Tax tips for the self-employed and small business
Written by AURA ACCOUNTANTS PTY LTD
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The last few months has no doubt been a challenging one for most small businesses, with Covid-19 hitting us like we could never have imagined!
The ATO has put in place several changes to help eligible businesses with cash flow and prevent a potential crisis. Here is what is on the cards and how you can take advantage of it.
If you are a small or medium business, your company tax rate will reduce from 1 July 2020
Despite the current economic environment, the company tax rate will reduce to 26% for small and medium businesses from 1 July 2020.
The 1 July change is part of a larger progressive plan to reduce the company tax rate to 25% from 1 July 2021 and applies to base rate entities (BRE) – companies, corporate unit trusts, and public trading trusts – with an aggregated turnover of less than $50 million where 80% or less of the entity’s turnover for the year is classified as base rate entity passive income. Larger companies will continue to pay the 30% rate.
*aggregated turnover less than $50m and no more than 80% of the company’s assessable income is base rate entity passive income
The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by some base rate entities.
Increasing the instant asset write-off
From 12 March 2020 until 31 December 2020, the instant asset write-off threshold has increased to $150,000. It is eligible to businesses with an aggregated turnover of less than $500 million.
This covers multiple assets as well and new and second-hand assets.
From 1 January 2021 onwards the instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.
Businesses with an aggregated turnover of less than $500 million are able to accelerate their depreciation deductions on the purchase of certain new depreciable assets.
This applies to new assets acquired from 12 March 2020 until 30 June 2021.
Businesses can access the JobKeeper Payment so they can continue to pay their eligible employees.
A monthly business declaration must be made starting in June, to receive reimbursements for payments made in the previous month.
The payment is open to eligible employers to help them get back on track quickly.
Have casual workers been granted annual leave? News headlines recently stated that casual workers have won the right to paid leave following a decision in the Federal Court. As usual, the devil is in the detail.
At present, there is no global change granting Australian casual workers paid leave. The case however, highlights the long running problem of determining over time, who is a permanent staff member and entitled to paid leave and other benefits, and who is a casual worker entitled to a casual loading.
To be eligible for JobKeeper payments as a casual employee, the individual had to be a long-term casual at 1 March 2020. Casual employees do not qualify unless they meet this condition. For some employers, JobKeeper has ensured that there is now a clear definition of some employees as a long-term casual where JobKeeper payments have been paid.
Long term casuals have additional entitlements to casual employees providing for parental leave (and a guarantee of their job or an equivalent on their return from leave), and the right to request flexible arrangements.
Boosting cash flow for employers
Eligible businesses and not-for-profit (NFP) organisations who employ staff will receive tax-free cash flow boosts of between $20,000 and $100,000, delivered through credits in the activity statement.
Working from home due to COVID-19?
With the increased numbers of taxpayers working from home due to COVID-19, the ATO has released specific guidance softening the rules around claiming deductions for home office expenses, including a ‘shortcut’ set rate method.
Firstly, the ATO has reduced the usual requirements to be ‘eligible’ to claim the expenses, which usually require a specific area set aside for work purposes.
During this period, the ATO is allowing home office expenses to be claimed if:
– The taxpayer is working from home to fulfil their employment duties or to run their business; and
– They are incurring additional running expenses as a result.
To know what you can and cannot claim at tax time this year contact Aura Accountants Pty Ltd.
Business Taxation & Advice, SMSF Administration, Tax & Advice, Individual Tax Advice and SMSF Audit services.