$4 billion dollar stimulus spend and a focus to create and save jobs

On Tuesday 10 November, the Treasurer of South Australia, Rob Lucas, handed down the 2020-21 SA State Budget.  As expected, the focus of the budget is targeted spending to create and save jobs.  There has been a record spend announced on infrastructure of $16.7 billion along with a $4 billion stimulus spend.  Spending in health, SA Police, education and training, tourism and hospitality and responses to COVID-19 and the bushfire recovery has also been announced.

The budget deficit for last year was $1.49 billion. This year it will increase to $2.59 billion and $1.42 billion next year.  The State Government is hoping to get back to into surplus in 2023-24 financial year.  However, even though the debt will increase significantly, interest costs will be less than previous estimates due to record low interest rates.

For South Australian businesses, announcements were made with regards to payroll tax, Small Business Grants and land tax relief.

Payroll tax

• For businesses with annual Australian grouped wages less than $4M, the payroll tax waiver has been extended another six months, to June 2021, meaning these eligible businesses will have had payroll tax waived for a period of 15 months
• For businesses with annual Australian grouped wages of more than $4M who are eligible for JobKeeper for the March 2021 quarter, there will be a payroll tax waiver for the period from January 2021 to June 2021
• There will be extended repayment arrangements available for businesses who have deferred payroll tax between the period of April 2020 – December 2020
• The payroll tax exemption for JobKeeper payments will remain
• There will be a payroll tax exemption on wages paid to new apprentices and trainees for the first 12 months where they commence training with an employer from 10 November 2020 to 30 June 2020

Small Business Grants

• A second round of the Small Business Grants program has been announced providing a $10,000 grant to SA small businesses that employ staff providing they are still receiving JobKeeper
• This has been extended to include a $3,000 grant for sole traders who operate out of commercial premises
• here is a link to the full eligibility requirements along with the application form

Land tax

• Further land tax relief was announced for taxpayers impacted by the new aggregations rules. The land tax transition fund will now pay 100% of the relevant increase in the taxpayer’s land tax assessment for 2020-21, up from 50%
• Relief under the land tax transition fund can be applied for when the 2020-21 land tax assessments have been received by land holders

If you have any questions in relation to the above, please contact your Holman Hodge adviser.

Since the Australian economy was hit by the impact of Covid-19 in March, relief for businesses has been provided in many different forms, not just the JobKeeper program.

This relief included specific state based measures in the way of payroll tax waivers and deferrals, land tax relief and cash grants (now closed).  The Federal government also announced other relief measures including temporary changes to insolvency laws and the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19.

The timing and expiration of many of these measures were linked to the timing of the JobKeeper program.  Once JobKeeper was extended, many of these relief measures were also extended but not in a uniform way.

See below for further detail.

SA specific changes – extension of the COVID-19 Emergency Response Act

Payroll tax

• SA Government has confirmed that the JobKeeper extension payment will continue to be exempt from payroll tax.
• The payroll tax waiver for businesses with wages up to $4M (annualized grouped wages) will continue with businesses not be required to pay payroll tax for the months of April to December (return periods March 2020 – November 2020). There is no need to make an election to receive the waiver.
• Businesses and business groups with wages over $4M and who are adversely impacted by COVID-19 can elect to defer payroll tax payments. Businesses must elect to go into the deferral scheme – it’s not an automatic enrolment.

Land tax

• There is land tax relief for landlords of commercial and non-commercial properties as well as commercial owner-occupiers for a “second period” from 31 October 2020 to 30 April 2021 (period 2).
• Relief is only available where land is occupied by tenants impacted by COVID-19 or is vacant due to the impact of COVID-19.
• For non-residential or owner-occupied landlords at least one tenant must be receiving the JobKeeper payment, the landlord must pass on rent relief to the tenant and that relief must be more than 25% of the land tax due for the relevant property.
• For residential landlords, a tenant must declare that they have been impacted by COVID-19 i.e. lost their job, and the landlord must have reduced their rent during the relevant period.
• Land tax relief may also be available where a property has remained vacant due to COVID-19.
• Period 2 must be assessed separately from the first period.
• The relief must be applied for via RevenueSA.

