IN THIS ISSUE
- ATO Introduces New Work From Home Deduction Method
- Do You Need To Lodge A Taxable Payments Annual Report?
- Varying PAYG Instalments
- What To Know About Lodgement Date Deferrals
- Tax Tips For Property Investors
- Rent Relief For Commercial Tenants
- 2020 End Of Financial Year Checklist
- Major Changes To Instant Asset Write-Off
ATO introduces new work from home deduction method
More employees are working from home than ever before as a result of COVID-19. The ATO has introduced a new ‘shortcut method’ in response to this, to simplify the process for those who are claiming work from home deductions for the first time.
The shortcut method allows employees to claim all work-related running expenses at a rate of 80 cents for each hour they work from home during COVID-19. Taxpayers are eligible to claim using the shortcut method as long as they are incurring additional deductible running expenses as a result of working from home.
Deductible running expenses you can claim through the shortcut method include:
- Utilities such as heating, cooling and lighting.
- Cleaning costs for your work area.
- Mobile or landline phone expenses for work calls.
- Internet connection.
- Repair costs for home office equipment and furniture.
- Computer consumables and stationery.
- The decline in value of a computer, or similar device.
The new shortcut method applies for expenses incurred from 1 March 2020 to 30 June 2020.
To claim the deduction, a record of hours worked such as timesheets or rosters must be kept as proof.
Minimal work tasks completed at home such as occasionally checking emails or taking calls are not eligible for the deduction.
Alternatively, individuals can also choose to deduct working from home expenses using two pre-existing methods. The actual cost method is where individuals claim the actual portion of running expenses incurred for work by keeping a diary that details the work portion of your household running expenses. This must include receipts and documents supporting your claim.
The fixed-rate method is another method available to individuals, where a fixed rate of 52 cents per hour worked can be claimed. This applies to electricity and decline in furniture value, but the actual workrelated portion of expenses such as mobile and internet costs must be calculated separately.
Keep in mind that individuals can only claim work from home deductions using one of the three methods. The ATO has also made clear that if you are temporarily working from home as a result of COVID-19, expenses such as rent, mortgage and insurance cannot be claimed.
Do you need to lodge a Taxable Payments Annual Report?
Businesses providing services for contractor payments in the past year need to lodge a Taxable Payments Annual Report (TPAR) by 28 August 2020.
A TPAR is a building and construction industryspecific report for businesses who hire contractors as part of their services. The TPAR is used by the ATO to track all payments made to contractors for providing services, and ensures compliance by holding contractors accountable to their tax requirements.
Contracted services which require a TPAR include:
- Building and construction;
- Courier or road-freight;
- IT; and
- Security, investigation or surveillance.
Businesses which claim deductions for contractor expenses in their tax return are also required to lodge a TPAR. Lodging a TPAR is not optional and penalties may apply if businesses do not lodge their TPAR on time.
The ATO has also introduced a new Non Lodgement Advice form for businesses which have not provided any of the above services or paid contractors. The Non Lodgement Advice form allows businesses to lodge multiple years on the same form, advise when they are not required to lodge in the future and give a reason, as well as validate any information entered.
It is important to be mindful of your obligations as a business before engaging or entering into an agreement with a contractor. Although the ATO provides an online lodgement service for business owners, the lodgement method requires specific SBR-enabled business software and file transfer functions. For business owners who are unsure whether or not lodging a TPAR is necessary, or of all the steps required to lodge a TPAR online, working with your tax agent or BAS agent will ensure your lodgements are made to the ATO correctly and on time.
Varying PAYG instalments
Businesses experiencing financial difficulty due to COVID-19 may be over-paying their PAYG instalments if their current rate no longer reflects their estimated tax for the year. This can cause further cash flow problems for businesses already in distress.
In response to this, the ATO is providing increased flexibility towards varying PAYG instalments for businesses who have experienced an adverse change in trading conditions. As part these measures, taxpayers with PAYG instalments are entitled to:
- Vary PAYG instalment amounts (including varying to zero if it is predicted that you will have significantly less income than expected, or it is expected that deductions against your business or investment income will be higher than the income itself for a year) for the March 2020 quarter.
- Claim a refund for instalments made for the September 2019 and December 2019 quarters. This can be done by claiming a 5B credit on your activity statement. If you do not claim back a credit for these instalments, overpaid PAYG instalments will be credited back to you after your tax return has been processed.
Businesses wishing to vary instalments will need to:
- Lodge a revised activity statement (before the due date and before the yearly tax return is lodged) that varies their PAYG instalment for the March 2020 quarter to up to nil.
- Provide the reason for variation (change in trading conditions) on their BAS.
Regular interest and penalties will not apply to PAYG instalments that have been varied as a result of COVID-19. However, the initiative is intended to support cash flow, and will not affect your net liability for the 2020 income year.
Miscalculations made regarding PAYG instalments can be rectified by lodging a revised activity statement, or varying a subsequent instalment.
What to know about lodgement date deferrals
The ATO has announced a series of lodgement deferral dates due to COVID-19, available to businesses for tax returns, fringe benefits tax returns, monthly and quarterly BAS, annual GST returns, PAYG summary annual reports and taxable payment annual reports.
The extended lodgement dates for particular lodgements are listed below:
- Company income tax 2018-2019 returns: 5 June 2020
- Fringe benefits 2019-2020 tax returns: 25 June 2020
- SMSF 2018-2019 annual returns: 30 June 2020
As requests for lodgement deferrals for BAS, annual GST returns, PAYG summary annual reports and taxable payment reports are determined on a case-by-case basis, request approvals will be issued within a 28-day period.
While deferring a lodgement may be beneficial to your business in the short term, it is still important to consider your tax liability and the long term effects of lodgement deferrals on your cash flow.
