Practice Updates July 2020
Treasury Laws Amendment (2020 Measures No. 3) Bill 2020
Extending the Instant Asset Write-Off
This legislation amends the income tax law to allow a business with an aggregated turnover for the income year of less than $500 million to immediately deduct the cost of a depreciating asset (instant asset write-off). The asset must cost less than a threshold of $150,000 and be first used or installed ready for use for a taxable purpose by 31 December 2020. Without these amendments, the $150,000 instant asset write-off would have ended on 30 June 2020.
By extending the previous end date of 30 June 2020 to 31 December 2020, the amendments give businesses additional time to access the $150,000 instant asset write-off for their acquisitions of depreciating assets, including those purchases that have been delayed by supply chain disruptions.
Further, the amendments extend cash flow support to businesses through the early stages of the recovery from the economic conditions caused by COVID-19.
It will be interesting to see if this timeframe is further extended at some later point. Note that, come 1 January 2021, if there is no further extension, the $150,000 threshold for the instant asset write-off for depreciating assets will collapse to $1,000 and the turnover threshold for eligibility for the outright deduction of less than $500 million will fall to a turnover of less than $10 million.
Please contact our office if you are considering purchasing a depreciating asset for your business and want to know if you will be eligible for the instant asset write-off.
Treasury Laws Amendment (2019 Measures No. 3) Bill 2019
This has passed both Houses of Parliament and is now law
Testamentary trusts and minors
This legislation contains amendments to ensure the tax concessions available to minors in relation to income from a testamentary trust only apply in respect of income generated from assets of the deceased estate that are transferred to the testamentary trust (or the proceeds of the disposal or investment of those assets).
Broadly speaking, when a trustee distributes income to a minor it is taxed at the highest marginal rate (plus Medicare levy). However, there are certain exceptions to this rule. As a result, assets unrelated to a deceased estate that were injected into a testamentary trust may, subject to anti-avoidance rules, generate excepted trust income that was not subject to the higher tax rates on minors. This was an unintended consequence, which allowed some taxpayers to inappropriately obtain the benefit of concessional tax treatment.
Broadly speaking, when a trustee distributes income to a minor it is taxed at the highest marginal rate (plus Medicare levy). However, there are certain exceptions to this rule. As a result, assets unrelated to a deceased estate that were injected into a testamentary trust may, subject to anti-avoidance rules, generate excepted trust income that was not subject to the higher tax rates on minors. This was an unintended consequence, which allowed some taxpayers to inappropriately obtain the benefit of concessional tax treatment.
One such exception is where the trust is a testamentary trust – being a trust that was established as a result of the will of a deceased individual. Income from a testamentary trust is a type of ‘excepted trust income’ that is generally taxed at ordinary rates. Prior to this legislation being passed, the previously existing law did not specify that the assessable income of the testamentary trust be derived from assets of the deceased estate (or assets representing assets of the deceased estate).This legislation clarifies that excepted trust income of the testamentary trust must be derived from assets transferred to the testamentary trust from the deceased estate or from the accumulation of such income. This change will apply in relation to assets acquired by or transferred to the trustee of a testamentary trust on or after 1 July 2019.
Please contact our office if you have any concerns about testamentary trusts making distributions to minor beneficiaries.
JobKeeper declaration due 14 July
Businesses that have enrolled in the JobKeeper Scheme and identified their eligible employees are reminded that they will need to make a monthly declaration to the ATO to ensure they continue to receive JobKeeper payments.
The monthly declaration must be made by the 14th day of each month to claim JobKeeper payments for the previous month.
As part of the declaration, businesses will need to:
The monthly declaration must be made by the 14th day of each month to claim JobKeeper payments for the previous month.
As part of the declaration, businesses will need to:
- ensure they have paid their eligible employees at least $1,500 (before tax) in each JobKeeper fortnight they are claiming for
- re-confirm their eligible employees, including notifying if an eligible employee has changed or left employment
- provide the current and projected GST turnover of the business – note, this is not a retest of the eligibility of the business.
For example, to claim JobKeeper payments for the June 2020 JobKeeper fortnights, businesses must report their GST turnover for the month of June 2020 as well as their projected GST turnover for the month of July 2020 by 14 July 2020.
The monthly declaration can be lodged through the ATO business portal or through STP-enabled software. Alternatively, tax agents can assist clients by lodging the monthly declaration on behalf of registered clients.
Please contact our office if you require assistance with making the JobKeeper declaration.
ATO reminder for employers – Finalise STP data for 2020
The ATO has issued a reminder to employers who report through Single Touch Payroll (‘STP’) – which should be all employers unless an exemption or deferral applies – that they will need to finalise payroll information for the 2020 income year by making a declaration.The due date for making finalisation declarations is:
- 14 July 2020 for employers with 20 or more employees; and
- 31 July 2020 for employers with 19 or fewer employees.
Employers that finalise through STP are not required to provide payment summaries to employees and lodge a payment summary annual report to the ATO. Instead, employees will be able to access their payroll information (for preparation of their 2020 tax return) through a registered tax agent or via ATO online services.
