From Government
JobKeeper 2.0 details confirmed for extension and alternative tests
The Treasurer has released the detailed Rules governing eligibility for JobKeeper after 28 September 2020 (known as JobKeeper 2.0). The Tax Commissioner has also issued a legislative instrument outlining the alternative tests for satisfying the additional decline in turnover test.
As a starting point, for an entity to be eligible for JobKeeper 2.0 it must satisfy the following conditions:
- It must have carried on a business in Australia on 1 March 2020 (different rules apply for non-profit entities);
- It must pass the original decline in turnover test; and
- It needs to pass an additional decline in turnover test.
The original decline in turnover test is the same test as was necessary to access JobKeeper originally, and involves comparing projected GST turnover for a particular month or quarter in 2020 with current GST turnover for the corresponding period in 2019 to determine if there is a decline in turnover of the relevant percentage (i.e., 15%, 30% or 50% depending on the entity). As part of the new rules, the periods in which entities can pass the original decline in turnover test have been expanded. The test will be satisfied if the entity can pass the test for any of the following periods:
- Monthly test: April, May, June, July, August, September, October, November, December
- Quarterly test: June quarter, September quarter or December quarter
Once the original decline in turnover test has been met, it is necessary to confirm that an additional decline in turnover test is met to access JobKeeper for each of the two additional periods (28 September 2020 to 3 January 2021, and 4 January 2021 to 27 March 2021).
For the first period (28 September 2020 to 3 January 2021), the entity must be able to show that current GST turnover for the September 2020 quarter has dropped by the required amount compared with current GST turnover for the September 2019 quarter.
For the second period (4 January 2021 to 28 March 2021), the entity must be able to show that current GST turnover for the December 2020 quarter has dropped by the required amount compared with current GST turnover for the December 2019 quarter.
The way the rules are drafted means that an entity can potentially access JobKeeper for the extended periods between 28 September 2020 and 3 January 2021 and/or 4 January 2021 and 28 March 2021 even if it doesn’t qualify for JobKeeper in an earlier period.
In relation to the new additional decline in turnover tests, it is important to note that these only use the concept of “current GST turnover”. This firstly means that entities will be using actual GST turnover figures rather than estimated or predicted figures. The ATO has also confirmed that when applying the new turnover reduction tests for the September 2020 quarter and December 2020 quarter, entities that are registered for GST must use the same method that is used for GST reporting purposes. That is, if the entity is registered for GST on a cash basis then a cash basis needs to be used to calculate current GST turnover for the purpose of these new tests.
Entities that are not registered for GST can choose whether to calculate GST turnover using a cash or accruals basis, but must use a consistent method.
As with the original JobKeeper rules, the ATO has the power to set out alternative tests where it is not appropriate to compare actual turnover for a quarter in 2020 with the corresponding quarter in 2019. The alternative tests for the additional decline in turnover test are broadly similar to the tests available for the original JobKeeper package. The tests cover for the following areas:
- Where a new business commenced before 1 March 2020 but after the start of the comparison period
- A business making an acquisition or disposal of part of its business that changed the entity’s current GST turnover
- Where there has been a business restructure that changed the entity’s current GST turnover
- A business having a substantial increase in turnover
- A business affected by drought or natural disaster
- Businesses with irregular turnover
- Sole traders or small partnership with individuals affected by sickness, injury or leave
Once it is confirmed the entity is eligible for JobKeeper 2.0, the next issue is determining the eligible employees and/or business participant.
Employees should generally be eligible for JobKeeper payments if they were employed by the entity on 1 July 2020 and can meet all of the other eligibility requirements (such as being a long-term casual if a casual employee, the age requirements, not being an excluded employee e.g., receiving parenting payments or workers compensation). Employees also need to have provided the employer with a nomination notice. If an employee has already passed all the relevant conditions at 1 March 2020, then they don’t need to be retested using the 1 July 2020 test date.
Eligible business participants need to be actively engaged in the business as at 1 March 2020 (the 1 July test date for employees does not apply), they must hold a specific position with the entity in question and must pass a number of other conditions relating to their age, residency status etc.
From 28 September 2020, the JobKeeper payment rate is split into two tiers. The payment rate will generally be based on the hours worked by the individual in the business in the relevant “reference periods”.
For the period 28 September to 3 January 2021 the payment rates are:
- $1,200 per fortnight per employee or business participant who qualifies for the higher payment rate (in broad terms, if they worked at least 80 hours in the reference period); or
- $750 per fortnight per employee or business participant who didn’t qualify for the higher payment rate.
For the period 4 January 2021 to 28 March 2021 the payment rates are:
- $1,000 per fortnight per employee or business participant qualifies for the higher payment rate; or
- $650 per fortnight per employee or business participant who didn’t qualify for the higher payment rate.
