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The global economy has suffered a massive hit from the COVID-19 pandemic. The impact of the pandemic will open up opportunities for cashed-up funds and other buyers to take advantage of strategic and investment opportunities presented by the pandemic.

 

Businesses in a relatively strong financial position, despite the economic downturn may wish to consider capital management strategies, considering depressed asset values brought on by the COVID-19 crisis. It may also be an opportune time for businesses to restructure, rationalise by winding up dormant or unprofitable entities, and to undertake housekeeping in preparation for the divestment of non-core or non-performing operations.

 

There are many tax issues that may confront businesses when considering initiatives such as restructures and refinancing.

With potentially depressed asset values, it may be opportune to consider restructures of operations to facilitate rationalisations or wind up of dormant or unprofitable entities, or the packaging of assets within entities to facilitate future divestments.

Outside of a tax consolidation or a GST group environment, any transfers of assets may trigger gains or losses for tax purposes or a mismatch of GST liabilities and credits. Where the parties to the transfer are not dealing with each other at arm's length, or no consideration is given for a transfer, market value consideration may be substituted for income tax purposes and it may be possible to support lower market valuations of assets in the current economic climate.

 

The stamp duty consequences of any transfers of assets should also be considered. 

Reconstruction relief may apply to an otherwise dutiable transfer. The extent to which any prima facie stamp duty is concessionally treated or waived does vary between the states and territories. 

It is important to note that the relief does not apply automatically - it must be applied for and approved by the relevant revenue authority.

 

In the era of COVID-19, many businesses will be confronted with issues such as the need to refinance, the forgiveness of loans, or the wind up of non-profitable or underperforming operations. Appropriate structuring of these transactions can assist in mitigating any adverse tax consequences and/or facilitating optimal tax outcomes. 

It is also important to not lose sight of the opportunities that present themselves in these uncertain times.

Jobkeeper - FAQ

Question 1: Do businesses have to meet the decline in turnover test on an ongoing basis?

The answer is No. Whilst a business must satisfy the decline in turnover test in order to be entitled to a JobKeeper Payment, once it is satisfied, there is no requirement to retest in later JobKeeper Payment fortnights. The decline in turnover test only needs to be satisfied once.

If a business can demonstrate that its turnover has been adversely impacted by at least 30% (or 50%, as the case may be), then it will continue to meet this requirement even if its turnover subsequently recovers in later JobKeeper fortnights.

 

Question 2: What if a business's turnover has not decreased (e.g., by 30%) but it is predicted to do so in the coming month?

An employer can apply for the JobKeeper Scheme where it is reasonably expected that its GST turnover will fall by 30% or more (or 50% where applicable) relative to its GST turnover in a corresponding period a year earlier. Treasury has advised that the ATO will provide guidance about self-assessment of actual and anticipated falls in turnover. Additionally, if a business does not meet the decline in turnover test as at 30 March 2020, the business can start receiving the JobKeeper Payment at a later time, once the decline in turnover test has been met.

 

Question 3: Are employers required to continue to pay employees to qualify for the JobKeeper Payment?

The answer is Yes. Employers are required to satisfy the 'wage condition' in respect of an employee for the relevant JobKeeper fortnight in order to qualify for the JobKeeper Payment for that employee. As a reminder, the first JobKeeper fortnight commenced on Monday 30 March 2020 and ended on Sunday 12 April 2020 (i.e., the first JobKeeper fortnight has already ended).

If employers have insufficient cashflow to make such payments, Treasury has encouraged such businesses to speak to their banks about using the upcoming JobKeeper Payment as 'collateral' to seek short-term finance to pay their employees.

Question 4: If employees have been stood down after 1 March 2020 does an employer need to pay them?

 The answer is Yes. As discussed above, employers will need to make payments to eligible employees, including employees who have been stood down. This means the employer must pay the stood down employee a minimum of $1,500 per fortnight (before tax) in the relevant fortnight (subject to the concession in the TIP above).

 

Question 5: Can employers select which of their eligible employees are covered by the JobKeeper Scheme?

The answer is No. Once an employer decides to participate in the JobKeeper Scheme, they must ensure that all of their eligible employees (who have agreed to be nominated for the scheme) participate in the scheme. This applies to all eligible employees (i.e., irrespective of whether they are still working for the employer or they have been stood down). As the scheme is operated on an 'one in, all in' basis, employers cannot 'pick and choose' which eligible employees will be able to participate in the scheme.

