HOW HAS COVID-19 IMPACTED WORK RELATED EXPENSES?

The ATO expects to see a substantial increase in people claiming deductions for working from home or for protective items required for work.



Working from home expenses



The ATO has already announced a temporary ‘short-cut method’ that applies from 1 March 2020 to 30 June 2020. The short cut method makes it easier for the millions of Australians who have incurred some form of expense for working from home as a result of COVID-19.



It covers all deductible expenses and can be used by multiple people working from home in the same house. People claiming their working from home expenses using the shortcut method, should include the amount at the ‘other work-related expenses’ question in your tax return and include ‘COVID-hourly rate’ as the description.



Taxpayers can still choose to use one of the other existing methods to calculate their expenses for working from home if they prefer.



Protective clothing



Another deduction some people might be claiming due to COVID-19 is expenses for protective items required for work.



Taxpayers working in jobs that require physical contact or close proximity with customers or clients during COVID-19 measures may be able to claim a deduction for items such as gloves, face masks, sanitiser or anti-bacterial spray if they have paid for the items and not been reimbursed. This includes industries like healthcare, retail, and hospitality.



You still cannot claim travelling from home to work



Generally, most people cannot claim the cost of travelling to and from work and working from home as a result of COVID-19 does not change this. For example, if you are working from home because of COVID-19 but need to go to your regular office one day per week, your home to work travel is still private travel and cannot be claimed.



Reduce claims that are not relevant for part of the year



With more people working from home, working reduced hours, or unfortunately not working at all, the ATO expects to see claims for laundry expenses or travel expenses decline this year.



If you are not travelling for work, you cannot claim travel expenses. If you are not wearing your work uniform, you cannot claim laundry expenses. It’s still important to meet the three golden rules: you must have spent the money and not have been reimbursed, it must relate directly to earning your income, and you must have a record to prove it.



What if my income is different?

JobKeeper and JobSeeker



Taxpayers who have received JobKeeper payments from their employer, do not need to do anything different. The payments will be included as salary and wages and/or allowances, in their regular income statement, which their employer provides directly to the ATO.



Your income statement can be accessed via myGov and the information is automatically included into your tax return by the end of July. We also have access to this information. The figures in your income statement should already include any JobKeeper you have received. If you are not sure, check with your employer.



Sole traders who have received the JobKeeper payment on behalf of their business will need to include the payments as assessable income for the business.



If you have received JobSeeker, the ATO will also load this information into your tax return at the Government Payments and Allowances question once it is ready. If you are lodging before this information is included for you, you will need to make sure you include it. Leaving out income can slow your return down or result in a bill later, so it is best avoided.



Stand down payments



Some employees may have received a one-off or regular payment after being temporarily stood down due to COVID-19. These payments are also taxable and appear in their income statement and in their return. If people are not sure whether these amounts have been included in their income statement, they should check with their employer.



Other income types



Similarly, taxpayers need to include income such as income protection, sickness or accident insurance payments, redundancy payments and accrued leave payments in their tax return. The tax return instructions explain how to include these amounts.



Early access to superannuation



If you received early access to your super this year under the special arrangements due to COVID-19, any amounts you’ve withdrawn from super under this program are tax-free and you do not need to declare them in your tax return.



Examples

Example 1 – Barista receiving JobKeeper



Ethan is an employee who works as a barista. After being financially impacted by COVID-19, the café Ethan works for enrolled to receive JobKeeper payments on his behalf.



The café continues operating as takeaway only and Ethan is given some hand sanitiser for use during his shifts. He also purchases a face mask, which he is not reimbursed for. When he completes his tax return, he claims the cost of the face mask, ensuring he keeps his receipt as proof of his purchase.



He also checks that his salary and wages and allowances on his income statement are up to date, including JobKeeper payments made to him by the café. Ethan needs to confirm that his total salary and wages and any allowances are included in his tax return. Generally, this will be included in his return by the ATO by the end of July and will include JobKeeper payments.



Example 2 – IT contractor working from home



Natalie is employed by a company that provides IT support. From time to time Natalie must drive her car from the office to the client’s premises and assist them on site. Due to COVID-19, Natalie started working from home on 23 March and was only able to provide phone support to clients. Natalie purchased a new headset and stationery, as well as incurring additional phone and internet costs while working from home.



Natalie decides to claim all her working from home expenses using the new temporary rate of 80 cents per hour. She uses her time sheets to calculate the hours she worked from home between 23 March and 30 June.



