Tax-free COVID-19 related grants
Late last year, legislation passed that provided that certain grant payments in response to COVID-19 would be made non-assessable non-exempt income. The legislation requires the Treasurer to declare that a grant program is eligible by legislative instrument if he is satisfied that it was in response to the economic impacts of the coronavirus pandemic and if it was first announced on or after 13 September 2020.
A legislative instrument released on 23 December 2020 states that 6 Victorian grants paid to businesses are the first to be potentially classified as non-assessable non-exempt income of the recipients. These are the:
- Alpine business fund
- Business support fund 3
- Licensed hospitality venue fund
- Melbourne city recovery fund – small business reactivation grants
- Outdoor eating and entertainment package
- Sole trader support fund
It is important to remember that grants paid by state governments will not be automatically considered non-assessable non-exempt income. The grants must meet certain criteria and the Treasurer must make a determination confirming that they can qualify for tax-free treatment after an application has been made by the relevant state government.
The ATO’s view is that financial assistance payments made by state or territory governments will generally be taxable in the hands of business entities unless they qualify for tax-free treatment under the rules referred to above.
Opening a bank account might be a supply for JobKeeper eligibility
A report released by the Inspector General of Taxation (IGOT) in response to complaints made by businesses deemed ineligible for JobKeeper by the ATO has suggested that in some limited cases, business entities will be able to demonstrate that they made a supply in a tax period ending before 12 March 2020, even though they might not have made any sales through their business.
In order for an entity to access JobKeeper for an eligible business participant (e.g., sole trader), there are some additional conditions that must be met. One of the conditions is that the entity must have had some business income in the 2018-19 income year and notified the ATO of this by 12 March 2020 or made some supplies connected with Australia in a tax period that started on or after 1 July 2018 and ended before 12 March 2020 and notified the ATO of the supplies (e.g., on an activity statement) by 12 March 2020.
The IGOT report points out that where an entity makes or acquires a financial interest (e.g., by opening a bank account), this constitutes the making of a financial supply. This may mean that actions taken during the commencement of the business, potentially some time before trading activities commenced, could enable an entity to meet the additional conditions referred to above.
Further, the requirement to notify the ATO of the supply doesn’t necessarily require the supply to be reported on an activity statement. This condition can possibly be met by advising the ATO of the bank account details (e.g., during the GST registration process).
Having said that, there are still likely to be a number of entities that will not qualify for JobKeeper under the rules dealing with eligible business participants because of these rules. This is because if the entity in question has quarterly tax periods, it must have made a supply on or before 31 December 2019. On the other hand, if the entity has monthly tax periods a supply needs to have been made on or before 29 February 2020.
The ATO has indicated that it will not be actively identifying or contacting potentially eligible entities. If advisers have any clients who could possibly qualify as a result of the IGOT report it would be necessary to contact the ATO to confirm how they may obtain a review of any earlier decision.
More Information – Inspector-General of Taxation Report
Consultation on self-education deduction expansion
Following an announcement in last year’s Federal Budget with respect to potentially removing FBT on fringe benefits relating to re-training or re-skilling employees, Treasury has released a consultation paper concerning possible amendments to the deductibility of self-education costs. The paper looks at the possibility of allowing deductions for expenses that do not relate to a taxpayer’s current income earning activities.
Currently, self-education expenses are normally deductible where the education course enables the taxpayer to maintain or improve their skill or knowledge or is likely to increase the income derived from their current income-earning activities. However, self-education expenses are not deductible if the taxpayer is undertaking the course in order to obtain new employment or open up a new income earning activity.
The consultation paper discusses whether a new specific deduction should be introduced which would allow for deductions outside these limits, specifically, to allow for deductions in relation to education and training aimed at future employment.
Some of the key points raised relate to potential abuse of the change, which could be overcome by limiting the deduction to nationally recognised training and industry training packages delivered by registered education and training providers. There could also be an exclusion for courses where it is not clear they would lead to an improvement in income earning activities (for example, lifestyle or personal development courses).
Submissions in response to the consultation paper closed during January, and as yet there has not been any response or further proposals released by the government.
More Information – Education and training expense deductions for individuals
From the ATO
Tax and super obligations for foreign employers
The ATO has released a fact sheet to assist foreign resident employers to comply with their PAYG and super guarantee obligations for employees in Australia.
In relation to PAYG withholding, the guide states that withholding should apply to:
- Employment income earned by Australian residents; and
- Australian-sourced employment income earned by employees who are foreign residents.
