Last night the Federal Government handed down the long-awaited Budget for 2020-2021.
The budget contains a number of tax incentives and other pro-business initiatives you may need to be aware of.
Tax cuts to stimulate demand
To stimulate consumer demand, the tax cuts originally slated for July 2022 will be brought forward and backdated to 1 July 2020.
The income tax cuts see the 32.5% tax rate kick in at $A45,001 rather than $A37,001, and the 37% tax rate begin at $A120,001 instead of $A90,001. This may mean you take home extra as per below:
| Taxable income | Take home an extra |
| $40,000 | $1,060 |
| $60,000 | $2,160 |
| $80,000 | $2,160 |
| $100,000 | $2,445 |
| $120,000 | $2,745 |
| $140,000 plus | $2,565 |
These changes will provide immediate tax relief to individuals, with PAYG withholding rates to be adjusted to pass on the benefit to individuals as soon as possible.
Loss carry back rules
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 rules allow eligible companies to carry back tax losses incurred in the 2020 to 2022 income years to offset previously taxed profits in the 2019 or later income years.
The amount carried back will be limited to no more than the earlier years taxed profits and must not generate a franking account deficit.
Instant asset write-off to be supercharged
From 7 October 2020 to 30 June 2022, businesses with a turnover of up to $5 billion will be able to deduct the full cost of all new depreciable assets and the cost of improvements to existing eligible assets.
For small and medium sized businesses (with an aggregate annual turnover of less than $50 million), this will include both new and second-hand depreciable assets.
For businesses with an annual aggregate turnover between $50 million and $500 million, the full cost of eligible second-hand assets will be available but only where the cost is less than $150,000 and the asset is installed and ready for use before 30 June 2021.
Changes to the R&D tax concession reversed
The Government has reversed its plan to cut the R&D tax incentive and instead has enhanced the benefits available under the program. Effectively, no claimants should be worse off under the latest proposed changes, and many will actually benefit.
The Government has announced that it will defer the start of previously announced changes to the R&D tax incentive (effective income years starting on or after 1 July 2021), with the following now proposed:
- For claimants with aggregated annual turnover of less than $20 million, the refundable R&D tax offset will be set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed.
- For larger claimants with aggregated annual turnover of $20 million or more, the intensity tiers will remain but have been relaxed to make it easier for claimants to satisfy. Broadly, the intensity tiers tie the rates of the non-refundable R&D offset to the companies R&D expenditure as a proportion of total expenses for the year. The non-refundable R&D tax offset will be the claimant’s company’s tax rate plus:
- 8.5 percentage points for R&D expenditure between 0 and 2 per cent R&D intensity; and
- 16.5 percentage points for R&D expenditure above 2 per cent R&D intensity.
JobMaker Hiring Credit
To encourage jobs growth for those aged 35 years and under, a new credit will be provided to businesses that take on additional employees.
The ‘JobMaker Hiring Credit’ will be available for each additional new job created from 7 October 2020 until 6 October 2021. It will be paid for 12 months from the date of employment of the eligible employee up to a maximum amount of $10,400 per additional new position created.
The credit will be available to most eligible employers regardless of size (with some exceptions, most notably any employer who is claiming the JobKeeper Payment).
To be eligible, however, employers must demonstrate that the new employee will increase the overall employee headcount and payroll, using total headcount on 30 September 2020, and total payroll in the three months to 30 September 2020 as the base line. Special rules apply to newly established businesses and businesses with no employees at the reference date.
Eligible employers 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.
Employees will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other), or Parenting Payment for at least one month out of the three months prior to when they were hired. Some other eligibility conditions apply.
Employers can claim the credit quarterly in arrears from the Australian Taxation Office (ATO) commencing from 1 February 2021 (for new jobs created in the first reporting period of 7 October 2020 to 6 January 2021), and will be required to report quarterly that they meet the eligibility requirements.
Reduced compliance through increased 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. Concessions include:
- the deductibility of certain start-up costs and certain prepaid expenditure;
- FBT exemption from car parking and multiple work-related portable devices provide to employees;
- simplified trading stock rules; and
- other administrative and compliance concessions.
If you have any questions on how the 2020-21 Federal Budget announcement may affect your business, contact our expert team at Calibre Business Advisory.