The Jobkeeper has Dominated the Headlines; However, only July 1st, 2020 Test Date for Employee has been Finalized.
The legislation is yet before the Senate to extend the JobKeeper beyond September 27th. The details of JobKeeper 2.0 require legislative instrument to update the rules. We will send you an alert whenever the rules will be updated.
Superannuation Guarantee Amnesty ended on September 7th, 2020.
The ATO is also providing assistance to work with businesses who are willing to take advantage of amnesty but due COVID-19, are unable to pay outstanding SG liability.
You may call us if you have any queries related to above mentioned information in the Round Up.
BY GOVERNMENT
By the government, the test date for employees was August 14th, 2020. The treasurer also released Coronavirus Economic Response stimulus Package that included payments and benefits. Amendment rules 2020, amended the date of eligibility for JobKeeper from March 1st, 2020 to July 1st, 2020.
The amendment applied from August 3rd, 2020.
The original JobKeeper rules mentioned that the employee had to be employed by the entity as at March 1st, 2020 and met few conditions to qualify as eligible employee.
The JobKeeper fortnights which began on or after August 3rd, 2020, the amendment allowed the employers who were qualified to receive the JobKeeper payments for certain employees who met eligibility requirements on July 1st, 2020.
On March 1st, 2020, the employees who met the conditions will be continuing to be eligible as by assuming that they are still employed by the entity.
It can be elaborated in practical terms as follows:
• If an individual has started employment after March 1st, 2020 but by July 1st, 2020 and were an employee of the particular entity on that date, they stood eligible for Jobkeeper from august 3rd, 2020 by after meeting other eligibility conditions.
• The casuals who were not employed for minimum of 12 months leading up to March 1st, 2020 stood eligible for JobKeeper if they were employed on regular basis for minimum of 12 months up to July 1st, 2020.
• The individuals who got failed the mandatory conditions related to age or residence at March 1st, 2020 as stood eligible employees if they met certain conditions on July 1st, 2020.
More Info:
JobKeeper Payment and Income Support Extended
BY ATO
Assistance by State Government for Tax treatment during COVID-19
The ATO has issued certain guidelines on tax treatment on State and Territory business support measures that includes direct grants, expense reimbursements, and payroll and other tax relief.
CASH GRANTS
The ATO has made it confirmed that these payments must be involved in the income to be assessed. However, these are not subject to GST until and unless the businesses give something in return for the payments.
OTHER RELIEF
The other types of relief include land tax relief or payroll, the position depends upon how the relief is given. To exemplify, according to indication by ATO, refunds of payroll tax and land tax that are paid in prior must simply lower the amount of deduction claimed, instead of giving rise to assessable income amount. The refunds must not have any GST implications. Likewise, reductions of State Taxes payable must lower the amount to be deductible.
More Info:
COVID 19 Government Payments
RESIDENTIAL RENTAL PROPERTIES AND COVID-19
The financial circumstances of some tenants and landlords had severely influenced residential tenancy arrangements. The ATO has given brief guidance on this approach that includes:
- Tenants who are not able to pay their rents. In such cases, the ATO indicates that the landlords can still claim reductions for certain rental expenses when the tenants are unable to pay the rent under lease agreement as their income has been affected by Coronavirus and the landlord got less income in conclusion, but continued to incur normal expenses on the property.
- Deductibility of Interest: The interest must remain deductible on loans for rental property if it continues to accumulate, even if the bank suspends the obligation to make repayments of loans.
- Back Payments of insurance recoveries and rent: The ATO has given confirmation that these payments must be given declared as assessable income in tax year that is received.
- Short-term Rentals: Some landlords offering short term rentals have experience of reduced demand for short-term rental accommodation that includes cancellation of existing bookings that affect the income received. The ATO has indicated that the client can claim only a deduction for the portion of expenses that relate to income producing use.