However, it is important to note that many Australian double tax agreements provide that employment income earned by a foreign resident while working in Australia for a short period (up to 183 days) is not to be taxed in Australia (the short-term visit exception) if the employer is a non-resident and does not have a permanent establishment in Australia.
If it can be confirmed that the employees’ employment income is not taxable in Australia it should not be necessary for the employer to withhold amounts under the Australian PAYGW system.
Foreign employers should also note that if they are required to withhold PAYG from payments to employees they may have FBT obligations in Australia.
For superannuation guarantee purposes, foreign resident employers will usually be required to pay super for Australian resident employees and foreign resident employees who perform work in Australia to prevent the super guarantee charge from applying.
There are some instances where employers will not be required to pay super, including for employees earning less than $450 a month or employees who are under 18. Other exclusions can include employees temporarily working in Australia who are covered by a bilateral super agreement as well as certain foreign executives.
80 cent shortcut rate extended again
The shortcut method that can be used to claim deductions for running costs incurred while working from home due to COVID-19 has again been extended, and can now be used in calculating the deduction available to clients for the period from 1 March 2020 – 30 June 2021.
More information – PCG 2020/3
Updated fuel tax credit rates
The ATO has published the new rates for fuel tax credits.
The new rates apply to fuel acquired from 1 February 2021 and that is used in business activities or for domestic electricity generation and by certain emergency vehicles.
More entities fall into expanded SGE definition net
Guidance has been released on the legislative changes that expand the definition of a ‘significant global entity’. These changes will mean some entities will need to comply with the extended reporting obligations.
The main change is that an entity can now be a SGE even if it is not part of a group having audited consolidated financial statements. For example, high wealth individuals, partnerships and trusts belonging to certain private groups, entities considered to be non-material to a group under the accounting standards, and certain investment entities (and those they control) can now be caught.
Entities that are SGEs may be subject to the following:
- The multinational anti-avoidance law (MAAL)
- The diverted profits tax (DPT)
- Increased administrative and other penalties.
If an entity is an SGE, it needs to determine whether it may also be a country-by-country (CBC) reporting entity, which may mean there is a requirement to comply with CBC reporting obligations and a requirement to lodge general purpose financial statements with the ATO.
More information – Guidance on the expanded SGE definition
Rulings & determinations
Stock taken for private use update
Updated estimate amounts that can be used in determining the value of goods taken from trading stock for private use for 2020-21 have been released by the ATO and are summarised below:
Sole trader eligibile for JobKeeper with backdated ABN
This case concerned a taxpayer who was deemed ineligible for JobKeeper by the ATO on the basis that he did not meet the requirement of having an active ABN on 12 March 2020. At the time the taxpayer applied for JobKeeper, he did not have an active ABN. However, he subsequently applied to have his old ABN reactivated, with an effective date of 1 July 2019.
In denying the application for JobKeeper the Commissioner stated that although the effective date of the ABN had been backdated, this was not sufficient to be eligible for JobKeeper because on 12 March 2020 the taxpayer did not have an active ABN. Essentially, the Commissioner argued that as the ABN was reactivated after 12 March 2020 the condition was failed.
The taxpayer argued that due to the ABN being reactivated with an effective date of 1 July 2019 it should therefore be considered active at the relevant time, even if the decision to reactivate the ABN was made later.
The AAT held that as long as the ABN has an effective date that pre-dates 12 March 2020, the ABN condition should be satisfied, with the effect in this case that the taxpayer was eligible for JobKeeper.
The ATO has announced that it is appealing the decision to the Full Federal Court and has requested an expedited hearing.
Detailed JobMaker rules released with enrolment extension
The Treasurer and Commissioner have released legislative instruments setting out the specific rules and reporting obligations relating to the JobMaker scheme.
The legislative instruments set out the specific eligibility conditions that need to be satisfied, the steps for taxpayers to register for the scheme and the reporting obligations for entities claiming JobMaker payments.
While the deadline for enrolling with the ATO for JobMaker is normally the end of the relevant JobMaker period, this deadline has been extended by the ATO. Rather than having to enrol before the end of the relevant JobMaker period, entities can enrol at any time before the end of the claim period for that JobMaker period. For the first JobMaker period which ended on 6 January 2021 the claim period ends on 30 April 2021. It is important to note that claims cannot be made after the deadline.
- Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 9) 2020
- JobMaker Hiring Credit Reporting Obligations Instrument 2020
- JobMaker Hiring Credit guide