Federal Budget 2020-2021

• Managing a Business

Last night, on 6 October 2020, The Australian Federal budget was released, Treasurer Josh Frydenberg says that this budget will be focused on rebuilding the economy and bringing it out of the coronavirus economic slump. It is also mentioned that this budget will likely include wage subsidies for businesses and tax cuts for low- and middle-income earners.

We have prepared a brief summary of the changes that might have a tax impact to you and to your business.

1. Changes to the personal income tax rates

Planned reductions to the personal income tax rates that were due to take effect in FY2023 have been brought forward two years to FY2021 (the current year). This includes increasing the 19% tax bracket from $37,000 to $45,000 and increasing the 32.5% tax bracket from $90,000 to $120,000.

This will provide you with personal tax savings commencing in the current year.

2. Tax Concessions for Medium Sized Entities

Medium Sized Entities with turnover between $10m and $50m will now have access to some of the benefits that small businesses (turnover <$10m) have, including:

• Immediate deduction for start-up expenses (from 1 July 2020)
• Exempt for FBT on car parking and multiple work-related portable devices (from 1 April 2021)
• Simplified trading stock rules, PAYG Instalments using GDP adjusted notional tax and two year amendment period for tax returns (from 1 July 2021)

3. JobMaker Hiring Credit

As an incentive to employ younger job seekers, the Government will provide a credit of:

• $200 per week for employees aged 16 to 29 years old ($10,400 for 12-months)
• $100 per week for employees aged 30 to 35 years old ($5,200 for 12-months)

This applies for employees recruited between budget day and 6 October 2021. The credit lasts for 12 months from the date employment commences.

To be eligible for this benefit:

• Eligible Employees:
  • Must work at least 20 paid hours per week on average for the period they are employed
  • Commence their employment between 7 October 2020 to 6 October 2021
  • Have received JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month within the past 3 months before they were hired; and
  • Be in their first year of employment with the Employer

• Eligible Employers:
  • Have an ABN and are registered for PAYG Withholding
  • Up to date with tax lodgements
  • Reporting payroll via Single Touch Payroll
  • Must be able to evidence that there has been an increase in the total number of employees (i.e., can’t terminate one staff member to then employ someone under these provisions).

There is further information to be released regarding the last point above, to ensure that Employers have an increase in employment to claim this credit.

4. Immediate Write-off for Depreciable Assets

The immediate deduction provisions have been expanded to include any business with turnover <$5 billion.

There is no limit on the value of assets (i.e., the previous cap of $150,000 doesn’t apply). Any depreciable asset, regardless of value, can be immediately deducted.

• For businesses with turnover <$50m: the asset can be new or second hand
• For businesses with turnover >$50m: the asset must be new (not second hand)

The asset must be acquired between 6 October 2020 and must be installed and ready for use by 30 June 2022.

5. Loss Carry Back

Any companies which make a loss in the FY2020, FY2021 or FY2022 year can apply those losses to earlier income years commencing from FY2019.

Normally, when a company makes a loss it can only offset the loss against future profits. Under these rules, the losses can be applied backwards so that you get a refund of tax paid in earlier years. You can’t use these provisions if it creates a franking account deficit (meaning that you have already paid out all franking credits, hence an adjustment to prior period tax payments will then create a deficit in the franking account).

This provision only applies to companies with turnover <$5 billion.

6. FBT Exemptions

Retraining costs for employees that are made redundant, or soon to be made redundant, will not attract FBT from 2 October 2020.

7. Insolvency Reforms

The Government will implement certain insolvency reforms, effective from 1 January 2021 (subject to the passing of legislation) to support small business, including the following:

• The introduction of 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).

Insolvency and bankruptcy protections that were introduced in March 2020 to provide relief for businesses impacted by COVID-19 are due to expire on 31 December 2020 (e.g., under these measures, directors are temporarily relieved from personal liability for trading while insolvent). The number of companies being put into external administration is expected to increase significantly.

With these new measures, combined with the insolvency relief offered to businesses during Covid-19, it is critical to ensure that you maintain an active debtor collection process to avoid the risk of bad debts.

8. Research & Development Incentives

Companies with turnover <$20m will be able to claim an 18.5% refundable R&D tax offset above the company tax rate. This commences in the FY2022 year.

This year’s budget is about jobs and investments, and the necessary steps Australia must take on to take back and restore employment to pre-pandemic levels.

With the tough and rough path that this pandemic had left, it will be an endurance ride for Australian businesses and the economy with the emphasis on getting the nation spending to smooth out the ride ahead.