2020 Tax Planning - It's now or never!


The below post has a lot of useful information - get a cup of your favourite beverage and have a read. As always give us a call anytime to discuss how we can help you before 30 June 2020

What’s new

2020-21 Federal Budget delayed until October

The release of the 2020-21 Federal Budget has been postponed from its traditional date in May until 6 October 2020. We expect there will be a number of reforms and measures to tighten spending, recover revenue, and range of productivity measures. We will keep you advised of significant changes that might impact on you and your company.


Company tax rate reduction

From 1 July 2020, the company tax rate for base rate entities will reduce to 26%.


Utilising franking credits

The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by base rate entities (BRE). The way the rules normally work is that if the company was classified as a base rate entity and was taxed at the lower corporate tax rate in the previous year then a lower maximum franking rate will apply to dividends paid in the current year. For example, the maximum franking rate for a BRE that pays a franked dividend in the 2020 year is 27.5%. However, in 2021, the maximum franking rate will be 26%.

Some companies may have franking account balances that have accumulated over time and will reflect prior company tax rates. It is important to consider how these credits can be utilised in an efficient manner. One strategy could be to bring forward the payment of dividends to utilise the current 27.5% franking rate before the company tax rate reduces to 26% if the cashflow of the company allows for it.


Living with JobKeeper

The JobKeeper $1,500 per fortnight per employee subsidy is paid in arrears to businesses that have experienced a downturn of 30% or more. The purpose of the scheme is to keep workers employed and ensure there is a viable workforce on the other side of the pandemic.

At present, JobKeeper is set to continue until 27 September 2020. And for businesses, JobKeeper’s decline in turnover is a once only test. If the eligibility criteria were met at the time of applying for JobKeeper, a business can continue claiming the subsidy assuming the other eligibility criteria for them and the individual employees, are met.

However, we expect continuing eligibility to the subsidy will change over time as the regulators gain a clearer insight into the impact of the pandemic. Much of this data is likely to come from the actual and estimated GST turnover that forms part of the compulsory monthly JobKeeper reporting requirements in tandem with the volume of applications to Jobseeker. That is, are the right businesses receiving JobKeeper and is the subsidy keeping workers employed?

If your business did not initially qualify for JobKeeper, you can apply to start JobKeeper payments when you meet the eligibility criteria.

One of our most asked questions about the decline in turnover test is ‘what if I got it wrong?’ Eligibility is generally based on an estimate of the negative impact of the pandemic on an individual business’s turnover. Some will experience a greater decline than estimated while others will fall short of the required 30%, 50% or 15%. There is no clawback if you got it wrong as long as you can prove the basis for your eligibility going into the scheme. For those that, in hindsight, did not meet the decline in turnover test, you need to ensure you have your paperwork ready to prove your position if the ATO requests it. You will need to show how you calculated the decline in turnover test and how you came to your assessment of your expected decline, for example, a trend of cancelled orders or trade conditions at that time.


Making JobKeeper payments on time

To be eligible for JobKeeper payments, staff must be paid at least $1,500 during each JobKeeper fortnight. If you pay employees less frequently than fortnightly, the payment can be allocated between fortnights in a reasonable manner. For example, if you pay your employees on a monthly pay cycle, your employees must have received the monthly equivalent of $1,500 per fortnight.

Tax treatment of Government grants and relief

During the pandemic, bushfires and floods, grants and loans have been available to help business and individuals through the crisis. The way these grants and loans are taxed will vary.

If you carry on a business and the payment relates to your continuing business activities, then it is likely to be included in your assessable income for income tax purposes. This position is likely to be different where the payment was made to enable you to commence a new business or cease carrying on a business.

Grants will generally be assessable income unless a law has been passed to specifically exclude the grant or loan from tax. For example, the amounts provided under the cash flow boost measure are non-assessable non-exempt income.

When it comes to GST treatment, the key issue is whether the grant is consideration for a supply. That is, was the business expected to deliver something for the grant? The following government payments are not consideration for a supply and therefore not subject to GST or included in your GST turnover:

· JobKeeper payment

· Cash flow boost payment

· The Early Childhood Education & Care Relief Package paid to approved child care providers

· Payment of grants to an entity where the entity has no binding obligations to do anything or does not provide goods and services in return for the monies.


Superannuation guarantee amnesty

7 September 2020 is the last day for employers to take advantage of the superannuation guarantee (SG) amnesty. The amnesty provides a one-off opportunity to disclose historical non-compliance with the superannuation guarantee rules and pay outstanding superannuation guarantee charge amounts.

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.

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 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.


Utilising the $150,000 instant asset write-off

The instant asset write-off enables your business to claim an upfront deduction for the full cost of depreciating assets in the year the asset was first used or installed ready for use for a taxable purpose.

The COVID-19 stimulus measures temporarily increased the threshold for the instant asset write-off between 12 March 2020 and 30 June 2020 from $30,000 to $150,000, and expanded the range of businesses that can access the threshold to those with an aggregated turnover of less than $500 million.

For example, if your company’s turnover is under $500 million and you purchase an eligible asset for $140,000 (GST-exclusive) on 1 June 2020 (and install it ready for use by 30 June 2020), then a deduction of $140,000 can be claimed. If the company is subject to a tax rate of 27.5% then this should reduce the tax payable by the company for the 2020 income year by $38,500.

If your business is likely to make a tax loss for the year, then the instant asset write-off is unlikely to provide a direct short-term benefit to you. However, if this measure is likely to reduce the taxable income of the business for the year then it may be possible to vary upcoming PAYG instalments to improve cash flow.

