Federal Budget – Key Takeaways

Federal Budget – Key Takeaways

On 6 October, the Government released the Federal Budget for 2020/21.

It was a budget designed to stimulate the economy and create new jobs. Below is a summary of the key takeaways and some planning opportunities all business owners should consider taking advantage of.

Summary

These announcements are explained in more detail further in this article. 

  • Individual tax cuts
  • Immediate write-off of depreciable assets – no limit on cost
  • Claim losses against prior years profits (companies)
  • Incentives for hiring staff and apprentices (JobMaker and apprentice subsidy)
  • Expanded access to Small Business Entity concessions
  • Insolvency reforms for small business
  • No update regarding Div 7A and pre UPE changes

Key insights and planning opportunities

These announcements create planning opportunities.

There are differences in how the opportunities will apply to taxpayers depending on their circumstances.

  • Business owners currently drawing a salary of only $90k / year should review if an increase to $120k is effective tax planning (bearing in mind Single Touch Payroll reporting means this must be decided and actioned before 30 June 2021)
  • Cash flow forecasting for capital expenditure – taking into account not only funding of the investment, and the benefit of the tax deduction now, BUT, also proper consideration of the increased tax in future years
  • Consider whether capital expenditure should be deferred until FY 2022 (rather than FY 2021) – depending on marginal rates of tax and if losses are quarantined or a company can utilise the loss carry back provisions
  • Consider whether capital expenditure should be brought forward to FY 2021 to take advantage of 26% tax rate, which changes to 25% on 1 July 2021
  • Consider eligibility for subsidies on hiring new staff and plan recruitment accordingly
  • Consider whether dividends can be deferred to ensure the loss carry back provisions can be accessed
  • Planning around owner’s remuneration – is salary preferred to access loss carry back provisions compared to a current dividend policy?
  • In July 2021 – review whether your business can benefit by changing BAS reporting to Cash basis under the extension for Small Business Entities
  • April to June 2021 – consider prepayment of expenses to bring forward tax deductions
  • Monitor debtors, actively collect cash. As more relief is provided to small businesses with insolvency reforms, make sure you are protecting your own business by focusing on cash owed to you.

For more information on these planning opportunities, please contact us to discuss further.

Details of key announcements

Bring forward of individual tax cut effective 1 July 2020

Stage 2 of the previously announced individual tax cuts have been brought forward to apply from 1 July 2020.

  • 19% threshold will be between $18,200 and $45,000 (previously $18k to $37k)
  • 32.5% threshold will be between $45,000 and $120,000 (previously $37k to $90k)

Represents a saving of:

  • $1,080 for taxpayers earning between $45,000 and $90,000
  • $2,430 for taxpayers earning more than $120,000

Stage 3 of the individual tax cuts remain scheduled to apply from 1 July 2024.

Immediate write-off of depreciable assets – 7:30pm 6 Oct 2020 to 30 June 2022

Eligible depreciable assets can be tax deducted in full by all businesses (less than $5b turnover) up to 30 June 2022. There is no limit to the cost of the asset.

This concession applies to businesses.

The assets need to be installed and ready for use for deduction.

Businesses with aggregate turnover less than $50m, this immediate write-off applies to second-hand assets. For larger businesses it only applies to new assets.

Businesses with turnover between $50m and $500m can continue to rely on previous measures allowing write-off in full for second-hand assets under $150k up to 30 June 2021.

Businesses with turnover less than $10m turnover will immediately write-off the pool balance in 2021. It is not yet clear how this will apply in 2022 for businesses up to $50m.

Loss carry-back

Election can apply in FY 2021 and FY 2022 tax returns for companies.

Losses for FY 2020, FY 2021and FY 2022 can be carried back against prior taxable incomes from the FY 2019, FY 2020, FY 2021 income years.

Will generate a refundable tax offset.

Cannot exceed the profits previously taxed in those years.

Cannot result in a franking account deficit.

Does not apply to businesses run in trusts, partnerships, or sole traders.

