March 2023: WFH expenses and Secure Jobs, Better Pay

In this edition, we will cover a range of topics including changes to how Working From Home expenses are calculated and concerns arising with Vestey Trusts.

We will also focus on effective tax governance, “Secure Jobs, Better Pay” legislation, and tips on sustaining your business during an economic downturn.

SMSFs and schemes involving asset protection

The ATO is concerned about asset protection arrangements that claim to protect SMSF assets from creditors by mortgaging them to an asset protection trust, commonly referred to as a ‘Vestey Trust’.

A Vestey Trust is a discretionary trust established by deed. It is claimed that the trust is set up to acquire equity in the SMSF’s assets through an equitable mortgage.

Why some asset protection schemes concern the ATO

First, the arrangement is unnecessary because the super system already protects SMSF assets from creditors.

Second, the arrangement is a compliance risk and may contravene one or more super laws. For example, it may:

  • result in the giving of a ‘charge’ over, or in relation to, a fund asset by the SMSF trustee;
  • involve the ‘borrowing’ of money by the SMSF trustee;
  • expose fund assets to unnecessary risk if it’s not clear who owns them;
  • cause the fund to be maintained in a way that doesn’t comply with the sole purpose test.

Finally, SMSF money cannot be used for costs related to asset protection arrangements entered into by members to protect their personal or business assets because these expenses are not incurred in running the SMSF.

If the arrangement contravenes the super laws, penalties may apply. If trustees are involved in a scheme like this, they should make a voluntary disclosure.

Draft Taxation Ruling TR 2022/D3

As a result of two 2022 High Court cases dealing with when a worker will be an employee or a contractor, the ATO has withdrawn Taxation Ruling TR 2005/16 with effect from 15 December 2022.

The recent cases that the draft ruling refers to are:

  • Construction, Forestry, Maritime, Mining and Energy Union and Personnel Contracting Pty Ltd [2022] HCA 1; and
  • ZG Operations Australia Pty Ltd and Jamsek [2022] HCA 2

This draft ruling, which is replacing the now withdrawn TR 2005/16, addresses who is an employee for the purposes of Pay As You Go obligations arising from payments of salary, wages, commission, bonuses or allowances.

Whether a person (that is, a worker) is an employee of an entity (referred to in the draft ruling as the ‘engaging entity’) under the term’s ordinary meaning is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship.

Where a written agreement is in place it is the terms of the contract which will take primacy over the conduct of the parties after the contract has been entered into, when making an assessment as to whether a worker is an employee or a contractor.

Seven principles of effective tax governance

The ATO has provided the following suggested seven principles of tax governance. The information provided below has been offered by the ATO in the context of a best practice approach to dealing with a taxpayer’s taxation affairs.

Principle 1: Accountable management and oversight

Roles and responsibilities are clearly defined and understood in terms of accountability for tax administration and decision-making.

The taxpayer understands its tax and super obligations, including registrations, lodgment, reporting, payment, and record-keeping obligations.

Where responsibility for tax governance is shared with tax advisors, the business owners are confident that they understand their tax advisor’s role in meeting their tax and super obligations.

Principle 2: Recognise tax issues and risks

Appropriate processes and procedures are in place to support compliance with the group’s tax and super obligations, and that helps the group identify and manage tax issues that arise from their activities before they become tax risks.

Tax considerations are included in the taxpayer’s decision-making processes, and the taxpayer is alert to the consequences of the decisions that are made. Material transactions are well documented and subject to appropriate review and sign-off for tax risk management purposes. Where tax issues or tax risks – have been identified, there is a plan to manage those issues or risks and limit the impact on the business.

A thorough review process considers the ATO’s published to view and identifies potential differences of opinion that may give rise to a dispute. The risk of a dispute with the ATO over a difference in law or factual interpretation is identified early, and steps are taken to engage with the ATO.

Principle 3: Seek advice

Clearly defined arrangements are in place for escalating tax issues and seeking tax advice. Consulting published ATO guidance and engaging with the ATO early for tailored advice where more certainty is needed.

This may include having a documented process to:

  • explain the clear escalation thresholds which could include quantitative and qualitative factors, for when and how to seek external advice in a consistent way;
  • inform advisors of significant changes or atypical transactions;
  • ensure facts and assumptions that advice is based on are accurate, complete and not superseded;
  • consider ATO published guidance and advice;
  • explain the clear thresholds for when and how to engage with the ATO and where pre-lodgment positions are agreed to, lodge according to the agreed position.

Principle 4: Integrity in reporting

Owners or managers can form a view of whether the financial records of the business, including tax reporting, reflect a true and fair view. Tax positions align with the law. Tax outcomes either reflect economic performance or can be explained by other factors.

Systems and controls are in place to ensure accurate reporting, and these controls are reviewed periodically to ensure they remain effective. Good record-keeping practices are followed to maintain important documentation for the relevant periods and to ensure that information is easily accessible.

Principle 5: Professional and productive working relationship

The taxpayer has an open, transparent, respectful, and professional working relationship with the ATO.

Through the ATO’s engagement with the taxpayer and its advisers, the ATO aims to create a seamless working relationship to resolve any issues and avoid disputes.

Principle 6: Timely lodgments and payments

Effective tax governance is demonstrated by meeting obligations including lodgment and payment obligations, in full and on time. Timeframes are set for tax lodgments and payments.

Tax liabilities are well managed and paid on time.

Principle 7: Ethical and responsible behaviour

Acting ethically and responsibly – with honesty, integrity, and in a way consistent with the reasonable expectations of the broader community and the taxpayers’ charter.

