Landlord tax obligations under COVID-19 circumstances

Property investors may have a number of tenants that have temporarily paused their rent payments or are not paying the full amount of rent owed due to being impacted by COVID-19. Regardless of rental income changes, landlords are still entitled to claim deductions on rental property expenses if they are still incurring regular rental property expenses.

Landlords who receive a back-payment of rent, or an amount of insurance as a result of a decrease in rental income, will still need to include these amounts in their assessable income for the tax year that they receive the payment.

Additionally, landlords may be faced with deferred loan repayments as a result of COVID-19. In this case, if your loan accumulates interest it will be considered as an incurred expense, meaning that you will still be able to continue claiming a deduction on your loan interest.

It is likely that landlords of short-term rental properties have had their situation compromised by COVID-19 due to cancelled bookings and low demand. If your property is used both privately and for renting out short-term accommodation, you will be able to continue deducting property expenses in the same proportion as you were entitled to prior to COVID-19. If you had begun using the property differently in the period after your latest tax return and before COVID-19, the proportion of expenses you can claim may vary. This can include situations where:

• You have increased the amount of private use of the property by you, your family, or your friends.
• You have made the decision to permanently stop renting out your property once COVID-19 restrictions end.

Claiming self-education expense deductions

Individuals upskilling and educating themselves during these down times may be eligible to claim a deduction for their self-education expenses. The deductions apply to self-education activities that are directly related to an individual’s work as an employee.

In the case that individuals are looking to claim self-education expenses based on a course’s relation to their work, the relation must mean:

• maintaining or improving the specific skills or knowledge the individual requires in their current work activities;
• resulting in, or likely to result in, an increase in the individual’s income from their current work activities.

There are many types of expenses you can claim as part of your self-education deduction, including:

• General course expenses (e.g. tuition fees, stationary, textbook, student union fees)
• Depreciating assets (e.g. computer, desk)
• Repair costs to assets used for self-education purposes
• Car assets (claimed using the cents per kilometre method)

Work-related self-education expenses cannot be claimed as part of a deduction. These expenses include travel expenses, child care costs related to attendance of courses and capital costs of items (e.g. computers, desk) acquired for self-education purposes.

Keep in mind that self-education courses which enable individuals to get new employment are not eligible for deduction claims. Some expenses also need to be apportioned between private purposes and use for self-education such as travel costs and depreciating assets. You will need to estimate your apportions and provide information on such expenses to be eligible to claim.

For more information on what you claim as self-education expenses, visit the ATO website or consult with a financial advisor.

Closely held payees exemption to be extended

Employers with 19 or fewer employees are temporarily exempt from reporting ‘closely held (related) payees’ through Single Touch Payroll enabled software. The exemption deadline has been extended from 1 July 2020 to 1 July 2021 as part of the ATO’s response to the COVID-19 situation.

A closely held payee is an individual directly related to the business, company or trust that pays them. Commonly, these are:

• Family relatives of a family business.
• Directors or shareholders if a company.
• Beneficiaries of a trust.

The closely held payees exemption is automatically applied, and employers do not need to report them to the ATO.

Employers still have the option to report their closely held payees’ payroll information through Single Touch Payroll if they wish to. This can be done each time a payment is made, following the same process that applies for regular employees.

Employers will need to provide payment summaries to their closely held employees and a payment summary annual report to the ATO at the end of the financial year unless they:

• report through Single Touch Payroll for their closely held employees, and
• lodge their finalisation declaration by the due date.

What you need to know about fringe benefits tax

A fringe benefits tax (FBT) is a tax paid on benefits provided to employees (usually non-cash). FBT is calculated based on the gross taxable value of benefits employers provide to their employees. Employees must lodge their return and pay the total FBT amount they owe for the previous FBT year. Due to COVID-19, the FBT lodgement deadline has been extended from 31 March 2020 to 25 June 2020.

The following are the types of fringe benefits you must lodge before the extended due date:

• Car fringe benefits: when a car your business owns or leases is available for employee private usage.
• Debt waiver fringe benefits: when you waive or forgive an employee’s debt (including those you write-off as a genuine bad debt).
• Loan fringe benefits: when you provide a loan to an employee and charge a low rate of interest or no interest during the GBT year.
• Expense payment fringe benefits: when you reimburse an employee for expenses they incur or pay a third party for expenses incurred by an employee.
• Housing fringe benefits: when you provide an employee with accommodation as a usual place of residence for the employee.
• Living-away-from-home allowance fringe benefits: any payments you make to compensate an employee for any disadvantages suffered because they have to live away from home to be employed at your business.
• Airline transport fringe benefits: any payments made in relation to airline transport.
• Board fringe benefits: meals provided to employees.
• Entertainment fringe benefits: payments for entertainment by the way of food, drink or recreation.
• Tax-exempt body entertainment fringe benefits: when you incur entertainment expenses and you are wholly or partially exempt from income tax or don’t derive assessable income from the activities related to the entertainment.
• Car parking fringe benefits: when you provide car parking for your employee.
• Property fringe benefits: when you provide free or discounted property (including goods such as electricity and gas, real property and rights to property) to an employee.
• Residual fringe benefits: broadly speaking, any rights, privileges, services or facilities provided in respect of employment.

