Part 1 – Budget reminders. Under the Hood.
The 2020 Federal Budget was one of the most far reaching and complex ever brought in. This is the first of three articles to remind us of important topics the budget addressed.
Exempting granny flat arrangements from CGT
Whilst there has been Centrelink encouragement for granny flats, the capital Gains Tax issues have prevented wider acceptance. That may change now.
The law will be amended to provide a targeted CGT exemption for granny flat arrangements.
The CGT exemption will apply to arrangements with older Australians or those with a disability, where there is a formal written agreement in relation to the granny flat.
The new exemption is proposed to apply from the first income year after the date of Royal Asset of the enabling legislation. This should mean the 2021 financial year.
The change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.
Temporary Full Expensing of Eligible Capital Assets
Most businesses are now able to claim full deductions for depreciating assets.
Businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets in the year they are first used.
Full expensing in the year of first use will apply to:-
- New depreciating assets
- The cost of improvements to existing eligible assets
- For small and medium businesses (aggregated turnover of less than $50 million) – second-hand assets
Applies to eligible capital assets acquired after 7.30pm on 6 October 2020 and first used or installed by 30 June 2022.
In an extension to the previous rules, eligible businesses that acquire eligible new or second-hand assets under the $150,000 instant asset write-off by 31 December 2020 will have an extra six months, until 30 June 2021, to first use or install those assets.
Whilst the acquisition date is important, the asset must also be in use or ready for use.
Victoria’s business support and other State grants to be tax neutral
The Victorian Government’s business support grants for small and medium businesses, as announced on 13 September 2020, will become non-assessable, non-exempt (NANE) income for tax purposes.
The Federal Government will extend this arrangement to similar grants by all States and Territories on an application basis.
NANE income treatment is only available for grants announced on or after 13 September 2020 and paid between 13 September 2020 and 30 June 2021.
On 13 September 2020, the Premier of Victoria announced a $3 billion Business Resilience Package to help Victorian businesses impacted by the ongoing COVID-19 business restrictions and to prepare for ‘COVID Normal’ business.
The package includes grants of $10,000, $15,000 or $20,000 for eligible businesses in targeted sectors, depending on the size of annual payroll, in a third round of Business Support Fund.
State based grants without this legislation, are considered to be assessable income for income tax purposes There is no immediate benefit, but this change will mean no 2021 income tax becomes payable.