THE PRACTITIONER

Edition #10, August 2020

Everyone at GFM Gruchy have you in their thoughts at this challenging time. We hope and trust you are staying safe and coping with the pressures we are all experiencing. We are here to help however we can, even if it is just for you to hear a friendly voice.

As part of the Government Stage 4 restrictions, our office is currently closed and will not re-open until the Stage 4 restrictions are lifted. The office will not be manned during the Stage 4 restrictions. You will not be able to drop off or pick up documents during this time.

During the office closure, all GFM Gruchy staff will continue to work remotely. We are making every effort to ensure that disruption to our normal service standards are minimised and in turn, that you continue to benefit from our hard work and dedication to servicing your needs.

We urge you to avoid where ever possible, the use of Australia Post if you need to send us information relating to your business and taxation affairs. Whilst Post Offices will remain operative, we are mindful of possibly lengthy delays and cannot guarantee that we will be able to take delivery of documents where there is urgency involved.

In light of the above, we strongly encourage you to take advantage of our online client portal to send us documents. If you have not used the client portal in the past, please contact Miryam Schejtman our Practice Manager for assistance. Less secure methods of exchanging information, such as email, Dropbox or Google Drive could be considered as a secondary method of exchanging information if you wish.

Although our office telephone lines will not be physically manned during the restrictions, our friendly reception staff will remain available to answer your calls remotely and will then transfer your call to our other team members. Please be aware that this system does have some limitations due to the number of lines available, but rest assured we are committed to minimising disruption for everyone involved.

On 21 July 2020, the Government announced that the JobKeeper Payment (‘JKP’) would be extended until 28 March 2021 (i.e., for a further six months beyond its original end date of 27 September 2020).

As a result, JKPs would now be made over two separate extension periods, being:

• Extension period 1 – which covers the seven new JobKeeper fortnights that commence on 28 September 2020 and end on 3 January 2021; and
• Extension period 2 – which covers the six new JobKeeper fortnights that commence on 4 January 2021 and end on 28 March 2021.

The adjustments contained within JobKeeper 3.0 will apply nationwide, and the crucial amendments include the following:

• Adjustments to employee eligibility – From 3 August 2020, the relevant date of employment (which is used to determine an employee’s eligibility to JKPs) will move from 1 March 2020 to 1 July 2020. This is designed to increase employee eligibility for both the existing JKP scheme, as well as for the new extension periods from 28 September 2020. Casual employees will still be required to have been employed on a regular and systematic basis for a minimum of 12 months (as is required under the existing JKP scheme).

Adjustments to the ‘Decline in Turnover Test’ – To qualify for the JKP in the extension periods, businesses will now only have to demonstrate that their actual GST turnovers have significantly decreased in the previous quarter under JobKeeper 3.0.

For these purposes, the applicable rate of decline in turnover required to qualify for JobKeeper 3.0 is determined in accordance with the existing rules (i.e., 50% for entities with an aggregated turnover of more than $1 billion, 30% for entities with an aggregated turnover of $1 billion or less and 15% for ACNC-registered charities).

Specifically, to be eligible for the JKP Extension Period 1 (i.e., from 28 September 2020 to 3 January 2021), businesses only need to demonstrate a significant decline in turnover in the September 2020 quarter (whereas under the previously announced JobKeeper 2.0, they would have been required to show that they had suffered a significant decline in turnover in both the June and September 2020 quarters).

To be eligible for the JKP Extension Period 2 (i.e., from 4 January 2021 to 28 March 2021) businesses only need to demonstrate a significant decline in turnover in the December 2020 quarter (whereas under the previously announced JobKeeper 2.0, they would have been required to show that they had suffered a significant decline in turnover in each of the June, September and December 2020 quarters).

Importantly, the dual payment rate system originally proposed in JobKeeper 2.0 will remain, with the full rate of payment decreasing from $1,500 to $1,200 per fortnight from 28 September 2020 and then to $1,000 per fortnight from 4 January 2021. The proposed reduced rates (being $750 from 28 September 2020 and $650 from 4 January 2021) will also remain for employees and business participants who worked fewer than 20 hours per week in the relevant period.

