Tax Bulletin – September 2020

JobKeeper Extension – Alternative Tests
September 23, 2020
FEDERAL BUDGET 2020/21 – SNAPSHOT FOR SMES AND INDIVIDUALS
October 6, 2020

JobKeeper 2.0 has now commenced and the ATO has continued to updated its guidance on applying the new Rules. The Victorian Government has also introduced a further round of business support for affected businesses. In non-stimulus news, the Full Federal Court has handed down a welcome decision in the Eichmann case which relates to the active asset test.

JOBKEEPER PAYMENT SCHEME UPDATES
JobKeeper Extension Rules 

Rules have been registered to extend the JobKeeper scheme to 28 March 2021 at reduced payment rates. Refer to our previous Bulletins for the details:
– Outline of scheme – http://mctaxadvisors.com.au/jobkeeper-extension-2/
– Updated alternative decline in turnover tests – http://mctaxadvisors.com.au/jobkeeper-alternative-tests/

Eligible businesses must do the following by 31 October 2020:
– Enrol, only if they are a new entrant to JobKeeper
– Meet the wage condition for any JobKeeper fortnights from 28 September to 12 October
– Submit the business actual decline in turnover to the ATO

Businesses must complete a monthly business declaration and notify the ATO of the payment rate being claimed for each eligible employee, business participant or religious practitioner by 14 November.

The business must then advise eligible individuals of the payment rate which applies to them within 7 days of making the declaration.

Meeting the 80-hour threshold

The ATO has published guidance on what is included in the actual hours worked by an employee when determining whether they have met the 80-hour threshold in the reference period. With respect to the inclusion of paid leave:
– This includes personal/carers leave, annual leave, long service leave, parental leave and other recognised paid leave entitlements.
– Hours are included in full even if paid at reduced rates or under a purchased leave arrangement.
– Does not include hours of time off in lieu or rostered days off.
– Does not include unpaid leave
– Hours of work on a public holiday are based on hours paid.

Eligible business participants—Active engagement

The ATO has also published guidance stating that time spent on the following can be included when determining the number of hours than an eligible business participant has been actively engaged in the reference period:
– providing services, or selling goods
– supervising and managing the performance of employees
– negotiating contracts with suppliers and customers including providing quotes
– drawing up business plans and planning or budgeting reports
– managing the record keeping and accounts, including the use of the documents for analysis
– making financial, legal and tax decisions, including time spent on obtaining professional advice (for example ensuring the business complies with legal and regulatory obligations)
– managing commercial risks of the business

An individual is not actively engaged in the business whilst doing personal (non-business) activities, merely because they think about business during this time.

The ATO have also stated that records must show how the assessment of hours of active engagement is made.  These records can include business diaries, appointment books, log books, hours billed, invoices issued, timesheets or other business records.

VICTORIAN STIMULUS PACKAGES UPDATE
Business Support

The Victorian Government has announced a Business Resilience Package containing further grants, aivers and deferrals.

Business support fund – third round:
– Same basic eligibility requirements as previous rounds.
– Operate in closed or restricted business sectors based on list of eligible ANZSIC classifications.
– Grants range from $10,000 to $20,000 based on annual payroll.

Sole trader fund:
– Non-employing individuals operating in Victoria from a premises that is not their residence.
– Hold a valid ABN and be registered for GST since 14 September 2020.
– Participate in JobKeeper scheme.
– Operate in closed or restricted business sectors based on list of eligible ANZSIC classifications.
– Grant amount of $3,000.

Licensed hospitality venue fund:
– Eligible licensed pubs, clubs, hotels, bars, restaurants and reception centres
– Grants of up to $30,000 based on the location of their premises and maximum patron capacity.
– Liquor licence fees waived until 2021

Other grants:
– Alpine businesses
– Business chambers and trader groups

We note that:
– Business entities will not be eligible for the Business Support Fund if eligible for the Licensed hospitality venue grant.
– Partnerships of individuals and trusts with individual trustees that have no employees other than a partner or trustee are not eligible for either the business support fund or sole trader fund.

Business Adaptation

Funding, tools and resources are also to be provided to help businesses adapt and prepare for reopening.
– Melbourne City Recovery Fund – grants for small and medium businesses to adapt, support of COVIDSafe events and cultural activities, and physical improvements to the CBD streetscape
– Outdoor Eating and Entertainment Package – help hospitality businesses with an annual payroll of less than $3 million adapt to outdoor dining and grants to councils to deliver reduced or waived permit fees, or invest in new infrastructure and equipment to support outdoor dining.
– Voucher program to assist sole traders and small businesses in building their digital capability to help adapt to online operations.
– Victorian exporters—help to get products to market.

Waivers & Deferrals

Waivers and deferrals are as follows:
– Payroll tax deferral: Businesses with payrolls up to $10 million now can defer payroll tax for the full 2020-21 financial year.
– Stamp duty: 50% discount for commercial and industrial property in regional Victoria to be brought forward to 1 January 2021.
– Vacant Residential Land Tax: Waived for vacancies in 2020.
– Congestion Levy: Waiver of 25% for this year, with the outstanding balance deferred.
– Landfill levy: Deferral of the planned increase in the for six months

Victorian Stimulus Packages—Income Tax Exemption

The Federal Government has announced that grants to small and medium business under Victoria’s Business Resilience Package will be exempt from income tax. This is to recognise the exceptional circumstances Victorian businesses face. However, it only includes the newly announced grants, and not the first two rounds of the Business Support Fund.

