Are Your Contractors Really Employees? Two landmark cases before the High Court highlight the problem of identifying whether a worker is an independent contractor or employee for tax and superannuation purposes. Many business owners assume that if they hire independent contractors they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates a bit differently and in some cases genuine contractors can be treated as if they were employees. Also, correctly classifying the employment relationship can be difficult and there are significant penalties faced by businesses that get it wrong. Two cases handed down by the High Court late last month clarify the way the courts determine whether a worker is an employee or an independent contractor. The High Court confirmed that it is necessary to look at the totality of the relationship and use a ‘multifactorial approach’ in determining whether a worker is an employee. That is, if it walks like a duck and quacks like a duck, it’s probably a duck, even if on paper, you call it a chicken. In CFMMEU v Personnel Contracting and ZG Operations Australia v Jamse, the court placed a significant amount of weight on the terms of the written contract that the parties had entered into. The court took the approach that if the written agreement was not a sham and not in dispute, then the terms of the agreement could be relied on to determine the relationship. However, this does not mean that simply calling a worker an independent contractor in an agreement classifies them as a contractor. In this case, a labour hire contractor was determined to be an employee despite the contract stating he was an independent contractor. In this case, Personnel Contracting offered the labourer a role with the labour hire company. The labourer, a backpacker with some but limited experience on construction sites, signed an Administrative Services Agreement (ASA) which described him as a “self-employed contractor.” The labourer was offered work the next day on a construction site run by a client of Personnel Contracting, performing labouring tasks at the direction of a supervisor employed by the client. The labourer worked on the site for several months before leaving the state. Some months later, he returned and started work at another site of the Personnel Contracting’s same client. The question before the court was whether the labourer was an employee. Overturning a previous decision by the Full Federal Court, the High Court held that despite the contract stating the labourer was an independent contractor, under the terms of the contract, the labourer was required to work as directed by the company and its client. In return, he was entitled to be paid for the work he performed. In effect, the contract with the client was a “contract of service rather than a contract for services”, as such the labourer was an employee. The second case, ZG Operations Australia v Jamse produced a different result. In this case, two truck drivers were employed by ZG Operations for nearly 40 years. In the mid-1980’s, the company insisted that it would no longer employ the drivers, and would continue to use their services only if they purchased their trucks and entered into contracts to carry goods for the company. The respondents agreed to the new arrangement and Mr Jamsek and Mr Whitby each set up a partnership with their wife. Each partnership executed a written contract with the company for the provision of delivery services, purchased trucks from the company, paid the maintenance and operational costs of those trucks, invoiced the company for its delivery services, and was paid by the company for those services. The income from the work was declared as partnership income for tax purposes and split between each individual and their wife. Overturning a previous decision in the Full Federal Court, the High Court held that the drivers were not employees of the company. Consistent with the decision in the Personnel Contracting case, a majority of the court held that where parties have comprehensively committed the terms of their relationship to a written contract (and this is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute), the characterisation of the relationship must be determined with reference to the rights and obligations of the parties under that contract. After 1985 or 1986, the contracting parties were the partnerships and the company. The contracts between the partnerships and the company involved the provision by the partnerships of both the use of the trucks owned by the partnerships and the services of a driver to drive those trucks. This relationship was not an employment relationship. In this case the fact that the workers owned and maintained significant assets that were used in carrying out the work carried a significant amount of weight. For employers struggling to work out if they have correctly classified their contractors as employees, it will be important to review the agreements to ensure that the “rights and obligations of the parties under that contract” are consistent with an independent contracting arrangement. Merely labelling a worker as an independent contractor is not enough if the rights and obligations under the agreement are not consistent with the label. The High Court stated, “To say that the legal character of a relationship between persons is to be determined by the rights and obligations which are established by the parties' written contract is distinctly not to say that the “label” which the parties may have chosen to describe their relationship is determinative of, or even relevant to, that characterisation.” A genuine independent contractor who is providing personal services will typically be: Autonomous rather than subservient in their decision-making; Financially self-reliant rather than economically dependent upon the business of another; and, Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided. Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time. Even when a worker is a genuine independent contractor this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes. How to contact us We’re available to assist you with the employee classification. Contact Collins Hume Accountants & Business Advisers in Ballina on Byron Bay on 02 6686 3000. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Don't Rock the Boat Budget 2022-23 The 2022-23 Federal Budget is a safe, ballot box friendly Budget as expected with a focus on cost of living, homeownership, and health. Key initiatives include: A 6 month, 50% reduction in fuel excise with effect from midnight Budget night A $420 cost of living tax offset for low and middle income earners from 1 July 2022 A one-off $250 economic support payment to some social security payment recipients For small business, a $120 tax deduction for every $100 spent on training employees and digital adoption But, it is also a Budget that drives digitisation Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next. We'll keep you up to date as the detail of these measures comes to hand. For now, you can get across all the announced measures in our Budget Summary: How to contact us Start your year-end tax planning now. Contact Collins Hume Accountants & Business Advisers in Ballina on Byron Bay on 02 6686 3000. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The ATO’s Attack on Trusts and Trust Distributions Late last month, the Australian Taxation Office (ATO) released a package of new guidance material that directly targets how trusts distribute income. Many family groups will pay higher taxes (now and potentially retrospectively) as a result of the ATO’s more aggressive approach. Family trust beneficiaries at risk The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary but the economic benefit of the distribution is provided to another individual or entity. If trust distributions are caught by section 100A, then this generally results in the trustee being taxed at penalty rates rather than the beneficiary being taxed at their own marginal tax rates. The latest guidance suggests that the ATO will be looking to apply section 100A to some arrangements that are commonly used for tax planning purposes by family groups. The result is a much smaller boundary on what is acceptable to the ATO which means that some family trusts are at risk of higher tax liabilities and penalties. ATO redrawing the boundaries of what is acceptable Section 100A has been around since 1979 but to date, has rarely been invoked by the ATO except where there is obvious and deliberate trust stripping at play. However, the ATO’s latest guidance suggests that the ATO is now willing to use section 100A to attack a wider range of scenarios. There are some important exceptions to section 100A, including where income is appointed to minor beneficiaries and where the arrangement is part of an ordinary family or commercial dealing. Much of the ATO’s recent guidance focuses on whether arrangements form part of an ordinary family or commercial dealing. The ATO notes that this exclusion won’t necessarily apply simply because arrangements are commonplace or they involve members of a family group. For example, the ATO suggests that section 100A could apply to some situations where a child gifts money that is attributable to a family trust distribution to their parents. The ATO’s guidance sets out four ‘risk zones’ – referred to as the white, green, blue and red zones. The risk zone for a particular arrangement will determine the ATO’s response: White zone This is aimed at pre-1 July 2014 arrangements. The ATO will not look into these arrangements unless it is part of an ongoing investigation, for arrangements that continue after this date, or where the trust and beneficiaries failed to lodge tax returns by 1 July 2017. Green zone Green zone arrangements are low risk arrangements and are unlikely to be reviewed by the ATO, assuming the arrangement is properly documented. For example, the ATO suggests that when a trust appoints income to an individual but the funds are paid into a joint bank account that the individual holds with their spouse then this would ordinarily be a low-risk scenario. Or, where parents pay for the deposit on an adult child’s mortgage using their trust distribution and this is a one-off arrangement. Blue zone Arrangements in the blue zone might be reviewed by the ATO. The blue zone is basically the default zone and covers arrangements that don’t fall within one of the other risk zones. The blue zone is likely to include scenarios where funds are retained by the trustee, but the arrangement doesn’t fall within the scope of the specific scenarios covered in the green zone. Section 100A does not automatically apply to blue zone arrangements, it just means that the ATO will need to be satisfied that the arrangement is not subject to section 100A. Red zone Red zone arrangements will be reviewed in detail. These are arrangements the ATO suspects are designed to deliberately reduce tax, or where an individual or entity other than the beneficiary is benefiting. High on the ATO’s list for the red zone are arrangements where an adult child’s entitlement to trust income is paid to a parent or other caregiver to reimburse them for expenses incurred before the adult child turned 18. For example, school fees at a private school. Or, where a loan (debit balance account) is provided by the trust to the adult child for expenses they incurred before they were 18 and the entitlement is used to pay off the loan. These arrangements will be looked at closely and if the ATO determines that section 100A applies, tax will be applied at the top marginal rate to the relevant amount and this could apply across a number of income years. The ATO indicated that circular arrangements could also fall within the scope of section 100A. For