Running a Business - Whats New for 2021 FY

Discussion in 'Accounting & Tax' started by Mike A, 10th Feb, 2021.

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  1. Mike A

    Mike A Well-Known Member

    Joined:
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    What's New for 2021

    Increase the small business entity turnover threshold

    - A new measure has provided an extension to certain small business concessions to those entities that have an aggregated turnover of less than $50 million per annum. The tax concessions will apply from 1 July 2020 or 1 July 2021, and the Fringe Benefits Tax (FBT) related exemptions will apply for eligible businesses in respect of benefits provided on or after 1 April 2021.

    - From 1 July 2020 newly eligible businesses can immediately deduct:

    • certain start-up expenses – for example, professional expenses and legal and accounting advice; and
    • Certain prepaid expenditure where the payment covers a period of 12 months or less that ends in the next income year.

    - From 1 July 2021 newly eligible businesses have access to another range of SBE concessions. For more information see the link in the background information at the end of this section.

    Tax rate changes for base rate entities

    From 1 July 2020 the tax rates for Base Rate Entities (SBE entities with an aggregated turnover of less than $50 million) has changed, a tax rate of:

    26% applies for the 2020 - 2021 income year: and
    25% applies for the 2021 - 2022 income year.

    Instant asset write-off

    For businesses with an aggregated turnover less than $500 million, an immediate deduction is available for an asset costing less than $150,000 acquired and first used or installed ready for use from 12 March 2020 to 31 December 2020. The asset must:
    • be acquired by 31 December 2020; and
    • be first used or installed ready for use by 30 June 2021.

    Temporary full expensing of depreciating assets

    Businesses with an aggregated turnover of up to $5 billion, may be eligible to immediately deduct 100 per cent of the cost of eligible depreciation assets from 7.30 pm AEDT on 6 October 2020 until 30 June 2022.

    Eligible Entities

    Eligible entities are entities which satisfy the definition of a small business entity (SBE), including the requirement that they carry on a business, assuming that the annual aggregated turnover threshold was $5 billion instead of $10 million.

    Entities with a turnover of $50 million or more:

    • cannot fully deduct the cost of an asset where the entity had made a commitment to purchasing the asset prior to the budget
    announcement; and
    • cannot fully deduct the cost of a second-hand asset.

    Eligible Assets

    An asset is eligible for full expensing if from 7.30 pm AEDT on 6 October 2020 until 30 June 2022 the entity:

    • starts to hold the asset; and
    • starts to use the asset, or have it installed ready for use, for a taxable purpose.

    An asset is not an eligible asset if:

    • the asset undergoes a balancing adjustment in the income year; or
    • the capital allowances rules outlined Div. 40 of the ITAA 1997 do not apply to it; or
    • the asset is not used or located in Australia for the principal purpose of carrying on a business; or
    • the expenditure is allocated to a low-value pool or a software development pool; or
    • the expenditure is deductible to the entity or another entity under the primary production depreciation rules in Subdiv. 40-F of
    the ITAA 1997.

    Opting out of temporary full expensing and Backing Business Investment (BBI) Measures

    Entities are now allowed to make an irrevocable choice to opt out of temporary full expensing and the BBI incentive on an asset-by-asset basis.

    This is not available to small business entities (SBE) depreciates assets under the SBE capital allowances rules in Subdiv 328-D of the ITAA 1997. The temporary full expensing provisions only apply to entities which use the ‘normal’ depreciation rules in Div 40 of the ITAA 1997. Therefore SBEs can only opt out of full expensing where they have opted out of Subdiv 328-D and depreciate under Div 40 for the income year.

    Be aware that a new alternative tests exist for some entities which were excluded under the original rules. For more information see the link in the background information at the end of this section.

    Suspension of "Lockout rules"

    The ‘lockout rules’ that prevent SBEs from accessing the simplified depreciation regime for five years after they opt-out of that regime will continue to be suspended for the 2020/21 and 2021/22 income years.

    Increased small business income tax offset

    The small business tax offset increases to 13% in 2020–21 and to 16% from the 2021–22 income year

    Temporary loss carry-back

    Eligible corporate tax entities can elect to ‘carry back’ a tax loss incurred in the 2019–20 to 2021–22 income years and offset it against the income of the 2018–19 or later years. The result is a refundable tax offset in assessments for the 2020–21 and 2021–22 income years.

    Eligible Entities

    To be eligible for the temporary loss carry-back measures an entity:
    • must be a corporate tax entity; and
    • is a small business entity (SBE) for the income year; or
    • would be an SBE for the income year if the SBE annual aggregated turnover threshold was $5 billion instead of $10 million.

    Eligible Losses

    The loss carry-back provision only applies to taxable losses, not capital losses. Additional losses which cannot be carried back:

    • losses which have been transferred between companies in the same foreign banking group;
    • losses which have been transferred by a joining entity to the head company of a consolidated group;
    • losses which arose as a result of excess franking offsets.

