On March 30 2020 the Australian government announced further measures to deal with the coronavirus shutdowns and social isolation requirements. These measures are primarily focused on helping businesses to retain their staff during slowdown and shutdown periods, instead of having to let those staff go.

The measures will help businesses who continue to operate at a lower capacity as well as those businesses who have had to temporarily shut down.

Eligible employers can make the claim for any eligible employee who they had on the books as of March 1 2020, as long as they continue to employ these staff members. They can also rehire workers that they have laid off since March 1 2020 and start paying them under the jobkeeper package. This is an alternative to those staff members going on unemployment benefits (jobseeker) and ensures the business is able to resume operations, with the same team of employees, when possible.

Please note that the legislation for this package has not been fully worked out yet. Some details may be unknown while the government works out some of the potential complexities involved in legislating this package. We will update the blog with relevant information when and as it becomes available.

Jobkeeper Package

The jobseeker package is a payment that is being given to employers who have lost income due to the coronavirus.

This payment is essentially a subsidy to help them cover wages over the next six months.

It is a payment to the employer that is specifically made to reimburse the cost (or part of the cost) of employee wages. This means that if a business is already paying an eligible jobkeeper employee a wage of at least $1,500 a fortnight then there is no extra wages to be paid to that employee. However, if an eligible jobkeeper employee is currently being paid wages of less than $1,500 a fortnight, then the employer will need to increase that employee’s wages to $1,500 a fortnight for as long as they are receiving the jobkeeper payments for that employee.

This applies even if the business is paying employees not to work for the duration of a business shutdown required by the coronavirus safety measures. The measure is designed to keep people in their jobs and help boost the ability of a business to resume operations, with the same staff, once the coronavirus safety measures are lifted.

It is not a cash bonus. It is a wage subsidy being offered as an alternative to having to let staff go, whereby they would need to go on Jobseeker (welfare) payments to get by.

Note that individuals cannot be paid through the jobkeeper package and go on jobseeker at the same time. They also cannot be paid the jobkeeper wages by more than one employer- only their primary employer will be eligible to pay them through the jobkeeper provisions. 

You can read the government’s fact sheet on the jobkeeper package for employers here.

What Is The Aim Of This Package?

The aim of the jobkeeper package is to help businesses who have experienced a significant loss of income. By subsidising wages, it gives them a chance to keep their employees on board during the coronavirus safety measures.

For some businesses it provides an option for keeping staff on board even while they are not able to operate. This is because it includes businesses who have, or will have to, shut their doors due to the coronavirus. It means they can pay staff, even in a more limited capacity, while they stay at home. It also opens the opportunity for businesses with no income during the shutdown period to pay their regular employees to do some work from home in preparation for resuming business down the track. Ultimately, the measures help keep businesses connected to their employees instead of having to let them go.

For employers who are still operating, but with reduced levels of income, this measure will help ensure they can continue to pay their staff as normal without as much strain on their finances.

This measure will mean that many employees who were otherwise at risk of losing their jobs or relying on jobseeker (formerly Newstart) income, can now be paid a minimum of the jobkeeper payments through their employer.

While these measures will not cover everyone, it is a significant package that will help improve job security for many workers. Businesses whose income has dropped, but are still operating, will be able to use these payments to help ensure that the cost of wages does not lead to needing to lay off more staff. Businesses that have had to close down for the meantime can use these payments to support and stay connected with their employees in preparation of resuming normal business operations.

In some cases, individual long-term casual employees or part-time staff may find themselves being paid more than their usual wage. Other employees may now be getting paid less than their usual wage (for example because they were stood down after March 1), but more than they would be receiving on jobseeker (formerly newstart) benefits.

Who Is Eligible?

Business Eligibility:

To be eligible for jobkeeper payments a business must:

• Be an Australian business. This includes non-profit organisations and charities.
• Have employed eligible staff who were on the books as of March 1 2020. This includes staff who were on the books as of March 1 but have since been let go, provided the business rehires them and has not paid out redundancies and termination packages.
• If the business’ annual turnover is under 1 billion dollars, their income must have dropped, or be expected to drop, by at least 30% due to the coronavirus safety measures. This includes businesses that have had to close their doors at this time, provided they continue to employ their staff with the intention of continuing to operate when and as they are able to.
• If a business had an annual turnover in excess of 1 billion dollars then their turnover must have dropped by at least 50% to qualify for the jobkeeper package.
• Sole traders and individuals who are self-employed are also eligible to claim the jobkeeper payments if their business turnover has sufficiently reduced.
• Businesses must not be subject to the Major Bank Levy.

It is your responsibility to self-assess eligibility due to a reduction in turnover. Turnover is compared to your business turnover over a comparable period a year ago. The period being compared must be at least one month long.

Based on the requirement to compare turnover to a year ago it would appear that only businesses that have been in operation for at least a year would be eligible to apply. We await clarity on whether businesses who have been in operation for less than a year can still qualify for the jobkeeper package.

