On Tuesday, 6 October 2020, Treasurer Josh Frydenberg handed down the 2020-21 Federal Budget, his 2nd Budget. He said the Budget was “all about jobs” (including creating new jobs and getting the unemployed back into work again) and getting the economy moving again.
The Treasurer said “COVID-19 will see the deficit reach $213.7 billion this year, falling to $66.9 billion by 2023-24”. He said net debt will increase to $703 billion or 36% of GDP this year and peak at $966 billion or 44% of GDP in June 2024.
The Treasurer said that the economy is forecast to fall by 3.75% this calendar year and unemployment to peak at 8% in the December quarter. Next calendar year, he said the economy is forecast to grow by 4.25%, and unemployment to fall to 6.5% by the June Quarter 2022.
In addition, the 2020-21 Budget expands the Government’s 10-year infrastructure pipeline to $110 billion.
On personal taxation, in an expected announcement, the Government confirmed that the previously legislated Stage 2 tax cuts will be brought forward by 2 years, from 1 July 2022 to 1 July 2020 ie they will be brought forward and backdated – see below.
Revenue measures announced
The major revenue measures announced in the Budget included:
- Bring forward of the second stage of the personal tax cuts by 2 years to 1 July 2020, lifting the 19% threshold from $37,000 to $45,000, and lifting the 32.5% threshold from $90,000 to $120,000. At the same time, the low and middle income tax offset (LMITO) will be retained for 2020-21.
- The Stage 3 personal income tax cuts remain unchanged and will commence in 2024-25 as already legislated.
- Loss carry-back : 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.
- Asset write-off : For eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022, over 99% of businesses will be able to write off the full value of any eligible asset they purchase for their business. This will be available for small, medium and larger businesses with a turnover of up to $5 billion until June 2022.
- Corporate residency test to be clarified : The Government will make technical amendments to clarify the corporate residency test. It will amend the law 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.
- Superannuation: Several measures were announced. Commencing on 1 July 2021, the Your Future, Your Super package will see the following changes:
- YourSuper portal – the ATO will develop systems so that new employees will be able to select a super product from a table of MySuper products through the YourSuper portal;
- Stapled accounts – an existing super account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment;
- MySuper benchmarking – from July 2021, 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 – the Government will legislate to compel super trustees to also act in the best “financial” interests of their members. The Government will also require super funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.
- R&D : For small companies, those with aggregated annual turnover of less than $20 million, the refundable R&D tax offset will be 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 3 to 2.
- ATO funding: The Government will provide $15.1 million to the ATO to target serious and organised crime in the tax and super systems.
- JobMaker hiring credit: The Government announced a new JobMaker hiring credit to encourage businesses to hire younger Australians. The JobMaker hiring credit will be payable for up to 12 months and immediately available to employers who hire those on JobSeeker aged 16-35. It will be paid at the rate of $200 per week for those aged under 30, and $100 per week for those aged between 30-35. New hires must work for at least 20 hours a week. All businesses, other than the major banks, will be eligible.
- The Government has committed to creating 100,000 new apprenticeships.
- Age Pensioners will receive an additional $250 payment from November 2020 and a further $250 payment from early 2021.
As previously announced, the Budget confirmed:
- A targeted CGT exemption for granny flat arrangements.
- Expanded access to a range of small business tax concessions (eg start-up expenses, FBT exemptions on car parking, access to simplified trading stock rules) by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.
- An FBT exemption for employer provided retraining and reskilling benefits provided to redundant, or soon to be redundant, employees where the benefits may not be related to their current employment.
- The ATO will have the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.
- The Victorian Government’s business support grants for SMEs will be non-assessable non-exempt (NANE) income for tax purposes.
The Budget also includes a package of measures to create jobs and back regional Australia’s economic recovery:
- $2 billion in concessional loans to help farmers overcome the drought;
- $350 million to support regional tourism to attract domestic visitors back to the regions and a further round of the Building Better Regions Fund; and
- $317 million for Australian exporters to continue to access global supply chains.
Where to get Budget documents
The 2020-21 Budget Papers are available from the following website:
- Budget 2020-21 – http://www.budget.gov.au/
If you wish to find out more information regarding the 2020-2021 Federal budget and how it affects you and/or your clients, contact one of our professional tax advisers/accountants.
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