 

Question 6: Are the JobKeeper Payments from the ATO assessable income to the business? The answer is Yes. In the absence of any specific exemptions, the JobKeeper Payments received from the ATO by the business would be assessable income under either S.6-5 of the ITAA 1997 (as ordinary income) or S.15-10 of the ITAA 1997 (as a subsidy received by a business). However, salary or wage payments made by the business to their employees are allowable deductions.

Question 7: Are employers required to deduct PAYG withholding from the amounts paid to employees?

The answer is Yes. Broadly speaking, employers are required to make payments of at least $1,500 to each eligible employee every JobKeeper fortnight. To the extent that these payments take the form of salary or wages, they would constitute assessable income to the employees, which means that employers would be required to deduct the appropriate amount of PAYG withholding.

Question 8: Are employers subject to Superannuation Guarantee ('SG') in relation to any extra JobKeeper Payments?

The answer is No. The Government's intention is that employers will only be required to make SG contributions for amounts payable to an employee in respect of their actual employment, which would not include any extra payments made by the employer to satisfy the $1,500 JobKeeper.

Question 9: Can a sole trader who has employees also qualify for the JobKeeper Payment? The answer is Yes. On the basis that the sole trader's business has satisfied all the other requirements to qualify for the JobKeeper Payment, a sole trader can qualify for the JobKeeper Payment in relation to their eligible employees and also qualify for the JobKeeper Payment themselves (i.e., in their own capacity) as an eligible business participant.

Jobkeeper - Summary

What is the JobKeeper Payment?

The JobKeeper Payment is a wage subsidy that will be paid through the tax system (i.e., it will be administered by the ATO) to eligible businesses impacted by the Coronavirus. Under the scheme, eligible businesses will receive a payment of $1,500 per fortnight per eligible employee and/or for one eligible business participant (i.e., an eligible sole trader, partner, company director or shareholder or trust beneficiary).

The subsidy will be paid for a maximum period of six months (i.e., from 30 March 2020 up until 27 September 2020). It will be paid to eligible businesses monthly in arrears, with the first payments to employers commencing from the first week of May 2020.

 

When is an employer eligible for JobKeeper?

An employer will only be eligible to receive a JobKeeper Payment in respect of an 'eligible employee' (refer below) if, at the time of applying:

 • for employers with an aggregated annual turnover of $1 billion or less - the employer estimates that their projected GST turnover has fallen (or is likely to fall) by 30% or more; or

• for employers with an aggregated annual turnover of more than $1 billion - the employer estimates that their projected GST turnover has fallen (or is likely to fall) by 50% or more; and

• the employer is not specifically excluded from the scheme (e.g., one that is subject to the Major Bank Levy, one that is in liquidation, etc.).

Where an employer is a charity registered with the Australian Charities and Not-for-profit Commission ('ACNC'), the employer will be eligible for the JobKeeper Scheme if they estimate that their turnover has fallen, or is likely to fall, by 15% or more relative to a comparable period.

 

Eligible employers must actually elect to participate in the JobKeeper Scheme via an application to the ATO.

There will also be some discretion and tolerance where employers have, in good faith, estimated at least a 30% (or 50%, as the case may be) fall in turnover.

 

Identifying who is an 'eligible employee'

A business can only claim a JobKeeper Payment in respect of an employee who is an 'eligible employee'.

An 'eligible employee' is an employee who satisfies the following requirements:

(a) The employee is currently employed by the employer (which includes an employee who has been stood down or re-hired after they had already lost their job).

(b) The employee was employed by the employer as at 1 March 2020.

(c) The employee is a full-time or part-time employee, or a long-term casual employee (i.e., one who has been employed by the employer on a regular and systematic basis for longer than 12 months as at 1 March 2020).

(d) The employee was at least 16 years of age on 1 March 2020.

(e) The employee was, on 1 March 2020, either: • a resident of Australia for social security purposes (e.g., an Australia citizen, a holder of a permanent visa or a holder of a protected special category visa); or • a resident of Australia for tax purposes and was a holder of a Subclass 444 (Special Category) visa.

(f) The employee has not given any other employer a nomination notice (refer below).

(g) If the employee is a long-term casual employee – they are not a permanent employee of any other employer.

(h) The employee is not in receipt of a government-funded parental leave pay or dad and partner pay and nor are they fully supported by a workers' compensation scheme.

