GST turns twenty

GST recently reached the ripe old age of twenty. Hip-hip hooray.

I remember its birth well. First of July 2000. Actually, the recent COVID-19 stimulus measures reminded me of the introduction of GST, albeit that GST was implemented in a more controlled and measured fashion. As accountants we had no experience to draw on, and spent hours reading and interpreting draft legislation that came with very little practical explanation and certainly no legal precedents to follow.

Much like the situation during COVID, accountants were heavily relied on to steer our clients through the uncertainty. It was a stressful and busy time. We’d just mitigated an imaginary millennial bug and were distracted by dot com developments. Google hardly existed and dialling up Jeeves was less than helpful.

The original GST concept was simple. Scrap the complicated sales tax system, put 10% GST on everything and distribute the proceeds to the states. Truly a broad based tax. But to gain senate approval and get it over the line, the Government was forced to make last minute concessions around food, healthcare, education and childcare.

These carve-outs meant the new tax system didn’t raise the revenue it was expected to, and made the GST system incredibly complex. It’s been troubled ever since – there are currently 45 separate rulings regarding cakes and decorations. No wonder John Hewson struggled.

Although more recent changes have brought overseas companies like Netflix into the mix, GST revenue in Australia represents only 3.4% of GDP, compared with the OECD average of 6.8%.

There’s been many calls to increase the GST rate to 12.5% or 15% over recent years. I would much rather see an increase to the base – back to how it was designed in the first place. 10% on everything, no exceptions, nice and simple. It’s been estimated that making those excluded items taxable would increase GST revenues by $22 billion, which would increase our total take by about one third.

This increase could fund the reduction of state based payroll tax systems that currently stymy employment growth.

The counter argument for extending the base is that it will increase the cost of living for those most vulnerable in our society. This is true and the challenge for our politicians is to carefully construct alternate ways to compensate those impacted, most likely through our welfare system. It’s estimated that it would cost around a third of the extra revenue raised to achieve this.

The GST system needs an overhaul to future-proof it. Spending today is not what it was twenty years ago.  We now spend proportionately more on education and health, both GST exempt under the current system.

Related blog:
Do I need to register for GST?

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

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Penalties for late payment of Super Guarantee

An employer is obligated to pay super guarantee (currently at 9.5%) for their employees by the designated due dates. Harsh penalties exist in order to discourage late payment and protect the retirement funds of employees.

With Single Touch Payroll now mandatory, the ATO’s ability to identify those employers who do not pay their super obligation has never been greater. It is therefore imperative that employers understand how they could be penalised for late payments of super and the options available to minimise the consequences. Employers who do not pay super guarantee on time will be liable for the superannuation guarantee charge (SGC). The charge is equal to the sum of:

  • the superannuation guarantee shortfall (i.e. the super not paid)
  • an interest charge of 10% per annum
  • an administration charge of $20 per employee per quarter where there is a shortfall

A tax deduction is not available for the superannuation guarantee charge. Where an employer has missed super guarantee payments by the due date, they must complete a Super Guarantee Charge Statement. The due dates for lodgement and payment are set out in the table below.  

Quarter Period Due date for SG payment Due date for lodgement of SGC Statement
1 1 July – 30 September 28 October 28 November
2 1 October – 31 December 28 January 28 February
3 1 January – 31 March 28 April 28 May
4 1 April – 30 June 28 July 28 August

If an employer fails to lodge the SGC statement on time, they may be subject to an additional penalty of up to 200% of the amount of SGC.

Be upfront and avoid penalties

For a limited time only, the ATO have introduced a super guarantee amnesty period. This is a one-off opportunity until 7th September 2020 to disclose any unpaid super and avoid administration charges during the amnesty period. A deduction for the SGC can also still be claimed for late super paid during this period. Time is quickly running out, so speak to an FAJ accountant now to take advantage of this amnesty.

Other related blogs:

Super Guarantee Amnesty

Author: Georgia Burgess
Email: georgia@faj.com.au  

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Think before you access your super

As part of the stimulus package to deal with the economic impacts of COVID-19, the Federal Government created a scheme to access your super early.

