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Victorian Business Survival and Adaption Package

In response to the state’s extended lockdown, the Victorian government on the weekend announced a $3 billion Business Survival and Adaption Package for businesses impacted by the COVID-19 restrictions. The package is a mix of cash grants, tax relief, and cash-flow support featuring three components. 

  1. Business Support 
  • Small and medium sized business ($822 million): The third round of the Business Support Fund will provide up to $20,000 for business with a payroll of up to $10 million. Grant applications open on Friday 18 September 2020. 
  • Licensed Hospitality Business ($251 million): Grants of up to $30,000 for licensed pubs, clubs, hotels, bars, restaurants and reception centres, based on their venue capacity and location. 
  • Business Chambers and Trader Groups ($3 million): A competitive grants program to support metropolitan and regional business chambers and trader groups. 
  • Alpine businesses ($4.3 million): Grants of up to $20,000 to help alpine businesses pay a service charge to Alpine Resort Management Boards. 
  • Sole Trader Support Fund ($100 million): Grants of up to $3,000 to over 30,000 eligible sole traders who operate from a commercial premises or location to which the sole operator is the tenant or licensee. 
  1. Business Adaption 
  • $20 million voucher program to assist sole traders and small businesses in building their digital capability 
  • $15.7 million package to help Victorian exporters get their products to market and establish new trade channels. 
  • $8.5 million expansion to the ‘Click for Vic’ campaign to encourage more Victorians to support local businesses. 
  • $87.5 million Outdoor Eating and Entertainment Package to support hospitality businesses prepare for COVID Normal reopening across Victoria. 
  • $100 million Melbourne City Recovery Fund between the Victorian Government and the City of Melbourne to support Melbourne on the roadmap for reopening to COVID Normal in the lead up to Christmas and during summer. 
  1. Waivers and Deferrals 
  • $1.7 billion to defer payroll tax for businesses with payrolls up to $10 million for the full 2020-21 financial year 
  • $41 million to bring forward the 50% stamp duty discount for commercial and industrial property for all of Regional Victoria 
  • $33 million to defer the planned increase in the landfill levy for six months 
  • $30 million to waive 25% of the Congestion Levy this year, with the outstanding balance deferred. 
  • $27 million in liquor license fee waivers for 2021 
  • $6 million to waive Vacant Residential Land Tax for vacancies in 2020. 


2020 September/October – Page 7

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There are several important points in the above table: 
•  Pooling is still only available for SBEs (aggregated turnover of 

less than $10 million). Therefore, clients using the UCA rules, 

will depreciate the asset in the standard way (except with an 

upfront 50% bonus deduction) 

•  There is a new small business general pool rate of 57.5% for the 

first year that an asset equals to or more than $150,000.

NON-SBEs

As noted, while non-SBE’s (businesses with an aggregated turnover 

of $10 million or more) are not in fact eligible for the $150,000 write-

off, they are eligible for more favourable tax treatment on assets that 

cost less than this as a result of the 12 March 2020 changes. That 

favourable treatment is in form of a bonus 50% upfront deduction.

EXAMPLE

XYZ Co has a turnover of $12 million. On 18 May 2020, 

it purchases a depreciable piece of machinery for $110,000 

(excluding GST) and starts to use that machinery a week later. 

As the machinery was purchased on or after 12 March 2020, it 

qualifies for the bonus 50% deduction (but not for the $150,000 

write-off because XYZ’s turnover exceeds $10 million and 

therefore it is not an SBE. Thus, the $55,000 bonus depreciation 

could be claimed in the 2020 financial year. The remaining 

$55,000 can be depreciated over the life of the asset under the 

general Uniform Capital Allowance rules. 

