Last week, the legislation enabling the JobMaker scheme announced in the 2020-21 Federal Budget passed Parliament.
What is JobMaker?
JobMaker is a credit available to eligible businesses for the hiring of additional employees. It is an incentive for employers to support wage costs and, unlike JobKeeper, is not passed onto employees. The hiring credit is available for jobs created from the 7th of October 2020 until the 6th of October 2021 and provides:
- $200 per week for new employees between the ages of 16 and 29; and
- $100 a week for new employees between the ages of 30 and 35.
JobMaker credits will apply from the date your new employee starts and for a total period of 12 months, and will be paid quarterly in arrears by the Australian Taxation Office.
The bill passed without proposed amendments from the Senate, which would have prevented businesses from letting employees go, or reducing their hours, in order to hire new ones and claim the credits. Treasurer Frydenberg argued the protections in question were unnecessary as they were already covered in the Fair Work Act.
When do the credits start?
Assuming both your business and your employee/s are eligible, and the ‘additionality’ test is passed (see below), credits can be claimed for employees hired from the 7th of October 2020 until the 6th of October 2021. The credit will be claimed quarterly in arrears by the employer from the Tax Office from the 1st of February 2021.
How can we access JobMaker?
There are three tests for JobMaker:
- Has an ABN;
- Is up-to-date with tax lodgements;
- Is registered for PAYG withholding;
- Is reporting employee payments through single touch payroll;
- Keeps adequate records of the paid hours worked by the employee they are claiming the credit for; and
- Another employer is not claiming JobMaker for the same employee.
- Received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one month within the three months before they were hired;
- Is between 16 and 35 years of age at the time their employment started;
- Worked at least 20 hours per week on average for the full weeks employed for the period being claimed. (If the employee worked fewer than 20 hours, the employer cannot claim JobMaker for them during that period);
- Started work between the 7th of October 2020 and the 6th of October 2021;
- Is in the first year of employment with the employer; and
- The employer is not receiving any other form of assistance from the Commonwealth Government for the employee, for example JobKeeper or an apprenticeship subsidy.
Additional employee test ( the ‘additionality test’)
- Total employee headcount on the last day of the reporting period must have increased by at least one additional employee compared initially to 30 September 2020, and then to the previous reporting period; and
- Total payroll for the reporting period must have increased compared initially to the September 2020 quarter (July, August, September 2020), and then to the previous reporting period. The hiring credit cannot exceed the increase in payroll.
Government entities or agencies, banks and other institutions subject to the bank levy, businesses in liquidation, and foreign Government entities (unless a resident entity), are unable to access JobMaker.
ASKED AND ANSWERED
“If I can only claim JobMaker if the number of my employees and payroll costs increase, what happens if one of my team resigns through no fault of the business?”
Your business can only receive JobMaker for your eligible employees if your total employee headcount and payroll obligations increase. If the headcount or payroll decreases or remains the same, JobMaker can’t be claimed for that period.
For example, if you had three employees as at the 30th of September 2020 and hired an additional two employees in late October 2020, your business could claim JobMaker for the two new employees assuming the business and the employees are eligible and payroll has increased compared to the September 2020 quarter. If, however, in December 2020, one of your original staff members resigns, your business could only claim JobMaker for one eligible employee in December as your headcount has increased by one, not two, compared to your September 2020 baseline.
A similar baseline concept applies to payroll. If you employed new eligible employees in October 2020 but your overall payroll remained the same or only increased marginally because the hours of your existing staff reduced when the two new employees were employed, then the JobMaker credit would only be the additional payroll amount. That is, if the JobMaker credit for the two employees for the quarter is $8,960, but payroll compared to the September 2020 quarter only increased by $1,200, then the JobMaker credit you receive would be $1,200. The JobMaker credit cannot exceed the increase in payroll.
Employers will regularly need to ensure that they pass these ‘additionality’ tests before claiming.
For JobMaker purposes, your headcount and payroll increase is measured on the last day of each reporting period from the date your first new employee started. For example, if your first new employee joined in October 2020, your baseline is set at that point. If a new employee starts in January 2021, your payroll and headcount baseline is measured from the last reporting period, which in this example would be December 2020 for headcount and the December quarter for payroll. That is, your baseline commences from the date your new employee starts between the 7th of October 2020 and the 6th of October 2021 and then is reassessed each reporting period for a total of 12 months, to ensure there is an increase and that you remain eligible for the credit.
“If I don’t hire new staff until January 2021, can I claim JobMaker for 12 months or only up to the 6th of October 2021?“
JobMaker is available for 12 months for eligible employees hired from the 7th of October 2020 until the 6th of October 2021. If you hire new employees from January 2021, JobMaker is available for 12 months for these employees assuming that the employees and business are eligible and the ‘additionality’ test is passed, and continues to be passed in the subsequent reporting periods.
The baseline for the ‘additionality’ tests – employee headcount and payroll costs – starts from the commencement date of your first additional employee. The Government has indicated that the baseline for the ‘additionality’ test will be adjusted in the second year of the program to ensure an employer can only receive JobMaker for 12 months for each additional position created.
“My business did not have employees in September 2020 but I hired my first employee in late October 2020. Can I claim the JobMaker credit for them?”
