From Government
COVID-19 Support for individuals and business
Announcements on COVID-19 support to both individuals and business has been evolving quickly.
You can find client guides with the latest information on the our website:
Click here to visit what lockdown support is available to individuals
Click here to visit what lockdown support is available to businesses in NSW
Reporting the sharing economy
The Government will introduce reporting obligations for sharing economy operators. The reporting provisions will require operators of electronic platforms within the sharing economy (for example such as Uber or AirBnb) to report identification and payment information regarding participating sellers to the ATO for data matching purposes.
The obligations will initially be imposed on ride-sourcing and short-term accommodation providers from 1 July 2022, with other sharing economy participants (such as asset sharing, food delivery, and tasking-based services) required to report from 1 July 2023.
The introduction of these rules is because of the growth of the sharing economy, resulting in a transparency gap because tax reporting systems currently do not adequately capture information about transactions, creating the risk of sellers not paying the right amount of tax.
A previous report on the sharing economy found that without a reporting regime in place, it would be difficult for the ATO to gain information on compliance of sharing economy participants unless targeted audits were used. The report also found that a formal reporting requirement would send a clear signal to sharing economy participants that in most cases payments would be taxable.
The sharing economy reporting regime will be implemented by expanding the application of the taxable payments reporting system (TPRS) to certain transactions undertaken through electronic platforms. The TPRS is currently applicable for businesses operating in the building and construction industry, and to supplies of cleaning, security or surveillance services, and IT services among others.
There are some exceptions to the proposed rules including if the transaction relates to a supply of goods where ownership of the goods permanently changes, where title to real property is transferred, or if the supply is a financial supply. The reporting requirement will also not apply if the transaction occurs within the same tax consolidated group.
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Amendments to the employee share scheme rules
Treasury has released exposure draft legislation to enact the 2021-22 Budget announcement on reforms to the employee share scheme (ESS) rules.
From a tax perspective, there is really only one change, and it relates to the rules dealing with shares or options which qualify for deferred taxation. At the moment a deferred taxing point is triggered if the employee ceases employment with the company. However, this will be removed so that cessation of employment is no longer a taxing point for shares or options that are subject to deferred taxation. The change is intended to apply to shares or options issued on or after the beginning of the financial year after the Bill containing the changes received Royal Assent.
The other changes to the rules relate to regulatory requirements. In broad terms the changes will relax the current rules that are contained in the Corporations Act and are intended to make it easier for businesses to create ESS arrangements.
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Inspector-General of Taxation report on undisputed tax debts
This report presents a detailed analysis of uncollected tax debts by the ATO, analysing the data from a number of different perspectives (i.e. such as taxpayer type and size, the total debt compared with total collections etc).
The key findings from the (exceedingly long at 191 pages) report include:
- Approximately 90% of tax liabilities raised are paid by their respective due date, a further 6% paid within 90 days and a further 1% paid within 365 days of the due date. This leaves a remainder of 3% unpaid after a year.
- Total undisputed tax debt reached $34.1 billion at the end of the 2020 year, although this included a significant increase in 2020 due to the impacts of the 2019 bushfires and COVID-19.
- Small businesses account for the largest component of collectable debt (between 63% to 67%), followed by private and wealthy groups (between 18% and 21%) and individuals not in business (approximately 11%).
- Individuals were under-represented, accounting for approximately 11% of collectable debt while comprising almost 70% of the taxpayer population. This is because much of individual taxpayer debt is income tax that is withheld and remitted by other entities (small and large businesses).
- There is a clear and consistent trend of a very small proportion of debt accounts being responsible for a large amount of collectable debt.
The report makes several recommendations for managing and calculating the levels of collectable tax debt, although many of these are reasonably generic – for example having the ATO develop new metrics and report publicly more frequently, including aggregate reporting of large debts to Parliament.
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From the ATO
Running a business in Australia or New Zealand
The ATO has provided a brief comparing the operation of the Australian and New Zealand tax systems and the steps required in establishing a business and complying with ongoing tax obligations. There is some broad “point-form” commentary on the registrations which may be required (for example ABN, TFN, GST registration in Australia) and the major differences in how GST and income tax apply in each country.
When dealing with clients who wish to establish a business presence in New Zealand, some of the main points to note are:
- GST in NZ is 15% and registration is required where turnover exceeds NZ$60,000 in any 12-month period. Reporting can be done on a six month, two month or monthly basis depending on turnover.
- Similar to the Australian system, there are a range of exclusions from the GST rules including residential accommodation and many financial supplies. Unlike the Australian system, the NZ system includes the concept of zero rated supplies which refers to sales subject to GST but with a modified GST rate of 0% being applicable.
