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  • Overview of key changes

    Key changes and new measures to be aware of when completing your clients' 2021 tax returns include:

    COVID-19 measures and support

    Specific measures and support available for individuals impacted by COVID-19 include:

    • early access to superannuation which is not assessable income
    • the introduction of an optional simplified method to claim 80 cents for each hour you work from home (from 1 March 2020 and extended through to 30 June 2021) to cover all deductible running expenses.

    Measures for businesses and employers impacted by COVID-19 include:

    • Cash flow boost credits – if an employer or business received a cash flow boost credit, the amount is tax free (non-assessable non-exempt income). However, you may need to report the amounts in their tax return for other purposes. Refer to the relevant tax return instructions for business structure for guidance. You are still entitled to claim a deduction for the PAYG withholding paid.
    • The COVID-19 Disaster Payment – Services Australia administered this payment due to the Greater Melbourne lockdowns in the 2020-21 income year. This payment been reclassified as non-assessable non-exempt income and if you’ve already lodged your clients' tax return, you will need to lodge an amendment.
    • Assets – Temporary full expensing of depreciating assets – and Enhanced instant asset write off for assets first used or installed ready for use between 12 March 2020 until 30 June 2021 and purchased by 31 December 2020.
    • Backing business investment – accelerated depreciation – for businesses with an aggregated turnover of less than $500 million to accelerate depreciation deductions on the purchase of certain new depreciable assets.
    • JobKeeper – businesses may have been eligible to receive JobKeeper Payment for  
      • eligible employees
      • an individual who is an eligible business participant.

    Any amount received is assessable income of the business.

    See also:

    JobMaker Plan – bringing forward the Personal income tax plan

    The government brought forward stage 2 of the Personal income tax plan from 1 July 2022 to 1 July 2020 as part of the 2020–21 federal Budget.

    Tax cuts in stage 2 of the Personal income tax plan apply from 1 July 2021 as follows:

    • the upper limit of the 19% personal income tax bracket was raised from $37,000 to $45,000
    • the upper limit of the 32.5% personal income tax bracket was raised from $90,000 to $120,000.

    Low income tax offset increased

    The low income tax offset (LITO) increased to $700 from 1 July 2020.

    Extending the low and middle income tax offset (LMITO)

    The government also announced in the 2021–22 federal Budget that the low and middle income tax offset will continue to be available for the 2021–22 income year. This change is not yet law.

    Find out more at JobMaker Plan – bringing forward the personal income tax plan

    Tax incentives for investment in affordable housing

    Australian resident individuals who provide affordable rental housing to people earning low to moderate income can claim an additional affordable housing capital gains discount of up to 10%. To qualify for this additional discount, they must have provided qualifying affordable rental housing through a registered community housing provider:

    • on or after 1 January 2018 for a period, or periods, totalling in aggregate at least three years (1,095 days), and
    • either directly or through an interposed entity from a trust or managed investment trust. The interposed entity or trust may be a trust or partnership, other than a public unit trust or super fund.

    Find out more at CGT discount for affordable housing

    Loss carry back

    The government announced targeted support to businesses and encouraging new investment through a loss carry back regime. Eligible corporate tax entities that previously had a liability to pay corporate income taxes in a relevant year and have subsequently made a tax loss can claim a refundable tax offset.

    The measure interacts with the government's JobMaker Plan – temporary full expensing to support investment measure. This allows new investment to generate tax losses which can be carried back to generate a refundable tax offset for eligible businesses.

    Eligible corporate tax entities with less than $5 billion aggregated turnover in a relevant loss year (or the income year before that year) can carry back a tax loss made in 2019–20, 2020–21 or 2021–22 to a prior income year's income tax liability in 2018–19, 2019–20 or 2020–21.

    The amount of the offset that may be generated is limited by the corporate entity’s:

    • income tax liabilities in the relevant gain years, and
    • franking account balance at the end of the year in which the entity lodges its tax return claiming the offset (the 2020–21 or 2021–22 income year).

