JobKeeper has been extended for another 13 fortnights albeit with additional eligibility criteria and reduced payment rates.
And once again, at present, the fine detail of eligibility and access to JobKeeper 2.0 has not been released. As soon as we see anything, we’ll let you know.
Also of note this month is the Division 7A relief for those impacted by COVID-19 and unable to make the minimum yearly repayments by the end of the 2020 income year.
Finally, the ATO has extended the shortcut method for working from home deductions but has also reiterated the rules – if your clients are forced to work from home, they cannot necessarily claim occupancy costs for home office expenses.
From Government
JobKeeper 2.0
On 21 July, the Treasurer announced an extension of the JobKeeper scheme beyond 27 September 2020 and released high level details on modifications to the scheme.
JobKeeper has been extended for an additional 13 fortnights commencing 28 September 2020 until 28 March 2021. The modifications apply in two stages (28 September – 3 January 2021, an 4 January 2021 to 28 March 2021).
- Employers seeking to claim JobKeeper payments for the additional periods will need to reassess their eligibility and pass additional decline in turnover tests. The additional tests will be based on actual GST turnover rather than projected GST turnover, although it remains to be seen where there will be any flexibility in the methods that are used to calculate GST turnover.
- In order to qualify for JobKeeper payments for the period 28 September 2020 to 3 January 2021 the entity will need to pass a decline in turnover test for both the June 2020 quarter and the September 2020 quarter.
- In order to qualify for JobKeeper payments for the period 4 January 2021 to 28 March 2021 the entity will need to pass a decline in turnover test for each of the June 2020 quarter, the September 202 quarter and the December 2020 quarter.
- Employee eligibility will remain broadly the same as for the initial scheme but the value of the JobKeeper payments will change from 28 September, with two tiers of payment depending on average weekly hours worked in February 2020. At a high level, JobKeeper payments from 28 September 2020 will be paid at $1,200 per fortnight, although this reduces to $750 for those who worked less than 20 hours per week on average in the four weeks of pay periods before 1 March 2020. The payment rates will drop further to $1,000 and $600 respectively from 4 January 2021. Similar reductions apply to eligible business participants and the main question at this stage is how the average working hours will be determined. We will need to wait for further guidance on this point and for any alternative rules that will apply to employees and eligible business participants who had irregular hours or had other extenuating circumstances in February 2020.
Early access to superannuation extended
The Government has also announced that the special provisions allowing individuals early access to their superannuation benefits will be extended until 31 December 2020. There do not appear to be any changes to the eligibility requirements to access this measure and there is no increase in the amount that can be withdrawn from super under this measure.
More information
From the ATO
Simplified home office deductions extended
As previously mentioned in the Knowledge Shop June 2020 tax round-up the ATO has released a practical compliance guideline (PCG 2020/3) outlining a new shortcut method that can be used by taxpayers to claim running expenses when working from home.
The relaxed rules were originally intended to apply during the period from 1 March 2020 until 30 June 2020. However, these have now been extended until 30 September 2020, with the ATO indicating that this might be extended further.
The shortcut method allows qualifying individuals to claim a deduction using a standard rate of 80 cents per hour, for each hour worked from home during the relevant period.
More Information
Division 7A minimum repayment relief
When a loan from a private company to a shareholder or their associate is placed under a complying Division 7A loan agreement this will generally prevent the full loan balance from being treated as a deemed unfranked dividend. However, a deemed dividend can arise in future years if the borrower does not make the required minimum loan repayments by year-end.
The ATO has provided administrative relief for taxpayers affected by COVID-19 who were unable to make the minimum yearly repayments on their Division 7A loans by the end of the 2020 income year.
Where clients have been unable to meet their minimum repayment obligations for the 2020 income year, it may be possible to apply for an extension of time to make the repayments using a streamlined application process that has been established by the ATO. However, shortfalls of the minimum yearly repayments for the 2020 income year would need to be rectified by 30 June 2021.
Where the ATO approves an application, they will advise the borrower that they will not be considered to have received an unfranked dividend in the 2020 year, subject to the shortfall being paid by 30 June 2021. The application form, and guidance on how this is completed and lodged, can be found at the following link. The form requires details of the entity that made the amalgamated loan, the terms and the shortfall, and details about how the COVID-19 situation has affected the clients personal circumstances.
