New measures commencing 1 July 2021

There are a number of new changes taking place from 1 July 2021.  We have outlined some of the key changes below for you.

Superannuation guarantee rate increasing to 10%

The superannuation guarantee (SG) rate will increase to 10% from 1 July 2021 and will continue to increase by 0.5% each financial year until it reaches 12% on 1 July 2025.

Business impact

The increase in the SG rate may have the following impacts on your business:

  1. An increase in your superannuation expense – if your employees are paid their super on top of their hourly rate or salary, then an increase in the SG rate will increase your superannuation liability.
  2. An increase in your workcover cost – workcover is calculated based on wages and superannuation that you pay to your employees so an increase in the superannuation will increase the total wages declared to workcover.
  3. A liability to payroll tax – if your business is near the payroll tax thresholds, an increase in your superannuation expense may result in you becoming liable to payroll tax.
  4. An increase to your payroll tax liability – if your business is already liable for payroll tax, an increase your superannuation expense will increase your overall payroll tax liability.

Action to take

To ensure your business takes into account the implications of the increase in the SG rate, we recommend that you:

  1. Review your employee contracts or awards to determine if their wages include or exclude superannuation;
  2. Calculate your increased liability for superannuation, workcover and payroll tax and factor this into your business’ budget and cashflow forecasts;
  3. Review your method of recording and reporting employee superannuation and ensure that the increased rate will be reflected in your reporting system (most online accounting software – Xero, Reckon, MYOB etc – should be automatically updated to take into account the increased rate);
  4. Ensure you pay your employee superannuation by the relevant due dates (28 July, 28 October, 28 January, 28 April) to avoid a potential 200% penalty for late payment.

Concessional (deductible) superannuation contributions cap increasing to $27,500

The concessional (deductible) superannuation contribution cap is increasing from $25,000 to $27,500 from 1 July 2021.

The increase in this cap means that most taxpayers can contribute up $27,500 into superannuation and claim a tax deduction for the contribution. 

Planning opportunities

There may be some planning opportunities that you may wish to utilise:

  • If you have maximised your contributions for the 2021 financial year, you could contribute the $27,500 for the 2022 in June 2021.  This is a reserving strategy and only provides you with a tax advantage in the first year (due to the double contributions in the first year).  It may be effective, however, if you have an unusually high income in one particular year (eg. due to the sale of your business).
  • If your superannuation balance is below $500,000, you may wish to use the unused concessional cap provisions that enable you to use up the caps from prior years where you previously haven’t maximised your contributions.  We have discussed this in more detail here.

Action

If you want to make additional concessional superannuation contributions in the current financial year, we recommend that you:

  1. Talk to us about the maximum concessional contributions you can make in the current financial year; and
  2. Talk to your financial adviser about whether additional contributions are right for you and your personal wealth creation plan.

Non-concessional (undeducted) superannuation contributions cap increasing to $110,000

The non-concessional (undeducted) superannuation contribution cap is increasing from $100,000 to $110,000 from 1 July 2021.

The increase in this caps means that you may be able to contribute up to $110,000 into superannuation in one financial year (which is not deductible).  You may also be eligible to use the 3 year bring forward rules to contribute 3 years in one year (so $330,000 in one financial year).

Planning opportunities

There may be some planning opportunities available to you:

  • If you are looking to contribute more into superannuation, the increase in the caps means that there is an increase in the 3 year bring forward balance.  If you trigger the 3 year bring forward rules before 30 June 2021, the total is $300,000.  If you trigger the 3 year bring forward rules after 1 July 2021, the total is $330,000.

Action

If you want to make additional non-concessional superannuation contributions in the current financial year, we recommend that you:

  1. Talk to us about the maximum non-concessional contributions you can make in the current financial year; and
  2. Talk to your financial adviser about whether additional contributions are right for you and your personal wealth creation plan.

Company tax rate decreasing to 25% for base rate entities

For base rate entities (entities with a turnover of less than $50 million and 80% or less passive income), the company tax rate will decrease from 26% to 25%.

Tips and Traps

Some tips and traps to be aware of with a decreasing company tax rate:

  • Deferring income from the 2021 to the 2022 financial year will result in a lower tax liability due to the decreasing tax rate.
  • Similarly, bringing deductions forward from the 2022 financial year to the 2021 financial year will increase the tax effect of these deductions.
  • However, franked dividends will only be able to be paid at the prevailing company tax rate.  So dividends paid after 1 July 2021 can only be franked at the company tax rate of 25% (even where the underlying tax was paid at a higher tax rate).