    Find out more at Loss carry back tax offset

    Temporary full expensing of depreciating assets

    The government announced a temporary full expensing incentive to support businesses and encourage new investment.

    Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets. Corporate tax entities unable to meet the $5 billion turnover test may be eligible for temporary full expensing under the alternative income test. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7:30pm AEDT on 6 October 2020 and 30 June 2021. This date is extended to 30 June 2022 pending royal assent.

    For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.

    Businesses can also immediately deduct the business portion of the cost of improvements to eligible depreciating assets (and to assets acquired before 7.30pm AEDT on 6 October 2020 that would otherwise be eligible assets) if those costs are incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

    If an asset qualifies for an immediate deduction under temporary full expensing in an income year, you can choose not to apply temporary full expensing and to claim a deduction using other depreciation rules. However, you must notify us in an approved form (such as using the new items on the company tax return) that you have chosen not to apply temporary full expensing to the asset. Your choice cannot be changed and you must notify us by the day you lodge the tax return for the income year to which the choice relates.

    If you are a small business that chooses to use the simplified depreciation rules, you cannot opt out of temporary full expensing.

    See also:

    Backing business investment

    For 2019–20 and 2020–21, eligible businesses can deduct the cost of eligible new depreciating assets at an accelerated rate using the Backing business investment – accelerated depreciation rules.

    For each eligible new asset, the Backing business investment – accelerated depreciation deduction applies in the income year the asset is first used or installed ready for use for a taxable purpose.

    You claim the deduction when lodging your tax return for the income year. The usual depreciating asset arrangements apply in subsequent income years the asset is held.

    If you are eligible for Backing business investment – accelerated depreciation, you can choose to not apply these rules on an asset-by-asset basis but your choice cannot be changed once made. You make the choice in your tax return for the income year in which the choice relates. You must notify us by the day you lodge your tax return.

    If you are a small business that chooses to use the simplified depreciation rules, you cannot opt out of Backing business investment – accelerated depreciation.

    See also:

    Enhanced instant asset write-off

    If a depreciating asset is not eligible for temporary full expensing or if you opt out of temporary full expensing, the enhanced instant asset write-off rules continue to apply to eligible businesses and eligible assets.

    However, the time by which the asset must be first used, or installed ready for use, to qualify for the enhanced instant asset write-off has been extended until 30 June 2021. This is provided the asset was purchased by 31 December 2020.

    The instant asset write-off threshold for each asset increased to $150,000 and eligibility extends to businesses with an aggregated turnover of less than $500 million.

    Find out more at Instant asset write-off for eligible businesses

    Small business entities using the simplified depreciation rules

    The instant asset write-off changes also apply to small businesses using simplified depreciation. In addition, a small business using simplified depreciation must deduct the balance of their general small business pool for an income year ending between 6 October 2020 and 30 June 2022.

    For a small business entity which chose to use simplified depreciation, the temporary full expensing rules with some modifications apply. It cannot opt out of temporary full expensing for assets to which the simplified depreciation rules apply.

    If instant asset write-off and temporary full expensing do not apply to an asset of a small business using simplified depreciation, the backing business investment rules may apply to the asset. If backing business investment rules do apply to the asset of a small business using simplified depreciation, it cannot opt out of those rules.

    The provisions that prevent small business entities from accessing the simplified depreciation regime for five years if they opt out of that regime continue to be suspended for income years that include 30 June 2021 and 30 June 2022.

    A small number of assets are specifically excluded from the simplified depreciation rules. For these assets, you must use the general depreciation rules.

    Find out more at Simpler depreciation for small business

    Increasing the small business turnover threshold for certain concessions from $10m to $50m.

    The government extended certain small business concessions to businesses with an aggregated turnover of less than $50 million.

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

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

    Find out more at Expanded access to small business concessions

    Change in tax rate for base rate entities

    The corporate tax rate for base rate entities for 2020–21 has reduced to 26%.

