Winter is here and we are almost to the end of another financial year. And what a year it’s been! With so many Australians impacted by fires, floods, drought and now COVID-19, let’s hope the new financial year sees a return to something like normality.

As May unfolded, hopes grew of economic re-opening. Reserve Bank Governor Philip Lowe told a Senate Committee on COVID-19 the economic downturn was less severe than feared due to Australia’s better than expected health outcomes and government stimulus and support. However, he stressed: “It’s very important we don’t withdraw fiscal stimulus too early”. Unemployment rose from 5.2% to 6.2% in April, but without JobKeeper support payments it would have been closer to 9.6%. The value of construction work fell 19% in the March quarter, 6.5% over the year, highlighting the need for government stimulus. New business investment in buildings and equipment also fell 6.1% in the year to March, although mining investment bucked the trend, up 4.2% in the March quarter. This was reflected in our record trade surplus of $77.5 billion in the year to April, despite a drop-off in imports and exports in April.

After a wave of panic buying in March, retail trade fell a record 17.9% in April, but consumer confidence is on the mend. The ANZ-Roy Morgan weekly consumer confidence index rose 8 weeks in a row to the end of May, up a total of 42% from recent lows to 92.7 points. As the global economy slowly re-opens and demand improves, iron ore prices rose 15% in May while crude oil was up 77%. Australian shares bounced back by around 5% in May, while the US market rose 3%. The Aussie dollar traded higher on our improved economic outlook, closing the month around US66.4c

Tax Alert June 2020

With COVID-19 dominating everyone’s thoughts, employers are being offered a brief window of opportunity to get their tax affairs in order with the new Superannuation Guarantee (SG) amnesty. There is also a range of virus related assistance on offer to help affected business and individual taxpayers.

Here’s a roundup of some of the latest tax developments and support measures.

New amnesty for unpaid SG contributions

Employers are being offered a one-off opportunity to disclose and pay any unpaid Superannuation Guarantee (SG) amounts stretching back to the beginning of compulsory super, with legislation for the long-awaited SG amnesty finally in place.

The amnesty (which runs until 7 September 2020), allows employers to lodge an SG amnesty form to disclose super contribution shortfalls for their employees for any quarter from 1 July 1992 to 31 March 2018.

To encourage employers to take advantage of the amnesty, it will not incur the normal interest, administration charges and non-payment penalties of up to 200 per cent. Employers can also claim a tax deduction for any SG payments, provided they are made by the September 7 cut-off date.

As legislation for the amnesty doesn’t allow any deadline extensions, the ATO has announced it will offer deferred payment plans to eligible businesses affected by COVID-19.

This brief amnesty also comes with a warning. The regulator has reminded businesses that the new Single Touch Payroll (STP) reporting system gives it more information on payment of employee entitlements and this will increasingly be used to identify non-compliant employers in future.

Assistance for taxpayers affected by COVID-19

In light of the challenging business conditions created by the coronavirus lockdown, the ATO is offering measures to assist taxpayers experiencing financial difficulties.

Unlike the bushfire tax relief, COVID-19 assistance measures will not be automatic. If you are affected, the ATO is encouraging you to get in touch to discuss relief options and a tailored support plan.

Support may include deferring payment of your PAYG instalments, business activity statement (BAS) liabilities and assessment amounts for income tax and excise, by up to four months.

If your business is on a quarterly reporting cycle, you may also opt into monthly GST reporting to get quicker access to your GST refunds. You may also be permitted to vary your PAYG instalment amounts to zero for the March 2020 quarter and claim refunds for instalments you paid for the September and December 2019 quarters.

However, employers still need to meet ongoing SG obligations for their employees.

The ATO will also work with individuals experiencing financial hardship and may offer tax relief if you are in serious and exceptional circumstances, such as being unable to pay for food or accommodation.

Fringe benefits tax deferred

Due to the challenges created by the COVID-19 lockdown, the ATO has also deferred lodgment of all 2019–20 fringe benefits tax (FBT) annual returns.

This means your business is not required to lodge your annual return or pay your FBT liability until 25 June 2020.

Directors liable for unpaid tax

Company directors need to remember that from 1 April 2020 they are personally liable for their company’s unpaid GST, luxury car tax or wine equalisation tax liabilities.

The new Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2019 has extended the existing director penalty notice (DPN) regime, which is designed to protect employee entitlements such as PAYG withholding and SG contributions.

If you are a company director on the final day of a tax period or GST instalment quarter, you become personally liable for any GST remaining unpaid by the due date. If your company does not lodge a return, the ATO can estimate the amount of unpaid tax.

Claims for residential rental properties

The ATO has provided landlords with new guidance on tax deductions if they have tenants who are temporarily not paying rent, or paying reduced rent, due to COVID-19.

If landlords are still incurring normal expenses on the property, they can continue to claim these expenses in their tax return.

End of Financial Year checklist

It always takes some planning to get your finances in order for the end of financial year, and this year may look a little different, come June 30. The COVID-19 pandemic may have impacted your circumstances and therefore your situation could be looking different to normal.

Perhaps you have been working from home, your wages may have reduced or been boosted by government payment support, or you have had to make major financial decisions as a result.

Here are things to consider to ensure you’re on the front foot come June 30.

Working from home deductions

Whether you’re used to working from a home office or have been forced to due to COVID-19, it’s good to be across what you can claim on tax.

Given that working from home is a new situation for many, the Australian Taxation Office has made it easier to claim deductions. You won’t have to submit a detailed logbook, as you can now claim a deduction of 80 cents for each hour you work from home due to COVID-19. Therefore you only need to keep track of the hours you work from home, along with proof of your expenses.

