If you’re a small business owner, it’s crucial to always have an accurate understanding of its financial health.
The long-term success of your business could depend on you having the right information at the right time, so that you can act on it in the right ways.
By their very nature, small businesses usually have less financial information available to them. Larger companies tend to have bigger budgets for their bookkeeping and accounting expenditure. Public companies even have to release their official financials to the public.
But there are some standard metrics you can use to assess the financial health of a small business. Here is our list of performance metrics we recommend using when assessing the financial health of your small business.
Profitability is one of the most important metrics to measure a small business by. Whether you’re considering buying a business, or need to assess the health of your own, profitability is key.
Put simply, profitability is a measure of the money left over after the essentials have been paid for. The profits are nothing more than the difference between the revenue and the costs of a business.
Costs can include wages for employees, the cost of buying and maintaining equipment, expenses for sales and marketing, and other similar business costs.
A small business may appear healthy – such as having a strong pipeline of orders coming in, or a rapidly growing customer base – and yet be haemorrhaging money. Other businesses may be sitting on strong fundamentals and have laid the foundations for long-term growth and success.
Profitability is the cleanest snapshot of financial health that a small business can have, and one of the most critical metrics to assess small business financial health.
Liquidity is the cash on hand. Every small business needs some cash available on hand – so that if there’s ever a stretch between accounts receivable and accounts payable, the business is covered.
This applies whether you’re looking at the current ratio or the quick ratio. The current ratio is the difference between the business’s current assets, including cash and inventory, and its current liabilities. The quick ratio is the same but it doesn’t include the inventory as part of the assets – so it narrows in on whether the business has the ability to pay for its day-to-day expenses.
As a rule of thumb, a quick ratio less than 1 indicates that the business may struggle to meet its short-term debt obligations, as its current liabilities are greater than its current assets. However, make sure you are assessing the business according to its stage of growth and its industry.
While liquidity assesses a business’s ability to meet its short-term debt obligations, solvency focusses on its long-debt debt.
Solvency is the difference between the total value of the assets and the total value of business liabilities. As long as the asset value is greater than the liabilities – in other words, if it’s more than 1 – the small business is considered solvent.
Solvency is important to look out for, because it means that the small business can meet both its long-term growth goals and its total financial obligations.
Operating or operational efficiency looks at profitability as a ratio of the operating costs. In other words, the efficiency is the amount of profit earned for the amount spent on the day-to-day running of the business.
It makes sense that a small business with a high operating efficiency is running smoothly. A small business with high operating efficiency is well-managed and cost-effective.
The best way to assess the financial health of a small business is to rely on the professionals. Here at Valles Accountants, we are a boutique accounting firm with more than 35 years of collective experience. From accounting to tax advisory, we support small business owners all across Australia.
If there’s a small business you have in mind and you need to know the ins and outs of its financial health, talk with us today. Reach out to Greg and the team at Valles Accountants to make the best-informed financial decisions for your small business.
P r a c t i c e U p d a t e
Preparing for the new Director ID regime
As part of its Digital Business Plan, the Government announced the full implementation of the ‘Modernising Business Registers’ program.
This included recently enacted legislation introducing the new director identification number (‘director ID’) regime.
The director ID is a unique identifier that a director will need to apply for once and will keep forever.
The introduction of director IDs is intended to create a fairer business environment by helping prevent the use of false and fraudulent director identities, which “will go a long way to better identifying and eliminating director involvement in unlawful activity”.
Individuals will be able to apply for a director ID from 1 November 2021 on the new Australian Business Registry Services (‘ABRS’) website (at abrs.gov.au) and will need to log in using the myGovID app (set to a ‘Standard’ or ‘Strong’ identity strength).
When an individual must apply for a director ID depends on the date they became a director. For directors under the Corporations Act:
q who became a director on or before 31 October 2021, they must apply for a director ID by 30 November 2022;
q who become a director between 1 November 2021 and 4 April 2022, they must apply for a director ID within 28 days of appointment; and
q who become a director from 5 April 2022, they must apply for a director ID before their appointment.
Individuals will need to apply for their director ID themselves to verify their identity (i.e., no one can apply for it on their behalf, including agents).
Varying PAYG instalments due to COVID-19
Taxpayers can vary their pay as you go (‘PAYG’) instalments throughout the year if they think they will pay too much, compared with their estimated tax for the year.
To assist taxpayers who continue to be affected by COVID-19, the ATO has stated that it will not apply penalties or interest on varied instalments for the 2021/22 income year for excessive variations when the fund has taken reasonable care to estimate its end of year tax.
The ATO says this means making a reasonable and genuine attempt to determine the tax liability. When considering if a genuine attempt has been made, the ATO takes into account what a reasonable person would have done in the same circumstances.
Note that variations do not carry over into the new income year.
Therefore, if a taxpayer made variations in the 2020/21 income year, they may need to vary again in 2021/22. The varied amount or rate will apply for all of the remaining instalments for the income year, or until the taxpayer makes another variation.
The ATO encourages taxpayers to review their tax position regularly and vary their PAYG instalments as their situation changes.
If a taxpayer realises they have made a mistake working out their PAYG instalment, they can correct it by lodging a revised activity statement or varying a subsequent instalment.
