Newsletter - May 2020 Edition 2
Cents & Sensibility | Tax News | Views | Clues
Your Self-Managed Superannuation Fund (SMSF) and Investment Properties during COVID-19 – by Victoria Kogan
Rent Relief for related party tenant
• A common question being asked is “My superfund owns my business premises and my business is suffering due to COVID-19. I have heard about the Commercial Tenancy Relief scheme and want to know if my superfund is allowed to give my business rent relief?”
- The answer is Yes, provided certain criteria is met.
• The ATO will allow SMSFs that have a lease agreement in place with a related-party business tenant to temporarily reduce rent due to the economic impact of Coronavirus/COVID-19 on that business.
• The SMSF landlord will need to establish that the rent relief is in the best interests of the SMSF.
• It will be essential for SMSF Trustees to ensure they have sufficient evidence to justify the rent relief (or other incentive) and show it has been negotiated on an arms-length basis. This should all be well documented.
SMSF with Limited Recourse Borrowing Arrangements (LRBA)
• There may be the situation where an SMSF landlord provides rent relief to the business tenant (related or unrelated third party) which then reduces the SMSF’s cashflow who in turn is now unable to make their scheduled loan repayments.
• Our advice is to engage with your SMSF loan provider early and see whether your SMSF is eligible for deferred repayments on their loan
• It is critical that rent relief (or any other incentive) is not provided by an SMSF without first seeking professional advice to ensure your SMSF remains compliant with the SIS Act.
• Key actions SMSF trustees should take:
- If your SMSF has a loan, contact your bank/lender, and see what relief is available.
- If your SMSF is leasing a commercial property to a related business that is unable to pay rent, ensure all negotiations are at arms-length and soundly documented.
Please contact your knp representative who can assist you in ensuring correct documentation is in place where the SMSF Trustee provides rent relief to a related party tenant.
Coronavirus: Government’s JobKeeper Payment
A major part of the Government’s response to the Coronavirus (or 'COVID-19') pandemic is the ‘JobKeeper Payment’ Scheme.
The JobKeeper Payment is a wage subsidy that will be paid through the tax system (i.e., it will be administered by the ATO) to eligible businesses impacted by COVID-19.
Under the scheme, eligible businesses will receive a payment of $1,500 per fortnight per eligible employee and/or for one eligible business participant (i.e., an eligible sole trader, partner, company director or shareholder, or trust beneficiary).
The subsidy will be paid for a maximum period of six months (i.e., from 30 March 2020 up until 27 September 2020). It will be paid to eligible businesses monthly in arrears, with the first payments to employers commencing from the first week of May 2020.
The JobKeeper Payment will ensure that eligible employees (and, where applicable, eligible business participants) receive a gross payment (i.e., before tax) of at least $1,500 per fortnight for the duration of the scheme.
An employer will only be eligible to receive a JobKeeper Payment in respect of an ‘eligible employee’ if, at the time of applying:
- for employers with an aggregated annual turnover of $1 billion or less - the employer estimates that their projected GST turnover has fallen (or is likely to fall) by 30% or more; or
- for employers with an aggregated annual turnover of more than $1 billion - the employer estimates that their projected GST turnover has fallen (or is likely to fall) by 50% or more; and
- the employer is not specifically excluded from the scheme (e.g., one that is subject to the Major Bank Levy, one that is in liquidation, etc.).
For an employer that is registered as a charity with the Australian Charities and Not-for-Profits Commission (excluding universities and non-government schools registered as charities, which are subject to the 30% or 50% decline in turnover tests, as outlined above), a 15% decline in turnover test applies.
Importantly, eligible employers must actually elect to participate in the JobKeeper Scheme via an application to the ATO. In making such an application, an employer will also need to:
- Provide information to the ATO on all eligible employees (i.e., confirming the eligible employees were engaged as at 1 March 2020 and are currently employed by the business, including those who have been stood-down or re-hired). Treasury has indicated that, for most businesses, the ATO will use Single Touch Payroll (‘STP’) to pre-populate these details.
