Current as at 16 June 2020

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Key Messages

  1. The ATO will start processing 2019–20 tax returns from Sunday 5 July, with pre-fill information expected to be fully available in mid-August.
  2. COVID-19 impacts and support measures may affect clients’ tax returns. Ensure that all assessable income is declared including taxable grants, additional income-earning activities or employment payments and JobSeeker, as well as checking work-related expense claims and rental deductions. 
  3. Check that clients correctly received cash flow boost and JobKeeper payments and amend incorrect claims. Also review the accounting and tax treatment of these amounts, especially in private companies and trusts.
  4. Most employers are now reporting through Single Touch Payroll (STP) with finalisation declarations due by Tuesday 14 July if they have 20 or more employees, or Friday 31 July if they have 19 or fewer employees. Income statements will be available through the ATO's Online services for agents or myGov. 
  5. There are changes to line entry deduction data for individual tax returns, with the introduction of income and multi-property rental schedules in addition to the deduction schedule introduced in 2019. 
  6. The ATO is providing a shortcut method to calculate working from home expenses at 80 cents per hour between 1 March 2020 and 30 June 2020. 
  7. Rental activities may have been impacted by COVID-19 with deferred or reduced rental income, changes to the private use of the property or changes to interest payments on loans. Ensure that the correct tax treatment is applied, and appropriate adjustments are made to claims if required.
  8. Many small businesses have experienced significant impacts from COVID-19 and tax time conversations provide an opportunity to discuss business viability and potential options for clients. Consider tax issues such as bad or forgiven debts, GST adjustments, trading stock and losses, as well as advice on business recovery. Ensure that clients are up to date on their employee obligations and activity statement lodgments and encourage them to enter payment arrangements with the ATO for outstanding liabilities.
  9. From 1 July 2019, there are limits on deductions able to be claimed for vacant land. The limits do not apply to corporate tax entities but affect individuals, partnerships, self-managed superannuation funds and certain trusts. Expenses of holding land remain deductible if they are incurred in carrying on a business such as farming or gaining or producing assessable income.
  10. From 1 July 2019, anti-avoidance rules for circular trust distributions have been extended to family trusts. 
  11. Cryptocurrency, sharing economy and crowdfunding come with tax implications. Check if your clients are involved in these activities – as investors, contractors or contributors – to ensure they correctly report income and gains, and claim deductions and losses.
  12. The taxable payments reporting system annual reports are due Friday 28 August with road freight, information technology, security, investigation and surveillance services included from 1 July 2019.
  13. COVID-19 may have affected the tax residency status of some individuals, with the ATO taking a pragmatic approach to short-term working arrangements.
  14. Be mindful of the Tax Practitioners Board's guidance on reasonable care, online security, exercising supervision and control when working remotely, and get your clients’ permission if you’re using cloud computing services.  
  15. See our 2020 year-end resources for checklists, guidance and workpapers.

 

Lodgment due dates and service standards

The lodgment due dates for your clients are available in Online services for agents. 

The ATO will start full processing of 2019–20 tax returns on Sunday 5 July and expect to start paying refunds from Thursday 16 July. It aims to finalise the majority of electronically-lodged current-year tax returns within 12 business days of receipt. 

Pre-fill information is automatically loaded into the tax return and is usually available by mid-August.

If a tax return is incomplete, incorrect, needs checking or relates to a prior year, it may take longer to finalise.

 

COVID-19

Individuals

Specific measures and support to consider include:

  • The optional shortcut method for work from home deductions for the period 1 March 2020 to 30 June 2020
  • Employment payments such as taking leave, being stood down or losing rental property income and expenses
  • Early access to superannuation – not assessable income
  • Receipt of JobSeeker payments – assessable income.

Also:

  • Ensure that additional income-earning activities such as renting out property, selling on eBay or providing contract services on AirTasker, are reported properly
  • Consider contributions to superannuation and be aware of minimum draw-downs and changes to pension phase requirements because of COVID-19
  • Check private health insurance claims if the policy has been changed during the year to make sure not to over-claim the rebate or incorrectly calculate any Medicare levy surcharge amounts.
  • Some individuals may have a tax liability as a result of insufficient PAYG withholding or variations made to PAYG instalments and may need to set up a payment plan with the ATO.