The scheme allowed people who have suffered financially to access their super in two hits – one of up to $10,000 by 30 June 2020, and another of up to $10,000 between 1 July and 31 December 2020. Eligibility factors include loss of earnings, unemployment, redundancy and access to welfare.

APRA have recently released figures showing that 2.3 million applications have been approved so far and around $17.1 billion has been withdrawn.

The scheme is intended for those under real financial stress, and in my view should be accessed as a very last resort. There’s two reasons:

Firstly, the long-term cost of the withdrawal will be huge. The younger you are, the bigger that cost will be by the time you get to retirement. At a 5% future earnings rate, a 30 year old that withdraws $10,000 now will forego around $63,000 at retirement. Those withdrawing the entire balance of their super fund may also lose valuable life insurance cover. If you’re considering the second tranche, please give it some serious thought first.

Secondly, the Tax Office is keeping a very close eye on this scheme. They are looking hard at eligibility and warning of penalties of up to $12,000 for making false and misleading statements.

They are also convinced that nobody should intentionally get a tax benefit out of this.

As long as you’re eligible, it’s ok to apply for the early access whether you truly need the money or not. Not a great idea, but legal. And in theory, if you withdraw money under the early access scheme, have a change of circumstances and no longer need it, you could re-contribute some or all of that money back into super.

The problem is that for most people that will create a tax benefit, because the money will have come out tax-free under the scheme, and will likely create a tax deduction when it goes back in. There’s a nasty little provision in the Tax Act known as Part IVA (part four A). It’s a complex section, so my more simplistic interpretation is “if the main reason for doing something is to get a tax benefit then don’t do it, or else”. Part IVA comes with big penalties, and it’s one of those guilty until proven innocent type rules.

The Tax Office are making a lot of noise about this scheme, so tread carefully if you need access to your super, but think hard about whether you really do.

Related blog:
How can you access your super?

 

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

 

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Main residence exemption changes for foreign residents

Background
The main residence exemption allows capital gains to be tax free for Australian taxpayers when they sell property that was their place of residence, subject to certain criteria. The exemption applies to property that was never available for rent, and also for a further six years once it has been available for rent (the “six year rule”). There is also the requirement that no other property is nominated as the taxpayer’s main residence. It is important to note that when a property is reoccupied as the main residence the six years will also reset.

New legislation
 On 9 May 2017 as part of the Federal Budget, the Government announced they would be removing the Capital Gains Tax (CGT) main residence exemption for foreign residents. This was enacted on 12 December 2019, however the rules are to be applied retrospectively to CGT events from 7.30pm AEST on 9 May 2017 onwards. Transitional relief is available to those who acquired their main residence after 9 May 2017 and sold before 30 June 2020.

Individuals
 If at the time the CGT event occurs the taxpayer is classified as a foreign resident, they will not be entitled to the main residence exemption. For individuals, the CGT event is generally the time a contract for the sale was entered into. This includes Australian citizens or permanent residents who live overseas and are classified as non-residents for tax purposes.

The new legislation does not allow for any apportionment of the main residence exemption for the time of residency. There is also no cost base reset available at the time of becoming a foreign resident. If someone has lived in their Australian property for 30 years, moves overseas, and then sells their property, they will be subject to tax on the total gains from the original purchase cost. Holding costs can usually be applied to decrease the gain, however records of these are likely to not have been kept as they have were never before expected to be required at sale in this scenario.

Deceased estates
The trustee of a deceased estate is not entitled to the CGT main residence exemption if the deceased individual was a foreign resident at the time of death. However, a beneficiary of the deceased estate that is a foreign resident, is entitled to the main residence exemption if the deceased person was not a foreign resident excluded from the exemption.

Life events test
If a taxpayer has been a foreign resident for less than 6 years, they may be able to access the main residence exemption if they satisfy a “life events test”, with applicable events including terminal illness, death and divorce. Speak to an accountant at FAJ to see if this may apply to you.

