This week Tracey Dunn, our Associate Director of Tax Services, ran a webinar titled Family Law: Tax and the ongoing impact of COVID-19.
The webinar was designed to assist family lawyers understand how the recent COVID-19 crisis and associated stimulus measures may impact on family law property settlements.
While there have been some reports of COVID-19 having a significant negative impact on asset values and the calculation of the net asset pool, it’s not all doom and gloom.
In case you missed the webinar, here are the key areas we addressed and the considerations you should make when assisting clients with family law matters as the end of financial year approaches…
Tax obligations do not stop because of COVID-19
Over the past couple of months, we have seen some of the most generous stimulus measures ever made available by federal and local governments.
However, these measures are designed to assist those individuals and businesses that have been directly impacted by the current crisis. They are not a free pass to neglect tax obligations.
Every individual and business – whether they were or will be eligible for any stimulus measure – must continue to comply with tax laws.
Reporting obligations do not change, even where an individual or business has been able to access one of the generous ATO administrative concessions such as an extension to the payment due date, variation of PAYG income tax instalments or low interest payment plans. Family law disputes do not ‘stop the clock’ on tax obligations.
Key dates in the tax calendar that may require consideration and agreement between parties include annual income distribution resolutions for trustees of a discretionary trust, and minimum repayments for company Division 7A loans; both of which need to be finalised by June 30, 2020.
Failure to comply with either may have significant and unplanned tax consequences for the parties which ultimately may impact on the net asset pool.
Greater financial transparency across the board
For those involved in a family law dispute, up to date, timely and accurate financial disclosure is critical, however, for some it can be an area of frustration, particularly where the parties reporting and tax obligations are not up to date.
This is an area where the new stimulus measures will have an unexpected and particularly positive impact and will provide parties and their respective lawyers the opportunity to access up to date and accurate financial disclosure. This is particularly relevant where the parties have an interest in a business and that business has sought to access any of the various State and Federal government stimulus measures.
In the current COVID-19 environment, many business owners have had to review their business model and undertake a detailed analysis of cash flow forecasts and budgets, not only to consider the ongoing viability of the business, but to also determine eligibility for loan applications, and to access stimulus measures such as JobKeeper payment and rent relief. In many cases, the opportunity to review the core business activity has resulted in changes to the business model, reduction in costs and increased profitability!
Family lawyers may also be interested to know, the JobKeeper payment equates to around $19,500 per eligible employee where the business is eligible to claim for the full 6 months the JobKeeper scheme is proposed to run.
Once a business has determined they are eligible to register for the program, there is no requirement to re-test turnover, so if turnover increases in the six month period, the business will not lose eligibility (provided ongoing administrative requirements are satisfied).
So despite the impact of COVID-19 on the turnover of some businesses, it is not all doom and gloom and for some business owners, access to various stimulus measures may, in fact, put the business in a stronger cash position than they were in pre COVID-19, meaning recovery, when restrictions are lifted, may be swift and strong.
With strict integrity measures surrounding eligibility for JobKeeper payment, business owners are going to great lengths to ensure they have accurate and up to date financial information. Businesses eligible for JobKeeper must meet strict administrative requirements to ensure ongoing eligibility and are required to lodge monthly actual and projected turnover figures with the ATO, failure to comply may mean the business will lose eligibility for the program.
This should mean parties who have an interest in a business should have ongoing, real-time access to up to date and accurate financial data. resulting in greater financial transparency across the board.