Its June, and everyone is madly thinking how to reduce their tax bill. Media publications, accounting bodies, finance gurus are all posting on legal ways to reduce tax. Apart from a few options, most involve spending more money. But is reducing tax, at the expense of everything else, really the right approach to financial security?

EOFY Spending Craze
In the last month of the financial year, everyone seems to be having EOFY sales. Harvey Norman is discounting PCs, Milwaukee is offering cash backs for their tools, and fashion labels seem to be clearing out stock. The only difference this year is that with ongoing COVID supply chain issues and the world wide resource crunch, car dealers don’t have any stock to discount.
Are all these sales because these companies feel like being generous? No – its because they need a sales bump to report to their shareholders. Make no mistake – they’ll be paying tax on those extra sales, but to those companies, higher sales = happier shareholders, happier banks and happier staff. Tax is merely an expense that needs to be accounted for as part of their profit.

We too might be tempted to go out and grab a bargain – but is that what our business needs? Only recently, did someone ask me whether they should go out and buy a truck for $110k to reduce their tax. I asked them “do you need it”… which was answered with “no, but I don’t want to pay tax”. As business owners, we’ve been taught that tax under all circumstances is bad, rather than understanding that tax is a by-product of making a profit. In this case, the clients didn’t realise the most they will get back is $37,500 – and that the business is still out of pocket $72,500 for an asset they didn’t really need.

The changing roles of accountants
2 years ago, the main topics we discussed at EOFY meetings is how to lower the end of financial year tax. 1 year ago, that topic was how much more JobKeeper or Cashflow Boost can I get and whether my business will survive the COVID pandemic. This year, more and more, I see the words “wealth”, “retirement”, “security” in my EOFY meeting notes.

No longer are accountants judged on whether they can minimise tax the best or keep the ATO at bay. No longer do clients find visiting their accountants an annual chore. We’re now being asked to help with personal budgets, set goals for the future, discuss cashflow, design buffer budgets and in a few recent cases plan cash flows for business owners expecting time off for maternity leave (and how best to manage their interaction with Centrelink and smooth out their taxable income).

Legally minimize taxes
There is nothing wrong or illegal with managing or legally minimizing tax. This could be through using the right structure to income split and lower overall tax, using a corporate entity which holds profits and is taxed at a lower rate, contributing to super (moving from one bucket to another).

Other strategies include prepaying expenses to obtain tax relief in this current financial year (small business corporate tax rate reducing on 1 July), restructuring into a different entity, paying out bonuses early or bringing forward any NEEDED asset purchases.

Having the right entity can make a huge difference when it comes to sell or retire from your business – the goals should be laid out and updated regularly.

Focus on the average tax rate, not the amount
One thing I’ve been working with clients this year, especially those who have had a bumper year and are receiving tax bills higher than ever before, is to focus on the average tax rate. Vary rarely do we see clients go over the 30% average tax rate across their personal/business/super income. Those clients are managed very carefully.
Now consider these examples… which one would you rather be:

a) Earning $200,000 and paying tax at 20% = $40,000; or
b) Earning $1,000,000 and paying tax at 30% = $300,000.
Personally, I would love to be in a position to pay $300,000 tax as I would have $700,000 in my bank.

Reinvest in yourself
Take the previous example of the business owner consider that truck purchase. Rather than buying the truck that didn’t need to be bought, I proposed that we pay the tax and the remaining $72,500 can be reinvested into themselves/business:
– a new employee to take some the stress of running the business and focus on growing the business or go on holidays
– a new fit out to improve staff productivity
– hold onto it and start looking at buying a commercial property rather than renting
– look at purchasing an investment property and generate passive income for retirement
Successful businesses all pay tax. If they didn’t, what is the point?

Higher income = higher taxes = higher borrowing power
Own a small business and want to buy a house – good luck! Since COVID, the hurdles for business owners wishing to borrow have been raised to high jump levels. Banks are now tending to focus solely on taxable income (with adjustments for depreciation etc.) rather than strict financial statement income and are applying far greater scrutiny to all financial information. The banks’ reliance on taxable income is because business owners can shift accounting income, but tend not to push the ATO too much, which requires a level playing field. Cashflow Boost is an example between accounting income and ATO taxable income – many businesses received up to $100,000 profit boost just from the CashFlow Boost, but for income tax purposes and bank serviceability, this was not counted as income.

