2020/21 FEDERAL BUDGET NEWSLETTER

On the 6th of October, 2020 Federal Treasurer Josh Frydenberg delivered the 2020/21 Federal Budget. This Budget has been shaped by the current coronavirus pandemic. Here are the major points we think you should be aware of:

Income Tax Rates
The Government has announced to bring forward its previously proposed tax cuts.
The first stage was delivered in the financial year commencing 1st July, 2018.
The second stage was proposed to be delivered in the financial year commencing 1st July, 2022 but has now been moved to the current financial year that commenced on 1 July, 2020.
The changes proposed for the financial year that commenced 1 July, 2020 are highlighted in the table below:

Rate Current Federal Budget Proposed

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For those earning $60,000 a year this represents a $1,080 saving for this year. For those earning $120,000 this is a saving of $2,430.
There is a final stage of tax cuts to come, these remain scheduled for the financial year commencing 1 July, 2024.
 
Low Income Tax Offset
The Government has announced to bring forward its previously proposed Low Income Tax Offset increase.
The proposed increase was previously announced to be delivered in the financial year commencing 1 July, 2022 but has now been moved to the current financial year that commenced on 1 July, 2020.
The increase in the Low Income Tax Offset being brought forward proposes for the offset to increase from $445 to $700.
The Low and Middle Income Tax Offset also remains available in the financial year that commenced 1 July, 2020, with a maximum offset available of $1,080.
With both of these tax offsets available for the 2020/21 financial year effectively results in most individuals under aged pension age having no income tax payable for taxable incomes under $23,226.  
 
Income Support
Additional financial support was announced for those receiving income support. There will be two more tax-free payments of $250 to the following groups:

  • Family Tax Benefit (either A or B)

  • Age Pension

  • Commonwealth Seniors Health Card Holders

  • Pensioner Concession Card holders (not in receipt of a primary income support payment)

  • Disability Support Pension

  • Carer Payment

  • Carer Allowance (not in receipt of a primary income support payment)

These payments will commence in November 2020, followed by the second payment early in 2021.
 
Businesses
JobMaker Hiring Credit
A JobMaker Hiring Credit is available for eligible employees, as an incentive for businesses to employ younger employees. Eligible employers will receive:

  • $200 a week for workers employed aged 16-30.

  • $100 a week for workers employed aged 30-35.

The credits which will be claimed quarterly in arrears from the ATO from 1 February, 2021 and will apply for new jobs created from 7 October, 2020 until 6 October, 2021. The credits will be available for each new job created for 12 months from the date the new position is created within the eligible period.
The amount of the credit is capped at $10,400 for each new position created.
Unlike the JobKeeper subsidy, the JobMaker Hiring Credit doesn’t require a fall in turnover by the employer, however the employer must be able to demonstrate an increase in:

  • Total employee headcount at 30 September, 2020; and

  • Payroll for the business in the reporting period ending 30 September, 2020.

To be an eligible employee, the employee must:

  • Be employed on a casual, permanent or fixed term-basis;

  • Work at least 20 paid hours per week on average for the full weeks they were employed over the reporting period;

  • Commenced employment from 7 October, 2020 until 6 October, 2021;

  • Have received the JobSeeker, Youth Allowance or Parenting Payment for at least one month within the past three months before they were hired; and

  • Be in their first year of employment with this employer, and be employed for the period the employer is claiming the credit.

To be an eligible employer, the employer must

  • Have an ABN;

  • Be up to date with tax lodgement obligations;

  • Be registered for PAYG Withholding;

  • Reporting through Single Touch Payroll

  • Claiming in respect to an eligible employee

  • Maintained adequate records of the paid hours worked by the employee

  • Be able to demonstrate the credit is claimed in respect of an additional position that has been created.

Employers receiving JobKeeper are not eligible to receive JobMaker at the same time.
New businesses established after 30 September, 2020 will not be eligible for the first employee hired, however they are potentially eligible for each additional eligible employee they take on and meets the above criteria.
Please consider Fair Work and HR responsibilities on application of this incentive.
 
