Issue 3 | Article 10
During the COVID-19 pandemic, many Australian businesses and individuals experienced severe financial difficulties. To help them cope with these difficulties, the Australian Taxation Office (ATO) provided a range of needs-based supports including Job Keeper payment, Job Maker hiring credit, boosting cash flow, deductions for those working from home, and early release of superannuation funds. The introduction and enhancement of digital systems in workplaces, including those in the education sector, also contributed to operational effectiveness and sustainability, The latter experience has encouraged companies to include further digital upgrades in their thinking about their future business models.
In an entrepreneurial award-winning paper Jeremy Hirschhorn, Second Commissioner in the ATO’s Client Engagement Group, stated:
‘Willing participation’ recognises that the Australian taxation system is world-leading, not because of great auditors (although we have world-leading auditors too), but because most Australians are honest, and see the value of their contribution to Australia. That said, they may not always be exuberant or enthusiastic about paying tax, which leads to the next point, which is about, 'Well-designed client experiences’.
Basically, Australians are willing to lead a simple life. During the COVID-19 pandemic and similar occurrences the ATO evaluated the challenges and opportunities associated with the collection of taxes, and this has led to greater emphasis being placed on the tax-collection process and the ways in which digitisation can make this process more simple, more efficient, and more effective.
To address tax avoidance, Australia’s current tax laws contain provisions that address specific behaviours, accompanied by broad general anti-avoidance provisions. Australia is an active participant in the Organisation for Economic Co-operation and Development’s (OECD’s) concept and application of best-practice taxation guidelines. Australia’s corporate tax system determines which activities are subject to tax based on the source of the income and the residence of the taxpayer. Taxes are only levied on resident companies for income-producing activities in Australia. However, the combination of increasingly rapid changes in the nature of the products (goods and services) and the rise of large multinational companies with complex business structures has created problems for tax authorities globally in correctly attributing taxable income.
ACCESSIBLE FINANCIAL ASSISTANCE FROM ATO DURING THE COVID-19 PANDEMIC
Financial assistance made available to businesses
During the COVID-19 pandemic, the ATO provided a range of supports for businesses, such as:
- The COVID-19 business support – NSW program, which provided financial support for businesses impacted by government-mandated restrictions and stay home orders.
- The rent or lease payment changes due to COVID-19 – This measure recognised that there would be tax consequences from giving or receiving rent concessions.
- The Job Keeper Payment scheme – This scheme formally ended 28 March 2021; however, it was later reintroduced in modified form so taxpayers could make Job-Keeper payments to entities in a limited range circumstances after 31 March 2022.
- The Job Maker Hiring Credit scheme, which was an enticement for businesses to employ additional job seekers in the 16-35 years age bracket. Registrations for the scheme opened on 6 December 2020. Authorised employers were able to access the scheme for each eligible additional employee they hired during a twelve-month period commencing 7 October 2020.
- Boosting cash flow for employers – When eligible businesses lodged their activity statements, the ATO provided tax-free cash flow supports of $20,000-$100,000, through credits in the activity statement system, to qualified businesses.
- Increasing the instant asset write-off – Prior to COVID-19, businesses with a turnover of $50 million or more were not eligible to use instant asset write-offs. Commencing 12 March 2020 and effective until the end of that calendar year, the threshold was increased to $150,000, and entitlement was extended to all business with an accumulated turnover of less than $500 million. Since 1 January 2021, the threshold has been only $1,000 and access to the scheme has been limited to small businesses with a turnover of less than $10 million.
- Backing business investment – This applied to eligible assets obtained and first used or installed and ready for use during 12 March 2020 to 30 June 2021. Businesses with aggregated turnover of less than $500 million were able to increase their depreciation deductions on purchases of certain new depreciable assets.
- Flexible lodgement support for Victorians – Eligible activity statements due to be lodged in August or September 2020 could be lodged late without acquiring late lodgement penalties or affecting the business’s lodgement record.
- Companies with substituted accounting periods – Companies with an approved substituted accounting period (SAP) for an early balance date and entitled to a refund could lodge their company tax return before the due date and receive an immediate refund. For example, the ordinary lodgement due date of a company having an approved SAP with an early balancing period ending 31 December 2019 would normally be 15 July 2020. If the company chose to lodge its 2020 tax return before that date it could receive a refund immediately.
- Tools and services for small businesses – ATO also has a range of tools and services aimed at making it easier for small businesses to prepare correct tax returns and superannuation statements. Early in the pandemic it made available to small businesses a Tax Time 2020 toolkit that included calculators and learning resources.
Financial assistance made available to individuals and employees
The ATO provided a range of supports to individual taxpayers and employees who were adversely affected by COVID-19 including:
- Easy-to-follow instructions on how to calculate deductions when working from home.
- Information on what happens to taxes on the remuneration of workers who leave a job, are temporarily stood down, are terminated, or start a new job.
- Information on COVID-19-related developments that may have affected taxes levied on residential rental properties.
- Guidance on tax payments by foreign residents in Australia and by Australians with income from foreign sources.
- Information on how to report COVID-19 vaccination incentives and other rewards from employers.
