Home Office Tax Deductions (Shortcut Method)

On 7 April 2020, the Australian Taxation Office (ATO) announced a temporary short cut method for claiming home office expenses.

This temporary measure makes it easier for individual tax payers to claim deductions for additional running expenses in this time of working from home due to Coronavirus (COVID-19) restrictions.

The ATO will allow an individual to claim a deduction for all running expenses during the period 1 March 2020 to 30 June 2020 at a rate of 80 cents for each hour that an individual conducts genuine work duties from home.

Who is eligible to claim this shortcut method?

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,
  • incurring additional deductible running expenses as a result of working from home.

How does it work?

The 80 cents per hour covers all deductible running expenses associated with working from home in the period 1 March 2020 to 30 June 2020.

The expenses included in the 80 cents per hour are the following:

  • electricity for lighting, cooling or heating and running electronic items used for work (for example your computer), and gas heating expenses
  • the decline in value and repair of capital items, such as home office furniture and furnishings
  • cleaning expenses
  • your phone costs, including the decline in value of the handset
  • your internet costs
  • computer consumables, such as printer ink
  • stationery
  • the decline in value of a computer, laptop or similar device.

This means that you can not claim a separate tax deduction for any of the above expenses while claiming the 80 cents per hour. Given this, in some cases, claiming the 80 cents per hour may result in a lower deduction than the existing home office arrangements.

What’s the difference between the shortcut method (80 cents per hour) and the existing method (52 cents per hour)?

The key differences are displayed in the table below. You will notice that the main differences are in the requirements around record keeping. The Shortcut method requires you to keep less records however you can not claim any other separate expenses:

Shortcut Method (80 cents p/h)Existing Method (52 cents p/h)
Can separately claim
– phone and internet expenses
– computer consumables and stationery
– decline in value on computers or other equipment.
NoYes
RECORDS TO KEEP


keep a record of the hours you worked at home, for example timesheets or diary notesYesNo
diary entries for a representative four-week period to show your usual pattern of working at home that show
– you worked from home and made work
– related phone calls how you work out how much you used your equipment, home office and phone for work purposes over a representative four-week period
NoYes
receipts or other written evidence, including for depreciating assets you have purchasedNoYes
diary entries to record your small expenses ($10 or less) totalling no more than $200, or expenses for which you can’t get any kind of evidenceNoYes
itemised phone and internet accounts (paper or electronic) from where you can identify work-related calls and internet use, or other written records, such as diary entries if you don’t get an itemised bill.NoYes

Can I choose which method to use?

Yes, home running expenses incurred prior to 1 March 2020 must use the existing method (52 cents per hour) however after 1 March 2020, the individual can choose to use the shortcut method (80 cents per hour) or the existing method.

If you have would like to discuss any of the above further please do not hesitate to contact us 1300 978 320.

Victorian Government Business Support Fund

Further to the Federal Government Stimulus packages, the Victorian Government has launched a $500 million Business Support Fund.

This fund has been setup to help small businesses survive the impacts of the Coronavirus pandemic and to also keep people in a job.

The potential value of the grant is $10,000 per business and will be allocated through a grant process.

The following information has been taken from the Business Support Fund Application page where you can begin the application process. If you would like further information or would like assistance with applying for this grant please feel free to contact us.

Who is Eligible?

You are an eligible business if you meet the following criteria:

How can the funding be used?

Examples of what the grant funding could be used for include:

  • Meeting business costs, including utilities, salaries, rent
  • Seeking financial, legal or other advice to support business continuity planning
  • Developing the business through marketing and communications activities
  • Other supporting activities related to the operation of the business.

What evidence of eligibility and compliance is required?

  • Applicants will be subject to audit by the Victorian Government or its representatives and will be required to produce evidence, such as payroll reports to demonstrate impact, at the request of the Victorian Government for a period of four years after the grant has been approved.
  • If any information in the application is found to be false or misleading, or grants are not applied for the purposes stated in the terms of funding and application, the grant will be repayable on demand.

JobKeeper Payment Explained

The Government announced yesterday a JobKeeper Payment for businesses significantly impacted by the Coronavirus. This payment is a subsidy provided by the Federal Government that affected businesses can access to give them the ability to continue paying their employees. This payment will also be made available to the self-employed.

An Eligible business will be provided with $1,500 per fortnight per eligible employee for up to 6 months.

