November 2020 Tax Update
JobMaker Hiring Credits: What We Know So Far
We’ve had quite a few questions about the JobMaker hiring credit announced in the 2020-21 Federal Budget. The legislation enabling the JobMaker scheme has not passed Parliament as yet and until this occurs, the JobMaker rules are not certain and may change. More details should be available soon and we’ll let you know as soon as we have some certainty. Here is what has been announced so far:
What is JobMaker?
JobMaker is a credit available to eligible businesses for hiring additional employees (not if you are merely replacing someone who left). The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021.
The credit provides:
$200 per week for new employees between 16 to 29 years of age, and
$100 a week for new employees between 30 to 35 years of age.
Payment is from the start date of the employee for 12 months.
When do the credits start?
Assuming the legislation passes Parliament and your business and the employee are eligible, and the ‘additionality’ test is passed, credits can be claimed for employees hired from 7 October 2020 until 6 October 2021. The credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. The credit is an incentive for the employer to support wage costs and not passed onto the employee.
How can we access JobMaker?
There are three tests for JobMaker:
1 - Employer eligibility
Has an ABN
Up to date with tax lodgements
Registered for PAYG
Reporting through single touch payroll
Keeps adequate records of the paid hours worked by the employee they are claiming the credit for
Another employer is not claiming JobMaker for the same employee
2 - Employee eligibility
Received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one month within the three months before they were hired
Between 16 and 35 years of age at the time their employment started
Worked at least 20 hours per week on average for the full weeks employed for the period being claimed. If the employee worked less than 20 hours, the employer cannot claim JobMaker for them during that period
Started work between 7 October 2020 and 6 October 2021
The first year of employment with the employer
The employer is not receiving other forms of assistance from the Commonwealth Government for the employee, for example JobKeeper or an apprenticeship subsidy
3 - Additional employee test (additionality test)
The employer’s:
Total employee headcount on the last day of the reporting period increased by at least one additional employee compared initially to 30 September 2020, then to the previous reporting period.
Total payroll for the reporting period increased compared initially to the September quarter 2020 (July, August, September 2020), then to the previous reporting period. The hiring credit cannot exceed the increase in payroll.
The JobMaker credit and the details of how the rules will apply are subject to change. Please do not make decisions based on the JobMaker information available as the final shape of the legislation could change. We will provide a summary of the rules and how you can claim the JobMaker hiring credit as soon as the rules are confirmed.
Tax deductions for investing in your business
Stimulating investment is high on the Government’s agenda. To encourage spending, the 2020-21 Budget introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s installed ready for use, rather than being claimed over the asset’s life. And, there is no cap on the cost of the asset.
When it comes to second-hand assets businesses with an aggregated turnover under $50 million can claim an immediate deduction for the cost of second-hand assets under the new measures.
For small business entities that have assets in a general pool the changes seek to ensure that pool balances are completely written-off for tax purposes in the 2021 and 2022 income years.
These super-charged immediate deduction rules tie into the existing instant asset write-off for businesses with a turnover under $500 million(summarised below).
The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs, etc.) and certain intangible assets that don’t qualify for the new rules.
Instant asset write-off threshold for Aggregated turnover* under $10m
1 Jul 2018 – 28 Jan 2019 $20,000
29 Jan 2019 – 2 Apr 2019 $25,000
2 Apr 2019 – 11 Mar 2020 $30,000
12 Mar 2020 – 31 Dec 2020 $150,000
6 Oct 2020+ – 30 Jun 2022 unlimited
If your business will make a tax profit this year, this measure is likely to reduce the taxable income of the business for the year and it may be possible to vary upcoming PAYG instalments to improve cash flow. If your business operates through a company and will make a tax loss, you might be able to use the loss to offset tax paid in previous years. Alternatively, tax losses can generally be carried forward to a future year.
*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.
Refunds for Tax Losses
If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits.
In the 2020-21 Federal Budget, the Government announced that businesses with turnover under $5bn will be able to offset any losses made between 2019-20 and 2021-22 against previously taxed profits between 2018-19 and 2020-21.
The loss carry-back rules enable a company to offset tax losses against profits taxed in a previous year, generating a refundable tax offset. The amount carried back can be no more than the earlier taxed profits, limiting the refund to the company’s tax liabilities in the profitable years. The company can choose to carry-back a loss or carry it forward. That is, tax losses for the 2019-20, 2020-21 or 2021-22 income years can either be:
Carried forward and deducted against income derived in later income years; or
Carried back against income of earlier income years as far back as the 2018-19 income year to produce a refundable tax offset.
Previously, tax losses could only be carried forward and deducted against income in later income years.
What entities are eligible to carry-back losses?
Corporate tax entities are eligible to carry-back losses BUT only if the entity has lodged an income tax return for the current year and each of the five years immediately preceding it. If your company has not kept up to date with its reporting obligations, it might not be able to use the new rules.
The carry-back cannot generate a franking account deficit. That is, the refund is further limited by the company’s franking account balance.
JobKeeper clawback begins
At the recent Senate Estimates hearing, Jeremy Hirschhorn, the ATO’s Second Commissioner, stated that $120 million in JobKeeper payments had been clawed back from those either deliberately seeking to rort the system or who had made reckless mistakes. Mr Hirschhorn went on to say that there did not appear to be widespread fraud across the Government’s stimulus measures and most mistakes were honest. In the cases identified so far, JobKeeper had not been clawed back from employers making honest mistakes but these employers were prevented from making future claims.