Important End of Financial Year actions - non SBE Partnerships

Important EOFY Actions

For partnerships with an aggregated turnover over $10million

2019-20 has been an unusual year. This year, more than ever, we want to ensure that we help you reduce your tax exposure and minimise the risk of an audit by the regulators. This end of financial year update outlines the actions to take to do exactly that:

If you would like us to complete a compliance review across your business, or work with you on a strategic review to ensure you are in the best possible position, please let us know.

If you have any questions about the issues outlined in this update, would like to schedule a tax planning consultation, or if you have any concerns, please contact Samantha McGuane of our office on 073821 4401 or by e-mail to [email protected].

In Brief

Date	Changes and actions
28 May 2020	· Payment of Fringe Benefits Tax liability due if applicable
31 May 2020	· Last day to register for JobKeeper for April and May 2020
25 June 2020	· FBT returns due if applicable
Pre 30 June 2020	· Pay superannuation to deduct contributions in the current financial year · Complete a stocktake where required (see Do you need to do a stocktake?) · Write-off bad debts and scrap any obsolete stock or plant and equipment · Ensure any inter-entity management fees have been raised
1 July 2020	· Instant asset write-off no longer accessible to medium and large businesses from this date · Cents per km rate for work-related car expenses increase to 72 cents
14 July 2020 (on or before)	· Single touch payroll finalisation declarations need to be made
28 July 2020	· Quarterly super guarantee payment due (1 April – 30 June)
14 August 2020	· Annual PAYG Payment Summary lodged with the ATO if applicable. Penalties apply for late lodgement
28 August 2020	· Taxable payments annual reports for payments to contractors due
7 September 2020	· Last day to access the Superannuation Guarantee Amnesty for historic non-compliance
27 September 2020	· Last day of the last JobKeeper fortnight
30 September 2020	· Last day for 50% apprentice/trainee wage subsidy under COVID 19 relief
6 October 2020	· 2020-21 Federal Budget released
30 June 2021	· Accelerated depreciation – last day for assets to be installed ready for use to access the 50% accelerated depreciation deduction

What's new?

2020-21 Federal Budget delayed until October

The release of the 2020-21 Federal Budget has been postponed from its traditional date in May until 6 October 2020. We expect there will be a number of reforms and measures to tighten spending, recover revenue, and range of productivity measures. We will keep you advised of significant changes that might impact on you and the partnership.

Living with JobKeeper

The JobKeeper $1,500 per fortnight per employee subsidy is paid in arrears to businesses that have experienced a downturn of 30% or more (50% for businesses with turnover of $1bn or more). A 15% threshold is used for ACNC-registered charities. The purpose of the scheme is to keep workers employed and ensure there is a viable workforce on the other side of the pandemic.

At present, JobKeeper is set to continue until 27 September 2020. And for businesses, JobKeeper’s decline in turnover is a once only test. If the eligibility criteria were met at the time of applying for JobKeeper, a business can continue claiming the subsidy assuming the other eligibility criteria for them and the individual employees, are met.

However, we expect continuing eligibility to the subsidy will change over time as the regulators gain a clearer insight into the impact of the pandemic. Much of this data is likely to come from the actual and estimated GST turnover that forms part of the compulsory monthly JobKeeper reporting requirements in tandem with the volume of applications to Jobseeker. That is, are the right businesses receiving JobKeeper and is the subsidy keeping workers employed?

If your business did not initially qualify for JobKeeper, you can apply to start JobKeeper payments when you meet the eligibility criteria. Not every industry will experience the economic impact of the pandemic in the same way. Some will experience a greater decline in later months.

One of our most asked questions about the decline in turnover test is ‘what if I got it wrong?’ Eligibility is generally based on an estimate of the negative impact of the pandemic on an individual business’s turnover. Some will experience a greater decline than estimated while others will fall short of the required 30%, 50% or 15%. There is no clawback if you got it wrong as long as you can prove the basis for your eligibility going into the scheme. For those that, in hindsight, did not meet the decline in turnover test, you need to ensure you have your paperwork ready to prove your position if the ATO requests it. You will need to show how you calculated the decline in turnover test and how you came to your assessment of your expected decline, for example, a trend of cancelled orders or trade conditions at that time.

Making JobKeeper payments on time

To be eligible for JobKeeper payments, staff must be paid at least $1,500 during each JobKeeper fortnight. If you pay employees less frequently than fortnightly, the payment can be allocated between fortnights in a reasonable manner. For example, if you pay your employees on a monthly pay cycle, your employees must have received the monthly equivalent of $1,500 per fortnight.