JobMaker hiring credits

For eligible employees hired from 7 October 2020 for 12 months.

Eligible employees will need to:

  • Work for more than 20 hours per week
  • Have in the 3 months prior to being employed have received JobSeeker, Youth Allowance, or Parenting Payment for at least 1 month
  • Aged 18-29 creates a $200 / week credit to the business
  • Aged 30-35 creates a $100 / week credit to the business

Is credited quarterly in arrears by the ATO.

Wage subsidy for new apprentices

50% subsidy for businesses that take on new apprentices from 5 October 2020 to 30 September 2021.

Limited to 100,000 placements nationwide.

Limited to $7,000 per quarter per apprentice.

Expanded access to Small Business Entity concessions

Turnover threshold increased from $10m to $50m.

From 1 July 2020 – immediate write-off of prepaid expenses.

From April 2021 – FBT exemptions (car parking / multiple portable electronic devices).

From 1 July 2021 – all other concessions (including):

  • including simplified GST reporting – cash flow benefits to a business that has debtors exceeding creditors
  • 2-year amendment period for tax returns

Div 7A and Pre UPEs – No Update

While not specifically included in the announcements, it is an important omission.

There is no update to when or how the Div 7A and Pre UPE rules will change.

Although this creates uncertainty for taxpayers managing existing Div 7A and pre-UPEs, the benefit is that any additional tax burden resulting from the update to the rules is deferred for the time being.

Insolvency reforms for small businesses

For businesses with less than $1m in debt.

New rules to streamline access to debt restructure and professional assistance compared to voluntary administration.

 

Should you have any questions on the Budget announcements or if you would like to discuss some of these planning opportunities that may be available, please do not hesitate to contact our office for more information.

 

Disclaimer

The information provided in this article does not constitute advice.  The information is of a general nature only and does not take into account your individual situation.  It should not be used, relied upon, or treated as a substitute for specific professional advice.  We recommend that you contact Brentnalls WA before making any decision to discuss your particular requirements or circumstances. 

JobKeeper 2.0 – Changes to the JobKeeper Payment

JobKeeper Extended

The Federal Government has announced that the JobKeeper scheme will be extended to 28 March 2021.  It was previously scheduled to end on 27 September 2020.  There will be changes to both the eligibility requirements and payment amounts.

  • The fortnightly payment of $1,500 will be reduced to $1,200 from 28 September 2020 and $1,000 from 4 January 2021.
  • A new two-tiered payment structure will be introduced from 28 September 2020, which will reduce the payment rates for employees who worked fewer than 20 hours per week in February 2020.

The eligibility rules for employees remain unchanged.  Particularly noting that the employees must have been employed as full-time, part-time or long-term casual (employed on a regular and systematic basis for at least 12 months) as at 1 March 2020.

Read more

Reduce Tax

Key Actions That Business Owners Should Take Before 30 June to Reduce Tax

By Chris Smith

For businesses to maximise their cash position, they should consider the following tax planning opportunities before 30 June.

Read more

Details of the JobKeeper Payment – eligibility, how to enrol & critical deadlines

On 21 July the government announced proposed changes to JobKeeper including an extension through to 28 March 2021.  Read our summary of these updates here, or visit the ATO’s website for further details.

 

From 20 April 2020, you can enrol with the ATO for the JobKeeper payment using the Business Portal and authenticate with myGovID.  You must do this by the end of May to claim JobKeeper payments for April.  Payments will start being made to businesses in May.

Summary of important updates to this article as of 29 April to the below since originally published on 20 April:

  • Due date for registration to apply from 30 March is now extended to 31 May (was 26 April, then 30 April)
  • Due date for top up of April fortnightly wages to $1,500 is now 8 May (was 30 April)
  • One-in-all-in – confirmation from the ATO that all eligible employees must be offered JobKeeper for businesses to be eligible for JobKeeper payments
  • Alternative test for turnover eligibility has been released by the ATO
  • Alternative test to be released soon for Service Entities
  • Clarification on Cash Basis and Accruals Basis when applying the turnover test

The steps below outline the process involved so that you do not miss out.

