The new financial year is just around the corner – and it’s going to be a little different this time around.

A raft of new changes is due to kick in which will affect almost everyone, including individuals, families, workers, business owners and even retirees.

Here is the list of changes that will affect from Monday, July 1:

  • Company tax rate reduces to 26 percent for base rate entities.
  • $150k instant asset write-off has been extended to 31 December 2020 which is then scheduled to reduce back to $1,000 for small business entities and will no longer be available for entities with aggregated annual turnover of $10m.
  • Cents per km rate for work-related car expenses increase to 72 cents.
  • Expected reforms to allow 66 and 67 years olds to make voluntary superannuation contributions without satisfying the work test. This reform is not yet law.
  • Age limit for making superannuation contributions to your spouse increases from 69-74. This reform is not yet law.
  • For those 67 and under, reforms will enable you to use the ‘bring forward rule’ to make up to three years of non-concessional contributions. That is, you can make non-concessional contributions of up to $300,000 from the 2020-21 financial year.

Despite the current economic environment, the company tax rate will reduce to 26 percent 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 percent from 1 July 2021. It 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 percent 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 percent rate.

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 typically 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 percent on franked dividends paid in the 2020 income year. However, the maximum franking rate will normally be 26 percent for dividends paid in the 2021 income year if the company was a BRE in the 2020 income year.

Some companies may have franking account balances that have accumulated over time and will reflect prior company tax rates. It is important to consider how these credits can be utilised efficiently. One strategy could be to bring forward the payment of dividends to utilise the current 27.5 percent franking rate before the company tax rate reduces to 26 percent if the cashflow of the company allows for it.

Further, if you would like to discuss any of the above measures or the financial impact you are currently facing, in general, please feel free to email your AHJ contact or or call (07) 3253 1500.