If you run a business on the side and this business is not your primary source of income, then you will not be eligible for the jobkeeper package. Only the primary source of income (employer or self-employed business) is eligible to apply for the jobkeeper payments for each individual.

If your primary source of income is your work as a sole trader and you supplement this income with a small amount of casual work that you have held long-term, then you may be able to apply as a sole trader. In this situation your casual employer will not be able to claim for you.

Staff Eligibility:

To be eligible the staff member must have been on the books as of March 1 2020

The measures include employees who are:

• Australian citizens
• At least 16 years of age
• Holders of an Australian permanent resident visa
• Special Category (Subclass 444) Visa Holders
• Protected Special Category Visa Holders
• Non-protected Special Category Visa Holders who have resided in Australia for 10 years or more

Eligible staff include:

• Full Time employees
• Part time employees
• Casual employees who have been working for your business for at least 12 months.

You can only claim employees for whom you are their primary employer. This means if you have a long-term casual employee on the books, but this is their second job, you will not be able to claim the jobseeker payments for that employee. To reiterate, an individual employee cannot receive jobkeeper payments from more than one employer. This means only their primary employer is eligible to claim jobkeeper payments for employees who have more than 1 job.

Can I Still Claim If My Business Is Less Than 12 Months Old? Are There Any Other Conditions Under Which I Can Still Claim Jobkeeper For My Employees If The Comparative Income Period From 12 Months Ago Has Not Dropped By 30% (or 50%)?

The short answer is yes.

The government has clarified that startup and high growth or variable businesses that have been negatively impacted by the coronavirus shutdowns and social isolation rules are still eligible to apply provided they have suffered a drop of income of at least 30% (or 50%) due to the coronavirus. 

The Commissioner has the discretion to use other tests to confirm that income has dropped by at least 30% (or 50%) on a self-assessed basis.

This will be easy to demonstrate if your business is one that has had to close its doors due to the coronavirus and you are no longer bringing in an income. You can submit a claim for the jobkeeper program if you would like to continue to employ your staff or rehire any staff that you stood down after March 1 2020.

If you are still operating your business then you can submit your application for the jobkeeper program provided you reasonably believe that your business turnover has dropped, or will drop, by at least 30% (or 50%) due to the coronavirus. The exact measures that can be used are not specified. You will initially be required to self-assess and it is likely that you will be required to submit evidence as to how you have worked this out. 

The government has confirmed that applications made in good faith that experience a downturn in income that does not quite hit the 30% (or 50%) decrease, will not be penalised. To be clear, you should only apply for jobkeeper if your business has experienced, or you believe it will experience, a substantial drop in turnover of at least 30% (or 50% if your business turnover exceeds one billion dollars a year), that is not related to normal seasonal fluctuations.

Keep in mind that this allowance is at the Commissioner’s discretion, which means the Commissioner has the authority to overturn self-assessments that are not considered to be justifiable and penalties may be applied if it was believed that a claim was not made in good faith. You should consult with your accountant and stay tuned for any further clarification if you are unclear whether or not your business turnover has suffered as a result of the coronavirus. 

When you are receiving the jobkeeper subsidy you will also be required to report monthly to ensure ongoing eligibility. 

The updated fact sheet can be found here. 

Examples Of Ongoing Business That Has Lost Income Due To The Coronavirus But Not Comparable To 12 Months Ago

Example 1: 

Your turnover for the month of March last year was $30,000. This was a relatively normal monthly turnover at the time. In July you expanded your business operations after investing in a new product and opening a new storefront. Your business started to rapidly increase and you hired more staff to meet the needs of your business. By January you were now turning over $300,000 a month. 

By the time March operations commenced you were already noticing a downturn in trade and government requirements actually meant you had to close down your storefronts. You are only keeping the business going through online sales, which have dropped to $50,000 a month.

Your turnover is higher than it was in March last year, but has very clearly dropped significantly from the usual turnover levels you had been experiencing as a result of high growth and increased business presence through the year.

This business would be eligible to claim the jobkeeper package for all their eligible employees that were on the books as of March 1 2020. 

Example 2:

You opened a new boot camp business in November 2019. You were starting to pick up clients and by February 2020 you were running outdoor bootcamps for large groups. In March 2020 the government regulations meant that you could no longer operate bootcamps for large groups, however you could offer one on one sessions.

It is reasonable to believe that your income levels will be reduced by at least the 30% required, from March onwards, since you can no longer provide your service to large groups of people and you are halting any monthly memberships for people who cannot participate.

Self Employed / Sole Traders

If you are an eligible individual whose primary income comes from your own sole trader business, and your business meets the criteria of reduced turnover, then you can apply for the jobkeeper payments for yourself.

How Do The Payments Work?

The government will pay your business a flat rate of $1,500 a fortnight per eligible employee. This is a flat payment per eligible employee, regardless of the amount of wages they are usually paid.