COVID has delayed purchasing the new family home or investment property, and now we have families needing to move just as prices are increasing. Selling high, buying hopefully not too much higher is now a reality for most upsizers. Take the previous example of delaying the truck purchase of $110,000. The payment of $37,500 of tax, gave a 3x multiplier in borrowing capacity of the foregone expenditure – adding an extra $300,000 in borrowing capacity and being able to purchase a larger home while locking in record low interest rates: ATO happy; Family happy; Bank happy.

Social contract
Previously the idea of a great accountant has been one that will make sure you pay as little tax as possible. Now, the accountant is responsible in assisting business owners meet their social contract – providing employment, being a good corporate citizen and paying suppliers, complying with the law in respect to health and safety, taxes etc. – and being rewarded with not only thankless long hours and risking everything… but a few tax concessions (exempt fringe benefits, income splitting). More and more, the role of the accountant is to work with clients not just towards 30 June, but discussing their family, retirement, and lifestyle goals.
It would not be a complete article if I didn’t mention why we pay taxes. Australia, on the whole is a great place to live. While we all whine at the Sunday BBQ of paying too much in tax, we forget how lucky we are to have a (at most times) functioning Government, health system, education system, and that our wealth is protected (protected by law, the police, the courts and even from rampant inflation).

So the next time you’re concerned about paying too much tax, look at your average tax (not the dollars), look at whether the expenditure is actually needed, and whether you can leverage the profit to build wealth outside of the business.

Michael Konarzewski is a partner of Jigsaw Tax and Advisory.

Over the last few weeks, we have been sending out FBT returns for signing. In nearly all cases, there is no amount payable. So what’s the point?

FBT was brought in as an additional tax regime in 1986. The purpose was to provide a taxing point for ‘non-cash’ benefits outside an employee’s normal salary. The objective was to return these non-cash benefits to a pre-tax point, and using the top marginal rate as the base tax rate. Non-cash benefits are quite wide ranging and can include:
– a company car being provided to an employee or an associate (child, spouse, parent etc.)
– a low finance loan
– food and entertainment (onsite or externally)
– carparking spot (which would otherwise be paid from post-tax income)
– paying rent or someone’s mortgage (sometimes allowed for not-for-profits)
– many other defined fringe benefits
– residual benefit is a catch-all clause that if something isn’t provided as cash, it can still be a fringe benefit.

The most common fringe benefits provided in a small business are motor vehicle and exempt motor vehicle benefits.

The FBT year ends 31 March 2021 (to make our lives easier?!), hence we are preparing your FBT returns now for 30 June 2021 tax returns.

Motor Vehicles

Unlike individual/sole trader/partnerships, which rely on the logbook method or cents per KM, in a company or trust (where the owners are usually deemed employees), expenses related to a vehicle owned by the company/trust are claimed 100%, even if its your 4WD you only go camping in or to the shops (i.e. 100% personal use).

But rather than having to pay tax of around 47% (top marginal rate inc. medicare), the Government provides some concessions for low business use motor vehicles, where the annual fringe benefit is calculated at 20% of the car value when purchased (high business use can still use logbooks under the operational cost calculation)

Say you buy a Mazda3 for $30,000, the ATO will deem that the value of the fringe benefit, regardless of how many business or personal kms travel, is $30,000 x 20% = $6000. The physical payment required to the ATO would be $6000 x 2.0802 x 47% = $5,866.16 in fringe benefits tax.

So why don’t you need to pay?

Once the fringe benefit component is calculated on your car, there are two options:
– pay the amount, or
– report the fringe benefit as an income contribution from the owner/employee on the business tax return – i.e. the fringe benefit has been “zeroed” out and no FBT is payable

We prefer the latter, as it allows applying losses/deductions/franking credits against the liability, rather than making a direct payment to the ATO.

