Tax expert seeks immediate government clarification on a number of COVID-19-related issues
A tax expert is seeking immediate government clarification of issues impacting taxpayers as fear and uncertainty resulting from the coronavirus pandemic continue to affect business owners and individuals alike.
Tracey Dunn, associate director at RSM Australia, has called for clarification of a number of issues, including cash boost for business, Divison 7A and capital gains tax.
While recognising that the cash boost has been designed to keep people in jobs, Ms Dunn opined that the legislation introducing the measure proves to be somewhat more complex than first suggested in original media releases and Treasury fact sheets.
While integrity measures are applauded, Ms Dunn explained that determining eligibility for the cash boost has been complicated by requirements surrounding having an ‘active’ ABN.
In order to satisfy the ‘active’ ABN requirement, one of two tests must be satisfied, these are:
1. An amount was included in the entity’s assessable income for the 2018-19 income year in relation to it carrying on a business and the 2019 income tax return was lodged before 12 March 2019 (or a later time allowed by the commissioner); or
2. The entity made a taxable supply in a tax period between 1 July 2018 to 12 March 2020, and notice was provided to the commissioner on or before 12 March 2020. In effect this means the entity was registered for GST, or was required to be registered for GST, the entity made a taxable supply and details of the supply were reported in the relevant BAS lodged with the ATO.
While most businesses who employ staff will be able to satisfy the above criteria, Ms Dunn has identified potential issues with accessing the cash boost for businesses that have not lodged their 2019 income tax return; that are not required to be registered for GST; that are registered for GST but due to the nature of the business have not made a taxable supply during the 2019 year.
“This may have potential application to small business owners who are not registered for GST and businesses such as junior exploration companies or the forestry industry, where the entity is registered for GST and carrying on a business but have not made taxable supplies because of the cyclical nature of the business,” Ms Dunn cautioned.
“In these scenarios, while the business may have employees, they do not technically meet the eligibility criteria to receive the cash boost.”
While the issue may be overcome by requesting an extension of time from the commissioner, she has urged immediate clarification on the process required in order to do this, and whether entities such as those described above will slip through the cracks and not be eligible for the cash boost.
In the 2019-20 budget, the government announced the start date for changes to Division 7A would be delayed by 12 months making it 1 July 2020 to "allow additional time to further consult with stakeholders on these issues [and] to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced".
It is now the start of April and signs of further consultation have not yet been seen, Ms Dunn said.
“With 1 July 2020 a proposed start date for the Division 7A changes, taxpayers are now in the situation where they are unable to prepare or plan for any proposed changes,” Ms Dunn warned.
Capital gains tax main residence exemption for foreign residents
With the deadline for the transitional period of the capital gains tax (CGT) main residence exemption (MRE) for foreign residents fast approaching, Ms Dunn asked the government to reconsider its stance.
Under the legislation, expats who do not intend to re-establish residency have until 30 June 2020 to sell their homes in order to claim a full or partial CGT MRE before the changes to the law come into full effect.
However, this has now been complicated by the pandemic.
“Expats who wish to return to Australia and re-establish residency may find it difficult to do so and the government enforced shutdown of public auctions and home opens means expats who have their former Australian main residence on the market may find it difficult, if not impossible to sell before the 30 June 2020 deadline,” Ms Dunn said.
She explained that the ‘life event’ exceptions contained within the legislation denying the CGT MRE to foreign residents, like most things, do not extend to the impact of pandemics.
“Under the current law, expats who will now be unable to sell their homes due to government restrictions may find themselves unable to comply with the 30 June 2020 deadline and lose eligibility for the CGT MRE through no fault of their own,” Ms Dunn said.
“Ironically, these taxpayers may be forced to pay a significant amount of tax because of a government regulation introduced subsequent to the change in law which now places them in a position where they are now incapable of complying with the law.”
Overall, Ms Dunn said, “We implore the government to turn their attention to the outstanding issues outlined above and welcome any announcements relating to government policy.”