2021 - MID YEAR UPDATE

Super Guarantee Rate Increased

The superannuation guarantee rate (currently at 9.5%) will increase to 10% from 1 July 2021, as part of the already legislated plan to increase it to 12% over the coming years as follows:

Further on Super Guarantee, in the Federal Budget, the Government also abolished the exemption for low-income earners. The Superannuation Guarantee $450 per month eligibility threshold will be removed from 1 July 2022. As a result, employers will be required to make quarterly SG contributions on behalf of such low-income employees earning less than $450 per month (unless another Super Guarantee exemption applies).

Full Expensing Extended

Temporary full expensing will now be available until 30 June 2023. It was originally due to end 12-months earlier on 30 June 2022. Temporary full expensing allows eligible businesses with aggregated annual turnover or total income of up to $5 billion to deduct the full cost of eligible depreciable assets. Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

The 12-month extension will provide eligible businesses with more time to access the incentive, including projects that require longer planning times and those affected by COVID-19 related supply disruptions.

It assists cashflow by enabling businesses to claim depreciation deductions immediately, rather than potentially having to depreciate assets over a number of years.

Temporary Loss Carry-Back Expanded

Temporary loss carry-back will also be extended by one year. This will allow eligible companies to carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year.

Companies with aggregated annual turnover of up to $5 billion can apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years. The tax refund will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns.

This will help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position as a result of the COVID-19 pandemic. Temporary loss carry-back also complements the temporary full expensing measure by allowing more companies to take advantage of expensing, while it is available.

Digital economy strategy - self assess the effective life of intangible assets

The Government will allow taxpayers to self-assess the effective life of certain depreciating intangible assets for tax purposes, rather than being required to use the effective life currently prescribed by statute.

This will apply to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life than the current statutory life. This change will reduce the cost of investment for business, and align the tax treatment of these intangible assets with the treatment of tangible assets.

Taxpayers will continue to have the option to use the existing statutory effective life when depreciating these assets.

This will apply to eligible assets acquired following the completion of temporary full expensing, which has been extended and will now end on 30 June 2023.

Treasury Example: Australis Aeronautics Pty Ltd (Australis) specialises in agriculture drones. Australis develops in-house flight guidance software worth $5 million. However, the rapid improvements in drone technology means Australis believes the software will need to be replaced in 4 years. The statutory effective life of in-house software is 5 years. Without being able to self-assess, Australis would only be able to deduct $1 million a year in depreciation costs (using the prime cost method of depreciation). Thanks to the measure, Australis can now self-assess the software’s effective life as 4 years, increasing the deduction by $250,000 in the first year to $1.25 million. Australis can now bring forward its deductions and use the improved cash flow to support developing the next software

ATO Power to Pause Debt Recovery Action

In a little publicised but welcome announcement made in this year’s Budget, taxpayers who are indebted to the ATO but who have a dispute over their assessment at the AAT, will be able to apply to the AAT to have ATO debt recovery action paused or modified. The proposition is that recovery action would be stayed until the underlying dispute is resolved by the AAT.

The announcement is silent as to what happens where a taxpayer is unsuccessful before the AAT and decides to appeal to the Federal Court – presumably, the government considers that taxpayers with the means to pursue that avenue will be able to make their own arrangements with the ATO.

The ATO has for many years allowed most taxpayers to pay only 50% of the tax in dispute in the case of unresolved objections or appeals, although legally the full amount shown on the notice of assessment is payable by the due date. This has applied even where the amounts involved are quite large. The ability to defer the full amount of tax in dispute for small businesses represents a significant improvement over this practice, and also takes the decision out of the hands of the ATO.

These new powers will apply only to small business entities – i.e. individuals and other entities with an aggregated turnover of less than $10 million per year. Taxpayers can apply to the AAT for a pause/modification in relation to appeals that are lodged with the AAT from the date of Royal Assent of the relevant legislation.

Temporary Full Expensing

The new temporary full expensing measure assists cashflow by allowing eligible businesses to fully deduct upfront, the cost of most assets in the year that they are first installed ready for use (rather than the deduction being potentially spread out over a number of years). It effectively replaces the instant asset write-off. Therefore, there is currently now no longer the $150,000 depreciation cost limit.

Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of newly-acquired eligible depreciating assets.

The eligible assets must be first held, and first used or installed ready for use by a business between 7:30pm on 6 October 2020 and 30 June 2022. The deduction is reduced to the extent that you use the asset for private purposes.

