With the closing of the 2020/2021 financial year on the horizon, it’s time to educate yourself on the reforms that happened to our tax system before letting the year close out.
From wage subsidies to JobKeeper, JobSeeker, and incentive schemes, there were plenty of changes and updates that took place in the wake of COVID-19. These pledges were made by the government to aid businesses during uncertain times, while also creating jobs and propping up the economy.
Many of these changes fall in the 20/21 financial budget and may provide some much-needed support for your trades business — provided you know how to take advantage of these. We’ve outlined some of the main tax tips for trades in 2021 for your convenience.
Disclaimer: The below information is general in nature and is not intended as financial advice. Be sure to seek advice and review your lodgements with your accountant to ensure you are maximising your outcomes.
Changes to depreciating assets and asset write-offs
The Government has introduced changes to the way assets are expensed for the 2020-21 financial year.
Eligible businesses can benefit from:
- Temporary full expensing of depreciating assets
- Accelerated depreciation of eligible assets
- Instant asset write-off
Keep in mind that you can only choose one of the above when dealing with assets. We dive into each one in more detail below.
A) Temporary full expensing of depreciating assets
If you purchased a new depreciating asset (such as computers, electronic tools, furniture, vehicles) in the last six months, or plan to do so in the next year and a half, you may be eligible for temporary full expensing. This allows you to immediately deduct the business portion of the cost of assets this financial year.
To meet the criteria, these assets need to be first held and first used, or first installed and ready for use between 7:30PM AEDT on 6 October 2020 and 30 June 2022.
Temporary full expensing also applies to the business portion for second-hand depreciating assets, and the cost of any improvements made to assets that would have been eligible, except for the fact that you held them before 7.30pm AEDT on 6 October 2020.
B) Accelerated depreciation of eligible assets
In addition to the temporary full expensing of depreciating assets, you may be able to claim an accelerated depreciation deduction for the 2020-21 income tax year. This deduction was already introduced and available during the 2019-2020 financial year, and allows businesses to deduct the cost of new depreciating assets at an accelerated rate under the rules stated in the backing business investment — accelerated depreciation rules.
There are different criteria for small businesses with a turnover under $10 million compared to other businesses, as well as for passenger vehicles, and research and development.
C) Instant asset write-offs for trades
In March 2020, the Government announced an update to instant asset write-offs. The threshold amount for each asset has been increased from $30,000 to $150,000, and you now have until 30 June 2021 to either first use your asset, or install the asset ready for use (given the asset is purchased by 31 December).
More support for apprentices or trainees
New JobMaker hiring credit
The JobMaker hiring credit supports job growth for those aged under 35. As part of the scheme, businesses that take on additional employees between 7 October 2020 and 6 October 2021 will receive $200 per week if they hire an eligible employee aged 16 to 29 years, or $100 per week if they hire an eligible employee aged between 30 to 35 years.
Eligible employees need to work a minimum average of 20 hours a week and have received either JobSeeker, Youth Allowance, or Parenting payment in the months before being hired. Employers also need to demonstrate that the new employee will increase overall headcount and payroll, using your headcount from 30 September 2020.
The credits can be claimed with the ATO in arrears from 1 February 2021.
Additional schemes for apprenticeships
If you’re hiring an apprentice in 2021, good news — there’s plenty of Government assistance to support you.
To help businesses take on new employees, the Government has introduced the Boosting Apprenticeship Commencements. This measure supports businesses that hire an Australian apprentice with a subsidy of up to 50% of wages between 5 October 2020 and 30 September 2021. Boosting Apprenticeship Commencements is only available for apprentices engaged on or after 5 October 2020, and employers can claim a maximum of $7,000 per quarter.
Employers can also benefit from the Supporting Apprentices and Trainees program. Eligible small and medium-sized businesses can apply for a wage subsidy of half of an apprentice or trainee’s wage for 9 months for the period between 1 January 2020 to March 2021.
Although it’s not technically counted as one of the Government’s small business incentives, JobTrainer is a valuable program to keep an eye on if you want to upskill your team. JobTrainer is a $1 billion fund that equips young people with the skills they need for in-demand jobs. Some of the diplomas, certifications and courses on offer include trades such as bricklaying, construction, plumbing, project management, tiling, and truck driving.
Places are rolled out on a state-by-state basis. A list of full courses on offer is available on the JobMaker website.
Tax rate offsets and changes
Lower company tax rate changes
This may be one of the biggest trades business tax wins for the financial year. For companies that are base rate entities, the income company tax rate has been reduced to 26% in the 2020-21 income year, and will be reduced further to 25% for 2021-22. This is a reduction from the 27.5% applied in 2017-18 through to 2019-20.
Your business may be eligible for this tax rate if you have an aggregated turnover that’s less than $25 million for the 2017-18 income year and $50 million from the 2018–19 income year. Read more on the changes to base rate entity tax rates here.
Increased small business income tax offset
Small businesses and sole traders can benefit from an increased income tax offset in the 2020-21 and 2021-22 income year. The income tax offset, which was previously at a rate of 8% with a limit of $1,000 every year, has increased to 13% for 2020-21 and 16% from 2021-22. The maximum limit remains the same.
The offset is calculated based on your tax payable as a proportion of your total net income as a small business:
Image source: ATO.gov.au
The ATO has some handy information on the small business income tax offset on their website, including a full list of eligibility criteria, a guide for calculating and claiming your offset, and information for sole traders.
New and enhanced Fringe Benefits Tax (FBT) concessions
Ahead of the Federal Budget announcement last year, the Government also announced it would be cutting red tape for small businesses with new or enhanced FBT exemptions. These include:
- A new FBT exemption for employers who provide retraining or reskilling for employees whose roles were made redundant. This exemption came into effect on 2 October 2020.
- An increased aggregated turnover threshold for the FBT car parking exemption. Small businesses with an aggregated turnover of less than $50 million can apply this exemption to parking on the employer’s premises. This exemption was previously only available to those with an aggregated turnover of less than $10 million, and comes into effect on 1 April 2021.
- An increased turnover threshold for the FBT work-related devices exemption, which makes work-related portable electronic devices exempt from FBT. Previously this exemption could only be accessed by small businesses with less than $10 million aggregated turnover, but has been expanded to those with an aggregated turnover of less than $50 million from 1 April 2021.
Temporary loss carry-back scheme
The temporary loss carry back regime provides temporary cashflow support for companies that have found themselves in a tax loss position, either as a result of the pandemic or by using the new instant asset write-off measures. As part of the regime, companies that have made taxable losses can claim a refundable tax offset up to the amount of their previous income tax liabilities. More information on the plan is available on the ATO website, or via your regular accountant.
Hopefully this outline has provided some general information to discuss with your accountant come tax time for this financial year.
Latham Australia is an Australian, family-owned and operated business with over 60 years experience in selling the best locally manufactured safety stair and flooring products. View our product range here.