Superannuation – transfer balance cap increasing to $1.7 million

The transfer balance cap for superannuation is increasing from $1.6 million to $1.7 million from 1 July 2021.

The transfer balance cap is a lifetime limit on the total amount of superannuation that can be transferred into a superannuation pension (and therefore generate tax-free earnings).

If you have previously utilised the whole of the $1.6 million cap when establishing your pension accounts, you cannot take advantage of the $100,000 increase.

Single touch payroll

Closely held payee exemption ceases

The single touch payroll reporting exemption for closely held payees ceases on 30 June 2021.  From 1 July 2021, small employers with closely held employees can report payments to these employees using single touch payroll every payday or every quarter.  If these employers have other payees (ie. arm’s length employees), payments to these arm’s length employees must be reported to the ATO using single touch payroll every pay day.

Micro employers quarterly concession ceasing

Up to 30 June 2021, micro employers had a quarterly reporting concession which enabled them to report their payroll data quarterly through their registered tax or BAS agent.  From 1 July 2021, only micro employers experiencing “exceptional circumstances” will be eligible for the concession. 

Our comment

Generally, from 1 July 2021, all employers will now be required to report their payroll data to the ATO via single touch payroll every pay period.  You need to ensure your systems are setup to enable this reporting.  Please contact us if you need advice regarding any changes to your payroll systems to enable STP reporting.

Minimum wages to increase by 2.5%

Following the Annual Wage Review 2021, the Fair Work Commission have announced a 2.5% increase to the national minimum wage (to $772.60 per week or $20.33 per hour).  It will apply to anyone who is paid minimum award wages or the national minimum wage.  The new national minimum wage will apply from 1 July 2021 but will happen in 3 stages.  Most awards will increase from 1 July 2021.  Wages in the Retail Award will increase from 1 September 2021 and other awards affected by exceptional circumstances will increase from 1 November 2021.

Refer to the Fair Work website for more information and/or contact your relevant HR adviser for advice regarding the impact of this wage increase on your employees: https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/annual-wage-review-2021

 

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent.

2021 End of Year Tax Planning

Now is the time for businesses to look at their 2021 estimated tax position to see if there is any action that can be taken prior to 30 June to minimise their tax liability.

There are quite a few new issues to consider for the 2021 financial year.  We have outlined some of the key 2021 tax planning ideas for you below.

There are also some significant changes taking effect from 1 July 2021.  We have outlined these changes here.

Depreciation of assets

For businesses with a turnover under $50 million:

  • Between 12 March 2020 to 6 October 2020, you can claim a deduction for the acquisition of eligible depreciating assets under $150,000.
  • From 6 October 2020 to 30 June 2022, you can claim a deduction for the acquisition of any eligible depreciating assets (there is no limit).

For small businesses (turnover under $10 million) that use simplified depreciation rules, the balance of your small business pool can be written off at the end of the income year.

We note that there is still a cost limit on certain assets – for example, you can only claim a maximum deduction of $59,136 for a passenger vehicle during the 2021 financial year.  A passenger vehicle is a vehicle that is designed to carry a load less than one tonne and fewer than 9 passengers.

EOFY Tax tip: If you are looking to acquire capital assets for your business, we recommend doing so prior to 30 June to get the deduction in the current financial year.  If the deduction puts your company in a loss position – consider the loss carry-back provisions below.

Business tip: While you get the benefit of deducting the full cost of the asset in the current financial year, this means that you will not receive any depreciation on this asset in future years.  It also means that when you sell the asset, any income from the sale will be subject to income tax.

Company loss carry-back

Companies that make a loss in the 2020 to 2023 financial years, can carry this loss back to reduce taxable profits made on or after the 2019 financial year.  The company can then elect to receive a refund of the tax paid in that year when lodging the later year tax return.

EOFY Tax tip: Your company may be able to take advantage of the asset depreciation rules to write off the full value of new assets purchased.  If the depreciation puts your company into a loss, this loss may be applied against the taxable profits from 2019 or 2020.  You may then receive a refund of tax paid in those financial years.

Employee superannuation guarantee

The June quarter superannuation guarantee liability is required to be paid by 28 July.  However, a business can only claim a tax deduction for employees’ superannuation when it is actually paid.  As such, to ensure you get a deduction in the current year, you need pay your employees’ June superannuation guarantee liability prior to 30 June (cashflow permitting).  We recommend that the payment be made by 20 June (to ensure it is processed by the recipient superfund). 