Exempt Vehicles

FBT does not apply to exempt vehicles (utes, vans, trucks etc.) but it is still important to disclose to the ATO that you have considered any potential or minor private use, and advise how many exempt vehicles are in your business.

Controlling an ATO Audit

As many of our client know, our Canberra partner, Michael Konarzewski was an ATO auditor and spent some time auditing FBT. One lesson he has implemented is that without an FBT return lodged in good faith (i.e. no material misstatement), the ATO’s audit powers are essentially unlimited. By lodging a NIL payable return, with the correct amount of motor vehicles and exempt vehicles in the return, the ATO’s period of review is curtailed to only 2 years from the date of lodgement.

Michael’s strong recommendation is that even if the FBT contribution is disclosed on the income tax return separately, that an FBT return be lodged. A common flag for the ATO is reviewing the motor vehicle deduction label and the FBT Employee Contribution labels or FBT return.

Michael has been involved in cases where there has been a review of motor vehicle expenses and the private usage component by the ATO. In one case, as no FBT return was lodged, the ATO imposed 6 years of FBT, as the logbooks were not correctly prepared and the taxpayer couldn’t rely on the operational cost method. Had the taxpayers lodged FBT returns, prepared in good faith on the incorrectly prepared logbooks, the ATO’s period of review/amendments would be limited to 2 years.

An FBT return is cheap insurance, especially with the ever-shifting rules for exempt vehicles on allowable personal kilometers and exempt trips.

Crypto in 60 seconds
Crypto currencies (e.g. BitCoin, Etherium, etc.) can be treated in 2 ways:
– Capital Assets (CGT rules apply)
– Revenue Assets (Trading stock rules apply)

This brief guide focuses on what things taxpayers need to consider regarding Crypto CGT assets, and does not delve in high Crypto volume trading and profit making schemes, or Crypto being used in a business (e.g. accept payments).

Below, we’ve summarised a few of the common situations:

$ > Crypto
If you’ve recently converted fiat currency (e.g. Australian or US dollars) to a crypto currency (e.g. BTC), and are holding crypto as an investment, no taxing point has occurred. You have simply acquired a CGT asset, just like a share or a property. At this point, you cannot claim anything spent to acquire that asset, but it may reduce a future capital gain

$ > Crypto > $
If you’ve previously purchased a parcel of crypto currency and have sold it during the financial year – you have triggered a CGT Event A1 and will need to calculate your gain or loss on that parcel. The 50% CGT discount may apply if you’ve held the parcel for over 12 months and you’ll also be able to include some costs (e.g. brokerage). If you don’t sell all of your crypto, you’ll need to calculate the cost base for the portion that was sold, and the remaining amount will be counted against the crypto still held.

$ > Crypto > Crypto > Crypto or $
If you’ve purchased a common crypto currency (e.g. BTC), then purchased another currency (e.g. DOGE), then returned back to BTC or converted to $ you will have triggered 2 x CGT Event A1. The ATO regards each transaction of crypto as a disposal/acquisition (not when converting to fiat currency like AUD), which need to be individually calculated:
1) Profit/loss on BTC when transferring to DOGE
2) Profit/loss on DOGE when transferring back to BTC or $

We recommend using specialist software (e.g. Koinly), and importing all your wallets to match transactions and determine a spot value for the individual transfers.

Some of the issues we’ve recently seen:

1) Large gain in an ALT coin converted to BTC (e.g. $1m profit). ATO is taxing the large gain, but client doesn’t have cash. Recent drop in BTC may cause cashflow issues: BTC now valued at AUD$700,000 but client has a tax bill of close to $450,000. Capital losses need to be carefully managed coming up to 30 June 2021. Be aware of ATO’s Part IVA anti-avoidance wash rules.

2) Lots of trades between crypto currencies. Clients will need specialist software to calculate the profit/loss on each transfer, as no single trading platform available (e.g. CommSec for shares)

3) Individuals may be treated as a business due to high volume of trade. Adverse tax consequences regarding trading stock rules at 30 June 2021.

