December 2020
30 November 2020
TAX BREAKS FOR BUSINESS IN THE OCTOBER FEDERAL BUDGET
Extension of instant asset write-off
Business with aggregated annual turnover of up to AUD $5 billion can now instantly write off eligible asset purchases without cost limit, meaning they are now able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
This applies to assets purchased from 7:30pm AEDT on 6.102020 until 30.6.2022. Eligible assets will be new depreciable assets and the cost of improvements to certain existing assets. For small and medium-sized businesses with an aggregated annual turnover of less than $50 million, full expensing also applies to second-hand assets.
Businesses with aggregated turnover between $50m and $500m can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31.12.2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30.6.2021, to first use or install those assets.
Small businesses (with aggregated annual turnover of less than $10 million) are able to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. This is a significant concession.
These measures are expected to incentivise investment in the full range of business assets including plant and equipment, furniture and fittings and motor vehicles and other transport equipment.
JobMaker hiring credit
Also announced in the October Federal Budget is a capped, 12-month hiring credit or wage subsidy for businesses that hire ‘eligible’ employees. This applies to young people aged between 16 and 35 who in the last 3 months prior to being hired on the JobSeeker unemployment program, receiving youth allowance or a parenting payment.
Employers will receive $200 per week for new eligible employees aged between 16 and 29, and a $100 per week for those aged between 30 and 35.
This will be administered as a credit via Australia’s adoption of the Single Touch Payroll platform. Companies already taking part in the JobKeeper scheme are ineligible for this hiring credit.
Loss carry-back provisions
This budget measure will allow eligible companies to carry back tax losses from the 2019-20, 2020-21- or 2021-22-income years, to offset previously taxed profits in 2018-19 or later income years.
Corporate tax entities with an aggregated turnover of less than $5 billion will be eligible. The loss carry-back will generate a refundable tax offset in the year in which the loss is made.
The tax refund will be available for eligible businesses that elect for it when they lodge their 2020-21 and 2021-22 tax returns.
Research and development
The research and development (R&D) tax incentive will change from 1.7.2021. Small R&D entities will be entitled to an offset of 18.5 percentage points above their tax rate with no refundable limit. Large R&D entities will have intensity tiers reduced from three to two, with offsets of 8.5 and 16.5 percentage points above their tax rate.
THE EMPLOYER/CONTRACTOR ISSUE
MWWD and Commissioner of Taxation [2020] AATA 4169
In this A.A.T case it was found that the party contracting with the taxpayer was not an employee in the period under review. The company provided repair and maintenance services to businesses operating machinery. While some service technicians were employed by the company under conventional contracts of employment, other technicians were said to be independent contractors.
The key issue was whether in respect of a particular technician’s arrangement the company was liable to pay superannuation guarantee. While the technician performed all of the work himself, the applicable contact specified he had the right to delegate the work to others and there was no reason on the evidence to suppose the company would have unreasonably prevented the technician from taking on an apprentice, hiring an employee or engaging a subcontractor. It was concluded that it was not a contact “wholly or principally for the labor of the person…”, meaning the superannuation guarantee did not apply.
TAX CRIME PROSECUTION CASE STUDIES
Two recent cases outline the determination of the ATO to prosecute fraud cases for relatively low amounts.
These unedited cases from the ATO’s website send a clear message to the community – if you engage in tax fraud… Do not think you will get off with a warning, expect to find yourself in a court of law!
October 2020 – Tax cheat caught and convicted
A South Australian woman has narrowly escaped jail after making a series of false claims on her 2015- and 2016-income tax returns.
For the 2014–15 financial year, Ms Jennah Gordon significantly overstated both the amount of money she had earned and the amount of tax her employer had withheld from her. She also made a number of false claims relating to work-related car, clothing, self-education and other expenses. As a result, she received an income tax credit of $1,430 she was not entitled to.
The following year, Ms Gordon made an amendment to her 2015 tax return, inflating the amounts for ‘salary and wages’ and ‘tax withheld’ even further to obtain a larger refund. She also lodged another false tax return for the 2015–16 financial year – but these refunds were not paid, as the ATO had already commenced an audit.
During the audit, Ms Gordon provided the ATO with a false payment summary and an altered bank statement in support of her claims.
Records obtained from Ms Gordon’s employer showed that she earned no income during 2015–16. However, she did receive Centrelink payments, which she had failed to declare.
Ms Gordon was subsequently sentenced to eight months jail to be released forthwith on a 15-month good behaviour bond. She was also ordered to pay reparations of $4,316.
October 2020 – False claims lead to criminal conviction
A concreter from New South Wales has been convicted and fined for making false and misleading statements.
Mr Jason Wilson originally lodged his 2017 income tax return via a tax agent, but he lodged an amendment via myGov four months later. In the amendment, Mr Wilson falsely claimed he had worked for a second employer, where he received wages and had tax withheld. He also reported additional amounts for work-related expenses and the cost of managing tax affairs.
