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Federal Budget 2020-21: Private tax
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Federal Budget 2020-21: Private tax

There has been an increase in the Small Business Entity turnover threshold allowing more medium-sized businesses the ability to access various concessions.

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Small business concessions

The Government has announced an increase in the small business turnover threshold from $10 million to $50 million from 1 July 2020, limited to certain measures. The increase in the turnover threshold will apply to approximately 20,000 businesses. From 1 July 2020, these businesses will become eligible for immediate deductions for certain prepaid expenditure and certain start-up expensesEligible businesses will also be able to access an FBT exemption  on car parking and multiple work-related portable devices provided to employees from 1 April 2021.

From 1 July 2021, these businesses will be eligible to access simplified trading stock rules, to remit PAYG instalments based on GDP adjusted notional tax and settle excise duty and excise-equivalent customs duty monthly on eligible goods. The proposal will also align the small business turnover threshold with the threshold applicable for base rate entities for company tax rate purposes.

The increased threshold will not apply to eligibility for the small business CGT concessions or the small business income tax offset, and it is unlikely that the increased threshold will apply to the simplified depreciation rules or the small business restructure rollover.

The limited two-year amendment period for income tax assessments may also apply to this broader population of business entities. However, this may ultimately be of limited benefit as the standard four-year period will apply to entities that are beneficiaries of trusts that do not carry on a business, as well as in relation to various transactions such as those involving international dealings or the application of Division 7A.

From 1 July 2021, the Commissioner’s power to make Simplified Accounting Method (SAM) determinations will be expanded to these businesses (the current threshold being $2 million where the business makes both GST-free and taxable supplies and does not have adequate point of sale equipment to record their classification). A SAM provides eligible taxpayers with a simplified safe harbour method to work out their GST liability. As larger businesses will generally have better recording systems, it will remain to be seen how the Commissioner will apply these powers to practically reduce the GST compliance burden of these taxpayers.

While any reform for taxpayers in the middle market is welcomed, these measures do not go far enough.  Many of the concessions are basic in nature and do not really provide tax savings or concessional treatment.  As noted above, there are a number of measures that the thresholds do not apply to, which in our view will create complexity within the system and will create further red tapeThe measure is estimated to be delivered at a cost of $105 million, reflecting the small nature of this measure.

CGT exemption for granny flats

The Government has announced a capital gains tax (CGT) exemption for the creation, variation or termination of formal granny flat arrangements that provide accommodation for older Australians or people with disabilities. The CGT exemption will apply only to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements. The exemption will come into effect from the first income year after the legislation receives Royal Assent.

The announcement describes the measure as consistent with the recommendations in the Board of Taxation’s Review of Granny Flat Arrangements. The review also noted problems with the tax treatment of “rent” under such arrangements and accessing main residence relief on disposals. Accordingly, we are hopeful that these issues will be addressed when the measures are drafted.

With the removal of tax impediments to granny flat arrangements, clients in the housing and construction industry may see an increase in demand for such projects.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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