blue background with text 7 tax myths

7 Tax Myths About Deductions (and the Truth Behind Them)

When it comes to taxes (and especially to tax deductions) there’s a lot of misinformation floating around out in the world, particularly when it comes to tax deductions. After all, we all want to save a few dollars where we can. But many of those tax ideas have been accepted as fact, when they’re actually tax myths.

So, here are the top seven tax myths about deductions, and the truth behind them.

7 Tax Myths About Deductions (and the Truth Behind Them)

Tax Myth 1: Every dollar claimed in deductions, is a dollar you get back in your refund.

Unfortunately this is just not true (I wish it was!). Instead of a dollar-for-dollar refund, instead you’ll get a percentage of the amount of money claimed. In the best case scenario, you will get back 47% of the money you spent, or $47 out of every $100. And that’s assuming that you’re in the highest tax bracket. In the lower brackets that percentage will be between 22% and 35%.

Tax Myth 2: All deductions are good deductions.

Understanding the amount that you will have refunded to you when you make a deductions claim is important because it will help you understand where and when you should spend your money. Just because you’ll ‘get it back’ in your refund, doesn’t mean you should necessarily mean it’s a good buy. Because at the end of the day you’ll only get a small proportion of it back.

Deductions are only ‘good’ if they are necessary to support your life, boost your future income, build an asset or run your business. If it’s not a purchase that can do one of those things, then it’s sometimes a more financial savvy move to just pay tax on the income and bank the rest of the money allowing you to better manage your cashflow.

Tax Myth 3: Everyone is entitled to claim up to $300.

There’s an ongoing belief that everyone that files a tax return is entitled to claim up to $300 in deductions, despite not having purchased anything. Unfortunately, this is another claim that just isn’t true. What is true is that you don’t need receipts for claims of expenses up to $300. But you still have to have actually spend the money.

Tax Myth 4: You can claim your travel to work and back.

This is one that is sometimes, in very specific situations, true. You can claim travel between home and work if you are required to transport bulky tools or equipment and there isn’t a safe place to keep them at your workplace. But in most situations, you can’t claim the expense of travelling between work and home because these are considered ‘private expenses’ rather than ‘work expenses’.

Tax Myth 5: Coronavirus expenses, like gloves, masks and home schooling costs, can be deducted as work expenses.

This is another one that is partly true. There are some situations where you can claim protective gear, such as jobs where you are in close proximity to the public and where you are required to use those items to do your job safely. But for most of us, we’re purchasing these items for our private use, and we simply can’t claim them back.

And when it comes to setting up your kids for home schooling, those costs are always private expenses.

Tax Myth 6: You should always claim the maximum amount on all standard deductions.

There are some standard operating costs that business owners are allowed to deduct on their returns. And some of these have a maximum allowable amount, for example, $150 for clothing. But you can’t automatically deduct the $150 worth of clothes simply because you have to have clothes to go about your life. You can only deduct these if they are items specifically required for your job – for example nurse’s scrubs.

Regardless of amounts allowable, all your deductions must be directly used in your business and must tie directly to a related expense.

Tax Myth 7: You should try to find as many hidden deductions as possible.

With so many more people working from home, or having remote offices, deductions are changing. For example, now you can claim your home office and your internet as a deduction. But that doesn’t mean you should go and find every deduction possible or claim them to the full amount possible. Instead, you should focus on accurately reporting how much of your out-of-pocket expenses actually went towards your business.

You should also be careful trying to tie in ‘extra’ expenses. For example, you can’t write off your gym membership unless perhaps you’re a trainer at the gym. It’s always a good idea to look beyond traditional expenses when it’s closely related to your business. But not when it isn’t.

Talk to Your Tax Agent

If you want to understand the best approach when it comes to your tax planning, don’t rely on tax myths – give us a call. We can help you find the deductions that make sense for you because they’re the things you need to run your business or your life. And we can help you put in place a tax minimisation plan that will benefit you overall.

For more information on tax myths and tax deductions, get in touch. We’re here to help.

Christmas party tax deductible image with tree and party guests

Is Your Staff Christmas Party Tax Deductible?

Everyone loves a good end-of-the-year, holiday celebration. And after the year we’ve had, your staff deserve it. But it’s not as simple as getting a few platters of sushi and throwing open the bar. At least not when it comes to your taxes.

