On 6 October, Josh Frydenberg handed down the (somewhat belated) 2020/21 Federal Budget. The Covid-19 pandemic has driven many of the measures in the budget – resulting in a budget deficit of $214 billion. The Budget has been described as an economic recovery plan which is “all about jobs”. The items introduced in order to achieve this are brought forward individual tax cuts, a new JobMaker Hiring Credit scheme designed to give business incentives to take on additional young people seeking jobs, immediate deduction for asset purchases of any size (turnover <$5bn), and Capital Gains Tax exemptions. The highlights of the Budget are listed below: Business Incentives
Uncapped Immediate Write off for Depreciable Assets Businesses (with turnover of < $50 million) will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. This will include both new and second hand purchases and is available from 6 October 2020 to 30 June 2022. It is our view that vehicles that are classified as a car will continue to have the car cost limit applied – which is currently $59,136. This represents the upper limit on the purchase of a car that is available for claiming. This is a stimulus measure designed to boost purchases and assist economic activity. It is also worth noting that small businesses (with an aggregated turnover of less than $10m) will also be able to deduct the balance of their simplified depreciation pool at the end of the income year up to 30 June 2022. Given that some small businesses have large depreciation pools, this will be a significant factor for a lot of small businesses in the 20/21 year.
JobMaker Hiring Credit This measure is aimed to incentivise businesses to take on additional young job seekers. From 7 October 2020, eligible employers will be able to claim $200 per week for each additional eligible employee they hire aged 16 to 29 years old and $100 per week for each additional eligible employee aged 30 to 35 years old. Other eligibility criteria are that the worker must have received the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one month within the past three months before they were hired and they must have worked at least 20 hours per week on average for the reporting period. 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. The amount of the credit is capped at $10,400 for each additional new position created.
Temporary Loss Carry back for Eligible Companies. Measures are being introduced that will 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 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 profit made in or after the 2019 year.
FBT Changes From 2 October 2020, the Government will introduce an FBT exemption for retraining and reskilling employees – soon to be redundant. The training does not have to be relevant to their current employment. Currently FBT is payable if an employer provides training to redundant (or soon to be redundant) employees and that training does not have sufficient connection with their current employment.
Superannuation Reforms The Government is proposing to implement reforms to the Superannuation industry over 4 years from 2020/21 to improve outcomes for superfund members. Currently there are structural flaws in the superannuation system which means that unnecessary fees and insurance premiums are paid on multiple accounts, and underperforming products are costing members in lost retirement savings. From 1 July 2021, the proposed reforms will make the system better for members in 4 key ways:
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. What this means for employers is that they will need to identify the superannuation fund that is “stapled” to the employee and make employer contributions to that super account. The “Choice of Super” form still is required to be completed by the employee;
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 and funds the underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members until their performance improves.
Increased Accountability and Transparency – The Government will strengthen obligations on superannuation trustees to ensure their actions are consistent with the aim of maximising retirement savings.
Individuals
Tax Cuts The 19% income tax bracket will be lifted from $37,000 to $45,000 and the 32.5% income tax bracket will be lifted from $90,000 to $120,000. The benefits of this rate cut will be applicable from 1/7/2020. This will mean that an individual with taxable income of $120K will have their tax bill reduced by $2,430 for the 2020/21 year. These changes are illustrated by the following table.
Low Income Tax Offset (LITO) Changes The maximum LITO will be increased from $445 to $700. Under the proposed changes, anyone with incomes under $37,500 will receive up to $700 reduction in the tax liability and there will be a phasing out of LITO for people with taxable incomes above $37,500 and less than $66,666.
Removing CGT for “granny flat arrangements”. There is going to be a targeted CGT exemption for “granny flat arrangements” from 1 July 2021 (subject to the passing of legislation). Broadly this will involve older Australians or people with disabilities transferring their home to their adult children in return for the promise of ongoing housing and care. 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.
For many of our clients, these items listed above will be the most significant items from the 2020 Federal Budget. There are some significantly favourable items in there for businesses but it appears that Australia’s debt will be paying for it in the short term.
Let us know if you have any questions on these items.
Ph: (02) 6884 5542
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