Businesses who have paid less than $3000 in FBT in the previous year only need to make one payment when lodging their FBT this financial year. For businesses with more than $3000 in FBT, they must lodge their FBT quarterly. Clarify with your tax agent or accountant for your FBT details before lodging.

Tax implications for workers with COVID-19 mobility restrictions

Employees who are not living or working in their regular location due to COVID-19 mobility restrictions need to be aware of the tax implications that apply to their situation.

Individuals who ordinarily work and live in Australia but are temporarily overseas due to COVID-19 restrictions will not experience any changes to their Australian tax obligations. If the employee is paying foreign income tax overseas, they will receive a foreign income tax offset to reduce their Australian tax payable.

Foreign residents working from Australia who are not able to leave as a result of COVID-19 restrictions will not experience Australian tax impacts if their stay in the country is under three months. However, non-residents working in Australia for longer than three months may need to lodge an Australian tax return if they earn any assessable income from an Australian source. Other than this, their Australian tax obligations will remain unchanged.

Employment income will not be taxable in Australia if the employee:

• Is not an Australian resident;
• Are intending to leave as soon as they are able to;
• Has no employment connections to Australia other than the fact that they are performing remote work in the country.

Employees who typically reside in a country that Australia has a double tax agreement with may already qualify for an exemption in Australia.

JobKeeper GST turnover test released

The ATO has published a ruling on the decline in turnover test for businesses applying for the JobKeeper scheme as part of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020.

This turnover test requires businesses to calculate their ‘current GST turnover’ and ‘projected GST turnover’, subject to modifications to the definitions outlined in the Payments and Benefits Rules. The new ruling outlines the aspects of the decline in turnover in the following steps:

• Step A: what supplies are relevant when calculating projected GST turnover and current GST turnover,
• Step B: how you allocate supplies to relevant periods,
• Step C: how you determine the value of each supply that has been allocated to a relevant period, and
• Step D: The ATO compliance approach, which effectively allows you to work out Step B and Step C at the same time.

The turnover test period must be either a calendar month that ends after 30 March 2020 and before 1 October 2020, or a quarter that starts on 1 April 2020 or 1 July 2020.

During the turnover test period, businesses will satisfy the decline in turnover test if:

• Their projected GST turnover falls short of their current GST turnover for a relevant comparison period (the comparison turnover, and
• The shortfall expressed as a percentage of the comparison turnover equals or exceeds the specified percentage for the business

Keep in mind that the decline in turnover test applies to both entities that are registered and not registered for GST in determining if they are eligible for the JobKeeper payment.

The ruling also covers another approach to calculating business’ turnover – the cash or accruals approach – and outlines alternative methods that will allow for the allocation of supplies to a relevant period and determination of the value of those supplies.

What you need to know about lodgement deferral dates

Due to COVID-19 and unforeseen financial circumstances, the ATO has announced a series of lodgement deferral dates available for tax returns, fringe benefits tax returns, monthly and quarterly BAS, annual GST returns, PAYG summary annual reports and taxable payment annual reports.

Lodgement deferrals extend the due date for lodgement of a document without incurring a failure to lodge on time (FTL) penalty. To request for a lodgement deferral, simply complete an online application and lodge through online services provided by the ATO. The ATO will then assess and approve your requests within a 28-day period.

The extended lodgement dates for particular lodgements are listed below:

• Income tax 2018-2019 returns: 5 June 2020
• Fringe benefits tax 2019-2020 returns: 25 June 2020
• SMSF 2018-2019 annual returns: 30 June 2020

To request for a lodgement deferral for business activity statements, annual GST returns, PAYG summary annual reports and taxable payment reports, the ATO encourages businesses and employers to contact their tax or BAS agent to confirm their lodgement due dates and to submit requests as due dates are determined on a case-by-case basis.

While deferring a lodgement may be beneficial in the long term, it is still important to keep in mind your tax liability and how deferring lodgements may affect your cash flow options in the long term. Always discuss your options with a financial advisor or accountant before deferring your taxes as you may accrue more debt than expected otherwise.

FBT exemptions to keep in mind during the COVID-19 pandemic

In emergency situations like the COVID-19 pandemic, there are certain benefits you can provide your employees or their associates which may be exempt from fringe benefits tax (FBT).

The fringe benefits tax is a tax which employers must pay on certain benefits they provide for their employees, their employees’ families and associates. However, with emergency circumstances such as the pandemic-level coronavirus, the ATO is providing FBT emergency assistance exemptions which apply to many common scenarios that your business may be experiencing.

