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Tax Alert December 2020

Although individuals and small business owners are now enjoying welcome tax relief in the wake of some valuable tax changes, there is more on the horizon as the government seeks to reboot the Australian economy.

Here’s a quick roundup of significant developments in the world of tax.

Temporary carry-back of tax losses

Previously profitable companies struggling with tough COVID-induced business conditions may find the government’s new tax loss carry-back provisions a useful tool to help keep their operation running.

Businesses with a turnover of up to $5 billion can now generate a tax refund by offsetting tax losses against previous profits.

Under the new measures, eligible companies can elect to carry-back tax losses incurred in 2019-20, 2020-21 and 2021-22 against profits made in 2018-19 or later years to gain a refund.

Full expensing of capital purchases

Another valuable initiative is the introduction of a temporary tax incentive allowing the full cost of eligible capital assets to be written off in the year they are first used or installed ready for use.

The measure applies from 6 October 2020 to 30 June 2022 and applies to new depreciable assets and improvements to existing assets.

Small businesses with an annual turnover under $10 million can also use it for second-hand assets.

Depreciation pool changes

From 6 October 2020, small businesses with a turnover under $10 million are allowed to deduct the balance of their simplified depreciation pool. This applies while full expensing is in place.

The current provisions preventing small businesses from re-entering the simplified depreciation regime for five years also remain suspended.

Early start to personal tax cuts

Individual taxpayers are now enjoying the next stage of the government’s tax plan, after the start date was brought forward to 1 July 2020.

Under the Stage 2 changes, the low income tax offset increased from $445 to $700; the upper limit for the 19 per cent tax bracket moved from $37,000 to $45,000; and the upper limit for the 32.5 per cent bracket rose from $90,000 to $120,000.

During 2020-21, there is also a one-year extension to the low and middle income tax offset, which is worth up to $1,080 for individuals and $2,160 for dual income couples.

Shortcut for home expenses extended again

Employees using the shortcut method to calculate their working from home expenses can continue using it following the ATO’s decision to extend its end date again – this time until 31 December 2020.

The ATO has updated its guidance on the shortcut measure and stated consideration will be given to a further extension.

The shortcut method allows employees and businessowners working from home between 1 March 2020 and 31 December 2020 to claim 80 cents per work hour for their running expenses.

Additional small business tax concessions

Small businesses should also check out their eligibility for several tax concessions now the annual turnover threshold for them has been increased from $10 million to $50 million.

From 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices (such as phones and laptops) provided to employees.

Eligible business will also be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax and have a two-year amendment period for income tax assessments from 1 July 2021.

Granny flats to be CGT exempt

Families considering building a granny flat on their property will benefit from the announcement of a new capital gains tax (CGT) exemption for granny flat arrangements. Although the exemption is yet to be legislated, the planned start date is 1 July 2021.

The exemption will clarify that CGT does not apply to the creation, variation or termination of a formal written granny flat arrangement within families. CGT still applies to commercial rental arrangements.

Refresh your ABN details

The ATO is reminding business taxpayers to keep their Australian Business Number (ABN) details updated so government agencies can identify business in affected areas during natural disasters.

Incorrect details could see you miss out on valuable assistance or potential grants during and after a disaster.

Tax-effective ways to boost your super

After a year when the average superannuation balance fell slightly or, at best, moved sideways, the summer holidays could be a good opportunity to think about ways to rebuild your savings while being mindful of tax.

With the Reserve Bank reducing interest rates to record lows and not anticipating a rise until 2024, it’s more important than ever to ensure your retirement savings are working as hard as possible.

One way to do that is by taking advantage of super, which offers valuable opportunities to tax-effectively rebuild your retirement savings.

Reducing your tax bill

If you make super contributions by setting up a salary sacrifice arrangement with your employer, for example, you can potentially reduce your tax bill while also boosting your super.

By diverting some of your pre-tax salary into super rather than taking it as take home pay, your money will be taxed at 15 per cent, rather than your marginal tax rate.

Investments made through super also enjoy a concessional tax rate of only 15 per cent on any investment earnings. This compares with tax at your marginal rate, which could be as high as 47 per cent (including the Medicare Levy), on investment earnings outside super.

Claim a tax deduction

You are also able to make personal super contributions on which you claim a tax deduction.

Previously only available to the self-employed, this strategy is now available to everyone. It allows you to claim a tax deduction in your annual tax return for eligible voluntary contributions into your super account made during the financial year from your after-tax earnings.

Providing you stay under the annual concessional contribution limit (currently $25,000 a year), this can be a useful way to cut the amount of income you pay tax on.

Play catch-up with your contributions

If you have less than $500,000 in your super account, you may consider making carry-forward concessional contributions. If you haven’t fully used your annual concessional contributions caps since 1 July 2018, you may have some unused cap amounts that you could use to make a larger contribution this financial year.

Unused concessional cap amounts can now be carried forward for up to five years.

Consider non-concessional contributions

If you have more funds available and are closer to retirement, you might also consider making a non-concessional (after tax) contribution into your super account to boost the amount you have in the run-up to retirement.