Conclusion
 If you plan on moving abroad, we strongly suggest speaking to your accountant well in advance about your property holdings.

Expatriates over 65 selling their main residence may have increased flexibility in some circumstances by utilising the “super downsizer scheme” which was introduced from 30 June 20.

Other related blogs:

Six-year main residence exemption
CGT main residence exemption and moving overseas  

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

 

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Super Guarantee Amnesty

The super guarantee amnesty is a one off chance for employers to catch up on missed employee super with reduced penalties.

Whether it was past cash flow problems or not understanding super guarantee rules, it is not too late to correct past happenings to protect your business from harsh penalties.

On the 6th of March 2020 an amnesty for unpaid super guarantees was introduced. By law, an employee is entitled to a super contribution of 9.5% of their gross wage to be paid by their employer, provided they earn more than $450 in a calendar month. The Guarantee will increase from 9.5% to 10% on July 1 2021, and will rise to 12% from 1 July 2025.

The Amnesty is to encourage employers who have not been meeting their super obligations to come forward and report without risk of increased fines and penalties, while also allowing deductions to reduce their tax liability. Employers will need to lodge their super guarantee amnesty using an approved form before the 7th of September 2020.

Where the disclosure results is a large liability, and because of the impacts of Coronavirus, the ATO may establish payment plans for employers. However, only payments made before 7 September will qualify as a tax deduction, and it is imperative that once negotiations are made with the ATO, the employer must meet these obligations. Failure to make payment will result in disqualification from the amnesty. Penalties and interest will then apply.

It may seem daunting, or more convenient, to roll the dice and not look to resolve super liabilities for your employees. However, the ATO now has a greater ability to identify wrong doings, as a result of greater reporting requirements, and this significantly increases the chances of employers getting caught and being exposed to large penalties. 

Pro tip: Stay ahead of potential penalties by checking your super guarantee clearing account and ensuring the payments are being cleared monthly. 

Other related blogs:

When do I need to pay super for contractors

Making sense of Superstream for Employers

Author: Lachlan Hunn

Email: lachlan@faj.com.au    

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Common SMSF audit issues

Self-managed super funds must comply with Australian superannuation legislation which requires a compliance audit each financial year to avoid a range of penalties imposed by the ATO for failing to meet compliance obligations.

Three common SMSF audit issues consistently arising when reviewing Self-Managed Super Fund’s include:

  • Deed Upgrades

The trust deed for a SMSF stipulates all the rules which govern the operation of a SMSF.

As there are constant changes to superannuation laws, we recommend trustees upgrade their deed whenever there are significant changes and at least every 5 years to ensure it is consistent with current legislation, and does not restrict options for members.

  • Valuation of Assets

The SIS Act requires that all assets be shown at market value in the annual financial statements. This is so that the super fund value can be readily determined if a member wants to enter or leave the fund. 

Valuation is easy for listed securities like shares, but for non-listed assets such as property, artwork and other collectibles, this may pose as a complicated task to determine.

It is recommended by the ATO that all assets held in the superannuation fund are revalued regularly and carried at market value provided that the valuation is based on objective and supportable data. For more stable assets like property or collectibles, it may not be necessary to review values every year, unless there is a significant change to circumstances – for example a wide spread property downturn.

  • Assets held in the wrong name

Fund assets must be held in the name of the fund and must be clearly distinguishable from other assets held by the trustee. Where an SMSF has a corporate trustee (that acts solely as trustee for the fund), this trustee name must be displayed for all assets owned by the SMSF. However where a SMSF has a number of individual trustees, it is a common error for the SMSF to display only one individual trustee name rather than showing all individual trustee names, and to not show the name of the super fund. If the super fund name is not included, it’s not possible to determine whether the individual trustees hold the asset on behalf of the fund, or for themselves. This is particularly challenging for property as in WA you can only include trustee names on a title. In this case trustees must hold other evidence such as a declaration of trust to prove ownership.

