COVID-19 Small Business Support & 1 July 2021 Updates

Recently the NSW Government has announced a support package for those impacted by the recent COVID-19 restrictions. Here is what we know so far.

COVID-19 Small Business Support Grant

Small businesses, including sole traders and non-profits, may be able to access grants from $5,000 to $10,000 which are scheduled to roll out at the end of July 2021.

The grant is available to help businesses pay for expenses such as rent, utilities and wages when no other government funding is available. The ultimate goal is to help alleviate cash flow issues and keep people in jobs during the pandemic.

The amount available depends on the decline experienced in a minimum 2-week period from 26 June 2021:

• $10,000 for those with at least a 70% decline
• $7,000 for those with at least a 50% decline
• $5,000 for those with at least a 30% decline

To be eligible, businesses need to hold an ABN registered in NSW while also being able to prove they are located and primarily operate in NSW.

The grant is divided into 2 streams:

1. Small Business COVID-19 Support Grant

Available to all sole traders and businesses who meet the following criteria:

• Turnover of more than $75,000 per annum at 1 July 2021
• Under the 2021 payroll tax threshold of $1,200,000 at 1 July 2021
• Fewer than 20 Full Time Equivalent employees
  

2. Hospitality and Tourism COVID-19 Support Grant

Available to tourism and hospitality businesses who meet the following criteria:

• Turnover of more than $75,000 per annum at 1 July 2021
• Annual Australian wages bill less than $10 million at 1 July 2021

Other features included in this support package include:

• Dine and Discover vouchers expiry date extended to 31 August 2021 and can now be used towards takeaway delivered to your home
• Payroll Tax payments due in July 2021 can be deferred on application
  

If you need assistance determining your eligibility or the process for applying, please give us a call.

What changes on 1 July 2021?

The prior financial year was a chaotic year as the world dealt with the effects of COVID-19 and the various stimulus provided to keep economies afloat. As the last financial year disappears into the distance and we begin a new financial year where living with COVID-19 is the new norm, it is an opportune time to revisit the changes that will come into effect from 1 July 2021.

Many of these changes were legislated before COVID-19 and may have been forgotten during the turmoil.

Tax reprieve for companies

The corporate tax rate that applies to eligible companies with an aggregated turnover of less than $50 million will reduce from 26% to 25%. This is the last part of the progressive reduction in the corporate tax rate from 30% to 25% for small to medium companies.

As was the case with the previous reductions from 30% to 27.5% and then to 26%, this could result in a quirky situation where a company may need to apply different tax rates when it calculates the imputation (franking) credits it attaches to its dividends and the tax it pays on its annual profit.

Super guarantee rate increases to 10%

On 1 July 2021, the Superannuation Guarantee [“SG”] rate will rise from 9.5% to 10% — the first rise since 2014. It will then steadily increase each year until it reaches 12% on 1 July 2025. The table below sets out the scheduled increases.

The 0.5% increase does not mean that everyone gets an automatic pay increase, this will depend on each person’s employment agreement.

If the employment agreement states the employee is paid on a total remuneration basis (i.e. base plus superannuation and any other allowances), then it is possible that this change might result in the employee’s take home pay being reduced by 0.5%. That is, a greater percentage of the total remuneration will be directed to superannuation.

Employers have discretion to pass on the rate change as an overall increase in total remuneration and should be proactively engaging with employees to discuss the implications.

Where an employee is used to receiving annual remuneration increases, it is likely that this increase will simply be absorbed into their remuneration review. For those paid a rate plus superannuation, then your take home pay will remain the same, but your superannuation fund will benefit from the increase.

Employers will need to ensure that they pay the correct SG amount in the new financial year to avoid the superannuation guarantee charge. Where your pay cycle crosses over the June-July period, it may be necessary to carefully review the calculation to ensure that the increase is applied correctly.

Superannuation salary packaging arrangements will also need to be reviewed — employers should ensure that the calculations are correct and the SG rate increase flows through.

Increase in SMSF membership

From 1 July 2021, self-managed super funds (SMSF) and small APRA funds (SAFs) will be able to have up to six members, instead of four.

