Summary of Tax Changes for 2021

Whilst preparing for yet another fast approaching tax season, it is important to consider the changes implemented by the Government for the 2021 financial year as they may directly impact your upcoming tax obligations. Business Advisor, Ryan Pistola summarises the tax changes for 2021. 

As you may recall from the budget announcement in October, the following changes were implemented:

Loss Carry Back Provisions

Upon the lodgment of their 2020-21 and 2021-22 tax returns, eligible corporate entities will be able to carry back tax losses incurred in the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in the 2018-19 income year or later. This will enable them to claim a refundable tax offset in their 2020-21 or 2021-22 tax returns.

The tax offset will be limited to the lower of:

• Tax paid in the respective years; and
• The extent of franking credits available

Note that this will only apply to businesses trading under a company structure and not those who are making use of a trust, partnership or sole trader structure.

Temporary Full Expensing of Depreciating Assets

Businesses with a turnover below $5 billion will be able to fully deduct the business portion of the cost of eligible new depreciating assets that were first held or installed ready for use between 7.30 PM on 6 October 2020 and 30 June 2022.

Small and medium sized businesses with a turnover of less than $50 million can also apply the temporary full expensing measure to the business portion of eligible second-hand depreciating assets.

Small businesses will also be able to fully deduct the balance of their small business pool at the end of the 2021 and 2022 financial years, meaning that all eligible depreciable assets which had not previously been fully depreciated will be able to be written off.

To claim temporary full expensing, small businesses will need to apply the simplified depreciation rules.

Personal Tax Cuts

Back in October, it was announced that the Government would be bringing forward the legislated stage 2 individual tax changes from the 2022-23 financial year to 2020-21. These changes took effect retrospectively from 1 July 2020 and involved increases to the thresholds of the following tax brackets;

• 19% tax bracket increased from $37,000 to $45,000, and
• 5% tax bracket increased from $90,000 to $120,000

Tax withheld was reduced from individual’s pay from October onwards with the tax adjustments from 1 July 2020 to October to be refunded as part of individual tax returns.

The Government also announced that the maximum Low Income Tax Offset would be increasing from $445 to $700 for the 2020-21 financial year.

In other notable changes, the base rate entity tax rate has reduced from 27.5% to 26% for 2021. Also, the Government extended the ability for employees to use the 80 cent per hour shortcut method for claiming home office expenses, with the method now able to be applied from 1 July 2020 to 30 June 2021.