The Government has handed down its 2020/21 Federal Budget with plenty of tax measures. The most significant announcements for the SME market are the introduction of a full deduction for acquisition of capital assets (not subject to a cost limit) and the loss carry-back rules being re-implemented for a temporary period.
As expected, the Government has brought forward Stage 2 of the tax cuts announced in last years’ Budget which were originally to apply from 1 July 2022. The tax cuts will apply from 1 July 2020, and will result in the following tax rates:
|Rate||2018-19 and 2019-20||2020-21 to 2023-24||2024-25 onwards|
|0%||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – 37,000||$18,201 – $45,000||$18,201 – $45,000|
|30%||N/A||N/A||$45,001 – $200,000|
|32.50%||$37,001 – 90,000||$45,001 – 120,000||N/A|
|37%||$90,001 – $180,000||$120,001 – $180,000||N/A|
The following table compares the tax rates for the 2020 year to the tax rates for the 2021 year (excluding Medicare Levy, low income tax offset and the low and middle income tax offset):
* Note: The Government produced tables compare the tax payable in the 2018 year (prior to Stage 1 of the tax cuts) to taxable payable in the 2021 on implementation of Stage 2. The above table instead compares the actual taxable income difference between the 2020 and 2021 years.
The Government has also increased the low income tax offset from $445 to $700 from 1 July 2020, and will retain the low and middle income tax offset (‘LMITO’) for the 2021 year. Although the LMITO was originally scheduled to apply to the 2022 year, it was scheduled to cease at the beginning of the Stage 2 tax cuts. This announcement therefore applies the LMITO for the first year of the Stage 2 tax cuts.
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2019-20 income year. These increases take into account the movement in CPI.
From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of new depreciable assets of any value in the year they are first used or installed ready for use. Small and medium sixed businesses with a turnover of less than $50 million will also be able to deduct the full cost of second-hand assets.
The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
Previously, businesses with a turnover of up to $500 million were eligible for an instant asset write-off up to $150,000 for assets acquired from 12 March 2020 that were first used or installed and ready for use by 31 December 2020. Businesses that acquired eligible new or second-hand assets under the $150,000 instant asset write-off will now have until 30 June 2021 to first use or install those assets.
Small businesses with a turnover of up to $10 million will be able to deduct the full closing balance of the simplified depreciation pool at the end of the income year until 30 June 2022.
Companies with turnover up to $5 billion will be able to offset tax losses against previous profits on which tax has been paid to generate a refundable tax offset. Losses incurred in the 2019–20, 2020–21 and 2021–22 income years will be able to be carried back against taxable income derived in the 2018–19 or a subsequent income year.
The loss amount carried back will not be able to exceed the earlier taxed profits or generate a franking account deficit.
Eligible companies may elect to receive a tax refund when they lodge their 2020–21 and 2021–22 tax returns. This means that if a company generates a tax loss as a result of the full deduction now available for the purchase of capital assets, they may be able to receive a tax refund for tax paid in a prior income year.
The Government is expanding access to a range of small business tax concessions by increasing the aggregated turnover threshold from $10 million to $50 million. These businesses will now be able to access the following small business tax concessions (already available to businesses with a turnover of up to $10 million).
Applicable from 1 July 2020, immediate deductions for:
– Eligible start-up expenses (for example, legal and accounting advice, government fees and charges); and
– Eligible prepaid expenditure.
Applicable from 1 April 2021, FBT exemptions for:
– Car parking fringe benefits; and
– Multiple work-related portable electronic devices provided to one employee.
Applicable from 1 July 2021:
– A two year amendment period for income tax assessments for income years starting from this date;
– Access to the simplified trading stock rules;
– Ability to remit PAYG Instalments based on CDP adjusted notional tax;
– Ability to settle excise duty and excise-equivalent customs duty monthly on eligible goods;
– The Commissioner of Taxation will have the power to create a simplified accounting method determination for GST purposes for these businesses.
