Our Comprehensive Guide to the 2020 Federal Tax Incentives and Opportunities

Finlease-Federal-Tax-Incentives

By this point, you’ve probably read about or heard of the depreciating assets tax incentive and the “carry back” tax opportunity announced in the Australian Federal Government’s 2020 Budget on the 6th of October. Even if you haven’t you don’t need to worry! We’re about to give you the only explanation you need to understand how the tax incentives apply to you.

Long time friends of iSeekplant, Finlease, the equipment finance experts, have broken down the massive 2020 Temporary Full Expensing of Depreciating Assets and Temporary Loss “Carry Back” tax incentives into explanations even our marketing interns understand. To make matters even easier they’ve provided 3 generic case studies as examples!

These incentives have been announced to ensure the economy keeps moving as much as possible throughout the continued difficulties of COVID-19 and the national recession. The two tax incentives we’ll cover off are designed to encourage investment, both supporting manufacturers and the businesses requiring assets.

With federal, state and local governments pushing infrastructure projects quickly up the pipeline, industrial businesses across the country have an opportunity to invest now in new assets to have them ready in time for project commencements.

The Temporary Full Expensing of Depreciating Assets Tax Incentive

While the explanation of the incentive is in its name, the team at Finlease have highlighted the key criteria needing to be met by businesses - as well as the different levels of support provided to businesses depending on their yearly turnover. This is crucial to understanding how this tax incentive will help you and your business continue to grow in the current economic climate.

The Criteria For Full Expensing Includes:

  • Businesses are able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.
  • Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For SMEs (with turnover < $50m pa), full expensing also applies to second-hand assets.
  • Businesses (turnover $50 - $500m pa) can still deduct 100% of eligible second-hand assets costing < $150K ex GST that are purchased by 31 December 2020 and first used or installed by 30 June 2021.
  • Small businesses (turnover < $10m pa) can deduct the balance of their simplified depreciation pool at the end of 2021 and/or 2022. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Full Expensing Explained In Regard To Business Yearly Turnover

Business Turnover
(per year)
Expensing Available Expensing Available Expensing Available Case Study
Example
  Oct 6 – Dec 31
2020
Jan 1 – June 30
2021
July 1 – June 30
2021-2022
 
$0 - $10 million SIMPLIFIED DEPRECIATION POOL

Write-off 100%
of the balance
SIMPLIFIED DEPRECIATION POOL

Write-off 100%
of the balance
SIMPLIFIED DEPRECIATION POOL

Write-off 100%
of the balance
Barry From AAA Cranes
$10 - $50 million Unlimited Expense Claims

(New or Used)
Unlimited Expense Claims

(New or Used)
Unlimited Expense Claims

(New or Used)
Dave From DDD Demolition & Excavations
$50 - $500 million Unlimited Expense Claims

(New)
(Used < $150K
& purchased)
Unlimited Expense Claims

(New ONLY)
Unlimited Expense Claims

(New ONLY)
Andrew From XYZ Shoring and Piling Services

 

The Temporary Loss “Carry Back” Tax Opportunities

The second opportunity the Federal Government has made available is for temporary financial tax losses to a business. As Finlease explains it, the Federal Government will allow eligible companies to “carry back” tax losses from 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later. This opportunity is available for all corporate entities that turnover less than $5 billion pa.

How The Tax Opportunity Works and Specific Criteria:

  • Corporate tax entities with turnover < $5 billion pa can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit.
  • The tax refund will be available on election by eligible businesses when they lodge their tax returns for 2020-21 and 2021-22 income years.
  • Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
What is a Franking Account Deficit?
  • The loss carry-back tax offset cannot outweigh the value of past taxes paid that have not already been distributed to shareholders as franking credits via Dividends.
  • This is designed to avoid the past payment of tax providing a double benefit. This double benefit could otherwise arise because shareholders received an imputation credit in relation to company tax that, because of loss carry-back, the company had effectively no longer paid.


“Carry Back” Tax Opportunity Explained for the Next 3 Financial Years

Business Turnover
(per year)
Year-End June 30 2020 Year-End June 30 2021 Year-End June 30 2022 Case Study
Example
$0 - $5 BILLION

MUST BE A
CORPORATE TAX ENTITY TO BE ELIGIBLE

(Excludes i.e.
Sole Traders, most Partnerships
& Trusts)

If a Tax LOSS …

can be offset against Taxed Profit for Financial Year Ending…

2019

 

If a Tax LOSS …

can be offset against Taxed Profit for Financial Years Ending…

2019
2020

If a Tax LOSS …

can be offset against Taxed Profit for Financial Years Ending

2019
2020
2021

3 examples for multiple business sizes

 

Ready to Take Advantage of the Current Tax Incentives and Opportunities?

While we all might want to throw 2020 in the bin, there have been some major wins. The footy was able to continue, we all learnt how to properly wash our hands, and the Federal Government has borrowed billions to keep the economy moving. With infrastructure projects being announced left right and centre now is the time to invest in your business and it’s (fully expensed) assets.

Are you still looking for more clarification on the two opportunities? The team at Finlease have been reading and re-reading the ins and outs of the Temporary Full Expensing of Depreciating Assets and Temporary Loss “Carry Back” tax incentives and have the legislation down pat. Give the Finlease team a call today to find out more or read through their case study company profiles here.

 

Now that we’re through with the nitty-gritty of tax explanations we want to clarify that all advice and examples given are general and are only at a conceptual level, and therefore are not formal tax advice. Both iSeekplant and Finlease advise all business owners to seek independent tax advice with respect to these matters.

Wanting to know more? The Federal Government has put together a fact sheet with in-depth explanations and examples.

Subscribe to receive news on projects as it happens

Get the latest updates in Major Projects and Industry News straight to your inbox