Always discuss your options with a financial advisor or accountant before deferring as you may accrue more debt than expected otherwise.
Depending on your financial circumstances, the ATO is also accepting payment-only deferral applications until 14 September 2020 for income tax, FBT and excise payments.
Tax tips for property investors
COVID-19 has thrown businesses into chaos and the situation is not significantly different for property investors right now, but a quick review may help dampen the impact.
Land tax deferrals
Many state governments are allowing landlords to temporarily offset losses by deferring land tax obligations (refer to your own state’s COVID-19 response to tenancy agreements). QLD and NSW will also be providing a discount of up to 25 per cent on land tax in 2020 on the condition that savings are passed on to tenants through commensurate rent relief.
Bring forward any maintenance expenditure that will need to be completed by 30 June. Ensure to distinguish between what the ATO considers a ‘repair’ and an ‘improvement’, as improvements are non-deductible.
Pre-pay interest on property investment loans if you have adequate cash flow in order to claim an immediate deduction. Investors may choose to pay interest in advance in order to simplify finances by making one prepayment of interest upfront or protect against possible interest rate rises over the 12 month period.
If you have renovated a property with the view to sell it for profit in the short term, you may find yourself taxed as a ‘profit making scheme’. This means you will not be able to take advantage of CGT concessions.
Ensure that any claims or interest on borrowings for investments can be clearly separated from interest on borrowings of a personal nature.
A depreciation schedule can be provided by a qualified quantity surveyor, outlining the tax deductions that are available and help to provide a significant return. The cost of having a depreciation schedule prepared is also tax deductible.
Repairs at time of purchase
Expenses for repairs to property are generally deductible provided that they relate to wear and tear or other damage as a result of earning rental income. The cost of initial repairs at the time of purchase are not deductible.
Rent relief for commercial tenants
The Government has introduced a mandatory code for commercial tenants and landlords to help commercial renters through COVID-19.
The code will apply from 3 April 2020 to SMEs with an annual turnover of less than $50 million and are participating in the JobKeeper program.
Under the code of conduct for commercial tenancies:
- Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic and recovery period.
- Tenants must stay committed to their lease terms.
- Landlords must offer reductions in rent as waivers and deferrals proportionate to the tenant’s reduction in trade during COVID-19. Waivers must constitute no less than 50 per cent of the total rent reduction during that period.
- Benefits that owners get for their properties as outgoing reliefs (e.g. deferred loan payments, land tax, reduced charges) should be passed onto the tenant in the appropriate proportion.
The code will be implemented nation- wide and aims to encourage parties to reach agreeable outcomes on a case by case basis. For commercial tenants, this means negotiating rent reductions corresponding to their annual turnover reductions and being provided extended lease terms for the rent waiver and deferral period.
2020 End of Financial Year Checklist
Pay quarterly super
Super Guarantee (SG) contributions must be paid by 30 June 2020 to qualify for a tax deduction in the 2019-20 financial year.
Superannuation Guarantee Amnesty
Employers who have historic SG non-compliance can self-correct unpaid amounts without penalty under the SG Amnesty. Employers can claim deductions without incurring administration charges or penalties until 7 September 2020. Payments made after this date will not be tax deductible.
Review capital expenditure
This financial year, the instant asset write-off allows eligible businesses to instantly deduct assets costing up to $150,000 on their upcoming tax return.
Small business CGT concessions
Individuals operating a small business may be eligible for capital gains tax (CGT) concessions on the sale of business assets. The small business CGT concessions are available to business taxpayers with an aggregated turnover of less than $2 million or on business assets less than $6 million.
Obsolete, slow-moving or damaged stock should be identified by 30 June and disposed of for income purposes in order to receive a deduction.
Contact the ATO
The ATO is responsive to businesses that are struggling to keep on top of their tax obligations due to COVID-19. Businesses struggling to meet their tax obligations should contact the ATO to discuss deferring payments, make variations to PAYG quarterly tax instalments, or change their GST reporting cycle from quarterly to monthly to receive quicker access to GST refunds.
Businesses may wish to delay tax payments on assessable income this financial year by deferring invoices until after 30 June so that income from the payments won’t be taxed until the following financial year.
Work from home deductions
If you’ve been working from home due to the coronavirus, the ‘shortcut method’ is available to claim 80c per hour worked on running expenses. Don’t forget to include “COVID-hourly rate” to claim on your tax return.
Selling poor performing assets, such as shares, may enable you to bring forward a tax loss that can be offset against any capital gains made throughout the financial year.
Early access to superannuation
Individuals impacted by COVID-19 may be eligible for early access of up to $10,000 of their super from mid-April. Those who wish to access up to $20,000 must apply twice; once before 1 July 2020, and once within approximately three months after 1 July 2020.
Major changes to instant asset write-off
Instant asset write-off policies have been expanded as part of the Government’s COVID-19 initiative to encourage business spending in an effort to increase cash flow, stave off an economic recession, boost consumption and protect employment.
The instant asset write-off threshold has been increased from $30,000 to $150,000 and has expanded access to include businesses with an aggregated annual turnover of less than $500 million (up from $50 million). This applies from 12 March 2020 until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.
Items that small businesses can purchase under the new instant asset write-off scheme include:
- Company vehicles;
- Computer equipment;
- Office furniture and facilities; and
- Solar systems for business premises.
In addition, the Government is introducing a 15 month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term, by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation.
As spending money on additional equipment at this time may be problematic given the financial burden placed on businesses during COVID-19, any expenditure needs to be made with respect to the cashflow and tax effect of any purchase, particularly a large one.
Businesses in a position to invest in equipment may be able to take advantage of the write off and offset against any taxable gains they receive as part of the Government economic stimulus initiatives, and at the same time invest to improve business efficiency.