Any business who receives these payments must pass them on to their employees in full. If you normally pay your employees more than $1,500 then this payment simply subsidises part of their normal wages. If you normally pay an eligible employee less than $1,500, you are required to pay them the full $1,500 per fortnight while you are receiving jobkeeper payments for them.

Normal PAYGW provisions apply to the payments being made to your staff. However, if you are paying an employee $1,500 a fortnight and this exceeds their normal salary, you can choose whether or not you pay superannuation on the additional payments being made so far, as they relate to a compulsory jobkeeper top up rather than a payment for hours worked. 

Note that the jobkeeper payments are higher than the jobseeker payments. This gives incentive for workers to remain with their employers instead of moving on to welfare payments. The jobkeeper payments are not linked to any income or assets tests in relation to the individual employees. This means that many individuals who may not qualify for jobseeker payments due to, for example, their partner’s income, will now be able to continue to receive an income directly from their employer instead.

When Will The Payments Be Made?

Payments will start being rolled out from the first week of May. However, they will be backdated to March 30. Payments will continue to be made monthly in arrears. This means that to be eligible your business must be paying employees through the month, after which time you will be reimbursed $1,500 per eligible employee.

If you are an eligible business, you should start paying your eligible staff the required wages and you will be reimbursed. This means if your staff are being paid more than $1,500 a fortnight, simply continue to pay them as normal. If you need to rehire or increase an eligible employee’s wages to the jobkeeper rates, then you should do so as soon as practical.

You are able to claim jobkeeper payments for staff members who were on the books at March 1 2020 but have since been stood down. This means that you can reconsider your situation to determine if you can bring them back as employees under the jobkeeper package. To do so you will need to rehire them and be their primary employer. They will not be able to claim jobseeker payments and will have to amend their claim if they have already made one with Centrelink.

The government has indicated that the jobkeeper package will continue for a maximum of six months at this stage.

Are The Jobkeeper Payments Taxable Income?

Businesses who receive the jobkeeper payments will not be required to remit GST on the income. We cannot find a definitive statement about whether the income needs to be included in the annual income for income tax purposes, however since the payments are paid straight out as a wage expense, it seems likely that that it would count as both income and an expense for a net NIL effect on income taxes.

In the hands of the employee the jobkeeper payments are treated essentially as ordinary wages. The income comes in through the normal payroll system, is subject to normal PAYGW provisions and will be included on the annual PAYGW Summary.

How Does My Business Register For Jobkeeper Payments?

It is up to the business (rather than the employees) to apply for jobkeeper payments. This is because the jobkeeper payments are given to the business to pass on to employees as wages.

Eligible employers should initially register their interest in applying for the jobkeeper package with the ATO. You can use this link to register.

Can I Still Get Jobseeker (welfare) Benefits If My Employer Enrols Me Through Jobkeeper?

No. Individuals who are being paid by their employer through the jobkeeper measures will not be eligible for jobseeker (formerly Newstart) welfare benefits paid through Centrelink. This basically means that if your employer is able to keep you on the books through the jobkeeper package that this is where your income will come from. Since the jobkeeper payments are higher than jobseeker payments, it would be advantageous to remain employed where possible.

If you are unable to remain in employment then you would seek the jobseeker benefits through Centrelink instead. With the government temporarily lifting the income limits of a partner to $79,762 per annum, more people will now be eligible for jobseeker payments.

My Requirements As An Employer Paying Staff Through Jobseeker

It is your responsibility to:

• Assess if your business is eligible for jobkeeper payments due to a decrease in turnover or an expected decrease in turnover.
• Register your interest for these payments with the ATO.
• Ensure that eligible employees are notified that you will be paying them utilising the jobkeeper package.
• Ensure that every eligible employee for whom you are receiving the jobseeker benefits is being paid wages of a minimum of $1,500 per fortnight (before tax). This means that if their wages are normally less than $1,500 a fortnight you will need to top up their payments to the jobkeeper amount.
• Continue to pay your staff through your normal payroll system and report through STP.
• Report to the ATO monthly on your eligibility to continue to receive the jobkeeper payments.

While normal PAYGW, superannuation and workers compensation requirements still apply, it is your decision as to whether or not you pay superannuation on any additional wage top ups that are paid out purely because of the jobkeeper payment.

Jobkeeper Or Jobseeker

If you are an active sole trader, or a business who had employees on the books at March 1 2020 and you can continue to employ those employees, then the business can apply for jobkeeper subsidies through the ATO. You will only qualify if your income has dropped by at least 30% compared to the same period last year (or 50% if your annual turnover exceeded 1 billion dollars). Employees will then be paid a minimum of the $1,500 jobkeeper payments a fortnight, through their usual payroll system.

If you are a sole trader or a business who has to close down permanently or lay off staff, then the sole trader, or former employees, will individually need to apply for Jobseeker payments through Centrelink instead. The government has temporarily adjusted or removed certain waiting periods and testing limits to ensure that more people can qualify for assistance during this time.

