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It is almost the end of the financial year so it is time for businesses to prepare tax and maximise available concessions from the ATO. Here are some legislative changes you need to consider to make sure you get the most from your after-tax return.

Businesses with an aggregated turnover of $5 billion or less can fully expense new assets acquired from 6 October 2020 to 30 June 2023. The Government is extending these measures for 12 months as part of the Federal Budget. Businesses with less than $50 million of aggregated turnover can fully expense any new and second-hand asset. Businesses with less than $10 million of aggregated turnover that are utilising the Small Business Pool need to write off the pool balance in the 2021 FY.

Depreciation

The accelerated depreciation can cause business to go into tax loss position with no future depreciation benefits for existing assets. The SBE Pool users may choose to exit the pool in respect of new assets while non-SBE Pool users may pick and elect individual assets to write off. Any asset held before 6 October 2020 will continue with its existing depreciation rate. These concessions can lower taxable income in the short term but you need to consider the effects on future taxable income and tax implications of selling your assets in the following income years.

Loss carry back concession

The new loss carry back concession is available only to companies and allows taxpayers to offset tax liabilities from 2019, 2020 and 2021 FY against losses in 2020, 2021 and 2022 FY. For a business to be eligible, it must have less than $5 billion in aggregated turnover. The offset can be claimed in the 2021 or 2022 company tax return. This offset is limited to the tax liability amount in the relevant prior year and the franking account balance at year end in which you are claiming the loss carry back

The base rate entity corporate tax rate has lowered to 26% from the 2021 FY and will further drop to 25% in the 2022 FY. Base rate entities are companies with aggregated turnover of $50 million or less and 80% or less of its income is passive. The reduction in corporate tax looks appealing but retained earnings of company will need to eventually be paid out as dividends. A lower tax rate brings about fewer franking credits attached dividends and may cause additional top up tax than had been the case previously so it is important to consider the marginal tax rate of the taxpayer who will be assessed eventually on the dividends. There are important changes to individual marginal tax rates that became effective in the 2021 FY.

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