4) Superannuation funds investing in crypto. We see a few issues here: too much invested (fail sole purpose test), wallets not correctly set up (e.g. not in the legal name of the SMSF), wallets not segregated from personal funds, SMSFs mining crypto, deed does not allow investing in Crypto, investment strategy needs to be updated. Note most financial planners and accountants will not give advice on the suitability and application of crypto investments in an SMSF. Tread carefully in this space as breaches will need to be reported by the auditor to the ATO.

The advice is general in nature and no warranty is provided by Jigsaw Tax and Advisory. If this applies to your situation, please seek professional advice from a qualified person.

The NSW Government have released a new small business grant that is in place from April 2021 until 30 June 2022.  The grant is to relieve eligibly businesses of some of the licence fees and charges that the NSW government impose on businesses.

Before you get too excited, although the grant is for $1500, it is not money that will get put into your bank account.  If eligible, you will receive a credit of $1500 in your Service NSW account and you can use this credit against future charges.  You do not need to use it all at once.  You can just take up the credit as the licence fees are levied on your business.

To be eligible you need to have an ABN that is registered or physically located in NSW.  Your total Australian wages need to be under $1.2 million (the NSW Payroll tax threshold).  You need to be registered for GST and your turnover needs to be over $75,000 per year.  You will require a confirmation letter from your accountant prior to lodging your application.  Sole traders are eligible for this rebate, you do not need to be employing staff.

While an extensive list of applicable licence fees and charges is not provided, the website says that the rebate is eligible for any state government fees and charges, with the exception of those specifically excluded.  Remember this is just for state government charges, not to be confused with the federal government charges.

Excluded fees and charges include fines and penalties, NSW or Commonwealth taxes, rent on government premises and fees and charges that are designed to discourage or induce behaviour changes (such as parking space levies or clean up notices).  For the full list of exclusions I suggest you read the scheme guidelines at the link below.

https://www.service.nsw.gov.au/small-business-fees-and-charges-rebate-guidelines#eligible-businesses

Included are trade licences, food authority licences, council rates and it would seem business registered motor vehicle registrations.

This is definitely worth looking into if you are an eligible small business or not for profit organisation.  Like other state government grants, they are heavily audited and you will need to have all your documents ready when you make the application, so read the guidelines and get your paperwork together, and if you are comfortable that you comply, go ahead and make the application.

https://www.service.nsw.gov.au/small-business-fees-and-charges-rebate#eligibility

Please note if you are a client of Jigsaw Tax we will be charging a nominal fee to prepare the letter for this application.

Most of you would have heard of Franking Credits.  You might know that it is something to do with tax, company shares, and important enough to significantly impact the Australian election results in 2019 when Labor’s policy pledged changes to their tax treatment.  Do you really understand what they are?

I am going to try to explain this as simply as I can which is not going to be easy.  Stick with me to the end and you will hopefully understand them a little better.

Franking Credits relate to companies.  While you may hear of franking credits in trusts and superannuation funds, ultimately they are the result of an investment in a company.  We will just stick to companies for this article.

A company has shares.  The owners of the shares collectively are the owners of the company.  This means that the shareholders have a right to share the profits of the company that they own. The way that shareholders share in the profits of the company is by way of a dividend. A dividend can be franked or unfranked, but we will talk about that difference later.

Let’s consider a very basic company that has one shareholder.  It trades for the year and makes a profit of $1,000.  Let’s also assume for the purposes of this exercise that the company is taxed at a rate of 27.5%.  There are other factors to consider but we are keeping this very simple.

Profit:                                $1,000

Tax on Profit                    $275

Profit after tax                 $725

If the shareholder wants to draw a dividend on this profit, they have $725 that they can physically take out of the business because that is all that is left after the tax has been paid.

A franked dividend is drawn for $725 and this will be taxable income to the shareholder in the year that the dividend is paid.

When the shareholder prepares their tax return they report that they have been paid a franked dividend of $725.  The franked dividend has a franking credit for the tax paid by the company, so the franking credit is $275.  In the tax return both the dividend and the franking credit are added together and become taxable income to the shareholder.  The shareholder would have $1,000 in taxable income even though they only physically received $725.

Tax is then calculated on the shareholders total taxable income, including the dividend.  The shareholder then gets a credit for the franking credit against the tax calculated.

