On October 6, the Federal Treasurer delivered his long-awaited 2020-2021 Federal Budget. Among the proposed changes, he announced income tax savings and superannuation reforms. This budget encourages spending with several tax related measures for business, as well as a number of positives for individuals. Industry was also included with a number of supporting measures for Agriculture, Real Estate, Education, Infrastructure, Aged care and Child care.

Remember, at the moment these are only proposals and could change as legislation passes through parliament.

Changes for Individuals

Income tax cuts brought forward

It as announced the Government will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, the following changes involved will now apply from 1 July 2020;

  • Increasing the upper threshold of the 19% personal tax bracket from $37,000 to $45,000; and
  • Increasing the upper threshold of the 5% personal income tax bracket from $90,000 to $120,000

 (i) Excluding 2% Medicare Levy

 

The tax cuts already legislated to commence from 1 July 2024 remain unchanged. Neither LITO nor LMITO is a refundable tax offset, so they can reduce tax liability to nil but not reduce liability for Medicare levy.

 

Low Income Tax Offset (‘LITO’)

It was announced the following proposed changes for LITO will be brought forward to 1 July 2020 from 1 July 2022;

  • The maximum LITO will be increased from $445 to $700
  • The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
  • The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,00 and $66,667

 

Changes for Businesses

Expanding access to Small Business Tax Concessions

The Government announced it will expand the concessions available to Medium Sized Entities to provide access up to ten Small Business Concessions.

For this purpose a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.

 

The expanded concessions will apply in three phases;

  1. From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
  2. From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.
  3. 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.
  • Eligible businesses will generally have a two-year amendment period apply to income tax assessments for income years starting 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.

 

JobMaker Hiring Credit

The Government has proposed a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.

From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee  they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old. New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.

 

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligible criteria.

The amount of the credit is capped at $10,400 for each additional new position created.

 

Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question.

 

If you would like to discuss the employer eligibility requirements please do not hesitate to contact our office.

 

Uncapped immediate write-off for depreciable assets

The Government proposed the following changes to the Capital Allowance provisions:

  1. Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as ‘full expensing’) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied
  • The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e Budget night)
  • The asset was first used or installed ready for use by 30 June 2020.
  • The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.
  1. As is currently legislate, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the cost of eligible second-hand assets costing less than $150,00 that are purchased from 2 April 2019 and first used or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off

The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021

  1. Small businesses (i.e 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 (i.e up to 30 June 2022).

Furthermore, the provision which prevents small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

 

Temporary loss carry back for eligible company

The Government announced it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.

 

This will allow such companies to generate a refundable tax offset in the year in which the loss is made. The tax refund is 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 companies when they lodge their tax returns for the 2021 and 2022 income years. Note that companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

 

Changes for FBT

FBT exemption for retaining and reskilling employees

 

From 2 October 2020, the Government will introduce an FBT exemption for retraining and re skilling benefits provided by an employer to redundant, or soon to be redundant employees, where the benefits may not be related to their current employment (e.g., where an employer retains a sales assistant in web design in order to redeploy them to an online marketing role in the business).

 

This is designed to encourage employers to transition redundant workers into new employment opportunities within or outside the business, without triggering an FBT liability.

 

Currently, FBT is payable if an employer provides training to redundant, or soon to be redundant, employees and that training does not have a sufficient connection to their current employment

 

The exemption will not apply to;

  • Retaining acquired by way of a salary packaging arrangement
  • Commonwealth supported places at universities (which already receive a benefit),or
  • Extend to repayments towards Commonwealth student loans.

 

 

Reducing the compliance burden of FBT record keeping

It was proposed, the ATO will be provided with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records to finalise their FBT returns. The measure will have effect from the start of the first FBT year (i.e 1 April) after the date of Royal Assent of the relevant legislation.

 

This measure would allow employers 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.

 

Changes for Superannuation

Reforms

The Government announced it will provide $159.6 million over four years from 2020/21 to implement reforms to improve outcomes for superannuation fund members.

 

Current structural flaws in the superannuation system mean unnecessary fees and insurance premiums are paid on multiple accounts, members pay too much in super fees, underperforming products are costing members in lost retirement savings, and there is inadequate transparency on how funds are spending members’ money.

