Female apprentice florist cutting some ribbon

2021: Opportunities and Risks, JobMaker Deadline Looms, Christmas Parties and FBT

JobMaker Deadline Looms

JobMaker enrolments opened on Monday the 7th of December and because of the tight turnaround times, if your business would like to access JobMaker for the first period, it will be important to assess eligibility. Be sure to contact us as soon as possible to get the ball rolling.

Wednesday the 6th of January 2021 is the final day of the first JobMaker Hiring Credit period and the deadline for enrolling in the scheme to access payments for the period. Whilst the Tax Office has the ability to extend the deadline, to date there has been no indication that it will do so.

Christmas Parties and FBT

It would be remiss of us not to mention Fringe Benefits Tax again given Christmas festivities are currently underway. Employers often find themselves caught out for failing to understand the FBT impact of Christmas, and have questions about what is and isn’t an allowable deduction.

Christmas party costs are exempt from FBT provided that they are:

  • on a working day;
  • on business premises; and
  • for current employees only.

However, if a spouse or associate of a current employee attends the Christmas party, an FBT issue will arise unless the costs satisfy the minor benefits exemption.

Employers who choose to host the Christmas party off-premises will also be subject to FBT unless they satisfy the minor benefits exemption. The minor benefits exemption has a $300 threshold per employee, which applies to each benefit provided.

Christmas gifts can be treated separately with respect to the $300 threshold, however, it is important for employers to note that this means they must spend less than $300 per employee, otherwise they will be subject to FBT.

A tax deduction for costs associated with the provision of Christmas parties and gifts that are not entertainment (e.g. a bottle of wine, ham, store gift card) are not subject to FBT and are deductible.

If this all seems too complicated, businesses can choose to simplify their FBT calculations. The 50/50 split method allows for 50 per cent of costs associated with entertainment to be subject to FBT – and therefore tax deductible – and the other 50 per cent non-deductible, regardless of whether it was provided to an employee, associate or spouse.

2021: Risks and Opportunities

With the borders between the States and Territories all but open and 2021 in sight, there is a hunger for a return to ‘normal’. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to ‘get on with things’; sentiment reached its highest level since November 2013 and Christmas spending is expected to be consistent with previous years.

The Reserve Bank of Australia, however, cautions that the recovery will be uneven and drawn out and GDP is not expected to return to pre-pandemic levels until the end of 2021. The risks are not limited to the pandemic but Australia’s geopolitical relationships, notably with our largest trading partner, China.


Employers and Job Building

Reducing unemployment is a national priority. While the unemployment rate is expected to decline in 2021, further rises are expected as businesses restructure in response to the pandemic. Wage growth will also be subdued as a result of excess labour capacity in the market. 

New analysis from the Reserve Bank of Australia suggests one in five jobs were saved by JobKeeper. The November 2020 analysis states, “one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it not been for the JobKeeper payment. Given that 3½ million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period.” 

The number of businesses accessing JobKeeper reduced by around 450,000 in October 2020 in line with the transition to more stringent eligibility requirements. The focus now is to create jobs, not just keep them.

As we have previously written about, there are a number of incentives for employers to grow employment and skills:

  • JobMaker: a 12-month “hiring credit” available for jobs created from the 7th of October 2020 until the 6th of October 2021 that provides a payment to employers of $200 per week for eligible new employees aged between 16 and 29 years, and $100 per week for eligible employees aged between 30 to 35 years. Eligibility restrictions apply to the business and the employee, with employees needing to have been out of work and receiving Government support for at least one month within the three months prior to being hired.
  • Apprenticeship subsidies: subsidies of 50% of an apprentice’s wage (up to $7,000) are available for new and existing apprentices to keep them employed. The schemes apply to the wages of new apprentices from the 5th of October 2020 and the 30th of September 2021, and existing apprentices from the 1st of January 2020 to the 31st of March 2021. Again, eligibility requirements apply, both to the business and the apprentice.

Subsidies are also available for employers engaging apprentices in key industries with skills shortages including carpenters and joiners, plumbers, hairdressers, plasterers, bakers and pastry cooks, vehicle painters, wall and floor tilers, arborists, bricklayers and stonemasons, and air-conditioning and refrigeration mechanics.

