The 2020 Federal Budget

The 2020 Federal Budget

 The 2020 Federal Budget (postponed from May), has been characterised by spending and bringing forward tax cuts to get the economy moving again. Make no mistake, the numbers are big! However, COVID has been seen as a great a threat to the global economy has faced in a very long time (many suggest since The Great Depression), and so requires equally strong and unprecedented measures.

The Treasurer, Josh Freydenberg has said that once the economy recovers and unemployment falls comfortably below 6%, he will then look to tackle the deficit. This is forecast to be in 2023-2024.

Unlike other budgets where we find major changes to superannuation requiring more strategic assessment and planning, this budget is relatively straight forward.

  • Personal tax cuts have been brought forward 2 years. This means many of you earning over $50,000 pa will have at least an additional $41 per week in your pockets. This will be back dated to 1st July 2020.
  • Further support for pensioners, low income earners and job seekers. This includes two cash payments and incentives for employers to hire unemployed workers.
  • Making it easier to choose a super fund. There will be an interactive online comparison to assist you in making a decision on where to invest your super, as well as making it easier to have your new employer contribute to your existing fund.
  • First home buyer purchase caps lifted to assist an additional 10,000 first home buyers.
  • Business tax changes for small business including immediate tax write-off, and applying tax losses from 2019 – 2022 against previously taxed profits.
  • Increased business investment with $1.3bn for initiatives in ‘modern manufacturing’ and $5.7bn for new and accelerated infrastructure projects.

 The attached article provides a comprehensive summary from Westpac Economics.

Downsizing? What a ‘Super’ Opportunity!

Downsizing? What a ‘Super’ Opportunity!

I was recently having a chat with a prospective client who mentioned t her mother had put her house up for sale and was looking to downsize. Her thoughts were to simply add a portion of the proceeds from the sale to her existing share portfolio.

This had me thinking that many people, including advisers and accountants, were unaware of a relatively new part of legislation which allows those over 65 years old who meet certain eligibility requirements, to choose to make a ‘downsizer’ contribution into superannuation of up to $300,000 for each person from the proceeds of the sale of their home.

Eligibility Criteria

The eligibility criteria in making a downsizer contribution are:

  • you are over 65 years old at the time you make a downsizer contribution
  • the contribution is from the proceeds of selling your home
  • your home was owned by you or your spouse for 10 years or more prior to the sale (calculated from the date of settlement of purchase to the date of settlement of sale)
  • your home is in Australia
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption
  • you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home

If your home that was sold was only owned by one spouse, the other spouse may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other requirements.

What about my Transfer Balance Cap of $1.6m?

The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million. What’s also important to note is that this contribution will not affect your total superannuation balance until the end of the financial year. Because this is not considered a ‘non-concessional’ super contribution, if you are still eligible to make a contribution to super before the end of that financial year, you may do so.

However, it will eventually count towards your transfer balance cap (TBC), currently set at $1.6 million once the end of year accounts are completed.

You can only access the downsizer scheme once. This means you can only make downsizing contributions for the sale or disposal of one home, including the sale of a part interest in a home, and it can’t be more than the proceeds from the sale of your home.

There is no requirement for a couple to make equal downsizer contributions. For instance, one spouse could make a $250,000 contribution while the other spouse may make a $130,000 contribution.

Timing of your contribution

You must make your downsizer contribution within 90 days of receiving the proceeds of sale. You may apply for an extension if there are situations beyond your control for making the payment.

So what’s the process?

You will need to complete the Downsizer contribution into super (NAT 75073) form. You need to provide this to your super fund when making – or prior to making – your contribution.

And then within 90 days of receiving the proceeds of sale, make sure you make the contribution.

An extension of time should be requested before the 90-day period from the date of settlement has expired.

Part sales of property

Fractional property investment firm, DomaCom received binding advice from the ATO that people may sell part of their home and still qualify for the downsizer contribution.

DomaCom have a platform whereby investors can purchase a portion of a property asset from sellers. Its Seniors Equity Release Platform provides this as an option for seniors looking to access cash through the sale of part of their home.

As mentioned previously, sellers are only able to use the downsizer contribution once, so once they sell a portion of their home and utilize it, they cannot do so again.

The contributions would still be capped at $300,000 per spouse and could be made as several contributions over a period of 90 days from settlement of the property.

