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Australia Budget 2020-21 Delivered Including Individual Income Tax Cuts, Expanded Instant Asset Right-Off, Loss Relief, and Other Measures

On 6 October 2020, Australian Treasurer Josh Frydenberg delivered the country's Budget 2020-21. The main tax-related measures of the Budget include the following:

  • Individual income tax cuts backdated to 1 July 2020, which will be achieved by:
    • bringing forward Stage Two of legislated tax cuts by two years, lifting the 19% threshold from AUD 37,000 to AUD 45,000, and lifting the 32.5% threshold from AUD 90,000 to AUD 120,000; and
    • retaining the Low and Middle Income Tax Offset for an additional year;
  • Further support for businesses in response to the COVID-19 crisis, including:
    • expansion of the instant asset write-off, allowing businesses with turnover up to AUD 5 billion to deduct the full cost of eligible depreciable assets of any value in the year they are installed, with effect from 7:30 pm (AEDT) on 6 October 2020 until 30 June 2022; and
    • loss relief, allowing businesses with turnover up to AUD 5 billion to carry back losses incurred 2019–20, 2020–21, and/or 2021–22 against profits made in or after 2018 19, with the option of electing to receive a tax refund when lodging the 2020 21 and 2021 22 tax returns;
  • Further support through the Research and Development Tax Incentive beginning 1 July 2021, including:
    • for small claimants (turnover less than AUD 20 million), an increase in the refundable R&D tax offset to 18.5 percentage points above the claimant's company tax rate, with no AUD 4 million cap on annual cash refunds;
    • for larger claimants, the intensity test will be streamlined from three to two tiers and the non-refundable R&D tax offset rates will be increased to 8.5 percentage points above the claimant's company tax rate for initial R&D expenditure up to 2% R&D intensity, and 16.5 percentage points above the claimant's company tax rate for R&D expenditure above 2% R&D intensity; and
    • an increase in the cap on eligible R&D expenditure for all claimants from AUD 100 million to AUD 150 million per annum.
  • Expanded access to small business tax concessions by lifting the aggregated annual turnover threshold for these concessions from AUD 10 million to AUD 50 million, which will be applied in three phases:
    • from 1 July 2020:
      • immediate deductions for eligible start-up expenses; and
      • immediate deductions for eligible prepaid expenditure;
    • from 1 April 2021
      • exemption from the 47% fringe benefits tax on car parking provided to employees; and
      • exemption from the 47% fringe benefits tax on multiple work-related portable electronic devices (e.g. phones or laptops) provided to employees;
    • from 1 July 2021
      • simplified trading stock rules;
      • remit pay as you go instalments based on GDP adjusted notional tax;
      • settle excise duty monthly on eligible goods;
      • settle excise-equivalent customs duty monthly on eligible goods;
      • two-year amendment period for income tax assessments for income years starting from this date; and
      • the Commissioner of Taxation will have the power to create a simplified accounting method determination for GST purposes for these businesses;
  • Revision of the corporate residency test to provide that a company incorporated outside Australia will only be treated as an Australian tax resident if it has a significant economic connection to Australia, which is the case where:
    • the company's core commercial activities are undertaken in Australia; and
    • the company's central management and control is located in Australia; and
  • Revision of the list of jurisdictions that have effective information exchange with Australia for the purposes of the reduced withholding tax rate of 15% on distributions made by a managed investment trust (MIT) to investors, which will include the removal of Kenya and the addition of the Dominican Republic, Ecuador, El Salvador, Hong Kong, Jamaica, Kuwait, Morocco, North Macedonia, and Serbia effective 1 July 2021.

For more information, click the following links for the Budget Speech 2020-21 and the Budget Documents webpage.

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