If you are a casual or part time worker who is working for a business that is ineligible for the jobkeeper payments (because their turnover has not reduced enough or because you are a new casual employee) then you can also apply for the jobseeker benefits. If your income is below $1,075 a fortnight then, you may be entitled to a partial payment, as well as the government stimulus package bonuses.

With both the global and local situation changing rapidly as the coronavirus spreads, the government has already implemented new changes to support the Australian economy and the large number of businesses and individuals who are being impacted by the spread of COVID-19. On Sunday 22 March 2019 the government introduced measures that they have termed a financial safety net. These measures increase some of the provisions of the previous stimulus package and provide additional financial support for those facing loss of income.

These are unprecedented moves to support Australians and keep the economy going. Financial institutions have also made some major announcements to help ensure that people and businesses can get through this crisis.

Employers

Last week the government announced a refundable offset of 50% of the PAYGW remitted on your March-June activity statements. The offset was set to be a minimum of $2,000 (even if your PAYGW was lower than $4,000 for the March Activity Statement) and a maximum cap of $25,000. The government has now significantly increased this measure.

Eligible employers are those with an annual turnover of under $50 million. The payment will be made as a credit on the March and June activity statements. (If you are a monthly activity statement lodger then the April and May activity statements will also be included). 

The credit issued will now be calculated as 100% of the PAYGW (up to $50,000) for the March to June activity statements.

The minimum payment has now been increased to $10,000 and the maximum payment has been increased to $50,000.

An additional payment will be made in the July-October 2020 period. This payment will be equal to the payment made for the March to June 2020 periods. This means that the minimum total payment will be $20,000 and the maximum payment will be $100,000.

Non-for-profits who employ staff will now also be eligible for this payment. 

The reason for this payment is to help employers get through downturns and shutdowns without having to lay off staff. While it won’t be enough to help everyone, it is a chance to get more small businesses and their staff to get through this period of reduced income.

For more information on this see the Treasury’s fact sheet for cash flow assistance for businesses.

Coronavirus Supplement for JobSeekers

Jobseekers (formerly Newstart), both current and new, will now be eligible for the coronavirus supplement of $550 a fortnight for the next six months. See table 1 below for a list of eligible recipients.

Casuals and sole traders who are now earning less than $1,075 a fortnight will also be eligible for the full coronavirus supplement of $550 a fortnight.

To meet the criteria you need to ensure that you are enrolled for the jobseeker allowance and reporting your fortnightly income to Centrelink.

To make the coronavirus supplement easier to access the government is expanding the eligibility and qualification criteria from 27 April 2020, for a period of six months. Waiting periods and exclusions are also being waived for certain payments. This will ensure that sole traders meet their mutual obligation requirements simply by continuing to operate their business. It also ensures that people who are unable to work due to caring for someone who is infected, or due to a requirement to be isolated, will be eligible.

For more information see the Treasury fact sheet.

Unemployed, Casuals and Sole Traders: Access to Superannuation

Individuals who have been made redundant due to the coronavirus, as well as casuals or sole traders who have lost income due to coronavirus restrictions may be able to access taxfree lump sums from their superannuation. Individuals who are still working must have lost at least 20% of their income or working hours to be eligible. Eligible recipients can access up to $20,000 of their superannuation, entirely taxfree.

Access to taxfree superannuation lump sums is in two parts. The first lump sum of $10,000 must be withdrawn before 1 July 2020. A second $10,000 can be withdrawn after 1 July 2020. The exact timing of how long an eligible individual will have to apply for the second payment will depend on passing legislation. At this stage it is believed this will be accessible for around three months.

The lump sum withdrawals are taxfree and will not affect Centrelink or Veteran’s Affairs payments. Applications for withdrawal need to be made to the ATO through your myGov account. For more information see the Treasury fact sheet.

For more information see the Treasury fact sheet.

Households: Economic Stimulus Payments

Households who are not eligible for the coronavirus supplement may be eligible for a second $750 stimulus payment. This is in addition to the first $750 previously announced for welfare recipients. See table 1 below for list of eligible recipients for the first and second economic stimulus payments.

This $750 will be paid from July 13 to eligible individuals who receive the age pension, disability pension, carers allowance, family tax benefits, hold a DVA gold card or commonwealth senior card.

For more information see the Treasury fact sheet.

Pensioners

Deeming rates have been reduced. This means that pensioners will receive more income through their pension.

For more information see the Treasury retiree’s fact sheet.

Opportunities for Further Help

Centrelink is making changes to crisis payments in order to support people who are suffering financial hardship due to requirements to self-isolate.

Major banks have announced access to discounted loans for businesses and homeowners, as well as mortgage deferrals for property owners who find themselves struggling to meet their payments. The government has announced that they will provide 50% guarantees to the banks to help ensure that small businesses are more likely to be able to access the loans that are essential to get them through these times. 

Table 1: Overview of who gets the Economic Support Payments and the Coronavirus supplement.