- With respect to income tax, the NZ system broadly operates in the same fashion as the Australian system with residents taxed on their worldwide income and non-residents taxed on New Zealand-sourced income only. However, the NZ tax year runs from 1 April to 31 March.
- There is generally no CGT in NZ, although recently a tax on residential land has been introduced.
- NZ business taxpayers are required to pay ‘provisional tax’ (which is similar in nature to PAYG) if they had to pay more than $5,000 in tax at the end of the year from the last return.
If you have clients who are thinking of expanding their business to include NZ operations then this might be a useful guide as a starting point. However, more detailed advice should generally be sought from a NZ tax specialist.
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Tenants – rent waivers or deferrals
Some business tenants may have received concessions from their landlords relating to the rent payable during the COVID-19 period which can have an impact on their tax obligations, depending on the type of concession and the period it relates to.
As a starting point, where rent relating to a past period of occupancy has been waived and the tenant has already paid and claimed a deduction for the expense, they are still entitled to the deduction. However, if the amount paid is refunded to the tenant, the refund should be included as assessable income when it is received.
On the other hand, if a tenant has not already paid the rent that has already been incurred and it is waived, the commercial debt forgiveness rules could apply and there might be adjustments to the tenant’s carried forward losses, deductible amounts or the cost base of assets.
If the waived rent relates to a future period of occupancy, the tenant simply won’t be entitled to a deduction for that amount.
From a GST perspective, where the tenant accounts for GST on an accruals basis and has already claimed a GST credit for rent that is later waived, it is necessary to make an increasing adjustment to pay back the GST credit claimed. The adjustment is made in the activity statement for the period when the tenant becomes aware of the waiver.
Deferrals of rent are treated a little differently however tenants should still be entitled to a deduction for deferred rent when it is incurred. Rent is generally incurred in the period that the rent relates to or when it is paid – this depends on the terms of the lease agreement. The GST treatment depends on whether the tenant accounts for GST on a cash or accrual basis.
Where tenants account for GST on a cash basis, they are only entitled to GST credits after the deferred rent is paid and a tax invoice is received from the landlord setting out the GST amount.
For tenants using an accruals basis, if they have a tax invoice from the landlord they are entitled to a GST credit at that time even if they haven’t paid the invoice.
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Landlords who provide rent concessions to tenants
Similar guidance concerning the provision of reductions in rent has been provided by the ATO for landlords.
In respect of rent waivers, for landlords using the cash basis for income tax purposes there should be no tax payable on the waived amount as it is not received. No GST should be payable either.
If a landlord is using an accruals basis then generally they will need to include accrued rent as income for occupancy up to the date of any change to rent receivable. If the rent for that earlier period is waived (for example if a refund is provided to the tenant) then this can give rise to a deduction.
In relation to GST, where the accruals basis is used and GST has already been paid to the ATO, a landlord may be eligible to make a decreasing adjustment to claim back any overpaid GST. There will be overpaid GST on rent where the rental agreement has been adjusted by reducing the amount payable.
For rent deferrals, landlords using the cash basis will only become taxable on the deferred rent at the point it is ultimately received from the tenant. GST would also only become payable at this point.
Where the accruals basis is used, tax on the accrued but deferred rent is payable. If the landlord has included deferred rent in their assessable income but don’t eventually receive it from the tenant, they may be entitled to a deduction. The landlord will also need to pay GST on the entire amount payable for each lease period identified in the lease agreement, even if they haven’t received the deferred amount yet. A GST decreasing adjustment may be claimed if the landlord subsequently writes off the deferred rent or the deferred rent has been overdue for 12 months or more.
A key point to note is that landlords can still claim deductions for normal expenses incurred in relation to the property if their tenants can’t pay their rent under the lease agreement because their income has been affected by COVID-19 and less rental income is received as a result. This includes interest on bank loans even if the bank has deferred the payments – in those circumstances the expense has still been incurred. However, where the tenants and landlords are related to each other it is necessary to take more care and ensure that arrangements are on commercial terms.
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Single touch payroll (STP) – phase 2 reporting
The ATO has released new guidelines to assist businesses in complying with the additional reporting obligations under phase 2 of STP which are due to start on 1 January 2022.
Under phase 2, some additional information concerning employees needs to be reported through STP, including information from TFN declarations or withholding declarations. These changes mean in most cases businesses will no longer need to send TFN declarations to the ATO or provide employment separation certificates when employees leave.
At a very high level the additional requirements involve reporting more detailed information concerning the employee’s status such as whether they work full-time or part-time, the type of work performed and whether the tax-free threshold applies, and other characteristics of the employee such as residency. More detailed information concerning the type of payments made is also reported, with amounts of each component of payments also notified (i.e. instead of reporting a single gross amount).