There is also support for adults re-skilling and undertaking an apprenticeship, and for apprentices with a disability. 

You can find the full list of incentives here (695 KB PDF).

Federal Government incentives generally do not overlap. That is, your business cannot receive incentives for JobKeeper and JobMaker, or JobMaker and an apprenticeship subsidy. We therefore encourage you to seek advice tailored to your individual circumstances.

State-based Incentives 
Tax breaks to encourage employers to employ more workers are also big right now. For example, Western Australia has an Employer Incentive Scheme with a base payment of $8,500 for employing apprentices. It’s worth seeing what is available in your industry.

For individuals, JobTrainer offers those aged between 17 and 24 the ability to upskill or re-skill at minimal cost.

HomeBuilder and the Housing Industry

The HomeBuilder scheme provides a tax-free grant to those building a new home or renovating. To date, around 27,000 homes are expected to be covered by the scheme with the highest number of applications so far coming from Victoria (7,636) and Queensland (5,954). New South Wales’ property prices mean that many homes exceed the eligibility threshold. 

The Assistant Treasurer recently announced an extension of the HomeBuilder scheme for all new build contracts signed between 1 January 2021 and 31 March 2021: 

  • Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder grant (down from $25,000); and
  • The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000 respectively (from $750,000).

In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after the 4th of June 2020 (applications for HomeBuilder can be submitted up to the 14th of April 2021).

There is also a change in the licensing requirements and registration for builders and developers:

  • Where an eligible contract is signed before the 29th of November 2020, the builder or developer must have a valid licence or registration before the 4th of June 2020; and
  • Where an eligible contract is signed on or after the 29th of November 2020, the builder or developer must have a valid licence or registration before the 29th of November 2020.

The eligibility criteria to access HomeBuilder remains the same; to be eligible you need to be an individual owner-occupier, 18 years of age or more, an Australian citizen, and pass the income test. The income test for individuals is $125,000 and $200,000 for couples (based on your 2018-19 or later tax return).

The grants are available if you build a new home where the value of the house and land does not exceed the threshold ($750,000 to $950,000 depending on when the contract was signed and the State you live in), or a renovation where the value of the property is $1.5m or less.

Extended Asset Write Off Rules

In the 2020-21 Federal Budget, the Government introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s installed ready for use, rather than being claimed over the asset’s life. And, there is no cap on the cost of the asset. 

Last month, the Government announced it will modify the rules again to enable a broader range of businesses to access the instant write-off. The amended rules will enable businesses with an aggregated annual turnover of $5bn or more (the current maximum threshold) to access the measures if they can satisfy an alternative test. Entities are able to pass this test if they have: 

  • Less than $5 billion in total statutory and ordinary income in either the 2019 or 2020 income year; and
  • Incurred more than $100 million in expenditure on tangible depreciating assets between the 2017 and 2019 income years.

This will allow some Australian businesses that are connected with large global groups to access the measure. 

In addition, the Government will enable businesses to opt-out of using the new instant asset write-off and accelerated depreciation rules on an asset-by-asset basis. Currently, the rules apply automatically if certain conditions are met, which for some businesses is not an effective use of the deduction. However, at this stage, it appears the choice to opt out of the instant asset write-off might not be available to small business entities that choose to apply the simplified depreciation rules.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.


COVID-19 rules and regulations

Despite feeling like we are emerging from the pandemic, the promise of a widely available vaccine is still somewhat beyond the horizon and the risk of another wave emerging in Australia remains very real. For businesses, this means it will be essential to ensure that COVID-19 safe operating conditions are maintained. Aside from the obvious health risks of not maintaining a safe work environment, a lockdown risks your business’s survival and the fines for breaching public health orders are significant.

The ABC reports that “more than $5.2 million has been raked in nationwide since pandemic laws came into effect in March this year.” In most regions, fines of around $1,000 apply to individuals and $5,000 for businesses and in Queensland, fines of up to $13,345 and prison might apply to individuals and business operators flagrantly defying the heath order.

Australia’s relationship with China

Putting it mildly, non-compliance with China’s political will comes at a cost. In response to Australia’s public positioning, China has flexed its economic muscle through the disruption of Australian exports.

