Before COVID-19, Karen was a graphic designer who worked for small marketing company. Her partner David worked as a sole trader in the tiling industry. They have 2 kids, aged 6 and 9, who are enrolled in primary school.

David’s work primarily is in the household repairs area, and he uses a sub-contractor for some assistance with his jobs. He typically pays the sub-contractor $30 per hour on jobs that require a second person. Before COVID-19, this occurred generally about 32 hours per week (ie. 4 days). The offsider had their own ABN, and David paid them directly without withholding tax. He had three sub-contractors that he would call, based on the work to be done and their availability. Another two days a week, on average, David was able to complete the work personally.

Based on interim figures for 31 December 2019, David was due to earn approximately $90-95,000 for the year. This was based on generally working about 45 hours per week.

As a result of COVID-19, a lot of David’s work has dried up. Instead of 45 hours per week, he is down to 24 hours on average (3 days). This work is with ongoing contracts, as opposed to one-off jobs. None of the sub-contractors are "available for work" anymore.

Karen was working as a mid-level employee on a full-time basis prior to COVID-19. Her gross weekly salary was $1,355, equating to $70,460 per annum. Her superannuation was paid on top of this, at 9.5%. Due to COVID-19, Karen’s company significantly reduced non-senior staff, and she was made redundant on 25 March 2020. Her payout was to be 4 weeks, plus accrued leave of 1 week, which was received on 3 April 2020. Despite the JobKeeper payment being created by the federal government, Karen’s employer is standing by their decision to make her redundant, leaving Karen unemployed.

David and Karen have gone to their accountant to discuss what measures are available to them, as a result of the downturn from COVID-19.

Solution

David

David’s earnings after expenses and before tax have reduced from usually about $3,960 per fortnight to $2,160 per fortnight as a result of the reduced level of contracts.

As he is self-employed, and his work has reduced by more than 30%, he is eligible to apply for the JobKeeper payment with the ATO. As David is eligible for JobKeeper, he will receive $1,500 before tax each fortnight.

During COVID-19, David will earn gross income of $3,660 ($2,160 + $1,500) per fortnight. He is also eligible to defer any income tax payments for 6 months with the ATO.

Karen

As Karen’s income has reduced to nil, she will be eligible to apply for the JobSeeker payment which includes a Coronavirus supplement payment. She does not need to serve a waiting period, and no assets or liquid assets tests apply.

However, Karen would be ineligible to receive any JobSeeker and Coronavirus supplement payment due to the income test. The income test, which determines eligibility, takes into consideration David’s income. David’s income will include the JobKeeper payment, as it is taxable in his hands. As David’s gross income is greater than $3,068 per fortnight, this is above the upper limit for the assistance.

Family tax benefit

With the reduction in income, the family may be entitled to receive Family Tax Benefit (FTB). However, FTB is calculated on full financial year, and must be estimated for both 2019/20 and 2020/21 income years.

As Karen’s income will be the lower income for the 2019/20 income year, we will look at her income first to determine eligibility for FTB Part B. Firstly, David’s income is expected to be less than $100,000 for the income year. However, as the FTB Part B cut-off amount is $21,973 per income year for parents of a child between 5 and 18 years of age, Karen will be above that amount based on her income for the first 9 months of the year.

Eligibility for FTB Part A is based on total family income for the full 2019/20 income year. The limit at which no amount is available to be paid is $109,379 per income year for the family. As at 1 April 2020, the estimated yearly family income (David $93,000 and Karen $60,000) is well above the FTB Part A limit for the entire year. The family will not receive any amount for Family Tax Benefit Parts A or B in the 2019/20 income year.

In relation to the 2020/21 income year, Karen will be eligible to apply for Family Tax Benefit. However, it should be noted that a claim should be considered carefully, based on the understanding that full year incomes are taken into consideration. It is possible that a debt may be applied later. Based on David earning an estimated amount of $93,000, the family would be eligible for the base rate of FTB Part A, which is $119.56 per fortnight. Also, FTB Part B of $110.60 per fortnight would be available.

Source: https://www.accountsnextgen.com.au/