Welfare Benefit	$750 Economic Support Payment (paid automatically from March 31st). Must be eligible between 12 March and 13 April 2020.	Coronavirus Supplement. $550 a fortnight for up to 6 months.	$750 Second Economic Support Supplement. (Paid automatically from 13 July). Must be eligible between 12 March and 13 April and NOT have received the coronavirus supplement).
Age Pension	Yes	No	Yes*
Disability Support Pension	Yes	No	Yes*
Carer Payment	Yes	No	Yes*
Parenting Payment (Single or partnered)	Yes	Yes	No
Wife Pension	Yes	No	Yes*
Widow B Pension	Yes	No	Yes*
ABSTUDY (Living allowance)	Yes	No	Yes*
Austudy	Yes	No	Yes*
Bereavement Allowance	Yes	No	Yes*
Jobseeker (Newstart)	Yes	Yes	No
Youth Allowance	Yes	No	Yes*
Youth Allowance for jobseekers	Yes	Yes	No
Partner Allowance	Yes	Yes	No
Sickness Allowance	Yes	Yes	No
Special Benefit	Yes	No	Yes*
Widow Allowance	Yes	No	Yes*
Family Tax Benefit	Yes	No	Yes*
Double orphan Pension	Yes	No	Yes*
Carer Allowance	Yes	No	Yes*
Pensioner Concession Card holders	Yes	No	Yes*
Commonwealth Seniors Health Card holders	Yes	No	Yes*
Veteran Service Pensions	Yes	No	Yes*
DVA PCC holders	Yes	No	Yes*
Veteran Gold Card holders	Yes	No	Yes*
Farm Household Allowance	Yes	Yes	No
Special Benefit	Yes	Yes	No

*If an individual is eligible for the coronavirus supplement due to being on an eligible payment for this then they will not get the second economic support supplement even if they are eligible for this due to a separate welfare criteria.

Stay Tuned For More

With the uncertainty that surrounds the spread of the coronavirus the government has made it very clear that this is not the end of the safety net. The situation will continue to be monitored and necessary additions will be announced until the crisis has passed.

On 12 March 2020 the government announced the first phase of an economic stimulus package in response to the impact of the coronavirus (COVID-19) pandemic.

Welfare Recipients:

Eligible welfare recipients will receive a once off economic support payment of $750. This includes people receiving family tax benefits and anyone with a Veteran gold card. This will be paid after 31 March 2020 (pending legislation approval).

This is a non-taxable, non-assessable lump sum paid. To ensure recipients can spend the money, it will not be withheld to cover existing debts such as child support or Centrelink debts.

Employers:

Employers with less than $50 million turnover will receive between $2,000 and $25,000 to alleviate the cashflow burden of paying employees.

The benefit will be calculated at 50% of the PAYGW remitted in your March and June activity statements (as well as April and May if applicable). If you have less than $4,000 in PAYGW, then you will simply receive the minimum $2,000 payment after lodging your March Activity Statement. If your total PAYGW exceeds $50,000 over this period, then your benefit will be capped at the maximum payment of $25,000.

Instant Asset Write Off

To encourage businesses to invest in asset purchases, until 30 June 2020 all businesses with a turnover of up to $500 million will be able to instantly write off any assets costing up to $150,000. These write-offs will be claimed as tax deductions in your 2020 tax return.

For the 2021 tax year businesses with a turnover of up to $500 million will be able to immediately deduct 50% of the cost of new assets.

Eligible assets include any new asset that is installed to be used by your business and any second hand asset that you purchase and install to be used for the first time by your business. Normal deductibility rules apply, meaning that if the asset would otherwise have been depreciable, you can now claim an instant write off deduction in your tax return. If the asset is used for a mixture of business and personal use then only the business portion can be claimed as an immediate deduction.

For example:

Say you purchase a ute that is exempt from the car limit (because it qualifies as a commercial vehicle that is not designed for the principal purpose of carrying passengers), for $60,000. It is to be used exclusively for your business. In this situation you would be able to claim the entire $60,000 cost in your 2020 income tax return.

However, if you purchased a motor vehicle for $60,000 that is to be used exclusively for your business then you would still be limited by the car limits for depreciation. For the 2020 financial year, the maximum you can claim for a fuel-efficient vehicle is $57,581.00. If the car was used partially for work purposes and partially for business purposes then you would further be limited to only claiming the work related percentage.

For further details see the government’s fact sheet.

Further Assistance:

Additional support measures include:

• Wage subsidies for employers hiring apprentices or trainees
• Unspecified funds to support the regions and industries most impacted by the coronavirus (to be determined).
• Fee waivers for significantly impacted industries such as the tourism industry.

If you are having trouble paying ATO debts you can contact them for debt deferrals, extensions and repayment arrangements. If you need help, please give us a call.

Stay Tuned:

The government is set to monitor the situation and deliberate on further decisions this week. This could include the next phase of a stimulus package.

On 17 February 2020 the Australian Financial Review ran an article titled ‘Fresh scrutiny of trust payouts to beneficiaries’. 