    Losses are limited to the lesser of the following amounts:

    1) The sum of the ‘loss carry back tax offset components’ for:
    • the 2018-2019 income tax year; and
    • the 2019-2020 income tax year; and
    • if the current year is the 2021–22 income year — the 2020–21 income year.

    2) The company’s franking account balance at the end of the current year.
     
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
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    Location:
    Sydney
    STP (Single Touch Payroll) use is also now expanding after receiving a pause during COVID and closely held entities (ie family company) will become impacted if they have not yet adpted use. As a GENERAL guide:

    All employers must report and pay payroll using Single Touch Payroll compliant software. This is usually a integrated included element of accounting software and stand alone "free" alternatives may be a poor compliace choice. Employers who pay salary and wages which covers a broad range of payment types to anyone (including a closely held party or associate) which is not reported and paid under the PAYG withholding system are denied tax deductions. Paying staff in cash may expose the employer to a liability for tax not withheld as well. Detection risks are incraesing (explained in a subsequent post to this thread) Practices like paying Directors fees may pose a concern.

    The ATO has just announced a confusing and complex STP range of alternatives for closely held entities (eg Mum and Dad type companies). In my opinion STP compliance using approved software may be a preferred solution.

    Employers of any type should consider seeking tax advice if the above is not something they use. Just yesterday I encountered one with major compliance risks who claims he didnt know anything and his accountant had never mentioned it.

    Superannuation Contributions

    The ATO is now actively using real time STP data to identify unpaid super. This process appeared to be in trial prior to 30 June 2020 but is now believed to be expanded and post-COVID is being used to pursue unpaid contributions. The ATO maintain a employer and a employee unpaid super account that is of limited visibility to agents and taxpayers. The ATO has additional visibility. When STP data is reported to the ATO the ATO create a notional contribution account and then use a variety of data to clear the unpaid amount eg Clearing houses and fund reported amounts. The ATO seems less concerned with late contributions at this time but a few recent enquries have indicated the ATO is using real data to pursue unpaid amounts and equire as to why the Commissioner should not assess the value of unpaid contributions.

    Reminder ; Late paid contrbutions may lose tax deductibility. and also may be a matter that the Commissioner can recover to any (or all) Directors using a Directors Penalty Notice. And "self employed" persons have no exception other than sole traders, some trust beneficiaries not being paid wages or partners in partnership.

    ASIC and ATO identity Changes (Of particular note for advisers)
    On Monday 8 Feb ASIC initiated some changes that were not pre-warned to asic agents and advisers. These mostly impact pheonixing. It also signals some vast changes to governmnet database use.

    Changes to company names used to only change the company itself. Any other companies which had shareholding also had to prepare and lodge form 484's to change shareholder details. After having lodgements rejected early Monday ASIC advised that the change was implemented MOnday. Now shareholder will automatically update for all companies when a company shareholder name changes. Form 484's are rejected. Instead an ASIC agent can dowenload the new shareholder data and it updates. This is a integrity matter to stop falsification of identity data. It has a pheonixing relates concern when companies change names in a circuit and also shadow or false identification eg "straw men" and could be indicators of criminal or tax offences. The ACN is now the primary identifier for company shareholders. This is a element of a pending rollout of a unique identifier which will apply to all shareholders and Directors. Like a TFN but specific to link matters by ASIC. And it use could be public data unlike a TFN so ATO detection of share trades could also be better captured with and without TFNs. The indentier is a "data tag" that the ATO can match to a TFN. My understanding is when it is implemented a large % of "matched" indentities will be advised their number. Others will need to complete a process to correct and receive their validated identifier. False identies are an apparent target of this process.

    On lodgement of the above name change I also noted a new ATO process change. The company name change imemdiately reflected into the ATO for the taxpayer TFN and also the Australian Business Register. I suspect that a greater database commonality will occur between ASIC and the various ATO mechanisms so that a undate to ASIC ripples through to the ATO. This is both a integrity measure and also a detection issue. It certainly makes sense and has made matters very simple. I could expect the ATO have a process or will implement one to "map" a whole of taxpayer view of related issues both present and historical. eg Directorships, Shareholdings etc. The shareholding will be limited for public companies to only the Top 20 shareholders but the identifier may be forced on all brokers so it is good as a TFN. When matched with banking data this could have some strong detection risks. I have aleady seen examples of clients ATO records showing transaction volume data and links to bank accounts in ATO reports. eg One had data showing banking credits to a merchant facility and also to a business transaction account and was in real time being data not older than a few days. It has since disappeared.

    Just as facebook seems to "pick" your contacts through a variety of means the ATO are too.
     
    Last edited: 11th Feb, 2021
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