As an example, the shareholder’s other income is $130,000 so they have a marginal tax rate of 37%.  We need to add a 2% Medicare levy to this, so their true marginal rate is 39%.

$1000 x 39% = $390. This is the additional tax that will be payable due to the dividend.

A credit of $275 will be applied due to the franking credit.

$390 – $275 = $115 which is the additional tax that will be paid on the dividend.  It is not as much as the shareholder’s marginal tax rate, but it is not “tax free” either.  Many people think a franked dividend is tax free and that is not true.

Now assume the shareholder had very little income so that their total income (including the dividend) is below the tax free threshold.  Tax on the $1,000 dividend is nil, but the $275 credit will still apply.  The shareholder would get back the full franking credit of $275.  Happy days.

The two biggest groups on a low a tax rate are retirees and superannuation funds.  A self-managed superannuation fund with its members in pension mode has a 0% tax rate.  Franking credits are gold to retirees who have structured their investments effectively. Any wonder taking them away was an election issue.  The Labor party have now released a statement that they will not be suggesting any policy changes to franking credits in the future.

There is a lot more to this, particularly as income tax rates are changing and to draw a dividend a company needs to have paid tax and have a distributable surplus (in other words have retained earnings in the business – or more assets than liabilities), but that is for your accountant to help you determine.

If tax has not been paid on the profits a franking credit cannot be applied to the dividend.  In this case a dividend is unfranked, and it is taxed as normal without any credits.

The rules are pretty much the same whether your shares are in a listed company (such as Telstra) or your own Pty Ltd company.  The tax rates may be different as listed companies will have a 30% tax rate, but the principles on how the dividend is taxed in the hands of the shareholder at the same.

Important to remember:

·       A franked dividend is grossed up (the physical amount received plus the franking credit) so you are paying tax on the full amount of profit that the company would have earned before tax, and effectively getting a credit for the tax the company paid on that profit.

·       The company needs to have paid tax to the ATO before it can draw a franked dividend.

·       A company needs to have sufficient retained earnings to draw a dividend.

·       A dividend is taxable in the year that it is paid, not when it is declared.

It is a difficult concept but hopefully this has helped you to understand franking credits a little more.

The ATO like other businesses release an Annual Report, and one of the elements explored in this report is the Tax Gap.  The details for the 2017-2018 year have recently been released and they show some interesting facts.

The Tax Gap is an estimate of the amount of tax collected by the ATO, and the amount that should have been collected if all tax returns were lodged correctly, to the letter of the law.  The latest figures look at 15 different tax areas, providing the most comprehensive analysis so far.  The Tax Gap has been calculated at $31 billion, or 7% of the total expected tax collection.

 

The ATO have identified the three reasons that a Tax Gap can exist:

·       Reporting is different due to a misunderstanding

·       Reporting is different by choice

·       Reporting is different due to a different interpretation of the tax law.

 

While the Tax Gap is essentially an estimate, the ATO have many tools available to check the data we report and come up with this estimate.  Realistically we will never have a zero Tax Gap, but the aim is to improve this gap each year.  The trend does indicate that the gap is improving, and improvement comes from the ATO understanding where to target their compliance activity.  As a small business owner, this is something you should be a little concerned about.

 

The largest contributor to the Tax Gap is Small Business, with a Net Tax Gap of 11.5%, or $11.1 billion.  The ATO define a small business as a business with a turnover of less that $10 million, and includes companies, trust, partnerships and sole traders.  There are over four million such entities in Australia and it is likely your entity fits into this category.

What this means is that small business will continue to be seen as a risk area and will continue to be a target for audit activity.  We have had a hiatus on audit activity since COVID-19.  The ATO have been extremely lenient and compassionate, but don’t expect this to continue into 2021.  We are already seeing audit activity regarding the stimulus packages, and we will soon start to see other compliance activities resuming.

The ATO have been quite specific about their observations, giving us a clue as to the audit targets. Straight up they have identified the Shadow Economy as the main contributor to the Small Business Tax Gap, with 68% of the gap ($6.7 billion) being due to omitted income.  Just a reminder that undeclared “cash” jobs are part of the shadow economy.