For clients who may have seen the article, we wanted to further explain the issues, so that clients with family trusts are not unnecessarily alarmed.

The essence of the article, is that if family trusts are used to distribute income (or capital gains) to children who are over 18 (or other low income beneficiaries), then the ATO may look to apply an anti-avoidance provision (known as Section 100A).

This can occur in situations where the beneficiary reimburses the trust or other beneficiaries (for example if a child reimburses a parent) in a way which suggests that they were never the intended beneficiary.

We have set out below an example as a discussion point.

Example

The ‘Magic Family Trust’ derives income of $200,000 in a given tax year.

Mr and Mrs Johnstone as the directors of the Trustee company – decide to distribute $130,000 to Mrs Johnstone and $70,000 to Earvin Johnstone Junior who is now 20 years of age. 

On the $70,000 distributed to him Earvin pays significantly less tax than Mrs Johnstone would have paid, because Earvin is still studying and does not earn an income.

On the trust distribution Earvin pays $15,697 of tax whereas Mrs Johnstone would have paid approximately $27,500 on that additional $70,000, had the distribution been made to her.

Discussions between Mrs Johnstone and Earvin lead to a transfer of funds from Earvin’s bank account to Mrs Johnstone on the basis that it is ‘family income’ and Mrs Johnstone will spend or invest those funds as she decides.

If this scenario was reviewed by the ATO, they may seek to apply Section 100A to the affairs of the Johnstone’s. Although there is effectively an exception for ‘ordinary family dealings’ it is not clear whether a court would agree that the arrangement above would be considered as such.

In our example it would be necessary to determine what Mrs Johnstone did with the money and if the funds were effectively used for Earvin’s benefit. For example the AFR article says that “in some cases, senior external lawyers and barristers have been engaged by the ATO to review spending on household costs, family holidays, cars and a range of other living expenses.’ 

However if the funds were clearly used for something which did not benefit Earvin then in our view Section 100A would be likely to apply.

Section 100A would have the effect of treating Earvin as never being entitled to the income. It means that the Magic Family Trust could potentially be assessed to pay tax at 47% on the $70,000 distributed to Earvin, excluding penalties (which would be applied).

That would increase the tax to $32,900 excluding penalties, compared to the $15,697 that Earvin would have originally paid.

ATO Ruling pending

The Australian Financial Review article also reports that the ATO is developing a public ruling which will discuss interpretational issues associated with Section 100A.

It is hoped that the public ruling will outline the ATO’s views on the ‘ordinary family dealing’ exception, so that taxpayers can have certainty about what type of arrangements will be acceptable to the ATO when it comes to distributing trust income.

The big tax announcement in this week’s budget centred around:

• Further personal income tax cuts;
• Increased asset write offs for small business;
• Increased funding for the ATO to tackle tax avoidance and evasion.

Updates to previous announcements included:

• A delay in changes to Division 7A which deals with loans from private companies to shareholders;
• No mention of the Proposed Removal of CGT Main Residence Exemption for non-residents (including Australian Expatriates).

Personal Income Tax Cuts

What is changing?

The government will be increasing the Low and Middle Income Tax Offsets (LMITO). Under the changes, the reduction in tax provided by LMITO will increase from a maximum amount of $530 to $1,080 per annum and the base amount will increase from $200 to $255 per annum for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

The Government will also progressively reduce the number of income tax brackets to 3 by 2024-2025 by which time there would only be 3 personal income tax rates – 19%, 30% and 45% (abolishing the 37% bracket).

What does this mean?

Low to medium income earners (those earning less than $125,333) will pay less tax when the LMITO offset is applied.

The objective of the tax bracket changes is to have 95% of Australia’s population paying no more than 30% on income tax by 2024-2025.

Increased Asset Write Offs For Small Business

What is changing?

The instant asset write-off threshold for businesses with an aggregated turnover of less than $10m will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.

What does this mean?

Small businesses are able to completely write-off assets worth up to $30,000 in the financial year that they started using them rather than depreciating them provided the expenditure is incurred after 2 April 2019 and before 30 June 2020.

ATO To Receive $1 Billion Of Funding To Tackle Tax Avoidance And Evasion

What is changing?

The Government will provide $1.0bn over 4 years from 2019-20 to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs.

What does this mean?

The Taskforce will undertake compliance activities not only targeting multinationals and large public companies, but also private groups, trusts and high wealth individuals.

Delay in changes to Division 7A (Loans from private companies to shareholders)

The government has been undertaking consultation in relation to changes that it wishes to introduce to Division 7A which would include, among other things, eliminating the possibility of 25 Year Division 7A loans.

The Government issued a Consultation Paper in October 2018 seeking views on the proposed implementation approach for the amendments to Division 7A of the ITAA 1936.

The Government said it received valuable feedback which highlighted that Division 7A is a complex area and changes being considered in the Consultation Paper warrant further consideration.

The Government has agreed to delay the start date for proposed changes by 12 months to allow additional time to further consult with stakeholders and to refine the Government’s approach, to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.

