It's been coined the "once in a generation" budget, with parallels not seen since The Second World War (Business NSW).
This year's budget commits further response & recovery, with the overall support now up to $507 billion. The Federal Treasurer announced record deficits of $213.7 billion for the 2020-21 and $480.5 billion over the forward estimates.
Updates for Income Tax
Personal Income Tax Rates
The government will be bringing forward changes to the personal income tax rates. These were due to apply from 1 July 2022 but now will apply from 1 July 2020. 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 brack from $90,000 to $120,000
These changes are illustrated in the below table from National Tax and Accountants Association (which excludes the Medicare Levy).
The legislated tax rate changes effective from 1 July 2024 remain unchanged. These include:
- Abolishing the 37% personal income tax bracket
- Reducing the 32.5% personal income tax bracket, and
- Increasing the upper threshold of the reduced 30% taxk bracket from $120,000 to $200,000.
Changes to the Low Income Tax Offset (LITO)
Another change brought forward from 1 July 2022 to 1 July 2020 is the Low Income Tax Offset (LITO), as follows:
- The maximum LITO will be increased from $445 to $700
- The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
- The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,000 and $66,667.
Table from National Tax and Accountants Association.
Updates for SME's
Uncapped immediate write-off for depreciable assets
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 (including software), in the year the asset is first used or installed ready to use.
- The deduction has no dollar value limit
- This replaces the ‘Instant Asset Write-Off’ that limited purchases up to $150,000 and due to finish in December 2020
- For relevant purchases from 7:30pm (AED) on 6 October 2020 until 30 June 2022
- Includes improvements to existing eligible depreciating assets
- Includes the purchase of second-hand assets for businesses with a turnover less than $50 million
If your business is larger, with a turnover greater than $50 million, you receive an extension of the existing $150,000 write-off from 31st December 2020 to 30 June 2021.
Important: This initiative still only results in a tax deduction reducing the after-tax cost of an investment. This is great for encouraging investment and for matching cashflow timing with the tax deduction.
Temporary loss carry back
The Government announced that it will introduce measures to allow companies with a turnover 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.
This is a good initiative for those who are struggling, eliminating the tax timing issues of an economic crisis while rewarding those that have previously contributed to tax revenues.
JobMaker hiring credit
To support young people looking for work, the Government has rolled out the JobMaker hiring credit. If your business takes on a jobseeker, you may be eligible for the below amounts for up to 12 months:
- $200 a week for an eligible young person aged 16-29 years old
- $100 a week for a young person aged 30 to 35
Employers must demonstrate they have increased their overall employment. This will help employers get young people back into work, ensuring we don’t lose a generation of workers to this crisis. It is estimated the $4 billion scheme will support around 450,000 young Australians into jobs. (Business NSW).
Apprentice & Trainee Subsidy
The Government has announced a $1.2 billion package for employers taking on new apprentices or trainees. The subsidy extends support for existing apprentices and trainees. The 50 per cent wage subsidy will support 100,000 new positions, a vital step towards maintaining a pipeline of skilled workers at a financially difficult time for business.
Expanded small business concessions
More companies will be able to access a range of small business tax concessions currently only available to ‘small business entities’ with a turnover of less than $10 million. The below measures will now also be available to ‘small business entities’ with a turnover of less than $50 million,
- Immediate deductions for certain startup costs and prepaid expenses (from 1 July 2020)
- Various small business FBT exemptions (from 1 April 2021)
- Simplified trading stock rules (from 1 July 2021)
- Simplified accounting method for GST purposes (from 1 July 2021)
Business tax concessions
An additional $2 billion will be invested through the R&D Tax Incentive, including increasing the refundable R&D tax offset and removing the cap on annual cash refunds for small claimants. Larger claimants will be subjected to a streamlined intensity test with the cap lifted from $100 million to $150 million a year.
Businesses will also receive FBT tax concessions if they pay to retrain or reskill workers. Businesses with an annual turnover of between $10 million and $50 million will gain access to up to ten small business tax concessions.
This will include being able to immediately deduce certain start-up expenses, as well as FBT exemptions for car parking and eligible work-related electronic devices.
No further extension of JobSeeker or JobKeeper
There was no announcements around extensions of these, with the Government clearly shifting focus out of support mode and into recovery and investment into growth. JobKeeper is still set to end in March 2021.
Other Measures & Announcements
Lots of additional small measures and announcement in the Federal Budget including;
- employment and entrepreneurship programs for women,
- Victorian Government grants announced as non-assessable, non-exempt income for income tax purposes,
- previously announced changes to insolvency rules,
- supporting pensioners with two extra $250 payments,
- modernising record keeping requirements for Fringe Benefits Tax for employers and employees,
- support for the regions including investment in water infrastructure and incentives for on-farm dams, tanks and troughs
- investment in mental health,
- some refining of the corporate tax residency test,
- exempting employer-provided retraining activities for employees from FBT,
- previously announced reductions in social security deeming rates,
- reductions in minimum superannuation drawdown requirements, and
- 'Your Super’ system to avoid waste and inefficiencies with lost super.
As always, none of this is legislation until it receives Royal Assent.