The “reference period” for employees is the 28 day period finishing on the last day of the last pay period that ended before either 1 March 2020 or 1 July 2020. For eligible business participants, it is the full month of February 2020. However, some alternative reference periods apply in some cases and some employees will automatically qualify for the higher rate (some employees on commissions and under certain awards).
More Information
- JobKeeper 2.0 legislative instrument
- JobKeeper alternative tests legislative instrument
- Knowledge Shop JobKeeper 2.0 client guide (KS login required)
Tax exemption for Victorian COVID-19 grants
The Prime Minister has announced that an agreement has been reached between the Commonwealth and Victoria to make certain grants to small and medium business under Victoria’s Business Resilience Package exempt from income tax.
The Commonwealth will extend this arrangement to all States and Territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.
Any tax exemption would be time limited for grants paid until 30 June 2021.
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COVID-19 PAYG instalment variations
The ATO has indicated that it will not be applying penalties or interest for the 2021 income year for excessive variations of PAYG instalments when taxpayers make their “best attempt” to estimate their end of year tax.
Normally, the ATO can apply penalties where the value of the varied instalments is less than 85% of the total tax payable. Due to the impact of COVID-19, the ATO will not be pursuing this in 2021. However, the way the ATO’s guidance has been worded does indicate that this is not a complete guarantee that penalties will not be payable in all circumstances.
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JobKeeper overpayments
Guidance has been released by the ATO outlining the circumstances in which JobKeeper overpayments received by taxpayers will not need to be repaid.
The ATO indicates that if a JobKeeper overpayment is identified, the ATO might decide the overpayment does not have to be repaid, particularly if there was an honest mistake. The following factors are also taken into account, such as whether:
- The taxpayer relied in good faith on a statement made by an employee in their nomination notice;
- The taxpayer fully passed on the benefit of the JobKeeper payment to the relevant employee; and
- The mistake was made earlier in JobKeeper when there was less public guidance.
Mistakes will not be considered honest in situation where (among others) fraud was perpetrated by either the JobKeeper recipient or another entity, there has been intentional disregard of the law or recklessness in its application, or the employer has deliberately failed to meet the wage condition.
Where the ATO indicates that taxpayers need to repay overpaid amounts, the taxpayer will be advised in writing:
- Why the ATO thinks there has been an overpayment;
- How much needs to be repaid; and
- How the taxpayer can make the repayment.
Penalties may also apply in these circumstances.
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Tax treatment of JobKeeper payments and concessions threshholds
The ATO has clarified an important point in relation to the tax treatment of the JobKeeper payments received by an entity.
While it was relatively clear that JobKeeper payments were assessable for the business entity, clarification was required as to whether the payments were ordinary income, and if so, whether they were derived in the ordinary course of carrying on a business, as this could mean that they were included in the annual turnover of entities, which is relevant for a range of small business concession thresholds.
The ATO confirmed that although the JobKeeper payments are ordinary income, they are not derived in the ordinary course of business, and therefore not included in aggregated annual turnover.
This may mean that a number of taxpayers could now be eligible for a range of concessions because their turnover has fallen as a result of COVID-19, without needing to consider whether the JobKeeper payments push them back over a number of thresholds. For example, clients may now be eligible for a number of small business concessions where their aggregate turnover has dropped below $10m.
From a GST perspective, it should be noted that the ATO confirmed in LCR 2020/1 that JobKeeper payments are not included in GST turnover as they don’t represent consideration for a supply made by the entity.
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Rulings, determinations & guidance
Updated practice statement on ATO discretion for JobKeeper and cashflow boost
PS LA 2020/1 Commissioner’s discretion to allow further time for an entity to register for an ABN or provide notice to the Commissioner of assessable income or supplies
This practice statement outlines how the ATO will approach situations where taxpayers have sought the Commissioner’s discretion to grant extra time to an entity to either obtain an ABN or notify the Commissioner of assessable income or supplies in order to access the cashflow boost and the JobKeeper payments for eligible business participants.
The practice statement has been updated to include additional examples (examples 5 – 9) which provide further guidance on the types of circumstances where the Commissioner will or will not exercise the discretion.
- Non-compliance with lodgment obligations
- New business not registered for GST
- Exceptional circumstances
- Non-ATO initiated deferral
- Impact of tax agent conduct
Simplified home office deductions method extended
As previously mentioned, the ATO has produced 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. In July the ATO extended this until 30 September 2020, with the ATO now extending the period further to 31 December 2020. The ATO indicates that this could potentially be extended again.
The shortcut method set out in the PCG 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.
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Cases
Reversal of decision on whether land used for storage was an active asset
Eichmann v FC of T [2020] FCAFC 155
The Full Federal Court has overturned a decision of the Federal Court (and agreed with the AAT) concluding that vacant land can be used outside the main functions of a business (i.e., in this case for storage of equipment etc. used in a business necessarily carried on at other locations) and still qualify as an active asset for the purpose of the small business CGT concessions.