With many Australians having large amounts of their wealth tied up in their home, the downsizer contribution may be very effective in allowing them to boost their income in a tax effective structure, regardless of whether you are over 65 and cannot meet the work test rule.

As with all these strategies, it’s important to get the right advice as each person’s situation may be different and there may be implications which affect you.

Find out how this can work for you on 03 99757070 or at info@stewardwealth.com.au

Make sure you claim your working from home tax deductions

Make sure you claim your working from home tax deductions

While it’s difficult to find any real positives during COVID-19, as a result of the quarantine requirements forcing so many people to work from home the ATO has introduced a new shortcut method for calculating related tax deductions.

The method is very straightforward. All you do is calculate the total number of hours you’ve worked from home during the COVID-19 period and multiply those hours by $0.80. The final amount is your tax-deductible expense claim. If there are two people working from home, you can both claim the $0.80 per hour. Record keeping is fairly basic, all you need to do is keep a record of the hours you have worked from home.

Ian Alabakis, of Alabakis Chartered Accountants, told us the shortcut method is a special arrangement for COVID that was originally due to finish in June, but it can now be applied up until 30 September 2020.

This means, you will be able to use the shortcut method to calculate your working at home expenses for the period from:

  • 1 March 2020 to 30 June 2020 in the 2019–20 income year, and
  • 1 July 2020 to 30 September 2020 in the 2020–21 income year

Ian says the ATO may extend this period, depending on when work patterns return to normal and added that in most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.

What you can’t claim

If you’re working from home because of the COVID-19 lockdown, you generally can’t claim:

  • Expenses such as mortgage interest, rent, insurance and rates
  • Coffee and other general household items
  • Costs related to children’s education

More details are available from the ATO.

Jobkeeper Payment

Jobkeeper Payment

The Federal Government last night announced its 3rd, and largest, round of stimulus with a $130 billion package aimed at businesses impacted by the COVID-19 pandemic. Eligible businesses will receive a fortnightly wage subsidy up to $1,500 per eligible employee as part of a Federal Government action to prevent the significant jobs losses due to the COVID-19 pandemic. 

 The Government has released a helpful Fact Sheet detailed below.  

OBLIGATIONS ON EMPLOYERS

To receive the JobKeeper Payment, employers must:

  • Register an intention to apply on the ATO website and assess that they have or will experience the required turnover decline.
  • Provide information to the ATO on eligible employees. This includes information on the number of eligible employees engaged as at 1 March 2020 and those currently employed by the business (including those stood down or rehired). For most businesses, the ATO will use Single Touch Payroll data to pre-populate the employee details for the business.
  • Ensure that each eligible employee receives at least $1,500 per fortnight (before tax). For employees that were already receiving this amount from the employer then their income will not change. For employees that have been receiving less than this amount, the employer will need to top up the payment to the employee up to $1,500, before tax. And for those employees earning more than this amount, the employer is able to provide them with a top-up.
  • Notify all eligible employees that they are receiving the JobKeeper Payment.
  • Continue to provide information to the ATO on a monthly basis, including the number of eligible employees employed by the business.

BACKGROUND ON JOBKEEPER PAYMENT

Under the JobKeeper Payment, businesses impacted by the Coronavirus will be able to access a subsidy from the Government to continue paying their employees. Affected employers will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum period of 6 months.

Eligible empyloyers

Employers will be eligible for the subsidy if:

  • their business has a turnover of less than $1 billion and their turnover will be reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month); or
  • their business has a turnover of $1 billion or more and their turnover will be reduced by more than 50 per cent relative to a comparable period a year ago (of at least a month); and
  • the business is not subject to the Major Bank Levy.

The employer must have been in an employment relationship with eligible employees as at 1 March 2020, and confirm that each eligible employee is currently engaged in order to receive JobKeeper Payments.

Not-for-profit entities (including charities) and self-employed individuals (businesses without employees) that meet the turnover tests that apply for businesses are eligible to apply for JobKeeper Payments.

Eligible employees

Eligible employees are employees who:

  • are currently employed by the eligible employer (including those stoo down or re-hired);
  • were employed by the employer at 1 March 2020;
  • are full-time, part-time, or long-term casuals (a casual employed on a regular basis for longer than 12 months as at 1 March 2020);
  • are at least 16 years of age;
  • are an Australian citizen, the holder of a permanent visa, a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia fro 10 years or more, or a Specia Category (Subclass 444) Visa Holder; and
  • are not in receipt of a JobKeeper Payment from another employer.