More information
Carrying on rental business – private ruling supporting information
In a number of different areas, the ATO has been releasing guidance on the additional information or documents that may be required as part of a private ruling application relating to the relevant matter. Recent guidance includes the information that should be provided with applications relating to two common issues:
- Whether a taxpayer is carrying on a business of leasing rental properties, and
- Whether a taxpayer is providing short-term accommodation.
These distinctions can be important in a range of areas including certain small business concessions (including the depreciation rules), GST, and qualifying for the lower company tax rate.
Both these guidelines contain extensive lists of the types of documentary evidence or other details that would usually be required by the ATO in assessing a private ruling application in either area, which should be of assistance in preparing these for clients.
Even if a client is not seeking a private ruling from the ATO, these guides are a useful reference point in identifying the key factors that should be taken into account in determining whether a client is carrying on a rental business or providing short-term accommodation.
More Information
- Carrying on a business of letting rental properties – supporting information
- Carrying on a business of providing short-term accommodation – supporting information
Reportable tax position schedule for large private companies
From the 2021 income year, all companies that meet certain criteria are required to lodge a reportable tax position (RTP) schedule setting out material positions taken with respect to contentious matters.
For example, the ATO provides in relation to the schedule that a reportable tax position is one:
“you consider the material position taken is either:
- about as likely to be correct as incorrect, even if it is reasonably arguable; or
- is less likely to be correct than incorrect.”
For the 2021 year, the first in which large private companies will need to complete the schedule, they only need to lodge the RTP schedule if they are notified by the ATO of a requirement to do so. The ATO notifications will start to issue in July 2020.
For these purposes, large private companies are companies that have total business income of either:
- $250 million or more; or
- $25 million or more, and are a part of a private economic group with total business income of $250 million or more.
Total business income (the amount reported at the ‘Total income’ label of the company tax return) will be calculated from the 2019 company tax return and 2019 tax returns of other entities in the economic group.
The RTP schedule is part of the company tax return and is required to be lodged by the due date of the company’s tax return.
Entities that are not companies, but who are required to lodge company tax returns, don’t need to lodge an RTP schedule.
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Vacant land guidance
The ATO has released some brief guidance on key tax issues that may be relevant where clients hold vacant land, including the often crucial question of whether the land is held on revenue or capital account and whether deductions can be claimed for holding costs.
The guide focuses on the position prior to 1 July 2019 so it is important to remember that from this date onwards the rules have been changed and prevent deductions from being claimed for costs associated with holding vacant land in certain circumstances.
More Information:
Donations of membership fees
Due to the impact of COVID-19, many not-for-profit entities such as sporting clubs and cultural organisations are providing full or partial refunds for 2020 membership fees to their members. Some organisations are also providing an option to donate the refundable fees. The ATO has provided guidance on the circumstances in which these donations will be tax deductible for the members.
Generally, deductions are only available for gifts made to DGRs. As sporting and cultural organisations will not generally have DGR status the ATO indicates that deductions would only be available for members where they have directly donated (or advised the organisation to direct) their membership fee refund to another entity that is a DGR. For example, one option which has been utilised by some sporting clubs is to allow a choice of a donation to the Australian Sports Foundation (ASF) which is a DGR.
More Information
Division 7A benchmark interest rate
From the 2020 year, the ATO is no longer publishing annual taxation determinations setting out the Division 7A benchmark interest rate used to determine the interest amount arising on loans placed under complying Division 7A loan agreements, which also impacts on the annual minimum repayments that are required. This rate will now be published on the ATO website each year.
At a high level the rate is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia – generally the rate published for June preceding the income year.
The rate for the 2021 income year is 4.52%.
More information
Rulings & determinations
Reasonable travel and overtime meal allowances for the 2021 income year
TD 2020/5
The ATO has released its annual determination setting out the Commissioner’s reasonable amounts for the purposes of the substantiation exception for the 2021 income year in relation to claims made by employees for:
a) Overtime meal expenses – for food and drink when working overtime;
b) Domestic travel expenses – for accommodation, food and drink, and incidentals when travelling away from home overnight for work; and
c) Overseas travel expenses – for food and drink, and incidentals when travelling overseas for work.
In broad terms, an employee does not need to satisfy the normal strict record keeping rules if they receive a bona fide travel or overtime meal allowance and the deduction they are claiming does not exceed the ATO’s reasonable rates. However, it is important to recognise that appropriate records still need to be met to justify any deductions that are being claimed.
