order to receive the JobKeeper payment. In some cases, such payment may be more than the employee’s current salary.
  6. Enrol (register) for JobKeeper online from 20 April using the Business Portal and authenticate with myGovID. You must do this by no later than the end of April to claim JobKeeper payments for April.
  7. In the online form, provide your bank details and indicate if you are claiming an entitlement based on business participation, for example if you are a sole trader.
  8. Apply for the JobKeeper payment using the application form on the ATO Business Portal (this will be available from 4 May 2020 onwards).

Employers need to be aware of the work involved and their obligations in respect to the JobKeeper Payment scheme including;

  • Eligibility assessment (initial)
  • Documentation & registration
  • Monthly reporting
  • Ongoing employee eligibility

What happens if I get it wrong?

If you claim the JobKeeper subsidy and whether you or the employee was not eligible, the Tax Commissioner can claw back any ineligible payments made.

In addition, general interest charges apply. If you have paid employees the $1,500 amount only to find you or they are not eligible, there is no recourse to claw back these payments to employees.

It is therefore strongly recommended that you seek professional advice if you have any questions or concerns in respect to the JobKeeper Payment scheme. Please feel free to contact MMT Accountants & Advisers should you require assistance.

The 2nd $66.1bn Stimulus Package: What you need to know

The stimulus measures are not yet legislated. Parliament is in session today.

The Prime Minister has warned that there are no “quick solutions” and that business should prepare for 6 months of disruption.

In Summary

Business

  • Tax-free payments up to $100,000 for small business and not-for-profit employers. An increase in the previously announced initial tax-free payments for employers to a maximum of $50,000. In addition to this, a second round of payments will be made up to a maximum of $50,000, accessible from July 2020. 
  • Solvency safety net – temporary 6 month increase to the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000, and an increase in the time companies have to respond from 21 days to 6 months. Directors also are provided with temporary relief from personal liability for trading while insolvent for 6 months.
  • Access to working capital – Introduction of a Coronavirus SME guarantee scheme protecting financial institutions by guaranteeing 50% of new loans to SMEs.
  • Sole traders and self-employed eligible for Jobseeker payment – the eligibility criteria to access income support relaxed for the self-employed and sole traders.
  • Temporary relief from some Corporations Act requirements
  • Early release of superannuation – individuals in financial distress able to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The withdrawals will be tax-free and will not affect Centrelink or Veterans’ Affairs payments.
  • Temporary reduction in minimum superannuation draw down rates – superannuation minimum drawdown requirements for account based pensions and similar products reduced by 50% in 2019-20 and 2020-21.
  • Deeming rates reduced – from 1 May, superannuation deeming rates reduced further to a lower rate of 0.25% and upper rate of 2.25%.
  • Supplements increased, access extended and eased– for 6 months from 27 April 2020:
    • A temporary coronavirus supplement of $550 will be paid to existing income support recipients (people will receive their normal payment plus $550 each fortnight for 6 months).
    • A second one-off stimulus payment of $750 will be paid automatically from 13 June 2020 to certain income support recipients (in addition to the payment made from 31 March 2020).
    • Eligibility for access to income support eased to include sole traders and the self-employed, and to those caring for someone infected or in isolation.
    • Waiting periods and assets tests temporarily waived.  
  • Bankruptcy safety net – temporary 6 month increase to the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor from $5,000 to $20,000.

The Government has flagged that additional stimulus packages will be required. 


Support for business

Tax-free payments up to $100,000 for employers

  • From: 28 April 2020
  • Eligibility: Small and medium business entity employers and not-for-profit entities, with an aggregated annual turnover under $50 million.

The Government has increased the previously announced measures to provide cash flow support to business. 

Now, eligible businesses with a turnover of less than $50 million will initially be able to access tax-free cash flow support, with the minimum amount being increased to $10,000 and the maximum amount increased to $50,000 (previously $2,000 to $25,000). However, additional support will be provided in the July – October 2020 period so that eligible entities will receive total minimum support of $20,000 and up to $100,000. 

In order for a business to qualify for this support it must have been established prior to 12 March 2020. The rules are more flexible for charities because the Government recognises that new charities might be established in response to the pandemic. 

The cash flow support measures will be provided in the form of a credit in the activity statement system. The support will be provided in two phases. 

  • The first phase ensures that eligible employers receive a credit equal to 100% of the PAYG amounts withheld from salary and wages paid to employees during the relevant period, up to the maximum amount of $50,000.
  • The second phase ensures that eligible employers receive another series of credits, equal to the credits that were received under the first phase. For example, if a business received $40,000 of credits in the first phase it will receive a further $40,000 of credits in the second phase. These additional credits will be spread over two or four activity statement periods, depending on whether the employer lodges on a quarterly or monthly basis.

If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $10,000 will be made in the first phase and a further payment of $10,000 will be made in the second phase. 

The credits are automatically calculated by the ATO and employers will need to lodge an activity statement to trigger the entitlement. If the credit puts the business in a refund position the excess amount will be refunded by the ATO within 14 days.

Businesses that lodge activity statements on a quarterly basis will be eligible to receive credits in the first phase for the quarters ending March 2020 and June 2020. Credits in the second phase will be available for the quarters ending June 2020 and September 2020. The minimum $10,000 payment will be applied to the first lodgement. 

Business that lodge on a monthly basis will be eligible for the credits in the first phase for the March 2020, April 2020, May 2020 and June 2020 lodgements. Credits in the second phase will be available for the June 2020, July 2020, August 2020 and September lodgments. The minimum $10,000 payment will be applied to the first lodgement. 

Eligibility for the measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.

Not-for-profit employers, including charities, with an aggregated turnover under $50 million will also be able to access the cash flow support. 

Solvency safety net

A safety net has been put in place to protect businesses in temporary financial distress as a result of the pandemic by lessening the threat of actions that could unnecessarily push them into insolvency and force the winding up of the business. These include: 

  • A temporary 6 month increase to the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000.
  • The time a company has to respond to statutory demands will increase from 21 days to 6 months.
  • For 6 months, directors will be provided with temporary relief from personal liability for trading while insolvent.
  • See also bankruptcy safety net below

It will be more important than ever for business to stay on top of their debtors.

Debts incurred will still be payable by the business. Only those debts incurred in the ordinary course of the business will be subject to the safety net measures. 

Access to working capital for SMEs – supporting lenders

The Government has announced a Coronavirus SME guarantee scheme that will guarantee 50% of new loans to SMEs up to $20 billion. These loans are new short-term unsecured loans to SMEs. 

SMEs with a turnover of up to $50 million will be eligible to receive these loans. 

The Government will provide eligible lenders with a guarantee for loans with the following terms:

  • Maximum total size of loans of $250,000 per borrower.
  • The loans will be up to three years, with an initial six month repayment holiday.
  • The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.

Loans will be subject to lenders’ credit assessment processes with the expectation that lenders will look

through the cycle to sensibly take into account the uncertainty of the current economic conditions.

This latest measure builds on the previous initiatives to ensure small business can access capital, including:

Sole traders and self-employed eligible for Jobseeker payment

The eligibility criteria to access income support payments will be relaxed to enable the self-employed and sole traders whose income has been reduced, to access support.

More:

Temporary relief from Corporations Act requirements

The Treasurer has been given a temporary instrument-making power to amend the Corporations Act to provide relief or modifications to specific compliance obligations. 

ASIC has announced measures for those companies with a 31 December financial year that need to hold their AGMs by 31 May 2020, providing a two month no action period and enabling hybrid virtual AGMs.


Individuals

Early release of superannuation

From mid-April, individuals in financial distress will be able to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The withdrawals will be tax free and will not affect Centrelink or Veterans’ Affairs payments. 

To be eligible to access your superannuation you need to meet the following requirements:

  • you are unemployed; or
  • you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  • on or after 1 January 2020:
    • you were made redundant; or
    • your working hours were reduced by 20% or more; or
    • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20% or more.

For those eligible to access their superannuation, you can apply directly to the ATO through the myGov website. 

More:

Temporary reduction in minimum superannuation draw down rates

Superannuation minimum drawdown requirements for account-based pensions and similar products will be reduced by 50% in 2019-20 and 2020-21. 

AgeDefault minimum drawdown rates (%)Reduced rates by 50 per cent for the 2019-20 and 2020-21 income years (%)
Under 6542
65-7452.5
75-7963
80-8473.5
85-8994.5
90-94115.5
95 or more147

The upper and lower social security deeming rates will be reduced further. As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate 0.25%. 

More:

Time limited fortnightly $550 ‘coronavirus supplement’

For the next 6 months, the Government is introducing a new Coronavirus supplement to be paid at a rate of $550 per fortnight. This supplement will be paid to both existing and new recipients in the eligible payment categories. 