For the first two JobKeeper fortnights (30 March-12 April, 13 April-26 April), employers had an extension until 8 May to make the JobKeeper payments to eligible employees. For the remaining JobKeeper fortnights, employees will need to receive at least $1,500 by the end of each JobKeeper fortnight or the monthly equivalent of $1,500 per fortnight. Depending on your pay cycle, this may require some adjustments each month.

Tax treatment of Government grants and relief

During the pandemic, bushfires and floods, grants and loans have been available to help business and individuals through the crisis. The way these grants and loans are taxed will vary.

If you carry on a business and the payment relates to your continuing business activities, then it is likely to be included in your assessable income for income tax purposes. This position is likely to be different where the payment was made to enable you to commence a new business or cease carrying on a business.

Grants will generally be assessable income unless a law has been passed to specifically exclude the grant or loan from tax. For example, the special disaster grant for the bushfires was made non‑assessable and non-exempt income. Also, amounts provided under the cash flow boost measure are non-assessable non-exempt income.

When it comes to GST treatment, the key issue is whether the grant is consideration for a supply. That is, was the business expected to deliver something for the grant? The following government payments are not consideration for a supply and therefore not subject to GST or included in your GST turnover:

JobKeeper payment
Cash flow boost payment
The Early Childhood Education & Care Relief Package paid to approved child care providers
Payment of grants to an entity where the entity has no binding obligations to do anything or does not provide goods and services in return for the monies.

Superannuation guarantee amnesty

7 September 2020 is the last day for employers to take advantage of the superannuation guarantee (SG) amnesty. The amnesty provides a one-off opportunity to disclose historical non-compliance with the superannuation guarantee rules and pay outstanding superannuation guarantee charge amounts.

To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply.

Keep in mind that the amnesty only applies to “voluntary” disclosures. The ATO will continue its compliance activities during the amnesty period so if they discover the underpayment first, full penalties apply. The amnesty also does not apply to amounts that have already been identified as owing or where the employer is subject to an ATO audit.

Even if you do not believe that your business has an SG underpayment issue, it is worth undertaking a payroll audit to ensure that your payroll calculations are correct, and employees are being paid at a rate that is consistent with their entitlements under workplace laws and awards.

If your business has engaged any contractors during the period covered by the amnesty, then the arrangements will need to be reviewed as it is common for workers to be classified as employees under the SG provisions even if the parties have agreed that the worker should be treated as a contractor. You cannot contract out of SG obligations.

Utilising the $150,000 instant asset write-off

The instant asset write-off enables your business to claim an upfront deduction for the full cost of depreciating assets in the year the asset was first used or installed ready for use for a taxable purpose.

The COVID-19 stimulus measures temporarily increased the threshold for the instant asset write-off between 12 March 2020 and 30 June 2020 from $30,000 to $150,000, and expanded the range of businesses that can access the threshold to those with an aggregated turnover of less than $500 million.

For example, if the partnership’s turnover is under $500 million and you purchase an eligible asset for $140,000 (GST-exclusive) on 1 June 2020 (and install it ready for use by 30 June 2020), then a deduction of $140,000 can be claimed.

If your business is likely to make a tax loss for the year, then the instant asset write-off is unlikely to provide a direct short-term benefit to you. However, if this measure is likely to reduce the taxable income of the business for the year then it may be possible to vary upcoming PAYG instalments to improve cash flow.

If the asset is a luxury car then the deduction will be limited to the luxury car limit ($57,581 in 2019-20).

The business use percentage of the asset also needs to be taken into account in calculating the deduction.

The increase to the instant asset write-off threshold in the stimulus package is the fourth increase or extension and businesses will need to be wary of what they are claiming and when:

Instant asset write-off thresholds	Small Business*	Medium business**	Large business***
1 July 2018 – 28 January 2019	$20,000	–	–
29 January 2019 – 2 April 2019	$25,000	–	–
2 April 2019 – 12 March 2020	$30,000	$30,000	–
12 March 2020 – 30 June 2020	$150,000	$150,000	$150,000

* aggregated turnover under $10 million ** aggregated turnover under $50 million ***aggregated turnover under $500 million

At this stage it is expected that the instant asset write-off threshold will reduce back to $1,000 from 1 July 2020 for small business entities and that the instant asset write-off rules will no longer be available to medium and large businesses.

