This edition of TaxWise is dominated by the Federal government and ATO measures in response to the Coronavirus (COVID-19) pandemic.
The main tax and super measures are:
- enhancing the instant asset write-off;
- an accelerated depreciation rate;
- boosting cash flow for employers;
- early release of super; and
- reducing the minimum drawdown amounts.
Other measures include:
- stimulus payments to households;
- additional support for income support recipients; and
- guarantee of lending to SMEs.
We will look at these measures in more detail, but contact your tax agent if you have any questions.
The States and Territories have also announced various measures to help people and businesses during the COVID-19 pandemic. Contact your tax agent for advice.
Instant asset write-off
The instant asset write-off threshold has been increased from $30,000 to $150,000 for the period from 12 March to 30 June 2020.
This means a small business (aggregated turnover less than $10 million) – which uses the simplified depreciation rules – can claim the instant asset write-off for a depreciating asset costing less than $150,000 if the asset is first used or installed ready for use in your business on or after 12 March 2020 and before 1 July 2020.
The increased threshold also applies to assets you acquired before 12 March, but you had not used, or installed ready for use, by that date.
Remember that if you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581.
You cannot claim the instant asset write-off for an asset costing between $30,000 and $150,000 if you had used it, or installed it ready for use, before 12 March. For example, if you sell an asset you are already using and buy it back (for between $30,000 and $150,000) you won’t be able to claim the instant asset write-off for the re-purchase.
Small business entities can also claim a deduction for an amount included in the second element of the cost of depreciating assets that are first used or installed ready for use in a previous income year. The amount of the cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.
As a result of the increase in the threshold to $150,000, only assets costing $150,000 or more, and costs of $150,000 or more relating to depreciating assets, need be allocated to the general small business pool. If the balance of the pool falls below $150,000 at the end of the current income year, the entire balance of the pool can be deducted.
Another measure – which does not affect small business – is an increase in the eligibility range for the instant asset write-off from $50 million to $500 million.
Tip! If you are planning to buy a depreciating asset for use in your business, talk to your tax agent first. There is only a 3-month window of opportunity – to 30 June this year.
Another Coronavirus measure is an accelerated rate of depreciation for businesses with an aggregated turnover less than $500m. To be eligible for the accelerated depreciation, the depreciating asset must:
- be new and not previously held by another entity (other than as trading stock);
- be first held on or after 12 March 2020; and
- be first used or first installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021 (yes – 2021 – it is not a typo!).
A depreciating asset will not qualify for the accelerated depreciation if:
- depreciation deductions have already been applied to the asset or the asset is written off immediately under the instant asset write-off rules;
- it will not be used principally in a business in Australia or located in Australia;
- it is used in a primary production business (e.g. fencing, fodder storage assets or horticultural plants); or
- you were committed before 12 March to acquiring or constructing the asset – you cannot restructure existing contracts to try to get around this rule.
You cannot split an asset or merge assets to try to qualify for the accelerated depreciation.
The rules for working out the accelerated depreciation vary depending on whether or not you use the simplified depreciation rules.
In all cases, you cannot deduct more than what you pay for the asset.
If you are a small business and you use the simplified depreciation rules, those assets over the instant asset threshold which are eligible for the accelerated depreciation are added to the general small business pool. You can deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool. In later years the asset will be depreciated as part of the general small business pool rules.
If you are a small business that does not use the simplified depreciation rules, you will be able to deduct in the income year the asset is first used or installed ready for use:
- 50% of the cost (or adjustable value where applicable) of the depreciating asset; plus
- the amount of the usual depreciation deduction that would otherwise apply but calculated after first offsetting a decline in value of 50%.
Tip! The rules for working out the accelerated depreciation are fairly complicated so speak to your tax agent before investing in new depreciating assets.
Boosting cash flow for employers
The ATO will provide temporary cash flow support (called the cash flow boost) to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19.
Cash flow boosts are tax free and not subject to GST. You will still be entitled to a deduction for PAYG withholding paid.
Cash flow boosts will not have to be repaid once times improve (although if you are overpaid, the excess will have to be repaid).
How does the cash flow boost work?