The false claims would have given him a $7,974 refund, but the ATO stopped the refund pending the result of an audit.
During the audit, Mr Wilson provided ATO officers with a payment summary to validate his claims. But when the auditor contacted the business in question, they confirmed the payment summary was false. He had never worked there. Mr Wilson’s tax agent also gave a statement that he was not provided with, or charged for, any financial advice.
As well as being fined $2,000 and ordered to pay a further $5,000 directly to the ATO, Mr Wilson was placed on a two-year good behaviour bond.
The Magistrate who sentenced Mr Wilson commented that although he described himself as an “unsophisticated concreter”, Mr Wilson’s conduct certainly represented sophisticated fraud. The Magistrate added that the consequences of this behaviour must be severe enough to deter the general public from doing the same.
With the end of tax time fast approaching, this case serves as a timely reminder that over-claiming will be detected. If it is deliberate, serious penalties may apply.
RESOLVING CONFLICT IN THE WORKPLACE IS NOT ALWAYS EASY
Loneliness is a powerful negative emotion. Most of us will use our words before resorting to violence, but as 2020 draws to a close we are feeling more tired and irritable than ever and our tolerance for opposing ideas wears thin, even the most outgoing people are feeling the strain.
On top of feeling lonely, tired, and mentally drained, we are in one of the most politically polarising moments in history. This is all leading to an ongoing feeling of outrage and, unsurprisingly, these feelings can spill into the workplace.
Isolation can make us less tolerant of other people’s viewpoints, so what happens when that behaviour begins to affect our working life, is there a way to disagree with colleagues without ruining work relationships?
Conversation, not antagonism
Workplace conflict can have severe negative impacts if not handled correctly. Work conflict has been linked to decreased productivity, project failure, absenteeism, and increased turnover. If you find you are trying to defend your point of view, make sure you understand what they are saying before you respond.
Isolation has given us time to sit comfortably with our own opinions. As our social circle narrows to members of our household, immediate team members and those who can be bothered ‘to Zoom’, we have fewer opportunities for those opinions to be challenged.
Even as Australia slowly comes out of lockdown, it is likely that the first people we try to catch up with are like-minded. This can make it particularly jarring when someone suddenly disagrees with you. However, taking a moment to see the other person’s point of view is going to reduce the risk of irrevocably harming your relationship with that person.
Start with something that shows you have listened. That will immediately open the conversation. You do not need to pretend you agree to show you have listened and understood. In fact, if you find their opinion confronting it might be worth telling them and asking for an explanation.
Even if it is something hopping crazy, you can say, ‘tell me how you got to that conclusion’. It just shows the other person you respect your relationship with them even if you disagree.
Choose Your Battles Wisely
Be selective of the problems, arguments, and confrontations that you get involved in. Instead of fighting every problem, save your time only for the things that matter. Remember, you do not have to win every debate, some arguments are not worth having at work so knowing when to walk away is important.
Even if it is something that you know is fundamentally wrong, you can pause and just leave that argument for another day. It might take several conversations until you are both listening to each other, but the goal is to get to that place, not necessarily to win the argument.
Once you get someone riled up the argument can blow out and you are not just discussing the original issue, you end up arguing about everything. Arguing over video calls can be particularly difficult as there is the risk of accidentally cutting people off or speaking over each other and we cannot see their body language to know when it is an accident.
If you are under pressure, it might be worth dropping the argument until you can see them in person or have more time to talk.
Do not leave without resolution
At no stage are we saying to just forget it and sweep it under the carpet or just leave them to get over it. In some teams when there is one person who disagrees with everyone else the solution is often to just move them to another team. But if you are talking about big world issues then it does not matter where you move them, someone else will be offended. You may need to ask this person to keep that particular opinion out of the workplace.
If the issue is less seclusive but has left people upset, you still need to address the cause of the problem. Do not leave it unresolved because it can grow more unpleasant or full of anger because the issue is not being properly recognised or dealt with. If you are a third party to an argument or participated in an extremely tense meeting, it is worth offering to stick around to defuse the situation.
At this moment in time, there are so many people who need a hand or are in a bad spot and we cannot keep loading our pain on to other people. We need to be conscious that we are in a unique environment where we need to double down on caring and kindness.
INSOLVENCY REFORMS TO SUPPORT SMALL BUSINESS
On 12.11.2020 the Federal Government introduced legislation into the Parliament to progress the most significant changes to Australia’s insolvency framework in 30 years as part of their economic recovery plan to keep businesses in business and Australians in jobs.
The reforms, which were announced by the Government on 24.9.2020, will reposition our insolvency system to help more small businesses restructure and survive the economic impact of COVID-19. As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner.
