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Tax
Who would have guessed that the impact of COVID-19 would also be felt when preparing your tax return? With various restrictions in place since March 2020, meaning many people have been work from home, more than ever it is important to understand what expenses you can and can’t claim as a tax deduction. In recognition that going through expenses and apportioning what relates to work might not be most people’s cup of tea, the ATO has introduced a new method for calculating your deduction for work-related expenses for the 2020 financial year (called the “shortcut method”) with the view to reducing complexity. We have set out a summary of the three methods of calculating your deductions in the table below. If you plan on using a method other than the shortcut method, you will need to bear in mind the following general principles when claiming a deduction: You must have spent the money. The expense must be directly related to earning your income. You must have a record to prove it. So no, that shiny new coffee machine you bought is not likely to be deductible, even if you feel it’s the only way you can get through your working day. What you can claim What you can’t claim Requirements Shortcut method 80c for every hour worked at home for the period from 1 March to 30 June 2020. If you work 38 hour weeks, this would mean a deduction of just under $500. Actual costs of your expenses (e.g. utilities and equipment) – the 80c per hour is meant to cover all this. Record of the hours you have worked from home (e.g. timesheet, roster, diary, work records). Fixed-rate method · 52 cents for every hour worked at home to cover the cost of electricity, gas and depreciation of home office furniture. · Actual costs incurred for phone calls, internet, stationery. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (e.g. laptops and phones), based on their effective life. For laptops this is 2 years, desktops are 4 years, mobile phones are 3 years. See link below for ATO’s ruling as to effective life. Actual costs of electricity, gas and home office furniture (covered by the 52c per hour deductions). Non-deductible expenses, e.g: - Snacks - Toilet paper - Coffee, tea and milk - Luxury stationery - Childcare or home schooling costs - Items reimbursed by your employer. Dedicated workspace Comprehensive records: - receipts or other written evidence of amounts spent - statements with breakdown between work and private calls to determine percentage of work-related use for a representative period (4 weeks) - diary covering the representative period showing usual pattern of work - your work-related internet use - the percentage of the year you used depreciating assets exclusively for work. Actual expenses method · Actual cost of utilities, i.e. electricity and gas. · Actual cost of cleaning for the work area. · Actual costs incurred for phone calls, internet, stationery. · Repair costs for equipment and furniture. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (including furniture and fittings), based on their effective life. Non-deductible expenses per above. Dedicated workspace. Comprehensive records (as described above) of all costs. Can you claim the value of equipment you bought pre-COVID-19? You can claim the decline in value attributable to the period you used the equipment for work at home, provided it has not been written off already. For example, a laptop (which has an effective life of 2 years) bought one year ago will have one year of effective life left. If you used the laptop for work purposes, then you will allowed a deduction corresponding to the decline in value for that period. Say the laptop was worth $4000, and you used it for work purposes 50% of the time during 1 March and 30 June 2020. The deduction you get is under the prime cost method is: $4000 × A × B × C = $330 Where: A = 50%, being the percentage representing 1 year of the 2 year life; B = 33%, being the percentage representing 121 days of the year; C = 50%, being the proportion used for work. In this case, you are most likely already better off claiming under the fixed-rate method than the shortcut method, even if you don’t claim anything else (i.e. approximately $500 vs $654). On the other hand, if you bought the laptop more than 2 years ago, there will be no deduction. Can you claim expenses like your mortgage, rent and council rates? Most likely not if you are an employee simply working from home due to COVID-19 restrictions. These expenses can be claimed for example if you run a small business from home. The key criteria are: 1. The area claimed for occupancy expenses must be used extensively and systematically for taxpayer's work. This generally requires almost exclusive use for work such that the taxpayer and family have forgone domestic use of that room and/or that the room is not readily adaptable back to domestic use. 2. The home office is not just a mere convenient place to work. Note you don't get the full main residence exemption if your home is your principal place of business, although you're probably entitled to a partial exemption. Can I claim a deduction for amounts where my employer provided an allowance? Yes, but only if the allowance is included as income in your tax return (and assuming it is not a reimbursement). Can you claim travel from your home office to your actual office? No - your home is still a private residence and you cannot claim your trip from home to your regular workplace. Is Jobseeker tax-free? It depends. Jobseeker will still constitute income, so you will need to include it on your tax return. If you remain under the tax-free threshold (taking into account all your other income), then you will not need to pay any tax. If your income is over the $18,200 threshold, then you will need to pay tax. Early super withdrawals Please be