It will be necessary for advisers and employers (where they complete this directly) to review the additional requirements in some detail as there is a lot of information provided and some finicky reporting methods to be followed – for example it appears a wide range of different codes will need to be used.
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Changes to how SMSF rollovers are managed
From 1 October 2021, certain SMSFs expecting or receiving a rollover will need to ensure that they are SuperStream Rollover v3 compliant. Certain release authorities will also be sent to the fund via this method.
These new rules will affect SMSFs receiving rollovers or rolling out member benefits to another fund. The SMSF will also receive release authorities for excess concessional and non-concessional contributions, Division 293 release deferred and non-deferred amounts and releases under the First Home Super Saver (FHSS) Scheme.
In order to be ready for the changes the fund trustee or tax agent should ensure that their Electronic Service Address (ESA) provider is or will be SuperStream Rollover v3 enabled from 1 October 2021.
Division 7A benchmark interest rate
The benchmark interest rate for Division 7A loans for the income year ending 30 June 2022 has now been published on the ATO website. The benchmark interest rate for 2022 is 4.52% (unchanged from 2021).
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Record keeping and working from home
The ATO has issued a reminder for tax agents to ensure their clients are keeping appropriate records of the hours they work from home and receipts for all items purchased in relation to their work. This should enable clients to use the method that will provide them with the best tax outcome when calculating working from home deductions.
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Rulings, determinations &IDs
Reasonable travel and overtime meal allowances for the 2022 income year
TD 2021/6 what are the reasonable travel and overtime meal allowance expense amounts for the 2021-22 income year?
The ATO has released its annual determination setting out the Commissioner’s reasonable amounts for the purposes of the substantiation exception for the 2022 income year in relation to claims made by employees for:
- Overtime meal expenses – for food and drink when working overtime;
- Domestic travel expenses – for accommodation, food and drink, and incidentals when travelling away from home overnight for work; and
- 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 and deductions can only be claimed for expenses that have actually been incurred.
Expiring Division 7A sub-trust arrangements
PCG 2017/13 Division 7A – unpaid present entitlements under sub-trust arrangements maturing in the 2017, 2018, 2019, 2020 or 2021 income years
When the ATO updated its guidance on the Division 7A treatment of unpaid present entitlements (UPEs) owed to corporate beneficiaries in 2009 it set out guidance on sub-trust loan arrangements that could be used to prevent UPEs from being treated as loans for Division 7A purposes. PS LA 2010/4 makes it clear that the trust must pay the principal of the loan at the end of the sub-trust loan term to meet the requirements. If the trust fails to meet this obligation then the unpaid amount can be treated as a loan for Division 7A purposes and a deemed dividend could potentially arise.
However, the ATO has allowed a concessional approach to apply in some situations where the trust is not able to pay out the remaining loan balance at the end of the initial sub-trust arrangement. The ATO explains that the sub-trust amount can potentially be placed under a ‘normal’ 7 year complying Division 7A loan agreement in some cases, extending the period over which the amount must be paid by the trust. In these cases, the trust would need to make interest and principal payments each year to prevent a deemed dividend from being triggered.
The ATO has now amended the PCG to extend the concessional approach outlined above that can be applied to expiring 7 year sub-trust arrangements to those ending in the 2021 income year, and has also extended the application to include 10 year sub-trust loans.
Remission of additional super guarantee
PS LA 2021/D1 Remission of additional superannuation guarantee charge
This practice statement sets out the approach that ATO officers should use in determining whether additional superannuation guarantee (SG) charges imposed due to an employer failing to lodge a SG statement by the lodgement due date should be remitted.
Where the SG statement is lodged late, or a default assessment is issued by the ATO, there is an automatic penalty (the ‘Part 7 penalty) imposed which is equal to double the SGC payable by the employer for the quarter. The ATO has the discretion to remit the Part 7 penalty, in full or in part. In making this decision, the practice statement indicates that ATO officers must follow a four-step penalty remission process:
- Step 1: Consider remission based on the employer’s attempt to comply with their obligations through late payment.
- Step 2: Consider remission based on the employer’s attempt to comply with their obligations by lodging an SG statement.
- Step 3: Consider any increase or reduction in penalty based on the employer’s compliance history.
- Step 4: Consider any other mitigating facts or circumstances that warrant further remission.
The four-step process provides specified remission percentages based on certain criteria, for example the time of late payments made and whether the ATO had contacted the employer (for Step 1).