Regulations confirm no SG obligation on JobKeeper payments where work is not performed
The federal government has registered the Superannuation Guarantee (Administration) Amendment (Jobkeeper) Payment Regulations 2020.These regulations ensure that amounts of salary or wages that do not relate to the performance of work and are only paid to an employee to satisfy the wage condition for getting the JobKeeper payment are prescribed by the Regulations as excluded salary or wages.
The effect is that these amounts are excluded from the calculations of an employer’s superannuation guarantee shortfall and the minimum compulsory superannuation contribution an employer is required to make in respect of an employee to avoid a superannuation guarantee charge liability.
Likewise, the Regulations recognise that an employer is only entitled to a JobKeeper payment for its employees if the business has suffered a substantial decline in turnover.
In these circumstances, it is appropriate to require employers to only make minimum superannuation contributions in respect of amounts that are required to be paid to an employee for the performance of work.
Employers would not be required to make contributions in relation to additional amounts paid to satisfy the wage condition (for example, the amount by which $1,500 exceeds an employee’s normal pay).
If you are concerned about the calculation of compulsory superannuation for any employees supported by JobKeeper, please contact our office.
COVID-19 and Division 7A relief
The ATO has announced some limited relief for private companies that have loans to their shareholders or related parties that are governed by what are referred to as “complying loan agreements”.
A complying loan agreement is entered into to avoid triggering an assessable deemed dividend that could potentially be equal to the amount of the loan from the private company. When there is a complying loan agreement between a private company and a borrower, the borrower must make the minimum yearly repayment (MYR) by the end of the private company’s income year. This avoids the borrower being considered to have received an unfranked dividend, generally equal to the amount of any MYR shortfall.
As a result of the COVID-19 situation, the ATO understands that some borrowers are facing circumstances beyond their control. To offer more support, the ATO will allow an extension of the repayment period for those borrowers who are unable to make their MYR by the end of the lender’s 2019–20 income year (generally 30 June).
Requesting the extension
A request for a 12-month extension can be made through the completion of an online application. Borrowers will be asked to confirm the shortfall, that the COVID-19 situation has affected them and that they are unable to pay the MYR as a result.
When the ATO approves an application, it will let the borrower know they will not be considered to have received an unfranked dividend. This is subject to the shortfall being paid by 30 June 2021. It will not be necessary to submit further evidence with the application.
This particular streamlined process established by the ATO only applies to applications for an extension of up to twelve months for COVID-19 affected borrowers. It is still open to a borrower to apply to obtain a longer extension of time outside the streamlined process.
If you have been affected by the COVID-19 situation and need more to time to make your minimum yearly repayment (MYR) in relation to complying loans from private companies, contact our office for assistance.
Guidance on JobKeeper reporting via STP
The ATO has issued guidance to help employers reporting eligible employees and JobKeeper top-up payments through Single Touch Payroll (‘STP’).
For each eligible employee, employers must notify the ATO:
The ATO has issued guidance to help employers reporting eligible employees and JobKeeper top-up payments through Single Touch Payroll (‘STP’).
For each eligible employee, employers must notify the ATO:
- when an eligible employee started being paid JobKeeper payments
- top-up payments to employees earning less than $1500 per fortnight, and
- when an employee is no longer eligible and JobKeeper payments need to be stopped.
The ATO says this process will be managed through the ‘STP Pay Event’ by entering the relevant JobKeeper description (as outlined below) in the ‘Other Allowances’ field.
To report the JobKeeper start fortnight for an eligible employee
Use the description ‘JOBKEEPER-START-FNXX’ where ‘XX’ represents the JobKeeper fortnight from which the first payment is made.
Report the amount as ‘zero’, or $0.01 if the software does not support reporting ‘zero’.
To report a top-up payment for an eligible employee ordinarily earning less than $1,500 per fortnight
Use the description ‘JOBKEEPER-TOPUP’ for the top-up amount.
To report the first full JobKeeper fortnight an employee became ineligible:
Use the description ‘JOBKEEPER-FINISH-FNXX’ where ‘XX’ represents the JobKeeper fortnight in which the last payment is made.
For example, an employee resigns, and their last payment was on 13 May 2020. As this falls in JobKeeper fortnight 04 (being 11/05/2020 – 24/05/2020), the description ‘JOBKEEPER-FINISH-FN04’ should be used to notify the ATO that the employee is not eligible for JobKeeper from FN05.
Making corrections to (previously reported) JobKeeper start and finish information
The ATO’s guidance identifies several situations where errors made in reporting the JobKeeper start or finish information may need correction and sets out options for doing so.
In particular, guidance is provided for making corrections where:
- the wrong employee was reported as starting or finishing
- a later start or finish fortnight is incorrectly reported
- an earlier start or finish fortnight is incorrectly reported, or a future-dated start or finish fortnight is reported.
The ATO is urging employers to exercise extreme caution to ensure the accuracy of originally reported information as multiple corrections cannot be made through the STP Pay Event, ‘Other Allowances’ field.
Please contact our office if you require more information or assistance on reporting JobKeeper payments through STP.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. You are welcome to contact our office on 03 9587 7316 or email info@bayviewaccounting.com.au for further advice and assistance.