As anticipated the Government has delivered a budget with measures aimed at reviving the economy and creating jobs.
In a budget that is encouraging spending on many levels, there are loads of tax-related measures for business, as well as several positives for individuals.
We wanted to give you a summary of all the measures that will affect you and your business.
Please note that all measures listed below are currently only proposed and may be subject to amendments prior to becoming law.
1.1 Changes to personal income tax rates
The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020.
These changes include:
- increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and,
- increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
If passed over the coming weeks, changes will come into effect immediately.
1.2 Retaining the low and middle income tax offset (LAMITO) for 2020-21
For the 2021 Financial year, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.
1.3 Changes to the Low Income Tax Offset (‘LITO’)
The Government announced that it will also bring forward the proposed increase to the LITO from $445 to $700, effective from 1 July 2020. The LITO will be reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and an additional 1.5 cents per dollar from taxable incomes between $45,001 and $66,667.
1.4 Stimulus Payment for Social Security Recipients
Two $250 payments for each eligible recipient will be rolled out in two separate waves.
Eligible recipients include those who already receive the following payments:
- Age Pension
- Disability Support Pension
- Carer Payments
- Family Tax Benefits
- Double Orphan Pension
- Carer Allowance
- Senior/Pension/Veteran Affairs Cardholders
The first of these payments will be made from November 2020 with the second payment to be actioned in early 2021, with the Government yet to confirm the exact date.
1.5 Removing CGT for ‘granny flat arrangements’
A targeted CGT exemption will apply from 1 July 2021 (subject to the passing of legislation), for ‘granny flat arrangements’.
Broadly, these involve older Australians or people with disabilities transferring their home or the proceeds from the sale of their home (and/or other assets) to their adult children or other trusted persons in return for the promise of ongoing housing and care.
Under this exemption, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities.
This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.
2.1 Uncapped immediate write-off for depreciable assets
Currently, businesses with a turnover of less than $500 million are entitled to an immediate tax deduction for the cost of a depreciating asset, whether new or second hand, with a cost of less than $150,000 which is first used or installed ready for use between 12 March 2020 and 31 December 2020.
Under the new measure, businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.
The implications of the new measure and the existing instant asset write-off measure are as follows:
- Businesses turnover of less than $5 billion will be entitled to an immediate tax deduction for the full cost of new eligible capital assets and improvements to existing eligible assets acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
- Businesses with an aggregated turnover of less than $50 million will also be entitled to an immediate tax deduction for the full cost of second-hand assets acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
- Small businesses with an aggregated turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year under the new measure.
2.2 Temporary loss carry back for eligible companies
The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.
This will allow such companies to generate a tax refund in the year in which the loss is made. The tax refund is 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 election by eligible companies when they lodge their tax returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
2.3 JobMaker Hiring Credit
The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.
From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old. New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.
The amount of the credit is capped at $10,400 for each additional new position created.
Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question (see employer eligibility requirements below).
To be an ‘eligible employee’, the employee must:
- be aged (i.e., at the time their employment started) either: – 16 to 29 years old, to attract the payment of $200 per week; or – 30 to 35 years old to attract the payment of $100 per week
- have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period
- have commenced their employment during the period from 7 October 2020 to 6 October 2021
- have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired, and
- be in their first year of employment with this employer and must be employed for the period that the employer is claiming for them.
There are also eligibility requirements for employers as well.
An employer can access the JobMaker Hiring Credit if the employer:
- has an ABN
- is up to date with tax lodgement obligations
- is registered for Pay as you go (PAYG) withholding
- is reporting through Single Touch Payroll
- is claiming in respect of an ‘eligible employee’
- has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of, and
- can demonstrate that the credit is claimed in respect of an additional job that has been created.
Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit; however, you cannot claim this credit if you are already claiming the JobKeeper payment.
2.4 Apprenticeship wage subsidy
The Boosting Apprenticeship Commencements wage subsidy will support businesses and Group Training Organisations to take on new apprentices and trainees.
Any businesses or Group Training Organisation that engages an Australian Apprentice on or after 5 October 2020 may be eligible for a subsidy of 50 percent of wages paid to an apprentice between 5 October 2020 and 30 September 2021, to a maximum of $7,000 per quarter.
Your business or Group Training Organisation may be eligible if:
- you engage an Australian Apprentice between 5 October 2020 and 30 September 2021, and
- your Australian Apprentice or trainee is undertaking a Certificate II or higher qualification and has a training contract that is formally approved by the state training authority.
2.5 Expanding access to Small Business Tax Concessions
The Government has announced plans to increase the turnover threshold for Small Business Entities (SBEs). Eligibility for the concessions has been increased to medium-sized entity taxpayers with an aggregated annual turnover of greater than $10 million but less than $50 million.
2.6 FBT exemption for retraining and reskilling employees
From 2 October 2020, the Government will introduce an FBT exemption for retraining and reskilling benefits provided by an employer to redundant, or soon to be redundant, employees, where the benefits may not be related to their current employment (e.g., where an employer retrains a sales assistant in web design in order to redeploy them to an online marketing role in the business).
2.7 Reducing the compliance burden of FBT record keeping
The Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns. The measure will take effect from the start of the first FBT year (i.e., on 1 April) after the date of Royal Assent of the relevant legislation.
2.8 Supporting the mental health of Australians in small business – COVID-19 response package
The Government will provide $7 million in 2020/21 to support the mental health and financial wellbeing of small businesses impacted by COVID-19, including:
- $4.3 million to provide free, accessible, and tailored support for small business owners by expanding Beyond Blue’s NewAccess program in partnership with the Australian Small Business and Family Enterprise Ombudsman; and,
- $2.2 million to expand a free accredited professional development program that builds the mental health literacy of trusted business advisers so that they can better support small business owners in times of distress, delivered through Deakin University.
2.9 Insolvency reforms to support small business
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 the needs of small businesses).
Temporary 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).
However, the number of companies being put into external administration is expected to increase significantly, putting additional stress on the system. Therefore, the above-proposed reforms will help more businesses to successfully get to the other side of the crisis.
3.1 Superannuation reforms
The Government will provide $159.6 million over four years from 2020/21 to implement reforms to improve outcomes for superannuation fund members.
Currently, structural flaws in the superannuation system mean that unnecessary fees and insurance premiums are paid on multiple accounts, members pay too much in super fees, underperforming products are costing members in lost retirement savings, and there is inadequate transparency on how funds are spending members’ money.
From 1 July 2021, the proposed reforms will make the system better for members in four key ways:
- Your superannuation follows you – An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.
- Empowering members – A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their needs.
- Holding funds to account for underperformance – MySuper products will be subject to an annual performance test. Funds that underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation products.
- Increased accountability and transparency – The Government will strengthen obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised. For example, trustees will be required to comply with a new duty to act in the best financial interests of members.
We are here to help support you and ensure you get the most benefit out of these newly announced measures.
Should you have any queries regarding these measures, please do not hesitate to contact our office on (02) 4732 3844.