This subsidy will start on 30 March 2020.

Who is an Eligible Employer?

  • Turnover less than $1 billion and turnover has reduced by more than 30% relative to a comparable period a year ago
  • Turnover more than $1 billion and turnover has reduced by more than 50% relative to a comparable period a year ago
  • Employer is in an employment relationship with an eligible employee as at 1 March 2020 and the employee is currently engaged
  • Not-for-profit or self-employed/sole trader who meet the above turnover test

Who is an Eligible Employee?

  • Currently employed by the eligible employer (including stood down or re-hired)
  • Employed by the employer at 1 March 2020
  • Full-time, part-time or a long-term casual (a casual employed on a regular basis for more than 12 months)
  • 16 years of age or older
  • An Australian citizen, the holder of a permanent visa, a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia for 10 years or more, or a Special Category (Subclass 444) Visa Holder
  • Not receiving the JobKeeper payment from another employer

How will it be paid?

  • $1,500 will be paid directly to the Eligible Employer for each Eligible Employee per fortnight.
  • The payments will be made to the employer monthly in arrears by the ATO
  • The Payment is before tax and employers can top up the payment if they wish to do so
  • Employees will be paid in the following manner:
    • For an employee who usually receives $1,500 or more in income per fortnight before tax, they will continue to receive their regular income according to their current workplace arrangements. The JobKeeper Payment will assist their employer to continue operating by subsidising all or part of the income of their employees.
    • For an employee who usually receives less than $1,500 in income per fortnight before tax, their employer must pay their employee a minimum $1,500 per fortnight, before tax.
    • For employees who have been stood down, their employer must pay their employee a minimum $1,500 per fortnight, before tax.
    • For employees who were employed on 1 March 2020, then ceased employment with their employer, and then been re-engaged by the same eligible employer, the employee will receive a minimum $1,500 per fortnight, before tax.

When will the first payments be paid by the ATO?

First payments will be paid to eligible employers by the ATO in the first week of May.

How does a business apply?

Businesses with employees can register their interest in the JobKeeper Payment from 30 March 2020 by following the below register link below.

Eligible employers who register will be able to apply for the subsidy via an online application and will need to identify the employees eligible for the JobKeeper payments.

Businesses without employees (self-employed/sole traders) can register their interest in the JobKeeper Payment from 30 March 2020 by also following the below register link.

Eligible businesses without employees who register will be able to apply online and will need to provide their ABN, nominate an individual to receive the payment and provide that individual’s Tax File Number and provide a declaration of their recent business activity.

REGISTER YOUR INTEREST IN JOBKEEPER

As usual please feel free to contact us to discuss your individual situation and for further advice on the above.

Key Points from the Second Government Stimulus Package and Victorian Government Survival Package

On Sunday 22 March the Government released a second stimulus package to help individuals and business get through the Coronavirus crisis. As per the previous stimulus package announcement, more information is coming to hand as we write this but these are the key points we know so far.

CASH AND LOAN SUPPORT FOR BUSINESSES

Eligibility:

At this stage we are not aware of the eligibility being any different to the announcement of the first stimulus a week ago being, companies including not-for-profits with annual turnover of up to $50m and paid wages between 1 January 2020 and 30 June 2020.

Timing and how will payments be made:

The payments will be made through the ATO system and paid directly into the bank account you have registered with the ATO. These payments will be linked to the Pay As You Go (PAYG) Withheld reported in your BAS starting from the lodgement of your March 2020 BAS.

Payment amounts:

There is an increase in the payment amount offered in the first stimulus being:

  • 100% of PAYG Withheld from employee wages (up from 50%)
  • Minimum payment available to employers is now $20,000 (up from $2,000) with $10,000 being paid in the April to June 2020 period (lodgment of  of March 2020 BAS) and $10,000 being paid in the July to October 2020 period (lodgement of June and September 2020 BAS)
  • Maximum payment available to employers is now $100,000 (up from $25,000) with $50,000 being paid in the April to June 2020 period (lodgment of  of March 2020 BAS) and $50,000 being paid in the July to October 2020 period (lodgement of June and September 2020 BAS)
  • The ATO will make these payment by way of a credit to your Business Activity Statements

GOVERNMENT GUARANTEED LOANS

  • Federal Government is offering businesses unsecured loans of up to $250,000 for a term of up to three years through your lender.
  • Loans will be repayment free for six months and 50% guaranteed by the government.