Many Australian businesses mistakenly believe that their staff Christmas party is automatically tax-deductible. Sometimes that might be true. Other times it might not. And in some circumstances, it could be subject to Fringe Benefits Tax (FBT).

So, before you toss the company credit card down for the bar tab believing your staff Christmas party is tax deductible, here’s what you need to know.

Is Your Staff Christmas Party Tax Deductible?

Whether or not the expenses of your staff holiday party are tax deductible or subject to FBT depends on when it’s held, where it’s held, who attends and how much you spend. Likely it’ll be a combination of each of those things. Here are the broad rules.

General Rule

The cost of your staff Christmas party is income tax deductible to the same extent that it’s subject to FBT. Conversely, if you have costs that are exempt from FBT then you can’t claim those as an income tax deduction. So, if you’d like to not pay taxes on your company party, the first step is to try to work it into an FBT exemption. Because unless there’s an exemption, it’s likely that FBT will apply when you putting together a company Christmas party.

When it’s at your office (or property)

Exempt Property Benefits

If you hold the party on your business property, during the working day and only staff attend, then it will be exempt from FBT under the exempt property benefits. But this exemption won’t apply to friends, family or associates.

Minor Benefits Exemption

In the same vein, if you have a Christmas party on your premises and you pay less than $300 per person, that amount will generally be exempted from FBT. This can extend to friends and family as well (as long as it stays under $300 per head). This is the minor benefits exemption.

When it’s at another property

Minor Benefits Exemption

If you hold a party for your staff party off of the premises (so at your neighbourhood pub, or at a nice restaurant overlooking the valley) you lose the benefit of the property exemption. But you can still use the minor benefits exemption for both staff and friends and family as long as the costs don’t exceed $300 per person.

Tax Deductible

However, if the costs exceed the $300 threshold per person, the amounts above will likely be tax deductible. So, if you spend $350 per person on a fancy meal with champagne at a local venue, you can claim back $50 per person. And this applies to friends and family as well.

What about clients?

Unfortunately, the costs incurred entertaining clients are not tax deductible. So, if you decide to include clients at your company Christmas party, you won’t be able to claim the amounts that relate directly to entertaining them.What about gifts?

Staff gifts

Your staff Christmas party is a great time to give each employee a gift. And if you give them a gift that’s less than $300 under most circumstances those costs will be exempt from FBT.

It’s important to remember each gift or party is considered a separate benefit. So, you can throw them a party for less than $300 a person, AND give them a gift valued at less than $300 a person BOTH can be exempt.

Client gifts

Gifts can be a little tricky when you’re giving a to clients, however. This is because we have to decide whether the gift is actually a gift, or will be considered entertainment.

Gifts are things like a gift voucher, a Christmas hamper or a pen. But if you give something like tickets to something (whether it’s a movie, or a concert, or a flight), that’s more likely to be considered entertainment. The former are tax deductible, but the latter are not – regardless of how much you spend.

The divisions between ‘gift’ and ‘entertainment’ can be complicated, so it’s a good idea to speak to your accountant before spending money on Chrissy presents for your clients.

What if you’re a tax-exempt entity?

Tax exempt entities have different rules when it comes to Christmas parties and taxes. These are similar in nature, but have their own spin. For example, a tax-exempt entity can rely on the tax-exempt entertainment exemptions for Christmas parties, and the minor benefits exemption will only apply in very limited circumstances.

It’s best to speak to your accountant about your options if you are a tax-exempt entity.

Takeaway

How you organise your end-of-the-year celebrations and employee and client gifts can see you saving thousands of dollars in taxes (or not!). So, it’s worth taking the time to consider the best way forward before getting out the corporate credit card. You’ll be glad you did.

Get in touch if you’d like some specific guidance on how to save on tax while still having a great night of celebrations. We’re here to help.

image of phone with easy business bookkeeping app

5 Tips for Easy Business Bookkeeping

Cash flow is the number one issue affecting small to medium businesses right now. The Australian Securities and Investment Commission reports that poor cash flow is cited as a factor in 40% of business failures. Yet, 60% of small-business owners feel they are not very knowledgeable about accounting and finance. And many find bookkeeping difficult, overwhelming, hard to prioritise or just plain tedious.

Whether you don’t know what to do, or don’t like doing it, it’s essential that, as a business owners, you keep on top of your books. Doing this helps you to understand and manage your cash flow and keep your accounts up to date. And that puts you at less of a risk for cashflow difficulties and, ultimately, business failure.