EOFY Tax tip: Pay your employee June quarter superannuation by 20 June 2021 to get a deduction in the current financial year.

Business tip: The ATO are currently allocating considerable resources to reviewing employer compliance with paying employees’ superannuation guarantee.  There are significant penalties that can be incurred if you pay your employee superannuation late. 

Business tip: From 1 July 2021, the superannuation guarantee rate increases to 10%.  This will continue to increase by 0.5% per year until it reaches 12%.  This will have flow-on implications for payroll tax, workcover etc.  Please see our separate article on the changes commencing 1 July 2021.

Personal superannuation

You may also want to make personal contributions to super.  For the 2020/21 financial year, the maximum concessional (deducted) contribution is $25,000.

However, if your superannuation balance was less than $500,000 as at 30 June 2020, it may also be possible for you to contribute more super by taking advantage of the new unused concessional cap carry forward rules.  Please see our separate article regarding personal superannuation contributions.  

EOFY Tax tip: If you have unusually high income during the 2021 financial year, consider whether making additional deductible superannuation contributions fits within your personal financial plan.  We recommend speaking with your financial adviser with regards to your superannuation contributions.

Trade debtors

You should review your trade debtors as at 30 June.  You must ensure that any debts that are uncollectible are written off prior to 30 June in order to claim a tax deduction for the write-off in the current financial year.  This is particularly important given the effect of COVID-19 on many businesses. It is likely that many businesses will have higher bad debts during the 2021 financial year than in prior years.

EOFY Tax tip: To write off a bad debt – you must have made reasonable and commercial attempts to recover the debt and have now determined it is uncollectible.  You then need to make a decision in writing to write off the bad debt (eg. you have removed the debt from the customer’s account and have recognised a bad debt expense).

Prepay or bring forward your expenses

Make sure you review all of your expenses and bring forward any expenses to June (where possible).  For example, stock up on stationery and office consumables, prepay your insurance and interest (if applicable) and look at any other expenses you may be able to pay in June.  By bringing these expenses forward to June, you are obtaining a tax deduction in the current financial year which will reduce your overall tax bill for the 2021 year.  However, depending on the status of your business given the impact of COVID-19, if your business is in a loss position, bringing forward expenses may not be advantageous.

EOFY Tax tip: As the company tax rate is decreasing from 26% in 2021 to 25% in 2022, a deduction in the 2021 year will give you a better tax advantage than the same deduction in the 2022 financial year.

Defer assessable income

Consider whether it is possible to defer your assessable income (being mindful of cashflow implications) to next financial year.  However, depending on the effect of COVID-19 on your business, you may want to realise more income in the current financial year to utilise losses from COVID-19.  This will vary from business to business.

EOFY Tax tip: The company tax rate decreases from 26% for the 2021 year to 25% for the 2022 year for business entities with a turnover less than $50 million.  As such, income earned in the 2022 year will be taxed at a lower rate than the 2021 tax year.

Business tip: Make sure you consider your cashflow when determining whether any income can be deferred.

Motor vehicles

If you are using a vehicle for a high percentage of work-related travel, make sure you keep a logbook.  Without a logbook, an individual is limited to claiming a maximum of 5,000km at $0.72 (or $3,600) in the 2021 financial year.  If you keep a logbook, you can claim the business percentage of the operating costs of the vehicle (petrol, registration, servicing, depreciation, interest etc).

EOFY Tax tip: A logbook started prior to 30 June can be used to support a logbook claim even if the logbook isn’t completed until after 30 June.

Working from home

If you worked from home during the 2021 financial year, you may be able to claim a deduction for a percentage of the running costs of your home.  There are a few different methods you can use to calculate your deduction:

(1) Shortcut method ($0.80 per hour) – available until 30 June 2021 and covers all home office running expenses including telephone, electricity, depreciation, internet, computer consumables

(2) Fixed rate method ($0.52 per hour) – this claim only covers depreciation of office furniture and furnishings, electricity and repairs (so you can claim telephone, internet, equipment depreciation and computer consumables separately)

(3) Actual cost method – you can calculate and claim the work-related portion of your actual expenses provided you have kept appropriate records

EOFY Tax tip: The ATO have calculators that may assist you to calculate your working from home deduction shortcut method calculator and fixed rate method calculator

Trust minutes

Prior to 30 June, make sure the trustees of your discretionary trusts decide how they are going to distribute their income and capital.