If the asset is a luxury car then the deduction will be limited to the luxury car limit ($57,581 in 2019-20).

The business use percentage of the asset also needs to be taken into account in calculating the deduction. For example, if a sole trader acquires a car for $40,000 but only expects to use it 80% in the business then the immediate deduction would be $32,000.

At this stage it is expected that the instant asset write-off threshold will reduce back to $1,000 from 1 July 2020 for small business entities and that the instant asset write-off rules will no longer be available to medium and large businesses.


If the closing balance of the pool, adjusted for current year depreciation deductions (i.e., these are added back), is less than $150,000 at the end of the 2020 income year, then the remaining pool balance can be written-off as well.

Pooling is not available for medium and large businesses, which means that the depreciation rules will apply to assets that don’t qualify for an immediate deduction.


Accelerated depreciation deductions

Businesses with a turnover of less than $500 million can access accelerated depreciation deductions for assets that don’t qualify for an immediate deduction for a limited period of time.

This incentive is only available in relation to:

  • New depreciable assets

  • Acquired on or after 12 March 2020 that are first used or installed ready for use for a taxable purpose by 30 June 2021.

It does not apply to second-hand assets or buildings and other capital works expenditure. The rules also won’t apply if the business entered into a contract to acquire the asset before 12 March 2020.

Businesses are able to deduct 50% of the cost of a new asset in the first year. They can then also claim a further deduction in that year by applying the normal depreciation rules to the balance of the cost of the asset.

Accelerated depreciation deductions apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.

Directors at risk of personal liability for company’s GST liabilities

The director penalty regime enables the ATO to recover amounts owed by a company for unpaid PAYG withholding amounts and superannuation guarantee liabilities from the directors or former directors.

From 1 April 2020, the existing director penalty regime was expanded to include GST, luxury car tax and wine equalisation tax liabilities. The expansion of this regime means that company directors, regardless of whether they are passively or actively involved, are at risk of being held personally liable for a large portion of a company’s estimated liabilities.

Directors are under a general obligation to ensure the company either satisfies its tax liabilities, or recognising the company may be insolvent, goes into administration or is wound up. Resigning as a director after the event has no impact as the obligation attaches to the individual directors equally. If the Commissioner issues a penalty notice, the director becomes personally liable at that point. There is a grace period for new directors, but they can become liable for obligations that arose before they became a director.

Strict timeframes are in place for the issuing of notices by the Commissioner and the required responses from the individual. If you receive a director penalty notice, or if you are concerned that you are at risk of receiving a notice, please contact us immediately.


Reporting payments to contractors

The taxable payments reporting system requires businesses in certain industries to report payments they

make to contractors (individual and total for the year) to the ATO. ‘Payment’ means any form of

consideration including non-cash benefits and constructive payments. Almost every year a new industry or sector is drawn into the taxable payments reporting net.

Taxable payments reporting is required for:

· Building and construction services

· Cleaning services

· Courier services

· Road freight services

· Information technology (IT) services

· Security, investigation or surveillance services

· Mixed services (providing one or more of the services listed above)

The annual report is due by 28 August 2020. This will be the first report for those businesses providing road freight, information technology, and security, investigation or surveillance services.


1 January 2020 changes to Super Guarantee calculation

From 1 January 2020, new rules came into effect to ensure that an employee’s salary sacrifice contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.

Previously, some employers were paying SG on the salary less any salary sacrificed contributions of the employee. Now, employers must contribute 9.5% of an employee’s Ordinary Time Earnings (OTE) and they choose whether or not to include the salary sacrificed amounts in OTE.

Under the new rules, the SG contribution is 9.5% of the employee’s ‘ordinary time earnings (OTE) base’. The OTE base will be an employee’s OTE plus any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement.

The amendments also ensure that where an employer has not fulfilled their SG obligations and the superannuation guarantee charge is imposed, the shortfall is calculated using the new OTE base.


Cents per kms change for work-related car expenses

The rate at which work-related car expenses can be claimed using the cents per kilometre method will increase from 1 July 2020 from 68 cents to 72 cents per kilometre.

Using this method a maximum of 5,000 business kilometres can be claimed per year per car.

Impending changes

Division 7A reforms

Division 7A captures situations where shareholders access company profits in the form of loans, payments or forgiven debts. If certain steps are not taken, such as placing the ‘payment’ under a complying loan agreement, these amounts are treated as a deemed unfranked dividend and taxable at the taxpayer’s marginal tax rate.

Sweeping reforms to the operation of Division 7A were to take effect from 1 July 2020. However, these reforms have not been enacted. Given the extent of the proposed changes and the uncertainty created by COVID-19, we expect the timing of these reforms to be revised in the October federal budget.


Single touch payroll extension for closely held employees

Many small businesses have closely held employees such as family members, directors or shareholders of a company, and beneficiaries of a trust. Small businesses with 19 or fewer employees were to start reporting these closely held employees through single touch payroll (STP) from 1 July 2020. In response to the COVID-19 pandemic however, the ATO has granted an extension until 1 July 2021.

Your business can start voluntarily reporting these closely held employees, and many may have already done so to access JobKeeper payments, but it is not a requirement until 1 July 2021.

All other employees should be reported through STP.


R&D tax incentive overhaul

The impending overhaul of the R&D tax incentive system is not yet law. Originally intended to take effect from 1 July 2018, the sweeping reforms are now set to take effect from 1 July 2019, assuming the legislation passes Parliament.