Q & As of the month

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

Job seeker payment and income test

By Claudine Siou, Senior Technical Services Manager

Q: If a client applies for the Job seeker payment and they’re a member of a couple, how do I calculate whether they’re eligible for the Job seeker payment based on the income test?

A: If the client is applying for the Job seeker payment and their partner is not receiving an income support payment, a personal income test and partner income test may apply.

Personal income test

Calculate the client’s individual social security assessable income and apply the following tests:

  • Income up to the income free area ($104 per fortnight) has no effect.
  • Income between $104 and $254 reduces the rate of payment by 50 cents in the dollar.
  • Income above $254 per fortnight reduces the rate of payment by 60 cents in the dollar.

Partner income test

If the client’s partner does not receive a payment from Centrelink, their income won’t affect the client’s Job seeker payment until it reaches the partner income free area. The partner income free area is generally $993.50 per fortnight if the client’s partner is aged over 22 and does not have dependent children.

Partner income above the partner income free area reduces the client’s Jobseeker payment by 60 cents in the dollar.

Different rules apply if your partner receives a pension.

Drop in deeming and impact on ABP deemed vs grandfathered

By Mark Gleeson, Senior Technical Services Manager

Q: With deeming rates becoming so low from 1 May 2020, should I retain my client’s grandfathered pension even if there’s a more suitable product elsewhere?

A: When providing advice about a client’s account-based pensions (ABP’s), it is important to consider the grandfathering status for Centrelink purposes. Any new ABP commenced since 1 July 2015 is deemed under the Centrelink income test. However, the income assessment of grandfathered ABP is based on the gross annual nominated payment less the Centrelink deductible amount.

To qualify for grandfathered status:

  • the ABP must have commenced before 1 January 2015, and
  • the ABP recipient was receiving an income support payment immediately before 1 January 2015, and
  • since 1 January 2015, the ABP recipient continues to receive an income support payment.

Similar grandfathering rules apply for the Commonwealth Seniors Health Card, for example, the client must have held the card before 1 January 2015, and have continued to hold the card since then. Grandfathering does not apply to the low income health care card.

When deeming first applied to non-grandfathered ABPs on 1 January 2015, the lower and upper deeming rates were 1.75% and 3.25% respectively. Since then, the rates have continued to reduce. From 1 May 2020, the upper and lower rates will be 0.25% and 2.25% respectively.

When clients draw a small pension from their ABP they may have a more favourable income assessment compared to if the ABP had been deemed. Conversely, where large amounts are received from the ABP, deeming may provide a better outcome. The reduced deeming rates may provide more cases where a deemed pension is more favourable. Advisers should also consider the prospect of increased deeming rates in the medium or long term. Once a pension has lost its grandfathered status, it can never be regained. Advisers should also check whether the client is assets tested or income tested. Only income tested clients are affected by changes in the income assessment of ABPs.

The deeming rules do not apply to term-allocated pensions, regardless of their commencement date.

In next month’s tech bulletin, we’ll explore this question in more detail using some case studies.

Coronavirus stimulus – Cashflow boost for business

By Janet Manzanero-Caruana, Senior Technical Manager

Q: My client is an architect carrying on his business in a company structure. Their part-time draftsman and my client receive monthly salaries from the company. The company lodges its activity statements monthly. Will the company be eligible for the Cashflow Boost Bill? How will it work?

A: Advisers should speak to a qualified tax agent to confirm eligibility. However, in general terms, companies can receive the tax free cash flow boost if they meet all the following conditions:

  • held an Australian Business Number (ABN) on 12 March 2020 and carried on the business in the 2018/19 financial year or made supplies for consideration in the course of an enterprise carried on after 1 July 2018 and before 12 March 2020 and
  • has not engaged in a scheme for the sole or dominant purpose of seeking to gain or increase entitlement to the first cash flow boost – known as the integrity rule and
  • has aggregated annual turnover under $50 million, based on prior year turnover,and
  • makes a payment of salary or wages that is subject to Pay As You Go (PAYG) withholding obligations, whether or not any amount is actually withheld, in the relevant period, and
  • notifies the Australian Taxation Office (ATO) in the approved form – which is generally the business activity statement (BAS) or the instalment activity statement which contains the GST return.

The payments will be delivered in two tranches:

  1. First cash flow boost

    Payments equal to 100% of tax withheld from salary and wages (includes employment termination payments) up to a maximum total payment of $50,000. The company will receive a minimum total payment of $10,000, even if it’s not required to withhold tax.
  2. Second cash flow boost

    Additional payments to be made in the July to October period, equal to the total of all first cash flow boost payments received.

The ATO will make these payments in the form of automatic credits to the company’s activity statement system when it lodges its business activity statement. The credit can be used to offset the company’s tax liabilities. If this places the company in a refund position, the ATO will make the refund within 14 days. No new forms are required.

Example

From 1 January 2020 to 31 March 2020, Darren, the architect, earns $11,255 per month from which PAYG tax withheld is $3,436. His part time draftsman earns $4,166 per month from which PAYG tax withheld is $732. Darren lodges his BAS monthly.

Please note, monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300%) in the March 2020 activity statement.

Under the Government’s changes, Darren will be eligible to receive the payments on lodgement of his relevant BAS.

Darren’s company receives:

  • A credit of $12,504 for the March period, which is 300% of the amount of withholding tax for March 2020 ($4,168).
  • A credit of $4,168 for the April period.
  • A credit of $4,168 for the May period.
  • A credit of $4,168 for the June period.

This is a total of $25,008. The minimum the company would receive is $10,000, if total PAYG withholding tax is less than $10,000 for the month’s ending March, April, May and June 2020.
If the total is more than $50,000 the maximum the company can receive is $50,000.

The second cash flow boost payments the company can receive is equal to the total of the first cash flow boost payments. This is the case even if the company’s circumstances have subsequently changed as long as the company lodges GST returns for the relevant periods. To be eligible for the second cash flow boost the company must have existed and been active prior to 12 March 2020 and meet the integrity rule.

The second cash flow boost payments will be paid for the June, July, August, and September 2020 periods in four equal instalments, which means the company will receive $6,252 ($25,008/4) for each period.

Darren’s salary will still be taxed as his marginal tax rate, however, his company benefits from a total credit of approximately $50,016 from the two tax-free cash flow boost payments.

BAS or activity statements should be lodged on time to ensure the timely payment of the cash flow boost.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.