Federal Budget 2020-21 – Business Tax Changes

Temporary Full Expensing of Assets

Businesses with turnover up to $5 billion will be able to deduct the full cost of new eligible depreciable assets, of any value, in the year they are first used or installed ready for use. The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted. This incentive is in place from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022.

For small and medium-sized businesses (turnover less than $50m), full expensing also applies to second-hand assets.

Small businesses (turnover less than $10m) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.

Instant Asset Write Off

Eligible businesses (turnover up to $500m) that acquire eligible new or second-hand assets under the enhanced $150,000 instant asset write-off by 31 December 2020 will have an extra six months, until 30 June 2021, to first use or install those assets.

Company Tax loss ‘Carry back’

Companies with turnover up to $5 billion can elect to offset tax losses against previous profits, on which tax has been paid to generate a tax refund.

Losses incurred in 2019–20, 2020–21 and/or 2021–22 can be carried back against profits made in or after 2018–19. Eligible companies may elect to receive a tax refund when they lodge their 2020–21 and 2021–22 tax returns.

The tax refund is limited such that the amount carried back cannot exceed prior year profits and cannot generate a franking account deficit.

As it is an election you can choose to not carry the losses back and instead carry them forward.

R&D Tax Incentive

For small claimants (turnover less than $20 million), the Government will increase the refundable R&D tax offset to 18.5 percentage points above the claimant’s company tax rate, and there will be no $4 million cap on annual cash refunds.

For larger claimants (turnover of $20m+), the Government will streamline the intensity test from three to two tiers and increase the non-refundable R&D tax offset rates. The new rates will be the claimant’s company tax rate plus 8.5 percentage points for initial R&D expenditure up to 2 per cent R&D intensity, and 16.5 percentage points for R&D expenditure above 2 per cent R&D intensity.

The Government will also proceed with the increase in the cap on eligible R&D expenditure from $100 million to $150 million per annum.

These changes apply from 1 July 2021

Fringe Benefits Tax

From 2 October 2020 employer provided retraining or reskilling costs will be exempt from FBT.

Small Business Tax Concessions – expanded to Medium Sized Businesses

Access to a range of small business tax concessions is expanded by increasing the annual aggregated turnover threshold from $10m to $50m. The relevant concessions are: –
Income Tax – all from 1 July 2021 unless noted

  • Immediate deductions for eligible business start-up expenses and prepaid expenses (change in place from 1 July 2020)
  • Simplified trading stock rules
  • PAYG quarterly income tax instalments based on estimated tax instead of instalment rate
  • Two-year amendment period for income tax assessments for income years starting from 1 July 2021

GST, FBT, Excise Duty, Payroll

  • Access to the simplified accounting method for GST
  • FBT exemption on car parking and multiple work-related portable electronic devices provided to employees (change in place from 1 April 2021)
  • Monthly settlement of excise duty and excise-equivalent customs duty on eligible goods
  • Businesses will have to implement the personal tax cuts for employees through payroll once the updated withholding schedules have been released by the ATO and payroll software providers.

Read more of our Federal Budget 2020-21 commentary here:

Personal Income Tax

Business Wage Subsidies 

Other Business Measures