 

Business and employers

Specific measures and support to consider include:

  • Cash flow boost amounts are non-assessable non-exempt income, and amounts subject to PAYG withholding are deductible
  • Increased instant asset write-off threshold of $150,000 for businesses with an aggregated turnover of less than $500 million for assets installed or ready for use from 12 March 2020 – this measure has now been extended to 31 December 2020
  • Investment allowance for businesses with an aggregated turnover of less than $500 million for eligible assets held and first used or installed ready for use from 12 March 2020 until 30 June 2021
  • JobKeeper payments for eligible employees and eligible business participants – assessable income
  • Federal, state and territory government grants to businesses in response to recent natural disasters and COVID-19 – include those that are assessable.

Also:

  • Check the tax impacts of debt refinancing and restrictions placed on loans by banks, equity injections and restructures undertaken to deal with COVID-19 
  • Ensure that private company loans are treated correctly and that trust resolutions are made on time
  • Ensure that bad debts, debt forgiveness, rental relief and commercial losses are correctly treated
  • Ensure that aggregated turnover tests are correctly calculated and that associate income is considered especially where there have been declines in income due to COVID-19.

Check the eligibility of the business for cash flow boost amounts and review JobKeeper eligibility if the business has self-assessed. Refer to PCG 2020/4 Schemes in relation to the JobKeeper payment and contact the ATO to amend incorrect claims.

For entities that have received cash flow boost payments, check the tax implications of:

  • the use of these amounts for private company benefits and Division 7A 
  • definition of income in trust deeds and whether it forms part of the annual income distribution
  • non-assessable, non-exempt payments made to unitholders giving rise to CGT event
  • draw-down of amounts tax free by partners in a partnership. 

 

Income statements and Single Touch Payroll

With most businesses now reporting through Single Touch Payroll (STP), most employees will be receiving an income statement instead of a physical payment summary, via Online services for agents or their myGov account. Employers need to make a finalisation declaration by Tuesday 14 July if they have 20 or more employees, or Friday 31 July if they have 19 or fewer employees.

Once finalised, the employee’s income statement will show as ‘tax ready’. It is recommended that employees wait until their statement shows ‘tax ready’ before lodging their tax returns to avoid possible amended assessments and additional charges.

Employers who are not reporting through STP will need to issue payment summaries to employees by Tuesday 14 July and lodge with the ATO by Friday 14 August. The ATO no longer sends reminder letters and paper payment summary forms to employers. Forms can be ordered from the ATO.

 

Line entry deduction data 

The ATO’s granular data capability has been expanded to include additional schedules for 2019–20 individual tax returns. Your experience of these changes will depend on your software.

The ATO has produced guidance on the level of detail you will be required to include for the income details, deduction and multi-property rental schedules.

With the full implementation of the suite of granular data changes for 2020, the ATO has replaced the following schedules and will no longer accept them for 2019–20 and later returns:

  • Work-related expense (WRE) schedule (Schedule W) – replaced by the deduction schedule
  • Rental schedule – replaced by the multi-property rental schedule (individual tax return only)
  • Individual PAYG payment summary schedule (2020 returns and later) – replaced by income details schedule.

Any information previously collected on the WRE schedule and not covered by the new deduction schedule will now only be requested separately as part of an audit or review process.

 

Occupation and business industry codes

Occupation and business industry codes are more critical than ever. The ATO uses this information for benchmarking, nearest neighbour comparison for real time nudges and risk identification which means that incorrect codes can cause issues with verification activities, delayed refunds or even audits. 

Ensure you correctly identify your client’s occupation or business industry codes. 

If your client’s business industry code needs updating:

 

Work-related expenses

As a result of the impacts of natural disasters and COVID-19, the ATO anticipates changes to what people claim in their 2019–20 tax return. This is an opportune time to review your clients' claims to ensure they are applicable in the current financial year including accounting for variations when working out your clients’ deductible expenses.

The ATO is also allowing the use of a shortcut method for working from home claims between 1 March 2020 and 30 June 2020 which enables taxpayers to claim a deduction of 80 cents per hour. If this method is chosen, no other expenses for working from home for that period can be claimed.