When she completes her tax return, Natalie makes sure she only claims a deduction for the car expenses she incurred when travelling from the office to the client’s premises. As Natalie worked solely from home for approximately three months of the year, mostly supporting clients over the phone, her claim for car expenses this year is less than her claim for last year.



INSTANT ASSET WRITE-OFF FOR ELIGIBLE BUSINESSES

On 9 June 2020, the government announced it will extend the $150,000 instant asset write-off until 31 December 2020. This proposed change is subject to the parliamentary process and is not yet law.



Under instant asset write-off eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.



Instant asset write-off can be used for:



multiple assets if the cost of each individual asset is less than the relevant threshold

new and second-hand assets.

It cannot be used for assets that are excluded from the simplified depreciation rules.



The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used, or installed ready for use.



Changes from 12 March 2020

From 12 March 2020 until 30 June 2020 the instant asset write-off:



threshold amount for each asset is $150,000 (up from $30,000)

eligibility has been expanded to cover businesses with an aggregated turnover of less than $500million (up from $50 million).

Eligibility



Eligibility to use instant asset write-off on an asset depends on:



your aggregated turnover (the total ordinary income of your business and that of any associated businesses)

the date you purchased the asset

when it was first used or installed ready for use

the cost of the asset being less than the threshold.

If you run a small business and choose to use the simplified depreciation rules, you must use instant asset write-off on all eligible assets.



Businesses with an aggregated turnover of $500 million or more are not eligible to use instant asset write-off.



Exclusions and limits

There are a small number of assets that are excluded.



In addition, if you purchase a car (a passenger vehicle, except a motor cycle or similar vehicle, designed to carry a load less than one tonne and fewer than nine passengers) for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. For example, if you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $57,581, which equals $43,186.



You cannot claim the excess cost of the car under any other depreciation rules. 



Cost of asset exceeds threshold

If you are a small business using the simplified depreciation rules, and the cost of the asset is the same as or more than the relevant instant asset write-off threshold, the asset must be placed into the small business pool.



If you are not using the simplified depreciation rules, and the cost of the asset is the same as or more than the relevant instant asset write-off threshold, you may be able to use the Backing Business Investment – accelerated depreciation for certain qualifying assets or use the general depreciation rules.



Work out your deduction

The entire cost of the asset must be less than the relevant threshold, not including any trade-in amount. Whether the threshold is GST exclusive or inclusive depends on if you are registered for GST.



To work out the amount you can claim, you must subtract any private use portion. The balance (that is the portion you use to earn assessable income) is generally the taxable purpose portion (business purpose portion). While you can only claim the taxable purpose portion as a deduction, the entire cost of the asset must be less than the relevant threshold.



This also applies to Research & Development (R&D) use. When you work out the amount you can include in the calculation of your R&D tax offset for your R&D use you must subtract any non-R&D use including the taxable purpose portion and private use portion.



Later sale or disposal of asset

If you use the instant asset write-off for an asset and then sell or dispose of that asset, you need to include the taxable purpose portion of the amount you received for the asset in your assessable income for that year.



If you use the instant asset write-off for an asset that is later destroyed (for example, in a bushfire or flood) then the amount you receive (such as from an insurance payout) for the destruction of the asset is included in your assessable income.



Purchase of a motor vehicle for business purposes – the effect of the car limit for depreciation

Edward and Edna own and run a small irrigation supplies business. On 27 March 2020, the business purchases a luxury car that is designed to carry passengers, for $80,000. The instant asset write-off threshold at the time they first use the car in the business is $150,000.



The cost of the car for depreciation is limited to the car limit at that time. As the cost of the car is above the $57,581 car cost limit for depreciation, the business can only claim an instant asset write-off of $57,581 for the year ending 30 June 2020. The business cannot claim the excess cost of the car under any other depreciation rules.



They also decide to update their work ute and the business purchases a ute for $65,000 on 27 April 2020. The ute is not designed to carry passengers (and has been set up with all the trade tools in the tray) so the car cost limit for depreciation does not apply. The business can claim a full deduction of $65,000 as an instant asset write-off.



Case Study

This case dealt with the claim for input tax credits on a land purchase.

304 Wanda Street Pty Ltd and Commissioner of Taxation (Taxation) [2020] AATA 921



These large claims while usually legitimate prompt ATO enquiries and real care needs to be taken.