INSOLVENCY MEASURES BEING RELAXED

  • The outstanding amounts limits will be increased from $2,000 to $20,000
  • Timing to respond will be six months instead of 21 days.
  • Relief for Directors over the next six months whilst trading insolvent

ASSISTANCE FOR INDIVIDUALS

  • A range of extra payments available including an extra $750 for Jobseeker allowance on top of the $750 originally offered.
  • Support to Casuals and Sole Traders of an extra $550 a fortnight for the next 6 months

VICTORIAN GOVERNMENT ECONOMIC SURVIVAL PACKAGE

  • Payroll tax waived – Payroll tax waived in the 2020 financial year for eligible businesses with taxable wages up to $3 million
  • Payroll tax deferrals – The same eligible businesses will also be able to defer any payroll tax for the first three months of the 2021 financial year until 1 January 2021
  • Commercial rent relief – Commercial tenants in government buildings can apply for rent relief
  • Land tax payment deferral – 2020 land tax payments will be deferred for eligible small businesses
  • Liquor licensing fees – 2020 renewable liquor licence fees waived
  • $500m Business Support Fund – The fund will support the hardest hit sectors, including hospitality, tourism, accommodation, arts and entertainment, and retail
  • $500m Working for Victoria Fund – The fund will help workers who have lost their jobs find new opportunities, including work cleaning public infrastructure or delivering food – providing vital contributions to our state’s response to the pandemic and affording those Victorians security when its needed most

All of the above is what we know at the moment. As usual please feel free to contact us to discuss your individual situation and for further advice on the above.

Keeping Your Business Alive

As a business owner, it is important in this time of uncertainty to stay calm and find light. If you are fortunate to be able to help, help other people. If you need help, do not be afraid to ask for help. Coronavirus is a people virus that does not discriminate and affects all of us, therefore people need to help people and realise that it’s not about them. Finding positives is key as business owners, human beings and advisors. Anxiety feeds anxiety. Fear feeds fear.

If you are a business owner that employs staff, you are responsible for the wellbeing of not only the individual that you employ but also inadvertently the wellbeing of their family and household. If this hasn’t dawned on you before then I’m sure it is now.

What can we do:

  1. REACT NOW: This doesn’t need to be perfect, but you need to take immediate and important action to protect the safety of your employees and keep your business alive. Some of these are:
    • determine a plan for your staff to keep working while abiding by government guidelines and social distancing
    • determine the measures that need to be taken for your business to practice good hygiene to reduce the risk of spreading the virus to staff and customers
    • communicate the first two dot points above effectively
    • prepare financial forecasts with ‘what if’ scenarios and a worst-case scenario to determine how much cash flow you will need to survive. If you aren’t able do this yourself, speak to your advisor
    • based on your financial forecast, determine ways you can spread the cash burden and conserve cash, some ideas are:
      • speak to your bank to see if you can have support on reduced or deferred repayments for a period of time. It is important to understand the short and long term impacts of taking this on, speak with your bank and ask how this option might affect you or your business in the future
      • speak to your landlord to see if you can have some assistance with rental payments
      • speak to your advisor about the government stimulus packages on offer and also determine with the ATO if any tax liability payments can be delayed or paid off over a period of time
      • determine any other large fixed costs that will not stop if you have zero revenue and seek assistance from the supplier. Remember the suppliers are in a tight spot as well so it’s important to be understanding if they can’t help.
  1. KEEP GENERATING REVENUE (KEEP YOUR BUSINESS ALIVE): Do whatever you can to keep your business alive through the coming days, weeks and months ahead. If your business can adapt to these challenges you will be a stronger business at the other end of these difficult times. By reacting now, you stand to be in the best possible position to weather the storm. An important thing to remember is that how your business behaves now will be remembered in the future when all is calm.

