Federal Treasurer Josh Frydenburg handed down the budget on October 6: a budget which takes on heightened significance as we navigate our way through the post-COVID recovery period. What does the government have in store for taxpayers, individuals and businesses? We’ve taken a look at some of the key features of the budget.
Tax cuts for businesses and individuals
The Budget promotes tax reform in order to encourage business investment and to help reduce the income tax burden for individuals.
Tax cuts for businesses
Temporary full expensing to encourage investment
Businesses are encouraged to invest with the introduction of temporary full expensing. Businesses with a turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the first year they are used or installed ready for use, from now until end of June 2022.
Costs of improvements to these eligible depreciable assets can also be deducted. Through the reduction of after-tax costs of eligible expenses, full expensing supports businesses that are investing and helping stimulate the economy.
Eligible new or second-hand assets acquired under the enhanced $150,000 instant asset write-off by the end of this year will receive an additional 6 months (30 June 2021) to use or install those assets.
Temporary loss carry-back will provide businesses the opportunity to offset tax losses. Companies with a turnover of up to $5 billion will be able to offset tax losses against previous profits on which tax has been paid to generate a refund.
Any losses incurred from 2019-20, 2020-21, 2021-22 may be carried back against profits made during, or after 2018-19. To receive this support, applications to receive a tax refund may be lodged during the 2020-21 or 2021-22 tax returns.
Expanding and modernising the tax treaty network
Measures have been taken to expand and modernise the tax treaty network. This involves eliminating double taxation in an effort to attract foreign workers, simplifying taxing rights between Australia and other countries and boosting foreign investment.
The initiative reduces tax barriers to prioritise reinstating Australia’s treaties with important partners to relieve economic burden. The Research and Development Tax Incentive will ensure businesses of every size are receiving the support they require.
Changes have been made to record keeping provisions in order to cut down on red tape. Businesses will no longer need complete prescribed records, instead they will be able to use existing corporate records to reduce time spent on record keeping.
Tax cuts for individuals
Low and middle income earners will receive tax relief in the coming years, with the government bringing forward their plans for tax cuts in order to encourage spending and to stimulate the economy.
Taxpayers will receive relief of up to :
- $2,745 for singles, and
- $5,490 for dual income families
The provision of a simpler tax system and lower taxes, which will be implemented in 3 stages, has increased the threshold of the 32.5% tax bracket from $90,000 to $120,000.
JobMaker Hiring Credit for additional employees
The unemployment figures told a devastating story in 2020, with millions of Australians finding themselves out of work - many for the first time. Many young people have also been impacted, with the arts, hospitality and tourism sectors hit hard.
What is the JobMaker Hiring Credit?
The JobMaker Hiring Credit is designed to give businesses an incentive to take on additional employees between 16 and 35 years of age. Eligible employers will receive:
- $200 a week for each new employee aged between 16 and 29
- $100 a week for new eligible employees aged 30 to 35
The employee must work at least 20 paid hours per week on average and may be employed on a permanent, casual or fixed term basis. The employee must also have received the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one of the three months preceding the time of hiring.
Which employers are eligible?
Eligible employers must:
- Have an Australian Business Number
- Be up to date with their tax lodgement obligations
- Be registered for Pay As You Go (PAYG), and
- Be reporting through Single Touch Payroll
To receive the JobMaker Hiring Credit, employers must also meet additional criteria, requiring an increase in the:
- Business’ total employee headcount from 30 September 2020; and
- Payroll of the business for the reporting period, as compared to the three months to 30 September 2020
NOTE: Employers will NOT be eligible if they are also claiming JobKeeper Payment.
How do employers register for the scheme?
Registrations will be open for eligible employers through ATO online services from 7 December 2020. Visit the ATO website for additional information.
Insolvency reforms for small business
Many small businesses are carrying increased levels of debt due to the COVID-19 crisis. The government is introducing a number of measures to expand the availability of insolvency practitioners to deal with an expected increase in the number of businesses seeking to restructure or liquidate.
There are three key elements in the package of reforms:
Current requirements around voluntary administration are more suited to large, complex company insolvencies. The new debt restructuring process adopts a ‘debtor possession model’ where the business can continue to trade under the control of its owners, while a debt restructuring plan is developed and voted on by creditors.
The costs of liquidation can consume all or almost all of the remaining value of a small business, leaving little for creditors. Under the government’s new process, regulatory obligations will be simplified, so that they are commensurate to the asset base, complexity and risk profile of an eligible small business.
Temporary relief measures extended
Relief measures have been extended to 31 December 2020.
The temporary increase in the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000; and a temporary increase in the time companies have to respond to statutory demands they receive from 21 days to 6 months.
Additionally, there is temporary relief for directors from any personal liability for trading while insolvent, with respect to any debts incurred in the course of the company’s business. These measures provide much needed breathing space for businesses.
JobTrainer and apprenticeship subsidies for workers
JobTrainer Fund to upskill and retrain job seekers
Job creation is a big feature of this Budget. The JobTrainer Fund (which falls under the JobMaker Plan), will support up to 340,700 free or low-fee training places in areas needed to help upskill and retrain job seekers and young people.
The government will provide exemptions for employer-provided retraining activities from business’ fringe benefits tax and is also consulting on updating the current rules to allow individuals to deduct training costs from income which relates to their future employment.
Boosting Apprenticeship Commencements Wage Subsidy
The Boosting Apprenticeship Commencements Wage Subsidy will boost the number of new apprenticeships and traineeships, supporting up to 100,000 new apprentices and trainees by paying a 50% wage subsidy. Businesses will receive the subsidy up to a cap of $7,000 per quarter, for commencing apprentices and trainees until 30 September 2021.
Changes to the superannuation system
The Budget also attempts to address a number of shortcomings within the superannuation system.
Preventing unintended multiple accounts
One of the consequences of changing employers is the creation of multiple superannuation accounts, resulting in unnecessary fees, and reduced retirement savings. Under the Budget, the proposal is that individual’s super is ‘stapled’ to them.
Stapling means that the individual keeps their super fund when they change jobs. The employer will pay super to the attached fund, unless the individual elects to change it.
Review of underperforming products
Not all super funds perform equally, which leads to inequitable retirement results for individuals. MySuper products will now undergo an annual performance test to level the playing field.
Funds will be required to notify their members if they are deemed to be underperforming and if they fail the test twice consecutively, they will not be able to accept new members until their performance improves. This gives members access to more information and the option to choose what they can do if their fund is underperforming.
Increased accountability and transparency
Members are not currently informed about how their money is being invested, and whether it is being invested appropriately. Through this initiative, super trustees will be required to provide members with key information regarding how they manage and spend their money ahead of Annual Members’ Meetings.
They are also required to comply with a new duty to act and must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests. This increase in transparency and accountability will allow members to make decisions regarding their super before it’s too late.
Comparison tool for fees and payments
Super fees are being paid on unused accounts, causing an erosion of retirement savings. ‘YourSuper’ allows comparison between fees and payments across different super funds so that individuals are able to make informed decisions about their super.
The entire list of budget documents can be found at the Australian Government’s Budget 2020-21 website. Our team can be contacted if you wish to discuss how these changes relate to your personal or business finances.