Unwinding COVID-19 Relief

COVID-19 support will roll back as states and territories reach vaccination targets.

The National Plan, the road map out of COVID-19, does more than provide greater freedoms at 70% and 80% full vaccination rates, it withdraws the steady stream of Commonwealth financial support to individuals and business impacted by COVID-19 lockdowns and border closures. We look at the impact and the support that remains in place.

For individuals

The COVID-19 Disaster payment offered a lifeline to those who lost work because of lockdowns, particularly in the ACT, New South Wales, and Victoria where the Delta strain of the virus and long-term lockdowns had the greatest impact.

In late September, the Treasurer announced that the Disaster Payment will roll back as states and territories reach vaccination hurdles on the National Plan. Over $9 billion has been paid out to date on Disaster Payments and at 70% and 80% full adult vaccination, the disaster, apparently, is over.

At 70% full vaccination in your state or territory

In the first week a state or territory reaches 70% full adult vaccination, the automatic renewal that has been in place will end and individuals will need to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility. The COVID-19 Disaster payment will not necessarily end, but anyone currently receiving the payment will need to reconfirm that they meet the eligibility criteria, including living or working in a Commonwealth declared hotspot.

Given that the time gap between 70% and 80% full vaccination might be as little as two weeks in some regions, the impact of the 70% restrictions might be a moot point.

At 80% full vaccination in your state or territory
In the first week a State or Territory reaches 80% full adult vaccination, the COVID-19 Disaster Payment will phase out over a two week period before ending completely.

*First week population +16 years of age reaches vaccination target

Those needing financial support will no longer be eligible for the disaster payment, regardless of whether a Commonwealth hotspot is in place, and instead will need to apply for another form of income support such as JobSeeker. Unlike the disaster payments, JobSeeker and most other income support payments are subject to income and assets tests.

The Pandemic Leave Disaster Payment, for those who cannot work because they need to self-isolate or care or quarantine, or care for someone with COVID-19, will remain in place until 30 June 2022.

Support for business

Each State and Territory manages in different ways the lockdown and financial support provided  to businesses impacted by COVID-19 lockdowns and border closures. The way in which support is withdrawn will depend on how support has been provided and the extent of Commonwealth support. In this newsletter we focus on Victoria. Detail on support in other States is available from your MVAB client service staff person.

The Victorian Government has distributed grants to business jointly funded with the Commonwealth. For many of these grants, funding has been topped up in line with lockdown extensions.

The Small Business Hardship Fund has provided one-off grants of $20,000 for businesses that have suffered a 70% or more decline in turnover and were not eligible for other grants or funding, will reopen (see the BusinessVictoria website for details).

The Business Costs Assistance Program will provide automatic top-ups to existing recipients across October and into the first half of November (two fortnightly payments between 1-29 October on a rising scale). Businesses that remain closed or severely restricted between 70% and 80% double dose will receive an automatic payment for the period from 29 October to 13 November.

Licensed hospitality venue fund recipients will also receive weekly top-ups in October of between $5,000 and $20,000, stepped according to venue capacity. Between 70% and 80% double dose, payments for licensed premises in metropolitan Melbourne will be reduced by 25%, and in regional Victoria by 50%.

For Borrowers

While an economic rebound is expected by some when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions.

The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19.

The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required.

Under the scheme, lenders can provide:

• A repayment holiday of up to 24 months
• Loans of up to $5m
• Loan terms of up to 10 years, and
• Secured and unsecured loans

The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.

The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive.

If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases,existing debt can be bundled into the loan arrangements.

Capital Gains Tax – subdividing the Main Residence

Subdivision of the main residence is a popular activity in Melbourne suburbs. Excising the unused and maybe oversize back yard is an example or more we are seeing houses demolished and the land split in two with two adjoining houses on the former single block.

The main residence exemption applies only to the “dwelling”  when the land remains immediately under the accommodation.

If the accommodation is removed from the land and the land is sold (or half of it sold), the land does not come within the definition of dwelling and the main residence exemption does not apply.

Land under the accommodation qualifies for the main residence exemption for capital gains tax only if the land and the accommodation are sold together.

If you are contemplating changing the use of your main residence then taxes are complex and the proposition should be planned in advance for the likely tax consequences.

Cryptocurrency

The use of cryptocurrency is growing and there are taxation ramifications.

The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.

If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. The default position is to tax the crypto currency transaction as a capital gain.

Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.

If you have dealt with a foreign exchange or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.

Residency

Many of our family clients have a next generation living outside Australia.

Australia seeks to tax the world-wide income of its residents for tax purposes and the Australian taxable assets of its non-residents.

Like all tax matters there are shares of grey, complexities and unintended consequences.

If non residency or a likely change in residency applies in your family, you should be reviewing the implications of:

• Trust distributions
• Land tax rates applied to land owned by your trust
• Assets bequeathed in your Will
• Higher Education Loan Payment (HELP) – effect on repayments

If you have parents who reside outside Australia where assets maybe inherited into Australia, again planning is recommended well in advance.

Superannuation and Contractors

We continue to see business confused by the compliance rules of Superannuation Guarantee Charge  obligations for service providers of  business who might invoice rather than being on the payroll.

The definition of employee for SGC purposes is narrow and is not cross referenced to other definitions of generally accepted concepts of employment. If your business pays for labour to  suppliers then you should be reviewing your compliance obligations to pay 10% superannuation in accordance with the Superannuation Guarantee Charge rules.

Superannuation - Rule changes for new employees

When your business hires a new employee, the Choice of Fund form is used to identify where they want their superannuation to be directed. If the employee does not identify a fund, generally the employer directs their superannuation into a default fund.

From 1 November 2021, where an employee does not identify a fund, the employer is required to contact the ATO and request details of the employee’s existing superannuation fund or ‘stapled’ fund (the fund stapled to them). The request is made through the ATO’s online services through the ‘Employee Commencement Form’.

If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).

Superannuation Funds  -  payments made on death

Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund.  When you die, it does not automatically form part of your estate but instead can be paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made.

Fund members  have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations:

Binding death benefit nomination - Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.

Non-lapsing binding death benefit nomination - Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate.

Non-binding death nomination - A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate.

Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years. If a reversionary pension is in place the benefit is not directed by the BDBN. Therefor direct two binding outcomes could be effected - one via BDBN of an accumulation account or no reversionary pensions, and on via reversionary pension account.

If no death benefit nomination is in place - If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will.

Is your death benefit valid?

There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology.

Who can receive your superannuation?

Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you.

A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.

Do beneficiaries pay tax on you superannuation?

Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty.

If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased.

If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay.

Should you have any questions regarding the above, please do not hesitate to contact our office on 03 9642 8000, or email us on info@mvabennett.com.au