Accelerated depreciation deductions

Businesses with a turnover of less than $500 million can access accelerated depreciation deductions for assets that don’t qualify for an immediate deduction for a limited period of time.

This incentive is only available in relation to:

New depreciable assets
Acquired on or after 12 March 2020 that are first used or installed ready for use for a taxable purpose by 30 June 2021.

It does not apply to second-hand assets or buildings and other capital works expenditure. The rules also won’t apply if the business entered into a contract to acquire the asset before 12 March 2020.

Businesses are able to deduct 50% of the cost of a new asset in the first year. They can then also claim a further deduction in that year by applying the normal depreciation rules to the balance of the cost of the asset.

Accelerated depreciation deductions apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.

For example, let’s assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2020-21 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation on the balance of the cost. Let’s assume that a 26.7% depreciation rate applies to this asset, which would mean an additional deduction of $33,375. The total deduction in the 2020-21 tax return would be $158,375. Without the introduction of accelerated depreciation the business would have claimed a deduction of $66,750.

Reporting payments to contractors

The taxable payments reporting system requires businesses in certain industries to report payments they

make to contractors (individual and total for the year) to the ATO. ‘Payment’ means any form of

consideration including non-cash benefits and constructive payments. Almost every year a new industry or sector is drawn into the taxable payments reporting net.

Taxable payments reporting is required for:

Building and construction services
Cleaning services
Courier services
Road freight services
Information technology (IT) services
Security, investigation or surveillance services
Mixed services (providing one or more of the services listed above)

The annual report is due by 28 August 2020. This will be the first report for those businesses providing road freight, information technology, and security, investigation or surveillance services.

1 January 2020 changes to Super Guarantee calculation

From 1 January 2020, new rules came into effect to ensure that an employee’s salary sacrifice contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.

Previously, some employers were paying SG on the salary less any salary sacrificed contributions of the employee. Now, employers must contribute 9.5% of an employee’s Ordinary Time Earnings (OTE) and they choose whether or not to include the salary sacrificed amounts in OTE.

Under the new rules, the SG contribution is 9.5% of the employee’s ‘ordinary time earnings (OTE) base’. The OTE base will be an employee’s OTE plus any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement.

The amendments also ensure that where an employer has not fulfilled their SG obligations and the superannuation guarantee charge is imposed, the shortfall is calculated using the new OTE base.

Partnerships and access to the small business CGT concessions

A loophole that enabled partners in large partnerships to access the small business Capital Gains Tax (CGT) concessions has been closed.

The retrospective legislation applies to CGT events that occurred from 7.30pm on 8 May 2018. Now, partners who alienate their income by creating, assigning or otherwise dealing in rights to the future

income of a partnership (often referred to as Everett assignments) no longer have access to the

small business CGT concessions in relation to these rights.

Where partners are impacted by the legislative change, the ATO will not be applying penalties or shortfall interest to amounts that have not been reported (or where reduced amounts have been reported) on the basis that the small business concessions could apply. However, if you are impacted, you are required to amend your return to take into account the correct position (i.e., no access to the small business concessions) as soon as practicable

Cents per kms change for work-related car expenses

The rate at which work-related car expenses can be claimed using the cents per kilometre method will increase from 1 July 2020 from 68 cents to 72 cents per kilometre.

Using this method a maximum of 5,000 business kilometres can be claimed per year per car.

Deductions no longer available for vacant land

From 1 July 2019, new rules prevent some taxpayers from claiming a deduction for interest and other holding costs for property that they own. Previously, if you bought vacant land with the intent to build a rental property on it, you may have been able to claim tax deductions for expenses incurred in holding the land such as loan interest, council rates and other ongoing holding costs.

Mum & Dad developers (individuals, closely held trusts, SMSFs and unit trusts or partnerships where any interests are held by individuals, discretionary trusts or SMSFs) are the focus of these changes. Since the new laws apply retrospectively to losses or outgoings incurred on or after 1 July 2019 regardless of whether the land was first held prior to this date, and with no grandfathering in place, the amendments not only impact those intending to develop vacant land but those who have acquired land to develop.

The rules seek to ensure that deductions cannot be claimed during periods where a residential dwelling is being constructed or substantially renovated until the work has been completed, an occupancy certificate is issued and the property is either rented out or genuinely available for rent.