1. Register for Business Portal

If you have not already registered for the Business Portal, this will be required in order to lodge monthly reports with the ATO and claim the JobKeeper payments.
If you have not registered, please advise your accountant who the authorised contact person(s) should be for your business.

If you use the ATO Business Portal, you will need a myGovID linked to your ABN in relationship Authorisation Manager (RAM). To set up the Business Portal for your business, you can find detailed steps on how to set this up here.

Your registered tax agent can also enrol on your behalf (further information below).

2. Check you are an Eligible Employer

Check that you meet the eligibility requirements for JobKeeper, essentially:

  • On 1 March, you carried on business in Australia;
  • Your business has faced a minimum 30% decline in turnover (more information below).

More information on qualifying as an eligible business can be found here.

3. Apply the Turnover Test

The turnover test requires a self-assessment of the eligibility requirements.  These rules are complex and we recommend obtaining advice if there is any uncertainty.

Identify the turnover test period and relevant comparison period:

To work out your decline in turnover to be eligible for JobKeeper for the first fortnight starting 30 March 2020, under the rules outlined as the “Basic Test” you can compare either:

  • GST turnover for March 2020 with GST turnover for March 2019;
  • projected GST turnover for April 2020 with GST turnover for April 2019;
  • projected GST turnover for the quarter starting April 2020 with GST turnover for the quarter starting April 2019.

You can choose to test your decline in turnover on either a monthly or quarterly basis, regardless of how you report for your Business Activity Statement purposes.

To qualify at a later time you can rely on the turnover test for the months of May, June, July, August, and September, or the July to September quarter.  Note that in relying on this future date, eligibility will be deferred until the start of that period.

If you work out that you qualify for the JobKeeper payments for the first fortnight because your turnover has declined by the relevant amount, you remain eligible and do not need to keep testing turnover for following months.

There may be situations where the turnover in the corresponding period in 2019 does not provide an appropriate relevant comparison. In these situations, you will need to consider the alternative test, which has recently been released by the ATO.

The Alternative Test can apply in some of the following circumstances:

  • the entity commenced business after the relevant comparison period (the business did not exist in that period)
  • the entity acquired or disposed of part of the business after the relevant comparison period (the business is not the same business in that period as it is now)
  • the entity undertook a restructure after the relevant comparison period (the business is not the same business in that period as it is now)
  • the entity’s turnover substantially increased by:
      1. 50% or more in the 12 months immediately before the applicable turnover test period; or
      2. 25% or more in the 6 months immediately before the applicable turnover test period, or
      3. 12.5% or more in the 3 months immediately before the applicable turnover test period.
  • the entity was affected by drought or other declared natural disaster during the relevant comparison period
  • the entity has a large irregular variance in their turnover for the quarters ending in the 12 months before the applicable turnover test period, excluding entities that have cyclical or regular seasonal variance in their turnover, or
  • the entity is a sole trader or small partnership where sickness, injury or leave have impacted an individual’s ability to work which has affected turnover.

We are awaiting further updates from the ATO with respect to Service Entities and the alternative test that can be relied on to access the JobKeeper payment.

Calculate GST Turnover:

You need to determine:

  • for the turnover test period – what your projected GST turnover will be
  • for the comparison period – what your current GST turnover was in 2019.

In some circumstances the definition of GST turnover can be complex. More information can be found here.

If your eligibility requires a forecast of your projected GST turnover, we recommend this forecast is backed up with appropriate documentation that should be held for a period of 5 years.

Cash or accruals basis:

You can use accrual basis of accounting to calculate the current GST turnover and projected GST turnover.

If you prepare your BAS on a cash basis, you can also rely on the cash basis.  Recently updated ATO rules appear to show that the Cash Basis can now be relied on by all businesses.  You must apply the same basis to the current GST turnover and the projected GST turnover.