If your employees receive the JobKeeper Payment, this may affect their eligibility for payments from Services Australia as they must report their JobKeeper Payment as income.

APPLICATION PROCESS

Business with employees

Initially, employers can register their interest in applying for the JobKeeper Payment via ato.gov.au from 30 March 2020.

Subsequently, eligible employers will be able to apply for the scheme by means of an online application. The first payment will be received by employers from the ATO in the first week of May.

Eligible employers will need to identify eligible employees for JobKeeper Payments and must provide monthly updates to the ATO.

Participating employers will be required to ensure eligible employees will receive, at a minimum, $1,500 per fortnight, before tax.

It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.

Further details for businesses for employees will be provided on ato.gov.au

Businesses without employees

Businesses without employees, such as the self-employed, can register their interest in applying for JobKeeper Payment via ato.gov.au from 30 March 2020.

Businesses without employees will need to provide an ABN for their business, nominate an individual to receive the payment and provide that individual’s Tax File Number and provide a declaration as to recent business activity.

People who are self-employed will need to provide a monthly update to the ATO to declare their continued eligibility for the payments. Payment will be made monthly to the individual’s bank account.

Further details for the self-employed will be provided on ato.gov.au.

Employer with employees on different wages

Adam owns a real estate business with two employees. The business is still operating at this stage but Adam expects that turnover will decline by more than 30 per cent in the coming months. The employees are:

  • Anne, who is a permanent full-time employee on a salary of $3,000 per fortnight before tax and who continues working for the business; and
  • Nick, who is a permanent part-time employee on a salary of $1,000 per fortnight before tax and who continues working for the business

Adam is eligible to receive the JobKeeper Payment for each employee, which would have the following benefits for the business and its employees:

  • The business continues to pay Anne her full-time salary of $3,000 per fortnight before tax, and the business will receive $1,500 per fortnight from the JobKeeper Payment to subsidise the cost of Anne’s salary and will continue paying the superannuation guarantee on Anne’s income;
  • The business continues to pay Nick his $1,000 per fortnight before tax salary and an additional $500 per fortnight before tax, totalling $1,500 per fortnight before tax. The business receives $1,500 per fortnight before tax from the JobKeeper Payment which will subsidise the cost of Nick’s salary. The business must continue to pay the superannuation guarantee on the $1,000 per fortnight of wages that Nick is earning. The business has the option of choosing to pay superannuation on the additional $500 (before tax) paid to Nick under the JobKeeper Payment.

Adam can register his initial interest in the scheme from 30 March 2020, followed subsequently by an application to ATO with details about his eligible employees. In addition, Adam is required to advise his employees that he has nominated them as eligible employees to receive the payment. Adam will provide information to the ATO on a monthly basis and receive the payment monthly in arrears.

Employer with employees who have been stood down without pay

Zahrah runs a beauty salon in Melbourne. Ordinarily, she employs three permanent part-time beauticians, but the government directive that beauty salons can no longer operate has required her to shut the business. As such she has been forced to stand down her three beauticians without pay.

Zahrah’s turnover will decline by more than 30 per cent, so she is eligible to apply for the JobKeeper Payment for each employee, and pass on $1,500 per fortnight before tax to each of her three beauticians for up to six months. Zahrah will maintain the connection to her employees, and be in a position to quickly resume her operations.

Zahrah is required to advise her employees that she has nominated them as eligible employees to receive the payment. It is up to Zahrah whether she wants to pay superannuation on the additional income paid because of the JobKeeper Payment.

If Zahrah’s employees have already started receiving income support payments like the JobSeeker Payment when they receive the JobKeeper Payment, they will need to advise Services Australia of their new income.

COVID-19 – Temporary Reduction in Minimum Pension Payment

COVID-19 – Temporary Reduction in Minimum Pension Payment

The government has announced measures to help preserve superfunds by temporarily halving the minimum pension drawdown requirements for account based pensions and similar products for 2019-20 and 2020-21.

Similar to actions taking during the GFC, this measure will benefit retirees by providing greater flexibility as to how they manage their superannuation assets.

COVID-19 – Temporary Reduction in Minimum Pension Payment table1

Unfortunately, if you have already taken more than the minimum pension for the 2019/2020 financial year, you WILL NOT be able to put money back into your superannuation account.

How can we help? 

If you need assistance with understanding any of these recent announcements, please feel free to give us a call so we can discuss your particular requirements in more detail.