The ATO expects to see an overall reduction in work-related car, travel and clothing expenses across many industries. If your client's usual pattern of work changes during the year due to COVID-19 or other circumstances, they may need to complete an additional record for the period their work pattern changed, especially where claims are calculated using representative periods.

The ATO has published a series of occupation-specific fact-sheets and information on employees working from home during COVID-19.

Check that:

  • the client spent the money and it was not reimbursed
  • the client has the records to prove the claim, or where receipts are not required, how the claim has been calculated
  • ensure the client is not automatically deducting up to the specified amount where the money has not been spent
  • only the work-related portion is claimed where the expense relates to work and personal use
  • tools or item of work equipment costing more than $300 is depreciated over its effective life.

 

Rental property deductions

COVID-19 has raised a number of tax issues for rental property owners for agents to consider including: 

  • deductions for properties where tenants are not paying their full rent or have temporarily stopped paying rent as their income has been affected due to COVID-19
  • reductions in rent for tenants whose income has been adversely affected by COVID-19 to enable these tenants to stay in the property 
  • assessable receipts of back payments of rent or an amount of insurance for lost rent 
  • interest deductions on deferred loan repayments for a period due to COVID-19
  • cancellation of bookings due to COVID-19 for a property that is usually rented out for short-term accommodation, but has also previously had some private use by the owner
  • the private use of a rental property owner (e.g. holiday home) to isolate during COVID-19 and adjusting available deductions 
  • changes to advertising and other fees for short-term rental properties during COVID-19 due to no demand for the property. 

Ensure that you are aware of the client’s history with the property and complete the rental property schedule properly. Query if the property was used for holiday or other letting during the course of the year.

The ATO has produced information on holiday homes, renting out part or all of a home and holiday apartments in commercial residential properties, as well as factsheets on:

 

Small business checks

COVID-19 has disrupted many businesses and tax time is an opportunity to provide critical advice to clients who are seeking to innovate, pivot, restructure or even cease their business as a result. 

CPA Australia has produced a recovery roadmap, business recovery guide and financial information factsheet to support discussions with your clients.

COVID-19 has brought certain issues to the fore including:

As always, ensure that your small business clients:

  • provide you with details of all their income to ensure you can correctly calculate their assessable income
  • have the necessary records to prove expense claims
  • do not claim private expenses as business expenses.

When deregistering a company, ensure all tax and superannuation obligations are up to date. Directors of a company may still be liable for some debts incurred before deregistration such as PAYG withholding or superannuation guarantee charge (SGC) obligations under the director penalty regime.

The ATO has produced a cash flow coaching kit that provides a framework for value-added business coaching conversations with your small business clients. You may also wish to check your clients’ small business performance against the ATO’s published small business benchmarks.

 

Vacant land deductions

Changes to legislation to limit deductions that can be claimed for holding vacant land received royal assent on 28 October 2019. These changes apply to costs incurred on or after 1 July 2019, even if the land was held before that date.

Deductions for expenses incurred for holding costs of vacant land can continue to be claimed by corporate tax entities, superannuation plans (other than self-managed superannuation funds), managed investment trusts, public unit trusts and unit trusts or partnerships where all the members are the previous entity types.

Land will be considered vacant during the period the entity held the land if:

  • it didn't contain a substantial and permanent structure
  • it did contain a substantial and permanent structure and the structure is a residential premise which was constructed or substantially renovated while the entity held the land and the premises are either
    • not yet lawfully able to be occupied
    • lawfully able to be occupied but not yet rented or made available for rent.

There are some entities and circumstances where deductions for vacant land can still be claimed – for example, where the entity holding the land is a company, where you use the land in carrying on a business, or exceptional circumstances apply. Expenses of holding land remain deductible if they are incurred in carrying on a business such as farming or gaining or producing assessable income.

The ATO has produced a flowchart to assist in determining if deductions for expenses related to vacant land are limited. 

