2020/2021 Federal Budget

The honorable treasurer, Josh Frydenberg delivered the 2020-21 budget on 06th October 2020. You all may have already read and heard a lot about various aspects of the budget. RCB Advisors team has included a brief snapshot of key measures announced in this newsletter. Worth noting is the fact that these measures become a reality only when passed by the Parliament. It is expected that many of these measures will get through the parliament in coming weeks.

We encourage you to contact a team member at RCB Advisors for any clarification on the announcements and how it may impact you and your businesses.

Personal Income Tax Cuts

Australian taxpayers are set to benefit immediately as the Government plans to bring forward the tax cuts in Stage 2 of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020. Key highlights of this measure include the following:

· The top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000.

· The top threshold of the 32.5% personal income tax bracket will increase from $90,000 to $120,000.

· 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 The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of$45,000 and $66,667.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 low-middle-income tax offset (LMITO) which was coming to end in 2020-21 year will now be retained for the 2020-21 financial year as a once off measure.

· This can mean a tax relief of up to $2,745 for Individuals and $5,490 for dual income families for 2020-21 year when compared with 2017-18 tax rates.

Source:

https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf

Expanding Small Business Immediate write-off

Business 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.

Businesses with aggregated annual turnover of less than $50 million can also apply full expensing to second-hand eligible 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 enhanced instant asset write-off. These businesses will have an extra six months, until 30 June 2021, to first use or install those assets.

Businesses with aggregated annual turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Source:

https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf

Temporary loss carry-back provisions for business with turnover less than $5 billion

The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses incurred in 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits made in or after the 2018-2019 income year.

This will allow such companies to generate a refundable tax offset 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 income years of 2020-21 and 2021-22. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Worth noting are the facts that this measure applies only to Companies and not all businesses (e.g. Trust/partnerships etc.). Any tax refund will be received on lodgment of 2020-21 income year tax return subject to having paid taxes in 2018-19 year and having tax losses in 2019-20 etc.

Source:

https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf

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. Eligible employees would be those who have received JobSeeker Payments, Youth Allowance (Other) or Parenting Payments for at least one of the previous three months at the time of hiring.

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.

Broadly, there must be an increase in the business’ total employee headcount and also in the payroll of the business for the reporting period. Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit. Certain employers are excluded, including those who are claiming the JobKeeper payment. New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires.

Source:

https://budget.gov.au/2020-21/content/factsheets/download/jobmaker_hiring_credit_factsheet.pdf

Additional payments for eligible social security recipients

Two separate $250 payments will be made to eligible Australians in receipt of certain income support payments including the age pension, carer payment and family tax benefits, and also health care cardholders.

An individual may be eligible to receive both $250 payments, however they can only receive one $250 per round even if they qualify per round in multiple ways. The payments will be exempt from taxation and not count as income for Social Security purposes.

Source: https://budget.gov.au/2020-21/content/factsheets/index.htm