LEGISLATION UPDATE

Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 has been referred to a Senate Economics Legislation Committee for a report by 4 November 2020. The Bill proposes to increase the maximum number of allowable members in SMSFs from 4 to 6.

Federal Parliament will next meet for the Federal Budget sittings on 6-8 October. The Federal Budget will be handed down on 6 October at 7.30pm.

CASE LAW UPDATE
Eichmann v Cof T  – Active asset test

In Eichmann the taxpayer carried on a business of building, bricklaying & paving through a trust. Land was acquired next to their home and used to store materials, tools, and park work vehicles. The ATO issued a private ruling stating that the land was not an active asset for the purposes of the SBCGT concessions. The Federal Court agreed on the basis the land was not being used ‘in the course of’ carrying on the business as use for storage did not have a ’direct functional relevance’ to carrying on of the normal day-to-day activities of the business.

The Full Federal Court has overturned this decision on appeal. It held that the relevant provision should not be applied narrowly, and does not require there to be a very close, direct or integral connection between the use of the asset and the carrying on of a business. It is sufficient if the asset is used at some point in the course of the carrying on of an identified business. Further, the function of the land as a necessary place for storage of plant and equipment did in fact bear a ‘direct functional relevance’ to the day to day activities’ of the business.

Key takeaway: This is a welcome decision as it confirms that an active asset does not need to be used directly in the key activities of a business. The observation that Division 152 should be applied ‘beneficially’ may also be helpful where the application of the rules are uncertain.

Bell and FCT—Travel between home and work

In Bell, a construction worker who lived over 100 km from his worksite sought to claim significant motor vehicle expenses on the basis that he was required to transport tools as well as undertake certain tasks while travelling to work. He also used his ute to travel between construction sites. The taxpayer was paid an allowance under an Enterprise Bargaining Agreement, at a set rate which did not vary with the amount of travel undertaken. The ATO allowed the taxpayer to claim the maximum allowed under the cents per km basis, even though the Ute was not a “car“, but denied the balance of expenses.

The AAT held that the taxpayer’s travel arrangements were more a personal convenience factor and that he could not rely on the “bulky goods” exception because tools could be stored securely at the site. The receipt of an allowance did not automatically give rise to a deduction as it was an industry wide payment unconnected with employment activities. Deductions were allowed for a proportion of his telephone expenses, as he was required to have a mobile phone on site and to be on call, a proportion of his home internet expenses, as he was required to prepare daily reports, and the cost of a first aid course.

Key takeaway: The decision illustrates that there are limited circumstances in which home to work travel will be deductible.

Carter v FCT—Disclaimer of trust distributions

The taxpayers have successfully appealed to the Federal Court in Carter (previously reported as The Trustee for the Whitby Trust v FCT). The ATO had contended that resolutions distributing trust income to certain beneficiaries for the 2011 to 2014 income years were ineffective and the income therefore vested in the default beneficiaries. On becoming aware of this position, these beneficiaries executed deeds disclaiming their entitlements to the trust income for those income years. Further deeds of disclaimer were executed in 2016 in respect of all trust entitlements.

The Federal Court has held that, to be effective, the disclaimers had to disclaim the beneficiaries’ interests as takers in default and therefore the first disclaimers were ineffective. However, despite this, the beneficiaries had not accepted the distributions. The later disclaimers were therefore effective as it was not too late to disclaim the distributions.

Key takeaway: This is a rare win for a taxpayer in relation to the disclaimer of trust distributions.

Pike and FCT – Tax Residency

The Full Federal Court has upheld the Federal Court decision that the taxpayer was a resident of Australia under ordinary concepts. The taxpayer came to Australia from Zimbabwe with his family and rented a home, eventually obtaining Australian citizenship. He took up a position in Thailand where he was based for 8 years, living in rented apartments big enough to accommodate his partner and their children, and joining local clubs. His salary was paid into a Thai bank account and transferred to an Australian joint account as required. The taxpayer returned to Australia to be with his family 4 – 6 times each year, spending 20% – 30% of his time in Australia.

The Federal Court stated that, other than in the most exceptional circumstances, the existence of a house in Australia maintained by a taxpayer who is working overseas, and the maintenance of a family in that house, has great significance in determining the taxpayer’s residency. However, the taxpayer was a resident of Thailand under the Double Tax Agreement on the basis that his personal and economic relations were closer to Thailand.

Point to note: As the Thai DTA prevailed over the income tax legislation, the ATO had no entitlement to assess the personal services income derived by the taxpayer in Thailand.

ATO RULINGS, DETERMINATIONS AND GUIDELINES
Home Office Expenses—Extension of PCG 2020/3

The ATO has extended the application of Practical Compliance Guideline PCG 2020/3 to 31 December 2020. The PCG provides the “shortcut” rate of $0.80 per hour for claiming all additional home running expenses for a period where a taxpayer:
– Works from home to fulfil their employment duties or to run their business
– Incurs additional running expenses that are deductible under s 8-1 or Div 40 of the ITAA 1997
– Keeps a record of the number of hours worked from home.

CONTACT US

For further information on any of these updates, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.

 

The information contained in this bulletin is intended to  provide  general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.