Extending relief with JobKeeper 2.1 changes

The Government has introduced additional changes to JobKeeper to help more businesses qualify for the relief payments.

One of the key changes was moving the relevant date of employment for an eligible employee from 1 March to 1 July 2020, to extend employee eligibility. This allows those who were full time employees on or before 1 July 2020 and employees who became long-term casual workers between 1 March to 1 July 2020 to be eligible for JobKeeper. This will increase the amount of employees that are eligible under the current JobKeeper Scheme, and will also expand the eligibility criteria under JobKeeper 2.1.

Businesses originally needed to show that they have met the decline in turnover test in the June, September and December 2020 quarters to receive JobKeeper payments. To qualify for the first phase of the JobKeeper Extension (28 September 2020 to 3 January 2021) businesses need to show that they have had a decline in turnover only for the September 2020 quarter, in comparison to the previous year.

To qualify for the second phase of JobKeeper Extension (4 January 2021 to 28 March 2021) businesses need to show that they had a decline in turnover for the December 2020 quarter only to be eligible for payments.

This change can be particularly useful to businesses that may not have met the decline in turnover test in the June or September quarter, but suffer significantly in the December quarter.

The improved accessibility to JobKeeper payments comes from the impacts of economic downfalls in Victoria. It is predicted that more than 80 percent of these payments will flow towards assisting Victorian businesses and employees.

What is an SMSF auditor and what do they do?

Self-managed super fund (SMSF) trustees are required to appoint an ATO-approved SMSF auditor no later than 45 days before lodging their SMSF annual return. An SMSF auditor is a professional who assesses your fund’s compliance with superannuation law and examines your fund’s financial statements.

SMSF auditor eligible requirements
Your SMSF auditor must be:

• Independent. SMSF auditors cannot audit a fund that they hold financial interest in, or have a close personal or business relationship with the SMSF members or trustees.
• Registered with ASIC (Australian Securities & Investments Commission) and holds an SMSF auditor number for you to provide on your annual return.

What will your SMSF auditor do?
An SMSF auditor provides you with an independent opinion on the existing assets in your SMSF and whether or not your fund complies with the rules outlined in the Superannuation Industry (Supervision) Act 1993.

When preparing for an audit, an SMSF auditor will issue a Terms of Engagement Letter to the trustee(s) of the fund, which includes the roles and responsibilities for parties involved in the audit as well as the range of the audit. In the case that your SMSF auditor’s primary contact is your accountant, your accountant will be issued a separate Terms of Engagement Letter.

By clearly outlining each parties’ capabilities, a Terms of Engagement Letter helps you, your accountant and your auditor to avoid any misunderstandings and also protects audit evidence provided by your auditor from unintended alterations. In turn, SMSF auditors who fail to follow standards or take shortcuts can be sued or imposed penalties by the Court.

The Terms of Engagement Letter also acts as a contract to keep parties accountable during compliance breaches and prevents cases of ‘opinion shopping’ where trustees look to other auditors for unqualified opinions. Trustees may end up being audited by the ATO in the event that they breach the Terms of Engagement Letter and ‘opinion shop’, as it comprises auditor independence.

CGT rollover when transferring assets in a divorce

Transferring the ownership of assets from one party to another may attract CGT. However, in the event that a change in ownership occurs due to the breakdown of a relationship, you may be eligible for a rollover of the asset.

A rollover allows taxpayers to defer or disregard a capital gain or loss that would normally arise on a CGT event. Specifically, a same asset rollover can occur when an individual transfers assets to their ex-spouse, as the transferee already has an involvement with the asset. The spouse who receives the asset will make the capital gain or loss when they dispose of the asset in future. They will also receive the cost base of the asset (the cost of the asset at the time of its initial purchase), as well as expenses incurred when acquiring, holding and disposing of the asset.

The rollover applies to CGT events that occur as a result of:

• An order of a court or a court order made by consent under the Family Law Act 1975 (foreign laws with similar logistics may also apply).
• A court order under a state, territory, or foreign law relating to the breakdown of a relationship.
• A binding financial agreement, or a corresponding written agreement.

