Hand flipping wooden blocks for change year 2020 to 2021 . New year and holiday concept.

The minimum wage is going up

The minimum wage is increasing by 13 a week. On 19 June the Fair Work Commission declared an increase of 1.75 per cent to the minimum wage, so from 1 July some employers must start paying employees $19.84 an hour instead of $19.49 an hour.

However, the increase is staged. It doesn’t apply to retailers until 1 February 2021. First in the queue, from 1 July, are healthcare, social assistance, teachers and childcare workers; construction, manufacturing and other industries follow from 1 September; accommodation, food services, arts, recreation, aviation, and tourism join retailers in being affected from 1 February 2021.

Penalty rates are changing

From 1 July 2020, workers on the retail award will be entitled to lower penalty rates.

Sunday penalty rates have been cut from a 165% loading to a 150%, while Sunday shift work rates have decreased from 190% to 175%.

This is the final round of a number of phased cuts to the penalty rate that was decided in 2017.

Company tax rates are falling

The tax rate for most companies with an aggregate turnover of less than $50 million dropped to 26% on 1 July 2020 (previously 27.5%).

This is great news for companies that reinvest profits into the business because it means that there will be more money to reinvest and less to pay to the ATO. It’s less good for companies that pay dividends to their shareholders since franking credits on dividends will also fall to 26%, meaning that the recipients of dividends will face higher personal tax bills; in effect, the burden of tax is passed from the company to the shareholder.

Tax breaks for unincorporated businesses are increasing

The tax offset for unincorporated small businesses is increased to 13% from 1 July 2020 (previously 8%).  The offset applies to businesses with a turnover of less than $5 million if you either:

  • are sole trader.
  • have a share of net small business income from a partnership or trust

Unfortunately, regardless of the percentage increase, the offset remains capped at a maximum of $1,000 so in practice only the smallest businesses will see any benefit.

Second cash flow boost is flowing

The second tranche of the government’s cash flow boost will begin to flow out of the ATO on 28 July.

The amount of a business receives in this second payment period does not relate to the tax withheld in that period (unlike the first cash flow boost). Instead, if your business is eligible, you’ll receive an additional payment equal to the amount of the first cash flow boost payment (so if you didn’t get the first round of payments, you won’t get the second either). Monthly BAS lodgers will get a payment equal to a quarter of their first cash flow boost payment following the lodgement of their June, July, August and September BAS’s. Quarterly lodgers will get a payment equal to half of their total first cash flow boost payment following the lodgment of their June and September BAS’s (a minimum of $10,000, up to a total of $50,000).

The cash flow boost is first applied by the ATO to reduce your liabilities arising from PAYG(W) and GST with any excess refunded as a cash amount.

Generous tax breaks for capital purchases continue

Through until 31 December 2020, most businesses can continue to immediately write-off capital purchases for items costing less than $150,000. The current tax break is available to all businesses with aggregated turnover of less than $500 million and enables businesses to immediately deduct against current year profits items as diverse as retail fit-outs, motor vehicles, tech purchases (such as computers, laptops, etc) and security systems.

However, from 1 January 2020 onwards, the tax break in its current form ends. From that date, an immediate deduction is only available for items costing less than $1,000 and eligibility is restricted to businesses with an aggregate turnover of just $10 million.

A different depreciation tax break however continues through until 30 June 2021 for all businesses with an aggregate turnover of less than $500 million. “Accelerated deprecation” works differently depending on the size of your business:

  • if you a small business (aggregate turnover of less than $10 million), you can claim 57.5 per cent of the cost of the asset (for those assets that cost more than the instant asset write-off threshold) in the year you acquire and first use or install the asset;
  • businesses that are not small businesses can claim a deduction of 50 per cent of the cost of the asset, plus normal depreciation on the balance.

Only new assets qualify (second-hand assets are excluded) but there is no limit on the cost of qualifying assets.