But doing your books doesn’t have to be hard, overwhelming or even tedious. Here are five tips for easy business bookkeeping that can help you understand your cash flow and keep your business in the black.

5 Tips for Easy Business Bookkeeping

TIP 1: Schedule it in 20-minute bursts.

Many business owners put off doing their bookkeeping. Often it’s for very legitimate reasons, like a lack of time while they service their own clients. Or because it just seems confronting and overwhelming.

But the more you delay in doing your books, the more the work snowballs. And then it truly can become overwhelming (and, frankly, unbearable).

Instead, set yourself 20-minute targets. Input transactions a couple of times a week (you can even do it while you’re waiting for dinner to cook, or watching Netflix) and stick with that schedule. When you’re working consistently in short bursts you can actively manage and track your finances, including cash flow, in very little time. And it prevents that work from building up.

TIP 2: Review your reports monthly.

Reviewing your reports is part of good bookkeeping. But it’s sometimes hard to get to it. Schedule in a time once a month to take a quick look at those reports. Look for anomalies like uncategorised expenses or bank accounts that are in the negative on your balance sheet.

You’ll also want to ensure that put in all of your expenses and that your bank statement and accounting records match. And check your net profit and your cash flow statements so you can see both how much profit you made in the month, and your liquidity position.

TIP 3: Keep your business and personal finances separate.

Keeping your business and personal finances completely separate halves the amount of work that you need to do. Instead of rifling through all your accounts and pulling out the business related transactions or expenses, all the information will be contained in separate files.

If you use any budgeting or accounting software, ensure that you have one for your personal and one for your business finances as well. And maintain separate bank accounts. These steps will make your business expenses and income easier to track and your profit and loss and cashflow, easier to manage.

TIP 4: Invest in an accounting program.

Accounting software has come along in leaps and bounds. In fact, every year there are new systems. Because there are so many options now, that means that there will be a system that does the things you need at a price point you can afford.

Accounting software makes it easy to quote for work (so increase your sales) and send out invoices (so increase your cashflow management). It also makes it easy to catalogue your receipts, enter incoming payments, reconcile your accounts and generate reports. And most systems are accessible via an app on your mobile. So now you can do your books no matter where you are.

TIP 5: Hire a specialist.

When it comes to your books, the most important thing is to just get the work done. If it just isn’t working any other way, if you simply can’t find the time to do it, there are many excellent bookkeepers here in Australia, and many at quite affordable rates.

The information that you can get from your books is invaluable to understanding and managing your finances (including cashflow) and keeping your business up and running. Ignoring it, won’t make it go away. But it could end up in disaster for your business.

For more easy business bookkeeping tips, get in touch. We’re here to help.

credit card payment image

Calculating and Managing Your Cash Flow

Cash flow isn’t a very difficult concept… in theory. But in practice, it can be a little more complicated. In theory, it’s simply a matter of seeing how money moves in and out of your business. In practice, it’s one of the most important elements of your business’ financial health. Getting it right is essential for the wellbeing of any business, but especially small to medium enterprises.

Without adequately understanding and managing cash flow, your business is at risk. In fact, ASIC’s 2018-2019 data shows that 51% of failed businesses believe that the failure was directly due to inadequate cash flow. And that risk is even higher during uncertain times, like those brought on by the impact of COVID-19.

As an SME, your wiggle room may not be as large as a bigger corporation. And when things go wrong, they can go really wrong, really fast. Understanding your cash flow can help you to prepare for and mitigate those risky times so that you can continue to survive and grow despite set backs.

But what is cash flow? What is the best way to calculate it? And how can you manage cash flow so that your business doesn’t fall into ASIC’s 51% failure rate?

What is Cash Flow?

Definition: Cash flow is simply the measurement of the net amount of money coming into and going out of your business over a defined period of time.

Though that’s the simple definition, it’s importance actually lies in its ability to help you understand the financial health of your business by helping you understand your liquidity position (or your access to funds available for you to use). And understanding your liquidity is vital to understanding whether you are in a position to repay your debts, meet your obligations and reinvest in and grow your business. Or whether uncertain times put you at increased risk.

How to Calculate Cash Flow

There are several methods for calculating cash flow. These include the free cash formula, the operating cash flow formula and the cash flow forecast formula.

Basic Cash Flow Formula

The basic cash flow formula is:

Cash flow = Cash from operating activities +(-) Cash from investing activities + Cash from financing activities

This will give you a basic understanding of the money coming in and out of your business.