warned that if you made an early withdrawal of your super improperly, there is a good chance the ATO may catch you in an audit. To have been eligible for the scheme, you must have been made redundant, working reduced hours of at least 20%, be unemployed or be eligible for welfare assistance such as JobSeeker (not JobKeeper), Youth Allowance or Parenting Payment. If you are a sole trader or run your own business, and have experienced a 20% or more fall in revenue, you are also eligible. If you made a withdrawal even though ineligible, you will be liable to pay tax on the amount withdrawn as well as penalties. If this is your situation, the best way forward is to come clean and make a voluntary disclosure. If you need assistance in this regard (or any other tax matters), please feel free to contact us. Link to ATO website: Home office expenses https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/ Link to ATO website: TR 2019/5 – Income tax: effective life of depreciating assets https://www.ato.gov.au/law/view/document?DocNum=0000014624&PiT=99991231235958&FullDocument=true
Tax
Introduction The NSW Parliament recently passed the State Revenue Legislation Further Amendment Bill 2020 which, among other things, clarified the situation concerning discretionary trusts when it comes to the imposition of surcharge purchaser duty and land tax applicable to foreign persons. The Bill also makes amendments to provide exemption from and refunds of surcharge purchaser duty and surcharge land tax by the trustee of a discretionary trust if the trust prevents a foreign person from being a beneficiary of the trust. Surcharge duty and land tax For the past 4 years, the NSW State Government has been imposing a surcharge stamp duty and land tax for foreign purchasers/owners of real property in New South Wales. If residential property is held by a “foreign person”: Surcharge stamp duty, of an additional 8% when purchasing property; and Surcharge land tax, of an additional 2% annually based on land ownership as at 31 December, will be payable on top of the usual rates of duty and land tax (if any). Given that the tax-free threshold for land tax does not apply to surcharge land tax, even for a property with a registered land value of $500,000 surcharge land tax of $10,000 is payable (i.e. even when no standard land tax is payable). Family trusts potentially subject to surcharge People who do not have citizenship or PR are understandably caught by the surcharge regime, but what has surprised many is that a number of locally established family trusts (which generally take the form of a discretionary trust) fall under the definition of “foreign person”. This is because a discretionary trust is deemed to be a foreign person if any one of its potential beneficiaries (even if not a taker in default) is a foreign person. In this regard, it doesn’t matter that the trustee has not and does not intend to distribute to such beneficiaries, and the potential foreign beneficiaries are not named. Often, family trust deeds will specify as potential beneficiaries not just named family members, but such members’ families (usually widely defined, e.g. parents, siblings, uncles/aunts, nieces/nephews, grandchildren), as well as companies/trusts in which any of the beneficiaries have an interest, and in many cases charitable institutions (including overseas institutions). To see the wide-reaching operation of this deeming provision, the NSW Revenue website gives the following example: Say that XYZ Discretionary Trust is a trust whose beneficiaries include A (as a named person) and any company or trust in which named beneficiaries have an interest. Person A in turn owns 1 share in ABC Pty Ltd, which is majority owned by a foreign person B. In this case, XYZ Discretionary Trust will be deemed to be a foreign person because ABC Pty Ltd is a potential beneficiary of XYZ Discretionary Trust. If XYZ Discretionary Trust purchases real property in NSW, then surcharge purchaser duty and surcharge land tax will become payable. In this case, it doesn’t matter that XYZ Discretionary Trust has never made a distribution to ABC Pty Ltd and never intends to do so. By way of further illustration, one recent family trust we reviewed specified as a potential beneficiary “schools, universities, colleges and other educational bodies of any kind either within or outside Australia”, which similarly resulted in the trust being a foreign person. Another way in which a family trust can be caught is when it includes extended family members who are not based in Australia. The new Bill clarifies and confirms this wide-reaching operation, with a new section introduced stating that “The trustee of a discretionary trust is taken to be a foreign trustee for the purposes of this Chapter unless the trust prevents a foreign person from being a beneficiary of the trust”. How we can assist If you are looking to acquire (or already own) real property through a family trust, the Bill allows an opportunity for family trusts to put through amendments into the deed to “prevent a foreign person from being a beneficiary of the trust” in order to manage any unintended surcharge purchaser duty consequences. Although the Bill allows for a buffer period until 31 December 2020, we recommend that your family trust deed be amended as soon as possible if the family trust would be deemed to be a foreign person under the surcharge provisions. If you are unsure whether the terms of your trust deed “prevents a foreign person from being a beneficiary of the trust”, H & H Lawyers will be happy to review your trust deed to check whether it might fall within the ambit of the surcharge regimes. If we find that the terms of the trust deed causes your family trust to be deemed a foreign person, we can then further assist in implementing the necessary amendments to the trust deed.