The Federal Court decision previously stated that there needs to be “a direct relationship between the use to which the asset is put and the carrying on of the business” and that “the use must be in the activities of the business which are directed to the gaining or production of assessable income.” On that basis, the Court considered there was a distinction to be made between assets used in relation to carrying on a business and assets used in the course of carrying on the business. Assets must fall within the second category to be active assets.
However, with reference to the legislative intent underlying the small business CGT concessions, the Full Federal Court found that the approach taken by the Federal Court in the earlier decision was too restrictive and that the legislation should be read in a way that is beneficial to taxpayers rather than in a restrictive manner in order to promote the purpose of the concessions.
The Court held that the active asset test does not require the use of the relevant asset to take place within the day to day or normal course of the carrying on of a business. Rather, it was sufficient that the asset was used in connection with (in the course of) carrying on a business.
Late lodgement penalties and ‘notice’ by the Commissioner
LLJL v FC of T [2020] AATA 3446
The taxpayer in this case called the ATO in 2018 in relation to ‘failure to lodge’ penalties applied to their 2015 and 2016 income tax returns. While those penalties were remitted (apparently because the explanation that he was not aware of Australian taxation requirements was accepted by the ATO), the ATO officer also enquired about the tax returns for earlier years which had not been lodged. Later in 2018, the ATO sent a reminder letter about the outstanding returns which had still not been lodged, however this did not reach the taxpayer due to their having changed address. In January 2019 the ATO again wrote to the taxpayer warning that default assessments could be issued and penalties applied. Again, these letters did not reach the taxpayer. In April 2019 the Commissioner issued the default assessments and penalties, to which the taxpayer objected, seeking remission of the failure to lodge penalties.
This case considered the question of whether it is appropriate for late lodgement penalties imposed by the Commissioner to be remitted because on the basis that it is “unfair” to apply penalties where the taxpayer had not received the reminder notices about lodging their outstanding income tax returns. A general rule in this area is that it may be appropriate to remit the penalty, or some of it, because not to do so would be harsh, unjust or unreasonable.
The taxpayer’s argument was that the purpose of the warning letters was to give him an opportunity to avoid a fine, and that he was deprived of that opportunity because he did not receive the letters. The claim being that the Commissioner sends those letters to assist taxpayers in their obligations, and the Commissioner’s failure to send him the warning letters had the effect of depriving him of the assistance that was given to others.
One of the specific submissions to the AAT was that “nowhere in the TA Act does it say, “I should be hit with a fine without fair warning that all other taxpayers get. I’m just asking for the same courtesies that other taxpayers are given.”” The taxpayer claimed it would be unjust if the penalty was not remitted.
However, the AAT disagreed with the taxpayer. On the issue of whether it could be unfair or unjust that warning letters were not received by a taxpayer, the AAT noted that it is important to recognise that the obligation to lodge income tax returns in no way depends upon the Commissioner’s prompting or warning. The AAT’s response to the taxpayer’s argument was that “It is simply inapt to suggest that there is nothing in the TA Act or the IA Act that says the Commissioner cannot ‘hit you with a fine without fair warning’ because there is nothing in the legislation that requires the Commissioner to provide any warning at all.” The obligation is solely on the taxpayer to lodge a return and not on the Commissioner to remind a taxpayer about their obligations.
The AAT also noted that the taxpayer in this case had been warned about the requirement to lodge his 2011 and 2012 returns in their conversation with the ATO officer in 2018, some 12 months before the penalties were imposed in 2019. Further, the taxpayer was well aware that the consequence of not lodging returns in time was the imposition of penalties – the very purpose of his call in 2018 was to have such penalties remitted in relation to his 2015 and 2016 tax returns which he had failed to lodge.
Legislation
6 member self-managed superannuation funds
Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020
This Bill, currently before the Senate, amends the superannuation legislation to increase the maximum number of members allowed in a SMSF from four to six, and to adjust corresponding provisions relating to the requirements for members to be trustees (which could be affected by State based laws concerning the number of trustees of a trust) and the sign-off requirements of SMSF annual statements. The changes also apply to “small APRA funds” which are broadly funds with (currently) fewer than 5 members but are not SMSFs.
The amendments increase the number of members referred to in the definition of ‘self managed superannuation fund’ in the SIS Act from ‘fewer than 5 members’ to ‘no more than 6 members’.
The amendments also update the sign off requirements in the SIS Act about the accounts and statements that the trustees of an SMSF must ensure are prepared for each income year. These changes ensure that these requirements continue to apply correctly after the increase to the maximum number of members (and therefore, to the maximum number of directors or trustees).