Ethical and responsible behaviour involves more than mere technical compliance with the law. Effective tax governance not only ensures accurate reporting but helps avoid behaviours associated with tax manipulation, avoidance, and schemes.

What do the ‘Secure Jobs, Better Pay’ reforms mean?

The Government’s ‘Secure Jobs, Better Pay’ legislation passed Parliament on 2 December 2022. We explore the issues.

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 passed Parliament on 2 December 2020. The legislation is extensive and brings into effect a series of changes and obligations that will impact on many workplaces.

The Bill also addresses many of the complexities of the enterprise bargaining process by streamlining the initiation and approval process. For example, to initiate bargaining to replace an existing single-employer agreement, unions and representatives no longer need a majority work determination and instead can make the request to initiate bargaining in writing to the employer.

Fact sheets on key elements of the ‘Secure Jobs, Better Pay’ legislation will be available on the Department of Employment and Workplace Relations website. Please seek advice from a professional industrial relations specialist if your business is impacted.

Fixed term contracts limited to 2 years

Employers are prohibited from entering into fixed-term employment contracts with employees for a period of longer than two years (in total across all contracts).

Gender equality and addressing the pay gap

The concept of gender equality is now included as an object in the Fair Work Act. Previously, to grant an Equal Remuneration Order (ERO) the Fair Work Commission (FWC) assessed claims utilising a comparable male group (male comparator).

Pay secrecy banned

Prohibits pay secrecy clauses in contracts or other agreements and renders existing clauses invalid.

Employees are not compelled to disclose their remuneration and conditions but have a positive right to do so.

Flexible work requests strengthened

Provides stronger access to flexible working arrangements by enabling employees to seek arbitration before the FWC to contest employer decisions or where the employer has not responded to a request for flexible work conditions within the required 21 days.

Read more

Proposed new method for calculating Work From Home expenses

Taxpayers could soon be dealing with more paperwork at tax time, or facing the prospect of a lower tax deduction for work from home (WFH) expenses. The ATO has recently proposed a new revised fixed rate method of calculating WFH expenses for the purposes of claiming a tax deduction from 1 July 2022.

The proposed new rate of 67c per hour would replace the previous shortcut method of 80c per hour (which many people have been using during the COVID-19 pandemic) as well as the previous fixed rate method.

Before 1 July 2022, people working from home could use one of three methods for calculating a tax deduction for the expenses incurred:

  • the actual costs method, which involved calculating the actual expenses incurred as a result of working from home;
  • the fixed rate method, which allowed 52c per hour to cover their electricity and gas expenses, home office cleaning expenses, and the decline in value of furniture and furnishings, with a separate deduction claimable for work-related internet expenses, telephone expenses, stationery and computer consumables and the decline in value of a computer/laptop; and
  • the shortcut method, which was introduced during the COVID-19 pandemic to make it easier for the large proportion of employees suddenly working from home. This method allowed claiming 80c per hour to cover all WFH expenses, with no separation of deductions.

Given the continual increase in energy bills and other inflationary pressures, this new proposed fixed rate method is likely to yield consistently lower deductions than if the actual cost method was used. Coupled with the abolition of the shortcut method, this seems to mean that taxpayers would either have to accept a lower WFH deduction in the coming years or deal with increased paperwork to be able to claim WFH deductions under the actual costs method.

Keeping your business afloat during an economic downturn

Sustaining your business during an economic downturn comes with financial and managerial pressures you may never have had to deal with before. Economic downturns generally occur in cycles. Monitoring your economic environment and that of your industry or sector will help you to make plans and be prepared.

You’ll likely experience an economic downturn more than once over the life of your business.

The following are four key measures you can implement to protect and maintain your business during an economic downturn.

1. Monitor your cash flow

Diligently tracking your cash flow can help you assess your financial situation and prevent you from spending more than you can afford and going into debt.

2. Manage your debt

One way to effectively manage your debt is to keep a prioritised list of your creditors to avoid forgetting about payments and being penalised and fined.

3. Create a business continuity plan

A business continuity plan is designed to prepare your business for a crisis such as COVID-19 and continue to operate afterwards.

4. Network

Networking can help you understand how other businesses are dealing with the economic downturn, as well as act as a support system during difficult times. Actively sharing common problems and solutions will put things into perspective and may provide you with helpful management tips for your business.

Read more

Underpayment Blitz – ‘Wage Theft’ and Risk for Advisors

In 2021-2022, the Fair Work Office recovered over $532 million in unpaid wages and entitlements for more than 384,000 employees, more than double the amount recovered in the previous financial year.

The Federal Government has also indicated its intention to introduce legislation that will have the effect of making “wage theft” a criminal offence.

Recent high-profile underpayment cases have demonstrated that employers often operate under the mistaken belief that paying staff an “above Award” salary will relieve them of their payment obligations. Given the complexity of industrial instruments which apply to most employees (such as “Modern Awards”), the importance of organisations understanding their legal wage and payment obligations has never been greater.

Common causes of underpayments

Currently, there are 122 Modern Awards operating across different industries and sectors in Australia. These instruments apply to employees depending on industry or occupation. The Awards include minimum wages based on an employee’s classification, as well as other monetary entitlements such as overtime and allowances.

Underpayments can occur due to one or more of the following:

  • misunderstanding or failure to check applicable minimum wages;
  • lack of knowledge about Modern Awards or enterprise agreements;
  • incorrect classifications under industrial instruments;
  • reliance on annualised salaries;
  • failure to accurately record hours of work and breaks; or
  • incorrect payroll configuration.

Unfortunately, mistakes or ignorance will not protect employers from underpayment claims.

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