The Treasurer has handed down his second Budget amid challenging economic conditions, it is perhaps no surprise that in a Budget “all about jobs” that there would be plenty of sweeteners for businesses. Some of the more salient measures announced include the extension of small business tax concessions, outright deductions of capital assets until 30 June 2022, loss carry-back, and clarification of the corporate residency test.
Extension of small business tax concessions
A range of tax concessions currently available to small businesses will be extended to medium sized businesses which includes businesses with an aggregated annual turnover between $10m and $50m. This extension will happen in 3 phases, with eligible businesses being able to immediately deduct certain start-up expenses and prepaid expenditure in phase 1 starting on 1 July 2020. Phase 2 will start on 1 April 2021 and include FBT exemptions on car parking and multiple work-related portable electronic devices.
Phase 3 of the extension will occur from 1 July 2021 and will allow eligible businesses to use simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, reduce the time limit for the ATO to amend income tax assessments to 2 years, and expand the simplified accounting method determination for GST purposes. All other small business tax concessions will retain the current eligibility turnover thresholds.
Outright deductions of capital assets
The government will be allowing all businesses with an aggregate turnover of less than $5bn to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022. For small to medium sized businesses, a full deduction will apply to new and second-hand assets as well as cost of improvements to existing eligible assets. There is a limit for larger businesses on the deduction of second-hand assets.
Companies with aggregated turnover of less than $5bn will be able to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously tax profits in the 2018-19 or later income years. The tax losses applied against tax profits in a previous year will generate a refundable tax offset in the year in which the loss is made, however, the refund will be limited to the amount of earlier tax profits. The tax refund will be available by election for eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies do not have to use the loss carry-back and can choose to carry losses forward as normal.
Clarification of corporate residency test
The government has flagged that it will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has significant economic connection with Australia. This test will likely be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.