Additionally, before an entitlement to the JobKeeper Payment arises, the ATO requires an employer to complete a JobKeeper employee nomination notice to notify eligible employees that the employer intends to participate in the scheme, and ask the employees to agree to be nominated and receive payments from them as part of the scheme.

 

Employers must pay eligible employees at least $1,500 per fortnight.

The minimum $1,500 (before tax) payment requirement will operate as follows:

(a) If an employee has been receiving at least $1,500 in gross salary income per fortnight since 30 March 2020, they will continue to receive their regular income according to their prevailing workplace arrangements. In this case, the JobKeeper Payment will effectively subsidise the first $1,500 of the employee's gross fortnightly salary income.

(b) If an employee has been receiving less than $1,500 in gross salary income per fortnight since 30 March 2020, the employer must pay the employee a 'top-up' payment to ensure the employee has been paid at least $1,500 per fortnight to be eligible to receive the JobKeeper Payment. This means some employees will receive more than their ordinary salary and wages derived from the employer. 

(c) If an employee has been stood down without pay after 1 March 2020 their employer must pay the employee a minimum gross fortnightly salary income of $1,500 from 30 March 2020, to be eligible to receive the JobKeeper Payment in respect of the employee.

(d) If an employee was employed on 1 March 2020, has subsequently ceased employment with their employer, and then has been re-engaged by the same employer, the employer must pay the employee a minimum gross fortnightly salary of $1,500 under the JobKeeper Scheme.

 

The minimum payment must be made by the last day of the fortnight. However, the ATO has already exercised its discretion to allow employers to make the minimum payment for the first two fortnights by the end of April 2020. Going forward, the minimum payment will need to be strictly made by the end of the relevant fortnight.

 

More flexibility for employers receiving the JobKeeper Payment under the Fair Work Act 2009 Amendments have also been made to the Fair Work Act 2009 to support the practical operation of the JobKeeper Scheme and to facilitate a range of flexible working arrangements designed to support the continued operation of businesses and the ongoing employment of employees.

The ATO has started contacting certain employers that provide car parking fringe benefits to their employees to ensure that all fringe benefits tax (FBT) obligations are being met.

Generally, car parking fringe benefits arise where the car is parked on the business premises of the company, used by the employee to travel between home and their primary place of employment and is parked for more than four hours between 7 am and 7 pm, and where a commercial parking station located within 1 km of the premises charges more than the car parking threshold amount.

Employers have a choice of three methods to calculate the taxable value of the benefits:

1.       the commercial parking station method,

2.       the average cost method and

3.       the market value method.

The method currently under ATO scrutiny is the market value method, which states that the taxable value of a car parking benefit is the amount that the recipient could reasonably be expected to have to pay if the provider and the recipient were dealing with each other under arm's length conditions.

Australians can claim a tax deduction for a donation of cash of $2 or more made to an organisation that is endorsed by the ATO as a Deductible Gift Recipient (DGR). There are many different types of DGRs including Public Benevolent Institutions like the Australian Red Cross Society, or organisations established to prevent or relieve the suffering of animals like Wildlife Victoria Inc.

The Australian Business Number register allows potential donors to check whether an organisation has DGR status and the date at which they obtained this status. Importantly, if the organisation does not have DGR status when a donation is made, a tax deduction cannot be claimed (unless the organisation subsequently obtains DGR status and has the endorsement apply from an earlier date).

Included in the Treasury Laws Amendment (2019-20 Bushfire Tax Assistance) Bill 2020 is an extension of DGR status to two new charitable trusts, the Australian Volunteers Trust and the Community Building Trust.

A common complaint of donors is that they don't know how donations will be applied and indeed, to what degree those donations are depleted by the DGR's administrative expenses. It is important to note that DGRs are subject to oversight by the ATO and (usually) the Australian Charities and Not-for-profits Commission (ACNC). They are restricted to applying their assets and income toward the approved purpose or purposes for which the organisation was established and is maintained, and all expenses must be consistent with that.

While many charities publicly share the stories of their charitable works, a more detailed view of how a charity manages the donations it receives can be obtained by looking them up on the ACNC Charity Register. Registered charities are required to lodge an annual information statement and, depending on their size, may also be required to lodge audited financial statements. These documents are made publicly available on the ACNC Charity Register.