Though most assets are eligible, the following are excluded:

• assets allocated to a low-value pool or a software development pool

• certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets), unless you are a small business entity who chooses to apply the simplified depreciation rules to these assets

• buildings and other capital works

• assets that will never be located in Australia, or will not be used principally in Australia for the principal purpose of carrying on a business.

If your business has an aggregated turnover of $50 million or more, you are excluded from immediately deducting the cost of an eligible asset that is:

• a second-hand asset

• an asset you entered into a commitment to hold, construct or use before 7.30pm AEDT on 6 October 2020.

Instead the normal depreciation rules must be used. If the large deductions on offer under this measure are likely to create a loss for your business in 2020/2021, we would encourage you to speak to your advisor first.

Superannuation Amnesty!

(at Spring 2018)

While the ATO continues to promote its Superannuation Guarantee Amnesty, employers contemplating taking advantage of this once-off opportunity should beware!

By way of background, on 23 May 2018 the Government announced that employers who disclose quarterly superannuation shortfalls (i.e. where they have not paid sufficient superannuation for eligible workers) dating as far back as the introduction of superannuation in 1992 will benefit from:

• Penalties of up to 200% of the shortfall being waived

• Administration charges waived

• Deductions for late contributions (no deduction is normally available for late contributions)

Employers contemplating disclosing past shortfalls should be mindful that the Amnesty is not yet law. If an employer was looking to disclose past shortfalls specifically to get the benefits of the Amnesty (including claiming a deduction for their late contributions) then it may be prudent to hold off until such time that the Amnesty actually becomes law (the legislation is currently held up in the Senate). Interestingly, the Labor opposition has made adverse remarks about the Amnesty – stating that it lets non-complying employers off lightly. Therefore, given this opposition, it is no certainty that the Amnesty will be passed into law…especially given the composition of the Parliament whereby the Government does not have the numbers in its own right.

By disclosing past shortfalls, you are bringing them to the attention of the ATO – who would otherwise be unaware of them (unless an employee makes a complaint about being owed superannuation, or unless they are picked up in a later ATO audit).

If the Amnesty legislation fails to pass and shortfalls are disclosed, then it’s a “double-whammy” for employers – they’ve disclosed previously undetected shortfalls and therefore must pay them as they’ve been brought to the attention of the ATO, yet they have missed out on the benefits of the Amnesty (i.e. deductions for late contributions etc.).

Single Touch Payroll

The measure to extend the Single Touch Payroll (STP) regime to small employers (with 19 or less employees) has yet to be passed by Parliament, leaving small business owners with less time to prepare, should it go through. With a start date of 1 July 2019, smaller employers should have an eye to ensuring their business is positioned to adopt an STP solution by this date. For most employers this will involve using STP-compliant software. The main players in the small-to-medium business space (Xero, MYOB, Reckon, Intuit), are all currently STP-enabled. You should consult your bookkeeper or accountant on how you can position your business to be STP-compliant by the anticipated 1 July 2019 start date.

SUPERANNUATION

Extra Capacity for Small Business Owners

With the superannuation contribution caps dramatically reduced in recent years, there has been no reduction or change to the CGT Lifetime Cap Amount. This is good news for business owners!

By way of background, in addition to the standard Concessional and Non-Concessional caps, there is an additional Lifetime CGT Cap Amount. Because of the generous concessional tax rates that apply inside superannuation (15% on earnings, and 10% discount capital gains) many exiting business owners are keen to invest the capital proceeds from selling their business or business assets into superannuation. However, the non-concessional contribution cap (particularly after the 1 July 2017 reduction) severely restricts the amount that can be contributed to your superannuation fund. Even where you elect to use the 3-year bring forward cap, $300, 000 can for many business owners fall short of the proceeds they receive from a business sale. To assist in this regard, business owners may wish to consider utilising the Lifetime CGT Cap. This cap allows non-concessional contributions to be made in excess of the standard non-concessional limit. The Lifetime Cap is currently $1.480 million in 2018/2019. The cap is only available for Small Business Entities (SBEs) when the amounts contributed to superannuation are:

• Capital proceeds from the sale of an asset that qualifies for the 15-Year Exemption, or

• Capital gains from the sale of an asset that qualifies for the $500, 000 Retirement Exemption.

The advantages of this cap are:

• It is exempt from the $1.6 million ‘Total Superannuation Balance’ contribution restriction, and

• It is in addition to the recently-reduced $100,000 non-concessional contribution cap (and the $300,000 bring-forward cap)

• It can be accessed by over 65s (unlike the bring-forward non-concessional cap – see earlier).

Talk to your Accountant or financial advisor for more details on how you can take advantage.