Separating couples transferring assets in accordance with a binding financial agreement will not require court intervention, however, for rollover to apply, the following must be true at the time of transfer:

• the involved spouses are separated,
• there is no reasonable expectation of cohabitation resuming,
• the transfer of assets occurred for reasons directly related to the breakdown of the relationship. For example, the transfer may not be directly connected to the separation if the spouses already agreed to the transfer before the breakdown of their relationship.

Couples with informal or private agreements related to the transfer of assets will not be eligible for a rollover, and CGT will apply to these ownership transfers. The parties cannot choose whether or not the rollover applies to their situation.

Buying property through your SMSF

Using SMSFs to buy property has become increasingly popular among Australians in recent years, particularly since it became possible for SMSFs to borrow money to fund a direct property purchase.

Residential property

A residential property owned by an SMSF has some limitations as to who it can be leased to.

To buy property through your SMSF, the property must meet the following requirements:

• It meets the ‘sole purpose test’ of solely providing retirement benefits to members of the fund.
• It is not acquired from a related party of a fund member.
• It is not to be lived in or rented by a fund member or a party related to a fund member.

Commercial property

A commercial property owned by an SMSF can be leased to a wider range of tenants than residential properties. Commercial property purchased for business purposes can be purchased from a member of the SMSF or a related entity. This allows small business owners to use their SMSF to purchase the premises from which their own business is run, enabling them to pay rent directly to their fund. This can be preferable to paying rent to an alternate landlord. However, keep in mind that rent must be at market rate and be paid promptly and in full at each due date.

SMSF borrowing

SMSFs can borrow money to purchase a property, however, the borrowing criteria for an SMSF is generally much stricter than regular property loans taken out by individuals. All loans must be undertaken through a limited recourse borrowing arrangement (LRBA). An LRBA involves an SMSF trustee taking out a loan to purchase a single asset, such as a residential or commercial property. Under the Superannuation Industry (Supervision) Act 1993, super fund trustees can use borrowed money to pay for regular repairs and maintenance. However, borrowed money under the LRBA cannot be used for property improvements or renovations that result in the acquirable asset becoming a different asset. This may include adding additional rooms to the property or completely renovating a room.

Tax consequences

Buying and renting property through an SMSF also comes with tax consequences. SMSF funds are required to pay 15% tax on rental income from properties purchased through the fund. However, properties held for over 12 months receive a one third discount on any capital gains made upon the sale, bringing any CGT liability down to 10%.

Expenses such as interest from loans, council rates, maintenance and insurance can be claimed as tax deductions by the SMSF.

As well as this, once SMSF members reach pension phase, any rental income or capital gains arising in the fund will be tax-free.

SMSF property costs

SMSF property sales often attract higher fees that can end up reducing your super balance. Fees and charges can include:

• legal fees,
• property management fees,
• bank fees,
• advice fees, and
• stamp duty.

What is a TPAR and do you need to lodge one?

The Taxable Payments Annual Report (TPAR) is an industry-specific report through which businesses inform the ATO of the total payments made to contractors for services in that financial year. This information is then used by the ATO to match the contractors’ income declarations to improve their compliance efforts.

A TPAR is generally required by businesses that have an Australian Business Number (ABN), have supplied a relevant service and have made payments to contractors for services completed on your behalf. Contractors can be operating as sole traders, partnerships, companies or trusts. The following services are considered relevant:

• Building and construction services
• Courier or Road freight services
• Cleaning services
• Information Technology services
• Investigation or surveillance services

If your business provides these services, regardless of whether it is only a part of the services you offer, or if it is a federal, state, territory or local government entity, you are obligated to report the payments made to third parties through a TPAR.

It is important to remember that not all payments need to be reported. Your taxable payments annual report does not require details of:

• Payments for exclusively materials
• PAYG withholding payments
• Contractors who do not provide an ABN
• Incidental labour costs
• Invoices that are unpaid as of 30 June
• Payments within consolidated groups
• Payments for private and domestic projects.

Only payments made to contractors for work that is relevant to carrying on your business needs to be reported. Your TPAR is due by 28 August each year, and fines may apply for not lodging the report by the specified deadline.

If your business does not need to lodge a TPAR for a particular financial year, consider submitting an optional non-lodgement advice through the ATO business portal to avoid unnecessary follow-up about TPAR lodgements.