example, this can occur when a trust owns shares in a company, the company is a beneficiary of that trust and where income is circulated between the entities on a repeating basis. For example, section 100A could be triggered if: The trustee resolves to appoint income to the company at the end of year 1. The company includes its share of the trust's net income in its assessable income for year 1 and pays tax at the corporate rate. The company pays a fully franked dividend to the trustee in year 2, sourced from the trust income, and the dividend forms part of the trust income and net income in year 2. The trustee makes the company presently entitled to some or all of the trust income at the end of year 2 (which might include the franked distribution). These steps are repeated in subsequent years. Distributions from a trust to an entity with losses could also fall within the red zone unless it is clear that the economic benefit associated with the income is provided to the beneficiary with the losses. If the economic benefit associated with the income that has been appointed to the entity with losses is utilised by the trust or another entity then section 100A could apply. Who is likely to be impacted? The ATO’s updated guidance focuses primarily on distributions made to adult children, corporate beneficiaries, and entities with losses. Depending on how arrangements are structured, there is potentially a significant level of risk. However, it is important to remember that section 100A is not confined to these situations. Distributions to beneficiaries who are under a legal disability (e.g., children under 18) are excluded from these rules. For those with discretionary trusts it is important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s latest guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of beneficiaries. Companies entitled to trust income As part of the broader package of updated guidance targeting trusts and trust distributions, the ATO has also released a draft determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of another integrity provision in the tax law, Division 7A. Division 7A captures situations where shareholders or their related parties access company profits in the form of loans, payments or forgiven debts. If certain steps are not taken, such as placing the loan under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate. The latest ATO guidance looks at when an unpaid entitlement to trust income will start being treated as a loan. The treatment of unpaid entitlements to trust income as loans for Division 7A purposes is not new. What is new is the ATO’s approach in determining the timing of when these amounts start being treated as loans. Under the new guidance, if a trustee resolves to appoint income to a corporate beneficiary, then the time the unpaid entitlement starts being treated as a loan will depend on how the entitlement is expressed by the trustee (e.g., in trust distribution resolutions etc): If the company is entitled to a fixed dollar amount of trust income the unpaid entitlement will generally be treated as a loan for Division 7A purposes in the year the present entitlement arises; or If the company is entitled to a percentage of trust income, or some other part of trust income identified in a calculable manner, the unpaid entitlement will generally be treated as a loan from the time the trust income (or the amount the company is entitled to) is calculated, which will often be after the end of the year in which the entitlement arose. This is relevant in determining when a complying loan agreement needs to be put in place to prevent the full unpaid amount being treated as a deemed dividend for tax purposes when the trust needs to start making principal and interest repayments to the company. The ATO’s views on “sub-trust arrangements” has also been updated. Basically, the ATO is suggesting that sub-trust arrangements will no longer be effective in preventing an unpaid trust distribution from being treated as a loan for Division 7A purposes if the funds are used by the trust, shareholder of the company or any of their related parties. The new guidance represents a significant departure from the ATO’s previous position in some ways. The upshot is that in some circumstances, the management of unpaid entitlements will need to change. But, unlike the guidance on section 100A, these changes will only apply to trust entitlements arising on or after 1 July 2022. How to contact us We’re available to assist you with detailed advice on trusts and trust distributions. Contact Collins Hume Accountants & Business Advisers in Ballina on Byron Bay on 02 6686 3000. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Collins Hume's NRL Footy Tipping Competition kicks off for 2022 Footy season is knocking on our door and Collins Hume would like to invite you to participate in our annual NRL Tipping Comp. It’s a tough time for many of us right now and perhaps a bit of distraction can help us all. Rules and prizes for 2022 will be kept the same as 2021. Huge thanks to all our local businesses that helped by contributing towards this year's prizes! Prize Information First prize $300 worth of gift vouchers sourced by Collins Hume from local businesses Second prize $100 worth of gift vouchers sourced by Collins Hume from local businesses Third prize $50 worth of gift vouchers sourced by Collins Hume from local businesses Knockout Comp Winner $100 worth of gift vouchers sourced by Collins Hume from local businesses 5 quick steps to join Go to https://www.iTipFooty.com.au Click the 'REGISTER' button if you don't already have an account with iTipFooty.com.au Once you have successfully registered login and, click the JOIN COMP button Enter Comp # 103098 and Comp Password CH1234 Click join comp... DONE! Check in for results each week. Prizewinners will be announced at the end of the season. Good luck!

