Last night Josh Frydenberg unveiled a plan to restore the economy to pre-COVID levels through an unprecedented $507 billion in tax cuts, cash payments and wage subsidies.
It is an optimistic budget that, aside from some government funded infrastructure projects being brought forward, relies on the private sector (small, medium and large businesses) to awaken and invest.
The forecast GDP bounce post-virus is significant – from a 1.5% reduction in 2020-21 to a 4.75% increase for the 2021-22 financial year.
Notwithstanding the significant increase in Australia’s gross debt over the forward estimates period, we think investors will respond positively to the budget because the debt will be borrowed at record low rates, the government has come up with a solution to address the sharp removal of job keeper subsidies in March 2021 and that the stimulus package is mainly private sector driven.
This summary below provides a snapshot of the key changes that will impact cashflow for individuals and business.
Personal tax cuts
The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 whilst retaining the low and middle income tax offset.
Low income tax offset
- 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 The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000.
- The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
- The Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal
- An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. This will reduce the chances of ‘lost super’
- From July 2021 the Australian Prudential Regulation Authority will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
First Home Buyers Extension
- The First Home Loan Deposit Scheme has been extended to 30 June 2021 to help another 10,000 first home buyers to buy a new home. This will allow people to buy with a deposit of as little as 5%.
- The Government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients and health care card holders
- These payments are exempt from taxation and will not count as income support for the purposes of any income support payment.
Temporary full expensing of capital expenses
- Businesses with aggregated annual turnover of less than $5 billion can deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 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.
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
- 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 election 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.
- The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee
- Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll 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.
- The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created
- To be eligible, the employee 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 are hired.
Other small business tax concessions (announced Friday 2 October)
- Immediate deduction for certain start-up and/or prepaid expenditure (from 1 July 2020)
- Exemption from the 47% FBT on car parking and multiple work-related portable electronic devices such as phones or laptops provided to employees (from 1 April 2021).
If you have any questions on the budget measures, please contact our professional and knowledgeable wealth and accounting advisors.