On 6 October 2020 the Federal Treasurer Josh Frydenberg announced the Federal Budget, which placed emphasis on rebuilding our economy, creating jobs and securing Australia’s future.
Below is a summary of the key tax measures arising from the 2020/21 Federal Budget.
Small business entity threshold
The small business entity turnover threshold has increased from $10 million to $50 million.
Small business tax concessions
Businesses with an aggregated annual turnover of between $10 million and $50 million will be able to access up to ten small business tax concessions in a staged approach commencing on 1 July 2020, including the following:
- 1 July 2020 – eligible businesses will be able to immediately deduct certain pre-paid expenditure and start-up expenses;
- 1 April 2021 – eligible businesses will be exempt from the fringe benefits tax on car parking and certain work-related devices (eg phone, laptop) provided to employees; and
- 1 July 2021 – eligible businesses will be able to:
- settle excise duty and excise-equivalent customs duty monthly on eligible goods under the small business entity concession;
- access simplified trading stock rules;
- remit pay as you go (PAYG) instalments based on gross domestic product adjusted notional tax; and
- gain access to a two-year amendment period to income tax assessments for future income years. However, access to the amendment period will exclude entities that have significant international tax dealings or complex affairs.
Temporary expensing of depreciable assets in full
- Businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7.30pm 6 October 2020 AEDT and first used or installed by 30 June 2022. However, full expensing in the first year of use of the capital assets will apply to new depreciable assets and also to the costs of improvements to existing eligible assets.
- Full expensing of secondhand assets will also apply to businesses with an annual aggregated turnover of less than $50 million (ie small and medium sized businesses).
- Businesses with an annual aggregated turnover of between $50 million and $500 million will be able to deduct the first cost of eligible secondhand assets costing less than $150,000.00, if purchased by 31 December 2020 under the enhanced instant asset write-off.
- Small businesses (ie annual aggregated turnover of less than $10 million) will be able to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Tax loss carry-back rule
The Government has announced a loss carry-back rule for tax losses, which allows companies to carry back losses that are incurred from the 2019-20, 2020-21 or 2021-22 income years where the company has an aggregated turnover of less than $5 billion.
- There is no maximum loss that can be carried back and the offset is limited by the lowest amount of tax paid in the year that the loss carry-back rules apply.
- Furthermore, the use of loss carry-back rules is limited by the company’s franking account and cannot be utilised where it will create a franking deficit in an earlier year.
- Companies must elect to apply the loss carry-back rules when lodging their 2020-21 or 2021-22 tax returns. Where no election is made, the general carried forward loss rules will apply.
Treatment of business support grants
- The Victorian Government business support grants for small and medium businesses will be treated as non-assessable and non-exempt for income tax purposes.
- This will apply to grants that are announced on or after 13 September 2020 and paid between 13 September 2020 and 30 June 2021.
- The Government may also extend this treatment of such grants to all states and territories on an application basis.
Research and development (R&D)
The Government will further enhance the 2019-20 MYEFO measure of ‘Better targeting the research and development tax incentive’ – refinements to support business R&D investment in Australia. The following R&D measures were announced:
- for small companies with an aggregated turnover of less than $20 million, the refundable R&D tax 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 larger companies with an aggregated turnover exceeding $20 million, the non-refundable R&D offset rates will either be:
- 5 percentage points above the claimant’s company tax rate for R&D expenditure between 0 per cent and 2 per cent R&D intensity; or
- 5 percentage points above the claimant’s company tax rate for R&D expenditure above 2 per cent R&D intensity.
The key announcements made in relation to international tax revolve around the corporate residency test and strengthening Australia’s foreign investment framework. The announcements are as follows:
Corporate residency test
- Amendments will be made to provide that a company incorporated outside of Australia, may be treated as an Australian tax resident where the entity has a ‘significant economic connection to Australia’. This test will be satisfied where both the entity’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
- It was further announced that these new measures may have retrospective application from 15 March 2017.
Strengthening Australia’s foreign investment framework
- The Government will provide $86.3 million over four years to implement a new platform to support effective and efficient foreign investment application processing and compliance activities across Government, and a new consolidated Register of Foreign Ownership of Australian Assets.
- The Government will simplify the foreign investment fee framework and adjust fees from 1 January 2021. The revised fees will ensure that foreign investors, not Australian taxpayers, will bear the cost of administering the foreign system.
The Government has announced the provision of $159.6 million over four years, commencing from 2020-21, to implement superannuation reforms in order to improve outcomes for superannuation fund members.
Small fund membership increased from four to six members
This is a re-announced measure to increase the maximum number of fund members in a self-managed superannuation fund and a small APRA fund from four to six members.
Superannuation accounts will be ‘stapled’ to an employee when they change jobs
- From 1 July 2021, there is a proposal to ‘staple’ an existing superannuation account to an individual as they move between jobs.
- This is designed to prevent duplicate super accounts for individuals when they change jobs.
Underperforming funds will be prohibited from accepting new members
From 1 July 2021, the Government will be conducting benchmark tests on superannuation funds and will prohibit funds that underperform over two consecutive years from accepting new members until they cease underperforming.
Members will have access to a new interactive tool to compare superannuation funds
From 1 July 2021, individuals will have access to a new interactive online YourSuper comparison tool to compare superannuation funds.
Minimum pension reduction
- Measures will be introduced to allow the 50% minimum pension drawdown reduction for the 2020-21 income year, to help preserve the capital supporting a fund member’s pension account.
- This will allow individuals with an account-based pension, allocated pension or market-linked pension to reduce their minimum pension for the 2020-21 income year.
Fringe benefits tax (FBT)
The Government will introduce the following FBT measures to assist small business entities, retrain redundant and redeployed staff and reduce record-keeping requirements.
Expansion of exemptions for small business entities
- Changes have been announced to the definition of small business entity, which will be expanded to apply to businesses with an aggregated turnover of up to $50 million. This will allow more businesses to access certain FBT exemptions.
- The announced changes will allow car parking benefits to be exempt for FBT purposes for more entities that provide car parking to their employees. The proviso is that the car parking cannot be in a commercial car park. This measure will apply from 1 April 2021.
- Eligible businesses will be exempt from FBT when providing employees with portable electronic devices. This exemption is limited to providing one similar portable electronic device to each employee in each FBT year, so long as the device is primarily used during the employee’s employment.
Retraining of redundant and redeployed workers
The Government will introduce an FBT exemption enabling employers to provide retraining for redundant or redeployed employees with effect from 6 October 2020.
Reducing record-keeping requirements
- The Commissioner of Taxation will be provided with the power to allow employers to rely on existing corporate records rather than employee declarations and other records currently required for FBT purposes.
- This measure will come into effect from the start of the first FBT year after the date of Royal Assent of the enabling legislation.
Should you have any queries in relation to this article or any of the Federal Budget measures, please contact a member of the Cornwalls Revenue Law team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.