In this case the taxpayer, a corporate trustee of a trust, was not entitled to claim input tax credits on the acquisition of land as it was not an activity that constituted the carrying on of an enterprise at the time the property was acquired. Furthermore, even if the AAT were satisfied that the taxpayer had some kind of property development intention at the time of the acquisition of the property, it would not have concluded that the acquisition of the property marked the commencement of an enterprise. The AAT found that in the absence of evidence to support the conduct of an enterprise, the acquisition was not a “creditable acquisition”. As such, the taxpayer was not entitled to an input tax credit.



While it may be tempting to claim back a large amount of GST paid, it is necessary to demonstrate that the individual or entity was carrying on an enterprise and that the purchase was for a creditable purpose relevant to that enterprise.



‘HomeBuilder’ PROGRAM TO DRIVE ECONOMIC ACTIVITY ACROSS THE RESIDENTIAL CONSTRUCTION SECTOR

On 4.6.2020 the Federal Government announced the introduction of the new HomeBuilder program.



From 4.6.2020 until 31 December 2020, HomeBuilder will provide all eligible owner-occupiers (not just first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home. Construction must be contracted to commence within three months of the contract date.



HomeBuilder applicants will be subject to eligibility criteria, including income caps of $125,000 for singles and $200,000 for couples based on their latest assessable income. A national dwelling price cap of $750,000 will apply for new home builds, and a renovation price range of $150,000 up to $750,000 will apply to renovating an existing home with a current value of no more than $1.5 million.



The program is expected to provide around 27,000 grants at a total cost of around $680 million.



This increase in residential construction will help to fill the gap in construction activity expected in the second half of 2020 due to the coronavirus pandemic.



In doing so, HomeBuilder will help to support the 140,000 direct jobs and another 1,000,000 related jobs in the residential construction sector including businesses and sole-trader builders, contractors, property developers, construction materials manufacturers, engineers, designers, and architects.



A RETURN TO THE CHILD CARE SUBSIDY

On 8.6.2020 the Federal Government announced it will resume the Child Care Subsidy (CCS) to support families to access affordable childcare.



Minister for Education Dan Tehan said the temporary Early Childhood Education and Care Relief Package, introduced on 6 April, had done its job, and would be turned off on 12 July.



From 13 July, the CCS will return, along with new transition measures to support the sector and parents as they move back to the subsidy. To ensure Government support is appropriately targeted, JobKeeper will cease from 20 July for employees of a CCS approved service and for sole traders operating a childcare service.



The Government will pay approximately $2 billion in CCS this quarter to eligible families. The CCS is means-tested to ensure that those who earn the least receive the highest level of subsidy.



In addition to the CCS, the Government will pay child care services a Transition Payment of 25 per cent of their fee revenue during the relief package reference period (17 February to 1 March) from 13 July until 27 September. Importantly, the last two payments scheduled for September will be brought forward to help with the transition and cash flow.



This additional Transition Payment of $708 million replaces JobKeeper and applies important conditions on childcare providers.



For the period of the transition:



Childcare fees will be capped at the level of the reference period (17 February to 1 March).

Services will need to guarantee employment levels to protect staff who will move off the JobKeeper Payment.

The Government will also ease the activity test until 4 October to support eligible families whose employment has been impacted because of COVID-19. These families will receive up to 100 hours per fortnight of subsidised care during this period. This will assist families to return to the level of work, study or training they were undertaking before COVID-19.



SUSPENDING INDEXATION OF TAX INSTALMENTS

On 10.6.2020, the Morrison Government announced it will legislate to suspend the indexation of tax instalment amounts for the 2020-21 financial year in response to COVID-19.



This change will affect instalments payable to the Australian Taxation Office (ATO) for an estimated 2.2 million taxpayers paying Pay As You Go (PAYG) income tax instalments, and around 81,000 taxpayers paying Goods and Services Tax (GST) instalments in 2020-21.



Tax instalments help spread taxpayer obligations over the year and to reduce a taxpayers’ balance on assessment.



Historical Gross Domestic Product outcomes are normally used to index a range of instalment amounts annually to reflect anticipated income growth.



Given the economic impact of COVID-19, the Government has decided to suspend this indexation for 2020-21.



In addition to suspending indexation, taxpayers can still vary their instalment amounts if they believe they will pay too much tax for the year.



Other taxpayers who pay instalments based on their current income are not subject to indexation because their instalments already adjust to changes in income. While these taxpayers are not affected by the suspension of indexation, they have the same right to vary their instalments.



Taxpayers who do not pay GST by instalments are unaffected.