If a taxpayer is unable to pay an instalment amount, they should still lodge their instalment notice and discuss a payment arrangement with the ATO to ensure they will not have a debt at the end of the year.
Permanent changes to AGMs and electronic communications
The Government has introduced into Parliament a Bill to permanently allow companies to use technology to meet their regulatory requirements, and ensure that companies can continue to meet their obligations amid the uncertainty of the COVID‑19 pandemic.
Editor: These reforms build on the recently renewed temporary relief, which we reported in September 2021, and which will remain in place until 31 March 2022.
Specifically, the new permanent reforms will:
u ensure that meetings can be held physically, as a hybrid, or (if expressly permitted by the entity’s constitution) virtually, provided that members, as a whole, are given reasonable opportunity to participate in the meeting;
u ensure that companies (and registered schemes) can meet their obligations to send documents in hardcopy or softcopy, and give members the flexibility to receive documents in their preferred format; and
u allow documents, including deeds, to be validly executed in technology neutral and flexible manners, including by company agents.
AUSTRAC transaction report information data-matching program
The ATO will acquire transaction report information data from AUSTRAC for the period of 17 June 2021 through to 30 June 2027.
The data elements made available to the ATO will depend on what is captured in the reporting process and can include identifying information of customers and institutions facilitating transactions, identifiers such as ABNs, ACNs and Australian Financial Services Licence details, and transaction details (including transaction type, accounts, instruments, amounts and currency).
The ATO estimates that records relating to approximately nine million individuals will be obtained each financial year.
The data will be acquired and matched to ATO data to support the administration and enforcement of tax and superannuation laws, including registration, lodgment, reporting and payment responsibilities.
Government payments data-matching program
The ATO will acquire government payments data from government entities who administer government programs for 2017/18 to 2022/23 financial years.
The data items include:
n service provider identification details (names, addresses, phone numbers, email, dates of birth, service type, ABN, ACN); and
n payment details (service provider ID, name of service, type of service linked to program, value of payments received for the financial year, count and type of claim, withholding and re-credit amount).
The ATO estimates that records relating to approximately 36,000 service providers will be obtained each financial year (including approximately 11,000 individuals each financial year).Do I Have to Pay Tax on Cryptocurrency in Australia?
Cryptocurrencies have swept the markets off their feet – and the tax collectors have started to catch up!
Since December 2014, the ATO has published official guidelines on how crypto is taxed under the existing tax law.
One of the key principles of wealth management is managing tax obligations. With the rise and rise of cryptocurrencies into the mainstream of investing, learn more about how cryptocurrencies are taxed in Australia.
Under Australian tax law, crypto isn’t a currency.
The ATO doesn’t classify cryptocurrencies such as Bitcoin as a currency, but instead as assets. This means you will need to pay CGT on your crypto asset appreciation.
If you buy and sell cryptocurrencies as a private investment for your future, with most earnings coming from long-term gains, then you are an investor and will be subject to CGT.
The capital gain or loss on your cryptocurrencies is calculated from the value of the crypto asset, priced in AUD, at the time of disposal. The rate of the CGT depends on your marginal income tax bracket.
If you have held your crypto assets for longer than 12 months, then your capital gains will be eligible for the 12-month CGT discount, the same as for any other asset class where CGT applies.
Many different types of transactions count as disposal and therefore a CGT event. For each, you will need to assess the capital gain or loss at each instance.
Any form of disposal of your crypto assets counts as a CGT event – including selling or gifting.
So if you sell your crypto holdings into AUD fiat currency, or swap one cryptocurrency for another, or use cryptocurrencies to pay for goods or services – these are all examples of CGT events where CGT will be applied to the capital gain or loss.
A swap is considered a CGT event where one cryptocurrency is disposed of and another is acquired. The ATO holds this view because each cryptocurrency is classed as a different CGT asset.
However, transferring your crypto holdings between wallets and exchanges are not disposals, so there is no CGT owed.
If you receive crypto assets as a gift, you do not have to pay any CGT on this. However, as the gifter is essentially disposing of the asset, even if they are not receiving any payment for the gift, they will need to pay CGT on the capital gain earned while the asset was in their possession.
If the receiver later gifts the crypto on, again, they will owe CGT on the asset, even though they never paid to receive the crypto assets in the first place.
People who are not an Australian resident for tax purposes – for example, some New Zealanders on their temporary visas – are not taxed on any foreign income earned.
If your crypto holdings are moved from an Australian domiciled exchange to an overseas-based one, this counts as a disposal event, and your capital gain or loss will be calculated at this point.
Currently, there is very little guidance from the ATO as to the tax treatment of trading in crypto margins, options, futures and contracts.
Talk with the specialist crypto accountants at Valles about how crypto trading could affect your tax obligations.
Investing in cryptocurrencies is a highly specialised part of the market – and to make the most of your opportunities, you need equally specialised crypto accountants.
The most reliable crypto accountants are fellow crypto investors, just like Greg and the team at Valles Accountants. To talk with the specialists who are both chartered accountants and active crypto investors, contact us today to discuss the possibilities.Practice Update October 2021
Extra super step when hiring new employees
Employers may soon need to do something extra when a new employee starts to work for them.
Currently, if a new employee does not choose their own fund, their employer can pay contributions for them to a default fund.
