Fear and uncertainty resulting from the economic impact of COVID-19 (coronavirus) continues to affect business owners and individuals alike.
There are immediate issues impacting taxpayers that require clarification.
Cash boost for business
The cash boost for business has been designed to keep people in jobs, however, the legislation introducing the measure proves to be somewhat more complex than first suggested in original media releases and Treasury fact sheets.
While integrity measures are applauded, determining eligibility for the cash boost has been complicated by requirements surrounding having an ‘active’ ABN.
In order to satisfy the ‘active’ ABN requirement, one of two tests must be satisfied, these are:
An amount was included in the entity’s assessable income for the 2018-19 income year, in relation to it carrying on a business and the 2019 income tax return was lodged before 12 March 2019 (or a later time allowed by the Commissioner); or
The entity made a taxable supply in a tax period between 1 July 2018 to 12 March 2020, and notice was provided to the Commissioner on or before 12 March 2020. In effect, this means the entity was registered for GST or was required to be registered for GST. The entity made a taxable supply and details of the supply were reported in the relevant BAS lodged with the ATO.
Whilst most businesses who employ staff will be able to satisfy the above criteria, we have identified potential issues with accessing the cash boost for business. In particular:
- The entity has not lodged their 2019 income tax return;
- The entity is not required to be registered for GST; and
- The entity is registered for GST but due to the nature of the business has not made a taxable supply during the 2019 year.
This may have potential application to small business owners who are not registered for GST and businesses such as junior exploration companies or the forestry industry, where the entity is registered for GST and carrying on a business, but have not made taxable supplies because of the cyclical nature of the business.
In these scenarios, while the business may have employees, they do not technically meet the eligibility criteria to receive the cash boost.
The issue may be overcome by requesting an extension of time from the Commissioner, however urgent clarification is required on the process required in order to do this, and whether entities such as those described above will slip through the cracks and not be eligible for the cash boost for business to support their employees.
"In the 2019-20 Budget, the Government announced the start date for changes to Division 7A would be delayed by 12 months, making it 1 July 2020 to "allow additional time to further consult with stakeholders on these issues [and] to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced."
It is now the end of March 2020 and we are yet to see signs of further consultation. Closure of Parliament due to COVID-19 restrictions means it will not sit again until August 2020. With 1 July 2020 a proposed start date for the Division 7A changes, taxpayers are now in the situation where they are unable to prepare or plan for any proposed changes. Draft legislation has not been released and even once released, will not be considered until August 2020 at the earliest.
CGT MRE for foreign residents
The deadline for the transitional period of the Capital Gains Tax (CGT) Main Residence Exemption (MRE) for foreign residents is fast approaching. Expats who do not intend to re-establish residency have until 30 June 2020 to sell their homes in order to claim a full or partial CGT MRE before the draconian changes to the law come into full effect.
Coronavirus has had a far-reaching and continually evolving impact on Australian residents and expats who can’t return to Australia due to border closures and self-isolation restrictions.
Expats who wish to return to Australia and re-establish residency may find it difficult to do so. The Government enforced shutdown of public auctions and home opens means expats who have their former Australian main residence on the market may find it difficult, if not impossible to sell before the 30 June 2020 deadline. The ‘life event’ exceptions contained within the legislation denying the CGT MRE to foreign residents, like most things, do not extend to the impact of pandemics.
Under the current law, expats who will now be unable to sell their homes due to Government restrictions may find themselves unable to comply with the 30 June 2020 deadline and lose eligibility for the CGT MRE through no fault of their own. Ironically, these taxpayers may be forced to pay a significant amount of tax because of a Government regulation introduced subsequent to the change in the law, which now places then in a position where they are now incapable of complying with the law.
Main residence – six year rule
Resident taxpayers who have used their former main residence to produce income can generally continue to treat the dwelling as their main residence for CGT purposes for six years. Where the six year time limit is approaching, resident taxpayers who are unable to sell their home or move back into it because of State and Federal Government COVID-19 restrictions may also find they are exposed to an unexpected CGT liability.
FBT – definition of taxi (uber v taxi)
Legislation amending the definition of taxi under the Fringe Benefits Tax Act 1986 (FBTAA) is currently before the Senate. The legislation brings the definition in line with the definition of taxi for GST purposes and will extend the FBT exemption for taxi travel to include ride sourcing vehicles such as Uber
The amending legislation applies to the 2019-20 FBT year, which is problematic for employers given Parliament will not sit again until August 2020. Impacted employers will need to prepare their 2020 FBT returns based on current law, and if necessary, amend FBT returns once the legislation is passed.
Compulsory superannuation guarantee – emergency exemption
Earlier this year, RSM wrote to the Treasurer asking the Government to consider introducing legislation to provide a special 'disaster' exemption for non-compliance with payment of compulsory employee superannuation contributions where the employer is physically unable to meet their obligations due to an unprecedented natural disaster.
The response at the time was the Government was not considering any change to superannuation policy.
We are now faced with another unique event which may impact on the ability of employers to meet compulsory employee superannuation obligations. While in no way condoning the behaviour of recalcitrant employers, many business owners have been forced to close and others will be facing significant loss of revenue due to coronavirus and as a result may not have the cash resources to meet compulsory superannuation obligations.
Business owners who actually contract the virus and are hospitalised will not be able to make payments from an ICU bed.
Coronavirus is a one in a hundred-year event, we implore the Government to reconsider superannuation policy and provide an exemption or temporary concession to allow employers more time to pay compulsory superannuation contributions where they are directly impacted by COVID-19.
The superannuation amnesty passed by Parliament earlier this year provides employers a one off opportunity to make good on historical non-compliance with compulsory superannuation obligations incurred between 1 July 1992 and 31 March 2018.
Employers who identify non-compliance have until 7 September 2020 to make the necessary disclosure to the Commissioner of Taxation and to make payment of the outstanding superannuation.
With coronavirus impacting so many employers and the shutdown of all non-essential services, access to cashflow to make good on historical non-compliance may become increasingly difficult if not impossible.
We recommend the Government consider extending the deadline for a further 6 to 12 months to allow for the unanticipated downturn in the economy. This would also provide an opportunity to employers trying to make good as the economy improves rather than placing significant additional cash flow pressure on them in the immediate future.
Allowing additional time in this environment can only have a positive outcome, particularly where businesses may be faced with a choice of job losses and business closure over delaying the payment of superannuation obligations.
RSM acknowledges the efforts of the Government in addressing the economic impact of coronavirus. These are difficult and challenging times for all however taxation obligations do not cease even in the face of natural disaster or unprecedented emergency.
In the interests of providing comfort and certainty for taxpayers, we implore the Government to turn their attention to the outstanding issues outlined above and welcome any announcements relating to Government policy.