Before you complete your tax return for 2019, there are some changes you should be aware of in case they affect you.
In this section:
- Increasing access to losses
- Research and development tax incentive amendments
- Hybrid mismatch rules
- Changes to the thin capitalisation rules to prevent double gearing structures
- Simplified depreciation rules and medium sized business – instant asset write-off
- Corporate unit trusts and public trading trusts - extension of transitional rule
On 1 March 2019, legislation was enacted that will supplement the current ‘same business test’ for company losses with a more flexible 'similar business test'. The new test will expand access to past year losses when businesses enter into new transactions or business activities.
The similar business test will allow a company to access losses following a change in ownership where its business, while not the same, is similar having regard to:
- the extent to which the assets that are used in its current business to generate assessable income were also used in its former business to generate assessable income
- the extent to which the activities and operations from which its current business is generating assessable income were also the activities and operations from which its former business generated assessable income
- the identity of its current business and the identity of its former business, and
- the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business.
As a test for accessing past year losses, the 'similar business test' will only be available for losses made in income years starting on or after 1 July 2015.
The 'same business test' and the 'similar business test' will be collectively known as the 'business continuity test'.
This measure takes effect in relation to income years starting on or after 1 July 2015. For more information, see New legislation.
- LCR 2019/1 The business continuity test - carrying on a similar business
The government has announced its intention to reform the Research and development (R&D) tax incentive to reward additional investment in R&D while ensuring the integrity and fiscal affordability of the incentive. These changes are expected to apply from the first income year commencing on or after 1 July 2018. For information on the progress of these changes, see New legislation.
The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. After the new law is enacted, you will need to review your position and, if required, seek an amendment.
On the 24 August 2018, legislation was passed implementing the Organisation for Economic Cooperation and Development (OECD) hybrid mismatch rules. The OECD hybrid mismatch rules will apply to income years starting on or after 1 January 2019. However, other than where an importing payment is made under a structured arrangement, the imported mismatch rule will apply to income years starting on or after 1 January 2020.
The hybrid mismatch rules prevent entities that are liable to income tax in Australia from avoiding income tax or obtaining global double tax benefits through hybrid mismatch arrangements that exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.
The hybrid mismatch rules operate to deny a deduction or include an amount in assessable income for payments that give rise to a hybrid mismatch outcome.
On 5 April 2019, legislation was enacted to improve the integrity of the income tax law by modifying the thin capitalisation rules to prevent double gearing structures. Double gearing structures involve the use of multiple layers of ‘flow-through’ entities (such as trusts and partnerships) to issue debt against the same underlying asset.
These changes apply to income years starting on or after 1 July 2018.
The changes will affect entities with interests in trusts (other than public trading trusts) and partnerships, as the threshold for the purposes of the associate entity debt, associate entity equity, and the associate entity excess amounts has been reduced from 50% to 10%.
The changes also affect how the arm’s length debt amount is calculated. To determine both the independent lender and independent borrower amounts of the test, an entity must consider the debt-to-equity ratios of any other entity in which it has an interest.
There have been changes to the instant asset write-off. The threshold has increased to $30,000 and has been extended to 30 June 2020.
The instant asset write-off threshold now includes businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction for the business portion of each asset that costs less than $30,000 (the instant asset write-off threshold) if they are purchased and first used or installed ready for use from 7.30pm (AEDT) 2 April 2019.
For assets purchased for $30,000 or more, the general depreciation rules must be used.
Small business (with a turnover of less than $10 million), can also continue to claim an immediate deduction for the business portion of each asset that costs less than the relevant instant asset write-off threshold that applies.
As a result of the 2016 amendments to repeal Division 6B and modify Division 6C, for income years starting on or after 1 July 2016, some trusts ceased to be taxed as corporate tax entities. Affected trusts are no longer taxed similarly to companies, and distributions from those trusts are not treated as dividends.
Transitional rules for these amendments have recently been extended. A trust that ceased to be taxed as a corporate tax entity as a result of the 2016 amendments will now have until 30 June 2019 to use any surplus in its franking account, provided that the trust meets any imputation system integrity rules.
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