COVID-19 has resulted in the most severe global economic crisis since the Great Depression.
The 2020/21 Federal Budget is an attempt to lift the Australian economy, gain fiscal strength and provide support to keep Australians in work and businesses in business.
The Budget further highlights additional support in response to the health and economic effects of the COVID-19 pandemic and implements the next phase of Australia’s COVID-19 Economic Recovery Plan to create jobs, drive sustainable, private sector led growth while continuing to deliver the essential services on which Australians rely.
Australia’s economic response to the COVID-19 pandemic in the form of the original and extended JobKeeper scheme, the cashflow boosts and the enhanced JobSeeker payment has come at a significant cost, Mr Frydenberg said, resulting in a budget deficit of $213.7b, falling to $66.9b by 2023/24.
The government has proposed to bring forward by two years individual tax cuts legislated to start in 2022/23, meaning as of the 2020/21 income year the 19% threshold will be lifted from $37,000 to $45,000 and the 32.5% threshold lifted from $90,000 to $120,000. The low and middle income tax offset will also be retained for an additional year.
In a major boost to business investment, immediate deductions for asset purchases of any value will be available to businesses with a turnover of up to $5b, until June 2022. Other measures include further refinement of proposed changes to the R&D tax incentive, FBT and CGT exemptions. The Budget papers also list in an appendix, measures and policy decisions previously announced and published in the July 2020 Economic and Fiscal update.
Find out below what this means for you, your family, or your business.
Tax relief for individuals
As part of the 2020/21 Budget the Government will bring forward Stage two of the Personal Income Tax Plan by two years. From 1 July 2020:
- the low income tax offset will increase from $445 to $700;
- the top threshold of the 19 per cent tax bracket will increase from $37,000 to $45,000; and
- the top threshold of the 32.5 per cent tax bracket will increase from $90,000 to $120,000.
In 2020/21, low-and middle-income earners will continue to receive an additional benefit of up to $1,080 from the low and middle income tax offset (LMITO). More than 7 million individuals are expected to receive tax relief of $2,000 or more for the 2020/21 income year compared with 2017/18 tax settings. Low and middle income tax payers will receive relief of up to $2,745 for singles and $5,490 for dual income families.
The Government also announced that it will provide a Capital Gains Tax (CGT) exemption for granny flat arrangements where there is a formal written agreement for a family member to reside on the relevant property.
Tax relief for business
- Businesses with a turnover of up to $5 billion will be able to immediately deduct the full cost of eligible depreciable assets acquired from 7:30pm (AEDT) on 6 October 2020 and first used or installed by 30 June 2022.
- Small businesses using simplified depreciation pools can deduct the entire balance of the pool at the end of the income year while full expensing applies. This means that effectively, the small business depreciation pools may have up to 30 June 2022 to access this asset write-off concession.
- The Government will temporarily allow companies with a turnover of up to $5 billion to offset tax losses against previous profits on which tax has been paid. Losses incurred to June 2022 can be offset against prior profits made in or after the 2018/19 financial year.
- The Budget provides $105 million in tax relief to expand access to a range of small business tax concessions by lifting the aggregated annual turnover threshold for these concessions. Businesses with an aggregated annual turnover between $10 million and $50 million will be able to access up to ten small business tax concessions. The expanded concessions will apply in three phases, with the first phase starting from 1 July 2020. The concessions include:
- From 1 July 2020, immediate deductions for certain capital start-up expenses and certain prepaid expenditure.
- From 1 April 2021, FBT exemptions for car parking and work-related portable devices, that currently only apply to small business employers with aggregated turnover of less $10 million will be extended to those with aggregated turnover of up to $50 million.
- From 1 July 2021, access to simplified trading stock rules, a two year period for amendment of income tax assessments (excluding entities that have significant international tax dealings) and simplified accounting method to apply for GST.
- The Government will also enhance previously announced reforms to invest an additional $2 billion through the Research and Development Tax Incentive. These changes will commence from 1 July 2021. For companies with aggregated annual turnover of less than $20 million, the refundable R&D tax offset will be set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed. Companies that qualify for the refundable R&D tax offset will continue to receive 43.5% for the current tax year and into the foreseeable future as the company tax rate is proposed to reduce to 25% from next financial year.
- Taking effect from 2 October 2020, there will be a new FBT exemption for employers who provide retraining or re-skilling benefits for their employees whose roles are being made redundant.
- Victorian Government business support grants for small and medium businesses will be non-assessable-non-exempt income for income tax purposes. This will extend to all States and Territories on an application basis. Eligibility will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.
- Companies that are incorporated offshore will be treated as Australian tax residents where there is a “significant economic connection to Australia”. The test will be satisfied where both the company’s core commercial activities are undertaken in Australia, and its central management and control is in Australia.
JobMaker Hiring Credit
A $4 billion JobMaker Hiring Credit will be payable for up to 12 months for each new job and is available from today to employers who hire eligible employees aged 16-35. The Hiring Credit will be paid quarterly in arrears at the rate of $200 per week for those aged between 16-29, and $100 per week for those aged between 30-35.
Eligible employees are required to work a minimum of 20 hours per week. To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created.
Commencing 1 July 2021, the Your Future, Your Super package will improve the superannuation system by:
- Having your superannuation follow you: preventing the creation of unintended multiple superannuation accounts when employees change jobs.
- Making it easier to choose a better fund: members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings.
- Holding funds to account for underperformance: to protect members from poor outcomes and encourage funds to lower costs the Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members.
- Increasing transparency and accountability: the Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require superannuation funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.
- The Government will make two separate $250 economic support payments from November 2020 and in early 2021 to eligible benefit recipients and health care card holders.
- The Coronavirus Supplement paid to eligible benefit recipients has changed to $250 per fortnight from 25 September 2020 and continues to 31 December. The income free area changes to $300 with a 60c taper rate.
- Announcement of the 2020 Women’s Economic Security Statement providing $240.4 million over 5 years from 2020/21 to support women’s economic security and increased female workforce participation.
- Extension of the work test period for Parental Leave Pay and Dad and Partner Pay for those whose employment was interrupted by COVID-19.
- Provision of $2.0 billion over four years from 2020/21 to further support older Australians accessing aged care by providing additional home care packages as well as continuing to improve transparency and regulatory standards.
- A further $812.8 million over four years from 2019/20 to support older Australians throughout the COVID-19 pandemic including additional access to short-term home support services, guaranteeing supply of food for older Australians who are frail or self-isolating during COVID-19, and additional support to residents of aged care facilities who temporarily leave care to live with their families.
The information in this article contains general advice and is provided by ExpertSuper™ Pty Ltd as an authorised representative of Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (available here) for contact information and information about remuneration and associations with product issuers.This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article (7 Oct 2020) and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.