More info:
Residental Rental Property
COVID-19 AND CAR FRINGE BENEFITS
The ATO has released certain guidelines on fringe benefits and the influence of Coronavirus to such benefits. The ATO confirmed that the treatment will be depended upon either the taxable value is calculated using statutory formula or operating cost method.
The ATO accepts that if the car is not being driven or is only driven for the purpose of maintenance, then will not be considered to be for fringe benefit for operating cost method purposes.It can be concluded that there must be no FBT liability for the specific when the car is being garaged at the home of employee.
The employer must make it sure that they have proper odometer records to show that the car has not been used. Other areas of assistance:
• Emergency transport
• Expenses to be incurred on COVID-19 testing for employees
• Providing personal protective equipment to the employees when this could be an exempt benefit
• Employers giving property to employees in order to work from home like laptops.
Change in Super Contribution age limit
The Superannuation regulations 2020, allow the members to:
• Make some voluntary concessional and non-concessional super contributions without meeting any work test if they are younger than 67
• Get spouse contributions if they are of 75 years of age or younger
COVID-19, TRUSTS AND SECTION 100A INTEGRITY RULES
The ATO has published guidance for situations where trustees of trusts may not be able to physically pay trust distributions to beneficiaries because of liquidity issues caused by Coronavirus. Section 100A ITAA 1936 is a specific integrity provision, which can operate to tax the trustee on income appointed to a beneficiary where the benefit of those funds is provided to someone else.
The rules are also applicable when the trustee appointed income to a beneficiary without having authentic idea of actually paying distributions to that beneficiary. The ATO states that where a present entitlement arose before any effect of COVID19, then the mere fact that the trustee may need to make subsequent arrangements to meet the requirements of a financial institution should not of itself cause the entitlement to be invalid or trigger section 100A.
Furthermore, the assistance includes a commitment to not undertake compliance action to consider the validity of a present entitlement or the application of section 100A in circumstances where a trustee is affected by liquidity issues due to COVID-19 and is unable to satisfy the entitlement.
More info:
Covid 19 – Trust Liquidity Issues
Rulings
Thin Capitalisation and the Arm’s Length Debt Test
This new ruling give detail on working of arm’s length debt test for thin capitalization rules, and give assistance on technical issues that take place in analyzing arm’s length debt amount of an entity.
To elaborate more, this test looks at the amount that the businesses of Australia would have been efficient to borrow from independent commercial lending institutions on terms and conditions of arm’s length.
At a high level, the test involves developing the scenario that would arise if the entity had been dealing with independent commercial lending institutions, without credit support of related parties.
Foreign Income Tax Offset and Capital Gains
There are certain cases that look at the way in which the foreign income tax offset rules are applicable in cases that include foreign sourced capital gains. To exemplify, In Burton case, it was confirmed that the taxpayers can claim only foreign income tax offset (FITO) for foreign tax paid on a capital till the capital gain is assessable in Australia. If the gain qualifies for the 50% CGT discount then under FITO rules, only half the foreign tax paid in relation to the capital gain can be considered.
This analyzes the technical basis for the calculation of FITO limit in such conditions that involves numerous foreign capital gains. The FITO limit calculation involves a comparison between Australian tax actually payable and the Australian tax that would be payable if certain income and deductions reasonably related to that income were disregarded.
The ATO takes this view primarily because a net capital gain does not have a source. Therefore, the FITO limit will generally be lesser than it would be otherwise.
Making Use of Interposed Entities to Ignore Interest Withholding Tax
The alert for taxpayer has been issued for arrangements when a non-resident generates Australian-sourced income by Australian trust and utilising an interposed non-resident entity who is a beneficiary. The beneficiary incurs interest expenses on loans from non-resident head entity which allows interest withholding taxes to be overlooked.
The description by ATO provides that:
“A resident trust derives income which the trustee distributes to an offshore interposed beneficiary, with the trustee paying tax on the distribution at the corporate rate pursuant to subsection 98(3) of the Income Tax Assessment Act 1936 (ITAA 1936).