Where holding costs cannot be claimed as a deduction, then they will generally be added to the cost base of the property for CGT purposes. This means that they can potentially reduce a capital gain made when you dispose of the property in the future. However, holding costs cannot be added to the cost base of a property unless it was acquired after 20 August 1991 and these costs cannot increase or create a capital loss on sale of a property.

Financial house-keeping

Lodgement deferrals

The ATO has automatically deferred 2018-19 partnership tax returns lodged through a tax agent until 5 June 2020.

Before you roll-over your software

Before rolling over your accounting software for the new financial year, make sure you:

Prepare your financial year-end accounts. This way, any problems can be rectified and you have a ‘clean slate’ for the 2020-21 year. Once rolled over, the software cannot be amended.
Do not perform a Payroll Year End function until you are sure that your STP finalisation declaration is correct and printed. Always perform a payroll back-up before you roll over the year.

Employee reporting

Single touch payroll

Where payments to employees have been reported to the ATO through single touch payroll, a finalisation declaration generally needs to be made by 14 July 2020 for employers with 20 or more employees and 31 July for those with 19 or fewer employees.

Payment summaries do not have to be provided to employees. Instead, employees will be able to access their Income Statement through myGov.

Reportable Fringe Benefits

Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount. This is referred to as a `Reportable Fringe Benefit Amount’ (RFBA).

Selecting the best stocktake value method

Businesses that buy and sell stock generally need to do a stocktake at the end of each financial year as the increase or decrease in the value of stock is included when calculating the taxable income of your business. If you do need to complete a stocktake, you can choose one of three methods to value trading stock:

Cost price – all costs connected with the stock including freight, customs duty, and if manufacturing, labour and materials, plus a portion of fixed and variable factory overheads, etc.
Market selling value – the current value of the stock you sell in the normal course of business (but not at a reduced value when you are forced to sell it).
Replacement value – the price of a substantially similar replacement item in a normal market on the last day of the income year.

A different basis can be chosen for each class of stock or for individual items within a particular class of stock. This provides an opportunity to minimise the trading stock adjustment at year-end. There is no need to use the same method every year; you can choose the most tax effective option each year. The most obvious example is where the stock can be valued below its purchase price because of market conditions or damage that has occurred to the stock. This should give rise to a deduction even though the loss has not yet been incurred.

Reduce your risks & minimise your tax

Top tax tips

1. Write-off bad debts

To be a bad debt, you need to have brought the income to account as assessable income and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, documenting the write-off is a good idea.

2. Review your asset register and scrap any obsolete plant

Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small business entities can choose to pool their assets and claim one deduction for each pool. This means you only have to do one calculation for the pool rather than for each asset.

If your business was previously classified as a small business and assets were allocated to a small business pool, you can continue to claim one deduction for each pool for these assets.

3. Bring forward repairs, consumables, trade gifts or donations

To claim a deduction for the 2019-20 financial year, consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June.

4. Pay June quarter employee super contributions now

Pay June quarter super contributions this financial year if you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2020. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months.

Don’t forget yourself. Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.

5. Realise any capital losses and reduce gains

Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses – that is, sell the asset and lock in the capital loss. These need to be genuine transactions to be effective for tax purposes.

6. Raise management fees between entities by June 30

Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.

What we need from you

This is a general list of what to have ready when we next meet with you:

Accounts data file (MYOB, Quickbooks, access to Xero)
Debtors & creditors reconciliation
Stocktake if applicable
30 June bank statements on all relevant loan documents
Documents on new assets bought or sold, including the date you entered the contract and the date the asset was first used or installed ready for use
Payroll reconciliation
Superannuation reconciliation
30 June statements on any investment or operating accounts

And, if we are preparing your individual income tax return:

PAYG Payment Summary
Tax statements of managed investment funds
Interest income from banks and building societies
Dividend statements for dividends received
For share sales or purchases, the purchase and sale contract notes
For real estate sales or purchases, the solicitor’s correspondence for the purchase and sale
Rental property statements from real estate agent and details of other expenditure incurred
Work related expenses
Self-education expenses
Travel expenses
Donations to charities
Health insurance and rebate entitlement
Family Tax Benefits received
Commonwealth assistance notices
Medical Expenses (if these relate to disability aids, attendant care or aged care services)
IAS statements or details of PAYG Instalments paid
Details of any transactions involving cryptocurrency (e.g., Bitcoin)
Details of any income derived from participating in the sharing economy (e.g., Uber driving, rent from AirBNB, jobs completed through Airtasker etc.,)