Workplace & Employment
On 20 May 2020, the Full Court of the Federal Court of Australia handed down its decision in WorkPac Pty Ltd v Rossato. The case centres around labour hire firm WorkPac, which employed Robert Rossato as a mine worker at two Queensland mines owned by Glencore. Mr Rossato was a casual employee, on rolling contracts, over a three-and-a-half-year period. As a casual, he was paid an extra 25 percent loading on top of his wage — which is the usual practice to make up for not being given benefits such as annual leave. The Full Federal Court dismissed WorkPac’s application for a declaration that Mr Rossato was a casual employee, instead finding that Mr Rossato was a permanent employee. It was found that because Mr Rossato's employment was "regular, certain, continuing, constant and predictable", and he was given rostered shifts well in advance, he was eligible to entitlements that full time employees receive under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) and the relevant Enterprise Agreement: being paid annual leave, paid personal/carer’s leave, paid compassionate leave, and payment for public holidays. This is an important decision for employers who engage casuals, whether directly or as a host employer. Pending any intervention by the Federal Government or appeal to the High Court, employers should now carefully review their casual employment arrangements, update the terms of their casual contracts, and revisit their arrangements with labour hire companies and their workers. In particular: • Employers should review their casual arrangements with a view to determining whether some other form of engagement is more appropriate – including part time and fixed term arrangements. • Assuming casual engagement is still appropriate, specific attention should be given to the employee’s written contract to ensure that the casual loading is a separately identifiable amount that is stated to be paid as a result of the employee not being entitled to NES or other entitlements peculiar to permanent employment. We also suggest a statement to the effect that if the employment is subsequently determined not to be casual employment, the employer is entitled to repayment of the casual loading. • Regular reviews of casual arrangements should be conducted – at least once every 12 months – to assess the likelihood of the employment being a “firm advance commitment” of employment. We can assist you if you have any questions about how the Workpac v Rossato decision may impact the work arrangements in your own organisation or more generally in relation to how you are employing or engaging your workforce.
Wills & Estate, Family
Anyone who is familiar with K-Pop news would have heard about the death of K-Pop singer Goo Hara, former member of Korean girl group Kara. Following her death, the sad childhood of the singer came into light due to a legal claim brought forward by the singer’s mother under the Korean Inheritance law. It was reported that Goo Hara’s mum abandoned her and her older brother when Goo Hara was only eight years old and never cared for them or contacted them since the abandonment. It was reported that Goo Hara’s mother subsequently gave up her legal parental and custodial rights in relation to Goo Hara and her brother in 2006. Young Goo Hara was subsequently cared for by her older brother and her grandparents while her father was mostly away to work on construction sites in order to support the children financially. Goo Hara was 28 when she died and having never been married, she did not have any surviving spouse or any children. Under the Korean Inheritance Law, if you die without a valid will then the estate of the deceased will be distributed in the following order: Children (or grandchildren) Parents (or grandparents) Siblings Relative within the four degree of collateral consanguinity And if there is more than one person standing in the same rank then they share the estate equally. Since the death of Goo Hara, Goo Hara’s father has given his share of Goo Hara’s estate to Goo Hara’s brother stating that he always felt guilty not being there for the children to support them emotionally as he was away from home working to support the family financially and the children had to rely on each other during his absence. Currently, the singer’s mother has appointed a lawyer and filed a legal proceeding to claim her half share of the singer’s estate as the mother of the singer under the Korean Inheritance Law. The singer’s brother stated he is upset that the person who caused so much pain in his sister’s life now stands to benefit from her death and he vowed to defend his sister’s estate. You may think there is injustice being served here if the Korean legal system grants Goo Kara’s mother a share of the singer’s estate. But as the Korean Inheritance Law currently stands, unless there is a different way of defining a ‘mother‘ under the Korean Inheritance Law to exclude a mother who may have been absent from fulfilling a mother’s role during the deceased’s life, the Court must grant the mother the one half share of the singer’s estate. Similarly in NSW, when a person dies without a valid will in place, Succession Act 2006 (NSW) will determine how the deceased’s estate will be distributed. In NSW, distribution of the estate will generally go first to the surviving spouse, and if there is no surviving spouse then in the following order: Children Parents Brothers and sisters Grandparents Aunts and uncles Cousins The law does not take into account the type of relationship you had with your family members when distributing your estate after you die. The only thing the Court will consider is how you are legally related to the deceased. There are many similar cases in NSW. Recently there was a case in which a father, who was abusive and had a history of domestic violence, was issued with Apprehensive