Financial assistance made available to not-for-profits entities
The Job Keeper scheme finished on 28 March 2021. It has since been revived so that Job Keeper payments can be made to some entities in limited circumstances after 31 March 2022.
- Job Keeper changes for childcare providers – From 20 July 2020, eligibility for Job-Keeper ceased for approved childcare providers who could not claim Job-Keeper payments for a business participant or employees whose ordinary duties related principally to the operation of the childcare service.
- Refunded membership fees – Due to physical distance restrictions imposed during the pandemic, many not-for-profit organisations, such as sporting clubs and cultural organisations, provided their members with full or partial refunds of 2020 membership fees. Some organisations also provided an option to donate the refundable fees.
- Amended guidelines for ancillary funds – As a result of COVID-19, the guidelines for private and public supplementary funds were amended to encourage increased distributions to deductible gift recipients (DGRs).
- Australian disaster relief funds – For calculating tax-deductible donations to COVID-19 relief funds, the pandemic was declared a disaster from 18 March 2020. Tax-deductible donations could be made to specific Australian disaster relief funds from that date.
Financial assistance made available to tax professionals
The ATO realises that the COVID-19 pandemic may have a significant and continuing impact on tax professionals, their clients, and business practices well after the direct health issues were brought under control. It is important that tax professionals still lodge clients' activity statements and tax returns to meet upcoming obligations.
The ATO is obligated to provide tax professionals with any tax-related help they need and has a wide range of practical support options available to help it meet this obligation. Tax professionals can access many of these through the Online Services for Agents (OSFA) website. The supports include:
- flexible payment plans.
• deferrals for upcoming lodgement dates.
• payment-only deferrals for amounts that may be due.
• possible remissions to the general interest charge (GIC).
Tax professionals can also consider changing their clients’ goods and services tax (GST) reporting cycle or varying their Pay as You Go (PAYG) instalment amounts.
It is important that activity statements and tax returns be lodged, even when clients are unable to pay on time, since lodgement is a requirement for access to key support measures including the cash flow boost.
Financial assistance made available to self-managed superannuation funds
The ATO recognises that the financial effects of COVID-19 on Self-Managed Superannuation Funds (SMSFs) might also continue beyond the medical-stress period, particularly in States or Territories where there were reoccurring and/or extended lockdown periods. These effects included:
- Difficulties in meeting residency requirements – Some taxpayers with an SMSF were stranded overseas for more than 2 years, and this may have affected their Fund’s ability to meet some of the residency conditions for being an Australian superannuation fund for tax purposes. An SMSF must be always an Australian superannuation fund during the income year to be a complying superannuation fund and receive tax concessions.
- Difficulties from providing rental relief – Many renters suffered reduced income during the pandemic. Recognising this, some SMFSs or related parties offered rental relief to tenants in the form of rental deferrals, reductions, or waivers.
- Difficulties in meeting the in-house assets condition – If the value of the SMSF's in-house assets exceeds 5% of its total assets at the end of any financial year, the 'in-house asset rules' in the superannuation laws ordinarily require the taxpayer to prepare and execute a written plan to reduce the market value ratio of the fund's in-house assets to below 5% by the end of the following income year.
The ATO provided relief and support to SMSFs that experienced any of these difficulties during the 2019–20, 2020–21 and 2021–22 financial years.
MULTI-NATIONAL TAXATION AND THE DIGITAL ECONOMY
The scope for using taxation as an interim measure for dealing with problems associated with the rapid expansion of digital services across countries is being explored by international organisations and taxation researchers. Preliminary results suggest that taxes:
(a) May have an adverse effect on economic efficiency. They may distort the allocation of resources both within the country imposing the taxes, and therefore reducing the growth of its gross domestic product (GDP) as well as internationally, and therefore lowering further the growth of gross world product (GWP)
(b) May not achieve the desired distributional effects. While the impact incidence of most taxes being considered is on the multinational organisations, the effective incidence
appears to be on consumers. It is recognised that ultimately, the effective incidence of all taxes is on individuals (in the case of corporate taxes that cannot be passed on, the dividends and capital gains of shareholders, who are individuals, are reduced). However, a concern is that the effective incidence of taxes on the multilateral digital companies will be on domestic individuals, and there will be no international transfer of income and wealth from the host country of the multinational companies.
(c) Could be inconsistent with international trade obligations, as identified in the 2018 OECD interim report.
The ATO, as the most digitised revenue-collecting organisation in the world, is endeavouring to develop a system that provides taxpayers and their agents with a better insight into both the details of the current system and prospective changes it is considering to improve the system. This article has provided some information about changes made in the last few years. Continued digitisation can be expected to continue these improvements to the tax system.
Support for businesses and employers | Australian Taxation Office (ato.gov.au)
Support for individuals and employees | Australian Taxation Office (ato.gov.au)
Support for not-for-profits | Australian Taxation Office (ato.gov.au)
Kaneez Selim is an Assistant Professor at UBSS, lecturing in Tax Law & Practice, Financial Statements & Investment Analysis, and Accounting Information Systems. She has also been a Lecturer at Federation University, Charles Stuart University (online course), and TAFE for more than 10 years. Kaneez has been a practicing Accountant since 2007, working in the areas of Tax, Financial Planning, and Auditing.