Income tax – business issues
Temporary full expensing
The federal government wants Australian businesses to open their wallets and invest, so it has legislated an immediate, 100% deduction for the cost of eligible depreciating assets. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on October 6, 2020 and June 30, 2022.
There are two ways a taxpayer can access the temporary full expensing measure – under the primary test which applies to ‘small business entities’ with turnover under $5 billion or the alternate test which applies to ‘corporate tax entities’ with income under $5 billion.
In preparing your 2021 income tax return, your accountant will want to discuss whether you choose the immediate expensing route.
Tax loss carry back offset
Your accountant may want to talk to you about claiming a refundable tax offset up to the amount of the previous income tax liabilities. There are a number of eligibility conditions.
Your company must have less than $5 billion turnover in a relevant loss year, being the 2019–20, 2020–21 and 2021–22 income years. The loss can be carried back and applied to a prior year’s income tax liability in the 2018–19, 2019–20 and 2020–21 income years.
The tax offset is limited by reference to the income tax liability in the profitable years and the franking account balance.
This measure commences on January 1, 2021 and eligible companies can claim the tax offset in their tax returns for the 2020–21 and 2021–22 income years.
So don’t be surprised if your accountant asks eligible clients to fast track preparation of their 2021 company tax return, the aim being to get the refundable tax offset into your hands ASAP.
FBT car parking exemption – good news and bad news
The good news – FBT changes in the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020, effective April 1, 2021, will result in many employers now qualifying for a car parking fringe benefits exemption, where previously they did not. These amendments allow entities with an aggregated turnover of less than $50 million (previously $10 million) to be eligible for what’s generally called the small business FBT exemption for car parking benefits provided to employees.
The bad news – the commissioner’s new draft ruling on car parking fringe benefits (TR 2019/D5), which will replace TR 96/26 once finalised, now recognises that a car park, which satisfies all other requirements, can still be considered a ‘commercial parking station’ even if:
- Its contractual terms restrict who may use the car park, provided any member of the public that accepts these restrictions can use the car park;
- Its fee structure discourages all-day parking with higher fees.
The implication is that public car parks attached to hospitals, shopping centres and universities could potentially be a commercial car park. If these are in an employer’s one kilometre radius, a car parking fringe benefit may arise.
Draft ATO guidance on profit allocation by professional firms
The ATO has released long-awaited draft guidance on its proposed compliance approach to the allocation of professional firm profits. The preliminary guidance is contained in the draft Practical Compliance Guideline PCG 2021/D2. The ATO has also released a fact sheet ‘Assessing the risk: allocation of profits within professional firms’ (QC 42218). The draft guidelines provide a series of “gateway tests” and risk factors to consider when determining the risk that a firm’s structure will be targeted by the ATO.
If you’re a professional operating an accounting, legal, medical, architectural, engineering business – you name it – talk to your accountant about how the ATO guidelines impact your business structure and profit allocation.
The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced into Parliament on February 17, 2021. It targets three areas:
- Single default accounts
- Underperformance in superannuation
- Best financial interests’ duty.
Single default accounts
On or after July 1, 2021, in the absence of a new employee choosing a superannuation fund, an employer must determine whether that new employee has a “stapled fund” and, if a stapled fund exists, contributions should be paid into that stapled fund instead of paying into the employer’s chosen default superannuation fund.