Federal Budget 2020-21 Client Summary
Key takeaways
2020-21 Budget results in support of $507 billion, with $257 billion of direct economic support.
Pre-covid there was a forecasted $6.1 billion cash balance surplus (0.3% of GDP) - the result is now an expectation of a 2020-21 underlying cash deficit of $213.7 billion (11% of GDP).
The budget strategy included two phases: a COVID-19 Economic Recovery Plan targeting job creation, and a medium-term phase with a focus on stabilising and reducing debt as a share of GDP.
The Treasurer has indicated that “budget repair” will not take place until the unemployment rate falls below 6 per cent, which is not expected before 2023–24.
Of the 1.3 million people who lost their job, or who were stood-down with zero hours in April, almost 60 per cent or 760,000 are now back at work.
Personal income tax cuts
Capital Gains Tax (CGT) exemptions
Housing ownership support
Business and investment support
New JobMaker Hiring Credit
R&D and manufacturing support
Super crack down and support
Fringe Benefit Tax (FBT) exemptions
Additional support for pensioners and other eligible participants
Education, skills and apprenticeships investment
Important Changes
Personal income tax cuts
An additional $17.8 billion in personal income tax relief to support the economic recovery, including an additional $12.5 billion over the next 12 months. Individuals will benefit from bringing forward the tax cuts in Stage 2 of its Plan, as well as a one-off additional benefit from the low- and middle-income tax offset in 2020-21. This will provide around 11.6 million individuals with a tax cut in 2020-21, compared with 2017-18 settings. In 2020-21, low- and middle-income earners will receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families, compared with 2017-18 settings. The majority of the benefit for 2020-21 will go to those on incomes below $90,000. When the Plan is fully implemented in 2024-25, around 95 per cent of taxpayers are expected to face a marginal tax rate of 30 per cent or less.
Capital Gains Tax (CGT) exemptions
A targeted CGT exemption will be available for the creation, variation or termination of formal written granny flat arrangements, where the property is the “principal home” of the taxpayer. The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from 1 July 2021.
Housing ownership support
Support for first home buyers: In 2020-21, an additional 10,000 first home buyers will be able to take advantage of the First Home Loan Deposit Scheme. These places will support the purchase of a new or new built home with a deposit as little as 5% - with the Government guaranteeing up to 15% of the loan.
Business and investment support
JobMaker Hiring Credit: Gives businesses incentive to take on additional young job seekers aged 16 to 35. This will be available from 7 October 2020 for each new job created where an eligible young person is hired over the next 12 months. An eligible employee must have received JobSeeker, Youth Allowance, or Parenting Payments for at least one of the previous three months at the time of being hired. For each of these employees, for up to 12 months employers will receive $200 per week for those hired aged 16 to 29 years, or $100 per week for those aged 30 to 35 years. To be eligible, employers must: demonstrate they have increased overall employment and report the employee payroll information through STP.
Depreciable asset measures: Businesses with an aggregated annual turnover of less than $50 million have an additional six months to claim the first use or install ready for use $150,000 instant asset write-off, until 30 June 2021.
Temporary full expensing: From 7:30pm (AEDT) on 6 October until 30 June 2022, business (with turnover up to $5 billion) can deduct the full cost of eligible depreciable assets of any value in the year they’re installed. Additionally, the cost of improvements to any existing eligible depreciable assets made during this period can also be fully deducted. Businesses may also deduct the cost of acquiring second-hand assets. These measures reduce the after tax cost of eligible assets, which provides a cash flow benefit to your business by reducing tax payable at tax time.
The following points should be noted:
The car limit ($59,136 for 2020–21) still applies to cars.
Buildings and Division 43 capital works cannot be fully expensed.
Assets covered by Subdivisions 40-E and 40-F of the ITAA 1997 (about low-value pools, software development pools and primary production assets) cannot be fully expensed.
Small business entities will be required to fully expense any general small business pool balances as at 30 June 2021.
Businesses are unable to choose whether they fully expense eligible assets.
Expanded access to small business tax concessions: Roughly 20,000 SMEs with turnover of less than $50 million will now be able to access up to ten small business tax concessions for the first time (previously only available to those with turnovers under $10 million).
Loss Carry Back: Offsetting losses against previous profits on which tax has been paid to generate refunds is available for companies with a turnover up to $5 billion. Eligible companies may be able to elect to receive a tax refund when they lodge their 2020-21 and 2021-22 tax returns. You can choose to carry back all or some of the tax losses made in 2019-20, 2020-21 or 2021-22 against the tax paid on profits from 2018-19, 2019-20 or 2020-21. There is no cap on the amount of the tax offset that can be claimed, so it is only limited to the amount of tax paid in relation to the previous income years, and capped at the amount of the franking account surplus at the end of the year the claim is made.
The following points should be noted:
Only Corporate Tax Entities (CTEs) are eligible, namely companies. Sole traders, partnerships and trusts are ineligible for loss carry back.
The loss carry back tax offset is a refundable tax offset, providing a loss company with a cash refund for the tax paid in a prior year(s).
The company can choose to either carry-back or carry-forward the tax losses.
