Birchstone Brief for the week ended 9 October 2020

Federal and WA State 2020-21 Budgets

Highlights from the Federal Budget:

  • Personal income tax cuts: from 1 July 2020, the top threshold of the 19% tax bracket will increase from $37,000 to $45,000 and the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000. The low and middle income tax offset will be retained for the 2020-21 income year, providing a reduction in tax of up to $1,080. The low income tax offset will increase from $445 to $700.
  • Instant asset write off: businesses with an aggregated turnover of less than $5b will be able to deduct the full cost of eligible depreciating assets acquired from 6 October 2020 and first used or installed by 30 June 2022.
  • Small business concessions: selected tax concessions currently available to small businesses will be made available to medium sized businesses with an aggregated turnover of less than $50m.
  • FBT: FBT exemptions for employers providing retraining and reskilling of redundant or redeployed employees where the benefit is not related to their current role. There will also be reduced record keeping requirements to finalise FBT returns.
  • JobMaker: a JobMaker Hiring Credit will be available to employers for each new job that they create over the next 12 months for an eligible young person, aged 16 to 35 years old.
  • Corporate residency test: a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’, which will be satisfied where the company’s core commercial activities are undertaken in Australia and the central management and control of the company is in Australia.
  • Granny flats: a targeted CGT exemption for granny flats where there is a formal written agreement in place. This exemption will apply to arrangements with older Australians or those with a disability.
  • Loss carry back provisions: corporate tax entities with an aggregated turnover less than $5b will be allowed to carry back losses from the 2019/20, 2020/21 or 2021/22 income years to offset against assessable income from the 2018/19, 2019/20 or  2020/21 income years.
  • R&D: changes to the R&D tax offset will come into effect on 1 July 2021, with an increase in the rate of the offset for small R&D entities and the introduction of an R&D intensity tier for larger entities.

Highlights from the WA State Budget:

  • Payroll tax: the payroll tax threshold has been raised from $950k to $1m from 1 July 2020.
  • Land tax: from the 2020/21 assessment year, there will be an exemption for homes owned by people who have moved into permanent full-time care in a nursing home or other facility, provided their home is not rented out. Additionally, proposed to apply from the 2020/21 assessment year, people who own and occupy homes that are not vehicles in caravan parks will be exempt from land tax. The amendment is intended to reverse the effects of the decision in Henville v City of Armadale [2018] WASAT 108.
  • Stamp duty: the 75% off-the-plan transfer duty rebate, capped at $25,000, will include purchases in multi-tiered developments already under construction in addition to pre-construction contracts.
  • Payment arrangements and penalty tax remission: Interest-free payment arrangements and late penalty tax remission for taxpayers whose financial circumstances are directly or indirectly impacted by COVID-19 will be available for payroll tax, transfer duty, landholder duty, vehicle licence duty and land tax.

To access a webinar of our discussion and analysis of the proposed measures, click here.

ATO Updates

ATO admin treatment of personal income tax cuts – PAYG

The ATO will publish updated tax withholding schedules now that the amendments to the personal income tax rates have passed through Parliament. The ATO will publish the updated tax withholding schedules at ato.gov.au/taxtables and will work with the providers of payroll software to ensure they reflected as soon as practicable.

Withholding exemption from foreign resident CGT withholding for mortgagee sales

Purchasers will no longer have to withhold where they acquire land from a non-resident where a mortgagee has exercised a power of sale and there is no (or a negative) residue as specified in the instrument.

Class Ruling CR 2020/54 – Qantas early retirement scheme for long-haul pilots

CR 2020/54 sets out the tax consequences for the purposes of s 83-180 of the ITAA 1997 of an early retirement scheme.

Legislation

Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020

The Bill introducing some of the Federal Budget measures passed through Parliament last Friday. Measures include personal income tax cuts, the loss carry back provisions, increasing the small business turnover threshold for certain concessions, the R&D incentive provisions and the instant asset write off measures.

Economic Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020

The Bill to enact the JobMaker Hiring Credit was introduced to the House of Representatives on 7 October 2020. The Bill has been referred to the Senate Economics Legislation Committee which is due to report on 6 November 2020.

Exposure Draft – Corporations Amendment (Corporate Insolvency Reforms) Bill 2020

On 7 October 2020, Treasury released the exposure draft legislation to implement the insolvency reforms for small businesses. The draft legislation also contains provisions relating to virtual meetings and electronic communications.

Cases

FCT v Healius Ltd [2020] FCAFC 173 – Payments to doctors; whether outgoing is capital or revenue

The Full Federal Court has allowed the Commissioner’s appeal against the Federal Court’s findings that payments made by a medical centre operator to doctors were on revenue account and therefore deductible. On appeal, the Full Court held the payments were properly characterised as capital. The Full Court found that the payments were paid to secure commitments from practitioners, these were found to be essential to the taxpayers businesses.

Gurney v FCT [2020] AATA 3813 – UK citizen on working holiday was an Australian tax resident

The AAT decided that a UK citizen on a working holiday visa who lived and worked in Melbourne for 6 months was a tax resident of Australia. The AAT concluded the taxpayer intended to live in Australia indefinitely as he attempted to advance his career in Melbourne, told prospective employees of his sponsorship plans and abandoned his place of residence in the UK.

Crookshanks v FCT [2019] AATA 6891 – Director unable to claim deduction for managing company’s tax affairs

The director of two trustee companies was not entitled to deduct expenditure he incurred in the course of managing the companies’ tax affairs.

Jordyn Properties Pty Ltd v FCT [2020] AATA 3805 – Late super contributions could not be offset against SGC

Late superannuation contributions made by an employer after superannuation gurantee charge (SGC) assessments were issued could not be offset against the SGC.

Cox v FCT [2020] AATA 3857 – Taxpayer released from tax debts

The AAT has considered that the unemployed taxpayer would not be able to repay his tax debts within his lifetime, and therefore should be released from most of his tax debts on grounds of serious hardship.

N & M Martin Holdings Pty Ltd v FCT [2020] FCA 1186 – Appeal update; Trust distribution to non-resident beneficiary

The taxpayer has appealed to the Full Federal Court. In this case, the trustee of a resident trust made capital gains from the sale of shares which were not taxable Australian property. The capital gains were fully distributed to a foreign resident. Steward J applied the reasoning in Peter Greensill Family Co Pty Ltd (trustee) v FCT [2020] FCA 599 (currently on appeal), finding that the distribution to a foreign resident was assessable to the trustee.

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