Personal Tax Cuts
Previously announced stage 2 tax cuts fo individuals are being bought forward with the start date moving from 1 July 2022 to 1 July 2020. The effect of backdating the change is that money will flow into the pockets of affected taxpayers as soon as the legislation receives Royal Assent. Further stage 3 tax cuts retain their original legislated start date of 1 July 2024 and no changes have been made as part of the current package.
Under the revised plan:
- the upper income threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
- the upper income threshold of the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
Instant Asset Write-Off
The Government has announced that it will support businesses with an aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible depreciable assets acquired from 7:30pm (AEDT) on 6 October 2020 and first used or installed by 30 June 2022.
The previous instant asset write-off was capped at depreciating assets costing up to $150,000. This measure essentially removes this cap.
Businesses with an aggregated annual turnover of less than $50 million will also be allowed to write off second hand assets.
The Government also announced that it will re-introduce a ‘loss carry-back’ mechanism which will allow corporate tax entities (CTEs) that have paid tax in the past, but are now in a tax loss position, to carry their loss back to those past years to obtain a refund of some of the tax they previously paid.
This measure will enable many distressed businesses to claim back the taxes they paid on their pre-COVID-19 profits against losses they are incurring during the current recession.
In such cases, any tax paid in respect of a previous year will be refunded to the taxpayer. There is no monetary cap on the relief however there are some constraints:
- first, the furthest the loss can be carried back is to the 2018–19 income year;
- secondly, the carry-back must not generate a franking account deficit; and
- thirdly, the loss-carry back ceases to operate from the end of the 2021–22 income year.
Under the current law, companies are required to carry losses forward to offset profits in future years. CTEs that do not elect to carry-back their losses under this measure can still carry the losses forward under the normal rules.
Research & Development
From 1 July 2021, small R&D entities (those with an aggregated annual turnover of less than $20 million) will be able to access the refundable R&D tax offset at a premium of 18.5 percentage points above their corporate tax rate. The Government has stated that it will not proceed with the $4 million cap on annual cash refunds for small R&D entities.
This means that instead of a flat 43.5% rate for all R&D entities, the R&D tax offset for small R&D entities (i.e. those with an aggregated annual turnover of less than $20 million) is linked to their corporate tax rate, plus a premium of 13.5 percentage points.
Essentially, for businesses with turnover under $20 million, the refundable R&D Tax Offset rate will be either 43.5% or 48.5% depending on whether its corporate tax rate is 25% (small business) or 30%.
All of the above measures are to be welcomed and we will continue to provide updates as they progress through to legislation. Please contact us if you have any queries in the meantime, or should any of these measures apply to your situation and you would like to discuss further.