Budget 2020

The Federal Budget was handed down on the 6th October 2020. Normally this occurs in May of each year but due to the Covid-19 pandemic, it was delayed.

The following is a summary of some of the outcomes of the budget and how it may impact you. It should be noted that these measures have not yet been legislated so currently they are not law. Once they become law, more details will be available on these budget items.

Individuals

The Government has brought forward changes to the income tax rates one year, so these changes now apply from 1 July 2020. These changes imply the following:

• increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and
• increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

The impact of these changes is shown below:

There were also changes to increase the low and middle-income tax offsets meaning an additional tax saving to those shown above for taxpayers earning less than $90,000.

Businesses

1. “Full expensing" Deduction for Businesses

For businesses that have an aggregated turnover of less than $5 billion, any purchase of eligible capital assets after 6 October 2020 and first used and installed by 30 June 2022 can be fully deducted in the financial year that the asset is installed ready for use. There is no cap on the amount of the asset. However, the asset must be a depreciable asset or is the cost of an improvement to an existing asset.

This is further enhanced for small and medium businesses (less than $50 million turnover), who can also fully expense the purchase of second-hand assets.

2. Company Loss Carry back

Companies with an aggregate turnover of less than $5 billion will be allowed to carry back tax losses from the 2019-20, 2020-21, or 2021-22 income years to offset previously taxed profits in 2018-19 or later income years.

Therefore a company that incurs a tax loss is not required to carry the loss forward to offset against future profits but instead can nominate to offset the loss against prior year's profits and receive a tax refund for tax paid in a prior year.

There will be limitations to amount of tax refunds available under this scheme to ensure that the company does not exceed prior year profits as well as create a franking account deficit.

3. Increase to the Small Business Entity Turnover Threshold

Currently the turnover test to be eligible for small business tax concessions is $10m. This will be increased to $50m, to enable these companies to access some of the small business concessions as follows:

• From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
• From 1 April 2021, eligible businesses will be exempt from the 47% fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees. This concession already exists in the FBT law but now multiple work-related items can benefit from the concession.
• From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods under the small business entity concession.
• Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.
• From 1 July 2021, the Commissioner of Taxation's power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

4. JobMaker Hiring Credit

A new JobMaker Hiring Credit scheme will be available to eligible employers from 7 October 2020 for each new job they create over the next 12 months for which they hire an eligible person. For each eligible employee, employers will receive for up to 12 months:

• $200 a week if they hire an eligible young person aged 16 to 29 years; or
• $100 a week if they hire an eligible young person aged 30 to 35 years.

The amount of the credit will be capped at $10,400 for each additional position created and is claimed quarterly in arrears from the Taxation Office from 1 February 2021.

An eligible employee includes the following:

• be aged (at the time their employment started) between 16 and 35;
• have worked at least 20 paid hours per week on average, for the full weeks they were employed over the reporting period;
• have commenced their employment during the period from 7 October 2020 to 6 October 2021;
• have received the JobSeeker Payment, Youth Allowance (Other), 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 must be employed for the period that the employer is claiming for them. Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.

An eligible employer includes the following:

• has an ABN;
• is up to date with tax lodgement obligations;
• is registered for Pay As You Go withholding;
• is reporting through Single Touch Payroll;
• is claiming in respect of an 'eligible employee';
• has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of; and
• is able to demonstrate that the credit is claimed in respect of an additional job that has been created. Broadly, there must be an increase in the business' total employee headcount and also in the payroll of the business for the reporting period (based on a comparison over a specified reference period).

Certain employers are excluded, including those who are claiming the JobKeeper payment.

New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires.

5. Fringe Benefits Tax Exemption to support retraining and reskilling and reducing the burden of record keeping

The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for retraining and reskilling benefits provided by employers to redundant, or soon-to-be redundant, employees where the benefits may not be related to their current employment. This measure applies from announcement.

The Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation. The measure will allow employers — with what the Commissioner determines as adequate alternative records — to rely on existing corporate records, removing the need to complete additional records. This will reduce compliance costs for employers, while maintaining the integrity of the FBT system.

Superannuation

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. Your Superannuation fund will be “stapled" to you enabling easier transition when you change employers.

• Making it easier to choose a better fund: members will have access to a new interactive online Your Super 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. Persistently underperforming products will be prevented from taking on new 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.

If you require any further information discussed above or other items that were mentioned in the budget, do not hesitate to contact our office.