EXAMPLE

An SBE company that purchases an eligible asset for $120,000 

under the standard small business pooling rules (which will 

apply after the $150,000 threshold is reduced back down), 

would depreciate the asset by $18,000 (15% of $120,000) in the 

first income year and $30,600 (30% of $102,000) in the second 

income year. The cashflow the company would receive from 

these depreciation claims is $4,680 for the first year (assuming a 

26% small business company tax rate in 2020/2021) and $7,956 

in the second year. The company would continue to depreciate 

its general pool at 30% until the pool was under $1 000, at which 

point the entire pool could be written-off. 
By contrast, under the new $150,000 threshold, the company 

would be able to immediately deduct the entire $120,000 in 

the first income year. The cashflow benefit the company would 

receive from this is $31,200 in the first year ($26,520 more than 

standard small business pooling) – i.e. the benefit is brought 

forward rather than spread out). The company is then free to 

apply this brought-forward cash immediately (e.g. pay off debt or 

suppliers, or re-invest in the business etc.). In the second income 

year, there is no further depreciation of this asset as it has been 

written-off completely. This means that the company is paying 

more tax ($7,956) in the second year relative to the scenario 

under the old law (but no more and no less tax overall). 
If we take the example a step further, assume the asset cost 

$160,000 and therefore could not be written-off in the first 

year. Under the new rules, the asset would be placed in a small 

business general pool to be depreciated at 57.5% in the first year 

(rather than 15%) and the standard 30% in subsequent years. 

This too assists first-year cashflow.

THE BENEFIT? 

•  CASHFLOW – The $150,000 write-off improves small business 

cashflow by bringing forward deductions rather than having 

them spread out over more than one year. Cashflow can be a 

significant issue for small business, particularly start-ups. 

•  TIMING – The “pay day” on the cashflow relief in income tax 

payments could however be as much as 22 months (longer if the 

client has a tax loss). That is, an asset may be purchased in July 

2020 for example, but the tax agent may not lodge the tax return 

until the due date which can be as late as May 2022. 

•  PERSPECTIVE – You are only getting back an amount 

equivalent to the tax rate on the asset, not the full value of the 

asset. This is the same as the old law. You don’t get any extra 

cash than you would otherwise have received under the old rules 

(you simply get it sooner). Consequently, you should not let tax 

distort or blur your commercial instincts – as you don’t get any 

extra cash than you would otherwise have under the old rules, 

you should continue to only buy assets that fit within your wider 

business plan. 

•  SIMPLIFICATION – There is a reduction in compliance 

costs, particularly for those businesses that are capital intensive, 

through simplifying their tax arrangements and the record-keep-

ing required.

ELIGIBILITY

To properly treat the asset, you need to determine if your business is 

eligible in the first place. To qualify for the $150,000 write-off you 

must be carrying on a business, that has first acquired an asset on 

or after 12 March 2020 (the start time), and used that asset or had it 

installed ready for use on or before 31 December 2020 (the end time).

1. CARRYING ON A BUSINESS

The requirement to be ‘carrying on a business’ excludes taxpayers 

who are merely carrying on a hobby (see the ATO Fact Sheet 

and video, Business or Hobby? and Taxation Ruling TR 97/11 at 

paragraph 26 for the factors which indicate that a business is being 

carried on). Please note that Taxation Ruling TR 2019/1 – When does 

a company carry on a business? – is only relevant for the purposes of 

accessing the lower corporate tax rate (not the write-off).

2. SMALL BUSINESS ENTITY

Broadly, an SBE has an aggregated turnover of less than $10 million 

(including the turnover of connected and affiliated entities).

3. ASSET MUST BE FIRST ACQUIRED ON OR AFTER 12 

MARCH 2020

For a depreciating asset to qualify for the $150,000 write-off, it must 

be ‘first acquired’ on or after the start time 12 March 2020. The ‘first 

acquired’ concept is a new concept not previously a feature of the 

depreciation law. This additional requirement limits access to the 

$150,000 writeoff to new business investments made on or after this 

day.

