It’s nearly the end of the financial year which means it’s time for businesses to prepare their tax and maximise concessions offered by the ATO. This article will summarise some recent legislative changes to consider to ensure you receive the most from your after-tax return.
Depreciation / Temporary full expensing
Businesses with an aggregated turnover of less than $5b can fully expense any new asset acquired between 6 October 2020 and 30 June 2023 (the Government recently announced a 12-month extension to these measures as part of the Federal Budget). Businesses with an aggregated turnover of less than $50m can fully expense new and second-hand assets. Further to this, businesses with an aggregated turnover of less than $10m that have been utilising the Small Business Pool (SBE Pool) must write off the balance of the pool in the 2021 financial year.
This accelerated depreciation may bring businesses into a tax loss position and leave no future depreciation benefits for existing assets. It should be noted that SBE Pool users can elect to exit the pool in respect of new assets whilst non-SBE Pool users can pick and choose individual assets to write off. Assets held pre-6 October 2020 will continue with their existing depreciation rates.
While these above concessions will reduce taxable income in the short term, consideration should be given to the impact on future taxable income and the tax implications of selling these assets in subsequent income years.
Loss carry back
This new concession is only available to companies and allows the taxpayer to offset tax liabilities from the 2019, 2020 and 2021 financial years against losses made in the 2020, 2021 and 2022 financial years. To be eligible, the business must have an aggregated turnover of less than $5b. This offset can be claimed in either the 2021 or 2022 company tax return. The offset is limited to the amount of the tax liability in the relevant prior year and the franking account balance at the end of the year in which the loss carry back is claimed (either 2021 or 2022).
Tax rate changes
The corporate tax rate for “base rate” entities has reduced to 26%, effective from the 2021 financial year, and this will drop to 25% in the 2022 financial year. “Base rate” entities are companies that have an aggregated turnover of less than $50m and an income of which 80% or less is passive. While this reduction in the corporate tax rate seems appealing in the short term, retained earnings of a company will eventually need to be paid out as dividends. Lower tax rates bring about fewer franking credits attached to dividends, which could lead to additional ‘top up’ tax than had previously been the case. Therefore, the more important consideration is the marginal tax rate of the taxpayer who will eventually be assessed on those dividends. There has been important changes to individual marginal tax rates, which came into effect in the 2021 financial year as detailed below:
|Taxable Income||Tax on this Income|
|$0 – $18,200||Nil|
|$18,201 – $45,000||19 cents for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45 cents for each $1 over $180,000|
*Note the above rates do not include the 2% Medicare Levy
For further information on the above or clarification with anything else tax related, please contact your local William Buck tax advisor.