so what does the budget mean for you and your business?
After delivering one of the most anticipated Federal Budgets in my lifetime, the Government clearly are focused on keeping people in jobs before restarting the economy with some interesting growth forecasts for next year.
As a business owner or manager it is important that you are in a position to take advantage of every single dollar of support available so you can protect your business and/or take advantage of the opportunities that will present themselves in the coming years.
These are the top, big-ticket items you need to be aware of:
1. Temporary full expensing of asset purchases
- Immediate tax deduction for the purchase of depreciable assets [including software]
- The deduction has no dollar value limit
- This 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 businesses 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
- Larger businesses [turnover greater than $50 million] get an extension of the existing $150,000 write-off from 31 December 2020 to 30 June 2021
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 emphasize 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.
2. 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
- You need to elect into these rules
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.
3. JobMaker hiring credit
- Employers can claim an amount per week for new younger 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
- The employee must have previously been on JobSeeker, Youth Allowance or the 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.
4. 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 as soon as the legislation receives Royal Assent]
- The majority of the benefit for 2020‑21 will go to those on incomes below $90,000.
- 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 [bought forward from originally legislated Stage 2 tax cuts which were due to be 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 $1,080|
*previously due to be removed with the commencement of the stage 2 tax cuts but still in place until 1 July 2021
- There are already further tax cuts legislated from 1 July 2024.
- The budget documents summarise the tax relief by taxable income, 2020‑21 compared with the 2017‑18 tax rates as follows:
|Taxable income ($)||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.
5. 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 $10m.
- The following measures will now also be available for businesses with a turnover of less than $50m
- 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]
It is difficult to get too excited about the extension of these simplification measures except for the compliance simplification.
6. No further extension of JobSeeker or JobKeeper
- Clearly the government are looking to taper off support measures with JobKeeper which is still ending 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 so they can recover and invest in growth.
7. JobTrainer + apprenticeship support
- Incentives to help upskill and retrain job seekers and young people, including school leavers.
- In addition to the Supporting Apprentices and Trainees Wage Subsidy already announced that supports apprentices and trainees through to 31 March 2021.
- Boosting Apprenticeships Wage Subsidy will pay a 50 per cent wage subsidy, up to a cap of $7,000 per quarter.
Depending on your industry this will provide varying levels of appeal to employers.
8. Deferral of proposed research and development [R+D] changes
- Starting on or after 1 July 2021
- For small claimants (turnover less than $20 million), the Government will increase the refundable R+D tax offset to be at a premium of 18.5% above the corporate tax rate [43.5% for most small business in 2022 FY] and there will be no cap on annual cash refunds.
- For larger claimants [turnover of $20m or more], the intensity test will be streamlined and the non-refundable R+D tax offset will be increased.
- The cap on eligible R+D expenditure will be lifted from $100 million to $150 million per annum.
- These changes apply from 1 July 2021.
- Scrapping of the proposal to cap annual cash R+D refunds at $4 million.
The changes represent somewhat of a back-track from previously announced cuts to R+D tax offsets.
9. 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.
10. Infrastructure spending
- Big focus on ‘shovel ready’ infrastructure projects in all states including a big investment in roads
- Committed on a ‘use it or lose it’ basis to ensure being spent
Opportunities for those connected to the civil construction industries in the regions to benefit from the projects, investing in the efficiency of those regions for the long term.
11. Digital transformation
- Encouraging even greater adoption of new technologies across the economy
- Further investment in $4.5 billion investment in NBN Co
- Digital Identity arrangements to streamline processes to verify identity online when dealing with government
- Business registries to be modernised
- Enabling companies to hold virtual Annual General Meetings and rely on e-signatures
- Commonwealth agencies to receive e-invoices from their private sector suppliers to streamline payments.
- An additional 10,000 places for the Australian Small Business Advisory Service – Digital Solutions program.
With great inroads being made with digital transformation in 2020, it is great to see this continue into the future with some support from the Government.
12. Supporting manufacturing
- The Government will support manufacturing through multiple initiatives to build scale in areas where Australia has the capability to compete with the rest of the world [eg. defence, space, food and beverages, recycling and clean energy, medical products, resource technologies and critical minerals processing industries].
- Includes some initiatives like the Modern Manufacturing Initiative, Supply Chain Resilience Initiative, a second round of the Manufacturing Modernisation Fund and co-investing in certain circumstances.
The Government has obviously realised the importance of building local supply chains and the need to modernise manufacturing for beyond 2020.
Of course, there were a lot 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 [assuming it is supported by the Opposition or minor parties].
The budget relies on some fairly broad economic assumptions but at the end of the day, governments like businesses, do not have certainty around what the future is going to look like. As a business owner or manager, it is wise to be aware of the macro-economic drivers of the economy that could impact demand for your product or service. Some important economic factors noted in this budget for you to be aware of include:
- borrowing costs have never been lower [so the government is borrowing]
- net overseas migration is estimated to be below zero [weakest population growth in more than a century]
- growth rate expected to pick up again in 2021 [off a low base]
- higher unemployment temporarily [which could shift some power to employers]
- bigger spending will not last forever [but they want to spend this money]
- timing of border openings will be critical [as will the availability of a successful vaccine].
Here’s a quick run down of what the Federal Budget means for you and your business.
If you are confused about all the detail and just want to know what the budget means for you, give us a call on 1300BDEPOT or email us at firstname.lastname@example.org and one of our accounting consultants will be happy to help.