The 2020 Federal Budget, much delayed, takes Australia into new territory with astounding spending measures; record deficits ($213 billion this year); a trillion dollar debt; and agreement all-round that the Government had no alternative.
The spending measures are directly targeted to individuals, with personal tax cuts, and business, focussed around creating jobs ("JobMaker") and investment, with the goal of rapidly stimulating the economy to "recover from the COVID-19 recession and to build our economy for the future".
The Government has identified manufacturing as a key strategy, supporting the JobMaker plan. The Modern Manufacturing Strategy is focused on building competitiveness, scale and resilience in the Australian manufacturing sector. Investment and support will focus on creating manufacturing strength and capability in six areas of comparative advantage and strategic interest. These six National Manufacturing Priorities are: resources technology & critical minerals processing; food & beverages; medical products; recycling & clean energy; defence; and space.
An additional $14 billion in new and accelerated infrastructure projects over the next four years was also announced.
This budget has a very wide range of initiatives including Aged Care, Mental Health & Crisis Support, Regional Development, Energy Policy (low & zero emission technologies), First Home Loan Deposit Scheme, FBT and Superannuation.
The personal tax cuts (stage 2) previously announced will be brought forward with retrospective application from 1 July 2020.
Bringing forward the personal income tax plan will:
- Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
- Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
- Increase the low income tax offset from $445 to $700
In addition, the LMITO (low and middle income tax offset), will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.
Individuals with a taxable income of up to $126,000 will have tax relief of up to $2,745.
The business measures target a range of options including:
JobMaker Hiring Credit
- The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.
- Eligible employers will receive:
- $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.
- The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee, with a maximum amount of $10,400 per additional new position created.
- Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.
- To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.
Instant asset write-off extended
- This measure enables businesses with an aggregated turnover of less than $5 billion to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use.
- This means that an asset's cost will be fully deductible upfront rather than being claimed over the asset's life.
- For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.
- Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.
- Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. 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.
Increase in Small Business Entity turnover threshold - $10M to $50M
- The Government will expand access to a range of small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.
- Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will for the first time have access to up to ten further small business tax concessions in three phases:
- 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 the 47 per cent fringe benefits tax 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 under the small business entity concession.
- Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.
- In addition, 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.
Loss carry back
- Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits in the 2018-19, 2019-20 and 2020-21 income years.
- Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
- The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company's tax liabilities in the profit years.
- Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company's franking account balance.
The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
- Increase in the rate of incentive to 18.5% (currently 13.5%) for companies with aggregated annual turnover less than $20 million.
- For companies with aggregated annual turnover of $20 million or more, the previously announced R&D intensity premium, originally intended to apply across three tiers, will now apply across two tiers.
The Budget papers make interesting reading and there are numerous items and initiatives, too many to cover in this report.
One worth mentioning is the clarification of the corporate residency test. Under the proposed amendment, companies incorporated offshore will be treated as an Australian tax resident if it has a significant economic connection to Australia. This test will have two components- one, where the company's core commercial activities are undertaken in Australia, and two, where its central management and control is in Australia.
For more information, please read our in-depth Federal Budget 2020-21 Tax & Accounting Overview.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Shaun Madders, Director
Spry Roughley Services Pty Limited
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