04 Feb 2021 This week in tax
This week, as Part 1 of a two-part series, our Senior Advocate, Robyn Jacobson, CTA, discusses the approaching end dates of the various COVID-19 economic stimulus support measures and what this means for your clients. Part 2 of this discussion will continue in the next TaxVine.
The end of stimulus support
Firstly, may I extend my best wishes to you all for a successful and hopefully far less challenging year. 2020 took us on one hell of a ride, and there cannot be any among us or our networks of families, friends, colleagues and clients who have not been affected in some way by the impact of the COVID-19 pandemic, which resulted in lockdowns of various scales around the country.
Notwithstanding the disruptive Christmas period for many, the advent of a new year is inevitably associated with feelings of hope and optimism for what can and may be achieved and enjoyed in the year ahead. Now that we have caught our breaths after ‘that extraordinary year’, and hopefully had an opportunity to relax and recharge over the summer break, we can turn our minds to getting back to business and planning for what lays ahead, as best we can.
Throughout 2020, the Federal Government passed more than 40 pieces of legislation to cushion the blow of the COVID-19 pandemic, designed to keep Australians in jobs and businesses in business.
Subject to any further announcement from the Government, various economic stimulus support measures will be reaching (or have already reached) their conclusion, some having been extended beyond their original end dates. Being across the status of these programs is essential to planning for your practices and your clients. The key measures are discussed in chronological order below, based on their end dates. Figures quoted are sourced from various media releases issued by the Treasurer.
Cash flow boost — ended
The Boosting Cash Flow for Employers measure was announced and swiftly legislated in March 2020, with the first payments beginning in April 2020. The measure provided direct cash flow support to around 800,000 small and medium businesses and not-for-profit entities, with support totalling around $35.5 billion. Eligible businesses were credited with their final instalment of the second cash flow boost following lodgment of their September 2020 monthly or quarterly activity statements.
A few late claims have been made following the release of the Inspector-General of Taxation and Taxation Ombudsman’s A Report on aspects of the Australian Taxation Office’s administration of JobKeeper and Boosting Cash Flow Payments for new businesses which identified an alternative eligibility pathway for certain businesses (in very limited circumstances). The ATO is reviewing these cases. I refer you to our email to members on 21 December 2020 which explained the issue in detail and provided information to our members.
Early access to superannuation — ended
Eligible citizens and permanent residents of Australia and New Zealand could submit one application for up to $10,000 through myGov between mid-April and 30 June 2020. A second application was permitted for a further release, also up to $10,000, between 1 July 2020 and 24 September 2020. This was subsequently extended, and applications closed at 11:59pm (AEDT) on 31 December 2020. Payments for applications submitted by 31 December should have been made throughout January 2021.
The ATO has advised that they have identified instances where ineligible individuals have accessed, or attempted to access, their superannuation. In some cases, the ATO stopped the applications and prevented the superannuation money from being released. In other cases, the circumstances were reviewed after an application was processed to ensure the integrity of the program.
Part IVA of the ITAA 1936 may be applied where an individual or their representative entered into a COVID-19 early release of superannuation arrangement for the sole or dominant purpose of obtaining a tax benefit. Penalties of more than $13,000 can be imposed for making afalse or misleading statement.
A media report last July indicated that:
More than half a million Australians are estimated to have ‘completely cleaned out’ their superannuation savings during the COVID-19 crisis, as Treasury predicts workers will withdraw a total of $42 billion under the early-access scheme.
This dilemma presents enormous challenges for these individuals who will need to re-build their superannuation balances again from scratch. It also presents challenges to the Government in relation to the design of its retirement policies and will likely resurrect the debate on whether the contributions caps should be increased, or the catch-up concessional contributions measure should be broadened to encourage an increase in retirement savings.
The Tax Institute’s pre-Budget submission for the Federal Budget 2021–22 suggests a possible option could be the provision of a cap, over and above the existing caps, to a maximum total contribution of, say, $50,000. This would be open for a period of up to five years to allow for the financial recovery of those adversely affected by the economic impacts of COVID-19.
$150,000 instant asset write-off — ended
The $150,000 instant asset write-off (IAWO) for businesses with an aggregated turnover of less than $500 million — available to small business entities (SBEs) under s 328‑180 of the ITAA 1997 and medium sized and large businesses under s 40-82 of the ITAA 1997 — ended on 31 December 2020. A business had to acquire the asset by 31 December 2020 but has until 30 June 2021 to first use or install the asset ready for use.
Technically, from 1 January 2021, the IAWO asset threshold for SBEs reverted to $1,000. However, this has no practical effect until 1 July 2022 due to the full expensing of depreciating assets (FEDA) measure (discussed in next week’s TaxVine).
Insolvency reforms — temporary relief for directors ended
On 22 March 2020, the Government announced temporary insolvency relief for financially distressed companies, to help businesses get through the economic crisis.