Proposed Removal of CGT Main Residence Exemption for non-residents (including Australian Expatriates)

There was no mention in the Budget of the Government’s intention in relation to the widely criticised Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.

Although there is no official comment, we do not expect that the Bill will proceed in its current form although depending on the outcome of the election, it may be re-introduced in a modified form. The Bill still has major and well documented shortcomings as we indicated in a previous article.

Author: Matthew Marcarian

Australia has a reputation as being a high taxing country. Most people are aware that if they are a resident of Australia they are taxable on all their income – whether from sources in or outside Australia.That is, Australia requires tax residents to declare income and capital gains from sources worldwide, regardless of whether the income is remitted to Australia.

However relatively few people are aware that Australia also has a generous concession for expats on their overseas assets. This is known as the ‘temporary resident exemption’ – which was introduced by the Australian government more than a decade ago.

New Zealand citizens who arrived in Australia after 26 February 2001 can also usually qualify under these rules which can give extremely favourable outcomes to New Zealand citizens with overseas assets.

If you are an expat and have the status of a temporary resident for migration purposes (i.e you hold a temporary visa, such as a 457 Visa) then you will most likely also be a temporary resident for income tax purposes. This applies unless your spouse is an Australian citizen or Permanent Resident, in which case you will not be able to benefit from the exemptions.

If you are a temporary resident for tax purposes in Australia then you are not required to declare foreign investment income such as foreign dividends, trust distributions or foreign bank interest, even if you bring this income into Australia. It is also the case that income that would otherwise be taxable under Australia’s controlled foreign company rules is also disregarded if a person is a temporary resident. Generous capital gains tax exemptions also apply to assets which are not Australian real property (i.e real estate) or interests in Australian real property.

These concessions mean that temporary residents are able to live and work in Australia, but often only pay tax on income from employment, while they can continue to hold significant foreign investments. The exception relates to employment related income which may be derived from foreign sources by a temporary resident living in Australia.

We are often contacted by people who wish to clarify their status under the temporary resident rules. Once people understand that they are temporary residents then many of their concerns about Australia’s worldwide approach to taxation tend to drop away.

However, temporary residents who are considering becoming Permanent Residents in Australia still need to be aware of how drastically their tax situation can change if they become Permanent Resident. This is because if you become a Permanent Resident you would be taxable under the normal rules on your worldwide income. We encourage global expats with significant overseas assets to seek tax advice as soon as they determine that they wish to apply for Permanent Residency in Australia.

If you are considering applying for Permanent Residency in Australia and have significant overseas assets our specialist team would welcome the opportunity to assist you with detailed tax advice so that you fully aware of the tax implications. CST’s Strategic Tax Review is an appropriate service for clients in this situation. If you are interested in seeking advice from us please contact us.

CST’s tax advisors have experience with advising high net worth global expatriates arriving in Australia from all parts of the world.

Our specialist integrated Australia/US advisory capabilities can also make a real difference for US expatriates living in Australia who have to lodge tax returns in Australia and the United States.

There have been considerable changes recently in Australia’s approach to levying tax on foreign nationals who own Australian real estate. In particular, various state governments have introduced land tax and stamp duty surcharges for foreigners who own Australian residential land.

The purpose of this blog post is to provide general information as to the issues of how family trusts are treated.

Generally, the issue with trusts is that it needs to be determined whether a trust would be treated as foreign trust for land tax and stamp duty purposes.

If your family trust is deemed to be foreign trust, then you will be required to pay land tax surcharges if your family trust owns land in New South Wales, Victoria or Queensland.

Whether a trust is a foreign trust

The rules that determine whether a discretionary trust is considered a foreign trust for duty and land tax purposes differs from state to state. The appropriate rules to apply will depend on the location of the property of the trust (i.e. if the trust buys property in NSW it will be subject to the NSW definition).

Essentially issues will arise in New South Wales if your Trust has any potential beneficiary who is not an Australian citizen or who is not permanently residing in Australia. Note that the question of whether a foreign person has in fact benefited is not relevant.

The law in Queensland and Victoria is less onerous because surcharges will generally only apply in those states if any of the default beneficiaries (i.e name beneficiaries) are foreigners.

Suggestion action

We recommend that you consider the position of your trust and consider who the beneficiaries of your trusts may need to be moving forward.

If you do not intend to benefit foreign persons, then your trust deed may be able to be amended to avoid future land tax and stamp duty surcharges being applied.

For trusts that own residential land in NSW we also recommend that you read this link  so that you are aware of the approach that the New South Wales Office of State Revenue is taking in relation to this issue.

If you have any questions, please do not hesitate to contact us.

What are the tax consequences of arriving in Australia and becoming tax resident?

