As you may have seen in the media, the Federal and State governments have been stimulating the building industry as a result of the downturn in the economy from COVID.

These are temporary incentives to encourage residential and investors into the market and applicants have a limited amount of time to be eligible.   The increased demand for new houses could lead to longer wait times for houses to be built due to shortage of labour which could lead to land being vacant for longer than anticipated.  If you are an investor in this situation, it is important to note that from 1 July 2019 deductions available for vacant land have changed.

What is vacant land?

Vacant land is broadly defined as “land with no substantial and permanent structure on it that is in use or available for use”.

Prior to 1 July 2019 (Old Rules)

Prior 1 July 2019 the ATO were accommodating in recognising the time and common delays that were associated with building a new property.  If the owner was taking active and genuine steps in building a property that would be used to produce income once compete (seeking finance, engaging a builder, architect, real estate agent and council development plans) the ATO allowed a tax deduction for the associated holding costs up front. Holding costs include expenses such as:

  • Loan interest
  • Council rates
  • Land tax
  • Insurance

It is important to note that these expenses are still deductible if you incurred them before 1 July 2019.

From 1 July 2019 (Current Rules)

From 1 July 2019 the holding costs associated with vacant land are no longer deductible. While this is unfortunate, not all is lost. Instead these costs will be added to the cost base of the property and may reduce any capital gains tax payable when you sell the property.

So if you are hoping to take advantage of record low interest rates and build a new investment property it is important to document all of your expenses as you will need these when you come to sell.

As always it is best if you seek advice from an accountant prior to entering into any contract as everyone’s circumstances are different.

Other related blogs

Holding costs and the impact on Capital Gains Tax
Four year construction rule when you buy vacant land or renovate

Accountant: Louise Leafe
Email:louise@faj.com.au

 

 

 

 

 

In the 2018 Federal Budget, the Australian Government introduced the Personal Income Tax Plan, which is a three stage plan aimed at providing income tax cuts to taxpayers over the next seven years.

Stage one introduced a temporary Low and Middle Income Tax Offset. As the name suggests, this was a tax benefit aimed at low and middle Income earners.

Stage 2, announced in the 2020 Federal budget, included changes to personal income tax brackets, which again, was aimed at providing tax savings to low and middle incomes. The changes to resident tax rates, effective from 1 July 2020 include:

  • Increasing the 19% income tax bracket from $37,000 to $45,000.
  • Increasing the 32.5% income bracket from $90,000 to $120,000.
  • Increasing the Low Income Tax Offset from $445 to $700.

While the above applies to individual resident rates, there are also changes to foreign resident and working holiday maker rates which include:

  • Increasing the 32.5% income tax bracket from $90,000 to $120,000 for foreign residents.
  • Working holiday makers will also see an increase in the 15% income tax bracket from $37,000 to $45,000.

So what does this all mean?

The table below shows the tax savings at each income level based on the changes to income tax brackets. As you can see, the tax savings only apply to those earning over $37,000 in income.

Income Savings
less than $37,000                                    –
$37,001 – $45,000  $0 – $1,080
$45,001 – $90,000 $1,080
$90,001 – $120,000  $1,080 – $2,430
$120,000+ $2,430

Stage three of the plan will be introduced in the 2024-25 income tax year with more changes to the tax brackets, resulting in even further tax savings.

Author: Caleb Datson
Email: caleb@faj.com.au

In March 2020 the WA government introduced a code of conduct to support tenants of commercial properties with COVID rent relief.

This code of conduct was created to ensure businesses survived the economic downturn by assisting commercial tenants and landlords to negotiate a rent relief agreement. The code applied to small businesses with an annual turnover of up to $50 million and that were also eligible for the JobKeeper scheme.

The code allowed tenants who were affected by the pandemic to request rent relief from landlords, who were required to:

  • offer relief at least proportionate to the reduction in turnover that the business had suffered; and
  • waive at least half of that rent, with the balance either being deferred or waived.