More information on the Basic Test for turnover test can be found here.

4. Determine who your Eligible Employees are

Your employee is eligible if they:

  • Are employed by you;
  • Were part-time, full-time or long-term casual (employed on a regular basis for at least 12 months) as at 1 March 2020;
  • Were at least 16 years of age on 1 March 2020;
  • Were an Australian resident as at 1 March 2020 and are one of an Australian citizen, the holder of a permanent visa, or a Protected Special Category Visa Holder.
    ~ Your employee can also be an Australian tax resident who is a Special Category (Subclass 444) Visa Holder.
  • Were not in receipt of these payments during the JobKeeper fortnight:
    ~ Government parental leave or Dad and partner pay, or, payment in accordance with Australian worker compensation law for an individual’s total incapacity for work;
  • agree to be nominated by you (further information below)

You cannot claim for any employees who:

  • were first employed by you after 1 March 2020, or
  • left your employment before 1 March 2020, or
  • have been, or have agreed to be, nominated by another employer.

More information can be found here.

5. Nominate your Eligible Employees (must be finalised by 31 May)

Before you enrol to receive JobKeeper payments, you need to notify each eligible employee that you intend to nominate them as employees under the JobKeeper scheme.

You must tell those employees that you have nominated them as an eligible employee to claim the JobKeeper payment.

They must agree to be nominated by you by completing the JobKeeper employee nomination notice and returning it to you for your records.

This must be received, signed back from your employees by the end of May for the payments to apply from 30 March.

The nomination form does not need to be provided to the ATO however employers are required to keep a copy of the completed form as part of their record-keeping obligations under the law.

If an employee is currently receiving an income support payment, they must notify Services Australia (Centrelink) of their new income to avoid incurring a debt they will have to repay.

All eligible employees must be nominated for the business to be eligible for the JobKeeper.  This includes any employees who have been stood down.  You must not pick and choose which employees you would like to receive the JobKeeper as this will exclude the business from being eligible.

6. Paying Employees

You will not be eligible for the JobKeeper payment if you pay your nominated employee less than $1,500 per fortnight.

You should pay your employees for each JobKeeper fortnight you plan to claim for (this period depends on the above eligibility timing).

The first fortnight is from 30 March – 12 April and each JobKeeper fortnight follows after that.

For the first two fortnights (30 March – 12 April, 13 April – 26 April), the ATO will accept the minimum $1,500 payment for each fortnight has been paid by you even if it has been paid late, provided it is paid by you before 8 May.

This means that you can make a combined payment of at least $3,000 per employee before 8 May.

If your eligible employees earn more than $1,500 per fortnight, you should continue to pay them their regular salary or wages. However, you will only receive $1,500 for each eligible employee.

Any amount you pay above $1,500 per fortnight is not subsidised by the JobKeeper payment.

Tax and Super Consequences

  • All JobKeeper payments are assessable income of the business
  • The normal deductibility rules apply to salaries and wages paid to the employees
  • No super is required on the additional payments made to employees as a result of JobKeeper (ie, on any top up to $1,500)

For further information, a guide from the ATO for Paying Employees.

7. Enrol for the JobKeeper Payment (required by 31 May if claiming from start)

You only need to complete this step once.

  • Log in to the Business Portal using myGovID.
  • Select ‘Manage employees’ then the link for the JobKeeper payment.
  • Fill in the JobKeeper enrolment form by confirming the required fields.

Required responses:

  • Fall in turnover
  • Month
  • Expected number of employees
  • Eligible business participant (further information below)
  • Contact details
  • Bank account details

8. 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 can identify your eligible employees in one of the following ways:

9. 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 you must:

  • Ensure you have paid your eligible employees at least $1,500 per eligible employee per fortnight
  • Log in to the Business Portal to
    • 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
    • provide your current and projected GST turnover
    • reconfirm your contact and bank details for payment.

More information can be found relating to steps 7 – 9, here.

