Federal Budget 2020

Federal Budget 2020

The Government has announced that it will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income tax year).

 

Australia’s first recession budget in 30 years, delivered on the 6th October 2020, will be the forerunner of successive federal budgets focussed on repairing the economic devastation caused by COVID-19. It will be remembered as Australia’s biggest spending budget with a forecast deficit of $214 billion for the 2021 fiscal year

Treasurer said: “The budget is all about jobs.”

Federal Budget – Big benefits for business
The headline benefits for business include:

  • Increasing the small business entity threshold from $10 million to $50 million. This will enable around 20,000 businesses to access a range of new tax concessions.
  • Changes to the research and development tax incentive that will deliver more value to companies claiming the concession.
  • Temporary full expensing of capital assets. From tonight until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
  • Temporary loss carry-back. This will allow companies with turnover up to $5 billion to offset losses against previous profits on which tax has been paid. Losses incurred up to 2021-22 can be carried back against profits made in or after 2018-19. Eligible companies may elect to receive a tax refund when they lodge their 2020-21 and 2021-22 tax returns.

Taxation Changes

The Budget brings forward previously legislated income tax cuts for lower and middle income earners, which will be backdated to July 2020.

Rate

Current (2019 to 2020)

Proposed (2021-2024)

0%

$0 – $18,200

$0 – $18,200

19%

$18,201 – $37,000

$18,201 – $45,000

32.5%

$37,001 – $90,000

$45,001 – $120,000

37%

$90,001 – $180,000

$120,001 – $180,000

45%

$180,001 +

$180,001 +

 

Changes to Low Income Tax Offset (LITO)

The government announced that it will also bring forward the changes that were proposed to LITO from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income tax year).

  • The Maximum LITO will be increased from $445 to $700
  • The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable income between $37,501 – $45,000.
  • The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,001 – $66,666.

 

Taxable Income ($)

Amount of the LMITO from 1 July 2020 ($)

37,500 or less

$700

37,501 to 45,000

$700 less 5% of excess over 37,500

45,001 to 66,667 

$325 less 1.5% of excess over 90,000

Changes to Low and Middle Income Tax Offset (LMITO)

While the Low and Middle Income Tax Offset (LMITO) was due to be removed with commencement of Stage Two of the Personal Income Tax Plan from 1 July 2022, the Government announced that it will continue as a one-off additional benefit during the 2020-21 tax year.

 

Taxable Income ($) 

Amount of the LMITO from 1 July 2020 ($)

37,000 or less

$255

37,001 to 48,000

$255 plus 7.5 per cent of excess over 37,000

48,001 to 90,000

$1,080

90,001 to 126,000 

$1,080 less 3.0 per cent of excess over 90,000

 

Immediate Write Off for Assets

The Government has announced it will introduce the following changes to the Capital Allowance provisions:

  • Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as ‘full expensing’) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:
  • The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
  • The asset was first used or installed ready for use by 30 June 2022.
  • The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.

 

  • Small businesses (i.e., with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies (i.e., up to 30 June 2022).

Furthermore, the provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

  • As is currently legislated, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the cost of eligible second-hand assets costing less than $150,000 that are purchased from 2 April 2019 and first used or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off.

The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021.

Luxury Car Limit

For depreciation purposes, the cost of a vehicle is reduced to the car limit. Therefore, the $150,000 instant asset write-off is subject to the luxury car limit of $59,136.

If you buy a car with a GST-inclusive value above these LCT thresholds, you must pay LCT except in certain circumstances. In general, the LCT value of a car includes the value of any parts, accessories or attachments you supplied, or imported, at the same time as the car.

This is because the provision that gives a taxpayer an instant asset write-off refers to the “adjustable value” of the asset. The term “adjustable value” is further defined to mean the cost of an asset if it has not been used or been installed ready for use for a taxable purpose. However, the cost of an asset consists of two elements, these being the first element and the second element. Subsection 40-230(1) ITAA97 states that the first element of the cost of a car is reduced to the car limit if the cost exceeds that limit. Therefore, for a car that costs above the cost limit, the cost limit of the car can be claimed as an immediate tax deduction (and no more) in the period to 30 June 2020 if all the necessary conditions have been satisfied.

Temporary Loss Carry-Back to Support Cash Flow

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.

The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit.

The tax refund will be available on an election basis by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

Note: Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

JobMaker Hiring Credit

The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers. From 7 October 2020:

  • $200 per week if they hire an eligible employee aged 16 to 29 years, or
  • $100 per week if they hire an eligible employee aged 30 to 35 years.

New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.

The amount of the credit is capped at $10,400 for each additional new position created. Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question (see employer eligibility requirements below)

 

Who is an eligible employee?

Employees may be employed on a permanent, casual or fixed term basis.

To be an ‘eligible employee’, the employee must:

·         be aged (i.e., at the time their employment started) either:

–       16 to 29 years old, to attract the payment of $200 per week; or

–       30 to 35 years old to attract the payment of $100 per week;

·         have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period;

·         have commenced their employment during the period from7 October 2020 to 6 October 2021;

·         have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired; and

·         be in their first year of employment with this employer and must be employed for the period that the employer is claiming for them.

Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.

Who is an eligible employer?

An employer is able to access the JobMaker Hiring Credit if the employer:*

·         Has an ABN;

·         Is up to date with tax lodgement obligations;

·         is registered for Pay As You Go withholding;

·         is reporting through Single Touch Payroll;

·         is claiming in respect of an ‘eligible employee’;

·         has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of; and

·         is able to demonstrate that the credit is claimed in respect of an additional job that has been created. Broadly, there must be an increase in the business’ total employee headcount and also in the payroll of the business for the reporting period (based on a comparison over a specified reference period).

Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit.

Certain employers are excluded, including those who are claiming the JobKeeper payment.

New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires.

Medium business

The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions. Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.

The expanded concessions will apply in three phases, as follows:

1.    From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

2.    From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.

3.    From 1 July 2021:

·         Eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax and settle excise duty and excise-equivalent customs duty monthly on eligible goods.

·         Eligible businesses will generally have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021.

·         The Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold

  • Businesses with a turnover of less than $5bn – all but the top 1% – will be able to deduct the full cost of capital assets purchased after budget night and first used or installed by 30 June 2022.
  • Small and medium businesses will also be able to apply “full expensing” to second-hand assets; businesses earning $50m to $500m will be able to do so for assets of less than $150,000.
  • Companies with turnover up to $5bn will be able to offset losses against previous profits on which tax has been paid, to generate a refund.
  • Exempting from the 47% fringe benefits tax employer-provided retraining activities to employees who are redeployed to a different role in the business.
  • $4.5bn investment in NBN Co and $29.2m to accelerate the rollout of the 5G network.

Super

  • Australians will automatically keep their superannuation fund when they change employers, stopping the creation of unintended multiple accounts.
  • A new online YourSuper comparison tool will help people compare the performance of funds which will be required to meet an annual performance test.

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