Over the last 10 months, we have experienced conditions we have never seen before. As a result of the COVID-19 pandemic, both the Federal Government and the State Governments have had to take significant actions to minimise the transmission of COVID-19 within Australia. As a result of those actions, there has been large-scale disruption of all business activities and consequently, employment in Australia.
Both the Federal Government and State Governments have already implemented stimulus measures, the extent to which Australia has never seen before. However, in order to ensure the continued survival of businesses and the maintenance of their employees, it is necessary for the Federal Government to provide further stimulus measures to protect the economy. The 2020-2021 Federal Budget has sought to achieve this on an unprecedented scale.
Individual measures announced
The Federal Government previously announced a plan to progressively adjust the marginal tax rates of individual taxpayers over several years so as to reduce their tax payable. Stage 1 tax cuts were implemented from 1 July 2017. Stage 2 of the tax cuts was scheduled to be introduced from 1 July 2022. Further Stage 3 tax cuts were scheduled to be introduced from 1 July 2024.
As a result of the current economic environment, the Federal Government has announced that it proposes to bring forward its Stage 2 tax cuts immediately and effective from 1 July 2020 (i.e. the current financial year).
More specifically, the Federal Government propose to provide the tax cuts by increasing the 19% tax rate threshold from the current $37,000 to $45,000 (providing a maximum saving of up to $1,080) and increasing the 32.5% tax rate threshold from the current $90,000 to $120,000 (providing a maximum saving of up to $1,350).
If the tax cuts are approved in Parliament, the tax withholding tables will be adjusted immediately and the balance of the tax cut will be provided when the individual lodges their 2021 financial year income tax return.
In addition to announcing the above tax rate cuts, the Federal Government has advised that the Low Income Tax Offset will increase from $445 to $700 meaning that those taxpayers with taxable income of below $37,000 will still obtain an immediate tax saving.
Based on the Federal Budget announcements, the following table illustrates the tax savings that taxpayers will obtain:
|Taxable Income||Tax Liability in 2020 FY||Tax liability for 2021 FY||Tax Saving|
CGT exemption for granny flats
The Government announced a CGT exemption for the creation, variation or termination of granny flat arrangements. The CGT exemption will apply to family relationship arrangements and will not apply to commercial rental arrangements.
The above measure will ensure that the property owner does not crystallise any adverse tax implications as a result of the arrangements they implement with their family members.
Business measures announced
Increased access to Small Business Entity tax concessions
In the Federal Budget, the Government confirmed that the turnover threshold for an entity to qualify as a Small Business Entity will be increased from $10M to $50M and that businesses with turnover of between $10M – $50M will progressively obtain tax concessions currently available to businesses with turnover under $10M.
The phasing of the tax concessions available to businesses with turnover of between $10M – $50M will be as follows:
- From 1 July 2020, these businesses will be able to claim an immediate tax deduction for start-up expenses and certain prepaid expenses.
- From 1 April 2021, these businesses will not be subject to FBT on the provision of car parking fringe benefits and/or multiple work related portable electronic devices to staff
- From 1 July 2021, these businesses:
- Will be eligible to apply simplified trading stock rules and remit PAYG instalments based on GDP adjusted notional tax;
- Will have a 2 year amendment period rather than a 4 year amendment period; and
- Will have access to Simplified Accounting Method determinations in relation to the reporting of GST.
Immediate tax deduction for purchase of business assets
Under this Federal Budget measure announced, businesses with turnover of under $5B will be able to claim an immediate tax deduction for the cost of purchasing new capital assets from 6 October 2020 which are subsequently installed and ready for use in the business by 30 June 2022.
In addition, businesses with turnover of less than $50M will be eligible to claim an immediate tax deduction for the cost of second-hand capital assets that are purchased during the above timeframe.
There is no upper threshold for the amount of the deduction that could be claimed under the above provision. As a guide, the Budget Papers give the example of an agricultural business which has annual turnover of $20M being able to claim an immediate tax deduction for the purchase of a new combine harvester costing $600,000.
Businesses with turnover of between $50M and $500M will still be eligible to access the current instant asset write-off concession introduced earlier this year to claim an immediate tax deduction for the cost of second hand assets purchased for less than $150,000 that are purchased by 31 December 2020 and installed ready for use by 30 June 2021. After 31 December 2020 however, these businesses will not be eligible to claim an immediate tax deduction for the purchase of second-hand capital assets.
The introduction of the above tax deduction entitlement together with the introduction of the loss carry-back rules later discussed could result in companies being eligible to obtain a tax refund in relation to their capital investment in assets.
