Tax Changes for Australian Companies: What’s New in 2020

The Australian tax landscape underwent significant changes in 2020. This blog explores major tax reforms and their implications for businesses, including tax rates, new deductions, and compliance measures, to help companies navigate the year ahead effectively.

In 2020, the Australian government implemented several tax reforms aimed at stimulating economic growth and providing relief to businesses and individuals. Understanding these changes is crucial for companies to optimize their financial strategies and ensure compliance.

1. Reduction in Company Tax Rates

The company tax rate for small and medium-sized enterprises (SMEs) with an aggregated turnover of less than $50 million was reduced from 27.5% to 26% for the 2020–21 income year. This reduction is part of a phased plan to lower the tax rate to 25% by 2021–22.

2. Personal Income Tax Reforms

The government brought forward Stage 2 of its Personal Income Tax Plan, effective from July 1, 2020. This reform increased the income threshold for the 19% tax bracket from $37,000 to $45,000, providing immediate tax relief to low and middle-income earners.

3. Introduction of Instant Asset Write-Off

To encourage business investment, the instant asset write-off threshold was increased to $150,000, allowing businesses to immediately deduct the cost of eligible assets purchased and used or installed ready for use by June 30, 2021.

4. Loss Carry-Back Scheme

The government introduced a loss carry-back scheme, enabling companies to offset tax paid on profits from previous years against current year losses, providing immediate cash flow benefits.

5. Temporary Full Expensing

For the 2020–21 income year, businesses with an aggregated turnover of less than $5 billion can deduct the full cost of eligible depreciating assets, including new and second-hand assets, to support investment and economic recovery.

6. Changes to Fringe Benefits Tax (FBT) Exemptions

The government expanded FBT exemptions for employers providing certain benefits, such as portable electronic devices and computer software, to employees, aiming to reduce compliance costs and encourage the provision of these benefits.

The tax reforms introduced in 2020 present both opportunities and challenges for Australian businesses. By understanding and leveraging these changes, companies can enhance their financial position and contribute to economic recovery.

If you would like to enquire about planning strategies, book a complimentary consultation with DGMS Group.

Australian Taxation Office. (2020). Changes to company tax rates. Retrieved from https://www.ato.gov.au/tax-rates-and-codes/company-tax-rate-changes
BDO Global. (2020). Australia - New personal income tax rates. Retrieved from https://www.bdo.global/en-gb/microsites/tax-newsletters/ges-news/december-2020-issue-en/australia-new-personal-income-tax-rates
Australian Government. (2020). Lower Taxes - Budget Archive. Retrieved from https://archive.budget.gov.au/2020-21/factsheets/download/tax_fact-sheet.pdf