Free Cash Flow Formula

The basic free cash flow formula is:

Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure

The benefit of the free cash flow formula is that you understand what cash you have available or free to use.

Operating Cash Flow Formula

The operating cash flow formula is:

Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital

This formula helps you understand the typical cash flow for your business.

Cash Flow Forecast Formula

The cash flow forecast formula is:

Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash

This is a simple calculation of the cash you expect to bring in and spend over (typically) the next 30 or 90 days.

Using Cash Flow Statements

The simplest method of calculating your cash flow is simply to use the cash flow statements that are generated as part of your accounting software. Cash flow statements give you an understanding of your current cash position as well as forecast how much cash you can expect to have at any given point.

Managing Cash Flow

Once you understand your current and projected cash flow positions, you are in a good place to begin managing cash flow for your business, including how and when payments are due and made. And once you’re in control of cash flow, you’ll be in a much better financial position within your business and better able to weather any difficulties whether internal or external.

Here’s the steps you can take to help you better manage your cash flow.

Working Capital Requirements

First, you need to understand your working capital requirements – that is the money that you need to keep your business running on a day-to-day basis. In order to accurately calculate this requirement you’ll also need to understand what your assets are (or how much inventory you hold), what money is owed to you and the amount of time it takes to cycle from cash out to your suppliers to cash in from your customers. (This is known as a ‘cash conversion cycle’.)

Read More: Start the New Financial Year Right with an Updated Business Budget

Establish a Buffer

Once you’ve determined your working capital requirements, you’ll want to work to ensure that you build a buffer above that level. Accountants used to suggest that this be three months to six months’ worth of working capital funds, and while that’s still a good benchmark that set amount has gone by the wayside. Instead, consider how much you would need in the situation where your customers were unable to pay you or you lost income for other reasons.

Remember, you don’t always have to rely solely on business income to create your buffer, particularly in the early days of your business. The buffer can come from business savings, personal funds, overdraft or even a revolving credit facility. Eventually you’ll want to have that money in business funds, but in the beginning that just may not be possible.

Check Your Systems

Review your systems and processes to ensure that you’re invoicing your customers regularly and reviewing incoming invoices to make sure that you are being charged accurately. This will help you keep up to date on how much is owed to you and how much you owe others.

Speed Up Your Conversion Cycle

Speeding up the time between when you spend money (for example, on purchasing inventory from suppliers) and when you collect money (from your customers) will benefit your cash flow position. You could also cut back how much inventory you keep on hand or negotiate longer payment terms with your suppliers to give you more cash on hand at any given point.

Be Easy to Pay

Make it easy for your customers to pay you. Offer multiple payment routes, such as account transfers, credit card payments or even PayPal. And consider incentives to customers who pay on time or better yet, early.

Plan Ahead

When it comes to cash flow, planning ahead will help you to survive when things go wrong. You can do this by preparing cash flow forecasts both for the upcoming year, and on a month-by-month basis. Then make sure that you have buffers in place to cover the tight times.

Talk to Your Accountant

At the end of the day, the best way to manage your cash flow is to have a great working relationship with your accountant who can give you tips and strategies for maximising your cash flow and therefore maximising your success.

For more information on calculating and managing cash flow, get in touch. We’re here to help.

Start the New Financial Year Off Right With an Updated Business Budget

Budgeting for business owners is an essential part of understanding what you need to do to help your business be a success in the new financial year.

July officially marks the start of the new financial year. That makes it the perfect time to start tackling your new year’s financial goals. And to start the financial year off right, you’ll need an updated business budget.

So, we’ve broken down the bare bones of a business budget that will help your business achieve its goals in this new financial year.

Budgeting For Business Owners

Costs

The best way to begin updating your business budget is to start by identifying your fixed costs. These are all the items that will come up each month, at the same price point. They might include rent or salaries, among others, and you’ll likely have real figures for these expenses.

Then you need to figure out your ‘estimated’ fixed costs. These are things like telephones and rates. You’ll have to pay them each month, but the costs will vary somewhat, so you’ll have to estimate the average monthly cost.

You’ll also want to factor in some expenses in the miscellaneous category which will cover costs that pop up unexpectedly. This might be replacing broken equipment or updating software.

Finally, estimate the expense of things that you’re not sure you can afford, but that you would like to. These are the things that you feel would really boost your business to the next stage. If you’re a solopreneur this might be hiring a VA. If you have a team of tradies, it might be updating the fleet, or maybe upping your marketing campaign.

