Murray Howlett from Pilot’s Tax team warns businesses to be cautious when implementing changes based on guidance from the Australian Tax Office (“ATO”).
The ATO has published favourable interpretations of the law in response to individual and business circumstances that have occurred due to the COVID-19 pandemic. Whilst the ATO are being accommodating to the pressures brought by the pandemic, it’s important to note that any concessions communicated by the ATO are interpretations of the law only and are subject to change.
Many times we have seen the ATO change, or completely remove, previously published guidance from their website. So whilst some of the ATO concessions might benefit you in the short term, they should not be utilised without proper consideration of your future tax position.
We recommend reviewing the law together with the ATO’s recent interpretations. In some instances, the specific COVID-19 concession may not be as favourable as the original law for you or your business in the longer term.
We outline some examples below of where this could be most relevant.
1. Claiming work-related deductions
The ATO has been promoting their new administrative approach for claiming work-related deductions introduced as a result of the COVID-19 pandemic. This allows taxpayers to use a ‘shortcut method’ for claiming work-related deductions at a rate of 80 cents (increased from 52 cents) per hour for all the hours worked from home. Currently the increased rate can be only used for a working from home period from 1 March to 30 September 2020.
At first glance this seems to be a good option. The rate is much higher than usual and the method is very easy. This method can be used for taxpayers who did not have a dedicated work area in their homes but you cannot claim any other expenses for working from home. As such, the shortcut method may severely limit working from home deductions.
There are two other ordinary methods that potentially can be used. These options may result in a higher deduction depending on the circumstances. The ordinary methods are based on actual costs or a mixture of actual costs and a cents per hour rate of 52 cents.
When you consider the expenses that many taxpayers would have incurred while working at home, it becomes clear that using the shortcut method may result in a lower deduction.
2. Fringe Benefits Tax for motor vehicles
The ATO has provided guidance stating that if a car needs to be garaged at the employee’s home due to COVID-19, Fringe Benefits Tax (“FBT”) may not arise if the following applies:
- The car is not being driven at all, or only being driven for maintenance purposes; and
- The employer has elected to use the operating cost method (hence a logbook is required to be kept).
Where a valid logbook is required, this must be kept for a 12-week continuous period and odometer readings recorded.
So, to take advantage of these concessions, a new logbook will be required to be maintained, for a 12 week period. Have you already done so? If you start a logbook now, will the car still be being used in the same manner in 12 weeks’ time? Further, unless the 2020 logbook represents an indicative use of the vehicle, another logbook may be required next year, or sooner than the standard five-year timeframe.
Care will be required here to ensure the optimal outcome for your business.
3. International businesses and tax consequences for expats
COVID-19 has forced some employers with employees working in different jurisdictions to change their business and operating structure. In instances where foreign employees are now working in Australia or are here for longer periods, employers should be aware that:
i) They may be required to meet Australian employment obligations such as withholding taxes and pay superannuation; and
ii) They may now have an Australian “permanent establishment” which may result in income tax being payable in Australia.
The ATO has shown a lenient approach in recognising the unique impact of the COVID-19 pandemic. However, the guidance is always subject to change and we have already seen variations to the detriment of some businesses. In essence, if employees or businesses have a larger physical presence in Australia over this time, there is increased potential for higher Australian taxes to be paid.
Employers and individuals should assess their risks in light of the unique working arrangements brought by the pandemic, and seek advice on current tax laws.
We will continue to share our knowledge based on our experiences related to ATO measures and announcements. We recommend speaking to Murray Howlett or your Pilot advisor on 07 3023 1300 to better understand how the tax laws and concessions may affect your business now and in future.