Are you prepared for the tax year ahead?

15 July 2020

James Trainor, Partner, Tax |

Many of the COVID-19 measures introduced in 2019-20 will carry over into the 2020-21 income year. However, the Government is continually reviewing and making changes to these measures in response to the rapidly changing economic impact.

We expect to see further Government announcements in the coming months, with the 2020 Federal Budget deferred until October 2020.

Below we’ve outlined the key support measures for businesses and individuals that will apply in the 2020-21 income year.

Key support measures for businesses

1. Instant asset write off

The instant asset write-off threshold for new or second-hand assets first used or installed ready for use from 12 March until 30 June 2020, was increased from $30,000 to $150,000 for businesses with an aggregated annual turnover of less than $500 million.

The Government has announced an intention to extend the instant asset write-off of $150,000 to 31 December 2020.

From 1 January 2021, the instant asset write-off will only be available for small businesses with an annual turnover of less than $10 million and the threshold will reduce to $1,000.

2. GST and PAYG GDP adjustment for 2020-21 is nil

Each year GST and pay as you go (PAYG) instalment amounts are adjusted using a formula known as the gross domestic product (GDP) adjustment.

In response to COVID-19, indexation for GST and PAYG instalments has been suspended for the 2020-21 income year. Consequently, there will be no GDP adjustment used to determine quarterly GST and PAYG instalment amounts for the 2020–21 income year.

A reminder that any PAYG instalment variations for the 2019–20 income year do not carry over to the 2020-21 income year. Taxpayers will need to vary PAYG instalments again for the 2020–21 income year if their instalment amounts will result in them paying too much or too little tax for the year.

Taxpayers should continue varying GST instalments on their quarterly activity statements.

3. Cash flow boost

Eligible small and medium-sized employers who pay PAYG withholding in respect of payments to employees may be entitled to a temporary cash-flow boost of between $20,000 and $100,000.

The initial cash flow boost was delivered as credits in activity statements for each monthly or quarterly period from March to June 2020. The credit was equal to the 100% of the PAYG withholding, with a minimum credit of $10,000 and a maximum credit of $50,000.

Eligible entities who received the initial cash flow boost will automatically receive additional cash flow boosts when activity statements are lodged for each monthly or quarterly period from June to September 2020.

The amount of the additional cash flow boosts will be equal to the amount of initial cash flow boosts received and split evenly over the activity statement lodgements for the periods June to September 2020. For quarterly lodgers, 50% of the initial cash flow boosts will be credited in each activity statement. For monthly lodgers, 25% of the initial cash flow boosts will be credited in each activity statement.

Entities who have not made payments to employees subject to PAYG withholding from June onwards should report ‘0’ for PAYG withholding when lodging activity statements to ensure the additional cash flow boosts are received. It is important these entities do not cancel their PAYG withholding registration until they have received the additional cash flow boost.

Employers should note the cash flow boost is not taxable.

4. JobKeeper payment

Eligible employers, including eligible sole traders, partnerships and company directors, are entitled to a JobKeeper payment of $1,500 per fortnight in respect of salary and wages paid to eligible employees.

Employers who satisfied the decline in turnover test in prior months or quarters remain eligible until the legislated program end date of 27 September 2020.

Employers who did not satisfy the decline in turnover before 30 June 2020 are still able to compare their turnover in the months or quarters up until September 2020, and potentially become eligible for at least a portion of the scheme period.

Note eligibility for JobKeeper payments for approved child care providers will stop from 20 July 2020.

Key support measures for individuals

1. Early release of superannuation

Eligible individuals who are financially affected by COVID-19 will be able to access up to $10,000 of their superannuation before 1 July 2020 and up to a further $10,000 from 1 July 2020.

Eligible citizens and permanent residents of Australia and New Zealand can submit an application between 1 July and 24 September 2020 through ATO online services in myGov. Temporary residents are not eligible to apply for early release of super in the 2020–21 income year.

Individuals who applied in late June 2020 for early release of super, but who received the money after 30 June 2020, are still eligible to apply for a second release in the 2020-21 income year.

Individuals will not need to pay tax on amounts released and the money withdrawn will not be taken into account under any income or means tests.

2. Working from home during COVID-19

The Australian Taxation Office introduced a temporary shortcut method to claim tax deductions for working from home expenses. The shortcut method initially applied from 1 March to 30 June 2020, however it can now be applied up until 30 September 2020.

Under the shortcut method, individuals can claim a tax deduction of 80 cents for each hour worked from home during the relevant period.

The shortcut method does not require a dedicated work area and can be claimed by more than one person working in the same home.

The additional deductible running expenses included in the shortcut method are:

  • Electricity
  • Gas heating
  • Decline in value of home office furniture
  • Cleaning
  • Telephone and internet
  • Computer consumables (e.g. printer ink and stationery)
  • Decline in value of computer equipment

The shortcut method can be used when additional expenses have been incurred in at least one of these categories. If this method is used, no other deduction is available for working from home expenses.

Individuals must retain records of the number of hours worked from home, and exclude any breaks from work.

For further information regarding the above measures discussed and how they may affect your specific circumstances, please contact your local BDO Tax adviser.