so what does the 2020-21 federal budget mean for you and your real estate business?
At the moment the real estate industry is thriving in some regions yet in others [like Melbourne], it has pretty much come to a standstill and the focus is on surviving. The 2020-21 Federal Budget is, therefore, more important for you than probably ever before – not because you are looking for some short-term cash handouts but because you need the economy to be growing again as soon as possible.
Whether you are a real estate business owner, manager, high performing salesperson or property manager, there are some opportunities in this budget for everyone.
These are the most important bits in the budget for the real estate industry:
1. Individual tax cuts brought forward
- Backdated to 1 July 2020 so it has an immediate impact on the after-tax pay packet of individuals [something unusual but obviously an initiative to encourage spending asap]
- The majority of the benefit for 2020‑21 will go to those on incomes below $90,000 but pretty much everyone will gain in some way.
- 3 key changes to individual tax:
- Low income tax offset increases from $445 to $700 [a $255 increase in tax relief]
- Top threshold of the 19% bracket will increase from $37,000 to $45,000.
- Top threshold of the 32.5% bracket will increase from $90,000 to $120,000.
- New rates and thresholds from 1 July 2020 [brought forward from originally legislated tax cuts which were due to come effective 1 July 2022]
|Current rates in 2020-21||Current thresholds in 2020-21||New rates in 2020-21||New thresholds in 2020-21|
|Nil||Up to $18,200||Nil||Up to $18,200|
|19 per cent||$18,201–$37,000||19 per cent||$18,201–$45,000|
|32.5 per cent||$37,001–$90,000||32.5 per cent||$45,001–$120,000|
|37 per cent||$90,001–$180,000||37 per cent||$120,001–180,000|
|45 per cent||Above $180,000||45 per cent||Above $180,000|
|Plus Medicare Levy of 2%||Plus Medicare Levy of 2%|
|Low income tax||Up to $445||Low income tax||Up to $700|
|Low and middle income tax offset||Up to $1,080||Low and middle income tax offset*||Up to $1,080|
*previously due to be removed with the commencement of the stage 2 tax cuts but still in place until 1 July 2021
- Remember there are already further tax cuts legislated from 1 July 2024.
- The budget documents summarise the tax relief by taxable income, 2020‑21 compared with the 2017‑18 tax rates as follows:
|Taxable Income ($)||Tax Liability ($)||Tax Liability ($)||Change in Tax ($)||Change in Tax (%)|
These tax cuts are relevant for business owners even if they operate through a company structure as the individual income tax rates are the ultimate tax rates payable for individuals when they take cash out of a company.
2. Temporary full expensing of asset purchases
- Immediate tax deduction for the purchase of depreciable assets [including software]
- Deduction has no dollar value limit
- Replaces the ‘Instant Asset Write-off’ that was limited to purchases of up to $150,000 and was due to finish 31 December 2020
- Only applicable to business with turnover less than $5 billion
- Relevant for purchases from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022 in the year they are installed ready for use
- Includes improvements to existing eligible depreciable assets
- Includes the purchase of second-hand assets for businesses with turnover less than $50 million
It was anticipated that the instant asset write-off would be extended past 31 December, but this is definitely a step further.
It is important to emphasise that this initiative still only results in a tax deduction reducing the after-tax cost of an investment which is great for encouraging investment and for matching cashflow timing with the tax deduction.
3. Temporary loss carry-back provisions
- Companies can offset any overall tax losses incurred in 2019-20, 2020-21 and 2021-22 against profits on which tax has been paid in or after 2018-19
- Must not generate a franking account deficit
- Will create a refund of tax paid in the previous 2 years
- Applicable for businesses with turnover up to $5 billion
- Need to elect into these rules
This is a good initiative for those that are struggling, eliminating the timing issues of an economic crisis while rewarding those that have previously contributed to tax revenues.
4. JobMaker hiring credit
- Employers can claim an amount per week for new employees hired as follows:
- 16-29 years of age = $200 per week
- 30-35 years of age = $100 per week
- Available from 7 October 2020 to 6 October 2021
- Employee must have previously been on JobSeeker, Youth Allowance or Parenting Payment for at least one of the previous 3 months at the time of hiring
- Need to increase the overall headcount of employees [cannot terminate older employees and replace with younger employees to attract the credit]
- New employees must work at least 20 hours per week
- Employers must be reporting payroll through Single Touch Payroll [STP]
Although there is some concern that older employees will become less attractive as a result of these credits it is attempting to address a concern about younger people being most disadvantaged on a long-term basis during an economic crisis.
5. No further extension of JobSeeker or JobKeeper
- Clearly the government are looking to taper off support measures with JobKeeper still planned to end in March 2021
- No announced extension of the Coronavirus Supplement for those on JobSeeker past 31 December 2020 [currently at a rate of $250 per fortnight]
The government is clearly shifting focus from support mode to empowering businesses to recover and invest in their growth.
6. First home buyers
- Expansion of previously announced first home buyers support providing $25,000 to build a new home or to rebuild
- Extension of First Home Loan Deposit Scheme to support first home buyers to buy with a deposit as low as 5%
Continued support for first home buyers will be welcomed by the construction industry and property developers.
7. CGT exemption for granny flat arrangements
- Targeted capital gains tax (CGT) exemption for granny flats where there is a formal agreement in place
- This is to remove negative tax consequences for the property owner while at the same time looking to support older parents or those with disabilities.
- Formal granny flat interests within the meaning of s 12A of the Social Security Act 1991.
- Property must be a principal home [not a rental property]
Of course, there were a lot more measures and announcement in the Federal Budget including;
- JobTrainer + Apprenticeship Support
- employment and entrepreneurship programs for women,
- previously announced changes to insolvency rules,
- supporting pensioners with two extra $250 payments,
- some back-tracking of changes to the R&D Tax Offset,
- modernising record keeping requirements for Fringe Benefits Tax for employers and employees,
- investment in mental health,
- support for regions,
- digital transformation initiatives,
- investment in infrastructure,
- exempting employer-provided retraining activities for employees from FBT,
- previously announced reductions 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 [assuming it is supported by the Opposition or minor parties].
If you are confused about all the detail and just want to know what the budget means for you or your business … give us a call on 1300BDEPOT or email us at firstname.lastname@example.org to talk to a real estate accountant who will be happy to help.