    Find out more at Base rate entity company tax rate

    Merging super funds

    The temporary tax relief for merging super funds is now permanent. Under tax relief Division 310 of the Income Tax Assessment Act 1997 merging complying super funds can, subject to certain conditions:

    • transfer revenue and capital losses
    • defer tax consequences on gains and losses from revenue and capital assets.

    From 1 July 2020 the temporary tax relief for merging super funds was made permanent. Since December 2008, tax relief under Division 310 of the Income Tax Assessment Act 1997 has been available for merging complying super funds to transfer revenue and capital losses, and to defer tax consequences on gains and losses from revenue and capital assets, subject to funds meeting certain conditions.

    Find out more at Successor fund transfer reporting

    No-TFN tax offset and successor funds amendment

    Successor funds may now claim the no-TFN tax offset in an income year for no-TFN contributions income tax previously paid by the original fund where:

    • the original fund paid tax in any of the previous three income years or relevant part years for an amount of no-TFN contributions income of a member
    • the member had never quoted their TFN to the earlier fund, and
    • the member has quoted their TFN to the successor fund for the first time in the income year.

    The amendment applies from the 2020-21 income year, meaning that superannuation providers that are a successor fund who have a TFN quoted for the first time in the 2020-21 income year may be able to claim the tax offset for tax paid on no-TFN contributions income by the original fund from the 2017-18 income year.

    Closure of eligible rollover funds

    The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020, that facilitates the closure of eligible rollover funds (ERF) has passed and received royal assent on 22 March 2021.

    The reporting and payment of ERF accounts will be due and payable by:

    • 30 June 2021 – for ERF low balance accounts (less than $6,000)
    • 31 January 2022 – for all other accounts held by ERFs.

    Changes to the significant global entity (SGE) definition

    The significant global entity (SGE) definition has been broadened to ensure that it applies consistently across all types of entities. This is irrespective of whether they are a member of a group that is consolidated for accounting purposes.

    An entity is an SGE for a period if any of the following apply:

    • it is a global parent entity with an annual global income of A$1 billion or more
    • it is a member of a group of entities consolidated for accounting purposes, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more
    • it is a member of a notional listed company group, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more
    • it, or any other member of the actual or notional accounting consolidated group of which it is a member, has been given a notice by the Commissioner of Taxation determining that its global parent entity would have an annual global income of A$1 billion or more for any period during the income year.

    A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group was a listed company. Any exceptions in accounting principles that may permit an entity not to consolidate with other entities are disregarded.

    A super fund's SGE status must be recorded in its tax return.

    Find out more at Significant global entities

    Changes to the country-by-country (CBC) reporting entity definition

    The scope of an SGE is now wider than the scope of entities required to undertake CBC reporting. A new definition of ‘country-by-country reporting entity’ (CBC reporting entity) has therefore been introduced.

    In effect, a CBC reporting entity is an entity that would be an SGE, had the definition of an SGE permitted the exception to consolidation related to investment entities in the accounting principles.

    An entity is a CBC reporting entity if:

    • it is not an individual, and
    • is either  
      • a CBC reporting parent
      • a member of a CBC reporting group, and one of the other group members is a CBC reporting parent with an annual global income of A$1 billion or more.

    A CBC reporting group may be, for accounting purposes:

    • a single group, or
    • a notional listed company group.

    A CBC reporting group may be a group that is consolidated for accounting purposes as a single group, or a notional listed company group.

    A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group was a listed company.

    When determining whether an entity is a CBC reporting entity, apply the investment entity exception in the accounting principles. That is, unlike the SGE definition, the exception to consolidation in the accounting principles related to investment entities is not disregarded.

    If an entity is a CBC reporting entity, it will have CBC reporting obligations. CBC reporting obligations depend on whether an entity was a CBC reporting entity at any time in the preceding income year.

    The CBC reporting entity status must be recorded in the Attribution managed investment trust (AMIT) tax return.

    Find out more at Country-by-country reporting

    Last modified: 11 Aug 2021QC 45404