After federal, state and territory governments slammed the brakes on the Australian economy with the most drastic and far-reaching shut down measures experienced in our nation’s recent history, the Federal Treasurer has sought to re-ignite the flame to get our nation’s economy going again. The strategy is clearly signposted by one key word – ‘Job’ – and it is amazing how versatile it is. We had JobSeeker and JobKeeper, we now have JobMaker.
Amongst the measures for business, the Treasurer has delivered a budget with a focus on the ABC’s:
A is for Asset Write-offs – enabling businesses to deduct the full cost of new capital assets and for small and medium sized businesses, second –hand assets will also be covered.
B is for Business Concessions – loss carry back provisions for businesses will be provided to offset current losses on to previous tax paid.
C is for Cuts to personal tax rates – and also for Cash Handouts to pensioners and some other welfare recipients to stimulate the economy
1. Uncapped Immediate Asset Writeoffs
Businesses with an aggregated turnover of less than $5 billion will be able to claim an immediate deduction (full expensing) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used (from 6 October 2020) or installed ready for use by 30 June 2022. As is currently legislated, business with turnover between $50m and $500m can still deduct the cost of eligible second hand assets costing less than $150,000 that are purchased from 2 April 2019 and installed for use between 12 March 2020 and 31 December 2020 under the instant asset writeoff. This has been extended in which such assets must first be installed or used by 6 months until 30 June 2021.
2. Business Concessions - Carry Back Losses
Companies with aggregated annual turnover of less than $5 billion will be able to carry back tax losses incurred in the income years ending 30 June 2020, 2021 and 2022 to offset previously taxed profits in the year ended 30 June 2019 or later income years.
This action will have the effect of generating a refundable tax offset in the year in which the loss is made. The amount carried back will not be allowed to exceed the earlier taxed profits and the carry back will not be able to generate a franking account deficit. The tax refund will be available on election when a business lodges its income tax return for the years ending 30 June 2021 and 2022.
It is expected that many companies will take advantage of these two key measures and it will be important to undertake projections and consider eligibility. Subject to any integrity measures it appears that the unlimited asset write off may also actually help to assist with generating tax losses that can be carried back to obtain refunds of tax paid in earlier years. This position will become clearer once legislation is released.
3. Changes to Personal Income Tax Rates
The Government will bring forward changes to the personal income tax rates (that were due to apply from 1 July 2022) so that these changes now apply from 1 July 2020. These changes involve :
- increasing the upper threshold of the 19% tax bracket from $37,000 to $45,000; and
- increasing the upper threshold of the 32.5% tax bracket from $90,000 to $120,000
This will mean that an individual earning $50,000 will pay $1,080 less in tax than last year, while someone earning $120,000 and over will pay $2,430 less in tax than last year.
The Low Income Tax Offset is going to increase from $455 to $700 for those earning $37,500. The offset then reduces by 5 cents per dollar until your taxable income reaches $45,000. After this, the offset then reduces by 1.5 cents per dollar until your taxable income reaches $66,667.
In addition, the Low and Middle Income Tax Offset has been extended into the 2021 tax year. The offset starts at $255 for those earning $37,000 or less. This then increases at 7.5 cents per dollar as your income increases, with the maximum amount of the offset being $1,080 available to those earning between $48,000 and $90,000. The offset then reduces by 3 cents per dollar until your taxable income reaches $120,000.
4. Job Maker Hiring Credit
The Jobmaker hiring credit will be introduced to incentivise businesses to take on additional young job seekers. From 7 October 2020 eligible employers will be able to claim $200 a week (maximum $10,400) for each additional eligible employee they hire aged 16-29 years and $100 per week (maximum $5200) for eligible employees aged 30-35 years. The Job Maker 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 criteria.
An eligible employer is one who:
- has an Australian Business Number (ABN)
- is up to date with tax lodgement obligations
- is registered for Pay As You Go (PAYG) withholding
- is reporting through Single Touch Payroll (STP)
- meets the additionality criteria
- is claiming in respect of an eligible employee, and
- has kept adequate records of the paid hours worked by the employee, for whom they are claiming the hiring credit.
- Employers do not need to satisfy a fall in turnover test to access JobMaker.
An eligible employee is one who:
- has worked for a minimum of 20 hours per week, averaged over a quarter (permanent, casual or fixed term)
- has 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
- is NOT receiving a wage subsidy under another program (e.g. JobKeeper and Boosting Apprenticeship Commencement wage subsidies)
- does not have more than one employer entitled to the credit (e.g. only one employer can claim).
- Be in their first year of year of employment with this employer and must be employed for the period the employer is claiming
In the meantime, if you have questions about how this budget impacts you or your business, please get in contact with our team of Accountants on 07 5536 2288 or by email firstname.lastname@example.org