Last night, on 6 October 2020, Treasurer Josh Frydenberg delivered the Federal Budget for the 2020 – 2021 income year. It will be remembered as Australia’s biggest spending budget with a forecast deficit of $214 billion for the 2021 fiscal year. Hence the phrase, “We are all Keynesians now”, could be written large across current Government policies and budgets over the four-year forward estimates period.
Individuals
Individual Tax Rates
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. Here is a table of the new tax rates.
| Individual tax rates for residents | ||
| 2020-21; 2021-22; 2022-23; 2023-24 tax thresholds | ||
| Taxable income | Rate (%) | Tax on this income |
| $0 – $18,200 | 0 | Nil |
| $18,201 – $45,000 | 19 | 19c for each $1 over $18,200 |
| $45,001 – $120,000 | 32.5 | $5,092 plus 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | 37 | $29,467 plus 37c for each $1 over $120,000 |
| $180,001 + | 45 | $51,667 plus 45c for each $1 over $180,000 |
| Individual tax rates for non-residents | ||
| 2020-21; 2021-22; 2022-23; 2023-24 tax thresholds | ||
| Taxable income | Rate (%) | Tax on this income |
| $0 – $120,000 | 32.5 | 32.5c for each $1 |
| $120,001 – $180,000 | 37 | $39,000 plus 37c for each $1 over $120,000 |
| $180,001 + | 45 | $61,200 plus 45c for each $1 over $180,000 |
Low Income Offset
The Government announced in the Budget that the new low income tax offset (LITO) will be brought forward to start as from the 2020-21 income year.
The new LITO was intended to replace the existing low income and low and middle income tax offsets as from 2022-23. Although the existing LITO is scrapped, the low and middle income offset (LMITO) will be retained for 2020-21
| Tax offsets for individuals | |
| Low and Middle Income Tax Offset | |
| Taxable Income | Tax offset |
| Up to $37,000 | $255 |
| $37,000 – $48,000 | $255 plus 7.5c for each $1 over $37,000 |
| $48,001 – $90,000 | $1,080 |
| $90,001 – $126,000 | $1,080 less 3c for each $1 over $90,000 |
| $126,001 + | Nil |
| Low Income Tax Offset | |
| Taxable Income | Tax offset |
| Up to $37,500 | $700 |
| $37,501 – $45,000 | $700 – (5% of excess over $37,500) |
| $45,001 – $66,667 | $325 – (1.5% of excess over $45,000) |
| $66,668 + | Nil |
Exempting granny flat
| A targeted capital gains tax (CGT) exemption for granny flat arrangements will be provided where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. It is intended that the measure commence from 1 July 2021 (ie next financial year), subject to the passage of necessary legislation. Specifically, the measure will have effect “from the first income year after the date of Royal Assent of the enabling legislation”. |
Business
Increase to The 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.
These changes will simplify eligibility and reduce red tape for around 20,000 businesses, as more turnover thresholds will align to the aggregated annual turnover threshold for a base rate entity for company tax purposes. The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.
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 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.
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.
Fringe Benefits Tax
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. This measure applies from announcement.
- Reducing the Compliance Burden of Record-Keeping
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. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.
- Temporary Loss Carry-Back to Support Cash Flow
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.
Note: Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
- Research and Development 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.
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.
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew its ruling TR 2004/15 Income tax: residence of companies not incorporated in Australia – carrying on a business in Australia and central management and control).
Superannuation
The Your Future, Your Superpackage, which will seek to reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, includes:
- YourSuper portal – the ATO 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;
- Stapled accounts– an existing superannuation account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers;
- MySuper benchmarking – from July2021, APRA 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.
- Super trustees – best financial interests duty- to improve transparency and accountability of super funds, the Government will legislate to compel super trustees to also act in the best “financial” interests of their members: see below.
Other measures
- First home buyers: An additional 10,000 first home buyers will be able to purchase a new home sooner under the extension to the First Home Loan Deposit Scheme. The additional 10,000 places will be provided in 2020-21. This will allow first home buyers to secure a loan to build a new home or purchase a newly built dwelling with a deposit of as little as 5%, with the Government guaranteeing up to 15% of a loan.
- 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.
Updates to listed deductible gift recipients
Since the July 2020 Economic and Fiscal Update, a number of organisations have received new status as deductible gift recipients (DGRs) or had their DGR status extended:
Organisations newly listed as DGRs
| Royal Agricultural Society Foundation Limited | From 1 July 2020 |
| Judith Neilson Institute for Journalism and Ideas | From 1 July 2020 |
| The Andy Thomas Space Foundation | From 1 July 2020 |
| The Royal Humane Society of New South Wales | From 1 July 2020 |
| Youthsafe | From 1 July 2020 |
| Alliance for Journalists’ Freedom | From 1 July 2020 |
| The Great Synagogue Foundation Trust Fund | From 1 July 2020to 30 June 2025 |
Organisations whose DGR status has been extended
| Sydney Chevra Kadisha | 1 January 2021 to 30 June 2022 |
| Centre for Entrepreneurial Research and Innovation Limited. | From 31 December 2021 onwards |
The above information is from: https://www.taxandsuperaustralia.com.au/TSA/Resources/Federal_Budget_2020-21