Revenue

After you’ve set your costs, you’ll want to determine your approximate revenue. You do this by predicting your month-to-month sales for the entire year. This can be really hard, and very confronting, especially in the first few years of business.

When your business is very young, it might help to start by talking to other, more seasoned people in your industry, reaching out to potential customers and watching industry trends. This might help you to put together a rough estimate of your potential revenue. But regardless of how you find your number, always include a margin of error in your predictions of between 10 and 20%. Err toward 20% when your business is younger, but the longer that you’ve been in business, the lower your margin has to be.

Monthly Planning

Once you’ve worked out your costs and revenue, you’ll need to start breaking it down month-by-month for the full financial year. This means estimating what impact your expenses will have on your revenue. This involves understanding when you might have increased or decreased expenses (such as when stock might be at a low price, or when demand is higher), or might need to increase ordering for the next month, for example.

Go through each month and determine whether you want to increase or decrease your monthly expenses based on the results of your monthly planning. Keep all this information in a spreadsheet to help you really see your numbers.

Create a Budget Document

Too many business owners stop their analysis at this point. They don’t worry about making an actual budget document once they’ve determined that they’ll be able to keep running their business. But an actual budget document puts the budget in a form that everyone in your organisation will understand.

The simplest form is one that lists projected expenses by category and projected income by source, with totals for each.

A screenshot of a cell phone

Description automatically generated

If you’re looking for a budget planner template, start here.

Working With Your Budget

Now that you’ve put in the work to create your business budget, you’ll want to use it. Most organisations review their budgets regularly – once a month is usually a good idea. During your review you can see where your predictions are accurate, and where they weren’t, and revise your budget accordingly. Your budget can also become the basis for other financial documents (such as balance sheets, for example).

Your budget should also help you understand:

  • If there are any gaps in your funding (and so your ability to keep your business running successfully), where those gaps are and what you need to do to close those gaps.
  • Help you keep track of your money, so you can adjust to any changes and not overspend (i.e., manage your cash flow).
  • Help you set goals for your company and see how to accomplish those goals.

Managing Your Cashflow

At the end of the day, the secret to an excellent business budget is using it to help you manage your cashflow. First it can help you ensure you have cash resources to cover any situation that might arise. It can also help you implement changes to your budget when unexpected expenses arise.

Takeaway

Budgeting for business owners in the new financial year is important. It will help you nail down your business’ priorities and keep control of your finances. It will also give you clear guidelines about what you can spend and when, so you know when it’s time to grow your business, or hold back.

If you have any questions about putting together your business budget get in touch. We can help you sort out your costs and expenses for the year, and understand what the number are telling you.


Man carrying heavy bag on his back with words Year End Tax Planning Tips

Year End Tax Planning Tips for 2020

30 June is fast approaching, and most of us are starting to think about our tax returns. Of course, no one likes to pay more tax than they have to. So, we’ve put together some year end tax planning tips that will help you keep more of your money at tax time.

Year End Tax Planning Tips for 2020

Prepay Business Expenses

Prepaying some of your expenses for the coming financial year while you’re still in this financial year can save you money. This can be things like your rent, insurance, subscriptions to any professional associations and even interest on bank loans (where your terms allow). You can deduct a full year’s worth of the coming year’s expenses this year.

This is definitely something to consider if you’re a business who anticipates a larger than normal tax bill for this year.

Consider Personal Deductible Super Contributions

Consider topping up your super contributions. You can contribute up to $25,000 in deductible super contributions each year, and it’s a great way to both save, and save on taxable income.

To  claim a deduction for personal superannuation contributions you need to complete an  intention to claim with your superannuation fund and receive a letter back confirming the tax-deductible amount. You’ll need to provide a copy of this letter at the time of lodging your tax return in order to claim a deduction.

Super Contributions Timing

If you’re thinking about taking advantage of super contributions, don’t leave it too late. The tax office doesn’t consider a contribution to be made until the amount is actually credited to a super fund’s bank account. So, an electronic transfer to another bank account on 30 June is not necessarily considered paid. Make sure you do these two weeks or so before the year end to be safe.

Make Donations

Donations are a great way to save some money at tax time. But in order for your donations to be tax deductible, it must meet a few requirements.

