Last night, on 6 October 2020, Treasurer Josh Frydenberg delivered the Federal Budget for the 2020 – 2021 income year. It will be remembered as Australia’s biggest spending budget, largely due to the COVID-19 pandemic, with a forecast deficit of $213 billion for the 2021 fiscal year.
The success of this Budget in rebooting the economy will be dependent on us! Households will need to be confident enough to spend the tax cuts and businesses will need to be willing to hire new staff, and invest for the future. The big question is will business have the confidence to put their hand in their pocket?
Income tax cuts backdated to 1 July 2020
As expected, the adjustments to tax rates that were originally due for implementation in the year ending 30 June 2023 have been brought forward to apply from 1 July 2020. Below is a table of the new tax rates.
Additionally, the Low and Middle Income Tax Offset (LMITO) will be retained for the 2020-21 income year.
The Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000, and reduce by 1.5 cents up to $66,667.
Increasing the small business entity threshold from $10 million to $50 million
Businesses with an aggregated annual turnover between $10 million and $50 million will, for the first time, have access to up to 10 further small business tax concessions in three phases. These include:
Immediate deduction for prepaid expenditure
ability to writeoff start up expenses
simplified Trading stock rules
FBT exemptions for car parking, and portable electronic devices
“Full Expensing” Deduction For Businesses Businesses will be able to deduct the full cost of eligible capital assets acquired from 6 October 2020 (Budget night) and first used or installed by 30 June 2022. This could be a game changer for businesses that invest heavily in capital items, and there is no limit on the amount spent.
Carry-Back tax losses for Companies The Government will allow eligible companies 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. Under these measures, corporate tax entities with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
JobMaker Hiring Credit A new JobMaker Hiring Credit scheme will be available to employers from 7 October 2020 for each new job they create over the next 12 months for which they hire an eligible young person. For each eligible employee, employers will receive for up to 12 months:
$200 a week if they hire an eligible young person aged 16 to 29 years; or
$100 a week if they hire an eligible young person aged 30 to 35 years.
Fringe Benefits Tax The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for retraining and reskilling benefits provided by employers to redundant, or soon-to-be redundant, employees where the benefits may not be related to their current employment. The Government is proposing to reduce the Compliance Burden of Record-Keeping, and allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records for FBT.
Corporate Residency Test to Be Clarified The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
Victoria’s Business Support Grants to be exempt from Tax The Commonwealth Government will make the Victorian Government’s business support grants for small- and medium-sized business – as announced on 13 September 2020 – non-assessable, non-exempt (NANE) income for tax purposes.
CGT exemptions for granny flats A targeted capital gains tax (CGT) exemption for granny flat arrangements will be provided where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability.
Your Superannuation For the first time, Australians will automatically keep their superannuation fund when they change employers. ‘Stapling’ the super fund to the employee will ensure that their super follows them when they change jobs, stopping the creation of unintended multiple accounts. Commencing 1 July 2021, the Your Future, Your Super package will improve the superannuation system by: • Having your superannuation follow you • Making it easier to choose a better fund • Holding funds to account for underperformance
• Increasing transparency and accountability to ensure trustees only act in the best financial interests of members
The Government has committed to invest an additional $14 billion in new and accelerated infrastructure projects over the next four years, which includes projects in every state and territory, as well as the Melbourne to Brisbane Inland Rail. Victorian projects include the $684 million Monash Freeway Upgrade, $528 million Shepparton Line Upgrade and Warrnambool Rail Upgrade.
The $1 billion JobTrainer Fund matches funding between the Commonwealth and state and territory governments. The fund will support up to 340,700 additional free or low-fee training places in areas of genuine need. Adding to the $2.8 billion Supporting Apprentices and Trainees Wage Subsidy, which supports existing apprentices and trainees through to 31 March 2021, the Government is adding a further $1.2 billion in a Boosting Apprenticeships Wage Subsidy, which will support up to 100,000 new apprentices and trainees by paying a 50% wage subsidy, up to a cap of $7,000 per quarter, for commencing apprentices and trainees at businesses of all sizes, in all industries. But it runs out 30 September 2021.
Digital and connectivity
An additional $4.5 billion investment in NBN Co will bring ultra-fast broadband to more homes, with extra funding of $29.2 million to also accelerate the rollout of the 5G network. Reforms will make permanent the measures enabling companies to hold virtual Annual General Meetings to engage with their shareholders and e-signatures.
First home buyers
An additional 10,000 first home buyers will be able to purchase a new home sooner under the extension to the First Home Loan Deposit Scheme. The additional 10,000 places will be provided in 2020-21. This will allow first home buyers to secure a loan to build a new home or purchase a newly built dwelling with a deposit of as little as 5%, with the Government guaranteeing up to 15% of a loan.
More funding to fight organised crime in the tax and super system
The Government will provide $15.1 million to the ATO to target serious and organised crime in the tax and superannuation systems. This extends the 2017- 18 Budget measure “Additional funding for addressing serious and organised crime in the tax system” by a further two years to 30 June 2023.
The Australian economy is headed for its largest deficit on record, which is forecast to continue for the next three years at least. For those of us in Victoria, the numbers will be more significant as a result of the extended Stage 4 restrictions. This budget is clearly focused on Business investment and Jobs. The aim is to generate 1 million jobs in 4 years with a focus on the young. One thing is for sure 'Back in Black' won't be heard in Parliament for a while.
Please call or email us to discuss how these changes will affect you.