2020-21 Federal Budget – Update

The Australian Government’s 2020-21 Federal Budget has been designed to increase employment and boost businesses during the ongoing COVID-19 pandemic. Key initiatives in the areas of personal taxation, job creation and infrastructure spearhead an array of economic measures intended to boost production in Australian industry.

Australia’s Economy

In the June quarter this year, the Australian economy contracted by 7%.

Australia’s Treasurer has revealed an expected deficit of $213.7 billion in 2020-21. He announced a deficit fall to $66.9 billion by 2023-24.

Australia’s gross debt will increase to 45% of GDP ($872 billion) this year and then stabilise at around 55% of GDP in the medium term, whilst Australia’s net debt will increase to 36% of GDP ($703 billion) this year and then peak at 44% of GDP in June 2024, declining to less than 40% of GDP in the medium term.

Personal Income Tax Plan

Planned personal income tax cuts have been brought forward by two years and will now apply from 1 July 2020. What this means is…

From 1 July 2020 (subject to legislation being passed), $17.8 billion worth of tax cuts will improve the net income of workers as follows:

Tax Thresholds
Tax Rate	Current	From 1 July 2020
0%	$0 - $18,200	$0 - $18,200
19%	$18,201 - $37,000	$18,201 - $45,000
32.5%	$37,001 - $90,000	$45,001 - $120,000
37%	$90,001 - $180,000	$120,001 - $180,000
45%	>$180,000	>$180,000
LITO	Up to $445	Up to $700

An extension of the LMITO (Low and Middle Income Tax Offset) will mean a tax reduction of up to $1,080 for individuals with a taxable income of up to $126,000 during the 2020-21 financial year.

Economic Support Payments

Eligible recipients will receive two tax-exempt economic support payments of $250 each – one in November 2020 and the second in early 2021. People eligible are those currently receiving and/or holding (*conditions apply):

Age Pension	Pensioner Concession Card*
Disability Support Pension	Commonwealth Seniors’ Health Card
Carer Payment	Veterans’ Affairs Payment*
Family Tax Benefit*	Veterans’ Affairs Concession Card*
Carer Allowance*

Capital Gains Tax – Granny Flats

From 1 July 2021 (subject to legislation being passed), a new measure would provide for a targeted CGT exemption for granny flats where a formal written agreement – family/personal, NOT commercial – is created, varied or terminated for older Australians or Australians with disabilities.

First Home Loan Deposit Scheme

For first home buyers purchasing a new home or a newly-built home, an additional 10,000 places will be available under the First Home Loan Deposit Scheme – from 6 October 2020 until 30 June 2021. This means more people purchasing homes for a minimal 5% deposit without mortgage insurance.

Superannuation

A reform to superannuation will see individuals able to use their current superannuation fund whenever they change employment, thus impeding any duplication of funds. Under this reform, a super fund would be ‘stapled’ to an individual.

From 1 July 2021, if an employee does not nominate a super fund account when they start a new job, an employer will pay the super contributions in to the new employee’s existing super fund – by obtaining information about the new employee’s existing super fund from the ATO. How? An employer will log on to ATO online services and enter the new employee’s details to determine the employee’s existing super fund account.

If an employee does not have an existing super fund account and does not decide upon a super fund, then an employer will pay the super contributions in to the default (company-nominated) super fund.

NEW JobMaker Hiring Credit

A new scheme to help increase employees in businesses has been developed. Called JobMaker Hiring Credit, it is available to eligible employers over 12 months from 7 October 2020 for each new position created.

Eligible employers can receive:

• $200 per week if they hire an eligible employee aged 16 to 29 years
• $100 per week if they hire an eligible employee aged 30 to 35 years

JobMaker Hiring Credit is capped at a maximum of $10,400 per additional new position created.

Employees must:

• Increase overall employee headcount and payroll;
• Work a minimum of 20 hours per week, averaged over a quarter; and
• Have received JobSeeker Payment, Parenting Payment or Youth Allowance for at least one month out of the three months prior to commencing the job.

Capital Asset Investment Deductions

To help businesses with less than $5 billion in turnover to invest in their future, this new measure enables them to fully expense new depreciable assets and the cost of improvements to existing eligible assets in the first year of use – acquisition of eligible capital assets from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2021.

Whereas the existing Instant Asset Write-Off is for asset purchases up to $150,000 (for businesses with less than $500 million in turnover and not applicable on purchases after 31 December 2020), this new measure does not cap an asset’s cost.

Carry-back Company Losses

The full expensing of capital asset investment will generate tax losses for some companies. Therefore, the new measure of enabling a company to carry-back losses will generate cash refunds for eligible companies. How does it work?

For eligible companies with less than $5 billion in turnover, losses may be applied against taxed profits in a previous year, thereby generating a refundable tax offset in the year in which a loss is made.

Losses from income years 2019-20, 2020-21 and 2021-22 may be carried-back to offset previously taxed profits in income years 2018-19, 2019-20 and 2020-21.

Eligible companies can receive their tax refunds after lodging tax returns for 2020-21 and 2021-22.

R&D Tax Incentive

As at the release of the Federal Budget, numerous and varied proposed amendments to the R&D Tax Incentive are before Parliament.

Currently, the R&D Tax Incentive provides (for the first $100 million of eligible expenditure):

• 43.5% refundable offset amount for eligible companies with less than $20 million turnover
• 38.5% non-refundable tax offset for all other eligible companies

Business Tax Concessions – Expansion

Government incentive to help businesses sees a range of tax concessions now available to businesses with an aggregated turnover of up to $50 million (previously only available to small and medium businesses).

There are three phases of expanded tax concessions:

Phase I
From 1 July 2020	Immediate deduction for certain start-up expenses Immediate deduction for prepaid expenditure
Phase II
From 1 April 2021	FBT car parking exemption FBT exemption on portable electronic devices
Phase III
From 1 July 2021	Simplified trading stock PAYG instalments based on GDP adjustment amount Settle excise duty and excise-equivalent customs duty monthly Two-year amendment period to some income tax assessments

Retraining / Reskilling Workers FBT Exemption

From 2 October 2020, employer-provided retraining and reskilling of employees who are redeployed to a different role within a business* will be FBT exempt (*conditions apply).

Corporate Residency Test

The Corporate Residency Test will be changed to clarify the treatment of a company which is incorporated offshore. The change means that a company, incorporated offshore, will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’, satisfied by both:

• a company’s core commercial activities are undertaken in Australia; and
• a company’s central management and control are in Australia.

FBT Record-Keeping - Simplification

In the first FBT year (1 April) after the date on which legislation is passed, employers will be enabled to rely on existing corporate records – as opposed to employee declarations – for FBT purposes.

100,000 New Apprenticeships

From 5 October 2020, a 50% wage subsidy will be available to eligible businesses that take on a new or recommencing Australian apprentice or trainee up until 30 September 2021.

The 50% wage subsidy is capped at a maximum of $7,000 per quarter.

How can YML help?

We hope that this guide helps you to navigate the 2020-21 Federal Budget. Please talk to our Accountants today if you would like to engage YML Chartered Accountants to manage your ‘road to recovery’. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.