  1. It must be made to Deductible Gift Recipients;
  2. It needs to be $2 or more;
  3. You cannot receive a material benefit in exchange for the donation;
  4. It must meet any applicable conditions; and
  5. You must keep a record.

Read more about how to meet those requirements here.

Purchase Plant and Equipment

Take advantage of the $150,000 instant asset write-off. It will allow you to deduct business assets (new and used) purchased from your assessable tax.

Write Off Bad Debts

Review bad debts for any that are absolutely unrecoverable. Writing these off before 30 June will enable you to claim them as a deduction.

Home Office and Working from Home Expenses

The ATO has always encouraged employees who spend some time working from home to claim certain work-related expenses as a tax deduction. These expenses can include electricity, cleaning costs, phone and internet, computer consumables (that means printer paper and printer ink, for example), home office equipment, home office furnishings and the costs of repairs to work equipment or spaces.

Since COVID-19, the ATO is now offering a simplified working from home allowance. They’re also still permitting you to claim under the old methods as well. You can read about each method, their benefits and which will work best for you here.

Do A Stocktake

Now is a great time to review your stock and write off any that is damaged or obsolete.

Consider Income Protection

Income protection insurance can be claimed as a tax deduction. It can also provide you peace of mind that your family will be taken care of in the event of something happening to you.

Take Advantage of Depreciation

Write off any obsolete items on your depreciation schedule.

Make and document any trust resolutions

If you’re trading under a trust structure make sure you prepare your trustee distribution resolution minutes prior to 30 June 2020. These resolutions document how the income from the trust is distributed to its beneficiaries, and if it isn’t executed by this date, any default beneficiaries become entitled to the trust’s income and are subject to tax.

Government Subsidies

If you’ve received the Cashflow Boost or JobKeeper payments, they have special rules for tax purposes.

Cashflow Boost

The Cashflow Boost is a ‘non-assessable non-exempt’ income for tax purposes and not reportable on the BAS. So, you need to make sure you don’t include it in your taxable income.

JobKeeper Payments

JobKeeper payments, on the other hand, are assessable income for tax purposes but don’t attract GST. So, for these, you need to ensure you don’t include them at item 1B of the BAS.

Talk to Your Accountant

At the end of the day, the best year end tax planning tips are the ones that work best for you. Talk to your accountant if you have any other questions about strategic tax planning.

We’re here to help if you need any additional information or advice based on your specific situation.

Scattered Australian Money for JobKeeper Updates

JobKeeper Updates

Since the Government first introduced its $130 billion JobKeeper program, they have continued to release updates and clarifications. At first they seemed to be expanding both eligibility and flexibility, but now it appears that some of that may be being pulled back.

Whether you’ve already received payments under the scheme, or are anticipating receiving one, it’s important that you understand what your requirements are and how they may be changing.

Here are the most recent JobKeeper updates.

JobKeeper Updates

Subsidy Adjustments

On 11 May, Prime Minister Scott Morrison announced that the JobKeeper wage subsidy could be ‘adjusted’ in the future to provide more targeted support. The Treasury department is also considering retargeting the payment to specific industries, or even doing away with the flat rate $1,500 a fortnight (which sees some workers receiving more subsidy than their regular wages). The Labour Opposition has also indicated that it would support cutting the payment amount, if more Australians were made eligible in return.

While we don’t know what changes, if any, will be made, it makes sense to stay aware of any announcements the Government might make. With COVID-19 restrictions easing across Australia, adjustments wouldn’t come as too much of a surprise.

Early Winding Back

The Government will review the JobKeeper program at the end of June. As COVID-19 restrictions begin to ease, there’s a chance that the scheme could be wound up early. In fact, the PM says it was only meant as a temporary lifeline to help Australians through the worst of the crisis. And he believes it’s a lifeline that comes at a significant economic cost.

Additionally, the program was originally budgeted to cover six million employees, but only five million have applied. This lower than expected uptake could impact on a possible government decision to implement an early wind up.

Audits

The ATO has recently released guidance that advise that payments under the JobKeeper scheme will be audited. If you are receiving JobKeeper payments for your employees or as a sole trader it’s essential that you have confidence that your payments meet the decline in turnover test. If they don’t, you risk them being clawed back by the ATO and interest being charged on the amounts paid, at a rate of 7.89%.