Related blogs:

Corporate or natural SMSF trustee?
Can you hold artwork in your super fund?

 

Author: Jesper Lim
Email: jesper@faj.com.au

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Ready for COVID recovery

A recently released index saw business confidence in April rebound from its record low base in March.

Although confidence is still down, the uptick is a sure reflection of the effectiveness of the JobKeeper and other stimulus announcements in giving businesses the best chance of their COVID recovery and ultimate survival.

With our current health position being better than expected, and restrictions being lifted, it’s time for business owners to make plans for their recovery.

Firstly, it will not be business as usual. Growth will be gradual. The world is a very different place. On the positive, we will have learned new things, become more inventive with our offerings, and adopted new technologies.

If you managed to stay open, or have since re-opened, that’s great. If you’re still closed, but you’re receiving JobKeeper payments, you should now have your whole team working (at least part-time, so it comes at little or no cost) and take the opportunity to teach new skills, create new products, assess technologies, identify new markets and improve processes.

Hopefully consumers will now appreciate the benefit of buying local and businesses should make the most of this.

On the negative side, unemployment will be high, consumer spending will be restrained, and you’ll be on a tight budget. So you’re going to have to be amongst the best in your industry to get a decent share of business.

Customers will reset their choices and you can’t assume their immediate loyalty. You will need to once again build interest and awareness in your brand and products. Marketing will be crucial.

It all starts with planning, and now is the time. Not a complicated in-depth plan, but a one-page business plan that outlines how you’ll navigate through the awakening of the economy. Perhaps start at the beginning, because it sort of is. If you were a new business entering the market, how would you go about it?

Do a SWOT analysis as part of your planning. How can you use your JobKeeper subsidised resources to eliminate your weaknesses and prepare for your opportunities?

Think about what you’ve learned since restrictions have been in place. Do you still need all of that office space? Are Zoom meetings more efficient? Is your online platform as good as it could be? How can you better satisfy your customers’ needs?

Finish with an action plan. Who will do what by when? Give some responsibility to key team members and let them run with parts of it. You might be surprised.

Over the last couple of months we’ve had to think differently and learn to be agile. We now need to build on that to strengthen and perfect our adaptability, ready for whatever the world throws at us next.

Contact us if you need assistance with any aspect of planning for your COVID recovery.

Related blogs:

You need a business roadmap
Cash is king

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

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Targeted Relief Funding for Arts

Federal Government announces $27M in targeted relief funding for arts

Australia’s Art and Music sector was one of the first to be hit by restrictions from the result of COVID19. Australia- wide we have seen venues close, various performances and shows cancelled and an unbelievable number of performers and support crews out of work.

On the same night the $130billion JobKeeper legislation was passed, the Federal Government also made the announcement of $27 million in targeted support for Indigenous Arts, Regional Arts and arts charity Support Act.

The targeted support will be distributed as follows:

•$10 million to help regional artists and organisations develop new work and explore new delivery models. The funding will be delivered through Regional Arts Australia’s Regional Arts Fund, which had already been struggling following this year’s bushfire crisis.

•To support Indigenous artists and arts centres, the Government is providing $7 million in additional funding. The funding will be delivered under the Indigenous Visual Arts Industry Support program.

•The Government is providing $10 million to Support Act, the national music sector charity, which helps the most vulnerable music industry workers. The funding will allow Support Act to recruit new counsellors and expand counselling services, and provide critical resources to music and performing arts artists and workers.

Australia’s live performance industry is estimated to be worth over $4 million. Live Performance Australia (LPA) firmly believe the Federal Government has not grasped the scale of devastation that has shaken the industry. While the additional funds are a relief to some, much more is needed, especially if the industry is to have any prospect of surviving after COVID-19.