If you are considering expanding the members of your fund, there are a number of things to be considered, including whether the fund’s deed allows the additional members. In addition, some State and Territory laws restrict the number of trustees a trust (including a super fund) can have. This may mean that a corporate trustee may be required to overcome these restrictions.

The ATO is currently in the process of making the necessary changes to the Australian Business Register (ABR) to enable SMSFs to add additional members. It is recommended that you wait until the ABR has been updated before adding additional members beyond the previously allowed four.

Indexation increases contribution caps and the transfer balance cap

Indexation ensures that the caps on superannuation that limit how much you can transfer into super and how much you hold in a tax-free retirement account, remain relevant by making pre-determined increases in line with inflation.

Concessional and non-concessional contribution caps

From 1 July 2021, the superannuation contribution caps will increase enabling you to contribute more to your superannuation fund (assuming you have not already reached your transfer balance cap).

The concessional contribution (deductible) cap will increase from $25,000 to $27,500. Concessional contributions are contributions made into your super fund before tax such as superannuation guarantee or salary packaging.

The non-concessional (non-deductible) cap will increase from $100,000 to $110,000. Non-concessional contributions are after tax contributions made into your super fund.

The bring forward rule, which is tied to the non-concessional cap, enables those under the age of 67 to contribute three years’ worth of non-concessional contributions to your super in one year. From 1 July 2021, you may be able to contribute up to $330,000 in one year.

Total superannuation balance rules will continue to apply and you may be subject to transitional rules if you have partially utilised the bring forward rule in either the 2018-19 or 2019-20 financial years.

Transfer balance cap – why you will have a personal cap

The transfer balance cap (TBC), as the name suggests, limits how much money you can transfer into a tax-free retirement account. From 1 July 2021, the general TBC will increase from $1.6m to $1.7m but not everyone will benefit from the increase.

From 1 July 2021, there will not be a single cap that applies to everyone. Instead, every individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances.

If your superannuation is in accumulation phase before 1 July 2021, that is, you have not started taking an income stream (pension), then your cap will be the fully indexed amount of $1.7m.

However, if you have started taking an income stream — you have retired or are transitioning to retirement — then your indexed TBC will be calculated proportionately based on the highest ever balance of your account between 1 July 2017 and 30 June 2021. The closer your account is to the $1.6m cap, the less impact indexation will have. For anyone who reached the $1.6m cap at any time between 1 July 2017 and 30 June 2021, indexation will not apply and your cap will continue to be $1.6m.

The Australian Taxation Office (ATO) will calculate your personal TBC based on the information lodged with them (this will be available from your myGov account linked to the ATO).

The total super balance caps to utilise the spouse contribution offset and the government co-contribution will also be lifted to $1.7m in line with indexation.

Minimum superannuation drawdown rates

The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year until 30 June 2022.

Single touch payroll reporting

Single touch payroll will apply to most businesses from 1 July 2021, this will include small businesses (those with 19 or fewer staff) and businesses with closely held employees (e.g., directors of family companies, salary and wages for family employees of businesses). No further extensions will be granted. All affected businesses will need to implement complying single touch payroll software in order to meet their new reporting obligations.

For employers with closely held employees, there are some concessions on how reporting is managed. These concessions allow a level of flexibility in relation to determining and making payments to closely-held payees. However, if your business is impacted, it will be important to plan throughout the year to prevent problems occurring at year end.

Work from home expenses under scrutiny

If you worked from home during lockdown and spent money on work related items that were not reimbursed by your business, you might be able to claim some of these expenses as a deduction — but not everything you purchase can be claimed.

The ATO has stated that it is looking very closely at work related deductions that are being claimed. If you are claiming your expenses, there are three methods you can use:

• An 80 cents per hour short cut method (you will need to have evidence of hours worked like a timesheet or diary)
• The 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or
• The actual expenses method.

The ATO is particularly interested in those using the ‘actual expenses’ method. To be able to claim a work related expense, it needs to be directly related to the work you do and how you earn your income.

The ATO has highlighted four ineligible expenses that are being claimed:

• Personal expenses such as coffee, tea and toilet paper
• Expenses related to a child’s education, such as online learning courses or laptops
• Claiming large expenses up-front (instead of claiming depreciation for assets), and
• Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home.