An abnormal budget
This has certainly been a year where we have seen many major events impact on us all. Things beyond our control such as fire, floods and a global pandemic. After setting a course towards budget surplus, Covid-19 has required a total change of direction and last night, Treasurer Josh Frydenberg announced the biggest budget deficit on record that is aimed at stimulating the economy in these unprecedented time. So this year’s budget is far from normal.
The key features are tax cuts, tax incentives, job creation incentives, cash payments for social security recipients, infrastructure spending and support for manufacturing and Research & Development. Although it is a big spending budget the question is whether the various initiatives are targeted correctly to achieve the desired outcome of stimulating the economy. Time will tell.
This bulletin seeks to address the key items that will impact on our clients.
The proposed changes to tax cuts that were scheduled to apply from 1 July 2022 will now apply from 1 July 2020 onwards and so have immediate effect. These changes are illustrated in the following table (excluding Medicare Levy).
|Rates||New Threshold (2021 - 2024 years)|
|Nil||$0 - $18,200|
|19%||$18,201 - $45,000|
|32.5%||$45,001 - $120,000|
|37%||$120,001 - $180,000|
Changes to Low Income Tax Offset (LITO)
The proposed changes to LITO from 1 July 2022 will now apply from 1 July 2020. The maximum LITO will increase from $445 to $700.
Low and Middle Income Tax Offset (LMITO) Extension
The current LMITO (capped at $1,080) will continue to apply for the 2021 income year. This is available in addition to the LITO for eligible taxpayers. It will automatically apply as an additional tax refund upon lodgement of your 2021 income tax returns.
1. Expanded instant asset write-off
The Government has announced a temporary measure that allows businesses to claim an immediate deduction for the full cost of eligible depreciable assets.
Under the existing law, businesses with annual aggregated turnover of less than $500 million are entitled to claim an immediate deduction for new and second hand depreciating assets costing less than $150,000 when first used or installed ready for use between 12 March 2020 and 31 December 2020.
The new measure allows businesses with annual aggregated turnover of less than $5 billion to claim immediate deduction for the full cost of new depreciable assets of any value acquired from 7:30pm AEDT 6 October 2020 and first used or installed by 30 June 2022. Businesses with annual aggregated turnover of less than $50 million will also be able to claim the full cost of second-hand assets.
Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of their income year.
2. Temporary loss carry-back for companies
Companies with aggregated annual turnover of less than $5 billion are now able to offset losses against previous profits on which tax has been paid.
Losses incurred in the 2020, 2021 and 2022 income years can be offset against profits made in or after the 2019 income year resulting in a refundable tax offset in the year the loss is made. The tax refund is limited to the extent that losses carried back cannot exceed earlier taxed profit and that the carry back amount does not generate a franking account deficit.
Eligible companies may elect to receive a tax refund when they lodge 2021 and 2022 tax returns. Companies that do not elect to carry back losses under this new measure can still carry forward losses as normal.
We note that this is only available to companies and so losses incurred by businesses carried through a trust, partnership or an individual are not eligible for this offset.
3. Expanded access to small business tax concessions
The budget confirmed the announcement made last Friday that medium businesses (those with aggregated turnover of less than $50 million) will be able to access the following concessions that were previously only available to small businesses (those with aggregated turnover of less than $10 million):
- From 1 July 2020
An immediate deduction for:
- certain start-up expenses (e.g. company formation and professional fees); and
- certain prepaid expenditure.
- From April 2021
An exemption from FBT in relation to:
- car parking benefits (as long as these are not at a commercial car park); and
- multiple portable electronic devices (such as mobile telephones or laptops) provided to employees (as long as these are mainly used for work-related purposes).
- From 1 July 2021
The ability to:
- access the simplified trading stock rules;
- remit pay as you go (PAYG) instalments based on GDP-adjusted notional tax;
- settle excise duty and excise-equivalent customs duty monthly on eligible goods;
- have a two-year amendment period apply to income tax assessments, excluding entities that have significant international tax dealings or particularly complex affairs; and
- utilise a simplified accounting method determination for GST purposes.
The eligibility turnover thresholds for other small business tax concessions (such as capital gains tax concessions) will not be increased to $50 million and will remain at their current levels.
4. R & D Tax Incentive
Instead of cutting the R&D tax incentive as previously communicated, the Government has increased funds allocated to R & D incentives. This includes not proceeding with the cap of $4 million per annum for cash refunds.
From 1 July 2021 the amount of the R&D tax offset will be linked to the company’s corporate tax. For companies with an aggregated turnover of less than $20m, the R&D refundable tax offset is an additional 18.5% on top of their corporate tax rate.
For companies with an aggregated turnover of more than $20m, the non-refundable R&D Tax Offset is calculated as the company’s tax rate plus the R&D premium. The R&D Premium is based on the company’s R&D intensity (R&D expenses ÷ Total expenses). The R&D premium is 8.5% for R&D expenditure with an R&D intensity up to 2%, and 16.5% for R&D expenditure with an R&D intensity of more than 2%.
Job creation incentives
1. JobMaker Hiring Credit
Employers who give a job to an unemployed young person will receive a wage subsidy, similar to that already announced for hiring a new apprentice or trainee through the new $4b JobMaker Hiring Credit.
Employers hiring an unemployed person from 7 October who has been on JobSeeker, Youth allowance or Parenting payment for at least one of the past 3 months, will receive the JobMaker Hiring Credit. This will be payable for up to 12 months for each new employee aged between 16 and 35.
The credit will be paid quarterly in arrears at the rate of $200 per week for those aged 16 – 29 and $100 per week for those aged 30 – 35. Eligible employees are required to work a minimum of 20 hours per week. The scheme is open to all businesses other than the major banks.
To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created.
2. Apprentice subsidies
In addition to existing JobTrainer and Supporting Apprentices and Trainees wage subsidy, the Government has committed an additional $1.2b to pay half the wage for any new apprentice hired from 5 October 2020. The funding of up to $7,000 per quarter is available for 100,000 positions and is open to any employer hiring an apprentice regardless of location, occupation, industry or business size.
Cash Support for Social Security Payments
Two $250 payments will be paid to eligible recipients will be paid as follows:
- First payment will be made from November 2020.
- Second payment will be made in early 2021, with Government yet to provide the exact timeline.
These payments will act like the $750 stimulus payments (supplement for COVID-19 relief) already provided to the same recipients. They will be tax exempt income and will be available to those who are already receiving the following payments:
- Age pension
- Disability support payments
- Carer payments
- Family tax benefits
- Double orphan pension
- Carer allowance
In addition, they will also now be available to Pensioner Concession Cardholders, Commonwealth Senior Cardholders and Veteran Affairs Concession Cardholders.
As promised by Prime Minister Scott Morrison at the last federal election, there would be no changes to superannuation taxes announced in the budget. There was also no mention at all of any changes to the superannuation guarantee contribution rate which is legislated to rise to 10% from 1 July 2021.
There were however, changes announced that will, unless the employee nominates otherwise, require employers to contribute superannuation into a new employee’s current superannuation fund rather than the employer’s default fund.
The performance of MySuper products will now be benchmarked and published on a new YourSuper Portal to allow easier comparison of funds.
Click here to read more.