Practice Update - April 2021

JobKeeper comes to an end

The ATO has advised that the final JobKeeper payment will be processed in April 2021.

 

Enrolled businesses do not have to do anything when the program closes, although they will need to complete their final March monthly business declaration by 14 April 2021.

 

We note that once a business is no longer claiming JobKeeper Payments, it may become eligible to receive the JobMaker Hiring Credit for any additional employees that started employment on or after 7 October 2020.  The eligibility requirements can be seen on the ATO website (click here).


ATO loses case on JobKeeper and backdated ABNs

On 24 March 2021, the Full Federal Court handed down its decision in a case concerned with the requirement that an entity claiming JobKeeper must have had an ABN on 12 March 2020, or a later time allowed by the ATO.

 

The Registrar of the Australian Business Register had reactivated the relevant entity's previously cancelled ABN after 12 March 2020, but with a backdated effective date on or before 12 March 2020.

 

The Court held that backdating an ABN to have an effective date on or before 12 March 2020 did not satisfy the requirement for the entity to have had an ABN on 12 March 2020.

 

However, the Court also held that the ATO's decision not to allow the entity a "later time" to have an ABN was a "reviewable decision", and that the Commissioner's discretion should be exercised in these circumstances (i.e., the Court held that the entity should be entitled to JobKeeper).

 

The Court's decision does not change the need to satisfy all of the other eligibility requirements.  We note that where the ATO has postponed finalising a decision regarding a taxpayer's eligibility for JobKeeper pending the Court's decision, the ATO will contact the affected taxpayer shortly to provide them with an update.

First criminal conviction for JobKeeper fraud

A person claiming to be a sole trader was convicted of three counts of making a false and misleading statement to the Commissioner of Taxation, in order to receive $6,000 in JobKeeper payments to which he was not entitled, as he was not operating a genuine business and he had already agreed to be nominated by his full-time employer for the allowance.

 

The ATO has a dedicated integrity strategy that supports the administration of the Government's stimulus packages, with robust and efficient compliance systems that make it very easy to identify fraudulent behaviour and stop it.

ATO releases compliance guidance: Allocation of professional firm profits

The Commissioner has released a draft practical compliance guideline that sets out the ATO's proposed compliance approach to the allocation of profits by professional firms, and these guidelines are contained in Draft Practical Compliance Guideline PCG 2021/D2 (PCG 2021/D2 click here).

 

The ATO's revised guidance explains how the ATO intends to apply a risk-based compliance approach when considering the allocation of professional firm profit, or income in the assessable income of an individual professional practitioner (IPP).

 

Historically most professional firms were partnerships of natural persons.  Today, professional firms are now structured with a wider variety of entities, reflecting the economic and legal choices made by the owners of those firms.  Different structures may be implemented to give rise to different tax consequences and thus resulting in different tax compliance risks.

 

While the use of companies, trusts and other business structures does not, of itself, give rise to tax avoidance concerns, the ATO is concerned about arrangements involving taxpayers who redirect their income to an associated entity from a business (or professional services) activity, where it has the consequence of altering their tax liability.


Key changes

 

The ATO's risk-based compliance approach requires two qualifying "gateways" to be passed before applying the risk assessment framework, requiring those with non-commercial arrangements, and those arrangements with high-risk features to engage with the ATO before applying the guidance.

 

Where an IPP passes the gateways, they then self-assess against the risk assessment framework to determine the type of compliance attention that will be given to their arrangement.

 

PCG 2021/D2 combines three previously separate risk assessment measures into a single methodology, which then gives an overall risk rating of low, medium or high risk, including:

  • the proportion of profit entitlement from the whole of the firm group that is returned in the hands of the IPP;
  • the total effective tax rate for income received from the firm by the IPP and associated entities; and
  • the remuneration returned in the hands of the IPP as a percentage of the commercial benchmark for the services provided to the firm. 

Where arrangements featuring high risk features or lacking apparent commercial rationale are identified, the ATO will treat the risk through application of integrity provisions, including the general anti-avoidance provisions in Pt IVA of the Income Tax Assessment Act 1936.

 

Once finalised, this Guideline will apply prospectively from 1 July 2021.


Transitional arrangements

 

The ATO notes that taxpayers who entered into an arrangement prior to 14 December 2017 are able to continue to rely on the suspended guidelines (for 2018, 2019, 2020 and 2021 tax years), provided their arrangement complies with the suspended guidelines, is commercially driven, and does not exhibit any high-risk features.


In circumstances where arrangements that were considered low risk under the suspended guidelines may now have a higher risk rating under the new guidelines; the ATO is allowing a grace period for those IPPs to take the necessary steps to modify their arrangements to be lower risk.  If the IPP in these circumstances choose, they can continue to apply the suspended guidelines to their arrangements until 30 June 2023.


ATO's taxable payments reporting system update

The ATO has confirmed that more than 60,000 businesses have not yet complied with lodgment requirements under the Taxable Payments Reporting System (TPRS) for 2019/20.  The TPRS is a black economy measure designed to assist the ATO to identify contractors who do not report or under-report their income.

 

The ATO estimates that around 280,000 businesses need to lodge a Taxable Payments Annual Report (TPAR) for the 2020 financial year.

 

Importantly, 2020 was the first year that businesses that pay contractors to provide road freight, information technology, security, investigation, or surveillance services may need to lodge a TPAR with the ATO (in addition to those businesses providing building and construction, cleaning, or courier services).

 

Businesses who have not yet lodged need to lodge as soon as possible to avoid penalties.


FBT rates and thresholds for the 2021/22 FBT year

The ATO has updated its webpage containing the fringe benefits tax (FBT) rates and thresholds for the 2017/18 to 2021/22 FBT years.

 

Two amounts that were not previously announced for the 2021/22 FBT year are:

  • the FBT record keeping exemption is $8,923 (up from $8,853 for the 2020/21 FBT year); and
  • the statutory or benchmark interest rate is 4.52% (down from 4.80% for the 2020/21 FBT year). 

The ATO also separately released two taxation determinations setting out further rates and thresholds for the FBT year commencing on 1 April 2021, being:

  • Motor vehicle (other than a car) - cents per kilometre rate; and
  • Reasonable food and drink amounts for employees living away from home.

 

We recently released a Tax Alert titled "FBT Year End is Fast Approaching!" (click here).


New fact sheet: FBT and working from home benefits

The ATO has published a new fact sheet regarding FBT and working from home benefits on 12 March 2021 titled "COVID-19 and working from home benefits" (click here).  This fact sheet aims to assist employers that have provided employees with items to facilitate working from home arrangements due to the impacts of COVID-19, or other benefits, in determining any impact this might have on their FBT obligations.

 

The fact sheet covers certain residual, property or expense payment benefits which may be exempt from FBT or have their taxable value reduced under the 'otherwise deductible' rule.

 


Warning: new illegal retirement planning scheme

The ATO has recently identified a new scheme where SMSF trustees were informed that they could set up a new SMSF to roll-over the fund balance from the old SMSF and then liquidate their old SMSF, in an attempt to avoid paying potential tax liabilities.

 

The ATO warns that taking part in this arrangement and others like it can result in civil and criminal actions and could ultimately put the members' retirement savings at risk.

 

If a trustee of an SMSF believes they have been approached by a promoter of a retirement planning scheme, the ATO recommends they seek a second opinion from a registered tax agent or appropriately qualified financial adviser, and also report the promoter to the ATO.



Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.