A roundup of some of the tax changes starting 1 July 2020
- Reduction to the company tax rate to 26% from 1 July 2020
- Extension to the instant asset write-off to 31 December 2020
- Additional methods to claim work from home deductions
- No deductions for vacant land
- Finalisation of Single Touch Payroll
Reduction to company tax rate from 1 July
Despite the current economic environment, the company tax rate will reduce to 26% for small and medium businesses from 1 July 2020.
The 1 July change is part of a larger progressive plan to reduce the company tax rate to 25% from 1 July 2021 and applies to base rate entities (BRE) – companies, corporate unit trusts, and public trading trusts – with an aggregated turnover of less than $50 million where 80% or less of the entity’s turnover for the year is classified as base rate entity passive income. Larger companies will continue to pay the 30% rate.
What about franking dividends?
The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by some base rate entities. The way the rules normally work is that if the company was classified as a base rate entity and was taxed at the lower corporate tax rate in the previous year, then a lower maximum franking rate will apply to dividends paid in the current year. For example, a company that was classified as a BRE in the 2019 income year will generally be subject to a maximum franking rate of 27.5% on franked dividends paid in the 2020 income year. However, the maximum franking rate will normally be 26% for dividends paid in the 2021 income year if the company was a BRE in the 2020 income year.
Extension to the instant asset write-off of $150,000
The Government has extended the $150,000 instant asset write-off threshold for a further 6 months until 31 December 2020. This means that the higher threshold can apply to assets that are first used or installed ready for use for a taxable purpose on or after 12 March 2020 and by 31 December 2020 (assuming all other basic conditions are satisfied).
Adjustment to set rate for home office expenses
With the increased numbers of taxpayers working from home due to COVID-19, the ATO has released specific guidance softening the rules around claiming deductions for home office expenses, including a ‘shortcut’ set rate method.
Firstly, the ATO has reduced the usual requirements to be ‘eligible’ to claim the expenses, which usually require a specific area set aside for work purposes. During this period the ATO is allowing home office expenses to be claimed if:
- The taxpayer is working from home to fulfil their employment duties or to run their business; and
- They are incurring additional running expenses as a result
Broadly, there are three mechanisms by which taxpayers will be able to calculate the deduction allowable:
- Actual expenses: This would involve a determination of the actual expenses incurred and establishing a percentage of work or business use to calculate the deduction.
- ‘Normal’ set rate method: Apply the ordinary set rate of 52 cents an hour (this covers claims for home office electricity, gas for heating, cleaning and the decline in value of home office items) and separately claim deductions for other expenses such as computer consumables, stationery, phone and internet expenses or the decline in value of a computer, laptop etc (i.e. on an actual expenses basis).
- The ‘shortcut’ set rate method: This allows a set rate of 80 cents an hour to be claimed, however this covers all of the expenses mentioned in 2 above, both those included and excluded under the ‘normal’ set rate calculation.
Taxpayers will be able to choose which method provides the largest deductions, and it will be important to note that this may not always be the shortcut method.
If you are working from home, you can’t claim:
- the cost of coffee, tea, milk and other general household items your employer may otherwise have provided for you at work
- costs related to children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
- items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone.
- time spent not working, such as time spent home schooling your children or your lunch break.
No deductions for vacant land
You can no longer claim tax deductions for the cost of holding vacant land, such as:
- interest incurred on loans to acquire the land
- land taxes
- council rates
- maintenance costs
These changes apply to costs incurred from 1 July 2019, even if you held the land before that date.
Finalising Single Touch Payroll Records
After the last pay event for the financial year, employers need to make a finalisation declaration. They must do this by:
- 14 July if they have 20 or more employees
- 31 July if they have 19 or fewer employees.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and contact us to seek tax advice. Information is current at the date of issue and may change.