 

Trusts

From 1 July 2019, anti-avoidance rules for circular trust distributions have been extended to family trusts. Trustees of family trusts are liable to pay trustee beneficiary non-disclosure tax (TBNT) on circular trust distributions. Family trusts are trusts that have a valid family trust election in place, have made a valid interposed election, or are part of a family group. When trustees of those trusts become presently entitled to a circular trust distribution, TBNT is imposed on the untaxed part of that distribution at the top marginal tax rate, plus the rate of Medicare levy.

To allow trustees of trusts to more accurately report information to us, the ATO has added:

  • a new testamentary trusts code at Type of trust
  • a new label C1 Division 6AA Eligible income at item 56 Statement of distribution
  • net medical expenses for disability aids, attendant care or aged care.

From 1 July 2019, the tax offset for net medical expenses for disability aids, attendant care or aged care is no longer available.

 

Cryptocurrency, sharing economy and crowdfunding

It is estimated that there are between 500,000 to one million Australians that have invested in crypto-assets. The ATO is now collecting bulk records from Australian cryptocurrency designated service providers as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax.

Ensure that your clients who have bought or sold cryptocurrency are aware of their record-keeping, reporting and tax obligations.

If your clients provide goods or services through the sharing economy, consider how income tax, goods and services tax or any other tax applies to their earnings. If your clients are engaged in the sharing economy, their income and deductions need to be included in their tax returns.

Common sharing economy activities include:

  • providing ride-sourcing (sometimes also known as ride-sharing) services for a fare
  • renting out a room or a whole house or unit on a short-term basis
  • sharing assets, including cars, caravans/RVs, car parking spaces, storage space or personal belongings
  • providing personal services, including creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly.

Crowdfunding is the practice of using internet platforms, mail-order subscriptions, benefit events and other methods to find supporters and raise funds for a project or venture. The tax consequences vary depending on the nature of the arrangement, your client's role (i.e. promoter, intermediary or contributor) and the circumstances.

The tax laws which apply to investment and financial activity undertaken in a conventional manner (for example, buying goods and services, buying shares, lending money) apply in the same way to investment and financial activity conducted under crowdfunding. 

 

Tax residency 

The tests used to work out residency status for your clients for tax purposes are not the same as residency tests used for other purposes such as immigration. The ATO publishes information on residency and the relevant tests.

Advise your clients that if they reside in Australia for less than 183 days per financial year, they may still be a resident for tax purposes. The 183-day test only applies to individuals arriving in Australia.

There are separate rules for working holiday makers and individuals who are dual residents.

For non-residents temporarily in Australia as a result of COVID-19, the ATO has advised that if the client is in Australia temporarily for some weeks or months then they will not become an Australian resident for tax purposes as long as they usually live overseas permanently and intend to return there as soon as they are able.

The ATO goes on to say: 

COVID-19 has created a special set of circumstances that must be considered when considering the source of the employment income of a non-resident who usually works overseas but instead performs that same employment in Australia as a result of COVID-19. In this situation, we accept that, if the working arrangement is short term (three months or less), the employment income will not have an Australian source.

For working arrangements that last longer than three months, all your facts and circumstances will need to be examined to determine if your employment is connected to Australia.

 

Net medical expenses for disability aids, attendant care or aged care

From 1 July 2019, the tax offset for net medical expenses for disability aids, attendant care or aged care is no longer available.

 

Taxable payments annual reports 

Taxable payments annual reports are due by Friday 28 August for businesses providing:

  • building and construction services
  • cleaning services for contractor payments 
  • courier services for contractor payments
  • road freight services for contractor payments 
  • information technology (IT) services for contractor payments 
  • security, investigation or surveillance services for contractor payments 
  • mixed services (a business that provides one or more of the services listed above).

The ATO has produced a worksheet and payee information statement to assist clients in recording and notifying contractors of reportable payments. 

 

Reasonable care

The ATO is getting smarter with its data and taxpayers are increasingly being contacted regarding their income and deduction claims. With a focus on line-item deductions, discrepancies in returns when compared against pre-fill data, nearest neighbours or business benchmarks, and investments in dealing with the cash economy, the need for tax agents to take reasonable care when preparing tax returns is as pertinent as ever.