How to select a default fund for your business

Business owners might be required to select a default fund for employees when they do not want to nominate their own superannuation funds. Funds should meet specific requirements that are stated as per super law, so it is important to select a complying fund. However, there are other factors that you may have to think about before selecting a default fund to make sure that you and your employees get the most out of it.

Pricing
Naturally, one of the main considerations while selecting a super fund should be pricing. Funds that have a lower fee may not cover extras, and this requires careful analysis to see what extras have been left out. Coverage for extras like being able to track down missing super is a key feature that employees will prefer your default fund has.

Employee preferences
Employees are likely to prefer funds that allow flexibility with their investment options and have essential features like insurance policies covering death, total and permanent disability (TPD), and income protection. You may want to consider options that give your employees a comprehensive cover while keeping an eye out for any exclusions that might affect you.

Industry fund
Checking industry funds may help reveal awards that are particularly applicable to employees from your industry. It is a requirement that your default fund is a MySuper product. All listings under Industry SuperFunds are MySuper products, so this can simplify the process of finding an affordable super fund for your employees.

Fund management
Finally, consider taking a closer look at the fund’s insurance offerings. Past performance of the fund doesn’t guarantee high returns in the future. But it is important to be aware of the returns on the fund’s investments to compare how their options have performed against their return objectives. This can increase the chances that the selected super fund will be beneficial to you and your employees.

Applying for small business income tax concessions

Businesses looking to save on tax for the financial year may consider applying for income tax concessions.

Businesses classified as a small business entity are eligible for income tax concessions. Since 1 July 2016, businesses are considered small business entities in the case that they:

• are a sole trader, partnership or trust,
• operate as a business for all or part of the income year, and
• have an aggregated turnover of less than $10 million.

In the event that you meet the above requirements as a small business entity, here are the income tax concessions available to you.

Small business structure rollover
Small business entities can change the legal structure of their business and transfer active assets from one entity to another without incurring any income tax liability. Assets such as capital gains tax assets, trading stock, revenue assets and depreciating assets are eligible in this rollover. The rollover is also only available in the case that it is part of a genuine restructure and there is no change to ultimate economic ownership.

Simplified trading stock rules
Under the simplified trading stock rules concession, you can estimate the value of your trading stock at the end of the financial year when reporting in your tax return. However, small businesses will also need to show how they calculated their estimated trading stock value. Businesses which choose not to use an estimate will need to account for value changes in their stock and conduct a stocktake. Stocktakes do not need to be conducted if there is a difference of $5,000 or less between the value of your stock at the start of the income year.

Immediate deductions for prepaid expenses
Payments which cover a period of 12 months or less that are ending in the next income year are eligible for immediate deductions. Prepaid expenditure is also immediately deductible when the period ends no later than the last day of the income year following the year in which the expenditure was incurred.

Two-year amendment period
Small businesses receiving a notice of assessment from the ATO have a two-year time limit for reviewing an assessment.

How to avoid SMSF disputes

Self-managed super funds (SMSF) can be vulnerable to disputes, especially when family members are involved.

SMSF disputes may be caused by a number of reasons such as relationship breakdowns, (common in funds where parents and siblings are in a member and trustee relationship) and fundamental differences in opinions. Other common triggers for SMSF disputes include:

• investment strategy disagreements,
• differences in opinions over the payment of benefits, especially in SMSFs involving both parents and their children,
• payment of death benefit disputes, and
• disagreements on the distribution of SMSF death benefit payments between surviving members.

Consider the following methods to avoid SMSF disputes.

Clear decision-making procedures
Disagreements are bound to occur when it comes to money, so it is important to include concise decision-making provisions to keep things fair for all parties involved. For example, trustee decisions can be made by a simple majority rather than unanimously, and a particular trustee may be provided a casting vote in the case that a deadlock occurs. Provisions could also include voting rights that are based on the value of a member’s account balance within the SMSF to avoid situations where a member with minority interest out-votes a member with a large fund account balance.

Updating your SMSF regularly
An SMSF trust deed will provide provisions which determine the trustees’ rights, obligations and options. It is important to keep your SMSF and trustee information up to date to prevent any unwanted beneficiaries and claims. For example, in the case of an unfinalized divorce or legally unchanged relationship status, a former spouse can claim the others’ superannuation death benefits. To prevent such situations and avoid their inevitable disputes, be sure to update your super fund regularly.

What types of income do you need to include in your business’ tax return?

