A Balancing Act
We all understand that budgets are an exercise in predicting the future. Given what has happened in 2020, gazing into the crystal ball and extracting something reliable is fraught with difficulty.
The Treasury has given its best estimate, but we also need to appreciate that budgets are usually never 100% on target — that’s the nature of budgets. The question is, by how much? It will be remembered as Australia’s biggest spending budget with a forecast deficit of $214 billion for the 2021 fiscal year.
The big news for business is the temporary full expensing of capital assets. From now until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
As expected, the adjustments to tax rates that were originally due for implementation in the year ending 30 June 2023 have been brought forward to apply from 1 July 2020. Below is a table of the new tax rates.
The third stage of the tax cuts which are to apply from 1 July 2024 will still apply from that date. Additionally:
- The Low and Middle Income Tax Offset (LMITO) will be retained for the 2020-21 income year.
- The Low Income Tax Offset (LITO) will increase from
$445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
FBT exemption to support retraining and reskilling
The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for retraining and reskilling benefits provided by employers to redundant, or soon- to-be redundant, employees where the benefits may not be related to their current employment.
Currently FBT is payable where an employer provides training to redundant or soon-to-be redundant employees and that training does not have sufficient connection to their current employment. This measure will provide an FBT exemption for a broader range of retraining and reskilling benefits, incentivising employers to retrain redundant employees to prepare them for their next job.
Reducing the FBT compliance burden of record keeping
In a most welcome move, the Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns.
Increase to small business entity turnover threshold
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.
Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will, for the first time, have access to up to 10 further small business tax concessions in three phases:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
- From 1 April 2021, eligible businesses will be exempt from the 47% fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees. This concession already exists in the FBT law but now multiple work-related items can benefit from the concession.
- 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 under the small business entity concession.
- Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.
- 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.
R&D TAX INCENTIVE
For small companies – those with aggregated annual turnover of less than $20 million – the refundable R&D tax offset is being 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 companies – those with aggregated annual turnover of $20 million or more – the Government will reduce the number of intensity tiers from three to two. This will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D.
The R&D premium ties the rates of the non-refundable R&D tax offset to a company’s incremental R&D intensity, which is R&D expenditure as a proportion of total expenses for the year. The marginal R&D premium will be the claimant’s company tax rate plus:
- 8.5 percentage points above the claimant’s company tax rate for R&D expenditure between 0% and 2% R&D intensity for larger companies.
- 16.5 percentage points above the claimant’s company tax rate for R&D expenditure above 2% R&D intensity for larger companies.
The Government will defer the start date so that all changes to the program apply to income years starting on or after 1 July 2021, to provide businesses with greater certainty as they navigate the economic impacts of the COVID-19 pandemic.
TEMPORARY “FULL EXPENSING” DEDUCTION FOR BUSINESSES
Businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT 6 October 2020 (Budget night) and first used or installed by 30 June 2022.
“Full expensing” in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small- and medium-sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second- hand assets.
Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off.
Businesses that hold assets eligible for the existing $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.
Small businesses (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. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended.
CORPORATE RESIDENCY TEST TO BE CLARIFIED
The Government will make technical amendments to clarify the corporate residency test. The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
TEMPORARY LOSS CARRY-BACK
The Government will allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018- 19 or later income years.
Under these measures, 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 tax refund would be 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 an election basis by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Boost for housing supply
The Government will increase its guarantee of the National Housing Finance and Investment Corporation (NHFIC) by $1 billion, enabling NHFIC to increase its bond issuance into the wholesale capital market.
EMPLOYMENT AND TRAINING
JobMaker Hiring Credit
A new JobMaker Hiring Credit scheme will be available to employers from 7 October 2020 for each new job they create over the next 12 months for which they hire an eligible young person. For each eligible employee, employers will receive for up to 12 months:
- $200 a week if they hire an eligible young person aged 16 to 29 years; or
- $100 a week if they hire an eligible young person aged 30 to 35 years.
Eligible young job seekers will have received JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one of the previous three months at the time of hiring. Employers must demonstrate that they have increased their overall employment to receive this payment for up to 12 months for each position created. To claim the JobMaker Hiring Credit, employers need to report their employees’ payroll information to the ATO through Single Touch Payroll.
The $1 billion JobTrainer Fund matches funding between the Commonwealth and state and territory governments. The fund will support up to 340,700 additional free or low-fee training places in areas of genuine need.
Adding to the $2.8 billion Supporting Apprentices and Trainees Wage Subsidy, which supports existing apprentices and trainees through to 31 March 2021, the Government is adding a further $1.2 billion in a Boosting Apprenticeships Wage Subsidy, which will support up to 100,000 new apprentices and trainees by paying a 50% wage subsidy, up to a cap of $7,000 per quarter, for commencing apprentices and trainees at businesses of all sizes, in all industries. But it runs out 30 September 2021.
Regional recovery and tourism
The Government will invest over $250 million for a Regional Tourism Recovery Package. Regional communities will see $200 million in grants through the Building Better Regions Fund, with $100 million of the fund earmarked for tourism-related infrastructure projects that will boost regional tourism.
Tourism regions particularly hard hit by the international border closures, like Tropical North Queensland and Tasmania, will benefit from $51 million over two years to attract domestic visitors. Also $100 million over two years will go towards Regional Recovery Partnerships to coordinate investments with other levels of government and support recovery, diversification and growth in 10 regions across Australia such as the Snowy Mountains, Kangaroo Island, and the Hunter.
A commitment of $50.3 million will go towards expanding the Rural Health Multidisciplinary Training Program and investing in increased training and infrastructure for the rural health workforce. Capability on the ground will also be improved through $5.7 million in new support for Building Resilient Regional leaders.
To make sure primary producers can get their high- quality perishable products into overseas markets while flights remain limited, the Government is providing an additional $317 million to the International Freight Assistance Mechanism.
To aid farmers, $156 million over four years will help them recover from the current drought and prepare for future droughts. This includes $19.6 million to extend the National Drought and North Queensland Flood Response and Recovery Agency for another year. It will also provide a further $2 billion in drought concessional loans.
The Government is also providing targeted support to the fishing and forestry industries by waiving $10 million of fees on Australia’s fishing industry, and $25 million to haul salvaged logs to timber mills that survived the bushfires.
The Government will provide $17.4 million to expand the Relocation Assistance to Take Up a Job Program, including for those who temporarily relocate to take up agriculture work.
The Modern Manufacturing Strategy will see $1.3 billion go to the Modern Manufacturing Initiative. With this funding, the Government will co-invest with leading manufacturers to help them achieve scale, commercialise world-leading research, and connect to international markets. Another $107 million is to be directed at a Supply Chain Resilience Initiative to identify and address supply chain vulnerabilities.
Small and medium manufacturers can access $52.8 million in a second round of the Manufacturing Modernisation Fund. This will help manufacturers scale- up, invest in new technologies, create and maintain jobs and upskill their workers. A further $50 million is being provided to Industry Growth Centres to deliver immediate support to manufacturing priority industries.
The Government is banning the export of waste plastic, paper, tyres and glass. It will invest $249.6 million over four years to modernise recycling infrastructure, reduce waste and recycle more. This includes a $190 million Recycling Modernisation Fund, which will invest in new infrastructure to sort and recycle plastic, paper, tyres and glass waste. Another $47.4 million will be dedicated to protect marine health.