The offset is claimed in either the 2020–21 or the 2021–22 tax return.
The offset cannot be claimed for capital losses.
The entity must have lodged a tax return for the year of claim and each of the five years immediately preceding it.
The offset is not subject to a continuity of ownership or business continuity test.
An integrity rule will apply to schemes entered into for a purpose of obtaining the offset.
A company must have taxable income in one or more of the preceding income year(s) no earlier than the 2018-29 year. Start up companies or companies with tax that have only generated tax losses during this period will not be eligible to claim the offset, as they have no prior liabilities to offset the loss against.
New JobMaker Hiring Credit
The Government’s new JobMaker Hiring Credit will help to accelerate growth in employment during the recovery by giving businesses incentives to take on additional employees that are young job seekers aged 16 to 35 years old. The JobMaker Hiring Credit is a key part of the Government’s JobMaker Plan to boost Australia’s economic recovery.
R&D and manufacturing support
From 1 July 2021, the following changes will come into place. For Small to Medium Enterprises (SMEs) with a turnover of less than $20 million, the Government is increasing the refundable R&D tax offset to 18.5% above the company tax rate, with no cap on annual cash refunds. For larger businesses, the non-refundable R&D tax offset will be increased based on a 2 tier R&D intensity test. There will be a baseline rate of 8.5% above the tax rate against eligible R&D expenditures, and an additional 16.5% above the company tax rate against R&D expenditures that exceed the baseline 2% intensity test. The cap on eligible R&D expenditure will be raised from $100 million to $150 million per annum.
Modern Manufacturing Strategy: The Government is investing through the Modern Manufacturing Initiative. This money will be co-invested with world‑leading manufacturers to help them achieve scale, commercialise our world-leading research, and connect to international markets. The Government is building our resilience for the future by investing into the Supply Chain Resilience Initiative to identify and address supply chain vulnerabilities of key products. The Government is also helping small and medium manufacturers with a second round of the Manufacturing Modernisation Fund, which will assist manufacturers to scale-up, invest in new technologies, create and maintain jobs and up-skill their workers. A further $50 million of immediate support is being provided to manufacturing priority industries.
Super crack down and support
Australians will now automatically keep their superannuation fund when they change employers.
The Government is now holding funds to account for their performance, with funds now required to meet an annual performance test. If not met, they will be required to write to inform members and give them the option to move to a better performing fund. Funds that continue to underperform will no longer be allowed to receive new members until they improve their performance.
YourSuper comparison tool: This new online comparison tool will make comparing the performance of MySuper products easier.
Early access to super: Up to 31 December 2021, those adversely affected by the impacts of COVID-19 can access a further $10,000 of their super.
Fringe Benefit Tax (FBT) exemptions
To support retraining and re-skilling, the Government is introducing (from announcement) an FBT exemption for employer-provided skills and retraining activities for those employees redeployed in a different role, or soon to be redundant employees, will be FBT exempt.
The Government will provide the Commissioner the power to allow employers to rely on existing corporate records to finalise their returns, effective from the 1 April 2021.
Additional support for pensioners and other eligible participants
Additional income support: for new and existing income support recipients a temporary Coronavirus Supplement is available until 31 December 2020 at a rate of $250 per fortnight.
Pensioner support: In addition to the two previous Economic Support Payments of $750 to social security and other eligible recipients, two additional payments of $250 to pensioners and other eligible recipients will be made.
Reduction in social security deeming rates: From 1 May 2020 the social security deeming rates were reduced, with the lower being 0.25% and the upper of 2.25%. Social security deeming rates are used to determine the amount of income that an individual is ‘deemed’ to earn from financial investments, like cash deposits or listed securities, irrespective of the actual amount of income earned. In most cases, the deeming rates apply for the purposes of applying the Age Pension ‘income test’. One of the benefits of a lower deeming rate is that it provides an incentive to invest, as any interest rate achieved above the deeming rates doesn’t count as income.
Temporary reduction in superannuation minimum drawdown requirements: Significant losses in financial markets as a result of the COVID-19 crisis have in many cases had a negative effect on the account balance of superannuation pensions or annuities. To assist retirees, the Government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in the 2019–20 and the 2020–21 financial years.
Education, skills and apprenticeships investment
JobTrainer: The Government’s JobMaker Plan includes the establishment of the JobTrainer Fund, with funding matched between the Commonwealth and state and territory governments. The Fund will support up to 340,700 additional free or low-fee training places in areas of genuine need to help up-skill and retrain job seekers and young people, including school leavers.
Boosting Apprenticeships Wage Subsidy: This will support up to 100,000 new apprentices and trainees by paying a 50 per cent wage subsidy, up to a cap of $7,000 per quarter, for commencing apprentices and trainees at businesses of all sizes, in all industries, and in all locations.
Jobseeker Support: The creation of a new Digital Employment Services platform, with funding to provide more individualised support to online job seekers, and the provision of more efficient and accessible support.
Websites references:
https://budget.gov.au/2020-21/content/overview.htm
https://www.charteredaccountantsanz.com/news-and-analysis/