6

www.mytaxsavers.com.au

My Tax Savers

SINGLE TOUCH PAYROLL

STP is finally here!  From 1 July 2018, all employers with 20 or more employees (as at 1 April 2018), must report their payroll information to the ATO via Single Touch Payroll. STP is a reporting change for employers. Essentially, STP requires that each time an employer pays their employees, they will have to instantly report to the ATO information such as the salaries and wages, pay as you go (PAYG) withholding and superannuation. The information will need to be reported from software, which is STP-enables. Eventually this will mean:
  • Employers will not need to provide Payment Summaries to their employees for the payments reporter through STP.
  • Employees will be able to view their payment information in ATO online services, which they will access through their myGov account.
  • Some labels on Activity Statements will be pre-filled with the information already reported.
NB employers with less than 20 employees (as at 1 April 2018) your STP start date will be 1 July 2019. To finish reading this article – log into the Members Area and see your July/Aug Newsletter edition page 11 Not a member – SIGNUP NOW and have access to this and many other tax planning & tax saving articles //mytaxsavers.com.au/plans/subscriptions/

$20,000 instant asset write off

This is the final year of the $20,000 instant asset write-off – to be abolished from 1 July 2018. 

Until 30 June 2018, Small Business Entities (SBE’s) can claim an immediate write-off for most depreciating assets used in their business if the asset costs less than $20,000 and the below time frames are met. In broad terms, SBE’s are entities (including sole traders) that are carrying on a business and have an annual turnover of under $2 million. This includes the turnover of any connected entities and affiliates. 

Being in its final year of operation, the timing requirements around the instant asset write-off are important.

To claim a deduction in 2017/2018, the asset must have been acquired on or after 1 July 2017 and first used or installed ready for use in your business on or before 30 June 2018.  To be claimable in full in 2017/2018.  

If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2018) then the write-off threshold reverts to $1,000. 

Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met . 

WHAT’S THE BENEFIT?

The real benefit from the $20,000 write-off is an improvement to your cash-flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year. Cash-flow can be a significant issue for small business, particularly start-ups. That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1,000 (which will apply from 1 July 2018).  You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner.

Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan .

OTHER GOVERNMENT INITIATIVES

While the Opposition has at the time of writing not proposed any further changes to superannuation, the Government by contrast announced a number of changes in the Federal Budget which it intends to implement if re-elected on 2 July.  It is not yet known whether the Opposition supports these changes which are as follows:


REDUCTION OF CONCESSIONAL CONTRIBUTIONS CAP

From 1 July 2017, the annual cap on concessional contributions will be reduced to $25,000 for all taxpayers (down from the current $30,000 for taxpayers under 50, and $35,000 for older taxpayers).  This change will limit the capacity to make deductible contributions to superannuation, as well as salary sacrificed contributions.  Softening the blow however, individuals with a superannuation balance less than $500,000 will be allowed to make additional “catch-up” concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.  Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years.  Only unused amounts accrued from 1 July 2017 will be available to be carried forward.  The Government states that this measure will make it easier for people with varying capacity to save and for those with interrupted work patterns (such as women who leave the workforce to have children) to provide for retirement.

EXAMPLE

Jake is an employee accountant whose employer contributed $15,000 in Superannuation Guarantee contributions in 2017/2018.  Jake also salary sacrificed $5,000 to superannuation.  In 2018/2019, Jake’s concessional contribution cap will effectively be $30,000 (consisting of the standard $25,000 annual cap, plus the $5,000 unused cap from 2017/2018).  This will provide Jake with a greater capacity to make concessional contributions such as salary sacrifice in 2018/2019 than would otherwise by the case.

If the concessional contributions gap is reduced, employees may need to review salary sacrifice arrangements that are in place at the end of 2016/2017 to ensure that you do not exceed the new, reduced cap from 1 July 2017.

LIFETIME NON-CONCESSIONAL CONTRIBUTIONS CAP

Effective 3 May 2016, if the Government is re-elected the non-concessional (after-tax) contributions cap will become a lifetime cap of $500,000, rather than the current annual cap of $180,000. This new cap will be retrospective by taking into account all non-concessional contributions made on or after 1 July 2007. Contributions made before the commencement date of 3 May 2016 cannot result in an excess over the lifetime cap.  However, excess non-concessional contributions made after 3 May 2016 will need to be removed or will be subject to penalty tax.  Going forward, the lifetime cap will be indexed to average weekly ordinary time earnings.

