Australia announces tax measures to tackle COVID-19 business disruption

Even as the pandemic ensues, COVID-19 has already had a significant impact on businesses and the economy worldwide. As a result, the Australian government has been focused on responding to the implications of COVID-19, and a whole raft of related measures have been introduced by both the government and the Australian Taxation Office (ATO) to provide certainty and relief to businesses.

JobKeeper wage subsidy programme

In response to the financial effect of the outbreak, the Australian federal government has introduced the JobKeeper stimulus package. JobKeeper is a wage subsidy programme for Australian businesses who are experiencing a substantial decline in turnover. The programme will run from March 30 2020 to September 27 2020. 

In correspondence with the changes that have been made to the Fair Work Act 2009 to allow for its operation, the JobKeeper programmes operates as a pre-tax payment of AUD$1,500 (US$975) per fortnight from the government to qualifying employers. While in receipt of this government payment, employers will have an obligation to meet a minimum payment obligation to pay at least AUD$1,500 per fortnight (before tax) to eligible employees. Those employers will then be required to ensure that they make a payment to the relevant eligible employee of at least AUD$1,500 per fortnight before tax. 

For eligibility as a participant in the JobKeeper scheme, businesses must provide that: 

1) As at March 1 2020, it carried on a business in Australia, or was a not-for-profit that pursued its objectives principally in Australia;

2) Its goods and services tax (GST) turnover (monthly or quarterly) has declined, or is projected to decline, in 2020 (when compared to 2019) by at least:

• 30% (if annual aggregated turnover is, or is likely to be, less than AUD$1 billion);

• 50% (if annual aggregated turnover is, or is likely to be, AUD$1 billion or more); or

• 15% (for charities registered with the Australian Charities and Not-For-Profit Commission (ACNC));

For JobKeeper purposes, annual turnover includes the turnover of the employer, its affiliates and associates. Thus, a small business that is part of a larger group (i.e. with aggravated turnover of AUD$1 billion or more) must have a 50% decline in turnover. Importantly, there is no ‘causation’ test – the entity does not need to demonstrate that the turnover decline was directly caused by COVID-19.

ATO guidance on global mobility issues arising from COVID-19

In the wake of COVID-19, the ATO has released guidance on the various tax issues which could arise when multinational group taxpayers or their employees are forced to change their behaviour to comply with COVID‑19 travel restrictions and quarantines. These issues include permanent establishment matters, residence status of a company (central management and control), and the tax residence status of individuals.

In relation to permanent establishments, the ATO’s guidance states that if a foreign company did not otherwise have a permanent establishment in Australia before the impacts of COVID-19, and the presence of the employees in Australia is because they are temporarily relocated or restricted in their travel as a consequence of COVID-19, this should not lead to the creation of new permanent establishments for the enterprise in Australia. 

In relation to the central management and control of companies, the ATO’s view is that if the only reason for holding board meetings in Australia, or directors attending board meetings from Australia, is because of impacts of COVID-19, then the Commissioner will not apply compliance resources to determine if the entity’s central management and control is in Australia.

With regards to the tax residency status of individuals, the ATO has stated that an individual who is otherwise a non-resident of Australia should not become an Australian resident for tax purposes by virtue of being in Australia temporarily as a result of the COVID-19 crisis. This is on the basis that the individual lives overseas permanently and intends to return there as soon as they are able to. 

COVID-19 related employment tax issues

COVID-19 has seen the rise in increased expenditure incurred by employers, who have ordered to assist employees with the changes in working practices. These additional expenditures include assistance pertaining to accommodation, transport, first aid or emergency health care. Such expenditure can generally attract fringe benefits tax (FBT), however there are exemptions which may relieve any such liability where the assistance provided to the employee can be classified as ‘emergency assistance’ for the purpose of the FBT laws.

In addition, for employees who choose to work from home during this time, if employers provide employees with certain equipment/devices to enable them to work from home, these will usually be exempt from FBT.

Jun Au

T: +61 2 9286 8258

E: jun.au@dlapiper.com