SMEs - Expanding access to small business tax concessions
- Access to up to 10 small business tax concessions will be extended to taxpayers with aggregated turnover of less than $50m.
- The expanded concessions will apply in three phases over the 2021 and 2022 income years.
This measure extends access to 10 small business tax concessions for businesses with aggregated turnover of less than $50m (previously only available to businesses with aggregated turnover of less than $10m).
The expanded concessions will apply over three phases:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain pre-paid expenditure.
- From 1 April 2021, eligible businesses will be exempt from the 47% 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 that do not require annual stocktakes or to account for changes in trading stock values.
- remit PAYG instalments based on GDP adjusted notional tax;
- if they are a brewer or distiller, be able to report and pay excise duty and excise-equivalent customs duty monthly on eligible goods, rather than weekly to help assist managing cash flow;
- be exposed to a reduced two year (currently four year) tax assessment amendment period (excluding entities that have significant international tax dealings or complex affairs) for income years starting from 1 July 2021.
Expanding access to small business tax concessions make the grade in the Federal Budget.
A missed opportunity for tax reform.
Despite calls for the rate and base of GST to be increased, the Budget leaves the GST system unchanged.
This continues to reflect Australia’s reliance on income and corporate taxes for economic recovery and Budget repair rather than using GST and other consumption taxes.
The Your Future, Your Super reform, is designed to empower members with superannuation fund choice, through improved transparency and accountability of superannuation fund performance and fees.
It encourages a reduction in waste and member fees paid by allowing members to carry their superannuation fund of choice across to new a new employer seamlessly.
International tax measures
The Federal Budget deserves top marks for providing a practical solution to the state of confusion regarding corporate tax residency faced by many Australian-parented groups in the last two years.
Instant asset write-off
- Instant asset write-off is significantly expanded to businesses with aggregated annual turnover of less than $5b. This is expected to comprise 99% of total taxpayers.
- Businesses with aggregated annual turnover of less than $5b will be able to immediately deduct the full cost of new depreciable assets and improvements to existing depreciable assets acquired from 7:30pm on 6 October 2020 and first used or installed ready for use by 30 June 2022.
- Unlimited cap on the cost of eligible depreciable assets able to be immediately deducted.
Businesses with aggregated annual turnover of less than $5b will now be able to claim an immediate deduction for the full cost of expenditure on new Division 40 depreciable assets or improvements to existing depreciable assets that are first used or installed ready for use by 30 June 2022. This measure is expected to apply to 99% of taxpayers including individuals, trusts, and companies.
This measure extends the Government’s previous instant asset write-off scheme by:
- Increasing the turnover threshold to businesses with aggregated annual turnover of less than $5b (previously the turnover threshold was businesses with aggregated annual turnover of less than $500m);
- Extending the operation of the scheme through to assets that are in use, or installed ready for use, by 30 June 2022;
- Removing the limit on the cost of eligible depreciating assets able to be immediately deducted under the instant asset write-off rules (previously with a limit of $150,000 cost applied), meaning that eligible businesses will be able to claim a tax deduction for the full cost of eligible depreciating assets first used, or installed, by 30 June 2022;
- For SME’s with aggregated annual turnover of less than $50m, full expensing also applies to second-hand assets;
- Businesses with aggregated annual turnover less than $500m that hold eligible assets for the enhanced $150,000 instant asset write off that are not first used, or installed ready for use, by 31 December 2020 will have an extra 6 months to 30 June 2021 to first use, or install those assets ready for use to claim an immediate deduction; and
- Small businesses with aggregated annual turnover of less than $10m will be able to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Instant asset write-off measures in the Federal Budget receive a gold star.
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- Current R&D tax incentive rules stay in place through the current financial year – no risk of retrospective changes
- Changes effective for income years commencing from 1 July 2021
- Under $20m turnover companies retain current R&D benefit rate
- Over $20m companies have a new two-tier R&D intensity determined R&D benefit rate
- Planned integrity measures from previously proposed legislation for clawback, feedstock and public disclosure of claims by the ATO still to be brought in
- Interactions with new loss carry back and instant asset write-off provisions will need to be carefully assessed
Since the 2018 Budget, there has been legislation before parliament to make significant changes to the R&D tax incentive. This legislation has been through two Senate Committee reviews and an election without successfully passing.
It has had the R&D community on tenterhooks wondering what would happen. Today’s budget announcements have allayed many key concerns with the:
- $4m refund cap being abolished
- intensity test being simplified
- R&D benefit rate retained for under $20m turnover companies and boosted for most companies over $20m
- maximum claimable R&D spend cap also increased from $100m to $150m
The proposed legislation also had a number of changes to integrity measures around clawback, feedstock and balancing adjustments. These will remain along with the provision to allow the ATO to publish details of claimants R&D claims.
The effects of the newly announced tax loss carry back provisions and the expanded instant asset write-off on R&D claims will need to be carefully assessed and potentially add complexity in calculating the R&D benefit.
The modifications to the previously proposed changes to the R&D tax incentive are mostly good, particularly for smaller (under $20m turnover companies) and larger highly intensive R&D companies with current benefit rates being retained or boosted.
Medium size companies ($20m to $50m turnover) with lower R&D intensity will lose out with a reduction in after tax R&D benefit from 12.5% in the current financial year to 8.5% in 2021-2022.
The R&D intensity provision for over $20m turnover R&D claimants will add complexity to preparing claims.
The opportunity to improve the R&D tax incentive for software development has again been ignored.
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Fringe benefits tax
New FBT concessions and reduced FBT compliance obligations for employers.
Top marks to the Government for the FBT changes announced in the Budget, although the speculated FBT exempt corporate lunch is not on the menu!
There are three main FBT changes:
- FBT exempt training and reskilling courses for employees to redeploy them to a different role in the employer business. Currently only education or training that relates to an employee’s existing position is FBT exempt.
- Small businesses (aggregated turnover of less than $50m) from 1 April 2021 may provide FBT exempt:
- car parking, and
- multiple work-related electronic devices such as laptops, mobile phones (currently this is limited to only one device of its kind each FBT year). This will assist employees with multiple workspaces such as home and office.
- Travel diaries and Declarations may be replaced by existing company records. This is a sensible and pragmatic outcome.