The 2020-21 Federal Budget is a road to recovery paved with cash.
Key initiatives include:
- A $4 billion ‘JobMaker’ Hiring Credit to encourage businesses to take on additional employees aged 16 to 35 years old
- Immediate deductions for business investment in capital assets
- Changes to how companies can manage losses
- Personal income tax cuts from 1 July 2020
By comparison to many, Australia has managed the COVID-19 pandemic well, but good management isn’t enough to protect us from the $213.7 billion deficit in 2020-21. The Government has taken to heart the old adage, “You have to spend money to make money” to trade our way out of a black hole.
Some of the measures are aimed at addressing the harsh lessons COVID-19 has taught us and seek to centralise production back in Australia to ensure our industries can be self-reliant.
1. JobMaker Hiring Credit
Date of effect: From 7 October 2020 for 12 months
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.
2. Immediate deductions for business investment in capital assets
Date of effect: Acquisition of eligible capital assets from 7:30 pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
The Government is really keen for business to invest. 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.
While many businesses were already eligible for an instant asset write-off for asset purchases of up to $150,000, this measure does not cap the asset’s cost, and eligibility for the higher instant asset write-off has been significantly broadened and extended (the existing $150,000 instant asset write-off applies to businesses with turnover less than $500 million and will not apply to purchases after 31 December 2020).
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 pooling
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.
3. Ability for companies to carry-back losses
Date of effect: Losses from the 2019-20, 2020-21 or 2021-22 income years
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 carryback 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.
Currently, companies are required to carry losses forward to offset profits in future years. Under the proposed amendments, companies that do not elect to carry back losses can still carry losses forward as normal.
This measure will interact with the Government’s announcement to allow full expensing of investments in capital assets. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.
Note that loss carry-back rules were introduced some years ago by the Gillard government. The rules were repealed and were only operational in the 2012-13 year.
4. Personal income tax cuts
As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation).
At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.” Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government’s plan comes to fruition.
Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.
Tax rateCurrentFrom 1 July 2020From 1 July 20240%$0 – $18,200$0 – $18,200$0 – $18,20019%$18,201 – $37,000$18,201 – $45,000$18,201 – $45,00030% $45,001 – $200,00032.5%$37,001 – $90,000$45,001 – $120,00037%$90,001 – $180,000$120,001 – $180,000–45%>$180,000>$180,000>$200,000LITOUp to $445Up to $700Up to $700
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), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.
Quantum Advisory is a business accounting and advisory firm that empowers family businesses to step up, scale-up and sell up. Visit qagroup.com.au or call 1300 700 711 and start the journey.