Commercial and residential leasing

• Legislation for retail and commercial leases affected by COVID-19 has been extended – broadly until 3 January 2021 and includes the following.
  • There are restrictions on the increase of rent for an affected lessee.
  • A lessor can’t take any prescribed actions against an affected lessee due a breach of the lease including failure to pay rent or outgoings or the business not be open the specified hours in the lease. Prescribed actions includes eviction, exercising the right of re-entry or termination of the lease amongst other matters.
  • There is an obligation on both parties to negotiate leases in good faith.
  • Parties can request mediation with the Office of the Small Business Commissioner if agreement cannot be reached.

Insolvency changes – Federal government changes

• The temporary insolvency measures that were effective from 25 March 2020 to the end of September have now been extended to 31 December 2020.
• The changes include temporary relief for insolvent trading and a temporary increase in the threshold at which creditors can issue a statutory demand from $2,000 to $20,000.

If you have any questions in relation to the above, please contact your Holman Hodge adviser.

The message was clear from the Federal Government. They want taxpayers to spend and they want that spending to create jobs.  Underlying that, they are hoping the tax cuts, business investment breaks and cash payments will create the confidence required to bring the spending.

There were a number of measures announced in the Federal Budget – following is a summary of the measures that will impact individuals and businesses.

Individual tax cuts

The tax rate cuts that were legislated to come in from 1 July 2022 will now be backdated to apply from 1 July 2020.

The 19% tax rate threshold will increase from $37,000 to $45,000, the 32.5% tax threshold will increase from $90,000 to $120,000. This will put up to an extra $2,565 in the pockets of someone earning over $120,000.

The new low income tax offset will be brought forward to start from 1 July 2020 and the low and middle income tax offset has been retained until 30 June 2021.

Expanded instant asset write-off

Nearly all Australian businesses will be able to write off eligible depreciable assets in the year they are acquired including second hand assets for some businesses.  There is no limit on the cost of the asset and the write off will be available until June 2022.

Loss carry-back rules for corporate tax entities

There will be the opportunity for businesses to “carry-back” a tax loss incurred.  For example, where a business incurs a tax loss in 2020 and profit in 2019, the 2020 loss can be applied to the 2019 income and a refund of tax paid obtained.

Small business tax changes

Businesses with turnover between $10M and $50M will be able to access some already existing tax concessions previously limited to businesses with turnover up to $10m.

JobMaker Hiring Credit

The JobMaker Hiring Credit of up to $200 per week will be available to businesses who hire an eligible employee.  The employee must increase headcount, be currently out of work and aged between 16 and 35 and work at least 20 hours a week.

Apprenticeship wage subsidy

The Government has announced that they will pay half the wages of up to 100,000 apprentices with employers receiving up to $7,000 per quarter until the limit is exhausted.  The subsidy will now be available to businesses of any size.

Fringe benefits tax exemption for reskilling employees

There will be an exemption from FBT where an employer provides retraining to an employee where the benefit is not related to their current role. There was an expansion of some other FBT exemptions for businesses including car parking, the provision of multiple devices and some record keeping changes.

Other announcements

• Infrastructure injection in SA – including South Road duplication, Strzelecki Track and South Eastern Freeway upgrades and Hahndorf access upgrade.
• Additional $500 payment (2 x $250) to pensioners and others on social security.
• CGT exemption for granny flat arrangements.
• Extension of the First Home Loan Deposit Scheme.
• Changes to the Research and Development Incentive from 1 July 2021.
• Manufacturing boost for specific industries.

The impact of these measures will be discussed in more detail next week at our Webinar. Click here for details.

Please email info@holmanhodge.com.au if you have any questions you would like addressed at the Webinar.

For further detailed analysis please click here.

The Government handed down the Federal Budget last night which was all about jobs and getting the economy moving again. The key tax related measures are outlined below.

 

Clarifying the corporate residency test

 

The Government will make technical amendments to clarify the corporate residency test. The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

 

Making Victoria’s business support grants non-assessable, non-exempt income for tax purposes

 

The Government will make the Victorian Government’s business support grants for small and medium business as announced on 13 September 2020 non-assessable, non-exempt (NANE) income for tax purposes. Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

 

Fringe Benefits Tax — exemption to support retraining and reskilling

 

The Government will introduce an exemption from fringe benefits tax (FBT) for employer provided retraining and reskilling benefits provided to redundant, or soon to be redundant employees where the benefits may not be related to their current employment. This measure applies from announcement.

 

Fringe Benefits Tax — reducing the compliance burden of record keeping

 

The Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.

 

Increase the small business entity turnover threshold

 

The Government will expand access to a range of small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.

Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will for the first time have access to up to ten further small business tax concessions in three phases:

 

• From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

 

• From 1 April 2021, eligible businesses will be exempt from the 47 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees.