The relief temporarily:
- Increased the threshold from $2,000 to $20,000 and the time from 21 days to 6 months for statutory demands and bankruptcy proceedings; and
- Relieved directors from any personal liability for trading while insolvent with respect to debts incurred in the ordinary course of the company’s business.
The expiration of the temporary insolvency relief on 31 December 2020 was followed by the commencement of the Government’s insolvency reforms to support small businesses on 1 January 2021. The reforms introduce a new, simplified debt restructuring process, drawing on key features of the Chapter 11 bankruptcy model in the United States. They apply to incorporated businesses with liabilities of less than $1 million and cover around 76% of businesses subject to insolvencies today, 98% of whom have less than 20 employees.
JobKeeper — ends 28 March 2021
The flagship measure of the Government’s economic stimulus response, the highly successful JobKeeper program has — according to the Treasurer, and a Reserve Bank of Australia paper titled How Many Jobs Did JobKeeper Keep — helped to reduce ‘total employment losses by at least 700,000’.
Also, according to the Treasurer, the first phase of JobKeeper supported more than 3.6 million workers and around 1 million businesses, with payments totalling nearly $70 billion for the 13 JobKeeper fortnights from 30 March 2020 to 27 September 2020.
Based on ATO data (current as at 26 November 2020), following a re-test of business eligibility for the second phase of JobKeeper, for the two JobKeeper fortnights in October 2020, applications for around 500,000 entities were processed covering more than 1.5 million employees/eligible business participants. It is expected that the number of eligible employers/businesses enrolled for the final JobKeeper phase (4 January 2021 to 28 March 2021) will fall further as the Australian economy continues to recover.
The Government’s decision to extend the JobKeeper program following a review in mid-2020 has been vindicated by the unexpected implementation of Stage 4 restrictions in Victoria last August and subsequent lockdowns elsewhere. The two-tiered payment based on hours worked in an earlier reference period was a sensible redesign to ensure lower income earners weren’t paid more under JobKeeper than their earnings prior to JobKeeper, and the staged reduction was warranted on the basis that businesses are gradually emerging from the depth of the pandemic-caused recession.
That said, thousands of businesses remain adversely affected by unpredictable state-based lockdowns and the closure of our international border, including those businesses in the tourism, aviation, hospitality and agriculture sectors. The cessation of JobKeeper seven weeks from now will leave many businesses in financial difficulty or distress. Calls continue to be made by some for the Government to extend JobKeeper, particularly for the most affected sectors.
As with the cash flow boost, some late claims following the release of the Inspector-General of Taxation and Taxation Ombudsman’s report are being reviewed by the ATO (see earlier comments in this preamble).
JobKeeper matter (Apted) on appeal
While the program may be drawing to a close, disputes emanating from JobKeeper claims will continue for some time. The current dispute in Apted and Federal Commissioner of Taxation  AATA 5139 is currently on appeal to the Full Federal Court. The case involves a back-dated ABN registration and aptly illustrates the difficulty in relying on conventional jurisprudential processes to clarify the operation of the law when, but for the extension of the JobKeeper program, the original end date of those measures has actually passed. Our General Manager, Tax Policy and Advocacy, Scott Treatt, CTA, wrote about this quandary in TaxVine on 22 January 2021.
Our latest blog discusses a number of matters that affected taxpayers should consider while the appeal outcome is pending. This may assist taxpayers to make informed decisions about their next steps in an objection, review or appeal process.
JobKeeper enabling directions — ends 29 March 2021
Temporary provisions in the Fair Work Act 2009 (FWA) allow employers to vary the working arrangements (by way of JobKeeper enabling directions or agreements under Part 6-4C of the FWA) of employees for whom the employer is receiving JobKeeper payments. In the absence of these amendments, the more rigid terms and conditions under awards and enterprise agreements would apply.
The temporary measures in Part 6-4C were extended from 28 September 2020 to 29 March 2021, the day after the extended JobKeeper program ends.
Legacy employers (those who were entitled to a JobKeeper payment for an employee prior to, but not on or after, 28 September 2020) who satisfy the 10% decline in turnover test and hold a 10% decline in turnover certificate can give modified JobKeeper enabling directions.
Our blog, JobKeeper 2.1: Fair Work Act changes, provides a detailed explanation of these rules.
While compiling this list, it struck me that never before in Australia’s history has the government provided such extensive and wide-ranging, yet targeted, support to Australian individuals and businesses to help them through a crisis. The Government reported in the Mid-Year Economic and Fiscal Outlook 2020–21 on 17 December 2020 that it had provided $251 billion in direct economic support, and gross government debt will exceed $1.1 trillion in 2023–24. These are eye-watering figures.
Future generations may judge the decisions made in the heat of the crisis, but few would disagree that the measures have largely done their job to keep Australians in jobs and businesses in business.
Part 2 of this discussion will continue in next week’s TaxVine. As always, we welcome your views and thoughts, which you can provide here.
Robyn Jacobson, CTA