10. Eligible Business Participant:

For business owners who are not receiving a salary, however are remunerated via share of profits, distributions or dividends, then the JobKeeper payment may apply to one individual who is considered to be an eligible business participant.

There are some complexities on how this rule applies, particularly for Unit Trusts and Discretionary Trusts, and we recommend obtaining advice specific to your circumstances.

More information:

The rules regarding the JobKeeper payment are regularly being updated and there are some time critical deadlines to be met.

The ATO is posting regular updates at this website.

Should you have any questions regarding this stimulus package, eligibility requirements or any other questions, please do not hesitate to contact us on (08) 6212 7200 to discuss.

Christmas Fring Benefits

Christmas Fringe Benefit Tax (FBT) reminder

With Christmas fast approaching, it is usually the time of year where employers provide gifts or throw parties for their employees.

Follow this link to our article, which includes examples of how Fringe Benefits Tax (FBT) rules are applied and in some cases minimised, while also considering the other tax and GST rules to be aware of.

Please contact our office if you have any questions about FBT.

Tax Consolidating SME Groups

There is a common understanding that the tax consolidation regime is for the “big end of town” only.

Whilst tax consolidation does feature in the tax structuring of larger corporations, the tax consolidation regime is not only for the big end of town, but can be effectively used by Small to Medium Enterprise Groups (“SME”), the minimum requirement to form a tax consolidated group being a resident company with at least one wholly owned subsidiary company (or unit trust).

The tax consolidation regime treats the members of a consolidated group as a single entity for income tax purposes.  This means that intra-group transactions are ignored for income tax purposes and the group lodges only one income tax return for each income year.   Therefore, whilst tax consolidation is a choice, for many SME corporate groups it will be a practical necessity.

Some of the benefits that result from tax consolidating include the following:
Read more

Fringe Benefits Tax (FBT) and Salary Packaging

The 2011 Federal budget signaled significant changes to the way Fringe Benefits Tax will be calculated on the use of motor vehicles. Traditionally, motor vehicles have formed an essential part of many remuneration packages and it was initially feared that the changes to the legislation would make it prohibitive for employers to use this carrot to entice and retain employees. However, closer analysis suggests that there continues to be scope to tax effectively package motor vehicles into employee’s salary under the new regime.  Read more

Special Circumstances Found To Set Aside Excess Contributions Tax

A taxpayer has successfully argued before the AAT that there were special circumstances in his situation to allow for the exercise of the Commissioner’s discretion under the law to reallocate  superannuation contributions.

Accordingly, monies paid into his superannuation account in late July 2009 could be attributed to the 2008-2009 financial year, and this meant that the taxpayer would not exceed the (then) $50,000 contributions cap. Read more

tax planning

Tax Planning

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Electronic Lodgment and Payment Requirement for Business with More Than $20m Turnover

The ATO advises that business with a GST turnover that meets or exceeds the electronic lodgment turnover threshold of $20 million are legislatively required to: Read more

ATO Taskforce To Target Trust Structures

In the 2013–2014 Federal Budget, the ATO was provided with $67.9 million over four years to undertake compliance activity in relation to trust structures.

The taskforce will utilise intelligence systems as well as new tax return labels to gather information. Read more

The Big 10…

Below are 10 actions business owners need to take prior to 30 June to reduce their tax bill;

Read more

Are You Ready For Electronic Lodgement of Activity Statements?

Are you ready for the ATO’s changes that require electronic lodgement of Activity Statements?

From 1 July 2014, once the ATO receives an electronic lodgement of a Business Activity Statement or Instalment Activity Statement they will no longer send the paper statements. Future statements will be issued electronically.

Electronic lodgement includes through the following sources: Read more

Tax Effective Estate Planning – SMSF

Superannuation is now commonly the most significant asset of an individual after the main residence and as a result is increasingly important when putting together a tax effective estate plan.

What is not commonly known is that superannuation interests do not automatically fall under the individual estate assets on death and therefore do not automatically fall under the directions of your will. Read more