Here are some examples we have seen when speaking with clients and businesses over the week:

A finance team that has made the decision early to have 50% of the team work from home:

  • The evaluation of who is most appropriate to work from home was based on the risk to the employee and their family, who drove to work and who used public transport
  • They didn’t have enough laptops, so they packed up the desktop computer and sent that home with the employee.  Dual screens and the box with keyboard, mouse and all of the cables.
  • Remote access tools were tested from the office before they went home, so problems could be quickly sorted from the office rather than over the phone
  • The employees working from home also took their office chairs with them as working from the couch wouldn’t help them remain productive for long
  • Microsoft Teams was installed (and tested) for internal communications and Skype for Business for external communications (could be other remote working software such as Zoom, GoToMeeting, Hangouts etc
  • Business critical processes were reviewed and people trained as backups to do that process (payroll in this case).  The process was roughly and quickly documented (pen and paper!) to be able to refer to by a 3rd backup person.
  • Mangers communicated clearly and empathically to staff on what was happening, including that not all answers were known, but assured staff they were working on the issues.
  • Stayed in touch regularly using the remote working tools to ensure the team still was a team.  Eating lunch together virtually.

A manufacturing firm that has:

  • Split shifts with time in between shift changes to help with the ’social distancing’.
  • Hand sanitizers not only near time clocks and around machinery panels, but in walkways so people can ‘pump and go’ as they move between factory areas as they perform their normal day to day tasks

A professional services business that:

  • Introduced a no public transport policy in conjunction with work from home.
  • Spoke to their landlord for temporary rent payment relief
  • Rather than cancel external meetings, contacted a client and changed it to video conference
  • Had their sales team proactively call all customers to keep communication going

Cafes that have

  • Changed payments to totally contactless
  • Changed their product offering to take away coffees, and sealed packaged sandwiches and cakes that customers can ‘buy and leave’ quickly

A construction industry business that

  • Prepared several very quick financial models to ‘what if’ analyse (without overanalysing) 3 scenarios enabling them to make better decisions based on facts rather than emotion
  • Kept their people focused; still allowing discussion and addressing issues, but then carrying on business as normal.  After all, customers still needed them.

You will notice in the examples above, a lot of the actions focus on protecting the health, well-being and trust of staff members and customers. This is extremely important: without staff and customers, we don’t generate revenue.

The examples also show a focus on keeping revenue coming into the business and reducing cash going out of the business. If your business is affected at this time, we don’t need to make record profits or any profits at all but we do need to keep money coming into the bank to pay the bills, staff and keep the business alive.

Whilst the above suggestions and examples are based on situations and measures we have seen implemented this week, we acknowledge that there is no perfect solution for any one business with much changing each day. It’s important to note that the suggestions are general and some may require discussion to determine whether there are any potential adverse consequences in the future for your business. Please call to discuss if you need any help or guidance in measures you can take for your business

Please remember at this time to maintain optimism, respond to facts not opinions and ask for help when needed. Speak to your accountants and business advisors, they are there to walk through this with you.

The Government’s Coronavirus Stimulus Package in a nutshell

Information is still being released about the Government’s Coronavirus Stimulus package, however, below is what we know so far in a nutshell.

More information will become available over the coming days and weeks. Please feel free to contact us on 1300 978 320 or info@spire-business.com.au if you have any questions or would like to discuss how the below stimulus affects you or your business individually.

$25,000 to Small and Medium Businesses:

  • Businesses with turnover up to $50 million that employ staff between 1 January 2020 to 30 June 2020 may be eligible
  • A business that pays income tax on behalf of employees (PAYG Withholding) may be eligible for a payment equal to 50% of the sum of all employees’ total PAYG Withholding, to a maximum of $25,000
  • If you are a business that pays wages but not required to pay tax you may be eligible to receive a minimum payment of $2,000
  • This stimulus will be issued automatically based on Business or Instalment Activity Statements lodged from April 28
  • This payment is tax free
  • Payments are expected to be paid within 14 days

For Apprentices:

  • The business must employee less than 20 full-time employees
  • Businesses will be offered up to $21,000 ($7,000 per quarter for the first three quarters or 9 months of the 2020 calendar year) for each apprentice
  • The payments will be equal to 50% of the apprentice’s wages
  • A large business or Group Training Organisation may also be eligible for these benefits if they employ an out-of-trade apprentice who has been in-training with a small business as of 1 March 2020
  • Employers can register for the subsidy from 2 April 2020
  • Further information available on the governments Australian Apprenticeships website

Instant Asset Write-Off Extension:

  • The current tax write-off of $30,000 for businesses with a turnover of up to $50 million is now extended to include businesses with a turnover of up to $500 million and purchases of up to $150,000
  • This extension will apply until 30 June 2020

One-off payments:

  • The government will provide one-off payments of $750 to people on Newstart and to pensioners
  • The payment is tax-free and will not be assessable income

