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Federal Budget 2020: Budget Measures for Businesses

Federal Budget 2020: Budget Measures for Businesses

There are a number of measures in the Budget that impact nearly all businesses.

Tax concessions for medium businesses

A number of small business tax concessions will be extended to medium businesses, i.e. businesses whose annual aggregated turnover is $10 million or more but less than $50 million.

  • From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
  • From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.
  • From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods.
  • From 1 July 2021, eligible businesses will have a two-year (instead of the current
    four-year) amendment period apply to income tax assessments for income years.
  • From 1 July 2021, the ATO’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

 

These measures were first announced on 2 October.

Small business tax rates going forward

  • 2020–21: For unincorporated businesses, the small business income tax offset discount rate will be 13% and 16% from 2021–22. The discount rate was 8% in 2019–20.
  • 2021–22: For base rate entities (i.e. companies with an aggregated turnover of less than $50 million and base rate entity passive income that is no more than 80% of the company’s assessable income), a tax rate of 25% will apply. The tax rate for base rate entities is 26% for 2020–21 and was 27.5% in 2019–20.

 

Capital assets – full cost deductible

Businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm (AEDT) on 6 October 2020 (i.e. Budget night) and first used or installed by 30 June 2022 (but not if acquired under a pre-Budget night commitment).

Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium sized businesses (i.e. those with aggregated annual turnover of less than $50 million), full expensing will also be available for second hand assets.

Businesses with aggregated annual turnover between of $50 million or more and less than $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 enhanced instant asset write-off (IAWO). Businesses that hold assets eligible for the enhanced $150,000 IAWO will have an extra six months, until 30 June 2021, to first use or install those assets.

Small businesses (aggregated annual turnover less than $10 million) are required to deduct the balance of their general small business pool at the end of the income year while full expensing applies. The “lock-out” rule which prevents small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Temporary loss carry back

A temporary loss carry back has returned (remember the loss carry back that applied in 2013?).

Corporate tax entities with an aggregated turnover of less than $5 billion will be able to carry back a tax loss for the 2019–20, 2020–21 or 2021–22 income year and apply it against tax paid in a previous income year as far back as 2018–19, to produce a refundable tax offset. Alternatively, a corporate tax entity can still carry the loss forward (using the existing loss carry forward rules).

The amount of the refundable tax offset will be based on the entity’s tax rate in the loss year. However, the amount cannot exceed:

  • The amount of earlier tax paid by the entity; and
  • The entity’s franking account balance at the end of the income year for which the refundable tax offset is claimed.

 

Any loss carried back must be first reduced by any net exempt income the entity has for the year the loss is carried back to.

There will be an integrity rule consistent with the integrity rule that applied under the previous loss carry back rules. The integrity rule will deny a company a loss carry back tax offset it would otherwise be entitled to if there has been a change in the control of the entity (based on shareholder voting power) and, considering all of the relevant circumstances, one or more of the parties entered into a scheme for a purpose (whether or not a dominant purpose but not including an incidental purpose) to obtain the tax offset.

Job creation incentives

Two measures to encourage hiring are:

  • A 50% wage subsidy for any Australian business which take on a new Australian apprentice from 5 October 2020 to 30 September 2021 (capped at $7,000 per quarter for each apprentice);
  • A credit (the new JobMaker Hiring Credit) for each additional new job created before 7 October 2021. The credit will be $200 per week for employees aged 16 to 29 and $100 per week for employees aged 30 to 35 (up to 52 weeks maximum). The new employee must work for a minimum of 20 hours per week and have been out of work for a certain period prior to being hired.

 

R&D changes

The Government will make further enhancements to the R&D changes that are presently before Parliament.

For companies with an aggregated annual 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 companies with an aggregated annual turnover of $20 million or more, the number of intensity tiers will be reduced from three to two. The marginal R&D premium will be the claimant’s company tax rate plus:

  • 5 percentage points above the claimant’s company tax rate for R&D expenditure between 0% and 2% R&D intensity;
  • 5 percentage points above the claimant’s company tax rate for R&D expenditure above 2% R&D intensity.

 

FBT exemption for training

Employer-provided retraining and reskilling benefits provided to redundant, or soon to be redundant, employees where the benefits are not related to their current employment will be exempt from FBT. This will apply from 2 October 2020 (when the measure was first announced).

The exemption will not extend to retraining acquired by way of a salary packaging arrangement or training provided through Commonwealth supported places at universities.

The Government will also consult on allowing an individual to deduct education and training expenses they incur themselves where the expense is not related to their current employment.

FBT record-keeping 

To reduce the FBT compliance burden, the Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.

This measure will apply from the start of the first FBT year (1 April) after the date on which the enabling legislation receives Royal Assent.

COVID-19 support grants NANE income

The Victorian Government’s business support grants for small and medium business will be non-assessable, non-exempt (NANE) income for tax purposes (if made between 13 September 2020 and 30 June 2021).

Similar grants made by other States and Territories will also be NANE income if the Federal Government agrees.

Corporate residency test – clarification

The law will be amended so that a company incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”.

The change takes effect from the first 1 July following the date of Royal Assent of enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017.

JobKeeper – reminder

As reported in the September edition of TaxWise, the Government has extended the JobKeeper scheme until 28 March 2021 and expanded so more employees are eligible. However, the payment rates have been reduced.

Period

Higher rate per fortnight

Lower rate per fortnight

28 Sep 2020 to 3 Jan 2021 $1,200 $750
4 Jan 2021 to 28 Mar 2021 $1,000 $650

The higher rate applies to:

  • Eligible employees whose total hours of work in the ‘reference period’ was 80 hours or more — the ‘reference period’ is the 28-day period ending at the end of the employee’s most recent pay cycle before 1 March 2020 or 1 July 2020 (the employer may use either period); and
  • Eligible business participants (including sole traders) who were actively engaged in the business for 80 hours or more in the ‘reference period’ — for eligible business participants, the reference period is February 2020.

 

The lower rate will apply to all other eligible employees/business participants.

Talk to our KMT tax adviser about any questions that arise or the impact of the Budget measures on you or your business.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from your accountants at KMT Partners. Information is current at the date of issue and may change.

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