The TPB information sheets TPB(I) 17/2013 and TPB(I) 18/2013 sets out tax agent obligations to take reasonable care to ‘ascertain a client’s state of affairs’ and ‘ensure taxation laws are applied correctly’. For members, APES 110 Code of Ethics for Professional Accountants and APES 220 Taxation Services also apply. 

As the TPB information sheets state, “There is no set formula for determining what it means to take reasonable care in any given situation. Rather, whether a registered agent has taken reasonable care in a given situation will depend on an examination of all the circumstances.

TPB(I) 17/2013 also states, reasonable care “does not require registered agents to ‘audit’, examine or review books and records or other source documents to independently verify the accuracy of information supplied by their clients. However, there may be circumstances where a registered agent may not automatically discharge their responsibility in particular cases by simply accepting what they have been told by their clients.

Depending on the circumstance, reasonable care may include checking against available information such as pre-fill and business benchmarks, identifying personal/private use, sighting vehicle logbooks and other forms of substantiation, checking for personal services income, reviewing funds transfers between different accounts, checking previous year’s returns, foreign income, sale of assets and asking about cash income. 

Other steps might include asking about client investments, changes in their financial and employment affairs and checking documentation. In instances where claims, transactions or reported income appear out of the ordinary, it is important to ask questions of your client and seek substantiation. These conversations can also be useful in the context of a general discussion regarding the business or the individual’s tax affairs to provide professional and tailored advice. See our tax preparation checklist and client substantiation checklist for further details.

Agents should also consider a suitable disclaimer where clients insist on lodging before pre-fill information is finalised. This should include an explicit statement that the client accepts responsibility for any errors or omissions and incurs the risk of corrective action being taken by the ATO. 

 

Cloud computing and the Tax Agent Code of Professional Conduct

COVID-19 has led to many tax agent practices making the move to the cloud. The Tax Practitioners Board (TPB) practice note TPB(PN) D37/2016 Cloud computing and the Code of Professional Conduct provides guidance to ensure that the transition complies with the Code of Conduct. 

Registered practitioners must obtain permission from each client prior to divulging client information to a third party. When obtaining this permission, it is recommended that the registered practitioner clearly informs the client about the proposed disclosure.

See the Australian Cyber Security Centre's information on cloud computing security considerations and the Office of the Australian Information Commissioner's guide to securing personal information

 

Security and fraud

You hold a large amount of client, staff and business information that is of interest to identity thieves. Review your security to protect your clients and your practice and help stop fraud.

Criminals may target your practice to access your clients' information to obtain fraudulent refunds. They may also try to trick you or your staff into clicking on links or opening attachments that install malware or ransomware on your computer systems. Ensure your computer systems and other devices have up to date security and anti-virus software to protect against cyber attacks. Also review staff accesses and update passwords regularly.

If you notice suspicious behaviour from a new client, we recommend you take extra precautions to ensure they are legitimate. 

The ATO recommends you:

  • check the proof of identity for all new clients and question any discrepancies
  • only lodge for clients whose identity you have confirmed
  • ensure your computer security systems are up to date and protected against cyber attacks
  • discuss the importance of securing personal information with your staff
  • ensure your staff understand what is appropriate to discuss on social media or via email.

The ATO has information on online security including an online security self-assessment questionnaire.

 

Exercising supervision and control when working remotely

COVID-19 has resulted in changes to many practices’ working arrangements, with staff working remotely and being supervised through more online arrangements. The TPB has highlighted the importance of having processes in place to ensure that you maintain adequate supervision and control over staff to direct, oversee and check the services provided on your behalf when working remotely.

The TPB guidance on supervisory arrangements and supervision and control is still relevant in the current circumstances and you should:

  • Review your work from home policies in light of the current circumstances
  • Review and ensure any online systems are secure 
  • Ensure staff have access to and follow documented procedures, processes and checklists 
  • Ensure staff have adequate level of expertise, training and understanding of tax laws to perform the tasks they are responsible for
  • Determine the level and depth of oversight required over the advice services to be provided
  • Provide substantial supervision, rather than mere checking of documents 
  • Have documented escalation procedures and quality assurance mechanisms in place 
  • Undertake spot checks of source documents and questions asked by staff to justify information provided by clients, such as income and deductions declared.