Related blog – New audit rules for clubs and associations 

Author: Natasha Woodvine
Email: natasha@faj.com.au

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WA Payroll Tax Concessions

The State Government has introduced a number of payroll tax concessions to support businesses affected by COVID-19 including the following:

  • Payroll tax waiver
  • Grant payment
  • Threshold increase
  • JobKeeper payments

Payroll tax waiver

If your Australian taxable wages were less than $5 million at 29 February 2020, your payroll tax will be waived for the March to June 2020 payroll tax returns. You will still need to complete your March to June payroll tax returns as normal. Then record your WA taxable wages in the ‘exempt (other) wages’ field to apply the waiver.

If your Australian taxable wages are more than $5 million at 29 February 2020 but you expect they will be less than $7.5 million at 30 June 2020 or you register for payroll tax after 1 March 2020 you must apply to defer lodging and paying your March to June payroll tax returns until July. If your wages are less than $7.5 million for the year then your payroll tax liability for March to June will be waived

Grant Payment

Employers, or a group of employers, whose Australian taxable wages were between $1 million and $4 million in 2018-19 will receive a one-off grant of $17,500. You do not need to apply for this grant, if you meet the criteria you will receive a cheque from July 2020.

If you recently registered for payroll tax then your 2019-20 Australian taxable wages will be used to determine your eligibility for the grant. The grant payment will be made once you have completed your 2019-20 annual reconciliation.

Threshold Increase

The payroll tax threshold will increase to $1 million on 1 July 2020.

JobKeeper payments Wages paid by employers that are subsidised by the Australian Government’s JobKeeper payment are exempt from payroll tax. The exemption does not apply to any part of wages that are not subsidised

Contact our office if you’d like some assistance or advice around these payroll tax concessions.

Other related blogs:
Jobkeeper stimulus is the best yet
Cash Flow Boost

Author: Jessica Russell
Email: jessica@faj.com.au

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JobKeeper stimulus is the best yet

During the week the Government announced the JobKeeper stimulus targeted at keeping employers and their employees connected through this current crisis.

The intention is that businesses impacted by the Coronavirus will have wage costs subsidised so they can continue to pay their employees, whether they’re currently working or not.

Businesses can register their interest with the ATO now (almost 500,000 businesses did this within 48 hours of the announcement), but won’t be able to apply until the legislation is passed, hopefully within a week or so. 

Here’s how it will work.

If your business has a turnover of less than $1 billion and has suffered a 30% or more drop in turnover compared to the same month last year, you can register with the ATO. The turnover reduction is self-assessed, and the ATO has some discretion for those that don’t quite meet the criteria.

You then pay your existing workers. If they earn more than $1,500 (before tax) per fortnight, you pay them their normal pay. If they earn less than $1,500 per fortnight, you pay them $1,500 (yes, they get a pay rise).

At the end of the month, the government will reimburse you $1,500 per eligible employee. This will be effective from 30 March 2020 for a maximum period of six months, so your first Government payment will be received in the first week of May.

Eligible employees are your staff that have been employed since at least 1 March 2020 and are full-timers or part-timers. The package also extends to casual workers that have been with you for at least 12 months. Employees must be at least 16 years old and Australian citizens or relevant visa holders.

The subsidy is also available to employees that have been stood down (but not those made redundant, unless re-hired). So you are effectively able to re-engage your team at no cost, regardless of whether you ask them to show up for work or not. The aim is that you can continue to employ them, pay them, and maintain connection with them through this crisis, so hopefully when it’s all over you can hit the ground running. 

The JobKeeker subsidy is also accessible by self-employed people who have suffered a drop in income, regardless of whether they employ any staff. However there is little detail yet as to who might qualify as “self-employed” and how those rules will apply..

Not for Profit entities are eligible under the stimulus package too.

You will still need to pay super based on your staff’s normal earnings, but it’s up to you whether you pay the extra super for employees who were previously on less than $1,500.

A quick note for employees – you can only get the JobKeeker payment through one employer, and it may affect your entitlement to other Centrelink benefits.

The JobKeeper stimulus is a great initiative. It keeps workers employed, keeps people away from Centrelink queues, and gives businesses a fighting chance.

Other related blogs:
Cash Flow Boost

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

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