This year’s Federal Budget, announced in the thick of the COVID-19 pandemic on 6 October, was like no other. We saw unprecedented support and stimulus for businesses to alleviate the pandemic’s impact on reduced income, cash flow and supply and demand restrictions.
This support was presented in many forms, but a program of significance to many Australian business owners and young jobseekers is the JobMaker Plan, which aims to increase the employment potential of businesses and help young people access job opportunities.
There are 4 main components of the JobMaker Plan:
- Temporary loss carry-back to support cash flow
- JobMaker Hiring Credit
- Bringing forward the Personal Income Tax Plan and retaining the low and middle income tax offset
- Temporary full expensing to support investment and jobs.
In recent weeks, legislation has been passed to give effect to the temporary loss carry-back scheme and the JobMaker Hiring Credit. Let’s take a look at what this means for you.
What does the new loss carry-back mean for your business?
The Federal Government’s JobMaker Plan introduced a temporary loss carry-back rule for companies and on 14 October, this legislation was passed under the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020.
The loss carry-back regime aims to target support to businesses and encourage new investment by allowing eligible corporate entities that previously paid corporate income taxes in a relevant year and have subsequently made taxable losses to claim a refundable tax offset up to the amount of their previous income tax liabilities.
Eligible corporate tax entities can elect to ‘carry back’ a tax loss incurred in the 2019–20 to 2021–22 income years and offset it against the income of the 2018–19 or later years, generating a refundable tax offset in assessments for the 2020–21 and 2021–22 income years.
The rules are designed to provide temporary cash flow support to companies that were previously in a tax payable position but who now find themselves in a tax loss position due to the COVID-19 pandemic and/or through obtaining accelerated deductions for depreciation under the increased instant asset write-off measures.
The loss carry-back program will apply to companies, corporate limited partnerships or public trading trusts with an aggregated turnover of less than $5 billion. This offset is available as a refund against the prior year’s tax paid, meaning a company will be entitled to a refund of income tax paid from the 2018/19 income year onwards. However, the tax offset will only be available for the refundable offset on lodgement of the 2020/21 income tax return.
The loss carry-back tax offset is optional. If an entity chooses not to apply for the refundable offset, the current rules relating to loss deferral apply. A key consideration for this is whether the entity has already utilised the tax paid as franking credits.
A corporate tax entity must also be able to utilise the loss under loss integrity rules. These rules are commonly known as the Continuity of Ownership Test or the Similar Business Test. Note that because some businesses had to pivot to continue operating during the COVID-19 pandemic, situations may arise which bring into question the Similar Business Test, where the company can’t satisfy the Continuity of Ownership Test. This is dependent upon the extent to which the same activities were being continued or the same business assets were being used.
What are the key rules of the loss carry-back plan?
- Any tax loss made in the above income years is only eligible for the carry-back offset if the entity had an eligible income tax liability. When claiming the loss carry-back offset, the corporate tax entity must use the corporate tax rate in the loss year. For example, a base rate entity has a corporate tax rate of 26% in the 2020/21 income year.
- The company must have satisfied its lodgement requirements or made assessments for the current year and each of the five income years before the current year (unless the entity was not required to lodge an income tax return for the year).
- A corporate tax entity is not able to claim a refundable offset for a capital loss, as these are dealt with separately in the Tax Acts.
- The loss carry-back tax offset also cannot exceed the:
- amount of the earlier tax paid by the entity (during the relevant years), and
- balance of the entity’s franking account at the end of the income year in which the offset is being claimed.
The loss carry-back law commences on 1 January 2021. If eligible, companies can claim the tax offset in their tax returns for the 2020-21 and 2021-22 income years.
Now, let’s take a look at the JobMaker Hiring Credit, an incentive for Australian employers to create new jobs during the COVID-19 recovery for young job seekers aged 16 to 35 years.
How does the JobMaker Hiring Credit scheme work?
The JobMaker Hiring Credit rules have also just passed parliament (on 11 November), meaning eligible employers can now claim either $200 or $100 a week (employee age dependent) for each eligible employee for up to 12 months.
How does it work? There are 8 JobMaker periods during which time employers can lodge claims for eligible employees, with credits calculated on a quarterly basis.
The first JobMaker period is 7 October 2020 to 6 January 2021 and the eighth and final quarter is from 7 July 2022 to 6 October 2022.
In addition, as employers are unable to lodge claims for retrospective JobMaker periods, employers who may be eligible for the Credit should ensure potential eligible employees have completed the approved nomination forms and submit the employer participation form as soon as possible, with the first JobMaker period end date of 6 January 2020 fast approaching.
What are the key rules of the JobMaker Hiring Credit?
- Employees must have been receiving JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months, assessed on the date of employment.
- Employees must have done paid work for a minimum of 20 hours per week, averaged over a quarter
- Employees can only be eligible with one employer at a time.
- Employers are eligible to receive the JobMaker Hiring Credit if they:
- have an Australian Business Number (ABN)
- are up to date with tax lodgement obligations
- are registered for Pay As You Go (PAYG) withholding
- are reporting through Single Touch Payroll (STP)
- meet the additionality criteria
- are claiming in respect of an eligible employee
- have kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of.
- Businesses that are newly established or those with no employees at 30 September 2020 are able to claim the JobMaker Hiring Credit where they meet the criteria.
- An employer can’t claim for JobMaker Hiring Credit if they are also claiming JobKeeper for the same period. Also, an employer can’t claim the JobMaker Hiring Credit for an employee where the employer is also claiming a Federal Government apprentice/trainee subsidy.
Do you need more advice about JobMaker?
With new legislation putting into effect both the loss carry-back regime and the Jobmaker Hiring Credit, now is a good time to assess whether your business is eligible for the support and to take action to ensure you’re efficient and compliant in your applications.
When it comes to your carry-back losses, the annual company tax return will be the approved form to make the loss carry-back choice. We recommend you seek advice from your accounting advisor on whether to take advantage of the tax offset.
Registrations for the JobMaker Hiring Credit will open for eligible employers through the ATO online services from 7 December 2020. Employers don’t need to be registered at the time that they hire an employee in order to be eligible and registration can occur at any time before a claim is made.
Feel free to get in touch with BlueRock’s Accounting team if you have questions about any of the above JobMaker legislation.