Temporary full expensing: extended to 30 June 2023
The Government will extend the temporary full expensing measure until 30 June 2023. It was otherwise due to finish on 30 June 2022.
Other than the extended date, all other elements of temporary full expensing will remain unchanged. The measure allows eligible businesses to deduct the full cost of eligible depreciating assets, as well as the full amount of the second element of cost. A business qualifies for temporary full expensing if it is a small business (annual aggregated turnover under $10 million) or has an annual aggregated turnover under $5 billion. Annual aggregated turnover is generally worked out on the same basis as for small businesses, except the threshold is $5 billion instead of $10 million.
Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
Loss carry-back extended by one year
Under the temporary, COVID driven, restoration of the loss carry back provisions announced in the 2020-21 Budget, an eligible company (aggregated annual turnover of up to $5 billion) could carry back a tax loss for the 2019-20, 2020-21 or 2021-22 income years to offset tax paid in the 2018-19 or later income years.
The Government will extend the eligible tax loss years to include the 2022-23 income year. Tax refunds resulting from loss carry back will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns.
This will help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position as a result of the COVID-19 pandemic. Temporary loss carry-back also complements the temporary full expensing measure by allowing more companies to take advantage of expensing, while it is available.
Intangible assets depreciation: option to self-assess effective life
The Budget confirmed that the income tax law will be amended to allow taxpayers to self-assess the effective life of certain intangible assets (such as intellectual property and in-house software), rather than being required to use the effective life currently prescribed.
This amendment will apply to patents, registered designs, copyrights and in-house software for tax purposes. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life to the statutory life.
The self-assessment of effective lives will apply to eligible assets acquired following the completion of temporary full expensing (introduced in the 2020-21 Budget — ie to assets acquired from 1 July 2023).
Extended consultation on corporate tax residency rules
In the 2020-21 Budget, the Government announced that it would amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
The Government has now announced that it will consult on broadening this amendment to trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency amendment.
The amendments, as they affect companies incorporated offshore, will have effect from the first income year after the date the enabling legislation receives assent, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew an earlier ruling). It not known whether the same arrangements will apply for the start date for trusts and corporate limited partnerships should they be brought under the new rules.
Small business to be able to pause disputed ATO debt recovery
The Government will introduce legislation to allow small businesses to pause or modify ATO debt recovery action where the debt is being disputed in the AAT. Specifically, the changes will allow the Small Business Taxation Division of the AAT to pause or modify any ATO debt recovery actions – such as garnishee notices and the recovery of GIC or related penalties – until the underlying dispute is resolved by the AAT. This measure is intended to provide an “avenue” for small businesses to ensure they are not required to start paying a disputed debt until the matter has been determined by the AAT.
Small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year will be eligible to use the option. The AAT will be required to “have regard to the integrity of the tax system” in deciding whether to pause or modify the ATO’s debt recovery actions.