Further, rent could not be increased and tenants could not be evicted for not meeting their rent obligations.

These COVID rent relief rules were initially intended to end on 30th September 2020, but as a result of the continued economic effects of the pandemic, the rules were extended until 28th March 2021. Not every tenant qualified for the extension – if, after 30th September 2020, a tenant’s business improved to a point where they were no longer eligible for the JobKeeper scheme, the code no longer applied and no further rent relief was available.

Now that 28th March 2021 is fast approaching, the rent relief provided to the remaining eligible tenants will no longer apply. What will this mean?

  1. Rent obligations that were previously deferred will need to be paid back. Deferred rent will need to be paid over a 24 month period or the balance of the lease term (whichever is greater).
  2. Landlords can take legal action if deferred rent is not paid by the tenants as per the agreement.
  3. Landlords are permitted to take action to terminate or evict tenants if rent is unpaid..
  4. Landlords can start applying rent increases.

If you are experiencing difficulties with your landlord or tenant, the Department of Commerce recommends you contact the Small Business Development Corporation for advice.

For further information, please visit https://www.commerce.wa.gov.au/consumer-protection/commercial-tenancies-covid-19-response

Related blogs:

Wages during lockdown
Why a small business should be using monthly budgeting

Email: tessa@faj.com.au

 

2020 saw Australian Federal and State Governments implement an array of incentives to keep Australians in jobs, businesses afloat, and stimulate the economy.  Among these were a number of home builders grants to incentivize home-buyers to purchase new builds or make substantial renovations to existing properties, all the while bettering the economy and the building and construction industry.

HomeBuilder

HomeBuilder was introduced on a Federal level, providing a grant to build a new home or renovate an existing home. Initially, this incentive was intended to cease at the end of 2020, however the Federal Government have extended the program until 31 March 2021.

For any contracts signed between 4 June and 31 December 2020, a $25,000 grant is available, whereas any new contract signed between 1 January and 31 March 2021 is eligible for $15,000.

Although HomeBuilder is a Commonwealth initiative, it is administered by State and Territory Revenue offices and is also where you will find the relevant application forms.

To be eligible:

  • You must be a natural person (i.e. not a company or trust), 18 years of age or older, and an Australian citizen.
  • Have an individual taxable income of less than $125,000 or less than $200,000 for a couple (based on 2018-2019 financial year or later years)
  • The deadline for submitting applications has been extended to 14 April 2021 for all eligible contracts signed between 4 June 2020 and 31 March 2021.
  • Construction must commence within six months of the contract being signed to receive the grant.
  • The property value of a new build cannot exceed $750,000 (exceptions – for contracts signed 1/1/2021 – 31/3/2021, $950,000 in NSW and $850,000 in Victoria)
  • Property value for substantial renovation cannot exceed $1.5 million pre-renovation.
  • A “substantial” renovation is a contract between $150,000 – $750,000.

Home Construction (Building Bonus) Grant

This grant was introduced by the WA Government for building a new home on vacant land or entering into an off-the-plan contract to purchase a new home. Contracts have to have been entered into between 4 June and 31 December 2020, and provided you’ve done this you can still apply for the $20,000 grant.

The main requirement with the Building Bonus Grant is that construction must be commenced within 12 months from the date of the contract.

Application forms are available for the HomeBuilder and the Building Bonus Grant online via the WA Office of State Revenue.

First Home Owners Grant

As the name suggests, this is a one off payment to assist first home buyers in the purchase of a property which will be their principal place of residence. The grant available is $10,000, however is only available once per transaction. For example, a couple who are both purchasing their first home can only claim a total of $10,000.

Eligibility requirements include factors such as not previously owning residential property, occupying the property for a minimum amount of time depending on circumstances, the value of the home depending on location, and residency.

Application form for the First Home Owners Grant can be found here.

If you’re unsure, speak to an accountant at FAJ to make sure you meet all of the requirements and integrity measures to be eligible to take advantage of these grants.

