What should we be aware of?

With all the work done by the government to stimulate the economy there is a price to pay. Our political leaders don’t seem keen to talk about it just yet – but they may have to in the lead-up to the next federal election.

The cash balance

The federal government’s underlying cash balance in 2020-21 is now expected to be a deficit of almost $198 billion, but the good news is this is a $16 billion improvement since the 2020-21 Budget.

The underlying cash balance is expected to improve over the forward estimates to a deficit of $66 million in 2024, and further improve to a projected deficit of $46 billion in 2031, 10 years from now.

Our ageing population

By 2031, many of us will be in our 70s. It’s hard to see interest rates on government debt staying so low for another decade. Older Australians will rely heavily on our younger workers, because we have an ageing population. The NSW median age is up from 29 in 1976, to 37 in 2015, and will rise to 41 in 2056.

As the population ages, workforce participation declines and the rate of economic growth naturally slows. There will be fewer younger workers and business owners supporting older people and funding the enormous range of other things governments provide.

It is worth talking about these so-called inter-generational issues impacting young Australians now.

Try these curly questions at your next extended family dinner:

• Would you be happy to pay an aged care levy to deliver on the 148 recommendations in The Final Report of the Royal Commission into Aged Care Quality and Safety?
• Do you agree with the recent Retirement Income Review Final Report policies that encourage people to “optimise” their retirement income, which could include accessing equity in the family home?
• What do you think about retirees who are reluctant to draw down their savings in retirement: are you happy to see their ‘nest eggs’ passed on down the family tree?

Remember, around 71% of people aged 65 and over receive the age pension (60% of these on the maximum rate) and for most of these households, the family home is not counted as an asset for pension purposes.

On the other hand, let’s look at tax.

• As taxpayers do you think our personal tax rates are fair? Few point this out, but 47% on every dollar earned over $180,000 is actually high by world standards.
• Would you agree to forego deductions for more tax cuts? If so, which ones?
• And if you think more of the heavy lifting should be done by consumption taxes, what’s your position on a GST rate increase, or expanding the GST base to cover a broader range of items such as fresh food?

Sooner rather than later, our community needs to have a chat about long-term fiscal sustainability, Australia’s ongoing ability to fund the services we’ve all come to expect.

In the meantime, keep working hard you young Australians!

What are some of the upcoming changes and challenges for business?

There are a number of changes and challenges for business to discuss back at the office or at home.

Remember, none of this information constitutes advice so always seek expert input from your accountant.

Did you claim JobKeeper correctly?

The ATO has an Integrity Unit out and about checking up on employers and business operators who claimed JobKeeper. Keep all documentary evidence of your eligibility, including turnover decline calculations.

Paying back JobKeeper

Did your business get JobKeeper but the estimated downturn in turnover didn’t eventuate? The JobKeeper claim was legitimate but some of these employers want to pay back JobKeeper on moral grounds.

There are actually no income tax legislative rules for paying back JobKeeper. The ATO says treatment is “fact dependent” (for example it could be seen as a promotional expense and thus deductible). The best practical solution is to give back 70% and not claim the deduction.

JobMaker

The JobMaker Hiring Credit scheme enables eligible employers to receive payments of up to:

• $200 per week for each eligible additional employee aged 16–29 years; and
• $100 per week for each eligible additional employee aged 30–35 years old.
• Registration for the scheme opened through the ATO on February 1, 2021.

Apprentices

Hopefully some of you are in a position to hire apprentices, a group so important to Australia’s pipeline of skilled tradies. You’ve probably heard about the Boosting Apprenticeship Commencements wage subsidy. This provides any business or group training organisation that engages a new or continuing apprentice or trainee between October 5, 2020 and September 30, 2021 with a subsidy of 50% of wages for a 12-month period, up to a maximum of $7,000 per quarter.

The good news is that the prime minister has announced that the program will now become “demand driven” and expanded for a full 12 months for new apprentices and trainees signed up prior to September 30, 2021.