The payment will be made to those receiving:

  • Jobseeker payment (and those transitioning to the jobseeker payment)
  • Youth allowance jobseeker
  • Parenting payment
  • Farm household allowance
  • Special benefits recipients

In addition, eligibility to income support payments will be expanded to:

  • Permanent employees who are stood down or lose their job
  • Casual workers
  • Sole traders
  • The self-employed
  • Contract workers who meet the income test

The Government notes that these criteria could include those required to care for someone affected by the Coronavirus.

Asset testing has also been reduced and will be waived for 6 months. Income testing will still apply.

The payment is not available if you have access to any employer entitlements such as annual or sick leave or income protection insurance. 

More:

Second $750 payment to households

The Government is now providing two separate $750 payments to social security, veteran and other income support recipients and eligible concession card holders residing in Australia (see the full list here). The payment will be exempt from taxation and will not count as income for the purposes of Social Security, Farm Household Allowance and Veteran payments. 

  • Payment 1 from 31 March 2020 (previously announced on 12 March): Available to people who are eligible payment recipients and concession card holders at any time between 12 March 2020 to 13 April 2020;
  • Payment 2 from 13 July 2020: Available to people who are eligible payment recipients and concession card holders on 10 July 2020. 

The payments will be made automatically to those that meet the criteria. 

More:

Bankruptcy safety net

A temporary 6 month increase to the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will increase from $5,000 to $20,000. In addition, the time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months. 

Where someone declares their intention to enter voluntary bankruptcy, the period of protection from unsecured creditors will be extended from 21 days to 6 months.

More:

More information:

The Stimulus Package: What You Need To Know

The Government has announced a $17.6 billion investment package to support the economy as we brace for the impact of the coronavirus.

The yet to be legislated four part package focuses on business investment, sustaining employers and driving cash into the economy.

For business

Business investment

1. Increase and extension of the instant asset write-off
2. Accelerated depreciation deductions

Cash flow assistance for small and medium sized business

1. Tax-free payments up to $25,000 for employers
2. Wage subsidy of up to 50% of an apprentice or trainee wage

Targeted support for severely affected sectors, regions and communities

For individuals

Household stimulus payments to drive cash into the economy

1.  Tax-free $750 payment to social welfare recipients

Parliament sits on 23 March. The Prime Minister has stated, “we have no plans to change the parliamentary sitting schedule.”

Here’s what we know so far:

Business investment

Increase and extension of the instant asset write-off

om 12 March 2020, the instant asset write-off threshold will increase from $30,000 to $150,000, and access to the write-off will be expanded to include businesses with aggregated annual turnover of less than $500 million until 30 June 2020.

The instant asset write-off is a tax deduction that reduces the tax liability of your business. It enables your business to claim an upfront deduction for depreciating assets in the year the asset was purchased and used (or installed ready to use). For example, if your business is a base rate entity (turnover under $25m) in a company structure you will get back 27.5% in your 2019-20 company return if the company acquires an asset that is used by 30 June 2020. If your business is likely to make a tax loss for the year, then the instant asset write-off is unlikely to provide a short-term benefit to you.

This is the fourth increase or extension to the instant asset write-off and businesses will need to be wary of what they are claiming and when:

Instant asset write-off thresholds Small Business* Medium business** Large business***
1 July 2018 – 28 January 2019 $20,000
29 January – 2 April $25,000
2 April – 12 March 2020 $30,000 $30,000
12 March  – 30 June 2020 $150,000 $150,000 $150,000

* aggregated turnover under $10 million

** aggregated turnover under $50 million

***aggregated turnover under $500 million

Assets will need to be used or installed ready for use from when the changes were announced on 12 March 2020 until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for one of the other thresholds. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify.

The instant asset write-off only applies to certain depreciable assets such as a concrete tank for a builder, a tractor for a farming business, and a truck for a delivery business. You will also need ensure that there is a relationship between the asset purchased by the business and how the business generates income. You can’t for example just go and purchase multiple television sets if they have no relevance to your business.

There are some assets that don’t qualify such as horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.

What businesses can access the instant asset write-off

To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right). It also needs to have an aggregated turnover under $500 million. Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

  • You control or are controlled by that entity; or
  • Both you and that entity are controlled by the same third entity.

Accelerated depreciation deductions

In addition to the increased instant asset write-off rules, accelerated depreciation deductions will apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.

Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of the asset in the year of purchase. They can also claim a further deduction in that year by applying the normal depreciation rules to the balance of the asset’s cost. This will presumably only be relevant if the business cannot already claim an immediate deduction for the full cost of the asset.

For example, let’s assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2021 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation that would have arisen on the balance of the cost. If the business is a small business entity and using the simplified depreciation rules, this would mean an additional deduction of $18,750 (i.e., 15% x $125,000). The total deduction in the 2021 tax return would be $143,750. Without the introduction of this investment incentive the business would have claimed a deduction of $37,500 (i.e., 15% x $250,000).

This incentive will only be available in relation to new assets that are acquired after 12 March 2020 and are first used or installed ready for use by 30 June 2021. It will not apply to second-hand assets or buildings and other capital works expenditure.

Cash flow assistance for small and medium sized business

Tax-free payments up to $25,000 for employers

Tax-free cash flow support between $2,000 and $25,000 will be available to eligible businesses with a turnover of less than $50 million that employ staff between 1 January 2020 and 30 June 2020.

This is not a direct cash payment but a credit equal to 50% of the PAYG amounts withheld from salary and wages paid to employees. The employer will need to lodge an activity statement to trigger the entitlement. If the credit puts the business in a refund position the excess amount will be refunded by the ATO within 14 days.

If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $2,000 will still be made.

Businesses that lodge activity statements on a quarterly basis will be eligible to receive the credit for the quarters ending March 2020 and June 2020. Business that lodge on a monthly basis will be eligible for the credit for the March 2020, April 2020, May 2020 and June 2020 lodgments. The minimum $2,000 payment will be applied to the first lodgement.

Eligibility for the measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.

Wage subsidy of up to 50% of an apprentice or trainee wage

Eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. The payments are accessible to businesses with less than 20 employees. Employers will receive up to $21,000 per apprentice ($7,000 per quarter).

Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice.

In order to qualify for this payment the apprentice or trainee must have been in training with the business as at 1 March 2020. Employers of any size and Group Training Organisations that re-engage an eligible out-of-trade apprentice or trainee will also be eligible for the subsidy.

It is expected that employers will be able to register for the subsidy from early April 2020. Final claims for payment must be lodged by 31 December 2020.

Targeted support for severely affected sectors, regions and communities

$1 billion has been committed to support sectors, regions and communities disproportionately affected by the economic impact of the coronavirus. Tourism, agriculture and education are specifically mentioned.

Initial measures include:

  1. Waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and Commonwealth National Parks
  2. Additional assistance to help businesses identify alternative export markets or supply chains
  3. Measures to promote domestic tourism

Further plans and measures will be developed with the affected industries and communities.

Administrative relief for certain tax obligations will also be provided, including deferred tax payments up to four months. The ATO will establish a temporary shop front in Cairns within the next few weeks to support the region’s small businesses. Other initiatives to bring support to the communities are being considered.

Household stimulus payments to drive cash into the economy

Tax-free $750 payment to social welfare recipients

A one-off, $750 cash payment will be made to pensioners, social security, veteran and other income support recipients and eligible concession card holders. Payments will be from 31 March 2020 on a progressive basis, 90% are expected to be made by mid-April.

The payment will be tax-free and will not count as income for Social Security, Farm Household Allowance and Veteran payments.

There will be one payment per eligible recipient even if they qualify in multiple ways.

Casual employees able to access the Newstart ‘sickness payment’

While not part of the stimulus package, the Prime Minister has stated that casual employees required to self-isolate or who contract the coronavirus will be eligible for a sickness payment (jobseeker payment) through Newstart. The normal waiting period for this payment will be waived.

We’ll bring you more details as soon as they become available.

The main residence exemption changes – will you pay tax on your home?

CGT and the family home: expats and foreigners excluded from tax exemption.

Late last year, legislative changes were made that exclude non-residents from accessing the main residence exemption. The retrospective changes directly impact foreigners and expats whose main residence is in Australia or overseas. We explore the impact.

Key points

  • Non-residents for tax purposes excluded from the main residence exemption from 9 May 2017
  • Transitional rules allow non-residents to sell their property and access the main residence exemption under the previous rules (if they held the property continuously from 9 May 2017).
  • An exclusion applies where the taxpayer has been a non-resident for 6 years or less and a ‘life event’ occurs, such as death.

CGT and the main residence exemption

Capital gains tax (CGT) applies to gains you have made on the sale of capital assets. Unless an exemption or exclusion applies, or you can offset the tax against a capital loss, any gain you made on an asset is taxed at your marginal tax rate. The tax triggers when a ‘CGT event’ occurs. For residential property, the ‘CGT event’ is generally the date the contract is signed.