Support to particular sectors:

  • The Government will be committing $1 billion to support businesses that have severely affected such as the travel and tourism sector

Further to the above stimulus, the ATO will be looking to be more flexible in the way they will handle taxpayers’ affairs, this is what we know so far:

  • The ATO will allow businesses who usually report GST quarterly to opt in for monthly GST reporting in order to receive GST refunds quicker
  • Businesses will be allowed to vary their Pay As You Go (PAYG) instalment to zero for the March 2020 quarter
  • Businesses who vary their PAYG instalment to zero will also be able to claim a refund made for the September and December 2019 quarters
  • The ATO will look to remit any interest and penalties applied on or after 23 January 2020 and will also be offering low interest payment plans to businesses with a tax debt owing
  • All of the above will not be applied automatically and will require a phone call or request put forward to the ATO

8 Ways to Improve Cash Flow

Your business, just like a car, has many moving parts to keep it running. Every part is important and reliant on other parts to operate however without cash in the business or petrol in the car they simply won’t get very far. ‘Cash is King’, we all know this saying and it is definitely true.

Every moving part affects cash flow and below are some tips on how to ensure all of these parts are running effectively to support a healthy positive cash flow:

  1. Make a Profit – This is obvious as no profit means no surplus funds and your cash will inevitably go backwards, however profit does not mean that you will have positive cash flow. I’ve seen highly profitable businesses struggling to survive due to poor cash flow crippling its operation. Refer to 10 ways to maximise profits and reduce corporate stress.
  2. Ensure Customer Invoices are Paid on Time – Implement an Accounts Receivable policy to ensure you are working with reputable customers who are able to pay and pay on time. Have a process for collecting your invoice payments on time. Refer to How to build a watertight accounts receivable process.
  3. Align Customer and Supplier Terms – If your suppliers require payment of their invoices within 14 days but your customers aren’t paying you before 30 days then you will always run into trouble if you don’t have a healthy bank balance. Seek to have your supplier terms longer days than your customer invoice terms.
  4. Improve Inventory Management – Every bit of inventory you have in stock is idle cash. Know your best-selling products and your less popular products and order accordingly. If you have too much of a less popular product on hand, discount the products to get them sold. Cash in your hand is more valuable.
  5. Forecast when Quoting and Tendering Projects – When you are quoting or tendering for a project try to have your milestone payments as evenly spread as possible. If doable also try and work into the quote or tender a deposit requirement to get started or a payment due on signing the contract. From the day a project starts, if your business works on 30 day terms with its customers and you invoice at the end of the month this could mean that it will be almost two months before your first payment is received after the project has started. In that two months you will need to pay employees and contractors working on the project and also any material required before the first payment is received leaving a large hole in the bank balance.
  6. Lease or Finance Assets, Don’t Buy – Most of the time the assets you buy are depreciating in value over time. Don’t tie your cash up in something that is losing value. Keep your cash in the bank and use finance to purchase an asset.
  7. Forecast Growth – When a business is going through a large growth phase and it ramps up really fast, it is really exciting but most of the time the cash flow will suffer. There needs to be some large inventory purchases or hiring of more staff or some big asset purchases to support the growth however the revenue and profits from this growth may not be seen for a couple of months if you are working on 30 day terms with your customers.
  8. Do Budgeting, Revenue Projections and Cash Flow Modelling – Do a budget for the year including a revenue projection to know what lies ahead. What are your good months and what are your bad months? Put all of this information into a Cash Flow model which takes into account all of your income, expenses, liability payments and bank balances including the timing of these payments to see when cash will be tight. This will allow you to plan for the rainy day and assist in making various purchasing and business decisions.

If you require assistance please contact us on 1300 978 320 or info@spire-business.com.au.

Happy New Financial Year!!!

2019 prosperity year concept

Welcome to the 2019 financial year. Time to move on from 2018 and look to the year ahead.
What do you want from your business in the 2019 financial year? What are your goals? What do you want to improve? What do you want to start, stop and keep doing?
Setting some new financial year resolutions and putting them into action is always a great step towards achieving your goals and ensuring your business is on the road to success. The following article gives some great guidance:
New Year’s accounting resolutions
If you require any assistance please contact us on 1300 978 320 or info@spire-business.com.au to organise your free consultation now. Hope your 2019 financial year is all that you hoped for and more.