2020-21 Federal Budget: Road to Recovery?

By David Downie, Partner at Allworths Chartered Accountants

On October 6, the Federal Government announced the highly anticipated 2020-21 Budget. It is extra significant this year as it forms a major part of the government’s plan to get Australia out of recession.

Of the many points it covers, the key initiatives we think will affect the Allworths community the most, include:

• Personal income tax cuts from 1 July 2020
• A $4 billion ‘JobMaker’ Hiring Credit to encourage businesses to take on additional employees aged 16 to 35 years old
• $110 billion in infrastructure investment over 10 years
• Immediate deductions for business investment in capital assets
• Tax losses to be able to be ‘carried back’ for companies
• Access to small business tax concessions for a wider range of businesses

Australia’s economic response to the COVID-19 pandemic in the form of the JobKeeper scheme, cashflow boosts and enhanced JobSeeker payment has come at a significant cost. 

This has resulted in a budget deficit of $213.7b, falling to $66.9b by 2023-24.

The Government has taken to heart the old adage, “You have to spend money to make money,” to trade our way out of what could seem like a black hole.

The final comments in the Treasurer’s Budget speech paint a cautionary tale. The focus right now is on the path to growth and stabilising debt in an effort to boost consumer and business confidence. However, once “recovery has taken hold and the unemployment rate is on a clear path back to pre-crisis levels,” of below 6%, the second phase will kick in; the deliberate shift from providing temporary and targeted support to stabilising debt. 

Budget deficits are now forecast for the next decade with Federal Government debt to reach $1,800,000,000,000 ($1.8 trillion) in 2030-31 leaving difficult tax and spending decisions to the future.

Below we go into more detail about the key announcements:

Business incentives and companies

• Businesses with aggregated annual turnover of up to $5 billion will be able to deduct the full cost of eligible new depreciable assets of any value in the year they are installed. The full expensing period is available from 7:30pm AEDT on 6 October 2020 to 30 June 2022. The outright deduction may also be available for the cost of improvements to existing eligible depreciable assets. For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.
• Small businesses using depreciation pools can deduct the entire balance of the pool at the end of the income year up to 30 June 2022.
• Before 6 October, businesses with a turnover between $50 million and $500 million that purchased assets with a cost of $150,000 or less needed to have used or installed the assets ready for use by 31 December 2020 to be eligible for the full asset write off. This date has been extended by 6 months to 30 June 2021.
• Businesses with turnover between $10 million and $50 million will have access to some existing small business tax concessions previously only available to businesses with a turnover under $10 million. These include deductions for prepayments from 1 July 2020 and a 2-year amendment period from 1 July 2021.
• The research and development “R&D” tax incentive is proposed to change from 1 July 2021. Small R&D entities (with a turnover less than $20 million) are to be entitled to an offset of 18.5 percentage points above their tax rate with no refundable limit. Large R&D entities will have intensity tiers reduced from three to two, with offsets of 8.5 and 16.5 percentage points above their tax rate.
• Companies with a turnover up to $5 billion will be able to carry back losses from the 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits in the 2018-19, 2019-20 and 2020-21 income years. This will generate a tax refund on lodgement of the 2020-21 and 2021-22 income tax returns. This measure will interact with the Government’s announcement to allow full expensing of investments in capital assets. The new investment will generate significant tax losses in some cases, which can then be carried back to generate cash refunds for eligible companies.
• Eligible employers can claim a JobMaker Hiring Credit of up to $200 per week for each additional new job they create for an eligible employee from 7 October 2020 to 6 October 2021. There are specific “additional criteria” to be met to be an eligible employer, including demonstrating that there is an increase in the total employee headcount and payroll of the business. The JobMaker Hiring Credit will also not be available to employers who are claiming the JobKeeper payment. The employee must have worked at least 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months before they were hired.
• The apprenticeship wage subsidy will be further expanded by JobMaker. Eligible businesses that employ apprentices or trainees will be able to receive a 50% wage subsidy, up to $7,000 per quarter, capped at 100,000 places. This new measure will run from 5 October 2020 to 30 September 2021.

Individuals

• Individual income tax cuts for the 19% and 32.5% tax brackets will be brought forward to 1 July 2020, as will an increase to the low income tax offset. 
• Planned removal of the low and middle income tax offset has been scrapped for one year.

The specific tax changes include: 

• Raising the 19% bracket top threshold from $37,000 to $45,000, and
• Raising the 32.5% bracket top threshold from $90,000 to $120,000.

Superannuation

• An existing superannuation account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment. By July 2021, if an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund. Employers will obtain information about the employee’s existing superannuation fund from the ATO. If an employee does not have an existing superannuation account and does not elect a fund, the employer will pay the employee’s superannuation into their nominated default superannuation fund.
• A new interactive tool (YourSuper) will enable a comparison of simple super (MySuper) products ranked by fees and investment returns. The tool will also provide links to other MySuper products and show current super accounts if the individual has more than one. The tool will be administered by the ATO.
• From July 2021, the Australian Prudential Regulation Authority 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 shows they are no longer underperforming.

As always, feel free to contact us if you have any questions about how the changes may affect you or your business.