From 1 November 2021, if a new employee does not choose a specific fund, their employer may need to request the employee’s ‘stapled super fund’ details from the ATO.
A stapled super fund is an existing account which is linked (or ‘stapled’) to an individual employee, so it follows them as they change jobs.
Businesses will be able to request stapled super fund details for new employees using ‘Online services for business’, or by asking their registered tax or BAS agent to do this for them.
ATO support for employers with expansion of STP
As part of the expansion of Single Touch Payroll (known as STP Phase 2), from 1 January 2022, employers will need to report additional payroll information in their STP reports including:
q disaggregation of gross amounts (including separate reporting of paid leave, allowances, overtime, directors’ fees and salary sacrifice amounts);
q employment and taxation conditions (including information from the TFN declaration); and
q income types (for example, salary and wages, working holiday maker income, foreign employment income).
To support employers with the move to STP Phase 2 reporting, the ATO will take the following approach:
q Employers that can start Phase 2 reporting by their digital service provider’s deferral date (if applicable), do not need to apply to the ATO for more time.
q If an employer’s software will be ready for 1 January 2022 and they are able to start reporting before 1 March 2022, they do not need to apply to the ATO for more time (that is, an automatic extension applies).
The ATO has also advised that penalties will not be applied for genuine mistakes in the first year of Phase 2 reporting until 31 December 2022.
Reminder for first-time share investors to declare income
With the growth of micro-investment platforms helping new investors enter the market, the ATO has issued a reminder for first-time share and Exchange Traded Funds (‘ETF’) investors.
The ATO is concerned that first-time investors often do not understand their tax obligations in relation to reporting capital gains from the sale of shares and income in the form of dividends and distributions.
This could result in errors when they lodge their tax return and delay tax refunds.
While the ATO pre-fills data from third parties into individual tax returns, investors are urged to check that all relevant data has been included, or make sure their registered tax agent has all the necessary information before lodging.
Investors should also keep good records.
Documenting gifts or loans from related overseas entities
Editor: The ATO is currently reviewing certain arrangements where Australian taxpayers seek to disguise undeclared foreign income as a gift or loan.
Genuine gifts or loans received from related overseas entities (including family members and friends) are sometimes used to fund businesses or to acquire income producing assets.
In this context, a genuine gift or loan is one where:
q the characterisation of the transaction as a gift or loan is supported by appropriate documentation;
q the parties’ behaviour is consistent with that characterisation; and
q the monies provided are sourced from funds genuinely independent of the taxpayer.
Having good contemporaneous record keeping practices is desirable in case the ATO seeks to verify whether an amount is a genuine gift or loan.
The ATO has published detailed information to help taxpayers properly document genuine gifts or loans received from related overseas entities that are used for income purposes.
The information can be accessed from the ATO website by searching for ‘Gifts or loan from related overseas entities’.
Additional ATO support during COVID-19
The ATO is providing additional support to taxpayers having difficulty meeting their tax and superannuation guarantee charge obligations for employees because of COVID-19.
Available support includes the following:
q Lodgment or payment support options – for example, payment plans or remitting interest and penalties.
q Varying PAYG instalments – The ATO will not apply penalties or charge interest on varied instalments that relate to the 2022 income year where taxpayers have taken reasonable care to estimate their end of year tax liability.
q Moving from quarterly to monthly GST reporting for quicker access to refunds.
q Applying for administrative relief for Division 7A minimum yearly repayments.
Editor: If you are struggling with your tax or super obligations, we can assist with identifying your options and apply to the ATO on your behalf.
Paid Parental Leave changes support parents in lockdown
The Paid Parental Leave (‘PPL’) scheme has been amended to enable expectant parents whose work has been affected by COVID-19 lockdowns to access Parental Leave Pay or Dad and Partner Pay under the scheme.
Many people who would otherwise have qualified for PPL, may no longer meet the ‘work test’ condition to be eligible for payment because of continued lockdowns across much of Australia.
For example, this could apply to a person who has been stood down, had their hours of work reduced or ceased work entirely as a result of a lockdown.
The changes to the PPL ensure that the period a person receives an Australian Government COVID-19 payment or the COVID-19 Disaster Payment (that is, because their work has been impacted by lockdowns) counts towards the work test, so that they may still receive Parental Leave Pay or Dad and Partner Pay.
Reminder of SG obligations for September 2021 quarter
Under the Superannuation Guarantee (‘SG’) scheme, employers are required to make quarterly contributions on behalf of their employees.
From 1 July 2021, the minimum contribution required is 10% (up from 9.5%) of an employee’s Ordinary Time Earnings base, up to a maximum quarterly contribution base of $58,920 for 2021/22.
Employers are reminded that the due date for making SG contributions for the September 2021 quarter is 28 October 2021.Practice Update September 2021
Extending administrative relief for companies to use technology
The Government has passed legislation renewing the temporary relief that allows companies to use technology to meet regulatory requirements under the Corporations Act 2001.
These temporary relief measures will allow companies to hold virtual meetings and use electronic communications to send meeting-materials and execute documents until 31 March 2022. This should ensure that companies can meet their obligations as they continue to deal with the uncertainty of the COVID-19 pandemic.