HomeBuilder

If you or someone you know may be eligible for the HomeBuilder grant for new builds or substantial renovations, get your skates on. Applications must be received by no later than April 14, 2021.

State government changes to be aware of

It’s not all about the federal government.

• Payroll tax concessions for JobKeeper are coming to an end this month. Check you’ve claimed any exemptions correctly.
• The November 2020 NSW Budget gave employers a reduced payroll tax rate of 4.85% (down from 5.45%) from July 1, 2020 until the end of June 2022. The payroll tax threshold also increased from $1 million to $1.2 million from July 1, 2020.
• As a landlord, have you reduced rent for a residential or commercial tenant? Some land tax relief for 2020 was available but deadlines are looming.
• Commercial landowners with retail leases for small business tenants may be eligible for land tax relief from January 1, 2021 to March 28, 2021.
• Those of you in the property and construction sector with the capacity to build at least 50 dwellings should check out the NSW Government’s build to rent land tax incentives.
• For any residential property you rent out and your tenant hasn’t been able to pay the rent, note that the temporary residential rental eviction moratorium expires on March 26. Be mindful of all the rules and regulations that apply here.

Income tax – business issues

Temporary full expensing

The federal government wants Australian businesses to open their wallets and invest, so it has legislated an immediate, 100% deduction for the cost of eligible depreciating assets. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on October 6, 2020 and June 30, 2022.

There are two ways a taxpayer can access the temporary full expensing measure – under the primary test which applies to ‘small business entities’ with turnover under $5 billion or the alternate test which applies to ‘corporate tax entities’ with income under $5 billion.

In preparing your 2021 income tax return, your accountant will want to discuss whether you choose the immediate expensing route.

Tax loss carry back offset

Your accountant may want to talk to you about claiming a refundable tax offset up to the amount of the previous income tax liabilities. There are a number of eligibility conditions.

Your company must have less than $5 billion turnover in a relevant loss year, being the 2019–20, 2020–21 and 2021–22 income years. The loss can be carried back and applied to a prior year’s income tax liability in the 2018–19, 2019–20 and 2020–21 income years.

The tax offset is limited by reference to the income tax liability in the profitable years and the franking account balance.

This measure commences on January 1, 2021 and eligible companies can claim the tax offset in their tax returns for the 2020–21 and 2021–22 income years.

So don’t be surprised if your accountant asks eligible clients to fast track preparation of their 2021 company tax return, the aim being to get the refundable tax offset into your hands ASAP.

FBT car parking exemption – good news and bad news

The good news – FBT changes in the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020, effective April 1, 2021, will result in many employers now qualifying for a car parking fringe benefits exemption, where previously they did not. These amendments allow entities with an aggregated turnover of less than $50 million (previously $10 million) to be eligible for what’s generally called the small business FBT exemption for car parking benefits provided to employees.

The bad news – the commissioner’s new draft ruling on car parking fringe benefits (TR 2019/D5), which will replace TR 96/26 once finalised, now recognises that a car park, which satisfies all other requirements, can still be considered a ‘commercial parking station’ even if:

• Its contractual terms restrict who may use the car park, provided any member of the public that accepts these restrictions can use the car park;
• Its fee structure discourages all-day parking with higher fees.

The implication is that public car parks attached to hospitals, shopping centres and universities could potentially be a commercial car park. If these are in an employer’s one kilometre radius, a car parking fringe benefit may arise.

Draft ATO guidance on profit allocation by professional firms

The ATO has released long-awaited draft guidance on its proposed compliance approach to the allocation of professional firm profits. The preliminary guidance is contained in the draft Practical Compliance Guideline PCG 2021/D2. The ATO has also released a fact sheet ‘Assessing the risk: allocation of profits within professional firms’ (QC 42218). The draft guidelines provide a series of “gateway tests” and risk factors to consider when determining the risk that a firm’s structure will be targeted by the ATO.

If you’re a professional operating an accounting, legal, medical, architectural, engineering business – you name it – talk to your accountant about how the ATO guidelines impact your business structure and profit allocation.

