Here's a roundup of some of the tax changes starting 1 July 2020...

• A reduction to the company tax rate to 26% from 1 July 2020
• An extension to the instant asset write-off to 31 December 2020
• No deductions for vacant land

A reduction to the company tax rate from 1 July

Despite the current economic environment, the company tax rate will reduce to 26% for small and medium businesses from 1 July 2020.

The 1 July change is part of a larger progressive plan to reduce the company tax rate to 25% from 1 July 2022 and applies to base rate entities (BRE) – companies, corporate unit trusts, and public trading trusts –  with an aggregated turnover of less than $50 million where 80% or less of the entity’s turnover for the year is classified as base rate entity passive income. Larger companies will continue to pay the 30% rate.

What about franking dividends?

The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by some base rate entities. The way the rules normally work is that if the company was classified as a base rate entity and was taxed at the lower corporate tax rate in the previous year, then a lower maximum franking rate will apply to dividends paid in the current year.

For example, a company that was classified as a BRE in the 2019 income year will generally be subject to a maximum franking rate of 27.5% on franked dividends paid in the 2020 income year. However, the maximum franking rate will normally be 26% for dividends paid in the 2022 income year if the company was a BRE in the 2020 income year.

An extension to the instant asset write-off of $150,000

The Government has extended the $150,000 instant asset write-off threshold for a further 6 months until 31 December 2020. This means that the higher threshold can apply to assets that are first used or installed ready for use for a taxable purpose on or after 12 March 2020 and by 31 December 2020 (assuming all other basic conditions are satisfied).