The 2020-21 Federal Budget is primarily focused on job creation as part of Federal Government’s COVID-19 economic response and recovery plan.
The major tax measures include income tax cuts brought forward for low and middle income tax earners, a JobMaker subsidy for employers, a fully expensing of eligible capital assets for businesses, a temporary carry-back of tax losses for companies.
EMPLOYEE AND INDIVIDUAL’S TAX
Personal tax cuts
The Government will provide additional support to Australian taxpayers by bringing forward the tax cuts in Stage 2 of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020:
- The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.
- The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.
Stage 3 of the Personal Income Tax Plan remains unchanged and commences in 2024-25 as legislated.
Changes to the low income tax offset (LITO)
The Government also announced that it will bring forward the changes that were proposed to the LITO from 1 July 2022 so that they now apply from 1 July 2020 as follows:
- The maximum LITO will increase from $445 to $700.
- The increased LITO will be reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000.
- The LITO will be reduced at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Retaining the low and middle income tax offset (LMITO)
The Government announced that the current LMITO will continue to apply for the 2021 income year (this is available in addition to LITO for eligible taxpayers).
For example, the maximum LMITO of $1,080 will apply to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.
BUSINESS TAX
JobMaker hiring credit
Starting from 7,30pm AEDT on 6 October, there will be a new JobMaker hiring credit to encourage businesses to hire younger Australians.
The JobMaker hiring credit will be payable for up to twelve months and immediately available to employers who hire those on JobSeeker aged 16-35.
It will be paid at the rate of $200 per week for those aged under 30, and $100 per week for those aged between 30-35.
New hires must work for at least 20 hours a week.
All businesses other than the major banks will be eligible.
Fully expensing capital assets
The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022.
Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second-hand assets.
Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.
Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Temporary tax loss carry-back for companies
The Government will allow eligible companies 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.
Corporate tax entities with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit. The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Expanding access to small business tax concessions
The Government will expand access to a range of small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.
Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will for the first time have access to up to ten further small business tax concessions in three phases:
- 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 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees.
- 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.
In addition, 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.
These changes will simplify eligibility and reduce red tape for around 20,000 businesses, as more turnover thresholds will align to the aggregated annual turnover threshold for a base rate entity for company tax purposes.
The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.
Business support grants
The Government will make the Victorian Government’s business support grants for small and medium business as announced on 13 September 2020 non-assessable, non-exempt (NANE) income for tax purposes. State-based grants such as the Business Support Grants are generally considered taxable income by the Commonwealth.
Given COVID-19 and the exceptional circumstances Victorian businesses face, providing this additional concessional treatment will assist in their recovery.
The Commonwealth will extend this arrangement to all States and Territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.
The Government will introduce a new power in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income.
Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.
CAPITAL GAINS TAX
Certain granny flats
The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
CGT consequences are currently an impediment to the creation of formal and legally enforceable granny flat arrangements. When faced with a potentially significant CGT liability, families often opt for informal arrangements, which can lead to financial abuse and exploitation in the event that the family relationship breaks down. This measure will remove the CGT impediments, reducing the risk of abuse to vulnerable Australians.
This measure is consistent with the recommendations in the Board of Taxation’s Review of Granny Flat Arrangements, the Government’s National Plan to Respond to the Abuse of Older Australians announced on 19 March 2019, and the 2017 Australian Law Reform Commission’s Report: Elder Abuse — A National Legal Response.