In the case of COVID-19, the FBT emergency assistance exemption applies to:

• Help businesses which have had to relocate their employees who needed to self-isolate and are from a high-risk area.
• Paying for emergency meals and accommodation for employees who are stranded overseas due to travel restrictions.
• Paying for flights for overseas employees returning to Australia.
• Exempting transport fees for an employee to seek medical assistance from their workplace.
• Exempting equipment purchased to provide to work-from-home employees such as laptops, portable printers or other portable electronic devices.
• The minor benefits exemptions may apply for minor, infrequent and irregular benefits of under $300.

With all these exemptions to keep in mind, remember that your FBT return is due 21 May 2020 unless the ATO accepts your request for an extension on lodgement time, you have been granted a deferral or you lodged electronically through a registered tax agent.

Your FBT returns can only be lodged through the practitioner lodgement service (PLS) which requires a Standard Business Reporting (SBR) enabled software from a digital provider. Your digital service provider should be partnered with the ATO in integrating tax and superannuation services into your practice management software.

ATO introduces new working from home deduction scheme

COVID-19 is forcing many businesses to work from home, meaning that you now have to pay for expenses such as heating and lighting that were previously covered by employers.

The ATO has introduced a new ‘shortcut method,’ where you can claim additional running expenses at a rate of 80 cents for each hour you work from home as a result of COVID-19.

Deductible running expenses include:

• Utilities such as heating, cooling and lighting.
• Cleaning costs for your work area.
• Mobile or landline phone expenses for work calls.
• Internet connection.
• Computer consumables and stationery.
• Repair costs for home office equipment and furniture.
• Depreciation of home office equipment, computers, furniture and fittings.
• Small capital items such as a computer (purchased for the purpose of working from home) can be claimed if they cost under $300. If the cost exceeds $300, the decline in value can be deducted.

The shortcut will apply from 1 March 2020 to 30 June 2020. A record of hours worked such as timesheets or rosters must be kept as proof. If you only undertake minimal work tasks from home such as occasionally checking emails or taking calls, then you are not eligible for the deduction. To claim the deduction, you must specify your claim with the note “COVID-hourly rate” when lodging your upcoming 2019-20 tax return.

There are two pre-existing alternative methods to claim working from home deductions that individuals may choose to use, however, they are generally more tedious:

• One way you can file a claim on your expenses is the actual cost method, where you keep a diary that details the work portion of your household running expenses. This can include receipts and documents supporting your claim. If you don’t provide supporting documents displaying the portion of expenses that were incurred for work, the ATO may reject your claim.
• The fixed-rate method allows you to claim a fixed rate of 52 cents per hour worked. This applies for electricity and decline in furniture expenses, but a separate claim can be made for phone and internet expenses, the depreciation of office equipment and computer consumables and stationery.

These deductions are only eligible for the proportions of the expenses that are actually used for work purposes. For example, if you’re using your own phone to make work calls, then only the portion of the bill that was incurred due to work calls can be claimed. If the room you are working in is shared with others, you can only claim electricity expenses for the hours you were exclusively using that room for work purposes.

Expenses such as rent, mortgage and insurance cannot be claimed unless you have a permanent home office.

Setting up your myGovID

If you haven’t set up your myGovID yet, you need to do it before you can lodge your next business activity statement (BAS).

AUSkey, including Manage ABN Connections, will be replaced by the ATO’s myGovID and Relationship Authorisation Manager (RAM) from 27 March 2020. After this change, you will no longer be able to access government online services through an AUSkey. Device AUSkeys will be replaced by new machine credentials.

Business owners will need to set up a myGovID soon if they haven’t already done so and link it to RAM. Your myGovID is separate from your myGov account and will allow you to prove your identity online. RAM is an authorisation service that uses your myGovID to provide you with access. When linked with your myGovID, RAM will allow you to act on behalf of your business online.

Desktop and browser-based versions of myGovID will not be supported as these devices are easily accessible. To set up your myGovID, you will need an email address (that you do not share with anyone else) and a smart device that uses iOS 10 or later on Apple devices, or Android 7.0 or later (not including devices that use Android Go operating systems). You can download the myGovID app for free through the AppStore or Google Play.

Depending on what government online services you wish to access through myGovID, you will have to provide certain identity documents to authenticate your account. You can generally have a Basic or Standard identity strength. A Basic identity strength is where you provide only one or no identity documents, aside from your personal details (such as your date of birth and email address). Only some government online services will accept a Basic identity strength, such as Bankruptcy Register Search, ACMA Lodgement Portal and Debt Agreements Online.

A Standard identity strength requires two Australian identity documents, such as:
– A passport, no more than three years past its expiry date
– A driver’s license, including a learner permit
– A birth certificate
– A Medicare card.
This will allow you to access all participating government online services, including the Business Portal where you can lodge your BAS.