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Deduction for work-related vehicle expenses disallowed

In a decision of the Administrative Appeals Tribunal, a taxpayer, Mr Bell, was a denied a deduction for $21,565.73 of work-related vehicle expenses for the 2016 income year.

Mr Bell, was a construction worker who predominantly worked on a construction site in an eastern suburb of Melbourne and lived approximately 100 kilometres away from that worksite.

Mr Bell owned a ute that had a load carrying capacity of more than one tonne – so it fell outside the definition of a ‘car’ for the purposes of the ITAA 1997.

Mr Bell claimed a total deduction for $24,865.73 for motor vehicle expenses and received an allowance under his Enterprise Bargaining Agreement.

This allowance did not vary with the amount of travel undertaken and totalled $15,221 for the year.

Mr Bell contended that he was required to use his vehicle to transport heavy/bulky goods (tools) between his home and his workplace and to collect supplies and equipment from hardware stores while travelling between his workplace and his home.

Ordinarily, travel from home-to-work (and back again) is considered non-deductible.  However, if an employee is required to carry heavy/bulky equipment for which there are no secure storage facilities at work, the travel between home and work with the heavy/bulky equipment can be considered deductible.

Unfortunately for Mr Bell, evidence before the Tribunal indicated that there were safe and secure storage facilities for his tools (the bulky/heavy equipment) at the worksite.

Accordingly, Mr Bell was unable to rely upon the ‘bulky goods’ exception to recharacterise home-to-work travel as being a deductible work expense.

Instead, it retained its ordinary private and non-deductible status.

Mr Bell was unsuccessful in advancing the argument that he was entitled to a deduction in relation to the motor vehicle expenses because he was in receipt of an allowance.

However, Mr Bell was able to convince the ATO that he had undertaken at least some work-related travel using his vehicle.  The ATO allowed Mr Bell a deduction under the ‘cents per kilometre method’ up to the maximum dollar amount for 5,000 kilometres for the 2016 income year of $3,300.

Editor:  This decision provides a timely reminder that simply carrying bulky equipment between home and work will not make these trips deductible, where there is a secure place for the equipment to be stored at the employee’s worksite.  The decision also highlights the fallacy of assuming that being in receipt of an allowance somehow entitles the taxpayer to an offsetting deduction. 

The taxpayer was technically ‘lucky’ that he was allowed the ‘cents per kilometre method’ deduction for work-related travel, given that his motor vehicle fell outside the definition of a ‘car’. 

This is because the cents per kilometre method only applies to ‘cars’, so it could be said that the ATO was generous to the taxpayer in these circumstances.

Please contact our office if you have any queries as to the deductibility of work-related travel.

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Tax treatment of JobKeeper Payments

Broadly, JobKeeper Payments received by an employer are assessable income to the employer.

Likewise, the payments an employer subsequently makes to an employee that are funded (in whole or in part by the JobKeeper Payment) are generally allowable deductions to the employer.

The ATO has recently issued some guidance for employers in receipt of JobKeeper Payments.

For sole traders, they will need to include the payments as business income in their individual tax return.

For partnerships or trusts, JobKeeper payments should be reported as business income in the relevant partnership or trust tax return.

For a company, report JobKeeper payments as income in the company tax return.

For a taxpayer that has repaid (or is in the process of repaying) any of their JobKeeper payments to the ATO, these amounts do not need to be included in their tax return.

Editor:  Note a business would be refunding JobKeeper payments to the ATO if it had been discovered that the business had incorrectly claimed JobKeeper payments, and had either voluntarily disclosed this to the ATO, or the ATO made this determination as a result of audit activity.

The normal rules for deductibility apply in respect of the amounts a taxpayer pays to their employees, even where those amounts are subsidised by the JobKeeper payment.

That is, if the underlying salary is deductible, then it is still deductible to the employer where it has been subsidised by a JobKeeper payment.

For employees who have received JobKeeper payments, these will be included as salary and wages (or an allowance) in their income statement (or payment summary) as provided by their employer.

Editor:  If you have any queries about the JobKeeper Payment scheme, please contact our office.

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Special COVID-19 Superannuation Condition of Release Extended

Regulations that extend the time frame of the special condition of release to access $10,000 from superannuation for individuals experiencing financial difficulties due to COVID-19 have been formally registered.

The ability to withdraw up to $10,000 from superannuation (if certain conditions are met) was initially set to expire on 24 September 2020.

The newly registered Regulations to the SIS Act will now enable an eligible individual to withdraw up to $10,000 from superannuation (which is not assessable to the individual) until 31 December 2020.

To be eligible, a citizen or permanent resident of Australia (and New Zealand) must require the COVID-19 early release of super to assist them to deal with the adverse economic effects of COVID-19.