 

• From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods under the small business entity concession. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.

 

In addition, from 1 July 2021, the Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

 

JobMaker Plan — bringing forward the Personal Income Tax Plan and retaining the low and middle income tax offset

 

The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 while retaining the low and middle income tax offset (LMITO) for 2020-21. The changes will provide immediate tax relief to individuals and support the economic recovery and jobs by boosting consumption.

 

Bringing forward the second stage of the Personal Income Tax Plan

 

The Government will provide additional support to Australian taxpayers by bringing forward the tax cuts in Stage 2 of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020:

 

• The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.

 

• The low income tax offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 5 cents per dollar between taxable incomes of $45,000 and $66,667.

 

• The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.

 

Retaining the LMITO for the 2020-21 income year

 

The Government will retain the LMITO for the 2020-21 income year, providing further targeted tax relief for low- and middle-income earners.

The LMITO provides a reduction in tax of up to $1,080. It provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080.

Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080. For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2020-21 income year.

 

JobMaker Plan — Research and Development Tax Incentive

 

The Government will make further enhancements to support business Research and Development (R&D) investment in Australia. For small companies, those with aggregated annual turnover of less than $20 million, the refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed.

For larger companies, those with aggregated annual turnover of $20 million or more, the Government will reduce the number of intensity tiers from three to two. This will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D.

 

JobMaker Plan — temporary full expensing to support investment and jobs

 

The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022. It will improve cash flow for qualifying businesses that purchase eligible assets and bring forward new investment to support the economic recovery.

Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second-hand assets.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

 

JobMaker Plan — temporary loss carry-back to support cash flow

 

The Government will allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later income years.

Corporate tax entities with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit. The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

 

Exempting granny flat arrangements from capital gains tax

 

The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

 

Australian Charities and Not-for-profits Commission Review Program

 

The Government will implement a program of field-based compliance reviews to intervene early where charities are at high risk of failing, to meet the obligations under the governance standards of the Australian Charities and Not-for-profits Commission (ACNC).

 

COVID-19 Response Package — JobKeeper Payment extension

 

The Government announced changes to the JobKeeper Payment on 7 August 2020 in response to the evolving COVID-19 situation in Victoria. The policy changes announced were:

 

• The employment reference date for assessing an employee’s eligibility for the JobKeeper Payment was changed from 1 March 2020 to 1 July 2020, with effect from 3 August 2020. This means that employees who were hired during this period may now be eligible for the JobKeeper Payment (subject to other relevant eligibility criteria).

 

• The eligibility criteria related to the turnover decline for businesses and not-for-profits changed to make it easier for those still significantly impacted by the COVID-19 pandemic to access the JobKeeper Payment. To be eligible for JobKeeper after 28 September 2020, businesses and not-for-profits are now only required to demonstrate that their actual turnover was sufficiently affected in the previous quarter (rather than in every quarter from June 2020 onwards) to be eligible for JobKeeper Payment in the December 2020 and March 2021 quarters.

 

JobMaker Plan — JobMaker Hiring Credit

 

The Government will accelerate employment growth by supporting organisations to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

 

Superannuation Reform

 

The Government will implement reforms to superannuation to improve outcomes for superannuation fund members. The reforms, which will reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, include:

 

• The Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal.

 

• An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.

 

• From July 2021 the Australian Prudential Regulation Authority will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022. The funding for this initiative will be met through an increase in levies on regulated financial institutions.

 

• Improved transparency and accountability of superannuation funds by strengthening obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised.

If you are currently receiving JobKeeper, you would be aware that the program was due to finish on 27 September 2020 after running for six months.  We now know that the program is being extended to 28 March 2021. However, there will be new eligibility requirements.  The rules governing JobKeeper 2.0 were recently released by the Treasurer and further guidance from the ATO has also been released, with more detail to come.

A recap on the changes

JobKeeper will be extended by six months in two (essentially) quarterly periods where an “actual decline in turnover test” is met.  The timing is as follows:

• JobKeeper extension period 1 – 28 September 2020 to 3 January 2021
• JobKeeper extension period 2 – 4 January 2021 to 28 March 2021

To qualify for the first JobKeeper extension period, the entity will need to show an actual decline in GST turnover of 30% or more when comparing the 30 September 2020 quarter with the 30 September 2019 quarter.

To continue to qualify for the second JobKeeper extension period, the entity will need to show an actual decline in GST turnover of 30% or more when comparing 31 December 2020 quarter with the 31 December 2019 quarter.