For advice and assistance with your new or existing home loan contact Kristian from our FAJ Home Loans division. 

 

Other related blogs:

First home super saver scheme – now legislated

Author: Jake Solomon Email: jake@faj.com.au          

On the 6 October 2020 as part of the 2020/2021 Federal Budget the government announced an array of initiatives to support business and encourage new investment to help counter the impacts of the COVID pandemic. One of these was the introduction of legislation to allow a company to offset current year losses against prior year profits known as the loss carry back tax offset.

Prior to this initiative if a company incurred a loss it would have to wait until a future financial year where it made a profit to offset those losses. 

Under the changes, commencing from the lodgement of the 2021 financial year tax return, a company will be able to elect to offset its losses against prior year profits and receive a refund of the tax it has previously on those profits. This means a company won’t have to wait until a future year to see the benefit of those losses.

How does it work?

As part of completing the tax return you can elect to choose whether to apply any current year losses against prior year incomes.  Your accountant will guide you through which option will result in the best outcome for you.

Who’s eligible?

It’s important to note that this is only eligible for companies with turnovers of less than $5 billion. If you are trading as a sole trader, partnership or trust then these measures will not apply to you.

You will also need to have paid tax in a relevant prior financial year and the loss can only offset an equal amount of profit in a prior year.

When does this commence?

The first financial year where you will have the choice to carry back losses is the 2020-2021 financial year and can extend back to profits generated in the 2018/2019 and 2019/2020 financial years.

Want to access this offset?

If you expect to have tax losses in the 2021 financial year you will need to wait until after 30 June 2021 before we can submit the company tax return. Contact the Francis A Jones team for more information.

Related blogs:

What company debts can directors be personally liable for?

Author: Nick Vincent
Email: nick@faj.com.au

Well it was inevitable I guess. After 10 months without community transmission, Perth, Peel and the South West were forced into an abrupt lockdown last week after a security guard tested positive for the highly infectious UK variant of COVID.

The announcement by Mark McGowan sent shoppers into a foolish frenzy and forced business owners into a strenuous Sunday session to ready the team to work from home, or worse, close the doors and stand staff down.

When we went into voluntary lockdown in March last year, there was uncertainty around whether those stood down would get paid. But the Government soon announced the JobKeeper scheme which removed the issue for most.

This time around most businesses are no longer eligible for JobKeeper. So what happens now? Do you pay workers wages during lockdown or not?

Where staff can work from home, the rules are pretty clear. You should pay your team for the work they do, similar to if they were working at your premises. They are also entitled to normal entitlements like annual leave and sick leave. You must be careful to still comply with all OHS requirements, and may need to provide guidance on what constitutes a safe home office environment.

Where staff are stood down as a result of a Government imposed lockdown, and there is no possibility of working from home, you are generally not required to pay workers under Fair Work laws. But you might need to consider whether employment contracts or specific awards override this in your industry. You will also need to pay enough wages during lockdown to meet any JobKeeper obligations. You can of course choose to pay your team while they are stood down.

Employees can choose to use any accrued leave they have during the lockdown period, but unfortunately casual staff and contractors won’t have this option. You can’t refuse a request for leave without a good reason, and you can’t force staff to take annual leave.

A recent Court decision ruled that workers who are stood down in accordance with the Fair Work Act are not entitled to paid sick, carer’s or compassionate leave during that time. Fair Work are currently adopting this view, although an application has been made to appeal the decision.

Under certain awards (listed on the Fair Work website), all workers, including casuals can take up to two weeks of unpaid pandemic leave, without any accrual requirements. This leave can be used when there is a Government enforced lockdown, or when employees are directed to self-isolate or quarantine.

Here’s hoping the restrictions are lifted or at least lightened either by the time you read this blog or soon after, and that employers and their workers don’t have to re-visit this issue in the future.

Related blog:

JobMaker Hiring Credit – is my business eligible?

