Covid-19 has had a significant financial impact on most Australians, their families, businesses and communities. While there are some green shoots of recovery, the path ahead is far from certain. As we head towards the EOFY, it’s important to understand how Covid-19 related cash inflows and outflows and changes to work, lifestyle and business practices affect individual and business related tax liabilities.
Cash inflows for individuals
Individuals may have applied (as sole traders) or received JobKeeper or JobSeeker payments. While this would have been a welcome cashflow boost, the individual’s receiving this money will need to pay tax on it. It’s best to keep this in mind when spending these receipts.
Given the slowdown in business, some individuals may have been asked to work less hours or work on a more “flexible” basis. In some instances, these individuals may have received one off redundancy or “stand down” payments. While the latter payments are taxable in the hands of the recipient, it is not all doom and gloom as every downturn presents opportunities as well.
For example, individuals may be able to work for multiple employers on a part time basis, or even start their own “side gig.”
It is important to capture these multiple sources of revenue, and related expenses to ensure the tax filing is complete and accurate. This will ensure a clean bill of health should the ATO audit or query the return.
Some individuals may have received payments from income protection insurance policies for loss of salary / wages. These receipts will have to be recorded as income in their tax returns unless taxes have already been withheld.
An important aspect to consider is that while an individual is working less hours, the employer could be accidentally over deducting taxes and remitting to the ATO. In these instances, filing an accurate tax return could result in a refund!
Persons who have been affected by Covid 19 could also request for an early release of their superannuation funds. Eligible individuals would receive $10,000 for the year 2019-20 (provided they submit their applications by 30 th June 2020) and a further $10,000 for the year 2020-21 (applications need to be submitted between 1 st July and 24 th September 2020). The good news for these individuals is that no taxes need to be paid on these receipts.
Tax deductible expenses for individuals
It is important to appreciate the effect that lifestyle and workplace changes brought on by Covid-19 have on expenses which individuals usually claim.
For example, there is likely to be scrutiny by the ATO on business related travel since lockdowns and restricted movements meant that most Australians had to limit their travel arrangements.
Work from home became the de-facto work practice for most organisations and employees. Hence
the ATO has amended the rules and options for individuals for calculate their home office related
expenses.
While some of the changes simplify the calculation process, it may result in a lower than entitled amount being claimed.
It is also important to note that it is not only day to day running expenses e.g. electricity, internet but capital items such as furniture, computers etc. which can be claimed.
It is recommended to speak to a Tax Agent to ensure that all eligible home office expenses are accurately captured and claimed in a manner that boosts cash flows during these times.
With increased numbers working from home, clothing and laundry related expenses are also likely to be scrutinised by the ATO. However, individuals working in roles which require close physical proximity to others will be able to claim the cost of protective clothing and other related products, provided they have not been reimbursed or paid for by their employer.
Many Australians may have taken this time to upskill themselves to improve their career prospects when the economy rebounds. The good news is that these expenses are likely claimable. However, the course of study must relate to the individual’s current job role and certain deductions apply.
Business related cash flows
Businesses (including sole traders, companies, partnerships and trusts) and not for profit organisations that employ staff, with turnover of less than $50 million p.a. may have claimed between $20,000 to $100,000 to boost their cash flows.
In addition, the Victorian government also set up a Business Support Fund of $500 million as part of a $1.7 billion Economic Survival Package. The deadline to submit applications was 1 st June 2020, and organisations in specific sectors with annual turnover exceeding $75,000 and an annual wage bill of less than $650,000 were eligible to apply for this grant.
These receipts will not be taxed by the ATO unless they are used for non-business purposes.
Businesses have also been granted an enhanced instant asset write off facility. As per the scheme, with effect from 12 th March 2020, businesses with less than $500 million turnover can immediately write off individual assets amounting to $150,000 each if they were first used or installed and ready for use by this date.
This entitlement was due to be withdrawn on 1 st July 2020 but has been extended until December 2020.
There are limited restrictions, but a point to note is that the threshold for passenger vehicles has been restricted to $57,581 (not $150,000).
Prior to 12 th March 2020 companies with a turnover of $50,000 million were permitted to immediately write off individual assets up to $30,000.
The table below summarises the changes that are relevant to the 2019-20 financial year.
Instant asset write off thresholds
| Date range for when asset first used or installed ready for use | Eligible businesses | Per asset threshold |
|---|---|---|
| 12 th March 2020 to 31 st December 2020 | Less than $500 million aggregated turnover | $150,000 |
| 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 | Less than $50 million aggregated turnover | $30,000 |
| 29 January 2019 to 7.30pm (AEDT) on 2 April 2019 | Less than $10 million aggregated turnover | $25,000 |
A Backing Business Investment (BBI) scheme is also available, whereby companies that purchase assets on or before 12 th March 2020 can depreciate the asset by 50% + the standard depreciation rate (the latter is computed after deducting the former).
This accelerated depreciation scheme is applicable to assets of $150,000 or more, but subject to several restrictions including the threshold for passenger vehicles mentioned above.
Given the multiple options available, it is recommended to contact us to identify which scheme to apply considering the circumstances of the business and cash flow requirements.
Conclusion
As reflected above, there are multiple changes introduced due to Covid-19 which need to be carefully considered when preparing a tax return for 2019-20. Some of the changes run beyond the 2019-20 financial year as well. It is in everyone’s best interests to carefully study these changes and utilise them to minimise tax payments and improve cash flows until the economy and businesses recover from the pandemic.