How JobKeeper payments will affect your tax this year
JobKeeper payments are being dished out to more than three million workers, sole traders and other business owners, so it’s worth knowing what it will mean for tax returns this year.
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JobKeeper has been credited with saving countless careers in recent months but still creates some concerns and confusion among workers and business owners.
Will it be extended beyond its September 27 end date? Will it stop sooner for some sectors, as it is for childcare next month? And what does it mean for your tax return?
A review of the $70 billion COVID-19 wage subsidy scheme is under way, with results expected soon, so only the third concern can be answered now.
And luckily it’s not too taxing for employees, sole traders and other small business owners.
EMPLOYEES
The $1500 fortnightly JobKeeper government payments to workers are treated just like regular wage income, which is taxed as you receive it.
The Australian Taxation Office said employees receiving JobKeeper as their full wage or partial wage did not need to do anything different at tax time.
ATO assistant commissioner Karen Foat said people’s JobKeeper payments would be “automatically included into your tax return by the end of July”.
SOLE TRADERS
People who own their own business as a sole trader comprise about half of all JobKeeper recipients.
“Sole traders will need to add what they have received from JobKeeper into the income of their business,” Ms Foat said.
“That won’t happen automatically.”
Ms Foat said people seeking information should start with the ato.gov.au website.
“We have some links from our home page there,” she said.
Xero head of industry Matthew Prouse said for sole traders, JobKeeper was simply another source of income for their business for tax purposes.
“It’s not a number you can leave off your tax return,” he said.
“If they’re running at a profit, they will pay tax on their profit.”
OTHER BUSINESS OWNERS
Small businesses employing people are the conduit for distributing JobKeeper payments to workers, and they take out the taxable portion based on the staff member’s marginal tax rates.
“For most businesses, JobKeeper will not have a big impact on their end-of-financial-year processes and tax time,” Mr Prouse said.
“There’s no number on your tax return to say ‘total JobKeeper income’ or ‘total JobKeeper employees’.”
The ATO’s Ms Foat said JobKeeper payments to employees should be treated the same way businesses normally treated salary and wages.
“It is taxable in the hands of employers as well, but they get deductions for salary and wages that they pay, so it’s in and out,” she said.
SUPERANNUATION
Ms Foat said early release superannuation payments received by more than two million Australians so far were tax-free and did not need to be declared on people’s tax returns.
Mr Prouse said business owners should pay their employees’ super entitlements – and consider contributions to their own super funds – before June 30.
“There is no legislative requirement for an employer to pay superannuation for an employee who is solely receiving the JobKeeper payment, but they have the option to,” Mr Prouse said.
“Plenty of employers are choosing to do the right thing.”
GRATEFUL RECIPIENTS
Hairdressing salon director Johnny Ruggerino has had a tough few months financially but his business is working hard to try and bounce back.
He co-owns Prema salons, located in Surry Hills and Bondi Junction in Sydney, with his brother Francesco. They have almost 40 staff, most whom are receiving JobKeeper payments.
Mr Ruggerino said the business had taken a severe hit after closing its doors for five weeks from the end of March, but is doing its best to try and return to normal.
“The staff have been very supportive and we have worked as a team,” he said.
“They are very grateful to have a job.”
Mr Ruggerino hopes JobKeeper will stay in place “for as long as possible.”
“We are busy again and we are bouncing back to some extent, but not to the levels that we were at pre-Covid,” he said.
Originally published as How JobKeeper payments will affect your tax this year