MAP - October 2020 Update

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The Treasurer, Josh Frydenberg handed down the 2020-21 Federal Budget on 6 October.  The eye-watering debt & deficit numbers reveal just how much the Coronavirus pandemic has impacted the Australian economy.  The Government has outlined a plan for economic recovery -  at a time when existing stimulus measures are scaled back or due to end over the next 3 to 6 months - through brought forward tax cuts, business investment concessions and job creation.  All with the purpose of boosting the economy by encouraging individuals to spend and businesses to invest & employ.

The announcements are yet to be legislated, however the Labor Party has indicated it will support the measures.

Here is a snapshot of the key budget announcements for individuals and businesses.


Individuals

Tax bracket cuts brought forward
  • Tax bracket cuts brought forward by 2 years as outlined in the Government's Personal Income Tax Plan  
  • As a one-off benefit in the 2020-21 income year, the low & middle income tax offset (LMITO) will be retained along with the stage two tax cuts
  • The low income tax offset (LITO) is proposed to increase from $445 to $700
  • Stage two of the Plan will now take affect from 1 July 2020.  This stage will see the increase in the top income thresholds of the 19% and 32.5% tax brackets, as follows:

 

2020-21 onwards

2020-21 onwards

Nil - $18,200

0%

$18,201 - $45,000

19%

$45,001 - $120,000

32.5%

$120,001 - $180,000

37%

$180,001 plus

45%



Social Security Recipients
  • Two $250 payments for each eligible recipient will be paid - the first, from November 2020, and the second payment will be made in early 2021.
  • These payments are tax-free, and are not classified as income for social security purposes
  • The 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
JobMaker Hiring Credit
  • This program is designed to encourage employers to hire young workers so that they move away from JobSeeker and other Government programs
  • Credits will be available for eligible employees aged 16-35 years
  • Eligible employers will receive a credit of $200 per week for certain employees aged 16-29, and $100 per week for those aged 30 - 35.  There must be an increase in the headcount and payroll of the employer
  • Payments will be available for the first 12 months of employment, and will be capped at $10,400 for each addition position created
  • Employee will be required to have worked at least 20 hours per week on average each quarter.  They must also have received JobSeeker, Parenting Payment or Youth Allowance in at least one of the three months prior to their new employment
  • Employers will be able to make claims in arrears from February 2021 for new jobs created from 7 October 2020.
Apprenticeship Wage Subsidy
  • The existing Supporting Apprentices and Trainees (SAT) wage subsidy will be replaced by the Boosting Apprentices Wage Subsidy which is contained in the JobMaker Plan
  • The new subsidy will be available from 5 October 2020 to 30 September 2021 for apprentices & trainees commencing during this period
  • It is available to eligible businesses of all sizes (unlike the previous SAT, which was only available to small-medium sized businesses)
  • Eligible employers will be reimbursed up to 50% of the apprentice/trainee's wage capped up to $7,000 per quarter.  The new subsidy is capped at 100,000 places
Business

Temporary full expensing of capital assets
  • Under the current law, businesses with an annual aggregated turnover of less than $500 million are entitled to an immediate tax deduction for the cost of a new or second-hand depreciating asset, with a cost of less than $150,000, which is first used or installed ready for use from 12 March 2020 to 31 December 2020
  • The new measure announced increases the turnover threshold to $5 billion for businesses to deduct the full cost of new eligible capital assets and improvements to existing eligible assets, from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
  • Businesses with an annual aggregated turnover under $50 million will also be entitled to an immediate tax deduction for the full cost of eligible second-hand assets acquired from 7.30pm AEDT 6 October 2020 and first used or installed by 30 June 2022
  • Businesses will also be given an additional 6-months, to 30 June 2021, to first use and install eligible assets, under the existing instant asset write-off rules
  • Small businesses with an aggregated turnover less than $10 million can deduct the balance of their small business depreciation pool at the end of the income year

Loss carry-back for companies
  • Under this temporary measure, eligible companies will be allowed to carry-back tax losses made in the 2020 to 2022 financial years to offset tax paid on profits from the 2019 financial year onwards
  • The existing rules allow companies to carry forward tax losses indefinitely to utilise against future years taxable profits, provided certain tests are satisfied. Therefore the benefit of these prior year losses is only utilised at this time by paying less tax on a reduced taxable income
  • Losses carried back cannot exceed earlier taxed profits
  • Eligible companies will be entitled to receive a tax refund in the loss making year equal to the tax offset by the losses carried back

Fringe Benefits Tax Amendments

Some of the Fringe Benefits Tax (FBT) amendments announced in the Budget include;
  • FBT exemption for employer-provided retraining.  This measure is designed to encourage employers to help their workers retrain and reskill.  The costs incurred by employers will be exempt from FBT from 2 October 2020
  • This proposed measure only provides tax relief to the employer.  Where the employee incurs the costs themselves without reimbursement from their employer, they will not be able to claim a tax deduction.
  • FBT exemption - Multiple work-related electronic devices.  This proposed measure will apply to medium sized entities with an aggregated annual turnover of between $10 million and $50 million.  Note: small businesses with an aggregated annual turnover of less than $10 million will continue to have this FBT exemption
  • Reduced compliance by reducing the current FBT record-keeping requirements to allow employers to use existing corporate records to replace other existing records, eg employee declarations
  • Further clarification is needed to identify which corporate records are considered 'adequate' to satisfy compliance obligations

This year's Federal Budget is arguably the most significant in decades.  The Government has a clear  focus of getting the economy growing again by bringing forward tax cuts and business tax incentives.  If you would like to know more about how the proposed Budget measures may impact you, please get in touch with us.
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