 

The other main observations are that small business owners may fail to account for the private use of business assets, and that small business owners may have inadequate record keeping system, and may fail to keep the required documents.

Think about your business.  Are you a target for this kind of activity?  Now is the time to get your house in order before the ATO come knocking on the door.  If you are doing everything correctly you have nothing to worry about.  The ATO have more and more information at their finger tips and can target audit activity.  Don’t get caught out.

 

The information for this article came from the ATO website. For more information use this link https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/

Unlike most other stimulus measures the Government has announced, the JobMaker Hiring Credits have been more scrutinised by our politicians.  The Bill to introduce the scheme has been referred to a Senate Committee and we are expecting a report on 6 November.  When you look at the details of this scheme, you can see why it is being questioned.

The intention of the JobMaker Hiring Credit was to incentivise business to create jobs and hire our unemployed youth.  In theory, this is a lovely idea, but when you start looking at the practicalities of this, we start to see flaws that may have not been immediately evident on Budget night.

If you think back to Budget night (as I am sure it was the highlight of your year), the JobMaker Hiring Credit was something that has not been leaked, and was no doubt meant to be a headline item.  The scheme is estimated at $4 billion and expected to create 450,000 new jobs.  The budget speech announced the basics; a credit of $200 per week for eligible employees aged 16-29, and $100 per week for those aged 30 -35.

Almost instantly questions were being raised about how to take advantage of this extra money.  Can one new full time job be broken into two part time jobs so that more funds are received?  Would this result in a “clearing out” of older employees, replacing them with younger employees?

There was also a lot of talk about the government missing the target by applying the credit only to people between the age of 16-35 who had been on either Jobseeker, Youth Allowance (other) or Parenting Payment.  What about the unemployed who do not fit into that criteria? Isn’t this going to make get a job much more difficult for those who are not eligible for the credit?

Now that the Parliamentary Bill is available we have a much better understanding of how it may be difficult to get access to this money.

Conditions that must apply

The employer must:

·       Have an ABN

·       Be up to date with their tax lodgements

·       Be registered for PAYG Withholding

·       Report through Single Touch Payroll

·       Create a new job for more than 20 hours a week.

·       Make sure the new employee works an average of 20 hours per week over the quarter.

·       The ATO will be monitoring your headcount and it needs to be greater than the headcount for the 30 September payroll.

·       You cannot get Jobkeeper as well as the JobMaker Hiring Credit.

The employee must have been on JobSeeker (not JobKeeper), Youth Allowance (Other) or Parenting Payment for at least 1 of the 3 months before you hired them.   You cannot have hired them prior to 7 October 2020.

Who is not going to benefit

There are a number of small family businesses who have elected not to use Single Touch Payroll.  They will not be eligible.  Neither will the many businesses who are not up to date with their lodgements.  Realistically, this is an incentive to get up to date with your taxes and start to use Single Touch Payroll.  Single Touch Payroll is eventually going to be mandatory for everyone, and having your taxes up to date is a legal requirement.

Of more concern in my mind is that employers are incentivised to choose one potential employee over another, purely because of this payment.  They may not be the best person for the job.  The employer may be excluding someone as much in need of the job, who may do the job better.  I understand why the employment groups are raising concerns.

Not everyone who is unemployed is on JobSeeker.  Young people who try to obtain Youth Allowance are subject to income tests based on their parent’s income.  Likewise, not all people on JobSeeker are under the age of 35.  There are many people between the ages of 36-65 who are unemployed and I question why their right to work is less important than that of our younger people.

How it will work

The credit is available for 1 year and will be administered through the ATO. Claims will start to be paid from February 2021 and will be paid on a quarterly basis.  Whether this money is used to offset PAYG Withholding obligations (like Cashflow Boost) is yet to be seen, but I imagine that would be the simplest way to administer the payment.

Doing the math, the payment will be either $10,400 or $5,200 (depending on the age of your employee) if you manage to maintain the employee and extra position for the full year.  It will definitely help some employers, but is it really going to make you create a new role?