As part of these changes, a new debt restructuring process will be introduced for incorporated businesses with liabilities of less than $1 million, drawing on some key features of the Chapter 11 bankruptcy model in the United States.
By moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model, it will allow eligible small businesses to restructure their existing debts while remaining in control of their business.
For those businesses that are unfortunately unable to survive the economic impacts of the Coronavirus outbreak, a new simplified liquidation pathway will be introduced for small businesses to allow faster and lower-cost liquidation.
Complementary measures will also be enacted to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business.
Following the passage of legislation through the Parliament, these new insolvency processes will be available for small businesses from 1.1.2021.
The reforms will cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom have less than 20 employees.
Together, these measures will reduce costs for small businesses, reduce the time they spend during the insolvency process, ensure greater economic dynamism, and ultimately help more small businesses through the recovery phase of the COVID-19 crisis.
JOBMAKER HIRING CREDIT PASSES THE PARLIAMENT
On 11.11.2020 the Federal Government passed legislation to establish the JobMaker Hiring Credit, giving businesses access to up to $200 per week for each eligible employee.
The $4 billion JobMaker Hiring Credit is a key part of the Government’s economic response to the COVID-19 pandemic.
Youth unemployment was particularly impacted by restrictions imposed as part of the health response to the COVID-19 pandemic, with the JobMaker Hiring Credit specifically designed to encourage businesses to take on additional young employees and increase in employment.
The JobMaker Hiring Credit is a fixed amount of $200 per week for an eligible employee aged 16 to 29 years and $100 per week for an eligible employee aged 30 to 35 years paid quarterly in arrears by the Australian Taxation Office.
This will help young people access job opportunities and reconnect them with the labour force as the economy recovers from the effects of the coronavirus.
To be eligible, the employee must have been receiving JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months, assessed on the date of employment.
Employees also need to have worked for a minimum of 20 hours per week of paid work to be eligible, averaged over a quarter and can only be eligible with one employer at a time.
The hiring credit is not available to an employer who does not increase their headcount and payroll. The legislative framework also prohibits both employers and employees from entering into contrived schemes in order to gain access to or increase the amount payable.
Existing rights and safeguards for employees under the Fair Work Act will continue to apply, including protection from unfair dismissal and the full range of general protections.
The JobMaker Hiring Credit will ensure hard-working Australians and businesses have the support to get back to work and is part of the Government’s Economic Recovery Plan to create jobs, rebuild the economy and secure Australia’s future.
Jobmaker Hiring Credit Bill Awaits Assent
In November, the legislation to facilitate the JobMaker Hiring Credit Scheme completed its passage through parliament and is now awaiting assent.
The Economy Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020 amends the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 to allow the Treasurer to make rules for a kind of COVID-19 economic response payment, primarily intended to improve the prospects of individuals getting employment or increase workforce participation.
The scheme will operate for the period from 7.10.2020 to 6.10.2022.
PENALTIES TO BE INTRODUCED FOR UNFAIR CONTRACT TERMS
In November, the Morrison Government secured the agreement of state and territory Consumer Affairs Ministers to strengthen protections for consumers and small businesses from unfair contract terms.
Evidence gathered through public consultation indicates that unfair terms remain prevalent in standard form contracts and there is uncertainty around the scope of the existing protections.
Following discussions at the November Consumer Affairs Forum, the Commonwealth and state territory governments have agreed to strengthen existing unfair contract term protections in the Australian consumer Law by:
making unfair terms unlawful and giving courts the power to impose a civil penalty
expanding the definition of small business and removing the requirement for a contract to be below a certain threshold; and
improving clarity on when the protection will apply, including on what is a ‘standard form contract’.
These reforms will improve consumer and small business confidence when entering into contracts.
Treasury will develop exposure draft legislation that will provide a further opportunity for stakeholders to comment on the detail of the reforms.
Further detail on the reforms is available on the Treasury website.
SME LOAN GUARANTEE SCHEME TURNOVER TRESHOLD LIFTED TO $120M
In November, Treasurer Josh Frydenberg registered a legislative instrument which increases the monetary threshold for annual turnover for businesses accessing the Federal Government’s Coronavirus Small and Medium Enterprises Guarantee Scheme.
The Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Recovery Package) Rules 2020 increases the threshold from 14.11.2020 for annual turnover from $50 million to $120 million.
Phase two of the scheme commenced on 1.10.2020, which guarantees 50% of new loans issued by participating lenders to SMEs.
Key details:
loans can be used for a broad range of business purposes, including to support investment
borrowers can access up to $1 million in total
loans are for terms of up to 5 years, and a repayment holiday is not required but can be offered at the discretion of the lender
loans can be either unsecured or secured (excluding residential property)
the interest rate on loans is determined by lenders but will be capped at around 10% with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.
This scheme is clearly of benefit to SMEs having trouble obtaining finance.
Strategies for individuals before June 30, 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.