The other change announced was the introduction of a two-tiered payment system which will taper downwards in each of the extension periods.  The amount of JobKeeper an employee is entitled to in the extension period (either the higher amount or the lower amount) will be determined based on the hours worked for a 28 day period ending at the end of the most recent pay cycle that ended before either 1 March 2020 or 1 July 2020.

Where the hours worked in that period are greater than 80, the employee will be entitled to the higher amount of JobKeeper, otherwise the employee will receive the lower amount.  The payment amounts are as follows:

• For JobKeeper extension period 1 – the higher rate is $1,200 and the lower rate is $750
• For JobKeeper extension period 2 – the higher rate is $1,000 and the lower rate is $650

These payment changes also apply for eligible business participants.

What do you need to do?

Determine whether you will qualify post-27 September

If you are currently receiving JobKeeper you need to assess whether you will qualify for the first JobKeeper extension period from 28 September 2020.  To do this, you must determine your September quarter GST turnover ASAP to enable the comparison to be made with the September quarter in 2019.  Once compared, you will be able to determine if turnover is still 30% or more lower.  If it is not, the entity will not qualify for JobKeeper for the first extension period.

How is “GST turnover” determined?

For some businesses this may be simple, for others it may not be so straight forward.  For example, when the business was not in operation for the September 2019 quarter, or something has happened in the business which makes the September 2019 quarter not representative of usual trading.  We expect the alternative tests announced for JobKeeper 1.0 will be available and expect the ATO to confirm this soon.

The ATO has confirmed that to undertake the comparison, the amounts disclosed at G1 should be used.  This may cause some anomalies such as the fact that proceeds from the sale of capital assets is included at G1.

Determine which JobKeeper payment amount to pay

If turnover is 30% or more down, you then need to consider what rate you need to be paying your eligible employees.  To do this you need to determine how many hours the employee(s) worked, or were actively engaged in the business, for the 28 day period ending at the end of the most recent pay cycle that ended either before 1 March 2020 or 1 July 2020.

It is important that you determine this because if you are currently topping up an employees’ pay to $1,500 per fortnight and their payment rate drops to $750 per fortnight, you may not need to continue to top up their wage.  If you do top them up and you’re only entitled to the $750, you will not recoup the additional $750 paid through JobKeeper.

Importantly, the ATO has announced that they will extend the “wage condition” requirements to 31 October meaning businesses will have until then to determine what amounts to pay employees.  So, if you are unsure as to whether you will qualify for JobKeeper into October, you could revert to paying staff their actual wages throughout October and once you’ve confirmed entitlement to the extension period, you could provide any required top up payments by 31 October.

Other frequently asked questions

Can a business re-enter the JobKeeper scheme?

If a business doesn’t satisfy the actual decline in turnover test for the September 2020 quarter, they may re-enter the scheme if the actual December 2020 turnover, when compared to December 2019 turnover has declined by 30% or more.

Can a business who has not yet entered JobKeeper, go into the program now?

Yes, a business can enter JobKeeper. However, they need to meet the actual decline in turnover test for the September quarter to enter from the first extension period or, the December quarter, to enter for the second extension period.

It’s important to note that the requirements for entering JobKeeper introduced in March remain in place for the extension period. For example, the one-in-all in principle, the wage condition, and employee notifications.

Are any other notifications required?

If an entity is in the JobKeeper program and qualifies for the first extension period, they do not need to re-enroll. However, they do need to notify the Commissioner of Tax and their employees of the payment rate each employee will be paid (either the higher or the lower rate).

If an entity is entering the JobKeeper program for the first time in the extension period, they will need to have notified their employees

What if a business has used the Fair Work Act modifications?

We are not legal specialists and do not provide any comments with regards to the applicability of the Fair Work changes announced earlier this year. However, if your business used the Fair Work amendments i.e. the amended rules regarding “standing down” employees, you may be able to continue to use these rules where you are no longer in JobKeeper but can show a decline in turnover of more than 10%.  To do this however, businesses (other than small businesses) will require a decline in turnover certificate from a “financial service provider” which includes qualified accountants and tax agents to prove the 10% decline.

Please note, this is not relevant to JobKeeper, only to enable businesses to continue to use the Fair Work Act changes.  If you have any questions in relation to the application of the Fair Work Act, please seek legal advice.

If you have any questions in relation to JobKeeper and the impact on your business, please contact your Holman Hodge adviser.