What is a ‘restructuring’ for the purposes of the CGT demerger rollover
TD 2020/6
The ATO has finalised its tax determination outlining when transactions are included as part of the ‘restructuring’ of a demerger group, which is a critical element in determining whether the restructure can qualify for the CGT demerger rollover in Division 125 ITAA 1997, as the scope of the restructure will generally be important in working out whether the relevant conditions are satisfied.
One key point explained in the determination is that it may be necessary to consider transactions beyond those which directly transfer the ownership interests in a demerged entity to the owners of the head entity of the group, and that transactions may be part of the restructuring even though they are legally independent of each other, contingent on different events, or may not all occur.
That is, although you may identify a series of transactions which on their own would satisfy the conditions to apply the rollover, it is necessary to also consider other transactions which may be sufficiently related to that reorganisation of a group of entities to form part of the restructure. The examples provided by the ATO include separate capital raising (both before and after disposal of a subsidiary), changes to ownership of the head entity, and separations involving closely held groups.
Where practitioners are considering using the demerger rollover in relation to restructures of corporate groups, the principles outlined in the ruling and the examples should be considered in determining whether the conditions to apply the rollover are satisfied in relation to the restructure of the group as a whole. This is a complex form of rollover relief and will always need to be analysed in detail. Practitioners also need to be careful to identify any dividend or deemed dividend issues that could arise from the proposed transaction and consider whether tax relief is available.
GST margin scheme valuations
A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination 2020
This determination sets out the requirements for making valuations for the purposes of applying the GST margin scheme to taxable supplies made on or after 1 March 2010.
When real property is sold by an entity that is registered for GST it is sometimes possible to calculate the GST liability using the margin scheme. In most cases the margin is the difference between the GST-inclusive sale price and the GST-inclusive purchase price. However, in some cases the margin is calculated differently. For example, if the property was acquired before 1 July 2000 then the margin can be calculated using the market value of the property at 1 July 2000 or when the taxpayer registered for GST, whichever is later.
The determination confirms that there are four possible methods when it comes to GST margin scheme valuations, including obtaining a valuation from a professional valuer, using a State or Territory Government department valuation or obtaining a valuation from the ATO.
When obtaining a valuation from a professional valuer it is important to note that there are some very strict requirements that need to be satisfied. One of the requirements is that the valuation must include a signed certificate which specifies:
- A full description of the property being valued;
- The applicable valuation date;
- The date the valuer provides the valuation to the supplier;
- The market value of the property at the valuation date;
- The valuation approach and the valuation calculation; and
- The name and qualifications of the valuer.
If the relevant requirements are not satisfied then the risk is that the margin scheme calculation will be based on the purchase price of the property rather than its value at the later date, which would normally lead to a higher GST liability for the supplier.
Cases
ATO decision impact statement – carrying on a business
SWPD and Commissioner of Taxation
The ATO has released a decision impact statement relating to a case which considered whether a taxpayer was carrying on a forestry business in order to access the small business CGT concessions.
The ATO had argued that the taxpayer was not carrying on a business, largely due to the fact the activities conducted (broadly, growing trees for harvesting) did not have the nature of business activities given the lack of factors which would ordinarily be present in business operations.
For example, there was a lack of ‘repetition and regularity’ in the activities, and the ATO considered the operation was not conducted in a commercial manner with reference to the taxpayer’s poor record keeping.
However, the AAT held that the taxpayer was carrying on business, specifically noting that although the activities were not what would normally be considered to be business-like in nature, this was largely due to the underlying nature of a forestry business, and that the taxpayer’s activities were consistent with a forestry business in the growth stage.
That is, while there was not repetition and regularity in activities, no income had yet been derived, and minimal ongoing obligations etc to be completed by the taxpayer, the operations were consistent with what would be expected in the normal course of that type of business.
The AAT decision highlights the impact of context in making such determinations and provides another level of complexity in assessing whether largely vacant or ‘passively held’ property could possibly qualify for the small business CGT concessions.
Legislation
Parliament sits again on 24 August until 3 September 2020.
Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 6) 2020
The Amending Rules create a confirmation process so that Australian government agencies and local governing bodies are able to seek confirmation of the information about an entity’s election to participate in the JobKeeper scheme.