You will be eligible to receive the cash flow boost if you are a small or medium business (whether a sole trader, company, partnership or trust) that:
- held an ABN on 12 March 2020 and continues to be active;
- has an aggregated annual turnover under $50 million – this is generally based on the most recent prior year income tax assessment, but if you do not have any prior year assessments, you may still be eligible if the ATO is satisfied that you are in business and would have an aggregated annual turnover under $50 million; and
- made eligible payments you are required to withhold from (even if the amount you need to withhold is zero).
Eligible payments include:
- salary and wages;
- director fees;
- eligible retirement or termination payments;
- compensation payments;
- voluntary withholding from payments to contractors.
In addition, you must also have either:
- derived business income in the 2018-19 income year and lodged your 2019 tax return on or before 12 March 2020; or
- made GST taxable, GST-free or input-taxed sales in a previous tax period (since 1 July 2018) and lodged the relevant activity statement on or before 12 March 2020.
The eligibility requirements for not-for-profit organisations are similar.
Initial cash flow boost
You will receive a credit equal to 100% of the amount withheld, up to a maximum of $50,000. The minimum credit will be $10,000, even if the amount required to be withheld is zero. However, you will not be eligible to receive any more cash flow boosts until your PAYG withholding exceeds $10,000 over the relevant periods.
The total of all initial cash flow boosts across all of the relevant periods cannot exceed $50,000.
The initial cash flow boost will be delivered as a credit in the activity statement system from 28 April 2020. If you lodge early (i.e. before 28 April 2020), you will not receive the cash flow boost before that date.
If you lodge quarterly, you will be eligible to receive the credit for:
- quarter 3, March 2020 (lodgment due date 28 April 2020); and
- quarter 4, June 2020 (lodgment due date 28 July 2020).
Additional cash flow boosts
If you receive an initial cash flow boost, you will receive additional cash flow boosts, for the periods June to September 2020. The amount received will be equal to the total amount of the initial cash flow boost.
If you report quarterly the additional cash flow boosts will be delivered in 2 instalments. So, you will receive 50% of the initial cash flow boost for each BAS.
Delivery of the cash flow boost
You do not need to apply for the cash flow boosts. If you are eligible, the cash flow boosts will be automatically applied to your account when you lodge your BAS for the relevant period. The cash flow boosts will be applied to reduce liabilities arising from the same BAS. This will result in eligible entities being required to pay less to the ATO.
The ATO has said that if you do not need to lodge a BAS in respect of your PAYG withholding, it is working through a solution and will update its website with more information on what you need to do.
Where a credit exceeds your other tax liabilities, the excess amount will be refunded.
You may also receive a refund if you overpay because your system was unable to take the cash flow boost into consideration when working out how much was payable.
The ATO has said that it will generally deliver any refund within 14 days.
You will not be eligible for cash flow boosts if you (or a representative) take steps to make you eligible for cash flow boosts, or to increase the amount of your cash flow boosts.
This may include restructuring your business or the way you usually pay your workers, as well as increasing wages paid in a particular month to maximise the cash flow boost amount.
Tip! Talk to your tax agent before restructuring your business. There will be other tax issues you need to know about, such as capital gains tax.
If your business has been significantly impacted by the Coronavirus you will be able to access a wages subsidy to continue paying your employees. Under the JobKeeper program, you will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum of 6 months.
Employers will be eligible for the subsidy if:
- their turnover is less than $1 billion and it will be reduced by more than 30%; or
- their turnover is $1 billion or more and it will be reduced by more than 50%.
The reduction in turnover is relative to a comparable period a year ago (of at least a month).
Not-for-profit organisations are eligible for the JobKeeper payment, but not the major banks.
You will have to apply to the ATO to participate in the scheme. You will need to demonstrate the appropriate downturn and you will have to report the number of eligible employees on a monthly basis.
If you are an eligible employer, you will receive the payment for each eligible employee that was on your books on 1 March 2020 and you continue to employ. Part-time employees, stood down employees and long-term casuals are all eligible, as well as full-time employees.
A long-term casual is one employed on a regular basis for at least the previous 12 months as at 1 March 2020.
An employee must be an Australian citizen or the holder of a specified class of visa. Working holiday makers are not covered.