With the extension of this temporary relief, the Government will now seek to introduce permanent reforms later this year to give companies the flexibility to use technology to hold meetings, such as hybrid meetings, and sign and send documents.
Expansion of support for SMEs to access funding
The Government is providing additional support to small and medium sized businesses (‘SMEs’) by expanding eligibility for the SME Recovery Loan Scheme.
Specifically, in recognition of the continued economic impacts of COVID‑19, the Government will remove requirements for SMEs to have received JobKeeper during the March quarter of 2021, or to have been a flood affected business, in order to be eligible under the SME Recovery Loan Scheme.
As with the existing scheme, SMEs who are dealing with the economic impacts of the coronavirus with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.
Other key features include:
q The Government guarantee will be 80% of the loan amount.
q Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
q Loans can be used for a broad range of business purposes, including to support investment, as well as to refinance any pre-existing debt of an eligible borrower.
q Loans can be either unsecured or secured (excluding residential property).
The loans will be available through participating lenders until 31 December 2021.
ATO warns property investors about common tax traps
In 2019/20, over 1.8 million Australians owned rental properties and claimed $38 billion in deductions, so the ATO is reminding property investors to beware of common tax traps that can delay refunds or lead to an audit costing taxpayers time and money.
The most common mistake rental property and holiday homeowners make is neglecting to declare all their income, including failing to declare any capital gains from selling an investment property.
Assistant Commissioner Tim Loh said: “To put it simply, you should expect tax consequences for any property that you earn income from that isn’t your main residence.”
“We are expanding the rental income data we receive directly from third-party sources such as sharing economy platforms, rental bond authorities, and property managers. We will contact taxpayers about income they’ve received but haven’t included in their tax return. This will mean they need to repay some of their refund,” Mr Loh said.
So far, the ATO has adjusted more than 70% of the 2019/20 returns selected for a review of rental information.
“Most people we contact about their rental deductions are able to justify their claims. However, there are instances where we have to knock back claims where taxpayers didn’t keep receipts, claimed for personal use, or claimed for ineligible deductions,” Mr Loh said.
Editor: We can help make sure you get your rental income and deductions right, including where rental income has been affected by COVID-19.
Div.293 concessional contribution assessments have been issued
The ATO has recently issued approximately 30,000 Division 293 assessments for the 2018/19 and 2019/20 financial years.
Editor: Division 293 tax is an additional tax on super contributions, which reduces the tax concession for individuals whose combined income and contributions are greater than the Division 293 threshold (currently $250,000).
Due to a system issue, concessional contributions reported for these financial years were not included in Division 293 assessments where that super account was also reported as closed during that financial year. This reporting issue was resolved in June 2021, and this has resulted in affected members receiving either an initial or amended Division 293 assessment.
Travel allowances and ‘LAFHAs’
The ATO has released a Ruling explaining:
n when an employee can deduct accommodation and food and drink expenses when travelling on work;
n the FBT implications, including the application of the ‘otherwise deductible rule’, where an employee is reimbursed for accommodation and food and drink expenses, or where the employer provides or pays for these expenses; and
n the criteria for determining whether an allowance is a ‘travel allowance’ or a ‘living-away-from-home allowance’ (‘LAFHA’) benefit.
Whether accommodation and food and drink expenses are deductible depends on the facts and circumstances of each case, so the Ruling uses examples to show how to determine the deductibility of these expenses in a range of situations.
Time running out to register for the JobMaker Hiring Credit
The JobMaker Hiring Credit scheme’s third claim period is now open, so if a taxpayer has taken on additional eligible employees since 7 October 2020, they may be able to claim JobMaker Hiring Credit payments for their business.
Eligible businesses can receive up to:
u $10,400 over a year for each additional eligible employee hired aged 16 to 29 years; and
u $5,200 over a year for each additional eligible employee hired aged 30 to 35 years.
The JobMaker Hiring Credit is available to businesses for each additional eligible employee hired before 6 October 2021, so, if a business is thinking about taking on extra staff, they should check if they are eligible to participate in the scheme.
Labor commits to income tax cuts and certainty on negative gearing
The ALP has formally announced that, if elected to Government, they will deliver “the same legislated tax relief . . . as the Morrison Government”.
This means they have committed to upholding the legislated changes to personal income taxes, and will also maintain the existing regimes for negative gearing and capital gains tax to provide “certainty and clarity to Australian working families after a difficult two years for our country and the world”.Practice Update August 2021
Reminder of superannuation caps indexation for 2022
From 1 July 2021, the superannuation contributions caps have been indexed for the 2022 income year.
The new concessional contributions cap for the 2022 financial year is now $27,500 (increased from $25,000).
The new non-concessional (i.e., non-deductible) contributions cap for the 2022 financial year is now $110,000 or (where the ‘bring forward’ rules are applicable) $330,000 over three years (increased from $100,000 or $300,000 respectively).
The CGT cap amount for the 2022 financial year is now $1,615,000 (increased from $1,565,000).
Editor: The increase in the concessional contributions cap in particular will require those salary sacrificing additional superannuation to consider if they wish to increase their packaging arrangements so as to maximise the $2,500 increase in the cap.
Division 7A benchmark interest rate for 2022 remains unchanged
The Division 7A benchmark interest rate for the 2022 income year remains unchanged from the 2021 rate of 4.52%.