Author: Mark Douglas
Email: mark@faj.com.au

 

 

 

 

 

 

The Jobmaker Hiring Credit scheme was announced as part of the 2021 Budget as an incentive for businesses to create new jobs and have the cost subsidised. Eligible employers can receive $200 per week for each new employee aged 16 to 29 years, or $100 per week for new employees aged 30 to 35 years, hired between 7 October 2020 and 6 October 2021, for up to 12 months.

Businesses are unable to receive the JobMaker Credits if they receive a JobKeeper payment for a fortnight that begins during the JobMaker period. They also cannot simultaneously receive JobMaker and an apprenticeship or traineeship subsidy. To be eligible employers must have an ABN, be up to date with their tax and GST lodgements, report through Single Touch Payroll, and be registered for Pay As You Go Withholding.

To receive the JobMaker credits there must be proof that employers are actually creating new employment positions. They need to show an increase in the total head count of employees as compared to the baseline head count, which is the total number of staff on 30 September 2020. Employers must also show an increase in payroll expenses as compared to the baseline payroll expenses incurred in the 3 month period ending 6 October 2020.

The new employee must have received government support such as JobSeeker or Youth Allowance for at least 2 fortnights out of the previous 6 fortnights before they were hired. They must be a genuine employee (not labour hire or a contractor), and cannot be an excluded employee, including a close associate, relative, a partner in a partnership, or shareholder in the company. They must also work at least 20 hours per week in the new job. Employers will need employees to complete a JobMaker employee notice to confirm they are eligible.

The JobMaker payment is paid to employers every 3 months in arrears. Businesses only need to register for the JobMaker scheme once. Registration must be completed before the end of the first claim period that the business is claiming – for the first JobMaker period (7 October 2020 to 6 January 2021), registration opened 6 December 2020, and employers can claim between 1 February and 30 April 2021. Employers don’t need to be registered before hiring new employees.

Businesses complete their registration and claim through myGov or the Business portal. Unlike the JobKeeper scheme, businesses are not required to pass the payment on to employees. The credits are assessable income amounts, and are not subject to GST.

Under the anti-avoidance rules the ATO will disqualify businesses that make artificial arrangements to inflate their head count or payroll by terminating current staff, or reducing the hours of an existing employee. Disqualified employers will lose entitlement to JobMaker Credits in the current and all future periods.

A complete ATO guide to the JobMaker process can be found here.

Author: Danielle Pomersbach
Email: danielle@faj.com.au
       

It’s generally accepted that a company provides a level of asset protection, because a company is a separate legal entity. From the time a company is first registered with ASIC up until it’s final deregistration date, it is viewed as having separate legal status, property, rights and liabilities.

This gives directors some protection and makes a company a good structure for running a business , but it doesn’t fully absolve directors from being responsible for a company’s liabilities and debts. Directors can be found to be personally responsible for debts and liabilities in certain instances, and these obligations continue even after the company is deregistered.

The Australian Investment and Securities Commission (ASIC) is in charge of assessing the liability of directors in accordance with the Corporations Act 2001.  Examples of instances where directors may be found to be personally liable for company debts include;

Insolvent Trading

Directors have a duty to ensure that companies do not trade while insolvent. If this duty is breached directors may face civil and criminal provisions or become liable for company debts. A company is classified as insolvent if it is unable to pay its debts as and when they fall due.

To determine insolvency, both the cash flow and financial position of the company need to be assessed. If the company is deemed to be trading while insolvent, potential director defences include;

  • The director had reasonable grounds to expect solvency at the time the debt was incurred
  • The director had reasonable grounds to believe a competent and reliable person provided adequate information that identified the company as being solvent
  • The director did not participant in management due to illness or good reason at the time the debt was incurred
  • The director took all reasonable steps to prevent the incurring of the debt

Company Losses

If directors breach their duties and this causes the company to suffer a loss they can be found personally liable.