Following the application of Step 4 the ATO officer can also apply their discretion to remit any remaining penalty. In exercising that discretion, the practice statement provides that an employer should only be considered for a penalty relief arrangement where they have a turnover of less than $50 million and they:
- Took voluntary action to comply with their obligation to lodge SG statements;
- Do not have a history of lodging SG statements late;
- Have lodged no more than four SG statements after the lodgement due date in the present case;
- Have no previous SG audits where they were found to have not met their SG obligations; and
- Have not previously been provided with penalty relief.
Penalty relief would not be appropriate where the employer has:
- Been issued with an SGC default assessment;
- Lodged more than four SG statements after the lodgement due date in the present case; or
- Previously been issued with an SG education direction.
It is important to remember that while the ATO has some discretion to remit this particular penalty, the ATO doesn’t have the discretion to remit SGC liabilities.
Extended transitional guidelines for company residency tests
PCG 2018/9 Central management and control test of residency: identifying where a company’s central management and control is located
When the ATO updated its guidance on applying the residency tests to companies incorporated overseas it provided a transitional period for companies affected by the new guidelines to change their corporate governance arrangements and ensure that central management and control was exercised outside Australia.
The transitional compliance approach originally expired on 30 June 2019 but was extended to 30 June 2021. However, the ATO recognises that companies may have been restricted in their ability to change governance arrangements as a result of COVID-19 and the Government has announced amendment to clarify the corporate residency test. As a result, the has now extended the transitional period to the earlier of the following:
- 31 December 2021 for an early balancer taxpayer with a 31 December year end
- 30 June 2022 for a taxpayer with a 30 June year end
- The date on which legislation amending the corporate residency test receives Royal Assent.
Non-arm’s length income of superannuation funds
LCR 2021/1 Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement
LCR 2021/1 clarifies the ATO’s position on how the non-arm’s length income rules apply to a superannuation fund that is not dealing with another party on arm’s length and the fund incurs expenditure that is not at arm’s length.
Where expenses incurred by the fund are not at arm’s length and below market rates, any income derived by the relevant asset could be deemed to be non-arm’s length income and taxed at the top marginal tax rate. The finalised ruling provides further guidance around expenses that arise in a fund that are not on arm’s length terms and have a nexus to all fund income. For example, administration expenses that are below market rates could result in the non-arm’s length income rules applying to all the income of the superannuation fund.
The question of whether the non-arm’s length income rules apply depends on the capacity in which the trustee undertakes those activities. Essentially, if you or a related entity are providing services to your superannuation fund in a capacity other than as trustee, and you (or the related entity) currently provide that service to the public, an arm’s length fee should be charged for this service. Failure to do so could result in non-arm’s length income applying to the income derived from the applicable asset the expense relates to.
Legislation
Parliament sits on 3 August 2021.
Extension of tax-free treatment for certain State Government COVID grants
Treasury Laws Amendment (COVID-19 Economic Response) Bill 2021
This Bill extends the concessional tax treatment of payments received by businesses under eligible COVID-19 recovery grant programs administered by State or Territory governments to cover payments received in the 2022 income year. The rules originally only covered payments received in the 2021 income year.
Additional Victorian grants added to the list of tax-free payments
Income Tax Assessment (Eligible State and Territory COVID-19 Economic Recovery Grant Programs) Amendment Declaration (No. 1) 2021.
A new legislative instrument has been released which adds some additional Victorian Government grants to the list of COVID-19 related business grants which can be treated as non-assessable non-exempt income if certain conditions can be satisfied by the recipient of the payment.
The new grants included are:
- Alpine Support Program
- Business Costs Assistance Program Round Two
- Impacted Public Events Support Program
- Independent Cinema Support Program
- Licensed Hospitality Venue Fund 2021
- Live Performance Support Program
- Sustainable Event Business Program
A list of the currently eligible payments can also be found on the ATO website here (subject to any further amendments).
Certain payments and grants from other States may end up receiving tax-free treatment, but this requires the relevant State / Territory to apply to the Minister so that a declaration can be made.
Changes to the Disaster Payment
Financial Framework (Supplementary Powers) Amendment (Prime Minister and Cabinet Measures No. 2) Regulations 2021
Financial Framework (Supplementary Powers) Amendment (Prime Minister and Cabinet Measures No. 3) Regulations 2021
Amendments to the rules relating to the COVID-19 Disaster Payment extend the eligibility for the payment to people who are unable to earn their usual income as a result of being present in another location in Australia at a time that it was subject to a state or territory public health order which restricts the movement of persons for a period of more than seven days because they were previously present in a hotspot area.
Further amendments to the rules relating to the COVID-19 Disaster Payment also mean that the requirement to have liquid assets of less than $10,000 has been removed for recipients who are in their second week of eligibility for the payment. However, it is worth noting that this test doesn’t appear to be relevant at all for those in Victoria or South Australia and so that amendment is more relevant to those in NSW.