Full value asset write-off
From 7:30pm AEDT 6 October, 2020 until 30 June, 2022, businesses with a turnover of less than $5 billion, will be able to claim an immediate deduction for the full cost of a new eligible depreciation asset or an improvement to an existing eligible asset in the year the asset is first installed ready for use.
For the same period, businesses with a turnover of less than $50 million the asset can be second hand.
For businesses with turnover between $50 million and $500 million second hand assets costing less than $150,000 are eligible for immediate deduction until 30 June, 2021 (extended from 31 December, 2020).
Businesses with an annual turnover of less than $10 million can claim a deduction for their simplified depreciation pool balance up until 30 June, 2022.
This complements the existing legislation in that businesses can continue to deduct their simplified depreciation pool at the end of the financial year.
In other words – businesses can deduct the full cost of a new asset in the year in which it’s purchased and then continue to use their simplified depreciation pool as they have done in prior years.
It’s worth noting that aggressively depreciating assets may cause cash flow issues later in the assets useful life. If your business is focused on cash flow it’s worth talking to us about these implications and considering the tax benefits now and in the future.
 
Temporary loss carry back for eligible companies
Companies with a turnover of less than $5 billion are able to carry back losses from 2020, 2021 or 2022 financial years to offset profits made in the 2019 financial year or later.
Simply, when a loss is made in these years (2019-2022), then a refund will be given on tax paid from prior years (2019 onward). 

Fringe Benefit Tax (FBT) changes
Retraining and reskilling businesses provide to redundant or soon to be redundant employees where the training does not relate to their current employment will be exempt from FBT from 2 October, 2020. 
 
Superannuation Changes
From 1 July, 2021 reforms are proposed to:

  • ‘Staple’ a superannuation account to a member, with the intent to prevent a new account being created when an individual changes their employment;

  • Test certain superannuation funds (MySuper products) annually, and funds that underperform will need to notify their members. Any fund that underperforms for two consecutive years will not be able to receive new members. This test is planned for further Superannuation products by 1 July, 2022.

Insolvency Reforms
From 1 January, 2021 reforms are proposed to:

  • Streamline incorporated small businesses with liabilities less than $1 million in financial distress to restructure their debt.

  • Simplify the liquidation process for incorporated small businesses allowing for lower cost liquidations, with the intention of allowing more funds available for larger returns for creditors.

Other Matters to remember
Retaining staff - JobKeeper
The JobKeeper Extension end date of 28 March, 2021 has been kept in place as previously announced.
 
Apprentices
Eligible employers can apply for a wage subsidy of 50 per cent of an eligible apprentice or trainee’s wages paid from 1 July, 2020 to until 31 March, 2021. In addition to the existing support for small businesses, medium-sized businesses will now be eligible for the subsidy, for wages paid from 1 July, 2020 to 31 March, 2021.
This rebate can be up to $7,000 per quarter, but cannot be received while receiving JobKeeper.

Please note until legislated the Federal Budget Announcements are only proposed changes.

Please contact our office on 8523 0999 if you need to discuss any of these items in further detail.
 
 
Sources:
Apprenticeships: https://www.australianapprenticeships.gov.au/aus-employer-incentives
2019 Budget: https://budget.gov.au/2019-20/content/tax.htm
2020 Budget – JobMaker: https://budget.gov.au/2020-21/content/jobmaker.htm
JobMaker Hiring Credit fact Sheet: https://budget.gov.au/2020-21/content/jobmaker.htm
ATO https://www.ato.gov.au/General/New-legislation/The-Australian-Government-s-economic-response-to-coronavirus/JobMaker-Hiring-Credit
ABC News: https://www.abc.net.au/news/2020-10-07/federal-government-budget-debt-deficit-reaction/12737270
NTAA 2020/21 Federal Budget

Milanese & Co Accountants