Generally, you can contribute up to $100,000 a year in after-tax money. Not only is the tax on investment earnings on these contributions only 15 per cent, but they boost the income you can enjoy tax-free in retirement.

If you have a larger amount available, from an inheritance or selling an asset for example, you could even consider making a bring-forward contribution of up to $300,000 in a single year if you are under age 65.

Get the government to contribute

Another opportunity for eligible low to middle income earners is to make a personal after tax contribution of up to $1,000 and potentially receive a co contribution of up to $500 from the government. The co-contribution amount will vary depending on your income and the amount of contributions you make, but it can be an easy way to increase your super balance.

Another tax strategy to consider if your spouse or de facto partner earns less than $40,000 is to make an after-tax contribution into their super account. You could be eligible for the maximum tax offset of up to $540 if you make a contribution of at least $3,000 into your spouse’s super account, provided they earn $37,000 or less. The tax offset tapers off as your spouse’s income increases before cutting out at $40,000.

Strategic review of asset allocation

As super is a structure for investing, not an investment in its own right, it might also be a good time to take a closer look at the mix of assets in your super.

After COVID-induced market volatility, and with historically low interest rates, your allocation may have drifted away from your strategic plan.

With the right advice, tax-effective super strategies offer an easy way to rebuild your retirement savings and achieve your overall wealth creation goals.

If you would like to discuss your super or investment strategy, call us today.

SHB Nominees Pty Ltd trading as SHB Wealth Advisers and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535, AFSL 357 306. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.

Holidays at home, in our very own backyard

For many Aussies with the travel itch, the COVID-19 pandemic put an end to flying to far-off destinations or even venturing beyond your own city or state. While we may be grounded for some time, fortunately you can still enjoy novel and fun adventures closer to home. You might be surprised to find out what is within reach. And at the very least, start planning trips for the coming months ahead.

History buffs

If you can’t make it all the way to England to see Stonehenge, Esperence offers a full size replica in Western Australia. Esperance Stonehenge has been designed to look just like the original. The stones have a local touch though, made from Esperance Pink Granite, and the layout cleverly takes into account the Summer and Winter Solstices in the Southern Hemisphere. Once you’ve marvelled at the rock formation, be sure to check out other Esperance sights such as the Pink Lake and array of pristine beaches.

For wine lovers and foodies

So France has Bordeaux and Spain has Priorat, but we have the Barossa Valley. The world-famous wine producing region in South Australia should be on every wine lover and foodie’s travel list. Less than an hour outside of Adelaide, the Barossa is home to over 150 wineries and 80 cellar doors – think Penfolds, Wolf Blass, Jacob’s Creek and plenty more. Clearly you’ll want to pace yourself and there is plenty to explore in the three main towns: Tanunda, Nuriootpa and Angaston. The restaurant scene is thriving in the Barossa so book in advance to ensure you get a seat at the table.

Adrenaline junkies

Be like a bird among the trees at Victoria’s Otway Fly Treetop Adventures. The 25m high and 600m long walkway gives incredible views over the Otways rainforest. For those wanting something more daring, the 47m tall Spiral Tower sways in the breeze so you can feel one with nature. Ziplining will find you suspended 30m from the forest floor – while it’s not as daring as Zip 2000 in South Africa’s Sun City, it’s an exhilarating experience not to be missed.

Fitness fanatics

Thousands of hikers from across the world descend on Tasmania’s Overland Track every year. It’s easy to see why this bushwalking track is so popular, with Cradle Mountain-Lake St Clair National Park being part of the incredible Tasmanian Wilderness World Heritage Area. It’s not suitable for the novice walker, being a six day hike which is 65km one way, with rocky and steep sections. But you’ll be rewarded by breathtaking views and alpine flora and fauna. If plans to do the Appalachian Trail in the US or the Tour du Mont Blanc across Europe were shelved, head to Tassie instead.

Beach goers

Australia has some of the best beaches in the world, so instead of Hawaii, head to the Gold Coast. Currumbin Beach is regularly voted Queensland’s cleanest beach and makes for a picture perfect holiday spot – just think of all those amazing Instagram pics you can share! Known as The Alley, the entrance to the ocean is patrolled by lifeguards and is a great place for beginner surfers and swimmers. Whether you’re up for a surf, swim or just want to lay on the sand, Currumbin Beach is the place to be during the summer.

Waterfall chasers

Dreaming of Niagara Falls? Why not head to Fitzroy Falls instead? Located within Morton National Park in the Southern Highlands, it’s only two hours out of Sydney. The waterfall descends 81m into picturesque Kangaroo Valley. As well as the beautiful waterfall, there are a range of hiking trails you can embark such as the East Rim and West Rim walking tracks. There are great picnic spots making for a perfect day trip, as well as a nearby campground if you want to stay put to soak up the ambience.

Travel will look different for some time to come. Holidays at home can provide an opportunity to experience the wonderful, diverse country we call home. As you head home with great memories, stories to share and spectacular photos you’ll also be leaving a lasting impact on the local tourism industry, who need the support on their road to recovery.

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