Under the new foreign resident main residence rules, most non-residents have until 30 June 2020 to sign a contract to sell their former Australian main residence, with the benefit of the MRE (either on a full or partial basis). For any sale contracts entered into after that date, the majority of Australian expats (i.e. non-residents) will not be entitled to apply the MRE at all for any capital gain made on their former Australian main residence.

The foreign resident main residence rules will severely impact Australian expats who own Australian real property that they previously lived in, and "increases the stakes" of determining whether a person working overseas (particularly an Australian citizen) is a "resident" or "non-resident" for tax purposes. On a more positive note, some of the most severe impacts can in many situations be properly managed through appropriate tax planning.

Prior to the new rules, a person could purchase a property in Australia, live in the property for a period of time and then live elsewhere (either in Australia or overseas), and still access the MRE on the sale of that property (either on a full or partial basis).

What are the core changes?

Under the new foreign resident main residence rules if a person is a "foreign resident" (i.e. not a resident of Australia for the purposes of the Income Tax Assessment Act at the time of sale), their entitlement to the MRE is completely denied as though they had never been entitled to the MRE.

Perversely, if the same individual requalifies as an Australian tax resident before the time of sale, the MRE can apply once again, causing the MRE to "switch on" and "switch off" as a person's residency status changes.

It is retrospective

The foreign resident main residence rules are retrospective.

While taxpayers still have a window of opportunity to sell before 30 June 2020, those who do not may have their entitlement to the MRE retrospectively extinguished.

The importance of "tax residency"

Determining whether an individual is a resident of Australia can be extremely difficult (and particularly for Australian expats), considering terms such as "reside", "domicile", "permanent place of abode" and "usual place of abode". Australian expats have often sought to argue that they are not a resident of Australia for tax purposes (often due to foreign-sourced income). With the removal of the MRE for non-residents, taxpayers in certain situations may be more inclined to be treated as a resident of Australia!

Transitional provisions until 30 June 2020 –– still time to avoid retrospective tax

Although the foreign resident main residence rules operate retrospectively, foreign residents who would otherwise be affected will be entitled to disregard the new rules and apply the MRE if:

• a CGT event occurs in relation to the dwelling on or before 30 June 2020, and

• the foreign resident held an ownership interest in the dwelling before 7:30 pm on 9 May 2017.

The upshot of these transitional provisions is that Australian expats who purchased their main residence property on or before 9 May 2017 still have a window of opportunity to claim the MRE if they take action to trigger a CGT event (such as entering into a contract to dispose of the property) before 30 June 2020.

Any foreign tax resident who intends to sell their Australian main residence prior to 30 June 2020, or to apply the life events MRE exemption, should take proactive steps to obtain a Foreign resident capital gains withholding variation certificate well in advance of the sale. This will ensure that when the settlement date arrives, the purchaser will not be required to withhold any component of the purchase price on account of the CGT withholding provisions.

The way forward –– planning opportunities remain

The timer is now ticking down towards the 30 June 2020 deadline, from which non-residents will be completely disqualified from applying the MRE in most situations.

Individuals who are set to be affected by the new changes will only be able to avoid incurring a tax liability on their Australian main residence by:

• triggering a CGT event (such as entering into a contract to sell the dwelling) on or before 30 June 2020

• applying the "life events" exemption, or

• relocating to Australia prior to selling the property (i.e. commencing tax residency).

The foreign resident main residence rules will severely impact Australian expats who own Australian real property that they previously lived in, and "increases the stakes" of determining whether a person (particularly an Australian citizen) working overseas is a "resident" or "non-resident" for tax purposes.

All hope is not lost however, as in many situations some of the most severe impacts can be properly managed through appropriate tax planning.

Any individual who spends substantial time overseas and intends to rely on the MRE should seriously consider seeking specialist advice regarding their tax residency before selling their property.

Treasury Laws have now been passed  which removes the entitlement to the CGT main residence exemption for foreign resident individuals .

Previously , foreign resident individuals were entitled to access the CGT main residence exemption in the same way as Australian resident individuals. Broadly, an individual taxpayer's capital gain or loss in relation to their dwelling (or ownership interest in it) is disregarded if the dwelling was the taxpayer's main residence throughout the ownership period.

Subject to transitional rules, these amendments deny access to the CGT main residence exemption for foreign residents, other than where certain 'life events' occur during the period that a person is a foreign resident where that period is six years or less.

Transitional rules provide that the amendments do not apply in relation to a capital gain or loss from a CGT event that happens on or before 30 June 2020.