To recap, non-concessional contributions (also commonly referred to as an after-tax contribution) include:
  • Personal contributions for which an income tax deduction cannot be claimed as you fail the ‘10% rule’
  • Contributions made for you by your spouse
  • Contributions in excess of your CGT Cap Amount for small business owners
  • Amounts transferred from foreign superannuation funds, excluding amounts included in the fund’s assessable income, and
  • Contributions made for the benefit of a person under 18 years of age that are not employer contributions for that person.

IMPACT

This change limits the amount of after-tax savings that can be contributed into the concessionally taxed superannuation environment, and is retrospective in that it takes into account non-concessional amounts that have been contributed since 1 July 2007.  This reform will not only impact high income earners but also those who have significant one-off windfalls that they wish to contribute to superannuation such as the sale proceeds of capital assets, or inheritances.
This lifetime cap may also limit the ability of taxpayers to undertake re-contribution strategies, whereby you convert a superannuation interest from a taxable component to a tax-free component.  For more information on re-contribution strategies see our 2013 Superannuation Tax Savers publication available at our website www.mytaxsavers.com.au.

DEDUCTIONS FOR ALL! 

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.  Currently, only those who receive little or no employer superannuation contributions can claim a deduction such as if:
  • You run your own business, but were not an employee of the business (e.g. you are a Sole Trader or a Partner in a Partnership)
  • You are under the age of 65 (that is, you are eligible to contribute to superannuation) and receiving pension or investment income only
  • You are a contractor who is not eligible for Superannuation Guarantee from the organisations that you contract to
  • You only received workers’ compensation payments during the year
  • You are a non-working spouse/individual
  • You are an employee for only a small part of the year
This change is good news for the many employees who wish to make contributions to superannuation but whose employers do not offer salary sacrifice.  By making an after-tax superannuation contribution, employees (and all individuals under the age of 75) will be able to reduce their income tax liability while providing for their retirement.

‘WORK TEST’ ABOLISHED

The current restrictions on people aged 65 to 74 from making superannuation contributions will be removed from 1 July 2017. Currently, if people in this age bracket wish to make personal contributions to superannuation they must meet a ‘work-test’ which requires them to have worked for at least 40 hours over 30 consecutive days in the financial year.  This change is therefore good news for older taxpayers who do not meet the current ‘work-test’ but who wish to inject money into the occasionally taxed superannuation environment.

LOW INCOME SUPER TAX OFFSET

From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO).  Its purpose is to reduce tax on the superannuation contributions made by or on behalf of low income earners.  The LISTO is a non-refundable tax offset provided to your superannuation account (not you personally) based on the tax paid on the concessional contributions of low income earners up to a cap of $500. The LISTO will apply to taxpayers with an adjustable taxable income of up to $37,000 that have had concessional contributions made on their behalf (i.e. Superannuation Guarantee contributions by their employer).  The LISTO will replace the current Low Income Superannuation Contribution (LISC) which is a very similar regime.  In effect, the LISTO will ensure that low income earners do not pay more tax on their superannuation contributions than on their take-home pay.  In terms of administration, the ATO will determine your eligibility for the LISTO and will advise your superannuation fund annually.

EXAMPLE

Chase is a part-time university tutor.  In 2017/2018 he earned $35,000 and his employer made contributions of $3,325 on his behalf.  Chase is eligible for the LISTO.  He will receive $498.75 of LISTO in his account.  Chase would have received the same amount under the LISC regime.

TRANSITION TO RETIREMENT CRACKDOWN

The Government intends to remove the tax exemption that currently applies on earnings on pension assets that support Transition to Retirement Income Streams/Pensions.  Earnings from assets supporting these Income Streams/Pensions will be taxed at 15% (currently they are tax-free).  This change will apply from 1 July 2017, irrespective of when your Transition to Retirement Income Stream/Pension commenced.  To be clear, for those under 60 if your pension is paid from a taxed source, you will still receive a tax offset equal to 15% of the taxable part of the income stream.  Those 60 and over will still receive their income stream tax-free.  It’s just that earnings supporting the income stream for both under 60s and over 60s will be taxed at 15%.