Superannuation

The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced into Parliament on February 17, 2021. It targets three areas:

• Single default accounts
• Underperformance in superannuation
• Best financial interests’ duty.

Single default accounts

On or after July 1, 2021, in the absence of a new employee choosing a superannuation fund, an employer must determine whether that new employee has a “stapled fund” and, if a stapled fund exists, contributions should be paid into that stapled fund instead of paying into the employer’s chosen default superannuation fund.

Superannuation Guarantee increase

The SGC rate is legislated to increase from 9.5% to 10% on July 1, 2021, and gradually increase to 12% by July 1, 2027.

The government is expected to make a decision on whether it supports this increase in the federal Budget, scheduled for May 11, 2021. Note that any deferral requires amending legislation.

Increase in SMSF numbers

Also before Parliament is legislation for SMSFs to increase the maximum number of members from four to six.

There are some sensitive pros and cons to discuss with your adviser about this, but in principle, the measure is designed to provide greater flexibility for joint management of retirement savings, and:

• May aid in preventing elder financial abuse where instead of one child assuming control of the SMSF, more of the family could be involved.
• Allows for succession planning (i.e. drawdown from partners/older generations accounts and re-contribution from younger family members to retain business real property for example).
• Allow larger families to include all members (up to 6) in the same fund.
• High net worth individuals will also be able to plan for their children’s future by making contributions into a child’s super account. The changes will ultimately result in increased funds being deposited and retained in super and therefore taxed concessionally.

Talk to your SMSF adviser. You have time. It is currently proposed that the law will take start from the first day of the quarter after it receives royal assent.

Insolvency reforms

The federal government is making significant changes to Australia’s insolvency framework, designed to reduce costs, cut red tape and help small businesses recover from the pandemic.

The main reform is the introduction of a new, simplified debt restructuring process, drawing on key features of the Chapter 11 bankruptcy model in the United States. These measures apply to incorporated businesses with liabilities of less than $1 million.

NSW Government – proposed changes to land tax

Participate in the debate: would you prefer an annual property tax as an alternative to stamp duty in NSW? Last year, NSW announced a proposal to transition from the up-front payment of stamp duty to an annual property tax. The proposal is contained in the NSW Government’s 2020-21 Budget and was subject to a public consultation process until 15 March 15, 2021.

The NSW Government will review the submissions and report its outcomes in mid-2021.

What’s the proposal?

• Purchasers will have a choice to “opt-in” to pay an annual property tax, or to pay up-front stamp duty plus any ongoing land tax, if applicable. A purchaser will have to decide which tax system best suits their circumstances. Importantly, once a property has been opted-in to pay annual property tax, it will be subject to property tax for all future transactions.
• Initially, purchase price thresholds will apply to limit the number of properties eligible to transition (according to the NSW Government, approximately 80% of residential and 95% of commercial property could be eligible to opt-in). Properties above the price thresholds will still be subject to stamp duty during this initial stage. This is intended to minimise the impact on state revenue during the transition, whilst the state prepares to gradually include all property in NSW.
• The proposal also ensures that protections apply so that property tax does not result in rent increases without a tenant’s agreement. A hardship scheme would recognise that taxpayers’ financial situations can change over time and ensure that no one facing hardship needs to sell their home to meet property tax liabilities.

Proposed property rates

Under the proposal, residential owner-occupied and primary production properties will pay lower rates than residential investment properties, which in turn will pay lower rates than commercial properties. The following table 12 extracted from the NSW Consultation Paper outlines the indicative property tax rates that could be used if the proposal is adopted.\

Property Type	Currently liable to stamp duty?	Currently liable to land tax?	Potential property tax rate
Owner-occupied residential property	YES	NO	$500 plus 0.3% of any unimproved land value
Primary production land	YES	YES	$0 plus 0.3% of unimproved land value
Investment residential property	YES	NO	$1,500 plus 1% of unimproved land value
Commercial property	YES	NO	$0 plus 2.6% of unimproved land value

Thanks to Pretium Solutions for hosting Michael Croker and the Chambers March Business Lunch.