There are a couple of provisos with this ‘shortcut method’: the work needs to be fulfilling your employment duties (not simply checking your email every now and then) and you must have incurred additional deductible running expenses as a result of working from home. These home deductions must be directly related to earning your income – as tempting as it is to claim Netflix as a research tool, unless you’re a television critic this is unlikely to fly!

You need to keep records of your expenses and be able to show that you, not your employer, has paid for them. You must also include any allowance you receive from your employer as income on your tax return. Be mindful that the ‘shortcut’ method may not be the best for your circumstances and it may be worthwhile, if a little more laborious, sticking to the old method. For more information on working from home deductions, visit the ATO’s website.

Boosting your super

While the COVID-19 situation has seen some dipping into their superannuation, if you’re able to, it’s always a smart idea to use the end of financial year to give your super a bit of a boost as even the smallest amount can really add up over time.

There are many ways of growing your super to think about, including;

• Making tax deductible contributions,
• Salary sacrificing up to your $25,000 annual cap
• The low income super tax offset is available to those who earn $37,000 or less a year, and means that if you or your employer contribute to your super, you may be eligible for a tax offset of up to $500 per year,
• The spouse contributions tax offset means you may be able to claim an 18% offset (maximum of $540 offset) on contributions up to $3000, that you make on behalf of your non-working or low-income-earning partner.

Bring forward expenses

If you are in a position to do so, bring forward any expenses and delay income. This may not be possible for many businesses and individuals in the current climate, but it’s worth keeping in mind if this is an option for you.

Working from home may have made you realise you need to upgrade your home computer or invest in better office furniture. Making your purchases before the end of the tax year will not only impact your return sooner rather than later, but you can take advantage of EOFY sales.

Clear the decks

With some tough times ahead on the economic front, it’s is a good time to evaluate your income and expenditure. Now is the perfect time to look at your insurances, utilities and seek out any no longer relevant expenses to see what you can cut back on.

It’s a bit of a different environment for end of financial year this year, if we can do anything to make things easier for you please get in touch.

Could your business do with a cash flow boost?

The two cash flow boosts provided by the federal government to help businesses deal with the COVID-19 emergency have largely been overshadowed by the JobKeeper program, but they could provide valuable financial support to organisations that qualify.

Some businesses may have already noticed refund payments or tax credits appear in their tax account.

With the Australian Taxation Office (ATO) warning it will be watching for businesses trying to take advantage of the support measures, it’s worth understanding how the scheme works and what you may be entitled to.

Enhancing your cash flow

The Boosting Cash Flow for Employers scheme is a temporary measure for small and medium-sized employers and not-for-profit (NFP) organisations.

Financial support is being delivered in the form of tax and GST-free credits totalling between $20,000 and $100,000 to eligible businesses.

For most businesses, the cash flow boosts don’t come in the form of tax refunds, but credits against your tax liabilities instead. The tax credits are automatically applied to your business account when you lodge your business activity statement (BAS).

Eligibility for the tax credits

Your business may qualify for the cash flow boost regardless of whether it’s a small or medium entity, NFP, sole trader, partnership, company or trust.

To be eligible, your business must have held an Australian Business Number on 12 March 2020. Small and medium entities and NFPs must have an aggregated annual turnover under $50 million.

In addition, your business must have withheld tax from salary and wages; director fees; and eligible retirement, termination, and compensation payments; or undertaken voluntary withholding for contractors.

Also, the entity must have earned business income in 2018-19 and lodged its 2019 tax return on or before 12 March 2020. Alternatively, you must have made GST taxable, GST-free or input-taxed sales in a tax period since 1 July 2018 and lodged the relevant BAS on or before 12 March 2020.

Receiving your cash flow boosts

If you qualify, your business will receive its first tax credit through the BAS system from 28 April 2020.

Eligible businesses with a deferred BAS lodgment date due to the recent natural disasters won’t miss out. The ATO will apply your tax credit when you eventually lodge your activity statement.

Businesses qualifying for the initial cash flow boost will generally receive a second tax credit for the period July to September 2020.

How much you will receive

Your cash flow boost is generally the amount you withhold from salary and wages each monthly or quarterly period. In 2019-20, eligible businesses will receive a credit equal to 100 per cent of the tax withheld, up to a maximum of $50,000.

The minimum credit for a business is $10,000, even if the tax required to be withheld is zero. In this situation, you will be ineligible for subsequent boosts until your withholding exceeds $10,000 for a relevant period.

If your business lodges activity statements in 2020-21, your second payment will be based on the value of your initial cash flow boost (up to a maximum of $50,000).

Boost amounts are automatically applied to your business’s tax account and are used to reduce your BAS tax liabilities. You will only receive a refund from the ATO if the credit amounts exceed your business’s other tax liabilities or you overpay your activity statement.

The tax man is watching

Although the tax credits will provide valuable financial support for businesses under pressure due to COVID-19, the ATO warns it is paying close attention to the scheme. It says some businesses are trying to artificially create or inflate an entitlement to the support measures.

Business restructures or changes to the way employees are paid will attract the ATO’s attention. As will splitting your business to get below the $50 million turnover threshold, or increasing wages paid in a particular month to maximise your cash flow boost.

The ATO also intends to utilise employee data it now has available through the Single Touch Payroll system to identify employers doing the wrong thing.

If you would like help managing your cash flow during this challenging period, contact our office today.