Thinking Tax Edition 2
11 August 2020
Thinking Tax is an initiative from Findex to provide you with a short overview of specific tax issues that may affect you or your business, with a focus on practical issues you may face on a day to day basis.
1. Under JobKeeper, how should payments made by companies to eligible business participants be treated for tax purposes?
Following our JobKeeper comments in the recent inauguralThinking Tax release, clients have contacted us asking how to treat JobKeeper payments made by a company to an eligible business participant such as a non-employee of the company like an individual shareholder or director that is actively involved in the business.
Firstly, it is important to note there is no obligation or requirement for a company to pay the JobKeeper subsidy to the individual eligible business participant.
If a company voluntarily decides to pass on such JobKeeper payments to an eligible business participant, this can be by way of a franked or unfranked dividend to the eligible business participant, depending on whether the company has sufficient franking credits available, and declaring a dividend to them as a shareholder (care needed for selective dividends).
If the JobKeeper subsidy amount was to be distributed to an eligible business participant other than as a formal dividend, then such a distribution is likely to constitute a payment for Division 7A purposes.
Under no circumstances should JobKeeper payments from companies to eligible business participants (i.e. non-employees) be characterised as a payment of salaries or wages subject to PAYG withholding. If that were to occur, the eligible business participant would become ineligible for any JobKeeper fortnights they received any salary or wages because they would be considered an employee for those fortnights. Only JobKeeper payments to employees can be characterised as payment of salaries or wages subject to PAYG withholding.
2. Reminder: Three JobKeeper fortnights end in August
With three JobKeeper fortnights occurring in August 2020 (and again in January 2021), eligible businesses will receive a higher JobKeeper payment from the ATO in August (i.e. $4,500 instead of $3,000 per month). This means payroll systems that operate on a monthly cycle based on actual JobKeeper entitlements, may have to be adjusted.
3. Superannuation Guarantee Amnesty to end 7 September 2020
Employers who underpaid superannuation guarantee payments to employees in the period from 1 July 1992 to 31 March 2018 can apply for the Superannuation Guarantee amnesty until 7 September 2020.
Under the Superannuation Guarantee Amnesty, any catch-up payments of previously unpaid superannuation guarantee charges (SGC) will be tax deductible. The administration component of the SCG of $20 per employee per quarter will be removed and there will be no Part 7 penalty, which can be up to 200% of the SGC.
If an employer does not apply for the amnesty but finds they have an outstanding SGC through a subsequent ATO audit or review, they will be required to pay the above amounts as well as nominal interest of 10%. They will not be able to claim a tax deduction for the SGC paid and may be subject to non-compliance penalties. The ATO recently issued a draft Practice Statement addressing non-compliance after the amnesty period ends.
The employment taxes team can assist businesses who need to review their SGC position.
4. Register for the R&D incentive before 30 September 2020
Companies that want to claim the R&D offset for the 2019 income tax year (1 July 2018 to 30 June 2019) must register their R&D activities by 30 September 2020. This extends the normal deadline which was previously 30 April 2020 but has been extended to 30 September 2020 because of COVID-19.
Speak to the R&D team to ensure your company does not miss this deadline.