From the date of arrival into Australia, you will generally be regarded as a tax resident of Australia and be required to declare income from worldwide sources from this day forth. Where you are classified as a temporary resident, only Australian sourced income will be taxable in Australia. In the first year, your tax-free threshold will also be pro-rated based on the number of months you will be a resident of Australia for tax. All of your assets will be deemed to have been acquired for their market value as at the date of your arrival for capital gains tax purposes. Your foreign income may also be subject to income tax depending on the movement of the exchange from the date of arrival to the date of actual conversion

What is the minimum time I can remain in Australia without being tax resident?

Australia has a 183-day rule with regards to determining whether you are a tax resident of Australia. However, there are also issues associated with one’s domicile which should also be considered.

Does Australia tax its residents on a world wide or territorial basis?

Australian tax residents are subject to income tax on their worldwide income. Territorial tax only applies if you are classified as a temporary resident of Australia for tax purposes.

Is foreign income taxable in Australia e.g. foreign rental income, foreign interest income and foreign dividend income?

As an Australian tax resident you will be taxable on foreign income derived during the year.

Does Australia tax income on a remittance basis?

No – Australia taxes foreign income as it accrues regardless of whether the income is remitted to Australia.

Does Australia have a sales tax or VAT tax on purchases?

Australia has a consumption tax called the Goods and Services Tax (GST). The current rate of GST is 10%.

Does Australia have a capital gains tax that taxes me when I sell foreign assets?

Yes – Capital gains tax applies in Australia on foreign assets for any capital growth arising from the date of commencement as an Australian tax resident to the date of disposal.

Does Australia have an estate tax or death tax?

No – Australian does not currently have an estate or death tax.

What is the top tax rate in Australia?

The top marginal tax rate for individuals in Australia is 45% with an additional 2% Medicare Levy and 2% Temporary Budget Repair Levy. This top rate applies on taxable incomes greater than $180,000.

Does the tax rate vary for different types of income and if so what are the rates?

The income tax rate applies to all forms of income , however there may be rebates which apply which will reduce the tax payable.

What are the common tax deductions available in Australia?

You may claim a deduction for any payments made in relation to the generation of income. Common deductions associated to employment income include out-of-pocket expenses such as:

• Motor vehicles
• Communications – cell phone, internet
• Travel
• Uniforms
• Self-education

Does Australia require joint tax returns to be filed for me and my spouse or are separate tax returns required?

In Australia each taxpayer must file a personal return. However the joint incomes will be considered in determining eligibility to certain rebates.

If I have a foreign company or foreign trust before I arrived in Australia is the income of that company or trust taxable?

In Australia, the Controlled Foreign Company (CFC) and Transferor Trust rules will apply to attribute income to you personally if you are considered to control the assets of a foreign company or trust.

Do children under 18 pay a higher rate of tax on certain types of income?

Yes – Children who are not working or regarded as an Excepted person are taxed at a higher rate than adult individuals. There are also certain forms of income receipts (such as a distribution from a deceased estate) which are not subject to the higher rates of tax in the hands of a child.

Is there a gift tax in Australia?

No there is no gift tax in Australia, however when assets are gifted capital gains tax may be relevant.

What are the personal tax exemptions in Australia e.g. a gift from an overseas relative or a foreign insurance payout?

Gifts and insurance payouts from overseas relations are generally not taxable in Australia.

If I receive shares as part of my salary is this taxed in Australia?

Shares are regarded as payments in lieu of salary and wages and taxed at your marginal rate of tax in either the year they are granted or the year in which they vest (depending on the terms and conditions associated with the employee share scheme).

When I leave the country is a ‘termination payment’ taxed by Australia before I leave?

Australian sourced income will be subject to Australian withholding taxes. This is the cases regardless of whether payment of the termination amount is done before or after you leave the country.

What are other tax consequences of leaving the country?

As a resident of Australia, you will be deemed to have disposed of your non-real property assets for their market values on the date of disposal. This will give rise to a deemed capital gains tax event and an associated tax liability. However, you may choose to defer this taxation event to the point when you dispose of the asset in the future.

If you do not declare a capital gain on the assets in the year that you cease being a resident of Australia, it will be assumed by the Australian authorities that you have elected to defer the taxation point.

Are there any tax consequences of me transferring money from Australia to my say home country?

There are no tax consequences arising from the transfer of money back to your home country unless the source of funds is Australian income in which case there will generally be a tax liability.

The Treasurer, Scott Morrison, delivered his maiden Federal Budget speech on Tuesday 3 May 2016. With the expectation of a double dissolution election being called by the Prime Minister Malcolm Turnbull, there was great expectations about the contents of the speech.

In summary, the Budget focuses on the following areas:
•A Ten Year Enterprise Tax Plan which aims to make Australian corporate tax more competitive in the global market;
•Incentives for early stage investors as part of the National Innovation and Science Agenda;
•A strategy for tackling the MNCs profit shifting;
•Substantial changes to superannuation; and
•Creation of a taskforce focused on tax compliance and avoidance.

From a deficit perspective, the Government plans to reduce the deficit from the current $39.9bn to $6bn by 2020 through a reduction in public spending, increased focus on tax compliance and provision of stimuli for jobs growth.

Click here to read the highlights.