Immediate tax write-off of Small Business Entity Simplified Depreciation Pool
In conjunction with the above deduction measures for investment in capital assets, the Federal Government has announced that during the period between 6 October 2020 and 30 June 2022, businesses with turnover of less than $10M will be eligible to fully write-off the balance of their simplified depreciation pool.
For example, a business with turnover of $6M that has a simplified depreciation pool balance of $500,000 as at 30 June 2021 would be eligible to claim an immediate tax deduction for the $500,000.
Temporary loss carry-back measures for companies
Australia previously had a loss carry-back regime that was removed. In the Federal Budget, the Government announced that a temporary loss carry-back regime will be reintroduced for the 2020, 2021 and 2022 financial years.
The loss carry-back regime will be available to companies with turnover of under $5B.
The loss carry-back regime will work by allowing companies that make tax losses in the 2020, 2021 or 2022 financial years to apply those losses against previous taxable profits made by the entity from the 2019 financial year or later. The amount of the loss carry-back will be capped to the lower of the company tax paid and the balance of the franking account of the company.
For example, under the announced rules, a company that made a taxable profit of $1M in the 2019 financial year and a tax loss of $700,000 in the 2020 financial year with a sufficient franking account balance would be eligible to apply the tax loss from the 2020 financial year against the taxable profit made in the 2019 financial year. In this example, assuming the company had turnover of less than $50M, the company would be eligible to obtain a tax refund of the tax they paid in the 2019 financial year of say $192,500 ($700,000 @ 27.5%). The refund would be payable as and when the company lodges its 2020 year income tax return.
Introduction of JobMaker hiring credit
A new JobMaker hiring credit will be made available for employers between 7 October 2020 and 7 October 2021 for each new eligible employee they hire during the period.
The JobMaker hiring credit will be $200 per week if the eligible employee hired is between 16 – 29 years of age or $100 per week if the eligible employee hired is between 30 – 35 years of age.
To be eligible for the JobMaker hiring credit, the employee hired must work for a minimum 20 hours per week and have received JobSeeker, Youth Allowance or Parenting Payment for at least one month out of the three months prior to being hired.
Furthermore, to be eligible for the JobMaker hiring credit, the business must be able to demonstrate that they have increased their ‘head-count’ of staff as compared to 30 September 2020 and have increased the total payroll of their business during the 3 month reporting period as compared to the 3 month period to 30 September 2020.
Wage subsidy for new apprentices
As previously announced before the Federal budget, a new wage subsidy will be introduced to encourage the hiring of apprentices. The subsidy will represent up to 50% of the wages of the apprentice capped to $7,000 per quarter.
The Government announced that the subsidy provided will be capped to the first 100,000 new apprentices.
Increasing R&D tax benefits
For companies with turnover of less than $20M, the Federal Government announced that effective from 1 July 2021, the R&D refundable tax offset will be set at 18.5% above the company’s tax rate (as compared to the current 13.5%). This will provide additional incentive for these size companies to undertake R&D activities.
The Government also announced changes to the proposed intensity tier R&D rules that are proposed to apply to companies with turnover of more than $20M from 1 July 2021.
Altering company tax residency rules
As a result of a recent court decision and following an ATO ruling, great uncertainty existed in relation to the circumstances in which a foreign incorporated company could be treated as a tax resident of Australia on the basis of its central management and control existing from within Australia.
In the Federal Budget, the Government announced that it would amend the rules to ensure that a foreign incorporated company could only be treated as being a tax resident of Australia where its core commercial activities were undertaken within Australia and its central management and control was exercised from within Australia. These proposed rules should reduce the circumstances in which foreign incorporated companies are potentially treated as being tax residents of Australia.
Exempting retraining of staff from FBT regime
In the Federal Budget, the Government confirmed their previous announcement that fringe benefits provided by employers to their employees in the form of retraining or reskilling will be exempt from FBT
Non-assessability of grant income
In the Budget, the Federal Government announced that Victorian Government grants announced from 13 September 2020 and paid prior to 30 June 2021 will not represent assessable income of the business. This particular measure could apply to a raft of Victorian Government grants recently announced such as the Licensed Hospitality Venue Fund, Outdoor Eating and Entertainment Package Business Grants, Sole Trader support fund and the Third Round Business Support Fund.
If you have any questions relating to the Federal Budget and how it may impact you, please do not hesitate to get in touch with us via your Banks Group representative, (03) 9810 0700 or firstname.lastname@example.org.