EXAMPLE

Ken is 58 years of age, earns $100,000 and has $440,000 in his superannuation account.  He pays income tax on his salary and his superannuation funds pays $3,750 at 15% on the superannuation earnings of $25,000. Nearing retirement, Ken wishes to reduce his working hours by 15% and has a corresponding reduction in his salary down to $85,000.  So as to have no reduction in his current lifestyle, he commences a Transition to Retirement Pension for $15,000 per year. Currently, although Ken pays income tax at his current marginal rate on the pension (less a 15% tax offset) his superannuation fund pays no tax on the earnings on his superannuation account. Under the new law from 1 July 2017, the earnings on his superannuation will be taxed at 15% as he is receiving a Transition to Retirement Pension. While this measure makes the Transition to Retirement strategy less attractive, the concessional rate of 15% tax on earnings still compares favourably to the marginal tax rates that may apply on earnings outside of superannuation.  Additionally, as stated, the 15% tax offset on Transition to Retirement amounts received by people under the age of 60 will remain, as will the tax-free treatment of those amounts for those aged 60 and over.

LOW INCOME SPOUSE SUPER CONTRIBUTION EXTENDED

From 1 July 2017, if it is re-elected the Government will increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income earning spouse to $37,000 (up from $10,800).  The offset will gradually reduce for incomes above $37,000, before phasing out completely for incomes above $40,000.
To recap, this offset provides up to $540 each year for the contributing spouse.,br>

EXAMPLE

David earns $38,000 per year.  His wife Bobby wants to make a superannuation contribution on his behalf. Under the current rules, Bobby would not be entitled to a tax offset as David’s income exceeds $10,800.  Therefore there is no tax incentive for Bobby to make a contribution on behalf of her spouse. Under the new proposed law, Bobby would be eligible for a tax offset as David’s income is below $40,000.  However, as David earns more than $37,000, Bobby will not receive the maximum $540 tax offset.  Rather, the offset will be 18% of the lesser of:
  • $3,000 reduced by every dollar over $37,000 that David earns, or
  • The value of the spouse contributions made by Bobby.

RETIREMENT INCOME PRODUCTS – TAX EXEMPTION

From 1 July 2017, if re-elected the Government will remove the tax barriers to the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.          

