Some of the 2019-20 tax changes for small businesses include:
Instant asset write-off;
Accelerated depreciation;
PAYG withholding obligations;
Restructuring a small business;
Bushfire payments;
Single Touch Payroll;
Director penalties; and
Closely held trusts.
Instant asset write-off
The instant asset write-off (IAWO) for depreciating assets has been expanded. Since then, the IAWO has been extended by 6 months to 31 December 2020.
The cost caps for small and medium businesses (total annual turnover under $50m) are:
You should note that:
the increased caps apply to assets acquired by small business entities (total annual turnover less than $10m) at or after 7.30 pm (AEST) on 12 May 2015;
a medium business (total annual turnover $10m or more and under $50m) can access the instant asset write-off for depreciating assets first acquired in the period beginning at or after 7.30 pm (AEST) on 2 April 2019 and ending on 31 December 2020. The threshold depends on when the asset was first used or installed ready for use. If the asset was first used or installed ready for use:
before 12 March 2020 — the threshold is $30,000;
on or after 12 March 2020 to 31 December 2020 — the threshold is $150,000;
the threshold for a “low value” pool for a small business entity (total annual turnover under $10m) is $150,000 for 2019-20 (and also 2020-21 if the entity’s income year ends on or before 31 December 2020) - the total value of the pool is deductible at the end of the income year if it is below the threshold; and
the lock-out rule – which locks a small business entity out of the simplified depreciation rules for 5 years if the business stops using those rules - will begin to apply again from the first income year that ends after 31 December 2020 (ie 2021-22 for businesses that balance at 30 June).
The cost caps for larger businesses (total annual turnover $50m or more and under $500m) are:
You should note that:
the increased cap applies to assets acquired in the period beginning at or after 7.30 pm (AEST) on 2 April 2019 and ending on 31 December 2020; and
a large business that has adopted a substituted accounting period can access the $150,000 instant asset write-off for depreciating assets first acquired in the period beginning on 2 April 2019 and ending on 31 December 2020.
Accelerated depreciation
The accelerated rate of depreciation applies to new depreciating assets first held on or after 12 March 2020 and first used or installed ready for use on or after 12 March 2020 and before 1 July 2021. The asset must be used principally in a business in Australia or located in Australia.
The accelerated rate for small businesses is 57.5% (instead of 15%). The accelerated rate does not apply if you deduct immediately the cost of the asset using the instant asset write-off.
Failure to comply with PAYG withholding obligations
If your business fails to comply with a PAYG withholding obligation, eg failing to withhold an amount from an employee’s salary or wages or failing to report the withheld amount to the ATO, your business won’t get a deduction for the relevant amount (eg the amount not withheld or the amount not paid to the ATO).
You may be able to reinstate the lost deduction by making a voluntary disclosure to the ATO.
Restructuring a small business
If you are a small business owner and you restructure the business, capital gains or losses that would arise from transferring the business assets to another entity are deferred where there is no change in the ultimate economic ownership of the asset. This is called the small business restructure roll-over. It may apply where, for example, you are a sole trader and you transfer the business to a company you control.
Roll-over relief can apply to an asset used in a business carried on by your affiliate or a connected entity (that is also a small business).
A legislative amendment in 2020 fixed up a drafting error which incorrectly set the turnover threshold for an affiliate or entity connected with a small business at $2 million instead of $10 million. The change to set the threshold at $10 million goes back to 1 July 2016, which is when this roll-over commenced.
Bushfire payments
Government payments and non-cash benefits (including local government payments and benefits) made directly as a result of bushfires in Australia in 2019-20 are not taxable (they are what is called non-assessable non-exempt income).
Director penalties
The director penalty regime has been extended to cover unpaid GST, luxury car tax and wine equalisation tax owed by a company, in relation to GST instalment quarters and tax periods (as appropriate) that start on or after 1 April 2020. The ATO has issued guidelines (PCG 2020/2) explaining how it intends to administer these changes.
Closely held trusts
A “closely held trust” is a discretionary trust or a trust where 20 or fewer individuals have between them, directly or indirectly, and for their own benefit, fixed entitlements to 75% or more of the income or capital of the trust.
Family trusts and trusts that are interposed entities are now classified as closely held trusts (from the 2019-20 tax year) for the purposes of applying a set of complex integrity rules.
The effect of the change is that the trustee of a closely held trust may be liable to pay trustee beneficiary non-disclosure tax (TBNT) in relation to a “circular trust distribution”. This is where a share of the net income of a trust is included in the assessable income of a trustee beneficiary, the trustee of the closely held trust becomes presently entitled to an amount that is reasonably attributable to the whole or a part of the untaxed part of that share and TBNT has not previously been payable in respect of that share, and that pattern continues through a chain or trusts. This is not a common arrangement.
Contact us to find out all the tax changes in 2019-20 that might affect your business.