Author Archives: experttaxadmin

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Loss carry back

 

On 6 October 2020 as part of the 2020–21 Budget, the government announced that it will target support to businesses and encourage new investment through a loss carry back regime.

 

Eligible corporate entities that previously paid corporate income taxes in a relevant year and have subsequently made taxable losses can claim a refundable tax offset up to the amount of their previous income tax liabilities.

 

The measure interacts with the government announcement on Jobmaker Plan – temporary full expensing to support investment measure. This will allow new investment to generate significant tax losses which can then be carried back to generate cash refunds for eligible businesses.

 

Eligible corporate entities with less than $5 billion turnover in a relevant loss year can carry back losses made in the 2019–20, 2020–21 and 2021–22 financial years to a prior financial year’s income tax liability in the 2018–19, 2019–20 and 2020–21 financial years.

 

The amount of the refund is limited by the corporate entity’s income tax liabilities in the relevant gain years and its franking account balance at the end of the year in which the entity files its tax return claiming the loss carry back tax offset (the 2020–21 or 2021–22 financial year).

 

Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.

 

 

Before you become a director in a company

 

If you are about to become a director of a company, check for any unpaid or unreported PAYG withholding, goods and services tax (GST) or Superannuation Guarantee Charge (SGC) liabilities.

 

If you become a director and the company has outstanding PAYG withholding, net GST or SGC obligations, you will become personally liable for a penalty equal to these amounts (these are called director penalties).

 

As a new director, you have 30 days, starting on the day of your appointment, before you become liable to director penalties equal to:

 

  • all the company’s unpaid PAYG withholding liabilities
  • all unpaid net GST liabilities (inclusive of Luxury Car Tax (LCT) and Wine Equalisation Tax (WET) from 1 April 2020.
  • all unpaid SGC liabilities from 1 April 2012.

 

However, as a new director, you will not be liable to director penalties for amounts due before your appointment if, within 30 days starting on the date of your appointment, the company does one of the following:

 

  • pays their PAYG withholding, net GST and/or SGC debt in full
  • appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001
  • begins to be wound up (within the meaning of the Corporations Act 2001).

 

Even if you become a new director and you resign within the 30 day period, you will still be liable for the unpaid PAYG withholding, net GST and/or SGC liabilities of the company that were due before your appointment.

 

For PAYG withholding and net GST, you will also be liable for any unpaid liabilities for reporting periods that started while you were a director, except if you resigned before the first withholding event in that period.

 

For SGC, you will also be liable for any unpaid liabilities for reporting periods that started while you were a director, except if you resigned before the date the charge became payable.

 

Example

 

John and Mary are directors of XYZ Pty Ltd (the company). During the January to March quarter of the 2019–20 income year, the company withheld tax from employees’ wages but failed to pay the amounts withheld. When the company did not pay by the due date of 28 April 2020, John and Mary both became personally liable for a penalty amount equal to the unpaid amounts.

 

On 2 June 2020, Mark became a director of the company. To avoid incurring a director penalty, Mark had 30 days from the date of his appointment to cause the company to pay the amount, appoint a voluntary administrator or have the company put into liquidation.

 

Expert Tax is registered ASIC Agent and can assist with maintaining ASIC register, making changes to ASIC register and registration of new companies.

 

Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance on tax related matters.

 

 

 

Business Support Fund – Tax Consequences

 

A government payment to assist a business to continue operating is included in assessable income. This will include assistance provided as a one-off lump sum or a series of payments. For businesses operating on:

 

  • an accruals accounting method – the income will be derived when the right to the government payment arises
  • a cash accounting method – the income will be derived when the government payment is received.

 

Generally, you do not have to pay GST on grant funding unless you provide something of value in return for the payment. Providing something of value for the payment can include entering into a binding legal obligation to do something or refrain from doing something in order to receive the payment.

 

Example – Cash payment for running business

 

Bharat operates a local café which employs five full time and 10 casual workers. As a result of COVID-19 the café is closed for two months and operates at reduced capacity for two months after re-opening. The state government provides a $10,000 cash payment to businesses like Bharat’s to help them cope with the impacts of COVID-19. Bharat applies for and receives the $10,000 payment which he spends on paying outstanding business utility bills, replacement stock and deep cleaning the premises so he can reopen.

 

Income tax implications

 

In his 2020 tax return, Bharat includes the $10,000 payment from government as assessable income. He also includes the stock expenses in his trading stock calculation, and he claims the utility bills and cleaning expenses as a deduction.

 

GST implications

 

The payment is made to provide financial support to ease the pressures faced by small business impacted by COVID-19. The café only needs to meet eligibility requirements as stipulated in the funding application. Bharat is not providing anything of value to the state government in return for the payment. He does not have to pay GST on the cash payment received.

 

Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.

 

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