Australian Federal Budget 2020

08 October 2020

Budget 2020

Businesses are the big winners from the Budget, with more than $30 billion in temporary tax breaks, designed to get firms spending despite major economic uncertainty.

The two biggest measures are “immediate expensing” and “loss carry-back”.

Immediate expensing allows companies to deduct the full cost of eligible asset assets upfront. In some cases, a big enough investment could push a business from profit to a loss.

This is when the loss carry-back could come into play. If the business makes a loss this year but made profit last year, it will be able to claim back some of the tax it had previously paid as a cash refund.

Immediate Expensing

Immediate expensing of all eligible depreciating assets, starting from 7:30pm on 6 October 2020 until 30 June 2022, for businesses with aggregated annual turnover up to $5 billion:

  • Allows companies to deduct the full cost of an eligible asset upfront, rather than depreciating it over several years
  • Must be first used or installed ready for use by 30 June 2022
  • Businesses with aggregated annual turnover of less than $10 million may also deduct the balance of their simplified depreciation pool at the end of the income year while the temporary full expensing measure applies
  • Eligible businesses that acquire eligible new or second-hand assets under the enhanced $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021, to first use or install those assets.
Asset TypeTemporary full expensing
New eligible depreciating assetsBusinesses with annual aggregated turnover of less than $5 billion may deduct:
• the full cost of new eligible depreciating assets.
• the cost of improvements made during this period to existing eligible depreciable assets.
Second-hand eligible depreciating assetsBusinesses with annual aggregated turnover of less than $50 million may deduct the full cost of second-hand eligible depreciating assets

Loss Carry Back

Loss carry back is available for business with aggregated annual turnover up to $5 billion:

  • Business can elect to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in the 2018-19 or later income tax years.
  • The tax refund will be available upon lodgement of the business 2020-21 and 2021-22 tax returns. Therefore, the first tax refund will only be available upon lodgement of the 2020-21 return.
  • Businesses that do not elect to carry back losses under this measure can still carry losses forward as normal.

JobMaker Hiring Credit

JobMaker Hiring creditwill be introduced for certain employers creating additional jobs in a 12 month period ending 6 October 2021:

  • For eligible employees who are aged between 16 and 35
    • $200 a week for each additional eligible employee aged 16 to 29 years old
    • $100 a week for each additional eligible employee aged 30 to 35 years old
  • The maximum amount of Hiring Credit claimed by an eligible employer is $10,400 per additional new position created and is capped by the increase in payroll for the reporting period.
  • Eligibility requirement for employers to receive a Hiring Credit are:
    • 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
    • Meets the additionality criteria is met (refer below)
    • Is claiming in respect of an eligible employee (refer below)
    • Has kept adequate records of the hours worked (or paid for) by the applicable employee
    • Is not an explicitly excluded from the regime (refer below).

Additionality criteria

  • Critically, to be an eligible employer, the employer must demonstrate that the job is additional in accordance with specific criteria. The additionality criteria require that there is an increase in both:
    • The business’ total employee headcount (minimum of one additional employee) from the reference date of 30 September 2020
    • The payroll of the business for the reporting period, as compared to the three months ended 30 September 2020

Eligible Employees

  • For employees to be eligibility in a reporting period, an employee hired into the newly created position must:
    • Be aged between 16 and 35 years old at the time their employment started
    • Have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period
    • Commenced their employment between 7 October 2020 and 6 October 2021
    • Have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired
    • Employees will be required to complete nomination forms under which the employee will make a declaration to the employer that the employee eligibility requirements are met
    • An employee may only complete a nomination for the Hiring Credit for one employer at any point in time

Explicitly Excluded

  • A range of employers are explicitly excluded from the Hiring Credit regime:
    • Commonwealth, state and local government agencies, and entities wholly owned by these agencies
    • Sovereign entities (foreign Governments, their agencies and wholly owned foreign resident subsidiaries). However, Australian resident entities owned by a sovereign entity that meet all other eligibility criteria are eligible
    • Entities in liquidation or who have entered bankruptcy
    • Employers who are claiming the JobKeeper Payment
    • Employers subject to the Major Bank Levy
  • The baseline headcount value at 30 September 2020 will be adjusted in the second year of the program to ensure an employer can only receive the Hiring Credit for 12 months for each additional position created
  • Newly established businesses and businesses with no employees at the reference date of 30 September 2020 are not prevented from claiming the Hiring Credit in respect of new hires provided the criteria are satisfied.
  • Only second and subsequent eligible hires by a newly established business will be eligible (given an employer’s minimum total employee headcount at the reference date of 30 September 2020 is one).
  • Claiming the Hiring Credit:
  • The 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 in respect of each newly created position.
  • Registrations will open for eligible employers through ATO online services from 7 December 2020.
  • Integrity measures similar to those introduced to support the JobKeeper regime will apply to the Hiring Credit scheme.

New Apprentices or Trainee Subsidy

  • New apprentices Subsidy will be available to employers Australia wide who engage an eligible Australian apprentice or trainee from 5 October 2020, paid in arrears, until the cap of 100,000 places is reached.
  • Eligible employers will receive 50% of the wages for new or recommencing apprentices or trainees for the period up to 30.09.2021, up to a maximum of $7,000 per quarter per eligible apprentice or trainee.

Small Business Tax Concessions expanded

  • Small Business Tax Concessions expanded, including changes to FBT has been expanded to businesses with an aggregated annual turnover between $10 million and $50 million.
  • It will allow access to up to 10 small business tax concessions, which will apply 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 (FBT) on
    • Car parking and
    • Multiple work-related portable electronic devices, such as phones or laptops provided to employees; and
  • From 1 July 2021. Eligible businesses will be able to:
  • Access the simplified trading stock rules
  • Remit PAYG instalments based on GDP adjusted notional tax
  • Settle excise duty and excise-equivalent customs duty monthly on eligible goods
  • Further, the time limit for the ATO to amend income tax assessments will be reduced from four to two years, for income years starting from 1 July 2021 (eligible businesses that have significant international tax dealings or particularly complex affairs will be excluded from this concession).
  • In addition, the Commissioner’s power to create a simplified accounting method determination for goods and services tax purposes will be expanded to businesses below the $50 million aggregated annual turnover threshold from 1 July 2021.

Tax Cuts for Individuals

The Budget includes tax cuts for most workers, primarily by bringing forward income tax cuts scheduled for the middle of 2022.

  • From 1 July 2020, the personal tax rates and thresholds will change as follows:
  • The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000
  • The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000
  • For someone earning between $45,000 and $90,000 the changes are worth $1,080 (on top of the $1,080 provided under the LMITO).
  • Employees earning more than $90,000 will take home some $1,125 extra, while people earning over $120,000 are set for the maximum benefit.
  • To work out your own tax relief, click on the following link to use the ‘your tax relief’ calculator:

https://budget.gov.au/calculator/index.htm

Low to Middle Tax Offset

Low to middle tax offset of $1,080 to stay around for another year.

In 2020-21, the maximum non-refundable LMITO will continue as follows:

Taxable IncomeMaximum Offset
Up to $37,000Up to $255
$37,001 to $48,000$255 + 7.5 cents per dollar of income over $37,000
$48,001 to $90,000$1,080

Low Income Tax Offset

The low income tax offset will increase from $445 to $700