The main residence exemption prevents CGT applying to your family home (the home you treat as your main residence). If the home was your main residence for only part of the time you owned it, or if you use your home to produce income (for example, you use part of the home as business premises or rent out part of the property), then a partial exemption may be available. In addition, if you move out of your home and you don’t claim any other residence as your main residence, then you can continue to treat the home as your main residence for up to six years if you rent it out, or indefinitely if you don’t rent it out (the ‘absence rule’).

Previously, the main residence exemption was available to individuals who were residents, non-residents, and temporary residents for tax purposes.

The new rules

If you would have been able to access the main residence exemption under the prior rules, and have been a foreign resident for six years or less, there is a limited exclusion to the new rules where certain ‘life events’ occur.

A ‘life event’ is generally:

-Your death or the death of your spouse or child (under 18 years)
-Terminal illness of you, your spouse or your child
-Marriage breakdown and divorce

Under these circumstances, the taxpayer is able to access the main residence exemption.  For example, if you or your spouse dies while living overseas, it has been six years or less since you became a non-resident, and the property is treated as your main residence.

After six years however, the main residence exemption will not apply. That is, if you have been a foreign resident for tax purposes for more than six years, you or your beneficiaries cannot access the main residence exemption once the transitional period has ended unless you move back to Australia and become a resident again before the CGT event occurs. 

The transitional rules until 30 June 2020

Transitional rules are in place for non-resident taxpayers who would have been able to access the main residence exemption prior to the changes. The transitional rules enable someone who held property continuously from 9 May 2017 to apply the existing rules if the CGT event occurs on or before 30 June 2020. This gives non-residents a limited period of time to sell their property and obtain some tax relief under the main residence rules.

Exclusions to the new rules

If you would have been able to access the main residence exemption under the prior rules, and have been a foreign resident for six years or less, there is a limited exclusion to the new rules where certain ‘life events’ occur.

A ‘life event’ is generally:

-Your death or the death of your spouse or child (under 18 years)

-Terminal illness of you, your spouse or your child

-Marriage breakdown and divorce

Under these circumstances, the taxpayer is able to access the main residence exemption.  For example, if you or your spouse dies while living overseas, it has been six years or less since you became a non-resident, and the property is treated as your main residence.

After six years however, the main residence exemption will not apply. That is, if you have been a foreign resident for tax purposes for more than six years, you or your beneficiaries cannot access the main residence exemption once the transitional period has ended unless you move back to Australia and become a resident again before the CGT event occurs. 

Who is an Australian resident for tax purposes?

Working out whether or not you are a resident of Australia for tax purposes can be difficult as it requires the exercise of judgement rather than applying a single ‘black and white’ test. Many people believe it is just a matter of how much time you spend out of the country but this is not always the case. There are four tests that are used to work out your residency status:

Resides test – The first test looks at whether you reside in Australia. For example, are you moving out of the country permanently and migrating, or just moving away for a while? The actions you take help determine this test. For example, do you appear to have cut your ties with Australia (sold your furniture as opposed to being in storage, closed memberships, etc.,)

Domicile test – The second test looks at your where you are living and where you have your permanent home. Someone who was born or migrated to Australia will generally retain their Australian domicile unless they leave Australia permanently. Someone with an Australian domicile will be treated as a resident for tax purposes unless they can show that their permanent home is overseas. There are a range of factors to consider in order to determine whether someone’s permanent home is overseas. For example, is your home overseas permanent or temporary (like a hotel)?

183 day test – Assuming you are not already considered to be an Australian resident by the other tests, the 183 day test looks at how long you are physically present in Australia during a particular income year.

Superannuation test – If you are a current member of certain superannuation funds covering Commonwealth Government employees then you will generally be considered a resident for tax purposes regardless of how long you intend to live overseas.

The residency tests can be confusing. If you are uncertain, you should seek advice to clarify your position.

Common questions

I have been living overseas for the last 5 years for work. I am a non-resident for tax purposes but my main residence is in Australia. My house, which I bought in 2005, is being rented out while I am overseas. Now what?

If you own a property in Australia that used to be your main residence, you can use the absence rule to maintain the exempt status of your property just in case you decide to return to Australia. When you return permanently to Australia and decide to sell, you may be able to access the main residence exemption (or a partial exemption). If you rent out your property while you are away, the absence rule allows you to treat the property as your main residence for up to six years.

If you sell the property while you are a non-resident, you will no longer be entitled to the main residence exemption or a partial exemption unless you enter into a contract and sell the property prior to 30 June 2020. Similarly, if you die while overseas, and your home is sold within two years of the date of your death, it’s unlikely that your beneficiaries will be able to claim all or part of the main residence exemption.

If you intend to return to Australia and become a resident again at some point, there is no change to your position as a result of the new rules. If you remain overseas but enter into a contract to sell prior to 30 June 2020, your position is also unchanged under the transitional rules.

If you remain a foreign resident and sell the property after 30 June 2020, you will not be able to access the main residence exemption in part or in full.

My mother lives overseas after retiring four years ago and is a non-resident for tax purposes. The family home in Australia is her main residence. My sister is living in the home rent free. What happens if my mother dies? Can my mother gift the home to her children now and still access the main residence exemption?

After 30 June 2020, if your mother is a foreign resident for six years or less at the time she passes away, the main residence exemption she accrued continues to be available to the trustee or beneficiaries of the deceased estate that inherit the property.

If the trustee or beneficiaries sell the property within two years of your mother’s death, then the main residence exemption accrued by the deceased applies. If the property is sold more than two years after the date of death then the position is more complex.

If your mother passes away and was a non-resident for tax purposes for more than six years, then the main residence exemption she accrued does not pass to the estate or beneficiaries. However, if your sister inherits all or part of the property and continues to be her main residence then a partial exemption may apply on future sale if she is a resident of Australia at the time of the CGT event.

If your mother gifts the property to her children prior to 30 June 2020 then it may be possible to apply a full exemption under the main residence rules depending on the situation. If the property is transferred to the children after 30 June 2020 then the exemption won’t be available at all.

CGT and the family home: expats and foreigners targeted again

The Government has resurrected its plan to remove access to the main residence exemption for non-residents – a move that will impact on expats and foreign residents.

Back in the 2017-18 Federal Budget, the Government announced that it would remove the ability for non-resident taxpayers to claim the main residence exemption. The unpopular measures were introduced into Parliament but stymied. An election later, a recomposition of Parliament, and the Government has again introduced the reforms but in a modified form.

The proposed changes would apply from the original Budget announcement date back on 9 May 2017, so could impact on properties that have already been sold. However, a transitional rule would allow CGT events happening up to 30 June 2020 to be dealt with under the existing rules as long as the property was held continuously from before 9 May 2017 until the CGT event. That is, if you held a property from 9 May 2017 up until the sale date, the existing rules might continue to apply.

If the measures pass Parliament, a non-resident taxpayer would be prevented from applying the main residence exemption to the sale of a property, regardless of whether they were a resident of Australia for some or most of the ownership period.

For expats, there is a proposed exception to the new rules for situations where the individual has been a non-resident for 6 years or less and a specific life event occurred during the period of foreign residency. The life events refer to terminal medical conditions suffered by the individual or certain family members, the death of certain family members or a marriage of de facto relationship breakdown. That is, if you were working overseas for 5 years and your spouse died during this time, the exemption could still potentially apply to your Australian former main residence.

For non-resident individuals, there will be a significant flow-on impact if the legislation passes Parliament as:

-They will miss out on a full or partial exemption under the main residence rules;

-They will generally be taxed at non-resident rates (i.e., no or only partial tax-free threshold)

-The CGT discount percentage could be less than 50%

-The cost base reset rules which sometimes apply to provide an uplift in the cost base of the property to its market value at the time it is first rented out are unlikely to apply

-The foreign resident withholding rules could impact on the cash flow position of the vendor

Currently, individuals are generally not subject to capital gains tax (CGT) on the sale of the home they treat as their main residence. If the home was your main residence for only part of the ownership period or if the home is used to produce income (for example, you use part of the home as business premises or rent out part of the property), then a partial exemption may be available. In addition, if you move out of your home and you don’t claim any other residence as your main residence, then you can continue to treat the home as your main residence for up to six years if you rent it out or indefinitely if you don’t rent it out (the ‘absence rule’)

The main residence exemption is currently available to individuals who are residents, non-residents, and temporary residents for tax purposes.

Black Friday and Cyber Monday sale concepts hit Australia

Australia embraces Black Friday and Cyber Monday

The Black Friday and Cyber Monday sale concepts have well and truly arrived in Australia with retailers embracing this latest retail event to stimulate what has been an economically lack lustre year.

Why ‘Black Friday’?