Big 4 banks pledge support for NSW and QLD customers impacted by February's flooding. Please contact your bank directly to discuss any financial support. ANZ ANZ announced a financial relief package for customers affected by significant flooding across south-east Queensland and parts of northern New South Wales with severe weather systems continuing to threaten more damage. ANZ customers affected by flooding are encouraged to contact ANZ’s dedicated financial hardship team on 1800 149 549 or at anz.com.au/support/natural-disaster-support/. Read more » Commonwealth Bank Commonwealth Bank is providing its Emergency Assistance to customers and businesses in flood-affected areas in South-East Queensland and New South Wales. To access this support please phone CBA on 1800 314 695 or visit a branch where it is safe to do so. Further information about Emergency Assistance is available online at  commbank.com.au/emergencyassistance. Read more » National Australia Bank NAB will provide $1,000 grants and additional financial relief to customers and colleagues affected by floods in the Northern Rivers region in NSW, to assist them in the immediate aftermath of the natural disaster. The grants will give NAB customers and colleagues who have experienced significant damage to their homes ready access to funds to meet their immediate needs. Business and agriculture customers who have suffered damage or losses because of the floods are also eligible. NAB customers who have suffered damage to their home and need assistance can call NAB Assist on 1300 308 132. All enquiries will be assessed on a case-by-case basis by the NAB Assist team to determine eligibility. Read more » Westpac Westpac has launched a $2 million fund to help small businesses impacted by the floods in Queensland and New South Wales access financial help. Small business customers who meet the eligibility criteria can apply for $3,000 in cash grants per customer group to help with urgent expenses or repairs by contacting their banker or calling Westpac's customer support teams. Read more »

Professional Services Firm Profits Guidance Finalised The Australian Taxation Office’s finalised position on the allocation of profits from professional firms starts on 1 July 2022. The ATO’s guidance uses a series of factors to determine the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties. The ATO may look to apply the general anti-avoidance rules in Part IVA to practitioners who don’t fall within the low-risk category. With the new guidelines taking effect on 1 July 2022, professional firms will need to assess their structures now to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position. The problem The finalised guidance has had a long gestation period. The ATO has been concerned for some time about how many professional services firms are structured – specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects, etc operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed. The ATO guidance takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered. Determining the risk rating The guidance sets out a series of tests that are used to calculate a risk score. This risk score is then used to classify the practitioner as falling within a Green, Amber or Red risk zone, which determines if the ATO should take a closer look at you and your firm. Those in the green zone are at low risk of the ATO directing its compliance efforts to you. Those in the red zone, however, can expect the ATO to conduct further analysis as a matter of priority which could lead to an ATO audit. Before calculating the risk score it is necessary to consider two gateway tests: Gateway 1 considers whether there is commercial rationale for the business structure and the way in which profits are distributed, especially in the form of remuneration paid. Red flags would include arrangements that are more complex than necessary to achieve the relevant commercial objective, and where the tax result is at odds with the commercial venture, for example, where a tax loss is claimed for a profitable commercial venture. Gateway 2 requires an assessment of whether there are any high-risk features. The ATO sets out some examples of arrangements that would be considered high-risk, including the use of financing arrangements relating to transactions between related parties. If the gateway tests are passed, then you can self-assess your risk level against the ATO’s risk assessment factors. There are three factors to be considered: The professional’s share of profit from the firm (and service entities etc) compared with the share of firm profit derived by the professional and their related parties; The total effective tax rate for income received from the firm by the professional and their related parties; and The professional’s remuneration as a percentage of the commercial benchmark for the services provided to the firm. The resulting ‘score’ from these factors determines your risk zone. Some arrangements that were considered low risk in prior years under the ATO’s previous guidance may now fall into a higher risk zone. In these cases, the ATO is allowing a transitional period for those practitioners to continue to apply the previous guidelines until 30 June 2024. For professional services firms, it will be important to assess the risk level and this needs to be done for each principal practitioner separately. Those in the amber or red zone who want to be classified as low risk need to start thinking about what needs to change to move into the lower risk zone. Where other compliance issues are present — such as failure to recognise capital gains, misuse of the superannuation systems, failure to lodge returns or late lodgement, etc — a green zone risk assessment will not apply. Collins Hume will contact any of our clients who might be impacted by the incoming guidance. If you are concerned about your position, please contact us in Ballina or Byron Bay on 02 6686 3000.

