EOFY: Ten tax changes from July 1 that small businesses need to know about

The only constant about tax is change. Here are some of the tax changes coming into play from July 1, 2020:

1. Company tax rate for small business reduced
2. Changes to CGT for expats with Australian properties
3. Single Touch Payroll begins for closely held businesses
4. Instant asset write-off extended
5. Spouse contributions into super
6. Minimum drawdown for account-based pensions reduced
7. Early access to super – second instalment
8. Superannuation work test age proposal
9. Non-concessional bring-forward rule changes
10. R&D tax incentive reduction proposal

Company tax rate for small businesses reduced

The corporate tax rate for small and medium companies with turnover under $50 million will reduce to 26% in the 2020-21 year, from the current 27.5%. This rate will reduce further to 25% in 2021-22. Companies that have passive income (such as interest income, rent, royalties, dividend income and net capital gains) constituting more than 80% of their assessable income are taxed at 30% regardless of their size.

Changes to CGT for expats with Australian properties

From July 1, 2020, foreign residents who own houses that they previously lived in while they were in Australia will no longer be able to claim the main residence CGT exemption when they subsequently sell. This means that a hefty capital gains tax bill will accrue from the time the owner purchased their home, rather than the point at which they moved overseas (plus up to a further six years when they rented the place after being their home).

Single Touch Payroll begins for closely held businesses

From July 1, 2020, closely held payees — someone who is directly related to the entity (such as family members, directors or shareholders) — will need to start reporting through Single Touch Payroll (STP).

Instant asset write-off extended

Previously earmarked to change on 1 July 2020, the $150,000 threshold for the immediate write-off for assets acquired by businesses with aggregated turnover of less than $500 million has been extended. It will now revert back to $1,000 for small businesses with an aggregated turnover of less than $10 million on January 1, 2021.

Spouse contributions into super

From July 1, 2020, the age limit for spouse contributions into superannuation will increase from 69 to 74 years.

Minimum drawdown for account-based pensions reduced

To assist retirees with minimising the amount of funds they need to withdraw out of their retirement savings whie the stockmarket is at its lows due to COVID-19, the government has temporarily reduced the minimum drawdown requirements for account-based pensions by 50% for the 2019-20 and 2020-21 years.

Early access to super – second instalment

For those who were financially affected by the COVID-19 pandemic and accessed up to $10 000 of their superannuation in the 2019–20 year, they can also access a further $10 000 in the 2020-21 year by 24 September 2020.

Superannuation work test age proposal

In changes proposed in the 2019 federal budget, the government plans on allowing people aged 65 and 66 to make voluntary contributions into superannuation without having to meet the work test. Those aged between 67 and 74 years must work a minimum of 40 hours in a 30-day period in the income year if they wish to make a voluntary contribution into super. At the time of writing, this proposal is not yet law.

Non-concessional bring forward rule changes

Like the superannuation work test, the government has also proposed that from July 1, 2020, people aged under 67 at any time during a financial year (eg. age 65 or 66) will be able to trigger the non-concessional bring-forward rule. The ability to use the bring-forward rule will remain subject to the member’s total superannuation balance on June 30 prior to the financial year of the contributions. If your superannuation balance is no more than $1.4 million, you can bring forward two years’ worth of contributions, giving you a maximum non-concessional contributions cap of $300,000 in the current year (with nothing in the following two years if the whole amount is contributed in the first year of the period), rather than a $100,000 cap in each of the three years. At the time of writing, this proposal is not yet law.

R&D tax incentive reduction proposal

In changes proposed in the 2018 federal budget, the government plans on reducing the research and development tax incentive from a 43.5% refundable tax offset to a premium of 13.5% above the claimant’s company tax rate (that is, 39.5%) for companies with an annual turnover less than $20 million, as well as placing a $4 million annual cap on cash refunds. At the time of writing, this proposal is not yet law.

One proposed law change on 1 July 2020 that won’t happen: Division 7A loans from private companies

In changes proposed in the 2016 federal budget, the government planned on making substantial changes to the rules around private company loan arrangements from July 1, 2020, including:

• a) changing the interest rate from the RBA’s ‘Indicator Lending Rates — Bank variable housing loans interest rate’ benchmark rate (currently 5.37%) to a ‘Small business; Variable; Other; Overdraft ‑ Indicator’ lending rate published by the RBA at the start of each year (currently 6.57%);
• b) revising the term of loans to a maximum of 10 years (from seven years for unsecured loans and 25 years for secured loans);
• c) changing to equal repayments over the term of the loan;
• d) changing the way that interest is calculated to the full income year regardless of any payments being made during the year (except in year 1); and
• e) no longer requiring formal written loan agreements.

At the time of writing, this proposal is not yet law and likely to be deferred for another 12 months due to parliamentary delays caused by COVID-19.

This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.

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