2020/21 Federal Budget Tax Bulletin

2020/21 Federal Budget Tax Bulletin

Overview

On Tuesday evening the Treasurer delivered the delayed 2020-21 Federal Budget and as expected it was all about Government spending, tax cuts and tax concessions to increase jobs and drive a recovery from the COVID 19 Pandemic.

Whether he has gone far enough, only time will tell but clearly the Treasurer’s message of “There is no economic recovery without a jobs recovery” explains the focus on Government spending and tax relief for business spending.

The Government has already provided both JobKeeper and JobSeeker programs and has framed this Budget around the cornerstone of the new JobMaker program.

The key announcements were the bringing forward to 1 July 2020 of the second stage of the personal tax cuts announced last year; providing access to the SBE tax concessions to more businesses; providing new tax write-offs and loss carry backs to almost all businesses, together with a JobMaker Hiring Credit for those businesses moving out of JobKeeper and hiring new employees.

We have reviewed the 2021 Budget and outlined below what we think are the key issues for SME business and their owners.

Temporary Full Expensing of Capital Assets

Businesses with an aggregated turnover of less than $5 billion will be able to deduct the full cost of depreciable assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2022.

This is a significant expansion of the current instant asset write off provisions that limit the write off to businesses with an aggregated turnover of less than $500 million for assets costing less than $150,000 and first used or installed ready for use by 31 December 2020. 

The new measures will also seek to expand the current instant asset write off rules to allow assets to be first used or installed by 30 June 2021.

Under the existing rules, businesses can deduct the cost of second hand assets. However, under the proposed measures, only businesses with an aggregated turnover of $50 million or less will be able to deduct the cost of second hand assets. The current rules and the proposed measures will operate concurrently until 31 December 2020, whereby:

  • Businesses with an aggregated turnover of less than $50 million will be able to deduct the cost of both new and second hand assets first used or installed by 30 June 2022.
  • Businesses with an aggregated turnover between $50 million and less than $500 million will be able to deduct the cost of both new and second hand assets acquired by 31 December 2020 and first used or installed by 30 June 2021. For assets acquired from 1 January 2021, these businesses will be able to deduct the cost of new assets only first used or installed by 30 June 2022.
  • Businesses with an aggregated turnover between $500 million and less than $5 billion will be able to deduct the cost of new assets only acquired from 6 October 2020 and first used or installed by 30 June 2022.

The new measures will also allow businesses with an aggregated turnover of less than $10 million to deduct the balance of their simplified depreciation pool balance at the end of 30 June 2021. This would apply in instances where assets costing more than $150,000 were acquired prior to 6 October 2020 and were allocated to the small business pool.

The Government has stated that this measure will apply to 99% of businesses and is therefore a welcome boost for businesses that have the confidence to acquire assets to assist in their recovery.  In WA many businesses are a number of steps along that path so we expect that this change will increase the appetite to buy business assets, thereby improving the lot of many businesses involved across the manufacture, assembly, installation, sale or service of these assets.


Loss Carry-Back for Companies

Currently, a loss making company can only utilise tax losses when the company ultimately generates taxable income. Back in 2013, the Government recognised the need for companies to be able to “carry back” tax losses to earlier profitable income years. The loss carry-back legislation was introduced in the 2013 year only to be repealed in the 2014 year.

The 2021 Budget seeks to reinstate these rules.

The rules will allow companies with an aggregated turnover of less than $5 billion to apply tax losses in the 2020, 2021 and 2022 income years against profits made in the 2019 year onwards. Such loss-making companies will need to elect to use the rules which will then generate tax refunds when they lodge their 2021 and 2022 income tax returns. 

The losses carried back cannot exceed taxable income in the prior year (i.e. it cannot create a tax loss in the prior year) and the carry-back amount must not create a franking account deficit (where prior year franked dividends have been declared in excess of the amended tax payable).

Loss carry-back rules have already been adopted by a number of OECD countries and will be welcomed in Australia. At this stage, the measures are only temporary and are proposed to apply until the 2022 income year.

Most developed countries have loss carry back provisions so these are welcomed, however rather than make them temporary to 2022, the opportunity exists to make them part of the ongoing tax system.  We also query why a business that made a tax loss in 2020, after a tax profit in 2019 has to wait until it lodges its 2021 tax return to claim the tax refund.  Australian businesses need that refund now, hopefully when the legislation is introduced it will enable businesses to either amend already lodged 2020 tax returns, or make the claim in their 2020 tax return.


Personal Tax Plan – Brought Forward

As you will have heard and read already in mainstream media, the Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 while retaining the low and middle income tax offset (LMITO) for 2020-21. 

As a result, 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.

The Government says that this means more than 11 million Australian taxpayers will get a tax cut, with effect from 1 July this year, providing them with more money to spend on what matters to them.

Once legislated, the ATO will amend the various tax withholding tables to ensure employees are provided the benefit of these tax cuts as soon as possible.