PCR and RAT tests to be tax-deductible, FBT free The Treasurer has announced that PCR and rapid antigen tests (RAT) will be tax-deductible for individuals and exempt from fringe benefits tax (FBT) for employers if purchased for work purposes. There has been confusion over the tax treatment of RAT tests with the Prime Minister stating for some time that they are tax-deductible, but in reality, the tests were probably only deductible in limited circumstances. If you have had to purchase RAT tests to be able to work, you will be able to receive a tax deduction for the cost you have incurred from 1 July 2021 (you will need evidence of the expense). If the RAT test cost $20, someone on a marginal tax rate of 32.5% would receive a tax benefit of $6.50. For business, it is expected that RAT, PCR and other coronavirus tests will be exempt from FBT from the 2021-22 FBT year. Legislation enabling the change is expected before Parliament this month. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.

Pandemic Leave Disaster Payments rules change The rules for the Pandemic Leave Disaster Payment, the payment accessible to those who have lost work because they have had to self-isolate with COVID-19, or are caring for someone who contracted it, changed on 18 January 2022. The new rules change the definition of a close contact in line with the harmonised national definition. The payment is now accessible if you are a close contact because you either usually live with the person who has tested positive with COVID-19, or have stayed in the same household for more than 4 hours with the person who has tested positive with COVID-19 during their infectious period. The payment provides: $450 if you lost at least 8 hours or a full day’s work, and less than 20 hours of work $750 if you lost 20 hours or more of work. To claim the payment, you will need to be an Australian citizen, permanent visa holder (or temporary visa holder with a right to work) or a New Zealand passport holder. The payment is also subject to means testing with a $10,000 illiquid assets test. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.

2021 was to be the year we returned to a post-COVID normal. However, the pandemic has fundamentally changed the way many of us operate in our personal and work lives. Here is some of what we can expect in 2022: Federal Election The Federal election will be held between March and May 2022. Campaign text messages, robo-messages and advertising are on their way! Federal Budget in March The timing of the election will bring the Federal Budget forward to March 2022. It’s an election year; expect many of the productivity-based tax concessions to be extended. Lock-in digital gains McKinsey & Company reports that consumer digital adoption rates accelerated dramatically during the pandemic. Many sectors will lock in the digital gains they made. Some, however, will see a decline in digital sales as consumers are no longer forced to shop online – groceries for example. To lock in the gains of digitalisation, consumers expect trust, end-to-end digital service (from start to after-sales service), and an improved online experience. Forced online adoption has changed the consumption habits of an older and wealthier portion of the market. The average age of online users in the McKinsey Global Sentiment Survey increased by around 3 years and spend around 4% more. Coming off a lower base, developing nations have experienced much higher growth in digital adoption than developed nations; evening out global access. Going green Business and consumers will be expected to be mindful of their carbon footprint. A wasteful process is likely to diminish consumer appeal. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.

The 2022 Luna New Year, Year of the Tiger, is courage and bravery It is a year to drive out evil and one of momentum and change. The message; walk boldly with courage. And it seems the Reserve Bank Governor is aligned with this sentiment. The Tiger economy At a recent speech to the National Press Club, Reserve Bank Governor Philip Lowe was optimistic about Australia's prospects in 2022. This optimism is driven by strong GDP growth that saw growth outstrip the RBA’s forecast to reach 5%, and strong jobs growth with the unemployment rate at 4.2% - the lowest rate since the resources boom. Unemployment is expected to reduce further to 3.75% by the end of 2022, and if it does, it will be the lowest unemployment level since the early 1970s. Underemployment is also at its lowest rate in 13 years. In addition, “household and business balance sheets are generally in good shape and wages growth is picking up.” The surprise inflation figures While wages growth is “picking up”, the forecast remains sluggish at 2.25%. Australia’s wages growth has remained lethargic for a decade now, which will come as a surprise to many business operators competing for skilled workers as, on the ground, the opposite feels true. Combined with a surprise spike in inflation (CPI) well above expectations at 3.5% (+2% on RBA forecasts), pushed predominantly by a sharp increase in petrol prices (32% over the past year) and the cost of constructing new homes, the purchasing power of Australians has declined. There has also been a large increase in the price of consumer durables (cars, fridges etc.,) and less discounting in the face of strong demand as supply chain problems take hold. Australia is not alone in this. The UK inflation rate jumped to 