On Wednesday 7 October 2020, Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 was passed without amendments.
The Bill contains five tax measures that were announced in the 2021 Federal budget.
1. Changes to personal income tax cuts
Personal income tax rates will apply from 1 July 2020 (i.e from the 2021 income year). These changes are illustrated in the following table (which excludes the Medicare levy).
| Rate | Current |
| 0% | 0 - $18,200 |
| 19% | $18,201 - $45,000 |
| 32.5% | $45,001 - $120,000 |
| 37% | $120,001 - $180,000 |
| 45% | $180,001+ |
The ATO has since clarified that it will not adjust withholding schedules to account for any over-withheld amounts from the start of the current financial year to the date of the budget announcement.
Instead, these over-withheld amounts will be included in a taxpayer’s tax assessment at the end of the income year.
Tax tip: This means that if you are earning between $48,000 and $90,000, you gain an extra $1,040 in the 2020-2021 year. If you are earning more than $90,000, you will benefit up to $2,430 in less taxes for the 2020-2021 year.
2. Instant asset write-off
The implications of the new measures and the existing instant asset write-off measures are as follows:
- Businesses with an aggregated turnover of less than $5 billion are entitled to tax deduction for the full cost of new eligible depreciable assets of any value from 6 October 2020 and first used or installed before June 30, 2022.
- Businesses with an annual turnover of less than $50 million will also be able to fully expense second-hand assets acquired from 6 October 2020 and first used or installed by 30 June 2022.
- Businesses (with annual turnover between $50 million and $500 million) can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write off.
- Businesses (with annual turnover less than $500 million) that hold assets eligible for existing $150,000 instant asset write off, have an extra six months, until 30 June 2021, to first use or install those assets.
- Small businesses with aggregated turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year under the new measure.
In summary, this means that businesses can now immediately deduct the full cost of all purchases of items such as:
- Plant and machinery
- Fixtures and fittings
- Technology, such as laptops and computers
- Motor vehicles such as utes and vans. Note vehicles designed to carry a load less than one tonne and fewer than nine passengers are potentially subject to the car limit of $59,136 (exc. GST).
3. Loss carry-back
Companies with a turnover of less than $5 billion will be allowed to carry-back tax losses generated in the 2020, 2021 or 2022 income years to offset previously taxed profits made in the 2019 or later income years.
The carry-back rules will be implemented by way of a refundable tax offset that is generated in the year the loss is made.
The following limitations apply with respect to this measure:
- Losses carried back cannot exceed earlier taxed profits.
- The carry-back amount must not generate a franking account deficit.
- Companies must have lodged an income tax return for the current year and each of the five years immediately preceding it. There will be a carveout for entities that are not required to lodge a return for a year, such as when the entity did not exist in that year.
4. Small business concessions expansion
Entities with a turnover of less than $50 million will also now be able to access 10 small business tax concessions.
| Concession | Comments |
|---|---|
| Immediate deduction for certain start-up expenses. | From 1 July 2020, startup or new businesses can immediately deduct a range of professional expenses e.g professional, legal and accounting advice and Australian government agency payments. Currently these costs are usually deducted over a five-year period. |
| Immediate deduction for certain prepaid expenditure | From 1 July 2020, eligible businesses can immediately deduct certain prepared expenditure where payment covers a period of 12 months or less that ends in the next income year. Currently, business expenditure that relates to multiple income years are not immediately deductible. |
| Fringe benefits tax (FBT): small business car parking exemption | From 1 April 2021, eligible businesses would be exempt from FBT on car parking benefits provided to employees if the parking is not provided in a commercial car park. |
| FBT: multiple work related portable electronic devices exemption | From 1 April 2021, eligible businesses would be exempt from FBT provided to employees e.g mobile phones, laptop computers, etc. |
| Simplified trading stock rules. | From 1 July 2021, eligible businesses can choose to use a simplified trading stock rule. Under this rule, eligible businesses may choose not to conduct a stocktake (and account for changes in the value of trading stock) for an income year, if the difference between the opening value and closing stock does not exceed $5,000. |
| Pay as you go (PAYG) instalments based on GDP-adjusted notional tax | From 1 July 2021, eligible businesses would have the option to have the ATO calculate their PAYG instalments (based on previously reported information). |
| Small business excise concession | From 1 July 2021, eligible businesses would be able to deter settlement of excise duty to a monthly reporting cycle for eligible goods. |
| Small business excise-equivalent customs duty concession | From 1 July 2021, eligible businesses would be able to defer settlement of excise-equivalent customs duty from weekly to monthly cycle for eligible goods. |
| Two-year amendment period | From 1 July 2021, eligible businesses will have a two-year amendment period applying to income tax assessments for income years starting from 1 July 2021. The current exceptions, including for fraud or evasion, would continue to apply. Businesses can lodge an amendment application before the time limit and the ATO may extend the time limit to give effect to the application. Currently, they are subject to a four-year amendment period. |
| Simplified accounting methods | From 1 July 2021, the ATO has the power to create simplified accounting methods for GST purchases for eligible businesses. |
5. R&D tax incentive
Current legislation seeking to make contentious changes to the R&D tax incentive will now be further amended.
For companies with a turnover of less than $20 million, there will be no cap on the amount of refundable R&D tax offset a company can claim.
The refundable R&D tax offset for small companies will also be set at 18.5 percentage points above the claimant’s company tax rate, up from 13.5 per cent from the current bill.
Larger companies with an annual turnover of $20 million or more will face a simplified two-tier intensity approach.
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