Changes to STP reporting from 1 July 2021
Employers should have already been reporting through Single Touch Payroll (‘STP’) unless they only have closely held payees, or they are covered by a deferral or exemption. From 1 July 2021, there have been changes to STP reporting for small employers with closely held payees and quarterly reporting for micro employers. More specifically, for employers with closely held payees, employers must now report amounts paid to their closely held payees through STP. They can choose to report such payments via one of three methods, being: ❑ actual payments each pay day; ❑ actual payments quarterly; or ❑ a reasonable estimate quarterly. For micro employers reporting quarterly, the STP quarterly reporting concession is only available to micro employers who meet certain eligibility requirements (which now include the need for exceptional circumstances to exist).
Maximum contributions base for super guarantee
The maximum super contributions base is used to determine the limit on any individual employee’s earnings base for superannuation guarantee purposes on a quarterly basis.
Employers do not have to provide the minimum quarterly support for earnings above this limit.
August 2021 – Practice Update
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For the 2022 financial year, the maximum contributions base has increased to $58,920 (up from $57,090). Editor: This means once an employee earns over $235,680 during the 2022 income year, no additional superannuation guarantee will generally be required to be paid by an employer. Practically, this means that the maximum superannuation guarantee contribution that an employer must pay for the 2022 income year is 10% of $235,680 (or $23,568).
The ‘gigs up’ with a new sharing economy reporting regime
Treasury has released draft legislation introducing the long-awaited third party reporting regime (proposed to apply from 1 July 2022). The new regime will initially require ride-sharing and short term accommodation online platform operators to report transactions they facilitate directly to the ATO. This measure was first announced in the 2020 MYEFO (following a recommendation from the Black Economy Taskforce established in 2016). It is intended to extend to all other types of sharing (‘gig’) economy online platforms such as food delivery and task services from 1 July 2023. Under this new proposed regime, the identity of participants and payments they receive will be reported to the ATO (twice a year) to identify entities who may not be meeting their tax obligations.
Taxable Payments Annual Reports (‘TPARs’) due 28 August
2021 TPARs are due to be lodged for businesses who have paid contractors to provide the following services: ❑ building and construction; ❑ cleaning; ❑ courier, delivery or road freight; ❑ information technology (‘IT’); or ❑ security, surveillance or investigation.
With specific reference to the TPAR due on 28 August 2021, the ATO has reminded taxpayers they may need to report payments made to contractors during the 2021 income year for the first time.
This will particularly be the case where such payments were made for delivery services done on behalf of their business (i.e., perhaps as a result of a COVID-19 business ‘pivot’ during lock down periods).
Importantly, the ATO has reminded taxpayers that they already have the records needed to lodge a TPAR from preparing their relevant activity statements including the: ❑ contractor’s name, address and ABN (if known); and ❑ total amounts for the income year of payments to each contractor (including GST) and tax withheld where the contractor did not quote their ABN.
New FBT retraining and reskilling exemption available
Recent legislative amendments mean that employers who provide training or education to redundant (or soon to be redundant employees) may now be exempt from fringe benefits tax (‘FBT’).
The ATO has reminded eligible employers that they can apply the exemption to retraining and reskilling benefits provided on or after 2 October 2020.
There are no limits on the cost or number of training or education courses that employees may undertake.
Furthermore, retraining and reskilling benefits that are exempt from FBT don’t need to be included in the FBT return, or in an employee’s reportable fringe benefits amount.
The ATO has also advised that if an employer has already lodged and paid for their 2021 FBT return, they will need to amend to reduce the FBT paid for any exempt retraining and reskilling benefits.
Practice Update July 2021
Super guarantee contribution due date for June 2021 quarter
The due date for employers to make super guarantee contributions for their employees for the June 2021 quarter is 28 July 2021.
Note that the super guarantee rate in relation to salary and wages paid on or before 30 June 2021 is 9.5%, but the super guarantee rate is 10% in relation to salary and wages paid from 1 July 2021 (even if they are paid in relation to work performed before that date).
Also, contributions made (and received by the fund) after 30 June 2021 will not be deductible in the 2021 income year, even if they are made in relation to work performed during the 2021 income year.
Extension of time to make repayments on Division 7A loans
To offer more support due to the ongoing effects of COVID-19, an extension of the repayment period is now available for those who were unable to make their MYRs by the end of the lender’s 2020/21 income year (generally 30 June).
The borrower can apply for this administrative relief using the ATO’s streamlined online application. Note that they must still make up the shortfall of their 2020/21 MYR by 30 June 2022.
Rent or lease payment changes due to COVID-19
The ATO has provided updates regarding the tax implications when a landlord gives, or a tenant receives, rent concessions (such as waivers or deferrals of rent) as a result of COVID-19.
For example, the ATO provides the following advice for tenants that have received a rent waiver.
If the waived rent is related to a past period of occupancy that the tenant has already incurred and claimed a deduction for, they are still entitled to that deduction.
However: ❑ if they have already paid the incurred rent and it has been waived and refunded to the tenant, they will need to include this amount in their assessable income when they receive it; or ❑ if they have not already paid the incurred rent and it has been waived, the rent waiver will be a debt forgiveness. When such a debt is forgiven, the tenant will make a gain. The amount isn’t usually included in the business’s assessable income — it is instead offset against amounts that could otherwise reduce the business’s taxable income.