5.4%, 5.7% in the United States and 5.9% in New Zealand in the same period. Supply woes The sharp increase in interest rates comes on the back of, “very significant disruptions in supply chains and distribution networks,” with labour shortages in particular dominating news coverage as businesses struggle to maintain momentum with staff impacted by either COVID-19 or isolation requirements. National Cabinet harmonised the definition of a ‘close contact’ at the end of December 2021 for most Australian States and Territories and reduced the isolation period to seven days (from 14). The recent NAB quarterly business survey reported that, “ongoing supply chain issues and border closures saw 85% of firms report availability of labour as a constraint on output, while 47% reported availability of materials as a constraint – both records in the history of the survey. As a result, both cost growth and retail price growth remained elevated.” With global staff shortages, come bottlenecks in the supply chain. For many businesses, estimating what stock they need has become a crystal ball exercise rather than a predictable science and in some cases they are ordering ahead to reduce the supply risks, which has a knock-on effect of increasing demand for raw materials. And, this is without factoring in the problem of panic buying (toilet paper anyone) as customers anxiously watch dwindling supplies on supermarket shelves. Supply chain problems, both in Australia and globally, are not anticipated to normalise for another 12 to 24 months. The RBA Governor’s three takeaways are: The economy has been remarkably resilient; The link between the strength of the real economy and prices and wages remains alive; and The supply side matters for both economic activity and prices. You could almost add, no one really knows, as a fourth point as an unexpected change, like a new virulent COVID variant, or further lockdowns, could rewrite the forecasts. But, there is plenty of room for optimism. What we have seen to date is that when there is an opportunity to rebound, to return to normal, the economy bounces back quickly and often much faster than anticipated. After all, health, not the economy, has been the catalyst for the crisis. When will interest rates rise? During his National Press Club address, Mr Lowe was asked the question, “those people are now looking very carefully at your words, trying to read the tea leaves and work out what they do with their mortgages? You obviously can’t go to the RBA Governor looking for individual financial advice. But, if it was your mortgage, would you be scrambling for a fixed rate or sticking with a variable?” His response, “… the advice that I would give to people is, make sure that you have buffers. Interest rates will go up. And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be. So, interest rates will go up.” A rate increase by the RBA would be the first since November 2020. Westpac and AMP Capital are both forecasting the first increase to occur in August this year, then a second towards the end of 2022. While the RBA might be taking a ‘steady as she goes’ approach, many lenders have already factored in increases as the international cost of funding increases. RateCity data shows that, “a total of 17 lenders have hiked fixed rates so far this year, but that number will rise and quickly” - Westpac increased its fixed rates at the end of January and the CBA and ING (for new customers only) at the start of February. But with households having accumulated more than $200 billion in additional savings over the past 2 years, the RBA is hopeful that any increase will dampen inflation pressures but not impinge on growth. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.

The NSW Government has announced a $1bn support package for struggling NSW small businesses Acknowledging the difficulty that business operators have faced, NSW Treasurer Matt Kean has announced a package of measures to support small businesses impacted by COVID-19 over January and February 2022. Releasing the package, the NSW Treasurer said, “household balance sheets are strong at the moment, when we get out of this wave, we expect a snap back and the economy will bounce back better on the other side of this.” Small Business Support Package The NSW Small Business Support package provides eligible employing businesses with a lump sum payment of 20% of weekly payroll, up to a maximum of $5,000 per week for the month of February 2022. The minimum weekly payment for employers is $750 per week. Eligible non-employing businesses will receive $500 per week (paid as a lump sum of $2,000). Eligibility To access the package, businesses must: Have an aggregated annual turnover between $75,000 and $50 million (inclusive) for the year ended 30 June 2021; and Experienced a decline in turnover of at least 40% due to Public Health Orders or the impact of COVID-19 during the month of January 2022 compared to January 2021 or January 2020; and Experienced a decline in turnover of 40% or more from 1 to 14 February 2022 compared to the same fortnight in either 2021 or 2020 (you must use the same comparison year utilised in the decline in turnover test for January); and Maintain their employee headcount from “the date of the announcement of the scheme” (30 January 2022). The support package only covers the month of February 2022. Applications for support are expected to open mid-February. Fees and charges rebate increased and extended to