If you are interested in applying for the JobMaker Hiring Credit make sure you get your facts straight.  Make sure your business is eligible.  Make sure the employee is eligible.  Make sure you have created a new job.  If these things all genuinely apply, then please make the most of this.  There are a number of unemployed young people who are eager to work, and hopefully the right one is waiting for your job.

I am craving a time when our world is not all about COVID-19, and our work as accountants is not consumed with Jobkeeper changes, but that time seems a long way away. As my inbox continues to be filled with questions about Jobkeeper I think it is time for another update.

We were eagerly awaiting the legislation for Jobkeeper 2.0 to be introduced to parliament last week so that we could gain some clarity, however the legislation that was introduced failed to provide the answers we were seeking. It is clear that the government is going to take a more cautious approach with Jobkeeper 2.0. The Bill that was introduced only provided for an extension of the Jobkeeper scheme until 28 March 2021.

The Bill also provided extensions to Fair Work concessions for Jobkeeper qualified employees while also extending the concessions to “legacy” employers. Legacy employers are those who are currently on Jobkeeper 1.0 but will fail to meet the 30% decline in turnover test required to access Jobkeeper 2.0. They will still be able to a apply the Fair Work concessions if they have demonstrated a 10% or more decline in turnover in the September quarter.

Retesting for Jobkeeper 2.0

As mentioned above we are still waiting on clarification of testing for Jobkeeper 2.0 which is the extension of Jobkeeper beyond 28 September. You do not need to retest for Jobkeeper until then.

Although you need to report your turnover on a monthly basis as part of Jobkeeper 1.0, you are not doing this to pass any tests. It is just reporting. You have qualified for Jobkeeper 1.0 and you continue to be eligible for Jobkeeper 1.0 until the 28 September 2020. Your last payments will be received in October.

To continue after 28 September you will need to retest. If you pass this new test you will get Jobkeeper 2.0 until 3 January 2021. The rates will be reduced for Jobkeeper 2.0 to a two-tiered system of $1200 per fortnight or $750 per fortnight depending on the number of hours worked. An explanation on the “hours worked” test is below.

There will be another retest for the period 4 January 2021 – 28 March 2021 with the payment rates dropping to $1000 per fortnight and $650 per fortnight based on the two-tier system.

What we know is that the retest will be based on your turnover for the September quarter. The indications are that this retest will be comparing your Business Activity sales figures (G1-1A) between quarters. No doubt there will be some alternative tests available but I believe the testing criteria will be more defined for Jobkeeper 2.0. You will be required to retest for the January- March payment based on your December quarter turnover.

The expectation is that many businesses who qualified for Jobkeeper 1.0 will not qualify for Jobkeeper 2.0. 60% of the participants are expected to come from Victorian businesses. Unless you are in a highly impacted industry (such as travel or entertainment), you have probably seen sufficient recovery to not qualify for Jobkeeper 2.0.

My suggestion is to have a look at the BAS you lodged in September 2019. Work out the reduction of 30% that you would need to meet to qualify again. See where you are up to now, and see if there is any likelihood of qualifying for Jobkeeper 2.0. If not, forget about it. It is not designed for any where near as many businesses as Jobkeeper 1.0.

The Two-Tiered Payment Criteria

If you are eligible for Jobkeeper 2.0, the amount of payment will depend on the average hours that were worked in the business over a four week “reference”period. That period will be either the 4 week pay periods prior to 1 March (so February) or 1 July (so June). If the employee qualified from 1 March they take the highest of these four week period averages.

Based on the average calculated the employee will either have worked more than 20 hours, or less than 20 hours, and the payment amount will be based on the tier they fit into.

This is the same for business participants. If you are claiming Jobkeeper 2.0 as a business participant, you will need to determine the hours you were actively engaged in the business in the reference period to work out which level of payment you will receive.

Still more questions

Of course we have many questions that still need to be answered. With Jobkeeper 1.0 we anticipated the issues, anticipated the answers and then were frustrated when the rules were changed over and over again. This time, we wait for clarification.

Yesterday, Tuesday 21st of July, the Prime Minister Scott Morrison and Treasurer, Josh Frydenberg have released details for the much touted Jobkeeper extension program.