If the waived rent is related to a future period of occupancy, they will not be entitled to a deduction for that amount.
Lost, damaged or destroyed tax records
The ATO knows that many taxpayers are facing lasting impacts left in the wake of natural disasters, so if they find their records have been lost or destroyed, whether in cyclones, floods or bushfires, the ATO can help. According to ATO Assistant Commissioner Tim Loh:
“If you have a myGov account linked to the ATO, you’ll be able to view some of your records, including income tax returns, income statements and previous notices of assessments. If you lodge through a registered tax agent, they can also access these documents on your behalf.”
Government agencies, private health funds, financial institutions and businesses provide information to the ATO which is available to tax agents and automatically included in returns by the end of July.
If taxpayers have lost receipts due to a natural disaster, the ATO can accept reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents.
Introducing SMSF rollover alerts
Since February 2020, the ATO has been issuing alerts via email and SMS when certain changes are made to a self-managed super fund (‘SMSF’).
With the inclusion of SMSF rollovers in SuperStream, the ATO will send the fund an email and/or text message alert when the fund uses the SMSF verification service (‘SVS’) to verify the SMSF’s details before making a rollover.
Note that funds may use this service multiple times when actioning a single rollover request, which may result in receiving multiple alerts.
These alerts are being sent to help safeguard retirement savings and reduce the risk of fraud or misconduct.
If a fund receives an alert and is already aware of the rollover request, there is nothing more that needs to be done.
However, if a member didn’t request a rollover to be made to an SMSF, or they want more information, they will need to contact their existing super fund(s) as a matter of priority, as rollovers through SuperStream may be processed in as little as 3 business days.
SMSF limited recourse borrowing arrangements interest rates
The ATO has confirmed that the following interest rates charged under a limited recourse borrowing arrangement (‘LRBA’) to an SMSF would be consistent with the safe harbour terms the ATO will accept for the 2021/22 financial year.
Real property: 5.10%
Listed shares or units: 7.10%
Note that these rates are unchanged from those the ATO accepted for the 2020/21 year.
New ATO data-matching programs
The ATO has advised that it will engage in two new data matching programs, as outlined below:
❑ the ATO will acquire novated lease data from McMillan Shakespeare Group, Smartgroup Corporation, SG Fleet Group, Eclipx Group, LeasePlan, Toyota Fleet Management, LeasePLUS and Orix Australia for the 2018/19 through to 2022/23 financial years (relating to approximately 260,000 individuals each financial year); and
❑ the ATO will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively (relating to approximately 400,000 to 600,000 individuals each financial year).
Practice Update June 2021
Practice Update June 2021
Cryptocurrency under the microscope this tax time
The ATO is concerned that many taxpayers believe their cryptocurrency gains are tax-free, or only taxable when the holdings are cashed back into Australian dollars.
ATO data analysis shows a dramatic increase in trading since the beginning of 2020, and has estimated that there are over 600,000 taxpayers that have invested in crypto-assets in recent years.
This year, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.
Gains from cryptocurrency are similar to gains from other investments, such as shares. CGT also applies to the disposal of non-fungible tokens (‘NFTs’).
The ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping it to ensure investors are paying the right amount of tax.
“The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address,” Assistant Commissioner Tim Loh said.
Businesses or sole traders that are paid cryptocurrency for goods or services will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.
Holding a cryptocurrency for at least 12 months as an investment may mean the holder is entitled to a CGT discount if they have made a capital gain.
Temporary reduction in pension minimum drawdown rates extended
The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.
As part of the response to the coronavirus pandemic (and the negative effect on the account balance of superannuation pensions), the Government reduced the superannuation minimum drawdown rates by 50% for the 2019/20 and 2020/21 income years.
This 50% reduction will now be extended to the 2021/22 income year.
Super Guarantee rate rising from 1 July 2021
The super guarantee rate will rise from 9.5% to 10% on 1 July 2021, so businesses with employees will need to ensure their payroll and accounting systems are updated to incorporate the increase to the super rate.
ATO warns on ‘copy/pasting’ claims
The ATO is alerting taxpayers that its sights are set on work-related expenses like car and travel claims that are predicted to decrease in this year’s tax returns.
Assistant Commissioner Tim Loh noted that COVID-19 has changed people’s work habits, so the ATO expects their work-related expenses will reflect this.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said.
“But, if you are working at home, we would not expect to see claims for travelling between worksites, laundering uniforms or business trips.”
The ATO will also look closely at anyone with significant working from home expenses, that maintains or increases their claims for things like car, travel or clothing expenses:
“You can’t simply copy and paste previous year’s claims without evidence.”
Family assistance payments
The ATO has reminded individuals receiving Child Care Subsidy and Family Tax Benefit payments from Services Australia that they and their partners must lodge their 2019/20 Individual tax returns by 30 June 2021. Lodgment deferrals with the ATO do not alter this requirement.
Services Australia needs such individuals’ income details to balance payments for Child Care Subsidy and Family Tax Benefit.
