COVID-19 has had a huge impact on businesses all across Australia, with many drastically scaling back operations as a way to absorb the losses.
In response, the Australian government has announced a raft of support measures and stimulus packages designed to cushion the blows that these businesses are facing.
Completing your accounts for this financial year is going to be different, and there will be a number of new items to take into account.
Your Liston Newton business accountant can help you navigate the government support measures that are available to your business, and show you how to include these in your accounting.
Is any government assistance available for PAYG withholding?
One recent measure allows eligible businesses to have credits applied to their Business Activity Statements as a way to provide a temporary boost to their cashflow.
Open to eligible businesses and not-for-profit organisations, all you need to do is lodge your activity statements for March 2020 through to the end of September 2020. This allows your business to receive between $20,000 and $100,000 worth of credits to help bolster your struggling cashflow.
The amount you receive is then applied against any current liabilities your business has with the ATO, or against extra debt on your BAS. If there’s a credit remaining once these amounts are paid, you will generally receive a refund for that amount.
Eligibility
Your business is eligible for this government assistance if:
- You are a small to medium business or NFP with an aggregated turnover of less than $50 million
- You held an ABN at 12 March 2020
- You made payments to your employees that were subject to PAYG withholding, such as salary or wages, directors’ fees, retirement payments, or compensation payments
- You can prove you ran a business during the 2019 financial year
Do I pay tax on the PAYG withholding cashflow boosting payment?
Any credits you receive must be reported as non-assessable non-exempt income (NANE). This means that you’re not required to pay income tax on this amount, nor is it subject to GST, as there’s no supply for the payment.
Example
James lodges his activity statement for March 2020. He owes:
- PAYG withholding of $15,008
- GST of $9,704
- He also owes $4,500 for his February 2020 activity statement
James' initial cashflow boost for his March activity statement is $45,024. This is used to pay the March activity statement liabilities of $24,712 ($15,008 + $9,704). James is then left with a remaining cash flow boost of $20,312.
The remaining cash flow boost of $20,312 will be returned to James as a refund, to support his business during this period. This is instead of paying February’s outstanding liability of $4,500.
How to take care of this payment in your accounting
When accounting for this payment using your accounting software, create a new account with the following information:
- Account Type: Other Income
- Name: PAYG W Cashflow Boosting Payment - Received
- GST Code: BAS Excluded or NA
Does JobKeeper affect the taxes my business pays?
JobKeeper is a government assistance scheme designed to help businesses stay afloat during COVID-19 and provide them with the funds to retain their employees during this uncertain time.
To qualify, businesses need to demonstrate a 30% reduction in GST turnover during the eligible March-July 2020 period, when compared with the same time the previous year. If eligible, businesses can receive a flat $1,500 subsidy per employee each fortnight.
It’s important to note that these figures are set to change, and businesses must be aware of the new numbers.
All payments received by your business as part of the JobKeeper subsidy program must be reported as assessable income on your business’ tax return. However, this payment isn’t subject to GST, as there’s no supply for this payment.
How to take care of this payment in your accounting
When accounting for this payment using your accounting software, create a new account with the following information:
- Account Type: Other Income
- Name: JobKeeper Payments ATO - Received
- GST Code: BAS Excluded or NA
How have tax deductions changed during COVID-19?
The instant asset write off has been increased
The Government updated the instant asset write-off to help businesses through COVID-19, effective from 12 March 2020. Under the new rules the threshold has increased from $30,000 to $150,000, and now includes businesses with a turnover of up to $500 million a year. This is up from the original $50 million turnover a year.
Originally slated to end on 30 June 2020, this has now been extended to 31 December 2020. Expanding the threshold allows an extra 5,400 Australian businesses the opportunity to access the instant asset write-off for the very first time.
Depreciation deductions can be accelerated
For businesses with a turnover of less than $500 million, the Government has put measures in place. This allows them to accelerate depreciation deductions on new depreciating asset purchases between 12 March 2020 and 30 June 2021. Much like the instant asset write-off, there is no limit to how many assets can be claimed under accelerated depreciation.
To be eligible, the asset must:
- Be a new asset, not used or held by another entity
- Be first held on or after 12 March 2020, and used or installed from 12 March 2020, until 30 June 2021
- Not already have been used to apply for depreciation deductions, or used under the instant asset write-off.
You’re able to claim working-from-home expenses
Sole traders and businesses run out of your home are already able to claim these deductions, but for regular office workers, it’s a new experience.
These deductions can include things like your running expenses, such as internet and electricity, and decline in the value of the equipment you’re using, like your furniture and technology. This period won’t, however, have any capital gains tax implications for your property.
When claiming these deductions, there are three methods you can use to calculate your costs. These are:
- The shortcut method: This is only available for the period between 1 March to 20 September 2020. Under this method, you can claim 80 cents per hour spent working from home, which you must log either in a timesheet, online log, or diary. This specifically covers internet and phone costs, electricity, and the decline in equipment and furniture value. With this method, you’re not able to claim any other working-from-home expenses.
- The fixed-rate method: Under this method, you can claim a fixed 52 cents per hour spent working from home, which you also must log. This covers the decline in home office furniture value, repairs to this furniture, and electricity. It does not cover the phone and internet, business consumables, or any decline in the value of your equipment.
- The actual cost method: This method is designed to cover most things, like phone and internet expenses, electricity costs, equipment and technology depreciation, cleaning, and consumables. Under this method, you must determine the actual value in depreciation and costs based on your receipts, bills, and hours worked.
How to take care of these expenses in your accounting
When claiming working-from-home expenses, simply enter each of the amounts you’re claiming at the ‘Other work-related expenses’ section in your tax return.
Your accountant can advise you on the best method to maximise your deductions.
What other grants and forms of government assistance am I eligible for?
The measures outlined in this article are just some of the most common incentives and government assistance packages available.
The ATO has a whole range of other schemes that you might be eligible to apply for, which include:
- Electricity rebates
- Land tax relief
- Rent relief
You can find out more about these incentives on the ATO website.