In addition, one of the following circumstances must apply:

  • The individual is unemployed;
  • The individual is eligible to receive one of the following;

–      JobSeeker payment;

–      Youth Allowance for job seekers (unless they are undertaking full-time study or are a new apprentice);

–      Parenting payment (which includes the single and partnered payments);

–      Special Benefit; or

–      Farm Household Allowance;

  • On or after 1 January 2020 either;

–     they were made redundant;

–     their working hours were reduced by 20% or more (including to zero); or

–    they were a sole trader and their business was suspended or there was a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies any other eligibility criteria).

Editor: Please contact our office for assistance if your financial circumstances have taken a turn for the worse due to COVID-19 and you wish to see if you are eligible to access your superannuation. 

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Expanded eligible employee definition for JobKeeper

Additional recently implemented JobKeeper changes mean more employees will qualify for JobKeeper payments from 3 August 2020.

This is primarily because:

  • the eligible employee test has been extended from 3 August 2020 to include eligible employees who were employed on 1 July 2020 (in addition to the original 1 March 2020 employment date) who are not currently nominated for the JKP by another entity; and
  • from the fortnights commencing on 3 August 2020 and 17 August 2020 (i.e., JobKeeper fortnights 10 and 11) employers will have had until 31 August 2020 to meet the ‘wage condition’ for all new eligible employees included in the JobKeeper scheme under the 1 July eligibility test.

Importantly, as a result of these recent tweaks to the JobKeeper scheme, participating employers should have provided any new eligible employees with an employee nomination form.

The onus is on employers to ensure all of their employees now eligible for JKPs as a result of the new 1 July test are given the opportunity to be included.

Ref: More employees now able to access JobKeeper, ATO media release, 19 August 2020.

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JobKeeper 2.0 – tweaks to the ‘Decline in Turnover’ Tests

On 21 July 2020, the Government announced that the JobKeeper Payment (‘JKP’) would be extended until 28 March 2021 (i.e., for a further six months beyond its original end date of 27 September 2020).

As a result, JKPs will now be made over two separate extension periods, being:

  • Extension period 1 – which covers the seven new JobKeeper fortnights that commence on 28 September 2020 and end on 3 January 2021; and
  • Extension period 2 – which covers the six new JobKeeper fortnights that commence on 4 January 2021 and end on 28 March 2021.

Furthermore, on 7 August 2020, the Government announced adjustments to JobKeeper 2.0 to expand the eligibility criteria for JKP, primarily in the wake of the tougher COVID-19 restrictions recently imposed in Victoria.

These adjustments will apply nationwide, and the crucial amendments include adjustments to the proposed new ‘Decline in Turnover’ tests applicable from 28 September 2020.

More specifically, to qualify for the JKP in the two new extension periods (outlined above), businesses will now only have to demonstrate that their actual GST turnovers have decreased (in accordance with the applicable rates) in the previous quarter.

For these purposes, the applicable rate of decline in turnover required to qualify for the JKP is determined in accordance with the existing rules (e.g., 30% for entities with an aggregated turnover of $1 billion or less).

Specifically, to be eligible for the JKP Extension Period 1 (i.e., from 28 September 2020 to 3 January 2021), businesses only need to demonstrate an applicable decline in turnover in the September 2020 quarter.

This differs from the previously announced JobKeeper 2.0, where they would have been required to show that they had suffered an applicable decline in turnover in both the June and September 2020 quarters.

To be eligible for the JKP Extension Period 2 (i.e., from 4 January 2021 to 28 March 2021) businesses only need to demonstrate an applicable decline in turnover in the December 2020 quarter.

Whereas under the previously announced JobKeeper 2.0, they would have been required to show that they had suffered an applicable decline in turnover in each of the June, September and December 2020 quarters.

Importantly, the dual payment rate system originally proposed in JobKeeper 2.0 will remain, with the full rate of payment decreasing from $1,500 to $1,200 per fortnight from 28 September 2020 and then to $1,000 per fortnight from 4 January 2021.

The proposed reduced rates (being $750 from 28 September 2020 and $650 from 4 January 2021) will also remain for employees and business participants who worked fewer than 20 hours per week in the relevant period.

Ref: Extension of the JobKeeper Payment, Treasury fact sheet, 7 August 2020

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Superannuation guarantee amnesty ends 7 September 2020

Speaking of the superannuation guarantee, time is rapidly running out for employers to apply for the SG amnesty and catch up on past unpaid super without incurring a penalty.

The ATO encourages employers to apply for the amnesty and make payments as early as they can.

Importantly, eligible amnesty amounts paid by 7 September 2020 are tax deductible!

The ATO must receive amnesty applications by 11:59 pm (local time) on 7 September 2020.