For many Australians, Black Friday is just confusing – shouldn’t Black Friday’ be on Friday 13th? In the US, the Black Friday sales follow Thanksgiving in a similar way to the Australian Boxing Day sales. The Black Friday sales also lay a clear runway to Christmas, stimulating consumer spending. The story behind the name Black Friday is hotly contested. In the US, the use of the name ‘Black Friday’ was first used for the gold market crash on 24 September 1869. The crash was engineered by financier Jay Gould and railway magnate James Fisk amongst others, when an attempted play to drive up the price of gold unravelled. The pair sought to corner the market in loose gold using political influence to keep Government gold off market, driving up the price from $100 to $163.50. However, when the Government recognised the

scheme, it placed $4 million in-specie on the market. The price of gold plummeted to $133 with the ensuing panic spreading to the rest of the market. Gould, who secretly sold much of his gold stocks on the high, did better than Fisk who lost much of his investment.

The use of Black Friday in a retail context appears to have come out of Philadelphia, where the police used the term for the general craziness created by the crowds swelling the city’s population for the post-Thanksgiving Day sales and in preparation for the Army-Navy football game on the Saturday. Stretched to their limits the police could not take the day off and worked long shifts, thus it was a black day on their calendar.

The widespread use of Black Friday to describe a shopping sales event was at some point in the 1980s with PR spin turning the story into a positive economic event. The story goes that struggling retailers went from being ‘in the red’ throughout the year to ‘in the black’ following the boost in sales in the period between Thanksgiving and Christmas. When accounting was documented by hand, the black in black Friday was said to be from the black ink staining the fingers of the accountants.

And now Black Friday is in Australia, adding another event to give consumers a reason to spend. We now jump from one retail event to the next with Easter eggs and hot cross buns appearing almost immediately after Christmas, with a quick foray into Valentine’s Day in between, then a sea of pink for Mothers’ Day before the big red signs come out for the EOFY sales. Post the last minute sales rush of the end of financial year, we have Fathers’ Day, now Halloween, before the Christmas decorations go up and the Christmas carols go on a 24/7 rotation.

From a retail perspective, and to hijack Voltaire’s famous quote, if Christmas did not exist, it would be necessary to invent it.

The rise and rise of online shopping

1.  Tax-free $750 payment to social welfare recipients

Black Friday and Cyber Monday are online focussed events (although anyone who fought the shopping centre on Friday, 29 November would hotly contest this).

Australia Post’s recent 2019 eCommerce Industry Report states that in 2018, the five weeks from 11 November to 15 December accounted for almost 15% of all eCommerce transactions. The peak for this period was Black Friday / Cyber Monday, which was the biggest online shopping week in Australia’s history, recording strong growth of over 28% from the previous year.

In general, more than 73% of Australian households shopped online in 2018. Group CEO Christine Holgate said, “Almost three quarters of all Australian households are now shopping online and we expect that around 12% of all consumer spending will be conducted online by 2021.”

eCommerce in Australia is growing rapidly, with online spend reaching 10% of total retail sales in 2018, two percentage points higher than the previous year. Australians spent $27.5 billion buying goods online, an increase of 24.4% year on year.

The number of online purchases grew by more than 13% year on year in every State and Territory, with the national average growing over 20%.

Services such as Afterpay have also taken away the pain point for consumers deciding whether or not to make a purchase (without the debt loading of traditional credit card arrangements). Afterpay reported $4.3 billion in underlying sales through its platform in 2018-19 with a loyal client base entrenching the service as a habit.

While the rise of eCommerce sounds impressive, this growth does not necessarily represent economic growth. Much of the expansion of online shopping is an alternative to physical shopping and a reflection of a market shift towards consumer preferences. Growth in retail spending has been steady at a low rate, but rising prices have implied that the volume of retail sales declined over the year to the September quarter.

5 things that will make or break your business’s Christmas

The countdown to Christmas is now on and we’re in the midst of the headlong rush to get everything done and capitalise on any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. This dislocation and volatility mean that it is not ‘business as usual’ and for many businesses, it is the change that causes the problem.

Most business owners cope well with consistent trading conditions, where trading and business conditions are predictable as are the solutions to issues that arise, but it is a different story during periods of disruption. Here are some things to watch out for:

1. Ho, Ho, No. The trading stock headache.

If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season or you will have too much cash tied up in trading stock. Try to work with suppliers who can supply on short notice. Better yet, see if some of your suppliers will supply you on consignment where you only pay them once the stock is sold. It might be better to miss a few sales than carry a trading stock headache into the New Year.

Managing your trading stock is not just about managing cost, consumers will go online if they cannot find what they need in store. Some savvy retailers are capitalising on this with opportunities to purchase online while instore if stock is not available or providing free shipping codes.

2. The discounting trend

Consumers now expect a bargain and can generally find one. The attraction of the Black Friday sales is that stock is generally available. Those waiting for bargains in the week immediately prior to Christmas, can only choose from what’s left.

If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today’s market) needs a 500% increase in sales volume simply to maintain the same position. The result generally is that often businesses trade below their breakeven point and generate losses. So, think carefully about your strategy and what you can sustain.

3. The Christmas cost hangover

Consumers now expect a bargain and can generally find one. The attraction of the Black Friday sales is that stock is generally available. Those waiting for bargains in the week immediately prior to Christmas, can only choose from what’s left.

If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today’s market) needs a 500% increase in sales volume simply to maintain the same position. The result generally is that often businesses trade below their breakeven point and generate losses. So, think carefully about your strategy and what you can sustain.

4. New Year cash flow crunch

The New Year often leads into a quieter trading and tighter cash flow period. The March quarter tends to be the toughest cash flow quarter of the year. You will need a cash buffer going into the New Year. Don’t over commit yourself in the run up to year end and end up in trouble in the New Year.

5. Take a lesson from Scrooge

If you work with account customers, start your debtor follow up now. If your customers are under any cash flow pressures, the Christmas period will only increase that pressure. The creditors who chase hard and early will get paid first. Don’t be the last supplier on the list; the bucket may be empty by then.

Christmas is a great time of year. Just don’t get caught up in the rush and let things get out of control.

Can the tax office take money out of your account? Your right to know

You might have seen the recent spate of media freedom advertisements as part of the Your Right to Know campaign. The prime-time advertising states that the Australian Tax Office (ATO) can take money from your account without you knowing. The question is, do you really know what powers the ATO have.

The ATO is one of the most powerful institutions in Australia with very broad and encompassing powers. Over the last few years the approach has been to work with taxpayers to ensure that the tax they owe is paid. But this level of understanding only lasts so long and they will take action where taxpayers are unwilling to work with them, repeatedly default on an agreed payment plan, or don’t take steps to resolve the situation (these steps include an expectation that you go into debt to clear your tax debt). And, there are also circumstances where the ATO can swoop in where they believe there is a need to secure assets such as bank accounts if there is a risk of disposal or flight risk.

The ATO’s principal purpose is to collect the majority of the Federal Government’s revenue. According to an Inspector-General of Taxation’s report earlier this year, in 2016-17:

– 88% of tax payments owing were made by the due date

– 7% ($33.4bn) was paid within 90 days after the due date

– 1.3% ($6.1bn) was paid within a year after the due date, and

– $15 billion was left unpaid after a year.

At the end of the 2016-17 financial year, the total of undisputed collectable tax debt was $20.9 billion

Here are just a few of the ATO’s powers to ensure that tax owing is collected:

Issue a garnishee notice to someone holding money on your behalf – for example a bank. For salary and wage earners, the ATO can require your employer to take part of your salary and pay it to them until your tax debt is paid. This is generally limited to a maximum of 30% of your salary. If you are a business, the ATO can go as far as accessing your merchant facility if you have credit owing.

Director penalty notice – Directors can personally incur penalties equal to their company’s unpaid PAYG withholding liabilities or superannuation guarantee charge. The Government wants to expand this to cover unpaid GST liabilities as well. If this debt is not paid, the ATO may issue a director penalty notice to start legal proceedings (and withhold any refunds due to the director).

Direction to pay super guarantee – if employers receive a direction to pay superannuation guarantee, any outstanding Superannuation Guarantee Charge must be paid within the period specified. It’s a criminal offence not to comply with this notice and may result in enforced penalties and/or imprisonment.

Impose a freezing order – for example, on your bank accounts. That is, without notice the ATO can freeze and then if required strip your accounts, particularly where they believe you have alternative sources of income. This freezing order cannot be initiated by the ATO but must be granted by a court.

Issue writs or warrants of execution, or warrants of seizure and sale. For example, they can force you to sell certain assets to pay your tax debts.

Winding up – liquidate your company or bankrupt you. Most taxpayers don’t believe how strongly the ATO will act. The ATO can commence winding up procedures before any dispute is decided. In 2017-18 the ATO bankrupted 470 taxpayers and wound up 1,282 entities. The ATO would argue that in many cases the wind up forces the inevitable and prevents further debt being incurred either to the ATO or other parties.

The message is, make sure you are on top of your paperwork. If the ATO has queries or suspects something is not right, you need to be able to respond. The longer you take or a lack of evidence will only escalate the situation.

So, can the ATO take money out of your account without advising you first? With the support of the courts, absolutely and a whole lot more.