EOFY Tax tip: Your trust minutes must be prepared prior to 30 June to evidence the trustees decision regarding the distribution.  Keep this minute with your tax records.

Rental properties

For your rental properties, if you have any expenses coming up in the next few months, try to pay these prior to 30 June – this will bring the deduction into the current tax year and will help you to reduce your 2021 tax bill.

EOFY Tax tip: Consider getting a depreciation report for your rental property.  You may be able to claim additional tax deductions for the the cost of the building and potential its fixtures and fittings.

EOFY Tax tip: Consider undertaking repairs to your property prior to 30 June.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

New Business Grants in Queensland

The Queensland Government have recently announced new grants to help Queensland small businesses continue to recover and grow.

Small Business – Business Basics Grant – $5,000

The Business Basics grant provides up to $5,000 to help businesses increase core skills and adopt best practice. 

Activities financed:

The grant will fund activities from one of the following priorities:

  1. Training and coaching
  2. Website build or upgrades
  3. Professional business advice
  4. Strategic marketing advice
  5. Business continuity and succession planning.

Eligibility:

To be eligible for the grant, your businesses must:

  • have fewer than 20 employees at the time of applying for the grant;
  • have an active ABN and be registered for GST;
  • have a Queensland headquarters;
  • have a turnover of $300,000 or less in the current financial year;
  • not be insolvent or have owners/directors that are an undischarged bankrupt.

Key details:

  • Funding available: up to $5,000
  • Opens: 31 May 2021
  • Closes: When funds are exhausted or 30 June 2021 (whichever is first)

To apply (and for more details) go to: https://www.business.qld.gov.au/starting-business/advice-support/grants/business-basics-grant

Business Growth Fund – $50,000 to purchase specialised equipment

The Business Growth Fund provides businesses with a single upfront payment of $50,000 (excluding GST) to buy specialised equipment.

Businesses that receive the grant are expected to:

  • increase confidence for growth, transitioning from small to medium-sized
  • increase productivity, turnover, profit and employment by 20%
  • improve confidence to automate, scale up, increase market share, diversify and/or exploit exporting opportunities.

Key details:

  • Funding available: Up to $50,000 (excluding GST)
  • Applicant commitment: To fund at least 25% of project costs to buy and implement the specialised equipment
  • Opened: 11 May 2021
  • Closes: When funds are exhausted

To apply (and for more details) go to: https://www.business.qld.gov.au/starting-business/advice-support/grants/growth-fund

Small Business – Business Boost Grant – $15,000

The Small Business – Business Boost Grant is set to open mid-July 2021.

For more details go to: https://www.business.qld.gov.au/starting-business/advice-support/grants/schedule

 

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent.

Federal Budget 2021-22

On Tuesday night, 11 May 2021, Federal Treasurer Josh Frydenberg handed down his third Federal Budget.  In a pre-COVID world, we were told to celebrate “Back in Black” surpluses.  Those days are now gone.  But so too, are the economic deficits forecast during the height of COVID-19.  The underlying deficit for the 2020-21 year will be $161.0 billion (that is $52.7 billion less than expected and forecast only 6 months ago).  The forecast deficit for the 2021-22 financial year is $106.6 billion with forward estimates suggesting a deficit of $57 billion by 2024-25 (nearly one-third of the deficit in 2020-21).

The Australian economy outperformed all major advanced economies for 2020.  Real GDP has been resilient.  The unemployment rate has not blown out as perhaps expected. In fact, the unemployment rate is expected to fall below 5% by 2023.  Confidence is also continuing in the equity and property markets.

Key budget measures that will impact on our clients include:

  • Continued access to low income tax offsets and lower tax rates for individuals;
  • The extension of the temporary full expensing of assets until 30 June 2023; and
  • The extension of the loss carry-back rules for companies also to 30 June 2023.
Once again, however, we have failed to see any substantial debate around the change or movements to GST or significant tax reform.

We’ve outlined below some of the main tax measures that were announced in the Budget.

As with all budgetary measures, these measures are not final until the relevant legislation has been passed by the Government.  We will keep you updated on the status of any proposed measures.

Superannuation guarantee - minimum earnings threshold abolished

The Government is proposing to remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.  It is expected this will take effect from 1 July 2022.

This measure will benefit taxpayers with lower income.  It is estimated that around 300,000 individuals will receive additional superannuation guarantee payments each month, 63% of whom are women.