It is not uncommon for businesses to provide loans to shareholders or associates of a company. However, business owners should know the conditions that their loan must satisfy under Division 7A, to avoid the amount being deemed a dividend.

Written agreement

Division 7A loan agreements need to be made under a written agreement before the private company’s lodgement date. As a minimum, the written agreement should:

• identify the parties,
• set out the essential terms of the loans (e.g. the amount and term of the loan, the interest rate payable under the loan), and
• be signed and dated by all parties involved.

Minimum interest rate

Loans must have an interest rate greater than or equal to the annual benchmark interest rate outlined in Division 7A. The benchmark interest rate for 2020 is 5.35% and will be 4.52% in 2021. This interest rate needs to be applied for each year after the year in which the loan was made.

Maximum term

The maximum term for a loan agreement is seven years. If the loan is secured by a registered mortgage over real property, the maximum term is 25 years. For this maximum term, the market value of the property (not including any other liabilities for securing the property prior to the loan) must also be at least 110% of the amount of the loan.

Refinancing loans

From the 2007 income year onwards, loans that can be refinanced without resulting in a deemed dividend include:

• An unsecured loan which is converted to a loan secured by a registered mortgage over real property can have the loan term extended (with relative terms).
• A secured loan which is converted to an unsecured loan with a corresponding reduction in the loan term.
• A loan which becomes subordinated to another loan from another entity due to circumstances beyond the control of the original entity.

If these loan conditions are not met, Division 7A of the Income Assessment Act 1936 applies and the loan is deemed a dividend. This dividend is treated as taxable income and the company receives no tax deductions for its loan to you or your shareholders.

In response to the social distancing and sanitary requirements of COVID-19, it has become common for businesses to provide additional cleaning and courier services to customers. As a result, many businesses have taken on contractors to assist with the extra work.

Businesses who have made payments to contractors in the last year may need to lodge a Taxable payments annual report (TPAR) by 28 August. This applies to the following contractor services:

• building and construction,
• courier, delivery or road freight,
• cleaning,
• information technology,
• security, surveillance or investigation.

Delivery and cleaning services are particularly relevant for businesses operating through the COVID-19 pandemic. For example, businesses that are limiting access to their physical stores due to social distancing restrictions may have paid contractors providing courier services to deliver goods to customers on behalf of the business. If the payments received by the business for courier or cleaning services provided by contractors amounts to 10% or more of their total GST turnover, they will be required to complete a TPAR. Businesses can still lodge a TPAR even if they don’t think they need to or if they are unsure if they meet the 10% GST turnover threshold.

Businesses providing courier or cleaning services using their existing employees and not contractors will not need to lodge a TPAR.

TPAR lodgements can be made using SBR-enabled business software, the ATO Business Portal, through a tax or BAS agent, or by ordering a Taxable payments annual report (NAT74109) paper form.

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

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

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

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

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

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

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

Business activity statements (BAS) may require adjustments from time to time if their net GST liability changes or is incorrect.

An adjustment needs to be made in the event that your GST payable or credit attributed in a previous tax period becomes incorrect. The following are the situations which may require you to make an adjustment:

• the price of a sale or purchase is changed,
• the cancellation of a taxable sale you made, or a purchase for which you can claim a GST credit,
• bad debt write-off or recovery,
• making or receiving a third-party payment, and
• the GST-exclusive value of your purchase is more than $1,000, and the actual use of your purchase (to make input-taxed sales or for private purposes) differs from your intended use.

The ATO requires you to make and issue adjustment notes to a purchaser in the case that you make a taxable sale and the price of the sale changes, the purchaser asks you for an adjustment note, or you become aware of a change and have already issued a tax invoice for the original sale. Adjustment notes must be issued no more than 28 days after such circumstances.

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This publication is for guidance only, and professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication. Publication May 2020.