 

Jigsaw Tax will await the formal legislative governance set to be provided by Treasury in the Economic Release due on Thursday, 23rd of July 2020 before advising on the implications of the Jobkeeper 2.0 program for our clients. As in the first program, we anticipate there will be a substantial volume of information and legislation to digest before being able to advise on the matter. Please bear with our team while we work through this.

 

We wish to assure clients that the Federal Government has advised that the current Jobkeeper program will continue unchanged to its legislated conclusion of 27th of September, 2020.

 

We look forward to working with you on your regular compliance work in the meantime and thank you for your continued support during what has been proved to be a difficult year for business owners.

 

For up to date information, please ensure you tune into Jigsaw Tax’s Facebook feed where we regularly provided links to webinars, discussion forums, and podcasts on the rapidly changing Australian business landscape.

 

We thank you for your patience as we all navigate our way through this changing climate and we look forward to helping you with all your requirements.

 

The Jigsaw Team.

Love them or hate them, Tradies almost certain started their career as an Apprentice.  It may be challenging to employ a young person and teach them your trade, but there are some advantages to hiring apprentices in your workforce.

In March 2019 there was 276,250 workers in training making up 2.2% of the workforce.  In the 12 months prior to 31 March 2019, 73,650 trade apprentices commenced their apprenticeship.  While the figures may be a little different this year, there is no doubt that the government want you to employ apprentices and they are key to keeping youth unemployment manageable.

The COVID-19 recovery is going to be led from the construction industry.  Construction was one of the few industries that could continue to work during the COVID-19 lockdowns but this doesn’t mean the industry has not been impacted.  We know that many projects were cancelled or delayed, and a large number of construction businesses are receiving support for employees through Jobkeeper.  However, one proven way to stimulate an economy is to create large infrastructure projects, and clearly that is part of the plan of our federal and state governments.  These projects last for years, providing many jobs. This in turn allows those employed on the projects to spend in other sectors of the economy, helping with the recovery.

However, in order to execute these projects our country needs a skilled workforce.  The way to skill up the workforce is to encourage apprenticeships.  The stimulus packages announced in March contain incentives to retain apprentices and this incentive has just been extended.

In the first round of stimulus measures there were incentives for small businesses to retain their apprentices by providing a 50% subsidy on the wages of qualifying apprentices of up to $7,000 per quarter.  To qualify the business needed to employ fewer than 20 people and the apprentice needed to be signed up by 1 March 2020.  The original measure was to run until 30 September 2020, providing a maximum of $21,000 per employee.

Recently the government announced that this was to be extended to 31 March 2021.  It is also available to medium employers with 199 or fewer staff.  To qualify the apprentice needed to be signed up prior to 1 July 2020.  This will be a great benefit for those who are getting Jobkeeper for their apprentices.  There will be something to encourage you to retain them when the Jobkeeper measures come off at the end of September.  You have until 1 October to lodge your claim, so while you can’t get both Jobkeeper and the subsidy at the same time, you can be prepared for October.

If you don’t have an apprentice already, the good news is that you can hire an apprentice who had qualified with the 1 July 2020 sign up date but had been let go.  If you hire one of these apprentices you can continue to get the subsidy regardless of the size of your business.

Note, these measures extend to employees obtained through Group Training Organisations, which may make it easier to find a qualifying apprentice.

There are other incentives available based on the industry you are in and the apprentice you take on.  If you are interested, I suggest you find out more information from the Australian Apprenticeship website.

https://www.australianapprenticeships.gov.au/aus-employer-incentives

Remember that rebates are applied for apprentices for both workers compensation and payroll tax making them a cost effective form of labour.

Still not sure?  Why not speak to a Group Training Organisation.  They employ the apprentices and hire them out, taking on the management and risk of the apprentice.  If you are not sure if you need an apprentice for the entire term of their apprenticeship, or not feeling confident with the recruitment process, this could be the perfect option for you.

Times are tough and everyone is struggling right now but finding a good quality apprentice may be the key to getting through this difficult time.  Give someone a chance to learn your trade. Our country is counting on it.