Low and Middle Income Tax Offset

The Low and Middle Income Tax Offset (LMITO) will remain for the 2021-22 income year.  This provides a tax rebate of up to $1,080 for individuals or $2,160 for couples. 

Individual income tax rates

There were no changes announced to the individual tax rates as these tax cuts were brought forward in the October 2020 budget and backdated to 1 July 2020.

The table above shows the tax thresholds for the 2021 and the 2022 financial years.

For companies with a turnover of less than $50 million, the company tax rate will drop to 25% from 1 July 2021 (down from 26% in the 2021 financial year).  This is a tax cut was implemented by an earlier budget.

Deduction for depreciable assets

The temporary full expensing of assets will be extended to 30 June 2023.

As such, from 6 October 2020 to 30 June 2023 businesses with a turnover up to $5 billion can deduct the full cost of eligible depreciating assets of any value in the year they are first used or installed ready for use.  

Loss carry-back for companies

The loss carry-back provisions for companies have been extended to the 2022-23 financial year.  Companies that make a loss in the 2019-20, 2020-21, 2021-22 and/or 2022-23 financial year can carry this loss back to reduce taxable profits made on or after 2018-19.  The company can elect to receive a refund of the tax paid when lodging the later year tax return.  This measure will enable companies to take advantage of full expensing of depreciating assets while it is available.

Superannuation contributions

Work test – abolished

It is proposed that from 1 July 2022, the work test will be abolished for voluntary non-concessional or salary sacrifice superannuation contributions.  This will enable taxpayers aged between 67 and 74 to make more non-concessional contributions to superannuation.  Individuals aged between 67 and 74 will still have to meet the work test to make personal deductible contributions.

Downsizer contributions – expanded

The eligible age for the downsizer superannuation contributions will also be reduced to 60 (currently 65).  As such, taxpayers aged 60 or older, will be able to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home.  Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional caps.

Other changes commencing 1 July 2021

While not part of the budget, a reminder of the following changes that will commence from 1 July 2021:

  • The superannuation guarantee rate increases to 10%;
  • The concessional superannuation cap increases to $27,500;
  • The non-concessional superannuation cap increases to $110,000 per annum or $330,000 over 3 years;
  • The total superannuation balance limit increases to $1.7 million.

Individual tax residency rules

The Government is proposing to replace the existing individual tax residency rules with a new framework.  The primary test will be a simple, ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian resident.  Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

The budget papers acknowledge that Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers.

Self education expenses

The Government is proposing to remove the exclusion of the first $250 of deductions for prescribed education costs.  Currently, the first $250 of a prescribed course of education expense is not deductible.  Removing the $250 exclusion will reduce compliance costs for individuals claiming self-education expense deductions

Increased powers of AAT

The Government is proposing to increase the powers of the Administrative Appeals Tribunal to pause or modify ATO debt recovery action in relation to disputed debts that are being reviewed by the Small Business Taxation Division of the AAT.

SME Recovery Loan Scheme

The Government is proposing to support the economic recovery of businesses affected by COVID-19 or flood. 

The Government will provide participating lenders with a guarantee for 80% of secured or unsecured loans of up to $5 million for a term of up to 10 years with interest rates capped at 7.5%.

To be eligible, SMEs (including self-employed individuals and non-profit organisations) will have a turnover of up to $250 million and have either been:

  • recipients of the JobKeeper Payments between 4 January 2021 and 28 March 2021; or
  • located or operating in a local government area that has been disaster declared as a result of the March 2021 New South Wales floods and were negatively economically impacted.

Other measures of interest

Some other measures of interest from a tax perspective include:

  • A Digital Games Tax Offset to provide a 30% refundable tax offset for qualifying Australian digital games expenditure from 1 July 2022.
  • A tax rate of 17% for income from eligible medical and biotechnology patents.  Consultation will be undertaken to see if the concession will be extended to income from clean energy patents.
  • Increased Child Care Subsidy from 11 July 2022.
  • $506.3 million will be provided to extend the JobTrainer Fund. This is estimated to deliver 163,000 additional low fee and free training places in areas of skills need (including 10,000 places of digital skills courses).
  • An additional $2.7 billion over four years will be applied to expand the Boosting Apprenticeship Commencements wage subsidy to support businesses and Group Training Organisations to take on new apprentices and trainees.
  • A new Family Home Guarantee with 10,000 places from 2021-22 to support single parents with dependants to enter, or re-enter, the housing market with a deposit of as little as 2%.

We will keep you up-to-date with the progress of the implementation of these Budget measures.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.