Super Guarantee Amnesty Resurrected

The Government has resurrected the Superannuation Guarantee (SG) amnesty giving employers that have fallen behind with their SG obligations the ability to “self-correct.” This time however, the incentive of the amnesty is strengthened by harsh penalties for those that fail to take action.

Originally announced in May 2018 and running between 24 May 2018 until 23 May 2019, the amnesty failed to secure its passage through Parliament after facing a backlash from those that believed the amnesty was too lenient on recalcitrant employers.

Since the original announcement, the Government reports that over 7,000 employers have come forward to voluntarily disclose historical unpaid super. The SG tax gap is estimated at around $2.85 billion in late or missing SG payments.

When does the amnesty apply?

Legislation enabling the amnesty is currently before Parliament and if enacted, will apply from the date of the original amnesty announcement, 24 May 2018, until 6 months after the legislation has passed Parliament. Employers will have this period to voluntarily disclose underpaid or unpaid SG payment to the Commissioner of Taxation.

The amnesty applies to historical underpaid or unpaid SG for any period up to the March 2018 quarter.

Qualifying for the amnesty

To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply.

Keep in mind that the amnesty only applies to “voluntary” disclosures. The ATO will continue its compliance activities during the amnesty period so if they discover the underpayment first, full penalties apply. The amnesty also does not apply to amounts that have already been identified as owing or where the employer is subject to an ATO audit.

What do employers pay under the amnesty?

Normally, if an employer fails to meet their quarterly SG payment on time, they pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

Under the quarterly superannuation guarantee, the interest component is calculated on an employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the SG charge would be payable (not from the date the SG was overdue).

What employers pay for failing to meet SG obligations

No Amnesty

Amnesty

SGC comprised of: SGC comprised of:
  • The outstanding SG entitlements (this component might be higher than what it would have been had the entitlements been paid on time)
  • The outstanding SG entitlements
  • Interest of 10% per annum
  • Interest of 10% per annum
  • An administration fee of $20 for each employee with a shortfall per quarter
  • No administration fees

 

Penalties of up to 200% of the amount of the underlying SG charge (minimum 100% for quarters covered by the amnesty) No penalties
A general interest charge if the SGC or penalties are not paid by the due date A general interest charge
SGC amount is not deductible – even if you pay the outstanding amount SGC amount is deductible

Special provisions exist within the legislation to automatically protect employees from inadvertently breaching concessional contribution cap limits if the unpaid SG is paid to the Commissioner and then transferred to the employee’s superannuation fund. Where the employer makes the payment directly into the employee’s fund, the individual would need to apply to the Commissioner requesting the exercise of discretion to either disregard the concessional contributions or allocate them to another financial year.

What happens if you do not take advantage of the amnesty?

If an employer fails to take advantage of the amnesty and is found to have underpaid employee SG, they are required to pay the SGC which includes penalties of up to 200%. However, the ATO has the power to reduce the penalty in whole or part.

The legislation enabling the amnesty imposes tougher penalties on employers that do not voluntarily correct underpaid or unpaid SG by removing the ATO’s capacity to reduce these penalties below 100%. In effect, the Commissioner would lose the power for leniency even in cases where an employer has made a genuine mistake.

Where to from here?

Even if you do not believe that your business has an SG underpayment issue, it is worth undertaking a payroll audit to ensure that your payroll calculations are correct, and employees are being paid at a rate that is consistent with their entitlements under workplace laws and awards.

If your business has fallen behind on its SG obligations and is eligible for the amnesty, you need to start working through the issues now or contact us to work through the issues for you. There are several calculations that need to be completed and these may take some time to complete.

If your business has engaged any contractors during the period covered by the amnesty, then the arrangements will need to be reviewed as it is common for workers to be classified as employees under the SG provisions even if the parties have agreed that the worker should be treated as a contractor. You cannot contract out of SG obligations.

If a problem is revealed, you can correct it without excessive penalties applying. If you are uncertain about what Award and pay rates apply to employees, the FairWork Ombudsman’s website has a pay calculator or you can contact them online or call them on 13 13 94.

ATO take ‘gloves off’ on overseas income

ATO take ‘gloves off’ on overseas income
Five years ago, the Australian Taxation Office (ATO) offered a penalty amnesty on undisclosed foreign income. Five years on, the ATO has again flagged that underreporting of foreign income is an issue but this time the gloves are off.

How you are taxed and what you are taxed on depends on your residency status for tax purposes. As tax residency can be different to your general residency status it’s important to seek clarification. The residency tests don’t necessarily work on ‘common sense.’ For tax purposes:

Australian resident – taxed on worldwide income including money earned overseas (such as employment income, directors fees, consulting fees, income from investments, rental income, and gains from the sale of assets).

Foreign resident – taxed on their Australian sourced income and some capital gains. Unlike Australian resident taxpayers, non-resident taxpayers pay tax on every dollar of taxable income earned in Australia starting at 32.5% although lower rates can apply to some investment income like interest and dividends.

There is no tax-free threshold. Australian sourced income might include Australian rental income and income for work performed in Australia.

Temporary resident – Generally, those who have come to work in Australia on a temporary visa and whose spouse is not a permanent resident or citizen of Australia. Temporary residents are taxed on Australian sourced income but not on foreign sourced income. In addition, gains from non-Australian property are excluded from capital gains tax.

Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes during that period. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset might be located overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia. Don’t assume that just because your foreign income has already been taxed overseas or qualifies for an exemption overseas that it is not taxable in Australia.

How your money is being tracked

A lot of Australians have international dealings in one form or another. The ATO’s analysis shows China, the United Kingdom, Switzerland, Singapore and the United States are popular countries for Australians.

The ATO shares the data of foreign tax residents with over 65 foreign tax jurisdictions. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income. There is also data obtained from information exchange agreements with foreign jurisdictions.

In addition, the Australian Transaction Reporting and Analysis Centre (AUSTRAC) provides data to the ATO (and the Department of Human Services) on flows of money to identify individuals that are not declaring income or paying their tax.

It’s not uncommon for taxpayers to forget to declare income from a foreign investment like a rental property or a business because they have had it for a long time and deal with it in the local jurisdiction with income earned ‘parked’ in that country. However, problems occur when the taxpayer wants to bring that income to Australia, AUSTRAC or the ATO’s data matching picks up on the transaction and then the taxpayer is contacted about the nature of the income. If the income is identifiable as taxable income (for example, from a property sale or income from a business), you can expect the ATO to look very closely at the details with an assessment and potentially penalties and interest charges following not long after.  There is no point telling the ATO the money is a gift if it wasn’t, they can generally find the source of the transaction and will know it’s not from a very generous grandmother – misdirection is only going to annoy them and ensure that there is no leniency.

What you need to declare in your tax return

If you are an Australian resident, you need to declare all worldwide income in your tax return unless a specific exemption applies, although in some cases even exempt income needs to be reported. Income is anything you earn from:

-Employment (including consulting fees)

-Pensions, annuities and Government payments

-Business, partnership or trust income

-Crowdfunding

-The sharing economy (AirBnB, Uber, AirTasker etc.)

-Foreign income (pensions and annuities, business income, employment income and consulting fees, assets and investment income including offshore bank accounts, and capital gains on overseas assets)

-Some prizes and awards (including any gains you made if you won a prize and then sold it for a gain), and

-Some insurance or workers compensation payments (generally for loss of income).

You do not need to declare prizes such as lotto or game show prizes, or ad-hoc gifts.

Do I need to declare money from family overseas?

A gift of money is generally not taxable but there are limits to what is considered a gift and what is income. If the ‘gift’ is from an entity (such as a distribution from a company or trust), if it is regular and supports your lifestyle, or is in exchange for your services, then the ATO may not consider this money to be a genuine gift.

I have overseas assets that I have not declared

Your only two choices are to do nothing (and be prepared to face the full weight of the law) or work with the ATO to make a voluntary disclosure. Disclosing undeclared assets and income will often significantly reduce penalties and interest charges, particularly where the oversight is a genuine mistake.

How to repatriate income or assets

Before moving funds out of an overseas account, company or trust it is important to ensure that you seek advice on the implications in Australia and the other country involved. This is a complex area and the interaction between the tax laws of different countries requires careful consideration to avoid unexpected consequences.

If you need to clarify your residency status for tax purposes or are uncertain about the tax treatment of income, please contact us today.

Confusion over personal income tax changes

Confusion over personal income tax changes – what are you really entitled to?

The recent income tax cuts that passed through Parliament do not mean everyone automatically gets $1,080 back from the Government as soon as they lodge their income tax return. The Australian Taxation Office (ATO) has been inundated with calls from taxpayers wanting to know where their money is and how they can access the $1,080 they now believe is owing to them.

What changed?

From 1 July 2018

A low and middle income tax offset (LMITO), first introduced in the 2018-19 Federal Budget, provides a tax benefit to those with taxable incomes below $125,333. Recent changes increase the LMITO from a maximum of $530 to $1,080 and the base amount from $200 to $255, and make it applicable to a greater number of taxpayers by increasing the threshold from $125,333 to $126,000.

