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AccountingCovid-19Income Tax

Tax Time 2020: ATO review of incentives and deductions

By Marcus Lai 

With Tax Time 2020 well underway, CCH Learning recently hosted An ATO review of incentives & deductions for Tax Time 2020 webinar which was presented by Assistant Commissioners Karen Foat and Andrew Watson. This article summarises some of the key points of discussion that covered a range of topics including support and assistance for tax professionals, COVID-19 compliance measures, Tax Time 2020 at a glance, working from home expenses and ongoing support for small businesses.

Support for tax professionals and trusted advisors

The ATO recognises the impact of the significant changes over the past six months brought about by COVID-19. To assist tax professionals in this difficult and rapidly changing environment the ATO has set up a dedicated COVID-19 support webpage.

The ATO encourages tax agents who are unable to gain access to clients’ records for lodgment purposes and those experiencing serious hardship or adverse circumstances to contact the ATO to discuss arranging  extensions, deferrals and other measures that may support them and their clients.

Other channels for ATO support and sharing of information include: the ATO’s complex issue resolution service; atoTV which provides access to a series of short explanatory videos on current issues; Tax Time Toolkits with toolkits for individuals and small business; and the Tax Professionals Stewardship Group which is the ATO’s main consultative body working with tax professionals.

COVID-19 compliance measures

The ATO’s compliance focus on the government’s COVID-19 stimulus packages (eg early release of superannuation, JobKeeper and employer cash flow boost) is to ensure that the COVID-19 stimulus measures are administered fairly.

The ATO will generally support tax professionals and their clients who act in good faith but make genuine mistakes in accessing the stimulus packages. However, the ATO will not tolerate, and will take action against individuals found to be engaging in illegal behaviour or developing contrived schemes designed to take advantage of the COVID-19 stimulus packages.

Fraudulent behaviour can be reported to the ATO by completing the tip-off form accessible on the ATO’s Making a tip-off webpage, or by phoning the ATO Tip-off hotline on 1 800 060 062. Reports can be made anonymously.

See the ATO’s COVID-19 compliance measures webpage for further information.

Tax Time 2020 at a glance

To date, the ATO has received over six million individual tax return lodgments and more than five million refunds (over $12.6b) have been issued, with the average refund being approximately $2,500.

Record-keeping continues to be a focus for the ATO in 2020. Where deductions are claimed, records need to show the amount of money spent, where the money was spent and importantly what it was spent on. Clients’ bank statements do not provide sufficient details, so the ATO encourages photographs of receipts.

Where clients’ records have been lost through natural disaster, the ATO will take a more lenient approach. Bank statements may be used to piece records together along with pre-fill information. Where no records exist because clients have lost them in bushfires, and it is not possible to recreate them, the ATO may still allow a claim.

Tax treatment of various stimulus payments

JobKeeper

JobKeeper payments in the hands of an employee is treated the same as salary and wages and it will generally be included on the income statement and then pre-filled into the individual’s tax return. JobKeeper payments in the hands of the employer is an “in and out” type of item. It is assessable income on the way in, then a deduction is claimed for the salary and wages paid out.

Cash flow boost and early release of superannuation

The cash flow boost is not a taxable item and does not need to appear on the business’ tax return. Clients who withdrew superannuation under the COVID-19 early release of superannuation scheme do not need to include it in their tax return .

Bushfire payments

Certain payments from the federal government in relation to the 2019/20 bushfires are not taxable and do not need to be included in the tax return.

State government COVID-19 payments

A number of state government COVID-19 support payments have the character of income and are assessable. The Tax essentials page of the ATO’s website lists some common payments made in the different states that must be included in a business’ or individual’s income.

What has changed?

No deduction for holding vacant land

From 1 July 2019 individuals can no longer claim a deduction for holding vacant land. In exceptional circumstances the individual will have three years in which they can still claim a deduction. Exceptional circumstances would include a situation where a rental property was burnt down during the bushfires and the rental property is being rebuilt.

CCH note: The ATO has indicated its draft guidance on these rules will be completed in September 2020.

Net medical expenses tax offset

The net medical expenses tax offset has now been completely phased out.

Accelerated depreciation

Changes to accelerated depreciation, particularly for vehicles, as part of the backing business investment changes.

Instant asset write-off

From 12 March 2020 until 31 December 2020, the instant asset write-off threshold amount for eligible small businesses increased to $150,000 (up from $30,000). The write-off has been expanded to include businesses with an aggregated turnover of less than $500m (up from $50m).

Working from home expenses

The ATO recognises that with more people working from home for the first time it can be difficult to calculate how much can be claimed under working from home expenses. To assist, the ATO has developed the temporary short cut method – 80 cents per hour. All employees working from home during the period 1 March 2020 to 30 September 2020 can use this method and claim 80 cents per hour for each hour they work from home. Importantly, this method is all-inclusive, and if used, no other expenses for working from home can be claimed. A dedicated work area is not required to use this method. However, employees must keep a record of the number of hours they work from home. This could include timecards, a four-week representative diary, or Outlook calendar entries.

The two other existing methods for calculating working from home expenses are the fixed rate (52 cents) and the actual expenses methods. More information on these methods is available on the ATO’s Working from home during COVID-19 webpage. It is important to note that to claim household running costs like electricity under these methods, employees are required to have a dedicated work area.

Small business – ongoing support

The ATO encourages tax professionals and small businesses to contact them to discuss help and support options available to those impacted by COVID-19.

Some examples of support options include:

  • Deferments of up to six months on payment amounts through business activity statements or an income tax assessment.
  • Switching from quarterly to monthly GST reporting if conditions are such that the BAS is ending up as a net credit and that can support the small business cash flow.
  • Varying pay as you go instalment amounts in certain circumstances.
  • Flexibility to remit interest and penalties incurred after 23 January 2020.
  • Low interest payment plans.

Support material

The ATO offers a range of information and services to educate and support tax professionals and their clients including:

If you missed this webinar, you can access the CCH Learning recording here.

Explore further in CCH iKnow: COVID-19 – tax changes and Home office expenses.