Due to changing economic circumstances, businesses may be receiving income from sources they have never received from, and may be unaware of their tax implications. In the event that they are listed below, you will need to include them in your business’ tax return.

Government payments
Due to COVID-19, many government grants and payments have been made to businesses this year. Businesses receiving the following grants will need to report them as part of their assessable income in this year’s tax return:

• JobKeeper payments,
• Supporting Apprentices and Trainees wage subsidy,
• Grants under the Australian Apprenticeships Incentives Program,
• Subsidies for carrying on a business.

Keep in mind that COVID-19 cash-flow boost payments are non-assessable and non-exempt income, meaning they do not have to be included as part of your assessable income.

Crowdfunding income
Crowdfunding refers to the usage of the internet or social media platforms, mail-order subscriptions, benefit events or other methods to find supporters and raise funds for your business’ projects and ventures. Profits made through crowdfunding are considered part of your business’ assessable income in the case that you have:

• used crowdfunding in the course of your employment,
• entered into a transaction with the intention of making a profit
• received money or property in the ordinary course of your business.

Income from online activities
The current pandemic may have also forced you to move your business operations online for the first time. The ATO provides a clear distinction between online selling as a business or hobby. In the event that you meet the following circumstances while selling online, you will need to report your earnings as part of business’ assessable income:

• Your main intention is to make a profit,
• You sell items online on a regular basis,
• The items or services you are selling are commonly available in a physical store, and
• You pay for your online-selling presence.

Other basic income streams such as cash income, investment earnings and capital gains and losses also need to be reported in tax returns as usual.

What circumstances permit early access to your super?

Early access to your superannuation is permitted under a few limited circumstances outlined by the ATO. In the case that you are experiencing financial struggle and would like to withdraw from your super, be aware of the particular circumstances that will allow you to do so.

Compassionate grounds:

Withdrawing super on compassionate grounds is permitted in the event that you need money to pay for:

• medical treatment and medical transport for you or your dependant,
• palliative care for your or your dependant,
• making a payment on a home loan or council rates so that you don’t lose your home,
• accommodating a disability for you or your dependant, or
• expenses associated with the death, funeral or burial of your dependant.

Severe financial hardship:

You can also be permitted access to your superannuation due to severe financial hardship. However, when requesting withdrawals under severe financial hardship, individuals need to contact their super provider for access rather than the ATO.

Both of the following conditions must be met for you to be eligible to withdraw some of your super:

• you have received eligible government income support payments continuously for 26 weeks, and
• you are unable to meet reasonable and immediate family living expenses.

Superannuation that is withdrawn due to severe financial hardship is taxed as a super lump sum. You can withdraw up to $10,000 from your superannuation (minimum of $1,000) and in the case that you have less than $1,000 in your super funds, you can withdraw up to your remaining balance after tax.

Terminal medical condition:

You may be eligible to request access to your super (approval by your super fund) in the event that you have a terminal medical condition and all the below conditions are met:

• two registered medical practitioners have certified that you suffer from an illness or injury that is likely to result in death within 24 months of the date of signing the certificate,
• at least one of the two registered medical practitioners is a specialist in the area related to your illness or injury, and
• the 24-month certification period has not ended.

Temporary incapacity:

Those who are temporarily unable to work as a result of physical or mental medical conditions may be eligible for early access to superannuation. Access is dependent on the insurance benefits linked to your super account. Any withdrawals you receive are taxed (with regular rates) as a super income stream.

Permanent incapacity:

Permanent incapacity, also known as disability super benefit, allows for early access to super in the case that a permanent physical or mental condition is likely to stop you from ever working again, in a job you were previously qualified for.

Individuals can choose to receive permanent incapacity super withdrawals as regular payments (income stream) or as a lump sum. Unlike temporary incapacity, permanent incapacity super withdrawals are subject to different tax components, based on:

• the tax-free component of your super funds,
• the taxable component your super provider has paid tax on (tax element), and
• the taxable component your super provider has not paid tax on (untaxed element).

To receive concessional tax treatment, your permanent incapacity must be certified by least two medical practitioners.

Keep in mind that the ATO has also announced a new set of rules for the early release of superannuation due to COVID-19. Individuals who have been adversely affected by the pandemic may be eligible to access some of their superannuation early.