The final stage of the personal tax cuts is still slated to apply from 1 July 2024.  Assuming both the bring forward of stage 2 and the final stage are legislated, from 1 July 2024 Australia’s personal tax rates will be as follows:

Tax rates and income thresholds
Rate2019-202020-21 (new)From 1.7.2024 (unchanged)
Nil$0 – $18,200$0 – $18,200$0 – $18,200
19%$18,201 – $37,000$18,201 – $45,000$18,201 – $45,000
30%  $45,001 – $200,000
32.5%$37,001 – $90,000$45,001- $120,000N/A
37%$90,001 – $180,000$120,001- $180,000N/A
45%$180,001 +$180,001 +$200,001 +
Low and middle income tax offset (LMITO)Up to $1,080Up to $1,080N/A
Low income tax offset (LITO)Up to $445Up to $700Up to $700

Whilst a reduction in personal tax rates will always be welcome we still await some serious tax reform that covers all forms of taxation, including GST.  Whilst this Federal Budget may not have been the time, the opportunity to get all parties together and redesign our piecemeal tax system has never been better.


JobMaker Hiring Credit

The Government is providing $4.0 billion over three years from 2020-21 to accelerate employment growth by supporting businesses in hiring additional employees through a hiring credit. 

The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee. 

Key conditions are:

  • The job must be an additional job based on the businesses total employee headcount at 30 September 2020 and additional payroll from the September 2020 quarter;
  • Employers must have an ABN, be up to date with tax lodgements, be registered for PAYG and report through Single Touch Payroll;
  • New employees must have previously received either JobSeeker, Youth Allowance or parenting payment for at least 1 month out of the 3 months prior to them being hired; and
  • New employees must work a minimum 20 hours per week, averaged over a quarter.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. 

The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created. 

The credit is claimed quarterly in arrears by the employer from the ATO from 1 February 2021, with employers having to check their eligibility each quarter.

This credit will encourage businesses that are recovering to hire new employees and specifically targets younger employees who are currently unemployed.  


Increase of the Small Business Entity Turnover Threshold

The Government will expand access to a range of small business tax concessions by increasing the Small Business Entity (SBE) aggregated turnover threshold for these concessions from $10 million to $50 million. In particular, businesses with an aggregated turnover of $10 million or more but less than $50 million will be able to utilise the following tax concessions from the following dates:

 Tax ConcessionsStart Date
Immediate deductions on certain start-up expenses and certain prepaid expenditure1 July 2020
FBT exemption on car parking fringe benefits and multiple work-related portable electronic devices, such as phones or laptops, provided to employees1 April 2021
Use simplified trading stock rules1 July 2021
Report and pay PAYG instalments based on GDP adjusted notional tax1 July 2021
Settling excise duty and excise-equivalent customs duty monthly on eligible goods1 July 2021
Time limit for amendments of income tax assessments reduced from 4 to 2 years1 July 2021
Access to the Commissioner’s discretion to create a simplified accounting method determination for GST purposes1 July 2021

The proposed extension of the small business concessions above by increasing the aggregated turnover threshold to $50 million is welcome. However, the Government has not gone far enough. Other small business concessions, such as the Small Business Restructure Rollover Relief, should also be extended to businesses with the aggregated turnover between $10 million and $50 million. 

Further, this is also a missed opportunity for the Government to increase the aggregated turnover threshold (currently $2 million) for access to the CGT small business concessions. The threshold has stayed the same for a very long time and is overdue for an increase in line with the other small business concessions.


Miscellaneous FBT Concessions

In addition to the extension of certain FBT exemptions to medium sized businesses as covered above, the Government has also announced that employers will be able to use existing corporate records to satisfy their record-keeping requirements. The proposed measure is aimed at reducing the FBT compliance burden for employers that are currently required to keep FBT-specific records, such as employee declarations and other prescribed records, for up to five years. In time, we expect that the ATO will issue guidance on the types of corporate records that will satisfy the new requirement.

The proposed measure will apply from the start of the first FBT year (1 April) following the Royal Assent of the relevant legislation.

As previously announced, the Government has provided that employer-provided retraining and reskilling activities to employees will be exempt from FBT. Under the current FBT law, employers are subject to FBT for the provision of training to its employees that is not sufficiently connected to their current employment. The Budget provides an example where an employer that retrains its sales assistant in web design and redeploys the employee to an online marketing role in the business can be liable for FBT under the current FBT law. Instead, the proposed measure will encourage the employer to retain the employee without liable for FBT.

However, the FBT exemption will not extend to:

  • retraining acquired by way of a salary packaging arrangement,
  • training provided through Commonwealth supported places at universities (which already receive a benefit), or 
  • repayments towards Commonwealth student loans.

In addition, the Government will also undertake consultation on allowing an individual to deduct education and training expenses incurred by the individual personally where the expenses are not related to their current employment. The current rules, which limit self-education deductions to training related to current employment, may act as a disincentive to individuals to retrain and reskill to support their future employment and career.

The FBT exemption will apply from 2 October 2020 (ie the date of announcement).

In practice, where employers move their current employees to a new position and then provide the necessary training for them, it is arguable that the employers can rely on the existing FBT exemption for the training benefits provided. Further, the proposed FBT exemption will not be available for retraining costs that are salary sacrificed by employees. In practice, this limits the usefulness of the initiative to employers.

Instead, it may have been more beneficial for the Government to extend the deductibility of self-education and training expenses incurred by individuals personally, where the expenses are not related to their current employment (or previous employment if they are made redundant). Employers would then be able to rely on the Otherwise Deductible rule if they paid for the training or provided a salary sacrifice option for their current employees under this initiative.