If tax return lodgment is not made by 30 June 2021:
u clients receiving Child Care Subsidy may lose their ongoing entitlement and/or receive a debt from Services Australia and have to repay the amount received in the 2019/20 financial year; and
u clients receiving Family Tax Benefit may miss out on additional payments, may also receive a debt from Services Australia and/or may have their fortnightly payments stopped.
Do you use the Small Business Superannuation Clearing House?
The ATO has advised employers intending to claim a tax deduction for super payments that they make for employees in the 2020/21 income year that any such payments must be accepted by the Small Business Superannuation Clearing House (‘SBSCH’) on or before 23 June 2021.
This allows processing time for the payments to be received by their employees’ super funds before the end of the 2020/21 income year.
Car parking threshold for 2022 FBT year
The car parking threshold for the FBT year commencing on 1 April 2021 is $9.25.
This replaces the amount of $9.15 that applied in the previous FBT year commencing 1 April 2020.
Luxury car tax thresholds
The ATO has updated the luxury car tax (‘LCT’) thresholds for the 2021/22 financial year.
The LCT threshold for fuel efficient vehicles in 2021/22 is $79,659 (up from $77,565 in 2020/21) and the LCT threshold for other vehicles in 2021/22 is $69,152 (up from $68,740 in 2020/21).
New ATO data-matching programs involving property
The ATO has advised that it will engage in two new data matching programs dealing with property transactions, as outlined below:
q The ATO will acquire property management data from property management software providers for the 2018/19 through to 2022/23 financial years (relating to approximately 1.6 million individuals); and
q The ATO will acquire rental bond data relating to approximately 350,000 individuals from state and territory rental bond regulators bi-annually through to 30 June 2023.Practice Update May 2021
P r a c t i c e U p d a t e
Government proposal to modernise business communications
The Government has committed to modernising certain laws so that they are ‘technology neutral’, to enable easier communication between businesses, individuals and regulators.
The first phase of legislative reform will focus on key areas raised by stakeholders which are implementation-ready (ideally by the end of 2021), including:
Subsequent phases will consider reforms in additional areas that could benefit from greater technology neutrality, including communication with regulators, and product disclosure and recordkeeping requirements.
ATO “keeping JobKeeper payment fair”
The ATO is using its compliance resources to maintain the integrity of the JobKeeper measure.
While most businesses and employees have done the right thing, the ATO has identified concerning and fraudulent behaviour as well as claims by a small number of organisations and employees, and will actively pursue these claims.
Some of the concerning behaviours the ATO is currently examining include:
n businesses that have:
– made claims for employees without a nomination notice, or have not paid their employees the correct JobKeeper amount (before tax);
– made claims for employees where there is no history of an employment relationship;
– amended their prior business activity statements to increase sales in order to meet the turnover test; or
– recorded an unexplained decline in turnover, followed by a significant increase; and
n individuals who have knowingly:
– made multiple claims for themselves as employees or as ‘eligible business participants’; or
– made claims both as an employee and an ‘eligible business participant’.
The ATO encourages all JobKeeper applicants to review their applications and contact the ATO if they have made mistakes (and the ATO may not pursue repayment of an overpayment in certain circumstances, such as for honest mistakes).
If anyone is concerned that someone is doing the wrong thing in relation to the JobKeeper payment, they are encouraged to tell the ATO about it. The ATO will be examining JobKeeper Tip-Offs and contacting businesses where it has concerns and needs more information.
Independent review service for small businesses made permanent
Following a successful multi-year pilot, the ATO’s small business independent review service will be offered permanently as a dispute resolution option for eligible small businesses.
ATO Deputy Commissioner Jeremy Geale said the service is all about ensuring small businesses are given the opportunity to achieve an independent, fast, free, and fair resolution when they disagree with the ATO’s audit position:
“Independence is critical when handling a dispute, so we ensure each and every independent review is done by an officer from a different part of the ATO who was not involved in the original audit”.
The ATO’s small business independent review service is available to eligible small businesses with an annual turnover of less than $10 million in relation to disputes about income tax, GST, excise, luxury car tax, wine equalisation tax, and fuel tax credits, and is in addition to other dispute options.
Disputes about employer obligations like superannuation and FBT are not eligible for the independent review service.
More information about the ATO’s independent review service, including how to request a review and eligibility criteria, is available on the ATO’s website.
ATO asks businesses to check if they are still using their ABNs
The ATO has advised that, if a business hasn’t used its ABN for a while, the ATO may contact them about cancelling their ABN.
The ATO may also contact them about their ABN if their business situation has changed.
To ensure businesses don’t miss out on Government support, including during unfortunate events, it’s essential that they regularly review their ABN details and keep them up to date (or cancel their ABN if the business is no longer operating, so that Government agencies can tailor their support to those that need it).
It’s also important to check that the business has listed the physical address of the business, as otherwise it can be difficult for emergency services and Government agencies to make contact.
A business’ mailing address and physical location address can be listed separately on its ABN data, and these (and other ABN details) can be checked and updated online at any time.
Passenger movement data-matching program
The ATO will access data from the Department of Home Affairs on passenger movements during the 2016/17 to 2022/23 financial years, and match it with certain sections of ATO data holdings to identify taxpayers that can be provided with tailored information to help them meet their tax and superannuation obligations, or to ensure compliance with taxation and superannuation laws.
