Early access to superannuation measures
On 22 March 2020, the Federal Government released the second stage of its economic plan to cushion the economic impact of COVID-19 including a temporary window for early, tax free superannuation withdrawals for those hit hardest.
The Government is allowing individuals affected by the economic impacts of COVID-19 to access up to $10,000 of their superannuation savings in 2019-20 and a further $10,000 in 2020-21 ($20,000 in total). Individuals will not need to pay tax on amounts released, and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
To apply for early release a fund member must satisfy any one or more of the following requirements:
- they are unemployed; or
- they are eligible to receive a Jobseeker Payment, Youth Allowance for Jobseekers, Parenting Payment (which includes the single and partnered payments), a special benefit or Farm Household Allowance; or,
- on or after 1 January 2020:
- they were made redundant; or
- their working hours were reduced by 20 per cent or more; or
- if they are a sole trader — their business was suspended or there was a reduction in their turnover of 20 per cent or more.
Employer Termination Payments as a result of COVID-19
The tax rules currently provide for the concessional treatment of termination payments. There have been no announcements on changes to the taxation of employment termination payments or redundancies owing to COVID-19 from the Federal or State Governments or ATO to date. As this is an evolving situation, please continue checking the ATO’s webpage for updates.
Working from home and the FBT implications
Implications for employers
Employers can provide employees with one laptop or other portable electronic device, per FBT year, to enable them to work from home, and this will be exempt from FBT.
Exemptions from FBT are also available for the reimbursement of the business use portion of home internet/telephone expenses and home office equipment (e.g. printer, computer monitor, furniture, etc. provided the value of each item is less than $300).
Employers can also rely on the minor benefits exemption, provided the value of each benefit is less than $300 (inclusive of GST) and it is provided infrequently.
Implications for employees
Individuals working from home as a result of COVID19, may be able to claim a deduction for the additional running expenses that are incurred including heating, cooling, lighting, phone and internet expenses.
Cancelled events – FBT and GST implications
If work related events are cancelled, but the cost of attending them is non-refundable, employers will not be liable for FBT on the non-refundable costs.
If a customer is provided with a reimbursement due to a cancelled event, and GST has already been paid to the ATO, taxpayers can make a decreasing adjustment to reduce the amount GST payable in their next activity statement.
Protective equipment and entitlement to deductions
Implications for employers
Expenses incurred by employers who provide or pay for emergency accommodation, meals, food supplies, transport or other assistance e.g. face masks, sanitisers for employees at risk of becoming sick with COVID-19, will generally be exempt from FBT, if the benefit is provided for immediate relief.
Implications for employees
Employees can claim deductions for gloves, facemasks, sanitisers, anti-bacterial spray that they use at work due to COVID-19, provided the following applies:
- they must have incurred the expense themselves; and
- it must have a sufficient connection with the earning of their assessable income, which means they:
- are exposed to the risk of illness or injury in the course of carrying out their income earning activities;
- the risk is not remote or negligible;
- the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the circumstances; and
- they use the item in the course of carrying out their income earning activities.
If employees use items for both work-related and private purposes, they can only claim a deduction for the portion of the expense that relates to their work-related use.
Unforeseen residency issues
Residents temporarily overseas
Employees that usually live and work in Australia and are only temporarily overseas as a result of COVID-19, will experience no change to Australian tax obligations. If they are required to pay foreign income tax overseas, they will usually be entitled to a foreign income tax offset against their Australian tax payable.
Foreign residents temporarily in Australia and earning income
Employees that are not Australian residents, but who are staying in Australia for longer than expected because of COVID-19 will not become an Australian resident for tax purposes provided they:
- usually live overseas permanently
- intend to return there as soon as they are able to.
Their Australian tax obligations will generally remain unchanged and they will:
- not be assessed on income from a foreign source
- remain assessable on income that was already from an Australian source.
For foreign residents temporarily in Australia and continuing to be paid employment income, the ATO has advised as follows:
- Paid leave - not considered Australian sourced and consequently not assessable.
- Working remotely solely as a result of COVID-19 - the ATO accept that working in Australia for less than three months will not result in the individual being assessed for Australian tax. As the situation is constantly evolving, the ATO will further consider this in coming weeks. The three months may potentially be extended further under a Double Tax Agreement depending on the country where the individual ordinarily resides.
Where the wages are not assessable per the above, employer obligations are as follows:
- STP reporting will not apply;
- Pay-As-You-Go Withholding (PAYGW) will not apply;
- Fringe Benefits Tax will not apply; and
- Superannuation Guarantee – the guidance is currently silent on whether this would be required.
Where an employee remains in Australia beyond the three month threshold that the ATO specifies in the current guidance, an Australian employer could expect to have to meet the above obligations.
However, a foreign employer would not be required to register and apply PAYGW for an employee working temporarily in Australia as a result of COVID-19, unless it expects the employee to remain here beyond 30 June 2020.
There are also some limited exceptions to employment income being assessable in Australia. These may apply if employees have a foreign employer (without an Australian base), the foreign employer is in a country with which Australia has a double tax agreement (DTA) and they are present in Australia for 183 days or less. There are also some exceptions if they are a foreign government employee.
The tax residency issue may be more complicated if employees:
- end up staying in Australia for a lengthy period;
- do not plan to return to their country of residency when they are able to do so.
However, please note that each DTA needs to be carefully considered as the rules varies in some DTAs.
The Government is providing up to $100,000 to eligible not for-profit entities, including charities, with an aggregated annual turnover under $50 million and that employ workers, with a minimum payment of $20,000. These payments will help not-for-profit entities’ cash flow so they can keep operating, pay their rent, electricity and other bills. This will also support employment at a time where not for-profit entities are facing increasing demand for services. These payments will be delivered by the ATO as a credit on activity statements from late April.
Whilst the FBT legislation and ATO regulations on working from home have not changed, they will become more important than ever to understand as millions of Australians begin working from home.
Individuals directly affected through lost or reduced employment will welcome the ability to withdraw up to $20,000 of superannuation savings with the temporary nature of the early withdrawal opportunity enabling them to strike an appropriate balance between alleviating immediate financial difficulty and providing adequately for their retirement.
To understand the employment tax implications of COVID-19 please contact your local BDO Employment Tax and Superannuation advisors.