Businesses with no employees on 30 September 2020 cannot claim JobMaker for their first employee. However, JobMaker can be claimed for your second and any subsequent employees that started on or before the 6th of October 2021.
“Can my business get JobKeeper AND JobMaker?“
No. However, once your business exits JobKeeper and is no longer receiving JobKeeper payments for any employees or business participants, if eligible, the business could then start to receive JobMaker credits. The business is eligible for the hiring credit in the reporting period following your JobKeeper exit date.
For investing in your business
Stimulating business investment and getting our economy back on track are high on the Government’s agenda. To encourage spending, the 2020-21 Federal Budget introduced a measure that allows businesses with turnover under $5 billion* 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 needing to be claimed over the course of the asset’s effective life. Additionally, there is no cap on the cost of the asset.
When it comes to second-hand assets the rules are a bit different depending on the size of the business. Businesses with an aggregated turnover under $50 million can claim an immediate deduction for the cost of second-hand assets under the new measures.
Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until the 30th of June 2021, to first use or install those assets.
For small business entities that have assets in a general pool, the changes seek to ensure that pool balances are completely written-off for tax purposes in the 2021 and 2022 income years.
These super-charged immediate deduction rules tie into the existing instant asset write-off for businesses with a turnover under $500 million (summarised below).
The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs, etc.) and certain intangible assets that don’t qualify for the new rules.
If your business will make a tax profit this year, this measure is likely to reduce the taxable income of the business for the year and it may be possible to vary upcoming PAYG instalments to improve your cash flow. If your business operates through a company and will make a tax loss, you might be able to use the loss to offset tax paid in previous years (see Refunds for Tax Losses below). Alternatively, tax losses can generally be carried forward to a future year.
*Aggregated turnover, which is your turnover plus the annual turnover of any business connected with you or that is an affiliate.
REFUNDS FOR TAX LOSSES
If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits.
In the 2020-21 Federal Budget, the Government announced that businesses with turnover under $5 billion* will be able to offset any losses made between 2019-20 and 2021-22 against previously taxed profits between 2018-19 and 2020-21.
The loss carry-back rules enable a company to offset tax losses against profits taxed in a previous year, generating a refundable tax offset. The amount carried back can be no more than the earlier taxed profits, limiting the refund to the company’s tax liabilities in the profitable years. The company can choose to carry-back a loss or carry it forward. That is, tax losses for the 2019-20, 2020-21 or 2021-22 income years can either be:
- Carried forward and deducted against income derived in later income years; or
- Carried back against income of earlier income years as far back as the 2018-19 income year to produce a refundable tax offset.
Previously, tax losses could only be carried forward and deducted against income in later income years.
This is not the first time that carry-back losses have been allowed. The loss carry-back rules were introduced some years ago by the Gillard government for the 2012-13 year, then repealed.
The loss carry-back rules also interact with the Government’s Budget measure allowing immediate expensing of investments in capital assets. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.
What entities are eligible to carry-back losses?
Corporate tax entities are eligible to carry-back losses – a company, a corporate limited partnership, or a public trading trust – BUT only if the entity has lodged an income tax return for the current year and each of the five years immediately preceding it. If your company has not kept up-to-date with its reporting obligations, it might not be able to use the new rules.
Claiming the refundable tax offset
Businesses will need to elect to utilise their carry-back losses when they lodge their 2020-21 and 2021-22 tax returns. That is, even if the company made a loss in the 2019-20 year, it cannot claim that loss until the 2020-21 tax return is lodged.
For the 2020-21 income year, a loss carry-back tax offset may be available to a company if:
It has a tax loss in the 2019-20 income year and/or the 2020-21 income year;
- It has an income tax liability in the 2018-19 income year and/or the 2019-20 income year; and
- For the 2020-21 income year and each of the previous five income years, either the entity has lodged an income tax return; the entity was not required to lodge a return; or the Commissioner has made an assessment of the entity’s income tax.
The carry-back cannot generate a franking account deficit. That is, the refund is further limited by the company’s franking account balance.
JOBKEEPER CLAWBACK BEGINS
At the recent Senate Estimates hearing, Jeremy Hirschhorn, the ATO’s Second Commissioner, stated that $120 million in JobKeeper payments had been clawed back from those either deliberately seeking to rort the system or who had made reckless mistakes. Mr Hirschhorn went on to say that there did not appear to be widespread fraud across the Government’s stimulus measures and most mistakes were honest. In the cases identified so far, JobKeeper had not been clawed back from employers making honest mistakes but these employers were prevented from making future claims.
In September 2020, the ATO noted that compliance checks had halted 55,000 JobKeeper applications at the very first stage, because they did not meet the eligibility criteria, and delayed $1 billion in payments to more than 75,000 applicants for further review. Eleven matters have been referred to Serious Financial Crime Taskforce operations and around 50 matters referred for criminal investigation. But overall, the Tax Commissioner stated, “the vast majority of Australians have done the right thing and only claimed the amounts they were entitled to.”
TAX TABLE REMINDER
The 2020-21 personal income tax cuts announced in the Federal are now law. Employers need to ensure that the tax withheld from employee salaries is correct. The ATO has published updated tax tables that apply from the 13th of October 2020. Employers have until the 16th of November 2020 to implement the changes.