2020 has presented us all with many challenges, from catastrophic bushfires, to namely the global pandemic COVID-19, which has more specifically, presented a fast evolving, significant challenge, to the Australian and global economy.
On Tuesday 6 October, Federal Treasurer Josh Frydenberg handed down his long-awaited 2020-21 Federal Budget. The Budget has been described as an economic recovery plan which “is all about jobs”, with the introduction of a new JobMaker Hiring Credit scheme designed to give businesses incentives to take on additional young people seeking jobs.
BUSINESS AND COMPANIES
Expanding access to Small Business Tax Concessions
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.
For this purpose, a 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:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
- 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.
- 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.
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, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old. 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.
Uncapped immediate write-off for depreciable 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 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
- 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.
- 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.
- 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.
Temporary Loss Carry Back for Eligible Companies
The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021- or 2022-income years to offset previously taxed profits made in or after the 2019 income year.
This will allow such companies to generate a refundable tax offset in the year in which the loss is made. The tax refund is 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 election by eligible companies when they lodge their tax returns for the 2021- and 2022-income years. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Clarifying the corporate residency test
The corporate residency rules are fundamental to determining a company’s Australian income tax liability. The Government will amend the law 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.
FBT exemption and deductions for retraining
Employer-provided retraining and reskilling for redundant, or soon to be redundant, employees will be exempt from fringe benefits tax.
Currently, employers providing training that is not sufficiently connected to an employee’s current employment may be subject to fringe benefits tax. The exemption will apply for retraining towards a position within or outside of the employer’s business. Retraining provided through a salary packaging arrangement or commonwealth supported places at universities will not be eligible for the exemption.
When enacted, the exemption will apply from 2 October 2020. Changes to tax deduction rules for self-education expenses unrelated to current employment will also be considered by the government in consultations.
Changes to personal income tax rates
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 year). These changes involve:
- increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and
- increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
Please refer to the table below (which excludes the Medicare Levy).
|Rate||Current (2019 to 2022)||Proposed (2021 – 2024)|
|0%||0- $18,200||0- $18,200|
Please note: The Government advised that the personal income tax rate changes that have already been legislated, effective from 1 July 2024 (i.e., from the 2025 income year), remain unchanged. These involve abolishing the 37% personal income tax bracket, reducing the 32.5% personal income tax bracket to 30%, and increasing the upper threshold of the reduced 30% tax bracket from $120,000 to $200,000.
Changes to the Low-Income Tax Offset
The Government announced that it will also bring forward the changes that were proposed from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), as follows:
- The maximum low-income tax offset will be increased from $445 to $700.
- The increased (maximum) low-income tax offset will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
- The low-income tax offset will be reduced at a rate of 5 cents per dollar, for taxable incomes between $45,000 and $66,667.
Removing CGT for ‘granny flat arrangements’
A targeted CGT exemption will apply from 1 July 2021 (subject to the passing of legislation), for ‘granny flat arrangements’. Broadly, these involve older Australians or people with disabilities transferring their home or the proceeds from the sale of their home (and/or other assets) to their adult children or other trusted persons in return for the promise of ongoing housing and care.
Under this exemption, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities. This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.
The Government will provide $159.6 million over four years from 2020/21 to implement reforms to improve outcomes for superannuation fund members.
Currently, structural flaws in the superannuation system mean that unnecessary fees and insurance premiums are paid on multiple accounts, members pay too much in super fees, under-performing products are costing members in lost retirement savings, and there is inadequate transparency on how funds are spending members’ money.
From 1 July 2021, the proposed reforms will make the system better for members in four keyways:
- Your superannuation follows you – An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.
- Empowering members – A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their needs.
- Holding funds to account for underperformance – MySuper products will be subject to an annual performance test. Funds that underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation products.
- Increased accountability and transparency – The Government will strengthen obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised. For example, trustees will be required to comply with a new duty to act in the best financial interests of members.
To read the 2020/21 Federal Budget click here.
If you have any questions or would like to organise a meeting with an Accountant please contact us.
Please note that the above are yet to receive Royal Assent and is not yet Legislation.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. The information in this news post has been sourced from https://budget.gov.au/index.htm and https://ntaa.com.au/.