The audits will also be looking to catch those businesses that are simply doing the wrong thing. Under anti-avoidance provisions, the ATO will look at businesses that:

  • defer making supplies, invoicing or receiving payments to achieve a decline in turnover for a particular period;
  • bring forward making supplies, invoicing or receiving payments to achieve a decline in turnover for a particular period;
  • transfer income-producing assets to achieve a decline in turnover for a particular period; or
  • have not been significantly affected by external environmental factors.

In other words, they’ll also be on the look-out for employers who receive the JobKeeper payments but don’t pass them on fully to their employees. In these cases not only will you be subjected to repayments with interest, but possibly with legal ramifications.

If you are a business that is at risk for being reviewed, it’s best to retain evidence that supports your decisions and your eligibility for JobKeeper payments. Contemporaneous evidence is generally more compelling so it’s a good idea to keep those records up to date for each period.

Full Time Students Under 17

The JobKeeper rules have been clarified to provide that full time students who are 17 years old and younger and who are not financially independent, are not eligible for the JobKeeper payments. This doesn’t change the rules for those that are financially independent as they’ll still require the security that JobKeeper can provide.

Monthly Reporting and Substantiation

It’s essential that if you receive (or will receive) a JobKeeper payment that you meet your monthly reporting requirements and maintain evidence to substantiate your position.

Monthly Reporting Requirements

Any entity that is entitled to a JobKeeper payment must complete a JobKeeper Declaration report within seven days of the end of each calendar month (in which a payment is received). You can make that via the Business Portal using your myGovID. Of course, your tax adviser can also help you make your monthly reports. You will need to include your current GST turnover for the month, as well as the projected turnover for the following month.

Substantiation

Employers that receive JobKeeper payments must keep records to substantiate the information that they provide to the ATO. If you don’t keep accurate records then you could lose your opportunity to receive JobKeeper payments. The ATO could also require that you return payments made, with interest.

We’re here to help if you need any additional information or advice based on your specific situation.

JobKeeper Guides

The JobKeeper payment scheme is a great initiative for Australian businesses. It can help you get through the tough economy brought on by COVID-19. But it’s not always easy to understand. Many people want to know, am I eligible? How do I enrol? Who can I speak to if I’m still not sure? So, we’ve put together easy-to-understand JobKeeper Guides that answer just those questions.

The JobKeeper Guides below provide high-level customised information about JobKeeper payments for each specific entity. They will help you understand your eligibility and give you information on how to enrol so you don’t have to dig through complicated layers of information to find out what applies to you.

JobKeeper Guides

JobKeeper Guide for Employers and Employees

For businesses that have employees.

JobKeeper Guide for Sole Traders

For sole traders without employees.

JobKeeper Guide for Partnerships

For partnerships without employees.

JobKeeper Guide for Trusts

For trusts without employees.

JobKeeper Guide for Companies

For companies without employees.

Enrolments are open now.

We’re here to help if you need any additional information or advice based on your specific situation. The ATO is also willing to work with you. So, even if you don’t think you fit any of these categories, there may be some help available to you.

Open sign on business
JobKeeper Payment: Here’s Everything You Need to Know

The JobKeeper payment has been set up to help employers and the self-employed keep their doors open and employees to keep working. Are you eligible?

The JobKeeper payment is the new scheme on the minds of employers, employees and the self-employed throughout Australia. They’re wondering, ‘Am I eligible?’ ‘How do I register?’ And, ‘How much is the payment?’

We’ll answer all those questions (and more!) for you here.

What is the JobKeeper payment?

As part of their response to the coronavirus pandemic, the Australian government has passed legislation for a $1,500 per fortnight wage subsidy for eligible entities. This payment is designed to help keep Australians working, whether they’re employees or self-employed, despite the economic impacts of coronavirus. It’s different to the JobSeeker payment which is an $1,100 supplement for those that are out of work.

The government believes that six million Australian workers will benefit from this subsidy before the end of the pandemic.

Who is eligible for the JobKeeper payment?

The government has aimed the JobKeeper payment at all types of Australian workers. This includes the typical employer/employee business, the self-employed and sole traders, charities, not-for-profits, partnerships, trusts and companies with shareholders.

The Employer/Employee Business

If you are part of a business with employees or a not-for-profit or a charity, there is a dual test you must meet in order the access the JobKeeper scheme. In that situation both the employer and the individual employee must be eligible in order for the employees to receive a JobKeeper payment.

Eligible Employers

Eligible employers must meet the following eligibility requirements:

  1. Have a turnover of less than $1 billion and have lost more than 30% of their revenue (when compared to the same period a year ago); OR
  2. Have a turnover of more than $1 billion and have lost more than 50% of their revenue (when compared to the same period a year ago).
  3. If you’re a charity, the revenue loss just needs to be 15%.