The beneficiary gets funded partially with increased rate of interest related third-party debt. This generates important interest deductions for the beneficiary against Australian income in tax return, this raises refundable credit for the taxes already paid by the trustees.
The ATO indicates in the alert that these arrangements may be subject to the transfer pricing provisions, thin capitalisation rules, and the general anti-avoidance rules (Part IVA).
Cases
The Client test and getting work through intermediaries
Commissioner of Taxation v Fortunatow [2020] FCAFC 139
This case considered whether the ‘unrelated clients test’ operated to ensure a taxpayer was carrying on a personal services business in circumstances where the taxpayer ‘advertised’ through LinkedIn but in practice, exclusively obtained work through intermediaries such as labour hire firms – including those who contacted the taxpayer through LinkedIn.
Broadly, in order to pass the ‘unrelated clients test’ the taxpayer needs to have generated PSI from two or more unrelated clients during the year and the services need to have been provided as a “direct result” of the taxpayer making offers or invitations to the public or a section of the public.
On appeal the Federal Court overturned the AAT decision and held that the exception has no application where there is evidence that the taxpayer advertises their services to the public or a segment of the public and also obtains work through the involvement of recruitment or other similar intermediary company. That is, the fact that someone has undertaken work obtained through an intermediary does not automatically prevent the unrelated clients test from being satisfied.
The Full Federal Court’s decision confirms that it is not sufficient to advertise your services. In order to pass the unrelated clients test there needs to be a direct link between the advertising and the provision of the services.
Validity of the “Backpacker Tax”
Commissioner of Taxation v Addy [2020] FCAFC 135
In this case, the ATO appealed prior decision in Full Federal Court. Firstly, the court concluded that the taxpayer was a resident of Australia for tax purposes less than 183 day test and taxpayer’s parents’ house in UK was no longer her place to stay.
Under Article 25 of Australia, UK double tax agreement that prohibits the discrimination between entities being nationals of one nation or other, operated tax rates imposed on working holiday makers, who could be nationals of other nation for the aim of treaty, were prohibited by DTA.
However, the ATO was successful in arguing that the working holiday maker tax rates were valid and not prevented from applying to the taxpayer by the provisions of the DTA. The majority concluded that there was no discrimination on grounds of nationality.
It is worth noting that the decision in this case has not completely confirmed the “validity” of the “backpacker tax” as it would appear to leave open the possibility of non-discrimination clauses in DTA’s applying where there is no other choice of visa for a taxpayer – which could potentially be the case for taxpayers from countries other than the UK.
Residency and Establishing a Permanent Place of Abode Overseas
Joubert and Commissioner of Taxation (Taxation) [2020] AATA 2645
In this case, the Full Federal Court found that the fact the accommodation of the taxpayer in the overseas country was of a temporary nature did not necessarily mean that the taxpayer had not established the overseas location as a “permanent” place of abode.
In Harding the Court found that the taxpayer was not a resident of Australia.
The facts supported the conclusion and marked that the taxpayer was a resident of Australia and had no intention to remain overseas and has certain indications that prove client remain a resident for certain tax purposes.
Legislation for JobKeeper Extension
COVID-19 Economic Response Package Amendment Bill 2020 for JobKeeper Payments.
The authorities have declared legislation that allows the JobKeeper scheme to get extended till March 28th, 2021. The extended part shall end on March 28th, 2021 despite December 31st, 2020. The Bill doesn’t actually set out the specific details of the expanded JobKeeper scheme. It is assumed that once this Bill is passed the Treasurer will publish a new legislative instrument setting out full details of JobKeeper 2.0 which would run from September 28th, 2020 to March 28th, 2021.
This bill amends superannuation guarantee to assure employees under workplace determinations or enterprise agreements have the right to choose superannuation fund. Many of these employees can be required to use a superannuation specified under the agreement, for example an industry fund based on the area of employment. This reduces the issues that may arise whereby the employees could have more than one superannuation accounts because of working in different areas.
More Info:
Coronavirus Economic Response Package Amendment Bill 2020