Company Tax Rate Changes
In 2021, the company tax rate for base rate entities has been lowered to 26% (reducing to 25% in the 2022 financial year).
A base rate entity is a company that both:
- Has an aggregated turnover less than the aggregated turnover threshold – $50 million from the 2018–19 income year; and
- 80% or less of their assessable income is base rate entity passive income (investment income) – this replaces the requirement to be carrying on a business.
Marginal Income Brackets
The 2021 upper limit of some marginal income brackets for individuals have also increased, including;
- The 19% tax band increasing from $37,000 in 2020 to $45,000
- The 32.5% tax band increasing from $90,000 in 2020 to $120,000.
Full Expensing of Depreciating Assets
Businesses can access temporary full expensing if their aggregated turnover is less than $5 billion. These businesses that purchased and first used/installed depreciating assets after 6 October 2020 can fully expense the cost of:
- New or second-hand assets for businesses (if it is a second-hand asset, your aggregated turnover is below $50 million).
- New assets only for businesses with an aggregated turnover equal to or more than $50 Million but less than $5 billion.
Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets. Corporate tax entities unable to meet the $5 billion turnover test may still be eligible for temporary full expensing under the alternative income test.
Businesses with an aggregated turnover of $10 million or more, or businesses with an aggregated turnover of less than $10 million that do not use simplified depreciation, can choose to apply FEDA or not. Full expensing is however compulsory for businesses with an aggregated turnover of less than $10 million who use simplified depreciation rules.
Loss Carry-Back Measures
2021 will be the first year the new loss carry-back measures can be used to provide a refund to companies when they lodge their 2021 tax returns.
Companies with an aggregated turnover of less than $5 billion can choose from two carry back options:
- Carry back 2020 tax losses to offset it against their 2019 income tax liability.
- Carry back 2021 tax losses & offset it against their 2019 & 2020 income tax liability. Bearing in mind the amount of refund/offset is limited to the lesser of the amount of tax paid previously or the surplus in the franking account at 30 June 2021.
Where no choice is made the loss is carried forward & can be offset against future profits provided either the continuity of ownership or similar business tests are met.
Immediate Tax Deduction for Start-Up Expenses
2021 is the first year that medium-sized businesses with an aggregated turnover of $10-50 million will be able to claim an immediate tax deduction for:
- Start up expenses such as legal or accounting advice relating to new business setup.
- Prepaid expenditure on a service that will be provided within 12 months.
From the 2022 income tax year, medium sized businesses will also qualify for:
- Simplified trading stock rules& quarterly calculations of PAYG instalments by the ATO;
- A simplified accounting method for GST purposes;
- Possible two year amendment period for income tax returns;
- Ability to settle excise duty & excise equivalent customs duty on eligible goods monthly.
From 2022, the superannuation general transfer balance cap will increase from $1.6 million in 2021 to $1.7 million.
Non-concessional contributions cap will increase from $100,000 for 2021 to $110,000 & the concessional contributions cap will increase from $25,000 in 2021 to $27,500.
The Superannuation guarantee increases to 10% from 1 July 2021.
There is also the potential for the $450 earning exemption for super guarantee to be scrapped.
Single Touch Payroll
From 1 July 2021, amounts paid to closely held payees will need to be reported through STP. If you’re a small employer you can report these amounts on or before each payday, or you can choose to report this information quarterly.
Work From Home Expenses
If you work from home, you will be able to claim a deduction for additional running expenses incurred, which may include:
- Electricity expenses associated with heating, cooling and lighting the area from which you are working, and running assets used for work (such as a computer and printer)
- Associated cleaning costs for a dedicated work area.
- Phone and internet expenses.
- Computer consumables (for example, printer paper and ink) and stationery.
- Home office equipment, including computers, printers, phones, furniture and furnishings. Of these, you can claim either the:
If you are only working from home because of the COVID-19 situation, you generally:
- Cannot claim the cost of coffee, tea, milk and other general household items an employer may otherwise have provided while you were at the usual work place
- Cannot claim occupancy expenses such as mortgage interest, rent and rates.
Disaster Assistance (Floods)
Most one-off assistance payments are tax-free. Regular Centrelink payments remain taxable, unless exempted by the government.
If you receive emergency help in the form of gifts from family and friends, you don’t need to declare it or pay tax on it. If you use an assistance payment to purchase items for your business, the normal conditions for deductibility apply.
Grants from government and private funding bodies don’t attract goods and services tax (GST), provided the grant recipient doesn’t provide anything of value in return.