The first thing to remember is that this is a tax offset; you need to owe tax to offset the tax. And, if you owe tax, the offset will be first used to reduce the tax you owe. It is not a cash back – a point the ATO is at pains to point out stating on its website that, “It doesn’t mean that you will get an extra $1,080 in your tax return.”

The offset applies for a limited time. In this case, the offset applies to the 2018-19, 2019-20, 2020-21 and 2021-22 income years. So, if you are eligible to receive the offset, it applies to the taxable income you earned last financial year (2018-19) and you will receive any offset owing once you have lodged your tax return.

Taxable income* Offset minimum Offset maximum
<$37,000 $255 $255
>$37,000 – <$48,000** $255 $1,080
>$48,000 – <$90,000 $1,080
>$90,000 – <$126,000*** $1,080
$126,000+ $0 $0

 * Your taxable income is the income you earn less any deductions you claim – not your salary.

** offset entitlement is $255, plus 7.5% of the excess to a maximum of $1,080.

*** offset entitlement is $1,080, less 3% of the excess on taxable income above $90,000.

If you earned taxable income in 2018-19 of:-

– Less than $21,885, while you have an entitlement to LMITO of $255, you do not pay personal income tax and therefore cannot utilise the offset.

– $45,000, you will receive a tax reduction of $855 ($255 plus 7.5% on every dollar between $37,000 and $45,000, in this case $8,000). You may also be eligible for the low income tax offset (LITO), see below.

– $85,000, you will receive a tax reduction of $1,080.

The LMITO is in addition to the existing low income tax offset (LITO). The LITO is available to those with taxable income of less than $66,667. The maximum offset is $445 for those with taxable incomes of $37,000 or less. Any amount you earn above $37,000 up to the threshold of $66,667 reduces the offset by 1.5%. Once again, the LITO is a tax offset to reduce the amount of tax you pay. If you do not pay personal income tax, you do not receive the offset as a cash refund.

From 1 July 2022

Two things occur from 1 July 2022:

– Income tax rate thresholds change – the top threshold of the 19% personal income tax bracket increases to $45,000 (currently $37,000), effectively providing a tax cut to all taxpayers earning over $18,200. The tax rate change applies to resident taxpayers and working holiday makers.

– The low-income tax offset (LITO) increases – for those with taxable income of less than $66,667, the LITO base amount will increase from $445 to $700. However, the LITO will reduce quicker than it currently applies with amounts above $37,500 reducing by 5% for amounts up to $45,000, then 1.5% to $66,667.

These changes assume that the Government does not pare back the income tax changes in a future Budget.

From 1 July 2024

From 1 July 2024, the 32.5% marginal tax rate will reduce to 30% and the number of taxpayers it applies to will increase with the maximum threshold moving from $120,000 to $200,000. The tax rate change applies to resident taxpayers and working holiday makers. Once again, this assumes that this tax rate and threshold change is not amended in a future Federal Budget.

Super, Insurance and Exit Fees: The 1 July changes

From 1 July 2019, new laws prevent superannuation providers from eroding member balances with unwanted or unnecessary insurance and exit fees. Plus, inactive accounts with low balances will be moved to the ATO to try and unite the unclaimed super with its owner.

These changes do not apply to self-managed superannuation funds or small APRA funds.

Insurance inside your fund

Up until 30 June 2019, superannuation providers were required to provide members with appropriate life and total and permanent disability (TPD) insurance inside superannuation on an ‘opt out’ basis. That is, the insurance was automatically put into place when you became a member of the fund.

The problem is that for a lot of people, such as young people with no dependants and those with insurance cover elsewhere, these default insurance premiums are a key factor in eroding their superannuation balances. And in many cases, people simply did not realise they had insurance inside their funds.

New laws that came into effect on 1 July 2019 prevent superannuation providers from maintaining ‘default insurance’ for any member with an account that has been inactive for a continuous period of 16 months unless that person has elected to maintain the insurance. An inactive account is one where no contributions or rollovers have been received in the previous 16 month period.

For everyone else, insurance will remain a default on new and existing superannuation funds unless you specifically opt out.

What to do if you are affected

If you are affected, you need to make a decision about whether the insurance held in your fund is valuable to you. Often insurance cover through superannuation is cheaper than what you might be able to access elsewhere. Also, the premiums come out of your fund so they don’t impact on your cashflow. However, if the insurance is unnecessary or duplicated, the premiums will simply erode your account.

Employer default super funds generally provide death and TPD cover. This basic cover may be available without health checks. You can usually increase, decrease, or cancel your default insurance cover. Your super fund’s website will have a product disclosure statement (PDS) which explains the insurer they use and details of the cover available.

If you are affected, the insurance you hold inside your super fund may be cancelled unless you take action. If you choose to, you can keep your insurance by contacting your insurer (login to your insurer’s website and follow the links or call them to find out how to make the election) or by making a contribution. The election cannot be made over the phone to your fund.

Your superannuation provider is obliged to let you know if your insurance is about to be cancelled.

Low balance super accounts moved to ATO

Australians have over $17.5 billion in unclaimed superannuation. From 1 July 2019, superannuation providers will be required to report and pay inactive low-balance accounts to the ATO. Twice a year, super funds will report and pay:

– unclaimed super of members aged 65 years or older, non-member spouses and deceased members.

– unclaimed super of former temporary residents.

– small lost member accounts and insoluble lost member accounts.

– inactive low-balance accounts.

 

A low balance account is one with less than $6,000. These new rules mean that if your superannuation account has less than $6,000, and the account has been inactive for 16 months, the balance will be transferred to the ATO who will attempt to consolidate your superannuation.

Reducing fees and charges

From 1 July 2019, exit fees including fees on partial withdrawals have been abolished for all superannuation fund members regardless of their superannuation account balance.

Where a superannuation fund member’s final account balance is less than $6,000 in a year, new caps apply to the fees that providers can charge. From 1 July 2019, administration and investment fees and other prescribed costs on these accounts will be capped at 3%. If the fund has charged more than 3%, the excess needs to be refunded within 3 months.

What you need to know this tax time

Tax time: what you need to know

A consistent theme this tax time is overclaiming and under reporting. With the Australian Taxation Office (ATO) getting more and more sophisticated in its data matching approaches, taxpayers can expect greater scrutiny where their claims are greater than what is expected. We take a look at the key issues for you, your business and your SMSF.

For you
Work related deductions

Last financial year, over 8.8 million taxpayers claimed $21.98 billion in deductions for work related expenses. It’s an area under intense review by the ATO. If you claim work-related deductions, it’s important to ensure that you are able to substantiate any claim you make.

To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, in most cases you need a record proving you incurred the expense, and the expense has to be directly related to how you earn your income – that is, the expense is directly (not sort of) related to your work. This also means ensuring that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.

When you don’t have to keep records

If your claim for work related deductions is below $300 you do not have to keep a record of the expense, such as a receipt. Work related clothing has a $150 record keeping limit. However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses because of a belief that you don’t have to support the claim. If you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim might be denied.

Working from home

If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.

If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

Ensure any claims are in proportion to the work related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.

Work related clothing

In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation specific, such as chefs whites or a uniform with a logo, or protective gear because your workplace has hazards (jeans don’t count as protective wear). Just because you have to wear a suit to work does not make it deductible.

Cryptocurrency

The ATO has a special taskforce dealing specifically with cryptocurrency. Cryptocurrency is considered an asset for tax purposes, rather than a form of currency. This means that gains or losses made on disposal or exchange of cryptocurrency will often be captured under the tax system – regardless of whether you’re switching between currencies or ‘cashing out’ your asset into AUD.

You will need to keep records of all of your trades in order to work out whether you’ve made a taxable gain or loss each time you dispose of an asset.

Capital gains tax can be complex and this is an area that the ATO is looking very closely at, particularly where taxpayers are claiming large losses. Also, some disposals can be taxed as ordinary income which means the CGT discount cannot apply and capital losses cannot be applied against the gains that have been made.

Rental property deductions

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the ATO believes that is too much – one in ten is estimated to contain errors.

What you can claim for your rental property has been significantly curbed. For example, you can no longer claim deductions for the cost of travelling to inspect the property. And, you can no longer claim depreciation deductions for second hand plant and equipment. Previously, you could for example, buy a rental property from someone else and then claim depreciation on the assets already in the property such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.

When you own a share in a property

For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc.,).

This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).

The main exception is that if the parties have separately borrowed money to acquire their interest in the property then they would claim their own interest deductions.

Earning money from the sharing economy

Income earned from the sharing economy, AirBNB, Uber, AirTasker etc., must be declared in your tax return. But you may also be able to claim proportional expenses associated to providing the service. Ensure that any deductions you claim are related to providing the service itself (not just switching on the app or making yourself available).

