With most tax professionals now returning to work after the holiday break, this is the ideal time to do a stocktake of the status of recent tax, superannuation and related Bills which may affect tax practitioners and their clients in 2021. This article...
Federal Budget 2020-21 tax measures have passed Parliament
Federal Budget 2020–21
On Tuesday, 6 October 2020, the Treasurer handed down the Government’s Federal Budget
The key tax announcements in the Budget included the following:
- Bringing forward the second stage of the Personal Income Tax Plan by two years to 2020-21.
- Introducing a temporary loss carry-back for companies for losses incurred from 2020 to 2022.
- Increasing the small business entity (SBE) turnover threshold to $50 million for certain tax concessions.
- Allowing a temporary full expensing of depreciating assets from Budget night.
- Refining the R&D Tax Incentive from 2021-22.
On 9 October 2020, the Treasury Laws Amendment (A Tax Plan For The COVID-19 Economic Recovery) Bill 2020, which implements all of the above measures, passed both Houses of Parliament without amendment. It received Royal Assent on 14 October 2020.
Bringing forward personal income tax cuts
Previously legislated Personal Income Tax Plan
The enactment of the Treasury Laws Amendment (Personal Income Tax Plan) Act 2018 (21 June 2018) implemented the Government’s seven-year Personal Income Tax Plan. Subsequently, the Treasury Laws Amendment (Tax Relief So Working Australians Keep More of Their Money) Act 2019 (5 July 2019) amended aspects of the legislated Plan. Together, the Acts implemented the following measures:
- the introduction of a temporary Low and Middle Income Tax Offset (LMITO) capped at $1,080 — in addition to the existing Low Income Tax Offset (LITO) — for the 2018–19 to 2021–22 years;
- replacement of the LMITO and LITO with a new LITO — to be increased from $645 to $700 from 1 July 2022 — for the 2022–23 and later income years;
- changes to the marginal tax rates and income thresholds — with effect from the
2018–19, 2022–23 and 2024–25 income years respectively.
Stage 1 of the three-stage plan applied from the 2018–19 income year.
The new law
The Bill brings forward Stage 2 of the Personal Income Tax Plan by two years, from 1 July 2022 to 1 July 2020, comprising:
- an increase in the top income threshold of the 19 per cent tax bracket from $37,000 to $45,000;
- an increase in the top income threshold of the 32.5 per cent tax bracket from $90,000 to $120,000;
- an increase in the LITO from $445 to $700.
In addition, the LMITO will be retained for 2020–21.
Newly legislated personal tax rates — 1 July 2020 to 30 June 2022
Low Income Tax Offset
From 1 July 2020, the maximum amount of the LITO will increase from $445 to $700. The LITO will be withdrawn at the rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000, and 1.5 cents per dollar from $45,000 to $66,667.
Low and Middle Income Tax Offset
The LMITO applies to taxable incomes up to $126,000. The minimum offset is $255 for taxable incomes of $37,000 or less. The maximum offset is $1,080 for taxable incomes between $48,001 and $90,000.
The LMITO will be retained for 2020–21 and then removed from 2021–22.
Temporary loss carry-back
Corporate tax entities with an aggregated turnover of less than $5 billion will be able to apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
Tax losses for the 2019–20, 2020–21 or 2021–22 income years can either be:
- carried forward and deducted against income derived in later income years; or
- carried back against income of the 2018–19 and later income years to produce a refundable tax offset.
The carry back is notional — it is not necessary to amend the prior year return. The benefit is received in the assessment for the year in which the election is made.
The tax refund will be limited by requiring that the amount carried back is not more than the earlier taxed profits and that it does not generate a franking account deficit. Subject to these requirements, there is no set monetary cap on the amount of loss that can be carried back or the amount of refundable tax offset that can be received.
Making the election to carry back losses
The tax refund will be available on election by eligible businesses when they lodge their 2020–21 and 2021–22 tax returns.
If the election is not utilised, or to the extent that there are not sufficient taxed prior year profits to allow full carry back of a loss, any losses not carried back are carried forward in the usual manner.
Increasing the SBE turnover threshold to $50 million
The SBE turnover threshold will be increased from $10 million to $50 million.
Eligible businesses — i.e. businesses with an aggregated annual turnover of more than $10 million but less than $50 million — will have access to up to ten small business tax concessions in three phases, as outlined below.
The eligibility turnover thresholds for other small business tax concessions not mentioned below (e.g. the small business CGT concessions and the small business income tax offset) will remain at their current levels.
Phase 1 — from 1 July 2020
Entitled to immediate deductions for:
- eligible start-up expenses;
- eligible prepaid expenditure.
Phase 2 — from 1 April 2021
Exempt from FBT on the following benefits provided to employees:
- car parking;
- multiple work-related portable electronic devices (e.g. phones or laptops).
Phase 3 — from 1 July 2021
- access the simplified trading stock rules;
- remit PAYG instalments based on GDP adjusted notional tax;
- the two-year amendment period for income tax assessments for income years starting from 1 July 2021;
- monthly settlement of excise duty and excise-equivalent customs duty on eligible goods.
In addition, the Commissioner’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the aggregated annual turnover threshold of $50 million.
Temporary full expensing of depreciating assets
Businesses with aggregated annual turnover of less than $5 billion will be entitled to deduct the full cost of eligible capital assets in the year they are first used.
The immediate deduction will be available for eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.
Full expensing in the year of first use will apply to:
- new depreciating assets;
- the cost of improvements to existing eligible assets; and
- for small and medium sized businesses (aggregated annual turnover of less than $50 million) — second-hand assets.
Businesses with aggregated 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 instant asset write-off.
Extended application of instant asset write-off
Eligible businesses that acquire eligible new or second-hand assets under the $150,000 instant asset write-off by 31 December 2020 will have an extra six months, until 30 June 2021, to first use or install those assets.
Simplified depreciation pools
SBEs with aggregated annual turnover of less than $10 million will be entitled to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.
Refinements to the R&D Tax Incentive
From 1 July 2021, certain aspects of the previously proposed changes to the R&D Tax Incentive will be refined. The previously announced changes are proposed in the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019, which was introduced into Parliament on 5 December 2019 and is currently before the Senate.
For companies with aggregated annual turnover of less than $20 million, the refundable R&D offset is being set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed.
For companies with aggregated annual turnover of $20 million or more, the Government will reduce the number of intensity tiers from three to two. The R&D premium ties the rates of the non-refundable R&D tax offset to a company’s incremental R&D intensity, which is R&D expenditure as a proportion of total expenses for the year.
The marginal R&D premium for these companies will be as follows:
Further information and training
Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements.
Supported by comprehensive training materials, our Tax Update training sessions ensure you are fully informed of:
- ATO announcements and rulings
- Court and AAT decisions
- Proposed changes to the tax law
- Emerging Tax Issues
We present these monthly online, and also offer face-to-face Public Sessions at locations across Australia. Click here to find a location near you.
We can also present these Updates at your firm (or through a private online session) with content tailored to your client base – please contact us here to submit an expression of interest or visit our In-house training page for more information.
2020-21 Federal Budget at a glance infographic
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