RAT tests The NSW small business fees and charges rebate has been increased from $2,000 to $3,000. In addition, the rebate has been extended to cover up to 50% of the cost of Rapid Antigen Tests (RAT) purchased by the business to protect staff and clients. The rebate for RAT tests will be available “by March” and is unlikely to cover RAT tests purchased prior to the funding coming online to prevent additional pressures on the RAT test supply chain. The rebate is not a cash payment but a digital credit that businesses can draw down on to offset the cost of eligible NSW and local government fees and charges. Note that there is an existing $5,000 small business Alfresco Restart rebate available for small and medium food and beverage businesses wanting to create or expand their outdoor dining area. Applications for this rebate are open until the end of April 2022 (or when the allocation is exhausted). Eligibility The fees and charges rebate is available to sole traders, small businesses, and not-for profits that have: Total Australian wages below the NSW Government 2020-21 payroll tax threshold ($1.2 million) An Australian Business Number (ABN) registered in NSW and/or have business premises physically located and operating in NSW. Already registered businesses will receive an automatic top-up of $1,000 and newly registering businesses will receive a rebate of $3,000. Only one rebate is available for each ABN. Commercial landlord relief extended The protections under the Retail and Other Commercial Leases (COVID-19) Regulation 2021 for small retail and commercial tenants will be extended for an additional two months, until 13 March 2022. This regulation prohibits certain actions by landlords (such as lockout or eviction) unless they have first renegotiated rent with eligible tenants and attempted mediation. The grant provides up to $3,000 per month (GST inclusive), per property, for eligible landlords who have provided rental waivers to affected tenants. Rent waived must comprise at least half of any rental reduction provided. The remaining portion may be a rental deferral. The grant does not apply to rent deferrals. Grants are paid as a lump sum amount for the rent waived. NSW Performing Arts Package extended The existing NSW Performing Arts COVID Support Package has been extended until April 2022. Eligibility To be eligible for funding, you must be one of the following: An eligible venue (list published by Create NSW) A producer of an eligible performance scheduled to perform at one of the eligible venues A promoter of an eligible performance scheduled to perform at one of the eligible venues. See CreateNSW for more details. How to contact us We’re available to assist you with the support measures. Contact Collins Hume Accountants & Business Advisers in Ballina on Byron Bay on 02 6686 3000. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The High Court has ruled that the ‘backpacker tax’ is discriminatory. We look at the impact. Since 2017, the ‘backpacker tax’ has taxed the first dollar of income a backpacker earns in Australia - regardless of their residency status - at the working holiday maker tax rate of 15% up to: $37,000 in an income year for 2019-20 and earlier income years $45,000 for 2020–21 and later income years. When the tax was introduced in 2017, a backpacker would pay a maximum of $5,500 in tax on the first $37,000 of income. However, an Australian national performing the same work would have a maximum tax liability of $3,572. In this case, Catherine Addy, a UK national working in Australia since 2015, contested her 2017 amended income tax assessment which imposed the backpacker tax on the grounds that it contravened the Double Tax Agreement (DTA) with the United Kingdom. Article 25(1) of the DTA seeks to ensure that nationals of the UK are not subject to "other or more burdensome" taxation than is imposed on Australian nationals "in the same circumstances, in particular with respect to residence". Ms Addy was a tax resident of Australia. The ATO did not accept Ms Addy’s argument and she launched action in the Federal Court. The Federal Court initially upheld the Tax Commissioner’s position. However, Ms Addy appealed the decision and the High Court overturned the Federal Court’s decision. The question for the Court was whether a more burdensome tax was imposed on Ms Addy owing to her nationality. The short answer was “yes”. The High Court decision found that the backpacker tax is inconsistent with the non-discrimination clause in the UK DTA. That is, the flat working holiday maker tax rate is not valid in some situations. Non-discrimination clauses that are similar to the one in the UK DTA can also be found in the DTAs with Chile, Finland, Japan, Norway, Turkey, Germany and Israel. So, what does this mean? Some individuals who have been taxed under the backpacker tax rules may be able to obtain a tax refund from the ATO. However, there are a couple of key points to bear in mind: The decision only impacts those classified as an Australian tax resident. Many individuals who are living or working in Australia on a working holiday visa will be classified as non-residents, in which case this decision will be less relevant. The decision is only likely to be relevant to individuals who are a citizen/national of a country that has a DTA with Australia containing a non-discrimination clause similar to the clause found in the UK DTA. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.