June 17, 2020

Tax: 2020

This is general advice only and intended as a prompt only for you and your business to seek further advice if you think any of the below may apply to you.
A lot of the following is hard to read ( it is quite legal eaglesque), so in a nutshell, if you feel any of the following may apply to you, read on and get advice.
  1. You are in a position to purchase an asset or have purchased an asset for your business,.(Tax write offs, up to $150,000)
  2. You are in a position to make prepayments on expenses for next year
  3. You are having trouble financing your tax obligations
  4. You are in a position where you can delay invoicing till after 30 June 2020 (reduce your income)
TAX WRITE-OFFS FOR 2020.
A HUGE INCENTIVE
If you’ve purchased or are planning to purchase assets for your business, you may be eligible to claim an immediate deduction under the instant asset write-off expansion.
From 12 March to 30 June 2020 (inclusive), the instant asset write-off threshold for each asset increased to $150,000 (from $30,000).
Note: It has been announced that this will be increased till the 31 Dec 2020, but at the time of this post, legislation has not yet been passed.
To get it right, remember:
  • check if you’re an eligible business
  • both new and second-hand assets can be claimed, provided each asset costs less than $150,000
  • assets must be first used or installed ready for use between 12 March and 30 June 2020
  • a car limit applies to passenger vehicles. The limit is $57,581 for the 2019–20 income tax year
  • if your asset is for business and private use, you can only claim the business portion
  • you can claim a deduction for the balance of your small business pool if it’s less than $150,000 at 30 June 2020 (before applying depreciation deductions)
  • different eligibility criteria and thresholds apply to assets first used, or installed ready for use, prior to 12 March 2020.
Find out about:

ELIGIBILITY

Eligibility to use instant asset write-off on an asset depends on:
  • your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
  • the date you purchased the asset
  • when it was first used or installed ready for use
  • the cost of the asset being less than the threshold.
If you run a small business and choose to use the simplified depreciation rules, you must use instant asset write-off on all eligible assets.
Businesses with an aggregated turnover of $500 million or more are not eligible to use instant asset write-off.
From 1 July 2020 the instant asset write-off will only be available for small businesses with an aggregated turnover of less than $10 million and the threshold will be $1,000.

THRESHOLDS

The thresholds have changed over the last few years and are as follows:
Instant asset write-off thresholds
Eligible businesses
Date range for when asset first used or installed ready for use
Threshold
  • Less than $500 million aggregated turnover
    12 March 2020 to 30 June 2020 (see note)
    $150,000
  • Less than $50 million aggregated turnover
    7.30pm (AEDT) on 2 April 2019 to 11 March 2020 $30,000
  • Less than $10 million aggregated turnover 29 January 2019 to 7.30pm (AEDT) on 2 April 2019 $25,000
  • Less than $10 million aggregated turnover 1 July 2016 to 28 January 2019 $20,000
  • Less than $2 million aggregated turnover 7.30pm (AEST) on 12 May 2015 to 30 June 2016 $20,000
  • Less than $2 million aggregated turnover 1 January 2014 to prior to 7.30pm (AEST) 12 May 2015 $1,000
  • Less than $2 million aggregated turnover 1 July 2012 to 31 December 2013 $6,500
  • Less than $2 million aggregated turnover 1 July 2011 to 30 June 2012 $1,000
Make sure you have checked the eligibility criteria for your business.
Note: For eligible businesses with an aggregated turnover from $10 million to less than $500 million, the $150,000 threshold applies for assets purchased from 7.30pm (AEDT) on 2 April 2019 but not first used or installed ready for use until 12 March 2020 to 30 June 2020.

EXCLUSIONS AND LIMITS

There are a small number of assets that are excluded.
In addition, if you purchase a car (a passenger vehicle, except a motor cycle or similar vehicle, designed to carry a load less than one tonne and fewer than nine passengers) for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. For example, if you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $57,581, which equals $43,186.
You cannot claim the excess cost of the car under any other depreciation rules.
Options available to assist businesses impacted by COVID-19 include:
  • Deferring by up to six months the payment date of amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise
  • Allow businesses on a quarterly reporting cycle to opt into monthly GST reporting in order to get quicker access to GST refunds they may be entitled to
  • Allowing businesses to vary Pay As You Go (PAYG) instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters
  • Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities
  • Working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low interest payment plans.

Prepayments

A prepaid expense may be immediately deductible if:
  • it is ‘excluded expenditure’ or
  • ‘the 12-month rule’ applies

WHAT IS ‘THE 12-MONTH RULE’?

If you are a small business entity, or an individual incurring deductible non-business expenditure you can claim an immediate deduction. You can claim the deduction under the 12-month rule for prepaid expenditure if:
  • the payment is incurred for an eligible service period not exceeding 12 months
  • the eligible service period ends in the next income year.
Prepaid expenditure incurred under certain managed investments (tax shelter arrangements) is not eligible for the 12-month rule. If the 12-month rule does not apply, your deduction for prepaid expenditure is apportioned over the eligible service period or 10 years, whichever is less.

WHAT IS ‘EXCLUDED EXPENDITURE’?

Certain types of expenditure are excluded from the prepayment rules. These are:
  • amounts of less than $1,000 (excluding input tax credits)
  • amounts required to be incurred by a court order or law of the Commonwealth, state or territory
  • payments of salary or wages (under a contract of service)
  • amounts that are capital, private or domestic in nature (except certain research and development amounts)
  • certain amounts incurred by a general insurance company in connection with the issue of policies or the payment of reinsurance premiums.
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