Data items include names, dates of birth, arrival and departure dates, passport Information, and status types (visa status, residency, lawful, Australian citizen).
The ATO estimates that records relating to approximately 670,000 individuals will be obtained each financial year.
Super contribution caps will increase from 1 July 2021
The ATO has confirmed that, from 1 July 2021, the superannuation concessional and non-concessional contribution caps will be indexed.
The new caps for the 2021/22 year will be:
The total superannuation balance limit that determines if an individual has a non-concessional contributions cap of nil will also increase from $1.6 to $1.7 million, effective from 1 July 2021.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.Practice Update April 2021
JobKeeper comes to an end
The ATO has advised that the final JobKeeper payment will be processed in April 2021.
Enrolled businesses do not have to do anything when the program closes, although they will need to complete their final March monthly business declaration by 14 April 2021.
Also, once a business is no longer claiming JobKeeper Payments, it may start to be eligible to receive the JobMaker Hiring Credit for any additional employees that started employment on or after 7 October 2020.
ATO loses case on JobKeeper and backdated ABNs
On 24 March 2021, the Full Federal Court handed down its decision in a case concerned with the requirement that an entity claiming JobKeeper must have had an ABN on 12 March 2020, or a later time allowed by the ATO.
The Registrar of the Australian Business Register had reactivated the relevant entity’s previously cancelled ABN after 12 March 2020, but with a backdated effective date on or before 12 March 2020.
The Court held that backdating an ABN to have an effective date on or before 12 March 2020 did not satisfy the requirement for the entity to have had an ABN on 12 March 2020.
However, the Court also held that the ATO’s decision not to allow the entity a “later time” to have an ABN was a “reviewable decision”, and that the Commissioner’s discretion should be exercised in these circumstances (i.e., the Court held that the entity should be entitled to JobKeeper).
The Court’s decision does not change the need to satisfy all of the other eligibility requirements.
First criminal conviction for JobKeeper fraud
A person claiming to be a sole trader was convicted of three counts of making a false and misleading statement to the Commissioner of Taxation, in order to receive $6,000 in JobKeeper payments to which he was not entitled, as he was not operating a genuine business and he had already agreed to be nominated by his full-time employer for the allowance.
The ATO has a dedicated integrity strategy that supports the administration of the Government’s stimulus packages, with robust and efficient compliance systems that make it very easy to identify fraudulent behaviour and stop it.
ATO Deputy Commissioner Will Day said “Since the first payments were made in April, the ATO has monitored every payment, every day, every month, and will continue to do so until the last payment is made.”
ATO’s taxable payments reporting system update
The ATO has confirmed that more than 60,000 businesses have not yet complied with lodgment requirements under the taxable payments reporting system (‘TPRS’) for 2019/20.
The TPRS is a black economy measure designed to assist the ATO to identify contractors who don’t report or under-report their income.
The ATO estimates that around 280,000 businesses need to lodge a Taxable payments annual report (‘TPAR’) for the 2020 financial year.
Importantly, 2020 was the first year that businesses that pay contractors to provide road freight, information technology, security, investigation, or surveillance services may need to lodge a TPAR with the ATO (in addition to those businesses providing building and construction, cleaning, or courier services).
Businesses who have not yet lodged need to lodge as soon as possible to avoid penalties.
ATO Assistant Commissioner Peter Holt added that some businesses may not realise they need to lodge a TPAR, but may be required to, depending on the percentage of payments received for deliveries or courier services.
FBT rates and thresholds for the 2021/22 FBT year
The ATO has updated its webpage containing the fringe benefits tax (‘FBT’) rates and thresholds for the 2017/18 to 2021/22 FBT years.
Two amounts that were not previously announced for the 2021/22 FBT year are:
❑ the FBT record keeping exemption is $8,923 (up from $8,853 for the 2020/21 FBT year); and
❑ the statutory or benchmark interest rate is 4.52% (down from 4.80% for the 2020/21 FBT year).
The ATO also separately released two taxation determinations setting out further rates and
thresholds for the FBT year commencing on 1 April 2021, being:
◼ Motor vehicle (other than a car) — cents per kilometre rate; and
◼ Reasonable food and drink amounts for employees living away from home.
Warning regarding new illegal retirement planning scheme
The ATO has recently identified a new scheme where SMSF trustees were informed that they could set up a new SMSF to roll-over the fund balance from the old SMSF and then liquidate their old SMSF, in an attempt to avoid paying potential tax liabilities.
The ATO warns that taking part in this arrangement and others like it can result in civil and criminal actions and could ultimately put the members’ retirement savings at risk.
If a trustee of an SMSF believes they have been approached by a promoter of a retirement planning scheme, the ATO recommends they seek a second opinion from a registered tax agent or appropriately qualified financial adviser, and also report the promoter to the ATO.
New succession planning guide for family businesses
The Australian Small Business and Family Enterprise Ombudsman, in conjunction with Family Business Australia, has released a new online guide to succession planning — the “Introductory Guide to Family Business Succession Planning” — which provides a step-by-step guide to passing the family business on to the next generation.
The easy-to-read guide offers tips on how to handle tense conversations that can arise between family members throughout the transition phase.
The guide is free and available on both the Family Business Australia and the ASBFEO’s website.