Budget Update 2020

We have a detailed budget summary available for you on the newsletter page, which you can access by clicking here. I just want to clarify a few issues which have been raised in the past few days by clients.

When will the reduced tax rates be applied to my salary?

The ATO will release new PAYG tables sometime before Xmas. When they do, your employer will be able to withhold tax at the new reduced rates. Until that point the old rates will be used. This means that you will have had too much tax withheld from your salary for the first six months or so of the tax year, and therefore will get the excess refunded when you lodge your 2021 tax return next year.

How does the Instant Asset Write Off work?

Well, it is not really instant at all, but it means you get a deduction in full for the cost of the new asset when you prepare your 2021 tax return. Normally assets have to be written off over a number of years. The deduction reduces profits and therefore saves tax. However if you were not making profits then there is little benefit, as you would not be paying tax anyway, you are just creating bigger losses. You also need the cash available now to buy the asset. Note there is a limit as to how much you can claim if you are buying a car.

When can I get the cash refund for carrying back losses?

You have to wait a while for this one as well. It is only available for companies (not sole traders, trusts or partnerships). Companies will be able to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later income years. This results in a lower tax bill for the prior years, and the excess tax paid will be refunded. However, this election will be made when lodging the 2021 and 2022 tax returns, so no cash refunds before July next year.

Can I buy a new car and get a cash refund?

If you trade through a company (Pty Ltd), made profits in 2019 or later years (and paid tax), you could buy assets now and thereby potentially create losses. These could be carried back, set off against prior profits and result in a refund of corporate tax paid, to the extent of the loss carried back x the corporate tax rate. You can’t get back more tax than you have previously paid. And as a final point, don’t forget that where you use a company car for private use, fringe benefits tax will be payable, negating much of any benefit.

Lindsay

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