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The business tax changes under the 2020-21 Budget have been met with positive feedback from professional accounting bodies and tax experts.
Two of the key announcements under the Government’s business investment strategy are the immediate expensing and loss carry-back provisions for businesses with an annual turnover of up to $5 billion. Under immediate expensing, businesses will be able to deduct the full cost of eligible assets until 30 June 2022. Further, under loss-carry back changes, businesses will be able to carry back losses regardless of whether they have posted a profit.
These two measures aim to inject free cash into companies and boost business investment spending.
According to Deloitte analysis on the 2020-21 Budget, a large pool of taxpayers will benefit significantly from these two measures.
“The tax loss carry back measure will likely support the takeup of the full expensing of eligible capital assets. Companies that would otherwise have had tax losses available for carry forward would be less likely to respond to that investment incentive. Combined with the tax loss carry back, the cash benefit of full expensing can be accelerated,” wrote Mark Hadassin, Corporate and International Tax partner at Deloitte.
The same view is echoed by Dong Li, client manager and chartered accountant from YML Group, who praised the loss carry-back and temporary immediate expensing rules.
“The loss carry-back rule will complement the full expensing rule to generate maximum benefits for business owners,” said Mr Li.
“When companies write off expenditure and capital assets instantly, rather than depreciate it over future years, it will increase the current year’s expenditures, therefore might push the companies into a loss-making position.”
Previously, losses could only be claimed as tax offsets when turning over a profit. However under the new measures, loss-making businesses with an annual turnover of up to $5 billion can claim a refund from the ATO on previous profits from 2018-19 onwards.
“Being able to offset this year’s loss against previous years’ tax profits will relieve pressure from businesses and hopefully encourage them to spend more on investments this year,” Mr Li explained.
Mr Li said they are waiting for more detailed guidelines from the ATO regarding these tax law changes.
Although the ATO has not yet released detailed guidelines on the loss carry-back and immediate expensing rules, the ATO has expressed their readiness to work closely with employers and other industry stakeholders to implement the measures announced in the latest Federal Budget.
CPA Australia also welcomed both measures which will provide much-needed cash to businesses that are struggling due to COVID-19. However they also noted that the benefits may not be spread equally across all businesses.
“CPA Australia welcomes the extension of the instant asset write off to businesses with a turnover of up to $5 billion until June 2022. However, with the business outlook being highly uncertain, many smaller businesses may not be in a position to take advantage of this measure,” wrote CPA in a statement.