COVID-19 Tax relief

By Emmanuelle Roulet, Emmanuelle Roulet
Senior Manager
13 October 2021

With various financial reliefs introduced over the past financial year, it is important to evaluate the tax relief that may be available for individuals and businesses:

  1. Temporary Loss carry back

Broadly, under the current loss carry back measures, eligible companies with aggregated turnover of less than $5 billion can carry back tax losses made in the 2019/20, 2020/21 and 2021/22 income years towards their income tax liability for the 2018/19, 2019/20 and 2020/21 income years to generate a refundable tax offset and an immediate cash refund instead of carrying forward these losses to be used against future profits.

This cash tax offset is limited to the lesser of the tax liability for each year the loss is carried back to and the surplus in the franking account in the current year.

However, the effect of claiming the loss carry back is that the franking account balance will be reduced (and as such, this may affect the ability to pay franked dividends going forward).

  1. Fixed asset incentives

Various tax incentive measures in relation to fixed assets were introduced as part of the broader COVID-19 measures, including:

  • Temporary full expensing of depreciating assets (ie allowing an immediate deduction for eligible assets);
  • Instant asset write off (ie allowing an immediate deduction for eligible assets); and
  • Backing business investment accelerated depreciation (ie allowing accelerated depreciation for eligible assets).

Different incentives applied at different times (particularly during the period from March 2020 to October 2020) and it is important to have a clear understanding of which rules applied when, to ensure the maximum claim possible.

Temporary full expensing & instant asset write off

Under the current rules regarding the temporary full expensing of fixed assets, entities with an aggregated turnover (ie including worldwide turnover of connected and affiliated entities) of less than $5 billion are eligible to claim an immediate deduction for certain fixed assets under the temporary full expensing rules. To be immediately deductible, there are a range of conditions which need to be satisfied including that eligible assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on 6 October 2020 and 30 June 2022. There is no applicable threshold regarding the cost of the assets under this measure. It will be important, however, to consider whether any contracts to acquire the assets were entered into prior to 6 October 2020. 

For assets that do not qualify for temporary full expensing (eg those acquired prior to 6 October 2020), and for entities with aggregated turnover of less than $500 million, the full cost of eligible depreciating assets may still be deductible immediately under the instant asset write off measures, provided that the relevant conditions relating to the thresholds and acquisition timeframes are met.

Broadly, assets eligible for these measures typically include depreciating assets such as office furniture, plant and equipment, or motor vehicles. However, certain assets such as capital works (including building and structural improvements) or assets allocated to software development pool are excluded.

Backing Business Investment – accelerated depreciation

For certain new assets costing over $150,000, and where temporary full expensing and the instant asset write off do not otherwise apply, businesses may be eligible to deduct an amount under the rules relating to Backing Business Investment – accelerated depreciation.

This is an accelerated depreciation giving a 50% deduction of the assets cost in the first year with the remaining 50% depreciated over the effective life. To be eligible, the asset must be first held on or after 12 March 2020 and be first used (or installed ready for use) by 30 June 2021.

What’s new?

To encourage continued business investment in fixed assets, the temporary full expensing of assets measures, which allow an immediate deduction in certain circumstances for the acquisition of depreciable assets, will be extended by a further year to cover assets acquired from 6 October 2020 and first used or installed ready for use by 30 June 2023.

In conjunction, the temporary loss carry back rules will also be extended by a further year to allow eligible companies to carry back losses from the 2022/2023 income year to offset previously taxed profits as far back as the 2018/2019 income year.

Eligibility for these measures will remain unchanged, meaning businesses with an aggregated turnover of less than $5 billion (including connected entities and affiliates) should be eligible, provided certain conditions are met.

The additional one year for temporary full expensing and loss carry back is a welcome move as it gives businesses additional time to plan for this.

Get ready

While legislation still needs to be enacted to implement these extensions, we recommend that you consider these tax incentive measures in more detail (if not already).

There are a number of issues under these measures that you should consider before claiming deductions, making significant investments and/or claiming a refundable tax offset.

These issues may include:

  • Determining your aggregated turnover (including connected entities and affiliates);
  • Reviewing your fixed asset register to determine eligible assets;
  • Considering the dates for the acquisitions of the relevant assets and when they are first used or installed ready for use;
  • Reviewing prior years income tax position and franking account balance to determine the amount of loss carry back tax offset.

The PKF Tax team can help you to review your eligibility for the above measures and recommend the most appropriate course of action for your circumstances. Get in touch today.