Federal budget 2020-21: Analysis from a tax perspective
Tax and business investment took centre stage in the Federal Budget this year, as the Morrison Government seeks to reboot growth and repair the damage wrought by COVID-19 on Australia’s economy and employment.
Treasurer Josh Frydenberg emphasised the Coalition’s focus on tax by bringing forward the start date for the next round of tax changes. Backdated to 1 July 2020, the measures will provide immediate tax relief for individuals and small businesses. They also represent a significant step in reshaping Australia’s current progressive tax system.
In addition, the reintroduction of measures allowing the carry-back of tax losses and a significant expansion of existing asset write-offs should help support medium and small businesses who have been facing some of the toughest trading conditions in living memory.
Early start to personal tax cuts
At the centre of the tax changes announced by the Treasurer is a new 1 July 2020 start date for the next stage of the government’s tax plan.
Under the Stage 2 changes:
- The existing low-income tax offset increases from $445 to $700,
- The upper limit of the 19 per cent tax bracket increases from $37,000 to $45,000, and
- The upper limit of the 32.5 per cent bracket increases from $90,000 to $120,000.
- There is also a one-year extension of the low and middle-income tax offset (LMITO) during 2020-21 worth up to $1,080 for individuals and $2,160 for dual income couples.
Companies gain full asset write-off
For businesses, a major announcement was the introduction of a temporary tax incentive allowing the full cost of eligible depreciable assets to be written off in the year they are first used or installed ready for use. This will also apply to the cost of improvements.
From Budget night, companies with a turnover of up to $5 billion – over 99 per cent of businesses – can fully claim eligible depreciable assets as an expense until 30 June 2022. This will significantly reduce the cost of eligible assets by providing a cash flow benefit.
Temporary carry-back of tax losses
Companies with turnovers of up to $5 billion will also be able to generate a tax refund by offsetting tax losses against previous profits on which tax has been paid. Losses incurred in 2019-20, 2020-21 and 2021-22 can be carried back against profits made in or after 2018-19.
Under the new measure, eligible companies can elect to receive a tax refund when they lodge their 2020-21 and 2021-22 returns. This will help previously profitable companies who are making losses due to COVID-19 access a cash refund to keep their business running, or to take advantage of the new full write-off provision.
JobMaker hiring credit for young employees
Businesses will now be able to access a new JobMaker Hiring Credit if they hire additional employees working at least 20 hours a week.
From 7 October 2020, eligible employers will be able to claim $200 a week for each new employee they hire aged between 16 and 29, and $100 a week for additional hires aged 30 to 35 years old. New employees must have been unemployed or in education prior to hiring.
New jobs created until 6 October 2021 will attract the hiring credit for up to 12 months, with the credit claimed quarterly in arrears from the ATO.
More small business tax concessions
The Treasurer also made several announcements prior to the Budget providing valuable tax concessions for small businesses. From 1 July 2020, the annual turnover test for a range of business tax concessions will increase from $10 million to $50 million. This includes immediate deductions for eligible start-up expenses and prepaid expenditure.
In addition, from 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices such as phones and laptops provided to employees.
From 1 July 2021, eligible business will be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax, settle excise duty monthly and enjoy a two-year (instead of four-year) amendment period for income tax assessments.
If you would like to discuss how to make the most of these and other Budget announcements, please get in touch.