It is noted that the simplified depreciation rules for small business have been excluded from list.
The reforms to the Research and Development (‘R&D’) Tax Incentive will be enhanced. The original reforms were intended to apply from 1 July 2019 but have not yet passed Parliament. The new reforms will now apply from 1 July 2021.
For businesses with less than $20 million turnover, the new reforms will provide a refundable R&D Tax Offset of 18.5 percentage points above the claimant’s tax rate (previously 13.5 percentage points). Further, there will no longer be a cap of $4 million on annual cash refunds.
For businesses with a turnover above $20 million, the currently announced intensity tests will reduce from three to two tiers,. The new non-refundable R&D tax offset rates will be 8.5 percentage points above the claimant’s tax rate for up to 2% intensity, and 16.5 percentage points above the claimant’s tax rate for above 2% intensity.
The Government will also proceed with the increase in the cap on eligible $&D expenditure from $100 million to $150 million for all claimants.
The Commissioner of Taxation will have the power to allow employers to use existing corporate records, rather than employee declarations and other prescribed records, to complete their fringe benefits tax return. This will be applicable for the first FBT year from the date after the changes receive Royal Assent. By way of example:
– If an employee is living-away-home they are required to complete a declaration which specifies they maintain a home at their original employment location whilst on assignment and provides details of their home and temporary location. The proposed change will mean that the employer may be able to rely on their existing records, rather than requiring employee declarations, as evidence their employees are living away from home.
– If an employer keeps detailed travel records (e.g. through their corporate travel provider and internal systems) which show the purpose of an employee’s travel, flights taken, hotel, venue and the schedule, it can use these records to complete its FBT return and its employees won’t need to keep a travel diary.
From 2 October 2020 (the date of announcement) employer-provided retraining activities will be exempt from FBT. Employers often provide retraining services to employees that are being made redundant to assist them in finding new employment. FBT is generally payable on these benefits as they do not have sufficient connection to current employment.
The exemption will not extend to retraining acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth supported places at universities, which already receive a benefit, or extend to repayments towards Commonwealth student loans.
The Government will also consult on allowing individuals that undertake training at their own expense which relates to their future employment, to deduct those costs from their income. The current rules limit deductions to training related to current employment. These may be targeted to future employment and skill needs.
As previously stated, current exemption for car parking and multiple portable electronic devices for small businesses will be available to businesses with an aggregated turnover of up to $50 million.
Technical amendments will be made to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where:
– the company’s core commercial activities are undertaken in Australia; and
– its central management and control is in Australia.
This will ensure the residency rules reflect the position prior to the High Court decision in ‘Bywater Investments’. The amendment will have effect from the first income year after the date of Royal Assent but taxpayers will have the option of applying the new law from 15 March 2017 (the date the relevant ATO Taxation Ruling was withdrawn).
A CGT exemption will be provided where there is the creation, variation or termination of a formal written agreement in relation to a granny flat interest. The exemption will apply to arrangements with older Australians or those with a disability. It will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements. The measure will have effect from the first income year after the date of Royal Assent. This follows the Board of Taxation Review that found CGT implications can be an impediment to these arrangements. The announcement does not reference removing any potential adverse implications under the main residence exemption.
The Victorian Government’s business support grants announced on 13 September 2020 will be made non-assessable, non-exempt (NANE) income. Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021. The Commonwealth will extend this arrangement to all States and Territories on an application basis.
From 7 October 2020, the JobMaker Hiring Credit will be available to eligible employers over a 12 month period for each additional job they create for an eligible employee. Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive the following up to a maximum amount of $10,400 per new position created:
– $200 per week if they hire an eligible employee aged 16 to 29 years: or
– $100 per week if they hire an eligible employee aged 30 to 35 years.
The employee will need to have worked for a minimum of 20 hours per week (averaged over a quarter) and have been receiving the JobSeeker Payment, Youth Allowance (other) or Parenting Pay prior to employment.
For further information on any of these updates, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.