I trust you are getting back into a normal life and for those hanging out for Phase 5 of the State recovery plan to commence, that recent developments don’t have a significant impact on your reopening plans. It’s been a strange year as we look back over the effect of COVID 19 since March. And the developments over the past few days in Victoria show just how strange these times are for all our community.
In this article I want to cover two matters that may affect you and your business.
Firstly, a pointer for the 2020 tax return. Many of you will have worked at home during the pandemic. There are two ways you can claim the costs of working at home that are allowed under our Tax laws. The first is an actual method. This requires that you calculate the area used in the home for work purposes as a percentage of total floor space. The calculated percentage is then applied to the costs of running the home. Examples of these costs are electricity, heating, rent(only if the home is rented). You can’t include mortgage payments or interest on a home loan. As you probably did not work from home all year you will need to further apportion the cost to the time that you actually worked at home. For example, if you worked 5 days a week at home for 3 months, the area in which you worked is 10% of the total floor area, and your annual costs come to $3,000 the claim will be calculated as follows:
Area % x costs x weeks used
In our example this will be a claim of $75.
(10% x $3,000 x 3/12)
Have your eyes glazed over digesting this level of detail???
Fortunately an alternative “shortcut” approach authorised by the ATO is available. Simply adopt a flat rate of 80 cents per hour for the time worked in the home after 1 March 2020. This rate covers all costs of working including the decline in value of equipment. Its big advantage is that it requires minimal record keeping. All that is required is to have a record of the days you worked at home and to apply the standard number of hours you worked. For example if you worked 40 hours per week and you were at home for 12 weeks the calculation will be as follows:
Hours worked per day x days at home x 80 cents
In our example this will be a claim of $384
(8 hours x 5 days x 12 weeks x 80 cents)
You may also have purchased equipment (for example computer screens) to facilitate working from home. If the cost of each item is <$300 it is fully deductible, if the cost is greater, then the item will be depreciable.
How will this work for you? At first glance this seems pretty simple. It’s more than likely that the 80 cents per hour is the way to make your claim. And if there are multiple people working in the home each person can make the claim, subject to having the records to support the hours worked.
Our qualified staff are experts in this matter as they have already worked it out for themselves. So if you need guidance please give us a call.
The second matter we want to raise concerns employers. As you know the law requires employers to contribute superannuation at a rate of 9.5% of an employee wage or salary to a fund chosen by the employee. This simple statement hides the extreme complexity of the law and the definitions used in it. For this reason there are many employers who have under remitted superannuation for employees. This triggers the superannuation guarantee charge as a penalty to the employer. The charge comprises four elements:
- The amount of superannuation under remitted;
- An administrative component of $20 per employee per period of the shortfall; and
- Interest on the unpaid amounts; and
- An additional penalty of 200% for failing to report the shortfall to the ATO
And all of these amounts are not tax deductible. Ouch!
There are many reasons for short remittance occurring. In many cases employers in financial difficulty fail to remit the super as a way of preserving working capital. In recent published cases, the employer has underpaid wages due to the complexity in an award resulting in underpayment of superannuation. However the issue can be even more complex with definitional issues around which payments attract the contribution and those that are exempt. For these reasons there are many employers that have conducted extensive audits of their compliance with the law over the past year. You may recall seeing many new reports of large sophisticated employers confessing to having got this wrong.
In May 2018 the Government announced an amnesty for employers to review their records and set the situation right with their employees.
The terms of the amnesty are that an employer can:
- Can deduct a superannuation guarantee charge payment (or an offsetting contribution) made during the amnesty period;
- Will not have to pay the administrative component ($20 per employee per period); and
- Will not be liable for an additional 200% penalty for failing to provide an SGC statement.
So apart from paying the interest charge on the unpaid superannuation contribution, the employer avoids the penalties, and also gets a tax deduction for the payment. That’s a big incentive to get this sorted out. Despite many requests from our professional accounting bodies to extend the deadline this amnesty ceases on 7 September 2020.
Our past experience with other amnesties offered by the ATO is that when it’s over, the number of audits increases. So, it’s fair to expect that audits will increase after September to check compliance. We can help you review your superannuation calculations for employees if required. However, you need to contact us pronto so we can schedule helping you into our workflow.
And that’s all for today. For those enjoying holidays while schools take a break, we wish you a relaxing time. For everyone else, we remain open and available.