  • April: Australia pushes for a formal WHO inquiry into the origins of COVID-19;
  • May: 80.5% tariff on Australian barley on the basis that barley is undervalued and subsidised. China imports approximately 70% of Australia’s barley crop. Suspension of beef exports from four Australian processing plants relating to a 2019 investigation regarding inconsistencies with labelling and consignment certificates for some frozen and chilled beef products. China is the largest importer of Australian beef at 24%. Japan is second at 23% and the USA at 20%;
  • September: China states that Australian exports of wheat will face “enhanced inspection.” At the same time, wheat imports from the US to China have increased;
  • October: Chinese importers unofficially instructed to stop buying seven types of Australian exports including coal, barley, copper ore and concentrate, sugar, timber, wine and lobster. Goods in transit at the time the ban was imposed have been in limbo. Two million dollars’ worth of rock lobsters were left on the tarmac unable to clear customs at Shanghai airport.
  • November: 107% to 212% “provisional” tariff imposed on Australian wine on the accusation that Australian wine is being dumped on the Chinese market causing “substantial” damage to Chinese wine manufacturers. Treasury Wine Estate, the makers of Penfolds and who represent an estimated 40% of the total annual wine export market to China, went into a trading halt after China’s announcement.

China is Australia’s largest trading partner by a margin that dwarfs trade with any other single nation (Europe: $118bn, Assoc. of South East Asian Nations: $110bn, and Japan $77bn). The value of exports to China has doubled in the five years since the signing of the China-Australia Free Trade Agreement in December 2015, from $75b in 2014-15 to $150b in 2019-20. Imports have also grown significantly, up 42% over the same period. 

Iron ore remains Australia’s top export to China (in 2019-20, exports of iron ore accounted for 56% of all Australian goods exported to China) and a high-demand resource to fuel the expansion of China’s economy as China is the world’s largest steel producer. The South China Morning Post reports that Australian iron ore makes up 60% of China’s supply. 

It is not the first time China has undertaken a concerted campaign to use its economic might to secure its policy goals. Canada, India, the UK and New Zealand have all faced some form of retribution in the past. When Sweden banned Huawei from its 5G network, the foreign ministry spokesman Zhao Lijian reportedly called on Sweden to correct its “wrong decision” and avoid a “…negative impact on China-Sweden economic and trade cooperation, and on the operations of Swedish companies in China.” Economic threats and oppressive rhetoric are commonplace.

During a speech to the Press Club in August this year, Minister Wang Xining stated that any long-term relationship is based on “mutual respect”. Australia’s perceived lack of respect was highlighted by the 14 grievances leaked by a Chinese diplomat to Channel 9. The grievances are wide-ranging from the banning of Huawei from Australia’s 5G networks on “unfounded” national security concerns (as have all members of the Five Eyes intelligence alliance except Canada, and France and Sweden), foreign interference laws (initiated with the establishment of the Counter Foreign Interference Taskforce focussed on democratic institutions, education and research, media and communications, diverse communities, and infrastructure), calls for an inquiry into COVID-19 and siding with the US anti-China campaign, speaking out on the contested South China sea territories (and supporting US gunboat diplomacy), and “thinly veiled” allegations against Chinese cyberattacks.

So, what does 2021 hold? There is conciliatory language from the Australian Government with both the Prime Minister and the Defence Minister acknowledging China’s economic success lifting millions out of poverty and our strong “people to people” relationship. But Australia has not publicly backed down or been any less vocal with the announcement of a new defence pact with Japan and a continued pro-democracy stance on Hong Kong. There is likely to be more pain to come for Australian exports to China and no short-term resolution or conciliation.

Cashflow crunch

Australian economists are fairly united that there are a number of “zombie businesses” being kept alive by JobKeeper. These are the businesses that are only surviving because salary and wages are propped up by the subsidy. The danger with these businesses is that they are continuing to take on debt. JobKeeper ends in March 2021, which coincides with one of the traditionally worst cashflow months of the year. It will be important to ensure that your business stays on top of its debtors and doesn’t become a bank for your customers. It will also be important to understand your cashflow position: don’t over commit, and stay on top of expenses.