2020/21 Key Tax Changes
Temporary full expensing of depreciation assets
As part of Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 the Government will support businesses with aggregated turnover of less than $5 billion by enabling them to deduct the full cost of eligible depreciation assets that are first held, and first used or installed for a taxable purpose, from 7.30pm AEST on 6 October 2020 (Budget Time) to 30 June 2022.
Home office running expenses during COVID-19
The $0.80 per hour rate applies from 1 March 2020 until 30 June 2020 will be extended until 30 June 2021.
There are 2 ways of calculating home office expenses. The methods are the:
1. Shortcut method (80 cents)
2. Actual cost method
JobMaker Plan – bringing forward the Personal Income Tax Plan
The measure brings forward most of phase 2 of the previous personal income tax plan, changes some tax rate thresholds, increases to LITO. It also includes retention of LMITO for the 2020-21 income year.
The measure increases the low income tax offset (LITO) from $445 to $700 and adjusts the phase out rules. Increases the top threshold of the 19% personal income tax bracket from $37,000 to $45,000. Increases the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000. Retains the low and middle income tax offset for the 2020-21 income year.
Small Business Income Offset
This offset for unincorporated small business entities (with an aggregated turnover of less than $5m) has increased to 13% and capped at $1,000 per individual for each income year.
For 2021-22 and onwards – 16% and $1,000 rebate offset.
Reducing Pressure on Housing Affordability
An additional 10% capital gains tax (CGT) discount may be available when you sell an Australian residential rental property you used to provide affordable housing. This increases the maximum capital gains discount percentage on your sale from 50% up to 60%.
To qualify for the discount, an investor must have provided affordable housing on or after 1 January 2018 for a period or periods totalling not less than 1,095 days and must have done so either directly, or through a trust, a managed investment trust or a partnership (not a public unit trust or superannuation fund). Investors can claim up to an extra 10% affordable housing discount once they have sold the qualified dwelling. Only the individual investor can claim the affordable housing discount, it cannot be claimed at the trust level.
Reducing the Company Tax Rate
The company tax rate from 27.5% to 26% for base rate entities with aggregate turnover of less than $50 million for the 2020-21 income year. Companies will self-assess their eligibility for this lower corporation tax rate.
This lower tax rate will also apply to base rate entities that are Retirement savings account providers, Pooled development funds, Non-profit companies, Recognised small (under $50,000 taxable income) and large ($150,000 and over taxable income) credit unions and Public trading trusts.
Temporary Loss Carry Back
The loss carry back regime will temporally allow eligible corporate tax entities to offset tax losses against previously taxed profits (i.e. paid tax in relevant previous years) to generate a tax refund through a refundable tax offset. This will allow eligible corporate entities to use their current tax losses immediately rather than carry them forward.
Eligible corporate tax entities with less than $5 billion aggregated turnover can generally choose to claim a refundable tax offset up to the lesser of the amount of tax paid in previous relevant years, their closing franking account balance for the year that they claim the refundable tax offset and the amount of eligible tax losses carried back multiplied by their applicable tax rate in the loss year.