THE SUPER NEW LANDSCAPE

ADDITIONAL TAX ON CONCESSIONAL SUPER CONTRIBUTIONS OF HIGH INCOME EARNERS Both the Opposition and the Government if elected will reduce the income threshold above which the additional 15% “Division 293 tax” cuts in for concessional superannuation contributions. The threshold will be reduced from $300,000 to $250,000 from 1 July 2017.  For those who earn below this amount, the tax on concessional contributions will remain at 15%.  To recap, concessional contributions consist of employer Superannuation Guarantee contributions, salary sacrifice contributions, and after-tax contributions for which you can claim a deduction under the “10% Rule”.  The $300,000 / $250,000 income threshold consists of:
  • Taxable income
  • Total reportable fringe benefit amounts
  • Net financial investment losses
  • Net rental property losses
  • Net amount on which family trust distributions tax has been paid
  • Concessional superannuation contributions made within the concessional contributions cap for the financial year.
Note that if an individual’s income excluding their concessional contributions is less than the threshold but the inclusion of their concessional contributions pushes them over the threshold, the extra 15% tax will only apply to the part of the contributions that are in excess of the threshold. EXAMPLE Grace has Division 293 income of $240,000, and has made concessional contributions of $20,000. 2015/2016 AND 2016/2017 As her Division 293 income plus concessional contributions is below $300,000, Grace’s concessional contributions will be taxed at 15% (payable by her superannuation account in the year that the contributions are made). 2017/2018 ONWARDS As her Division 293 income plus concessional contributions is above the new threshold of $250,000, Grace is liable for an additional 15% tax (30% in total).  The 30% tax will be applied to the $10,000 concessional contributions above the $250,000 threshold.  The total superannuation contributions tax will be $4,500. $1,500 (15% x the $10,000 below the $250,000 threshold) plus $3,000 (30% x $10,000 above the $250,000 threshold) Although this policy has attracted significant attention in the media, the actual impact will not be widespread as only 4% of taxpayers earn above $250,000, and the lowering of the threshold will only affect an estimated 110,000, people (those who earn between $250,000 and $300,000).  Even if this tax increase makes it into law, those who salary sacrifice will still enjoy a tax benefit of up to 19 cents in the dollar on amounts that they sacrifice into superannuation. CAPPING THE AMOUNT OF TAX-FREE INCOME Although they have gone about it differently, both the Government and the Opposition have announced policies to limit the amount of tax-free superannuation income that can be enjoyed in retirement. GOVERNMENT From 1 July 2017, the Government proposes to introduce a transfer balance cap of $1.6 million on the total amount of accumulated superannuation that an individual can transfer into a tax-free retirement account (retirement phase or pension phase).  Earnings made when your account is in the retirement phase or pension phase are tax-free.  Earnings on these balances will not be restricted.  By limiting the amount of capital to $1.6 million, this will in effect limit the amount of earnings/income that can be received tax-free when your account is in the retirement/pension phase.  This applies to existing pensions as well as future pensions. To be clear, you will still be able to have amounts in excess of $1.6 million inside superannuation, however these excess amounts must be in an accumulation phase account (where earnings are taxed at the existing concessional rate of 15%).  The $1.6 million cap will be indexed in $100,000 increments in line with the Consumer Price Index (CPI). For those of you who have accounts in the retirement phase as at 1 July 2017, if you have amounts in excess of $1.6 million you will be required to either transfer the excess back into an accumulation account, or withdraw the amount from your superannuation fund (only if you are over 60 will the withdraw be tax free – if under 60, there will be tax on the taxable component). Regarding the total cap amount of $1.6 million, once amounts are transferred into the retirement account, subsequent fluctuations due to earnings growth or pension payments will not affect the amount of the cap used. EXAMPLE Brad is 64 and retires from work and therefore meets a Condition of Release in December 2017.  He has $2.3 million in superannuation. He can transfer $1.6 million into a retirement account, the earnings on which will be tax-free.  The remaining $700,000 can sit in an accumulation account (the earnings on which will be taxed at the standard 15%).  All pension amounts received will be tax-free in Brad’s hands as he has turned 60. Alternatively, Brad can withdraw the $700,000 tax-free as he has turned 60.
STRATEGY This proposal may allow couples to have a combined pension balance of up to $3.2 million.  However, where most of the superannuation savings are in one spouse’s name, the Government’s lifetime non-concessional superannuation cap (see later) may limit the ability to equalise account balances and maximise the combined transfer balance cap.
OPPOSITION Along similar lines, the Opposition if elected will tax the superannuation pensions of high-income earners.  Under their policy, from 1 July 2017 future earnings on assets supporting income streams will be tax free up to $75,000 per year for each individual.  Earnings above the $75,000 threshold will attract the same tax rate of 15% that applies to earnings in the accumulation phase. EXAMPLE Susie is 63 years old, retired and she has $1.8 million in superannuation.  Susie is drawing an account-based pension, thus her account is in pension mode where her earnings are tax-free. Last year, Susie’s superannuation earned $90,000 (at a rate of 5%) which she has taken as income.  Under Labor’s proposal, Susie will pay 15% tax on earnings over $75,000.  This equates to $2,250 tax (payable out of her superannuation savings, not charged to her personally) which reduces her after-tax earnings to $87,750.
IMPACT Both the Government’s and Opposition’s policy again will not have a widespread impact as only 60,000 people are estimated to be impacted under either policy (those who have account balances in excess of $1.6 million).  Even for those who are impacted, the maximum rate on earnings (15%) is more attractive than the individual marginal tax rates that may apply to earnings on investments made outside of superannuation.