 

From 1 July 2021, the proposed reforms are designed to reduce the number of duplicate accounts following changes in employment, and prevent new members joining underperforming funds.

  • New employees will have access to a YourSuper portal, which will:
    • provide a table of simple MySuper products ranked by fees and investment returns
    • link to super fund websites where they can choose a MySuper product
    • show their current super accounts and prompt them to consider consolidating accounts where they have more than one.
  • An existing super account will be ‘stapled’ to a member to avoid creating a new account when they change employment. –
  • Underperforming MySuper products won’t be allowed to receive new members until their performance improves. –
  • Super trustees will need to make sure their actions are consistent with members’ retirement savings being maximised.

 

Other changes

Proposed effective date: various There was little movement on a number of previously announced super measures.

  • The proposed change to increase the age for non concessional contribution bring-forward purposes to age 67. The bill to enact this previously announced measure is still before parliament. –
  • The COVID-19 temporary early release of super measure. Eligible Australian and New Zealand citizens and permanent residents continue to be allowed just one withdrawal opportunity of up to $10,000 from 1 July 2020 until 31 December 2020. –
  • The government restated the deferred start date for previously announced self-managed super fund (SMSF) measures. –
  • Increasing the maximum number of members allowed in an SMSF from four to six.
  • – Changes to the calculation of exempt current pension income

 

Other Changes

CGT changes – removing CGT from ‘granny flat arrangements’

Proposed from 1 July 2021 a CGT exemption will apply for ‘granny flat arrangements’.  Where there is a formal written agreement to provide accommodation for older Australians or people with disabilities. This proposed change will only apply to agreements entered into because of family relationships or other personal ties and not to commercial rental arrangements. This proposal is intended to protect the rights and interests of older Australians who enter into such residential arrangements with family members by allowing for a formal agreement, without creating the potential CGT issues that may currently arise.

 

This measure is consistent with the recommendations made 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.

 

Insolvency Changes – reforms to support small business

It was proposed from 1 January 2021, the Government will implement certain insolvency reforms to support small business, including the following:

  • A new streamlined process to enable eligible incorporated small businesses (broadly, those with liabilities of less than $1 million) in financial distress to restructure their debt.
  • Simplifying the liquidation process for eligible incorporated small businesses (to allow faster and lower-cost liquidations, increasing returns for creditors and employees).
  • Support for the insolvency sector (to ensure it can respond effectively to increased demand and to the needs of small business).

The current insolvency system faces a number of challenges. Which include an increased number of businesses in financial distress due to COVID-19, a ‘one-size-fits-all’ system, and high costs and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early thereby reducing their opportunity to restructure and survive.

 

Supporting Mental Health of Australians in small business – COVID-19 response package

The Government proposed to provide $7 million in 2020/21 to support the mental health and financial wellbeing of small businesses impacted by COVID-19, including:

  • $4.3 million to provide free, accessible and tailored support for small business owners by expanding Beyond Blue’s NewAccess program in partnership with the Australian Small Business and Family Enterprise Ombudsman; and
  • $2.2 million to expand a free accredited professional development program that builds the mental health literacy of trusted business advisers so that they can better support small business owners in times of distress, delivered through Deakin University.

 

Temporarily relaxing the Paid Parental Leave work test

It is proposed from 22 March 2020, the concessional work test arrangement will support new parents whose employment was interrupted by the COVID-19 pandemic. By relaxing the work test for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months preceding the birth or adoption of a child.

 

To meet the work test under current rules, a parent must have worked in 10 of the last 13 months preceding the birth or adoption of a child.

 

Housing affordability – Extension of first home loan deposit scheme

The Government announced from 6 October 2020, it will allow an additional 10,000 first home buyers to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5% under the existing First Home Loan Deposit Scheme.

 

Applications through participating lenders, will be available until 30 June 2021. Eligible first home buyers may be able to take advantage of the First Home Super Saver Scheme to use the concessionally taxed superannuation system to save their first home deposit.

 

Additionally, under the HomeBuilder Scheme, existing owner occupiers, including first home buyers, may be eligible for a grant of $25,000 to build or substantially renovate an existing home. First home buyers may also be eligible for state and territory grants and concessions.

 

These measures are designed to promote home ownership and support employment in the construction industry.