Violence Order (AVO) to prevent him from approaching the son in order to ensure the child’s safety. Soon after the Court’s AVO order, when the child was still very young, the mother divorced the child’s father and moved to Sydney. The child grew up and by the time the child reached his late twenties, having worked hard, he had accumulated wealth of his own. He maintained a close relationship with his mother, but did not have any form of relationship with his father. His father never contacted the family, and they lived separate lives. Later the child, still in his twenties, died suddenly from an accident. At the time of his death he was not married and did not have any children. The child, who was still young, never thought about having his estate planning in place and consequently did not have a valid will at the time of his death. The mother, in order to finalise her son’s estate, filed documents to the Court to be the administrator and the sole beneficiary of her son’s estate. The Court informed the mother that when a person dies without a will then law determines as to who the beneficiaries of the estate are. And in accordance with the Succession Act 2006 (NSW), as the deceased is not survived by a spouse or children, next in line to receive the deceased estate were the parents of the deceased. Therefore, both the father and the mother had to share equally in the late son’s estate. The mother was devastated by the fact that the father who was abusive to her son, who took no part in raising him and lived his life as a stranger to her son during her son’s life now stood to benefit from her son’s death. However, the law is clear on this matter. The distribution of the estate of an intestate must be in accordance with the law, and the law states that when a person dies and is not survived by any spouse or children then it is the parents of the deceased who are next in line to share in the estate of the deceased. The law does not look into the kind of relationship the parents had with the child. The fact that one is the parent of the child is the only qualification that is needed under the Succession Act. Every family has a different story and different relationship that is unique for that family. However, the law does not take any of these factors into account when it comes to distributing the estate of a deceased person who died without a valid will. The only way you can have certainty and control over what happens after you die is through having a valid will in place. Many will agree and recognise the importance of having a valid will in place, but for most this is easily pushed down to the bottom of their ‘to do’ list. However, as we currently experience a period of uncertainty and have more time to spend at home during this Coronavirus pandemic, maybe it is time to give some thought to estate planning to preclude some uncertainty and heartache for your family.
Workplace & Employment
Q: Some mid-career employees have been working for 10 years without a formal employment contract. I've had no problem without an employment contract, but should I still have a written employment contract? (Male in his 40s working in the HR department of a Japanese company) A: Employment contracts do not necessarily have to be reduced in writing. Oral employment contracts have legal effect. Even if specific terms of employment contract have not been discussed, there is in principle an employment relationship if an employee actually works for an employer. It goes without saying that wages, working hours, annual leave and superannuation, etc. must meet the minimum labour standards set by law, even if no detailed employment conditions are negotiated. However, labour standards set by law are complex. Employers may inadvertently violate minimum labour standards if they do not ensure that minimum employment standards are well covered in the employment contract. Fair Work Ombudsman may impose a fine in case of violation of the standards. Also, even if employees are employed under conditions that exceed the minimum labour standards, it is necessary to confirm and reduce in writing that both parties understand the details of the terms. When an annual salary is presented (as opposed to hourly wages), there could be a disagreement between the parties about what their wage covers. For example, an employer may understand that the salary includes reasonable overtime work, while an employee understood that overtime works are billable separately. In this case, the employer is legally required to notify the employee in writing that the overtime payment is included in the salary. Another common issue is that in the absence of a contract, an uncertainty arises whether a notice is required to terminate an employment contract. Generally, if an employment contract states that a notice of dismissal should be given before certain weeks (except for unfair and illegal dismissal), an employee must be informed of the termination before that period. However, in the absence of a written agreement, the notice of termination must be a reasonable period. The reasonable period is determined case-by-case. If you hire a position that involves creativity, you need to make sure who owns the intellectual property that arises as your employees perform their duties. In addition, it will be disadvantageous for employers if an employment contract fails to incorporate confidentiality obligations and non-competition obligations after termination. Especially for mid-career employees or employees in senior management positions, if above terms are not stipulated in their employment contract, it can lead to major legal issues later. Though it may be difficult to ask an employee to sign an employment contract suddenly, it is recommended that a written employment contract is presented to employees at their promotion.
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