- Continue to provide information to the ATO on a monthly basis, including the number of eligible employees employed by the business and details of its turnover.
The ATO has available on its website an online form which can be used by employers to register their interest in the JobKeeper Payment Scheme.
Please contact your knp representative If you have any queries in relation to the JobKeeper Scheme.
Shortcut method to claim deductions if working from home
As the situation around COVID-19 continues to develop, the ATO understands many employees are now working from home. To make it easier when claiming a deduction for additional running costs you incur as a result of working from home, special arrangements have been announced.
A simplified method has been introduced that allows you to claim a rate of 80 cents per hour for all your running expenses, rather than having to calculate the additional amount you incurred for specific running expenses.
This simplified method will be available to use from 1 March 2020 until 30 June 2020. You may still use one of the existing methods to calculate your running expenses if you would prefer to.
You can claim a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are:
- Working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls; and
- Incurring additional deductible running expenses as a result of working from home.
You do not have to have a separate or dedicated area of your home set aside for working, such as a private study.
Please contact your knp representative if you need more information about this deduction.
ATO reminder about salary packaged super
The ATO has provided employers with a recent reminder that, from 1 January 2020, there has been a legislative change to ensure that when an employee sacrifices pre-tax salary in return for an additional concessional contribution into superannuation, it will not result in a reduction in the 9.5% Superannuation Guarantee (‘SG’) obligation their employer has even though doing so reduced their Ordinary Time Earnings.
The ATO has provided information for employers, payroll software providers and intermediaries who may need to change the way they calculate SG.
The ATO advises that, from 1 January 2020, you calculate the minimum amount of SG on the employee's ‘OTE base’. This is the sum of the employee's OTE and any OTE amounts they sacrifice in return for super contributions.
Additionally, super contributions to an employee's fund under an effective salary sacrifice arrangement no longer count towards an employer’ super guarantee obligations.
If your business allows for salary sacrifice arrangements, feel free to contact our office to ensure that you are calculating SG correctly.
Making sense of it all with Ali Roshan - Business succession planning
Whether your business is structured through a partnership, company or trust, consideration must be given to how to set up an effective mechanism for the transfer of equity and/or control if something should happen to one of the owners. If you have equity in a business you own with other people, you should consider how you can efficiently transfer ownership and ensure your Estate receives financial value of your shares.
There are two key consideration that need to be address in this situation:
- The legal transfer of control and ownership of the business
- The way that the transfer of the business will be funded
A buy/sell agreement can assist facilitate in dealing with these two issues. A buy/sell Agreement can be thought of simply as a ‘business will’ that can be triggered upon a death or Total and Permanent Disablement (TPD) causing a business partner to unexpectedly exit the business. Without an agreement the surviving business owner/s are forced to negotiate with the Estate or other beneficiaries to buy out their share of the business. Consideration should also be given to the following:
- there may not be funds available to buy the Estate out;
- the value of the business may be under contention;
- the beneficiaries may be forced to take whatever is on offer;
- and the beneficiaries may choose to take an active role in the business, whether they want to or are qualified to. More importantly do the other surviving owners want them involved.
Below is a diagram that illustrates how having a Buy/Sell agreement facilitates the pre-determined transfer of ownership of shares while at the same time taking care of the beneficiaries.
Buy/Sell agreements are a specialised area of advice and should be consulted with your financial adviser and lawyer.
Ali Roshan is an Authorised Representative (ASIC No. 000378611) of Lifespan Financial Planning
ABN 23 005 921 735 AFSL
Number 229892No Advice Warning / General Advice
The purpose of this article is to provide general information only and the contents of this website do not purport to provide personal financial advice. knp Solutions strongly recommends that investors consult a financial adviser prior to making any investment decision.The contents of this knp Solutions article does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.The information is selective and may not be complete or accurate for your purposes and should not be construed as a recommendation to invest in any particular product, investment, or security. The information provided on this website is given in good faith and is believed to be accurate at the time of compilation.