If you are a driver with Uber or another platform, you will need to be registered for GST regardless of how often you drive.

Your business

There are around 3.8 million small businesses, including 1.6 million sole traders in Australia. They employ around 5.5 million people and contribute $380bn to the economy. Small business is also in debt to the ATO to the tune of $15bn.

This tax time, the ATO has stated they are looking closely at taxpayers:
– setting up or changing to a company structure
– claiming motor vehicle expenses
– who may not be correctly apportioning between personal and business use

There are a multitude of data-matching programs and benchmarks to catch out those attempting to rort the system.

For wealthy groups and medium businesses, the focus is on structuring to avoid tax:

– international risk – international profit shifting and corporate restructuring
– inappropriate arrangements that seek to extract profits or capital without the right amount of tax being paid
– high risk trust arrangements attempting to gain advantage beyond ordinary trust arrangements or tax planning associated with genuine business or family dealings.

If the ATO suspect there is a problem, you may be contacted to justify why decisions were made to structure your affairs or the affairs of your company in a particular way.

No tax deductions if you don’t meet your tax obligations

From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for payments:

– of salary, wages, commissions, bonuses or allowances to an employee;
– of directors’ fees;
– to a religious practitioner;
– under a labour hire arrangement; or
– made for services where the supplier does not provide their ABN.

The main exception is where you realise there is a mistake and voluntarily correct it before the ATO begins a review or audit. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.

The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.

Recording payments to contractors

From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for payments:

– of salary, wages, commissions, bonuses or allowances to an employee;
– of directors’ fees;
– to a religious practitioner;
– under a labour hire arrangement; or
– made for services where the supplier does not provide their ABN.

The main exception is where you realise there is a mistake and voluntarily correct it before the ATO begins a review or audit. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.

The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.

Your trust
Timing of resolutions

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2019 at the latest (the trust deed may actually require this to be done earlier).  Decisions made by the trustees should be documented in writing, preferably by 30 June 2019.

If valid resolutions are not in place by 30 June 2019, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

TFN reporting

Has your trust lodged TFN reports for all beneficiaries?

Trustees of closely held trusts have some additional reporting obligations outside the lodgement of the trust tax return each year. The ATO is currently reviewing trustees to ensure their compliance with these obligations, particularly the requirement to lodge TFN reports for beneficiaries.

Where beneficiaries have quoted their TFN to the trustee, trustees are required to lodge a TFN report for each beneficiary. The TFN report must be lodged by the end of the month following the end of the quarter in which a beneficiary quoted their TFN. For example, if the trustee receives a beneficiary’s TFN in April, they must lodge a TFN report by the end of July.

Where a TFN has not been provided by a beneficiary, the trustee is required to withhold tax at a rate of 47% and pay this to the ATO. The trustee must also lodge an annual report of all amounts withheld.

Failure to comply with the TFN reporting and withholding requirements may incur penalties.

Your superannuation

Not making your full superannuation contribution? Now you can catch up

This year is the first year of new measures that enable people who have been out of the work force, like new Mums, to top up their superannuation.

If you have:

– A total superannuation balance below $500,000 as at 30 June; and
– Not utilised your entire concessional contributions cap ($25,000) for the year

then you can ‘carry forward’ the unused amount on a rolling 5 year basis.

For example, if your total concessional contributions in the 2018-19 financial year were $10,000 and you meet the eligibility criteria, then you can carry forward the unused $15,000 over the next 5 years. You may then be able to make a higher deductible personal contribution in a later financial year. If you are selling an asset and likely to make a taxable capital gain, a higher deductible personal contribution may assist in reducing your tax liability in the year of sale.

Remember:

– Your total superannuation balance must be below $500,000 as at 30 June of the prior year before you utilise any carried forward amount (within the 5 year term); and
– In some cases, an additional 15% tax can apply (30% total) to concessional contributions made to super where income and concessional contributions exceeds certain thresholds ($250,000 in 2018-19). Your income could be higher than usual in the year when you sell an asset for a capital gain.

Instant asset write-off threshold and eligibility

One of main tax related items in the recent Federal Budget related to the expansion of the immediate deduction rules for depreciating assets. The amendments in this area received Royal Assent on 6 April 2019 and are law.

There are two major aspects of the changes.

Firstly, the legislation increases the immediate deduction threshold for small business entities (SBEs) in two stages and extends the rules through to 30 June 2020. For the 2019 income year there will actually be three separate immediate deduction thresholds that apply to SBEs that are using the simplified depreciation rules, which are summarised below:

– The immediate write-off threshold is $20,000 for assets first used or installed ready for use before 29 January 2019;

– The immediate write-off threshold is increased from $20,000 to $25,000 if the asset is first used or installed ready for use at or after 29 January 2019 and before 7.30pm ACT time on 2 April 2019;

– The immediate write-off threshold is increased again from $25,000 to $30,000 if the asset is first used or installed ready for use at or after 7.30pm ACT time on 2 April 2019.

The threshold for writing off a remaining SBE pool balance has been increased to $30,000 for the years ending 30 June 2019 and 30 June 2020.

In addition to this, the amendments also permit a business with aggregated annual turnover of at least $10m but less than $50m to claim an immediate deduction for depreciating assets with a cost (i.e. first element plus second element of cost) of less than $30,000 that it acquires after 7.30 pm AEST on 2 April 2019 for a tax year that ends on or after that date and on or before 30 June 2020.

Interestingly, some of the restrictions that apply to SBEs when it comes to claiming an immediate deduction don’t appear to apply to these larger businesses. For example, SBEs cannot apply the immediate asset write-off rules to horticultural plants (eg, grapevines) or assets used mainly to generate rental income. However, these restrictions don’t appear to apply to medium businesses which means that as long as the entity carries on a business under general principles and is under the $50m turnover threshold it could claim a deduction for assets used in residential or commercial rental properties.

Dean Sammut win’s one of Australia’s top industry awards!

It is with great pleasure we are able to announce that Dean Sammut has won one of Australia’s top industry awards. Presented at a black tie event at the Sofitel Wentworth, Dean was presented with the Rising Star of the Year Award at the 2017 Australian Accounting Awards.

The awards were hosted by Accountants Daily, Australia’s top publication for the accounting industry and were judged by a panel of 21 business leaders across Australia. There were a record number of finalists and submissions for this year’s awards, and all judges commented on the “standout” quality of the entrants.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the award. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

Featured in a publication in Accountants Daily, Dean believes it’s the MMT team’s ability to explain complex accounting areas to clients as a key success for the firm. “Where we differentiate ourselves from our competitors, is the ability to provide value in explaining their numbers to allow them to make smart decisions”.

Dean has further called on Universities to help train students to develop these important soft skills. “Definitely at university is where it needs to start. I actually don’t think the current courses have really adapted to the changes that are happening in accounting, and it’s happening pretty quickly,” he said. You can read further about the article in Accountants Daily here

Rod, Matthew, Dean & Stephen at the awards night.
Rod, Matthew, Dean & Stephen at the awards night.

2017-2018 Federal Budget Update

We at MMT Accountants + Advisers are here to help you make smart financial decisions now so you can have a beautiful financial future. One way we do that is through careful tax planning! If you haven’t met with us yet, now is the time to contact us to arrange a tax planning meeting, so we can help you limit your tax payments, and grow your wealth.

In prior years, there were many changes to superannuation and small business taxation. This year’s Budget only had a few changes in these areas.

Here’s a brief summary of what the MMT team believes are the key changes that may affect many of our clients.

Taxation

Small business depreciation
The Government will extend by 12 months (to 30 June 2018) the ability for businesses with aggregated annual turnover less than $10 million to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the closing balance of the pool at 30 June 2018 is less than $20,000 (including existing pools). From 1 July 2018, the immediate deductibility threshold will reduce back to $1,000.

Increase in Medicare levy
From July 2019, the Medicare levy will increase by half a percentage point from 2.0 to 2.5 % of taxable income. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

Lower threshold for HELP debt repayments
From 1 July 2018, a new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate.

Disallow certain deductions for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting maintaining or collecting rent for residential rental property. Also, plant and equipment depreciation deductions will be limited to outlays actually incurred by the investors in residential real estate properties. These changes will apply on the prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either investor no longer owns the asset, or the asset reaches the end of its effective life. Subsequent owners will no longer be able to claim deductions for plant and equipment purchased by its previous owner.

Capital gains tax changes for foreign investors
From 7:30PM (AEST) on 9 May 2017, Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption. However, existing properties held prior to this date will be grandfathered until 30 June 2019.
From 1 July 2017, there will be an increase in the CGT withholding rate foreign tax residents from 10% to 12.5%, and a reduction of the CGT withholding threshold from $2 million to $750,000.

Taxable payments reporting
From 1 July 2018, the courier and cleaning industries will join the building and construction industry in needing to complete taxable payments reporting each year. More red tape!