If you believe that these amendment may impact you or you would like further clarification please do not hesitate to contact Rod or your consultant at Grosvenor Business Advisers.

Tax relief and assistance with bushfire recovery

Individuals and businesses recovering from the bushfires are relieved of their immediate tax deadlines.

Latest information on ATO support is available at Bushfires 2019-20 .

The ATO has automatically deferred the due dates for upcoming deadlines for BAS lodgements and payments for taxpayers in postcodes as listed on its website. Individuals in impacted areas in NSW and Queensland who have lodged their 2018/19 income tax returns and have received a bill that was due on 21 November 2019 also have until 21 January 2020 to pay. The ATO also offers support to find lost TFNs, reissue returns and statements, reconstruct lost records, fast track refunds, and set up payment plans, etc. People affected outside the listed areas can contact the ATO for support with their particular circumstances.

Tax exemptions for government payments and allowances

The Treasurer has announced that disaster relief payments to individuals and businesses will be tax exempt, including the one off Disaster Recovery Payment, short-term Disaster Recovery Allowance payments to individuals, and grants or other payments under Disaster Recovery Funding Arrangements.

In addition, payments to eligible Rural Fire Service Volunteers in NSW, available to self-employed taxpayers or those who work in small or medium businesses, will also be tax-free.

State tax relief

Revenue NSW  have announced a range of measures to assist people in bushfire affected areas in NSW, including:

• exemption from payroll tax for wages paid or payable to employees engaged in bushfire-fighting activities or emergency operations

• extension of time to pay or to lodge documents, returns or objections

• a hold on fines and debt • waiver of interest PAGE 2 www.wolterskluwer.cch.com.au Australian Tax Week ISSUE 1 17 JAN 2020

• instalment payment arrangements

• a refund of motor vehicle duty paid to replace a destroyed vehicle.

In Victoria, the state's premier announced that those whose properties have been destroyed or substantially damaged by bushfires will receive ex-gratia relief for their 2020 land tax assessment.  

The State Revenue Office has suspended land tax assessments in the affected areas and will continue to support businesses in these areas. 

In addition, the state government will provide:

• relief of up to $55,000 in stamp duty for people who decide not to rebuild in their local community and buy a home elsewhere, and

• ex-gratia relief of up to $2,100 from the duty on up to two replacement vehicles for people who lost motor vehicles due to bushfires.

Fundraising and donations to charities The National Bushfire Recovery Agency has a list of charities with DGR status that have established bushfire appeals, for which gifts of $2 and above will be tax deductible. Donors can also check if they are donating to a legitimate fundraising website or group by looking up the ACNC's charity register, as the ACCC has warned against scammers pretending to be legitimate charities, cold-calling people, or creating fake websites, social media pages or crowdfunding requests.

ATO tax debt may affect your credit rating

ATO debts may affect your credit rating

Businesses with tax debts need to be aware that the ATO will now be able to disclose the details of their tax debts to credit ratings agencies, which could potentially affect the ability of the business to obtain finance or refinance existing debt.

Generally, only businesses with an ABN and debts over $100,000 and that are not "effectively engaged" with the ATO will be affected. The ATO is planning a phased implementation which will consist of undertaking education efforts before it targets companies, followed by partnerships, trusts and sole traders.

The aim of the laws, according to the government, is to encourage more informed decision-making within the business community by making large overdue tax debts more visible, and to reduce the unfair advantage obtained by businesses that do not pay their tax on time.

Tip: Are you unsure if you have a tax debt, or perhaps you need help with working out a payment plan with the ATO for your existing debt? We can help you with all of this and more.

Extension and increase of instant asset write-off

The instant asset write-off for small business has been extended and increased during the 2018/19 income year, allowing more businesses access to the write-off.

The following is a table which will show when the changes to the write-off thresholds have come into effect. These changes apply to small businesses with an aggregated turnover under $10m.

Purchase date or date asset first used (or installed ready for use) for a taxable purpose

Threshold

1 July 2018 to 28 January 2019

$20,000

29 January 2019 to 2 April 2019 (7:30pm AEDT)

$25,000

2 April 2019 (7:30pm AEDT) to 30 June 2020

$30,000

 

In addition to the above increase and extension of the instant asset write-off, businesses which are medium-sized will have an opportunity to utilise the write-off. Businesses over $10m but under $50m in aggregated turnover will be eligible to write-off assets purchased after 2 April 2019 and costing less than $30,000.

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