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.