Cash economy crack-down
The ATO now have an additional $32 million to target the cash economy. Expect more ATO audits with the data matching capabilities. Cafés, restaurants and other businesses that accept cash should ensure their point of sale systems have proper audit trails that match their cash deposits.

GST on new residential property and sub-divisions
In an approach designed to crack down on some property developers failing to make GST payments to the ATO, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

Superannuation

Contribute the proceeds of downsizing to superannuation for older Australians
From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently allowed under the existing rules and caps and will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

* This measure will apply to sales of a principal residence owned for the past 10 or more years and both members of a couple will be able to take advantage for the qualifying home. *

First Home Super Save Scheme
To encourage home ownership, voluntary contributions to superannuation made by first home buyers from 1 July 2017 can be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Under the measure, up to $15,000 per year and $30,000 in total can be contributed (within existing contribution caps). Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

Foreign Workers

There has been lots of news recently about the removal of the 457 visa program. Businesses that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. From 1 March 2018, Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme.

Book in your End of Financial Year Meeting with us Today!

This is just a general summary of how the Budget may affect you. If you haven’t met with us yet, now is the time to contact us to arrange an End of Financial Year meeting, so we can help you limit your tax payments,
discuss your goals and plans for the next year, and grow your wealth. Remember, we both need time to implement any appropriate tax savings strategies for you well before 30 June 2017.

General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

Dean Sammut is in the running to take out one of Australia’s top industry awards!

Dean Sammut has been shortlisted for the prestigious Australian Accounting Awards, partnered by Thomson Reuters.

Dean is in the running to take out one of Australia’s top industry awards and has been shortlisted as a finalist to win the Rising Star of the Year at the 2017 Australian Accounting Awards, hosted by Accountants Daily, Australia’s top publication for the accounting industry.

Now in its fourth consecutive year, the Australian Accounting Awards, which covers 26 categories, recognises individual excellence in accounting, from the profession’s most senior ranks to its rising stars.
Winners in the individual categories will automatically be shortlisted for the coveted Accountants Daily Excellence Award. In addition, Dean will be in the running for the Editor’s Choice Award, which recognises an individual’s outstanding contribution to the Accounting Industry.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

“We are set for a superb evening when the awards are presented. The judges have a tough job on their hands this year and there no doubt will be huge excitement to hear their verdicts.”

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the nomination. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

The winners will be announced at a black tie awards dinner on Friday, 26 May at the Sofitel Sydney Wentworth.

Glenn Simpson Landscapes wins LNA 2016 Landscape Excellence Award!

We love hearing the success stories of our clients and with the passion and drive of the Glenn Simpson Landscapes team, it is no wonder they are doing so well.

Glenn Simpson Landscapes won the “COMMERCIAL & CIVIL CONSTRUCTION UP TO $3 MILLION” Silver Award at the LNA 2016 LANDSCAPE EXCELLENCE AWARDS for the Alice Lane, Newtown Bioretention Basin.

The Alice Lane, Newtown Bioretention Basin is an initiative undertaken by Inner West Council as part of its Waterevolution Living Lanes program. The program includes stormwater biofiltration systems, planting and revegetation, and cultural elements reflecting the nearby community, consequently applying sustainable urban water management principles to catchments.

Completed on behalf of Inner West Council, the Alice Lane, Newtown Bioretention Basin was an extremely rewarding and technically complex project, with the added satisfaction of enriching our environment!

“We are honoured and privileged to receive this esteemed Award as it was voted and awarded by a highly qualified and experienced LNA judging panel, among an outstanding number of quality entries.” said Glenn Simpson.

It has been dubbed, without a doubt, the most successful awards season yet with a greater variation of winners than ever before!

To read more about this project and their other fantastic work visit: http://glennsimpsonlandscapes.com.au/projects/ecosystem-protection-triumph

LNA website imagenew

Help combat depression and anxiety by buying a ticket

Hair & Beauty Australia are partnering with beyondblue for this luxury prize draw, valued at over $77,000 – all for charity!

You could be driving away in your brand new 5-door Hatch Mercedes-Benz A180, or wearing your beautiful new Diamond Tennis Bracelet, and most importantly supporting beyondblue.

Three million Australians are currently experiencing anxiety or depression. Every day, nearly eight people take their own lives – and beyondblue want to change that.

beyondblue provides information and support to help everyone in
Australia achieve their best possible mental health, whatever their age and wherever they live.

That’s why HABA are proud to donate all profits from this campaign to beyondblue, to help all Australians.

For tickets visit askhaba.com.au/beyond-blue-draw/

Pride & Prejudice: Top Four Predictions for 2017

The global economy is picking up and Australia is about to secure the global record for the longest period a country has gone without a recession. But with the focus on the political environment, there is an uneasiness in the market and with uneasiness comes a reticence to take risks.

The fortunes of Australians this year will have much to do with how you or your business is positioned and how you respond to challenges.

Here are our top predictions:

Trumponomics will impact on our region

Business is business – either an opportunity makes sense or it doesn’t. The biggest pressure from the new US President is unlikely to be the much discussed Trans-Pacific Partnership (Australia’s current Free Trade Agreement with the US (AUSFTA) has been in place since 2005), or President Trump’s controversial immigration policies, but the plan to cut the US Federal company tax rate from 35% to boost competitiveness. If the US drops its company tax rate below 30%, Australia will be the one of the most expensive countries in its region to do business and globally uncompetitive. The 2016-17 Federal Budget announcement to reduce Australia’s company tax rate progressively to 25% for all businesses has stalled in the Parliament with voter perception that it is a gift to ‘big business’ at the expense of more deserving elements of the community.

The US is Australia’s second largest two-way trading partner at around $69 billion and our third largest export market at $22 billion* (we import around $47 billion in US goods and services). Australia’s trade relationship with China however swamps this volume with $150 billion in two-way trade of which almost $86 billion is in exports. These trade statistics are important to remember when we look at the geopolitical landscape of the Asia-Pacific region and in particular the increasingly antagonistic relationship between the United States and China.

Australia is too small an economy to successfully survive on its domestic market alone. Strong regional alliances and competitiveness are critical.

For business: Innovate or Perish

Economists widely predict that residential construction and exports – the mainstay of Australia’s domestic economic growth – will slow in 2017. Part of this is the Chinese Government’s concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from?

One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.

Advances in technology in particular will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks.

The bottom line is that you cannot rely on the stability of your business model to sustain over time.

For you: Superannuation knee-jerk reactions will disadvantage some

2017 will be a watershed year for superannuation in Australia. With many of the reforms coming into effect on 1 July 2017, there will be a temptation for many to ‘do something’ before the deadline.

The biggest impact of the reforms is likely to be on those with large super balances close to or exceeding $1.6 million. And, it’s not just the wealthy with large super balances. Many SME business operators utilise the business real property exception to hold their business premises inside their SMSF, which can significantly increase the asset value of the fund. For anyone close to or exceeding the $1.6m cap, it’s essential that you have current valuations for your assets to know exactly where you stand.

One of the key decision points for those with large balances is how Capital Gains Tax applies where assets supporting pension payments exceed the new $1.6m pension transfer limits and need to be moved back into accumulation phase.

Knee-jerk reactions to the management of your fund’s assets – like quickly selling assets pre 1 July – may result in your fund being in a much worse position. With the risk of sounding conflicted, good advice is essential.

International is still a dirty word

If you are an individual or a business that transfers money internationally, you will continue to be a target. For individuals, if you work overseas be careful of residency issues. The residency tests don’t necessarily work on ‘common sense’. Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset and the earnings from those assets are overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia.

Innovation

The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia’s direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

Over the last two decades we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, gains are being achieved through innovation to reduce costs. This is an area where Government policy is there to support business. These incentives include:-

– Small business rollover relief that removes the tax impediments associated with changing your business structure.
– Tax incentives for investors in early stage innovation companies.
– Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.
– More generous employee share scheme arrangements particularly for high growth start-ups.
– Immediate deductions for start-up businesses.
– Reduced company tax rates for small businesses.
– Plus there is also the R&D incentives for innovative companies.

For survival, all business operators need to look at the trends in their industry.

For business, Government regulation is increasingly cynical about those using low taxing jurisdictions, paying large management fees between international entities, and parking large debts in Australian entities.

Like every other tax authority, the Australian Tax Office wants its share of profits earned from Australian consumers. You can see this trend in the new GST rules (dubbed the ‘Netflix tax’) which come into effect on 1 July 2017 – although for many the requirement for foreign entities to charge GST on services and digital products provided to Australian consumers has already come into effect. On the other hand, changes to the GST treatment of international transactions that apply from 1 October 2016 are intended to make life easier for both Australian and overseas businesses, but these rules can become quite complex to apply in real life.

No one likes uncertainty and 2017 is shaping up to be a year where people feel unsettled. Take a breath, think strategically, look beyond your personal experience, and take advantage of the opportunities that are available to you.

 

*2015-16 figures Austrade Why Australia Benchmark Report 2017.