Broadly, to be eligible for the amnesty:

  • the unpaid super must be for a quarter between 1 July 1992 and 31 March 2018;
  • the shortfall cannot have already been disclosed to the ATO; and
  •  the ATO cannot already be examining the shortfall.

If an employer cannot pay in full, the ATO will work with them to set up a flexible payment plan.

Superannuation guarantee payments and PRNs

Applicants will need their payment reference number (‘PRN’) to make SG amnesty payments.

The ATO has been sending employers their PRN within 14 business days of receiving their application, however, if an amnesty application has not been lodged by mid-August, they can get their PRN:

  • from a super guarantee charge related statement issued for the same Australian Business Number; or
  • by phoning the ATO on 1800 815 886 between 8.00am and 6.00pm from Monday to Friday.

Editor: If you wish to discuss the implications of the SG amnesty and any related payment plans (or indeed anything else with respect to SG obligations and liabilities) please contact our office to discuss.

Ref: SG amnesty ends 7 September 2020, ATO website, August 3 2020

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Superannuation guarantee rate increase update

Recently, arguments both for and against increasing the rate of compulsory superannuation guarantee (‘SG’) have continued to be tossed around!

The SG is the compulsory amount of superannuation an employer must pay into an eligible employee’s chosen super fund.

The rate of SG has been frozen at 9.5% of an employee’s ordinary wages since July 2014, but from 1 July 2021 it is due to incrementally increase (by 0.5% each financial year) until it ultimately reaches 12% in July 2025.

As a result, the superannuation guarantee rate is currently set to increase to 10% from 1 July 2021.

Editor: At this stage, despite a lot of political rhetoric and media coverage, no change has been announced to change these set plans.

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80 cents per hour ‘shortcut’ method for home office expenses has been extended

Back in April 2020 the ATO announced that a ‘shortcut’ method was to be made available to use from 1 March 2020 until 30 June 2020 for individuals claiming home office expenses due to COVID-19.   The ATO has recently announced an extension of this shortcut method to also include 1 July 2020 to 30 September 2020.

In summary, a taxpayer can claim a deduction of 80 cents for each hour they work from home due to COVID-19 as long as the individual is:

  • working from home to fulfil their employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls; and
  • incurring additional deductible running expenses as a result of working from home.

A taxpayer does not have to have a separate or dedicated area of their home set aside for working, such as a private study.

The shortcut method rate covers all deductible running expenses such as: electricity and gas  used for heating/cooling and running electronic items used for work purposes; depreciation and repair of assets used for work purposes; work-related phone and internet costs.

Editor:  If you are working from home due to COVID-19 and have queries about what deductions you can claim, contact our office.

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Additional new turnover tests

In order to be eligible for the JobKeeper Payment after 27 September 2020, businesses and not-for-profits will have to meet a further decline in turnover test for each of the two periods of extension, as well as meeting the other existing eligibility requirements for the JobKeeper Payment.  In order to be eligible for the first JobKeeper Payment extension period of 28 September 2020 to 3 January 2021, businesses and not-for-profits will need to demonstrate that their actual GST turnover has significantly fallen in the both the June quarter 2020 (April, May and June) and the September quarter 2020 (July, August, September) relative to comparable periods (generally the corresponding quarters in 2019).

In order to be eligible for the second JobKeeper Payment extension period of 4 January 2021 to 28 March 2021, businesses and not-for-profits will again need to demonstrate that their actual GST turnover has significantly fallen in each of the June, September and December 2020 quarters relative to comparable periods (generally the corresponding quarters in 2019).

Businesses and not-for-profits will generally be able to assess eligibility based on details reported in the Business Activity Statement (BAS).

Editor:  Please contact our office if you wish to discuss your business’ eligibility for JobKeeper payments.

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The extended JobKeeper Payment rates

From 28 September 2020 to 3 January 2021, the JobKeeper Payment rates will be:

  • $1,200 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working in the business or not-for-profit for 20 hours or more a week on average, and for eligible business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020; and
  • $750 per fortnight for other eligible employees and business participants.

 

From 4 January 2021 to 28 March 2021, the JobKeeper Payment rates will be:

  •  $1,000 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working in the business or not-for-profit for 20 hours or more a week on average and for business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020; and
  • $650 per fortnight for other eligible employees and business participants.

Businesses and not-for-profits will be required to nominate which payment rate they are claiming for each of their eligible employees (or business participants).

The JobKeeper Payment will continue to be made by the ATO to employers in arrears.  Employers will continue to be required to make payments to employees equal to, or greater than, the amount of the JobKeeper Payment (before tax), based on the payment rate that applies to each employee. This is referred to as the wage condition.

The eligibility rules for employees remain unchanged.