Some organisations (and therefore their employees) are just not eligible regardless of whether or not they meet the criteria. This includes the big banks and public sector employers like local government bodies.

Eligible Employees

Even if an employer is eligible, not every one of their employees will be. Employees also have to meet the following eligibility requirements:

  • Were employed as of 1 March 2020;
  • Are at least 16 years old;
  • Are an Australian citizen, or have certain specified types of visas, including permanent and New Zealand 444; and
  • If they’re sole traders, full-time, part-time or long-term casuals, they’ve been employed on a regular basis for longer than 12 months as of 1 March 2020.

If you believe you meet the eligibility requirements (or even if you’re not sure, but want to know if you do), you should take the following steps:

  • First, contact your employer and let them know you want them to claim the JobKeeper payment for you. If you have more than one job, you must choose only one employer to claim the payment for you (if one is a permanent employer, choose that one) and let your other employers know who you have nominated.
  • Second, complete the JobKeeper employee nomination notice and return it to your employer.
  • Third, you can’t get the JobKeeper payment if you receive certain other types of payments. For example, if you are also applying for a Services Australia income support payment (like the JobSeeker payment), contact Services Australia. You must let them know that your employer is applying for the JobKeeper payment or you could find yourself in a situation where you owe the government money.

What if I’ve been fired or stood down?

If your employer continues to pay you $1,500 per fortnight before tax, then they may receive the JobKeeper payment. This means that businesses that shut down because of COVID-19 restrictions, like cafes, cinemas and pubs, can re-engage their eligible employees and keep them ‘on the books’ and being paid even while they aren’t working.

How Will You Receive Your Payment?

The JobKeeper payment goes directly to the employer. The employee continues to receive their normal wages from their employer, and the employer is then reimbursed up to $1,500 for those payments.

If an employee is earning less than $1,500 per fortnight, but they’re eligible for the payment, the employer must pay them at least $1,500 in order to receive the JobKeeper payment from the government. That means that in some situations, employees may actually receive more income than their regular pay.

If an employee earns more than $1,500 per fortnight, the JobKeeper payment will subsidise their income up $1,500. The remainder will be paid by their employer as usual.

It’s important to note that employees aren’t receiving a cash payment under this scheme. Instead, it’s a way for the government to help employers to keep their workers on the job despite the hard economic times.

Sole Traders, Partnerships, Trusts and Companies

Sole traders, partnerships, trusts and companies may also be entitled to receive JobKeeper payments. To be eligible, the entity must:

  1. Have carried on a business in Australia on 1 March 2020;
  2. Had an ABN on 12 March;
  3. Lodged a 2018–19 income tax return, or an activity statement or GST return for any period that started after 1 July 2018 and ended before 12 March 2020 on or before on or before 12 March;
  4. Met the 30% business revenue reduction test; and
  5. Have someone actively engaged in the business of the entity (this is called the ‘eligible business participant’) who is not an employee of the entity.

The entity must nominate the eligible business participant. This would be the partner in a partnership, the beneficiaries of a trust or the shareholders or directors of a company. However, the sole trader may be their own eligible business participant and may nominate themselves.

There is no wage condition attached to the JobKeeper payments to sole traders, trusts, companies or partnerships. In other words, there’s no requirement that these entities have paid $1,500 per fortnight to the eligible business participant. And the JobKeeper payments you receive do not have to be distributed to an eligible business participant. Instead the money becomes part of the taxable income of the entity to do with as they choose.

When Will JobKeeper Payments Be Made?

The subsidy will start on 30 March 2020, so payments will start being received in the first week of May. Businesses should register their interest and can enrol for the JobKeeper payment on or after 20 April 2020 on the ATO website.  

More Questions?

There are always situations that don’t completely fit into the categories set out above. But the ATO is keen to help as many businesses as possible. If you’re unsure whether you’re eligible, or if your situation is unique, give the ATO a call directly. They’re ready and taking calls now.

Of course, we’re happy to answer any questions here at Dart Accounting as well. The JobKeeper scheme seems complicated, but hopefully it will go some way to helping employees keep their jobs and employers keep their businesses afloat.

We’re happy to give you personalised advice about your eligibility for the JobKeeper payment. Get in touch for your free one hour initial consultation call.