Potential consequences of breaching duties may find directors as having acted illegally and not in accordance with the Corporations Act, they may face civil and criminal provisions or be made to compensate the company for the losses incurred.

Guarantee and Security

Directors may provide personal guarantees or collateral to secure company liabilities (e.g. to finance a bank loan). If a company defaults and is unable to fulfil their liabilities, directors may lose collateral assets (e.g. their home) or be made to repay company liabilities personally.

Company Tax Debt

Directors have a responsibility to ensure companies meet their PAYG withholding and Super Guarantee Charge obligations. A consequence of non-compliance may find directors personally liable for a penalty equal to the company obligations.

Phoenix Activity

Directors can’t establish a new company to continue the activity of an existing company that has been placed into administration or liquidation to avoid paying outstanding entitlements. As a result directors may face civil and criminal punishment as well as imprisonment.

Trustee

Where a company is acting as a trustee of a trust, directors may be liable for a company’s breach in trust terms, acting outside the scope of its powers and where the terms of the trust limit the company from being protected against the liabilities.

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Author: Elena Rear
Email: elena.rear@faj.com.au

 

 

 

The ATO provides tax incentives for early stage investors, sometimes referred to as ‘angel investors’, that invest in start up companies. These incentives include a non-refundable tax offset of 20% of the amount invested and the disregarding of certain capital gains made on the investment.

For an investor to be entitled to the tax incentives, the company must qualify as an early stage innovation company (ESIC) immediately after it issues shares to an investor.

For a company to qualify as an ESIC it must not be a foreign company and must meet the following two tests:

  • The early stage test
  • Either the 100-point innovation test or principles-based innovation test

Early stage test

To meet this test the company must meet the following four requirements immediately after issuing the shares to the investor:

  • The company must have been incorporated or registered in the Australian Business Register
  • The company must have total expenses of $1 million or less in the previous income year
  • The company must have assessable income of $200,000 or less in the previous income year
  • The company’s equity interests (shares or units) are not listed on an Australian or foreign country stock exchange

100-point innovation test

To qualify under this test, the company must obtain at least 100 points by meeting various innovation criteria listed on ATO website. These criteria include activities that relate to start-ups including expenditure on Research and Development, registering patents, and issuing share capital. In practice this is likely to be the simplest way to determine eligibility when compared to alternate principles-based innovation test.

Principles-based innovation test

To meet this test the company must meet five requirements and demonstrate how it meets them using existing documentation, such as business plan or competition analysis:

  • The company must be genuinely focused on developing significantly improved innovations
  • The related business has high growth potential
  • The company must demonstrate that it has potential to be able to successfully scale up this business
  • The company must demonstrate that it has the potential to address a broader market including global markets
  • The company must demonstrate it has the potential to be able to have competitive advantage

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Author: Elena Grishina
Email: elena@faj.com.au

A tax deduction is something you claim in your tax return that reduces your assessable income, meaning you pay less income tax and therefore get a bigger tax refund (or reduce your tax bill).

For a donation to be tax deductible, it must be for $2 or more and made to an organisation that is ‘endorsed’ by the Australian Tax Office (ATO) as a Deductible Gift Recipient (DGR). It must also be a genuine gift, you cannot receive any benefit from the donation. If you receive something in exchange for the donation (e.g. a raffle ticket, items, entertainment or food) then it doesn’t qualify as a tax deduction. The Tax Office defines this as a transaction where you receive a good or service in return for the money donated.

Organisations have to apply to the ATO to get DGR status, and there are a majority of registered charities that don’t have DGR endorsement. Not being able to offer a tax deduction for a donation as a DGR is not an indication that the charity is illegitimate or that its cause isn’t valuable. DGR endorsement is just a tax concession that some charities have applied for and are entitled to.

For some people, being able to claim the donation back on their personal tax return is important in making a decision to donate, but for others it isn’t. To determine if a charity has DGR status, you can visit the ACNC Charity Register.

Author: Natasha Woodvine

Email: natasha@faj.com.au