2020/21 Federal Budget highlights, 6 October 2020
The Federal Budget for 2020/21 was handed down by the Treasurer, Mr Josh Frydenberg, at 7.30 pm (AEST) on 6 October 2020.
Due to COVID-19, the economy is expected to shrink by 3.75% with unemployment peaking at 8%.
The Budget is heavily weighted towards addressing the impacts of COVID-19 on the economy with the key tax and superannuation highlights from the Budget summarised below.
Personal Income Tax Cuts Brought Forward
The proposed personal Income Tax cuts are to be brought forward by two years from 1 July 2022 to 1 July 2020 while the low and middle income tax offset (LMITO) will be retained for 2020-21.
The changes will mean:
- The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.
- 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 The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.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 top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.
Retaining the LMITO for the 2020-21 income year
The Low and Middle Income Tax Offset (LMITO) for the 2020-21 income year will be retained, providing further targeted tax relief for low- and middle-income earners.
The LMITO provides a reduction in tax of up to $1,080.
- a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.
- Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
- Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080.
- For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar.
Increasing the Medicare levy low-income thresholds
The threshold for singles has increased from $22,398 to $22,801.
The family threshold has increased from $37,794 to $38,474.
For single seniors and pensioners, the threshold has increased from $35,418 to $36,056.
The family threshold for seniors and pensioners has increased from $49,304 to $50,191.
For each dependent child or student, the family income thresholds increase by a further $3,533, instead of the previous amount of $3,471
Increase the small business entity turnover threshold
A range of small business tax concessions will be expanded by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.
Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will have access to up to ten further small business tax concessions 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 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees.
- From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods under the small business entity concession.
Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.
In addition, from 1 July 2021, the Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.
Temporary full expensing of Capital Expenditure
Businesses 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 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.
For businesses with aggregated annual turnover of less than $50 million full expensing also applies to second-hand 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.
Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off 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.
Temporary tax loss carry-back
Companies with an aggregated turnover of less than $5 billion will be able 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.
Any tax refund would be 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 businesses when they lodge their 2020-21 and 2021-22 tax returns.
Updates to the list of specifically listed deductible gift recipients
The following organisations have been approved as specifically listed deductible gift recipients (DGRs) for the following dates:
- Royal Agricultural Society Foundation Limited from 1 July 2020
- Judith Neilson Institute for Journalism and Ideas from 1 July 2020
- The Andy Thomas Space Foundation from 1 July 2020
- The Royal Humane Society of New South Wales from 1 July 2020
- Youthsafe from 1 July 2020
- Alliance for Journalists’ Freedom from 1 July 2020
- The Great Synagogue Foundation Trust Fund from 1 July 2020 to 30 June 2025.
Exempting granny flat arrangements from capital gains tax
The Government Granny flat arrangements where there is a formal written agreement will be will exempt from capital gains tax (CGT) in relation to arrangements with older Australians or those with a disability. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Additional funding to address serious and organised crime in the tax and superannuation system
The Government will provide $15.1 million to the Australian Taxation Office (ATO) to target serious and organised crime in the tax and superannuation systems. This extends the 2017-18 Budget measure. Additional funding for addressing serious and organised crime in the tax system by a further two years to 30 June 2023.
Clarifying the corporate residency test
The Government will make technical amendments to clarify the corporate residency test. The Government 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.
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew its ruling TR 2004/15).
Victoria’s business support grants to be non-assessable, non-exempt income for tax purposes
The Government will make the Victorian Government’s business support grants for small and medium business as announced on 13 September 2020 non-assessable, non-exempt (NANE) income for tax purposes.
International Tax — updating the list of exchange of information jurisdictions
The Government will update the list of jurisdictions that have an effective information sharing agreement with Australia. Residents of listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15 per cent on certain distributions, instead of the default rate of 30 per cent. The updated list will be effective from 1 July 2021.
Research and Development Tax Incentive
The Government will make further enhancements to the 2019-20 MYEFO measure better targeting the research and development tax incentive.
For companies with aggregated annual turnover of less than $20 million, the refundable R&D tax offset is set at 18.5 percentage points above the claimant’s company tax rate. The planned $4 million cap on annual cash refunds will not proceed.
For companies with aggregated annual turnover of $20 million or more, the Government will reduce the number of intensity tiers from three to two. This will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D.
The R&D premium ties the rates of the non-refundable R&D tax offset to a company’s incremental R&D intensity, which is R&D expenditure as a proportion of total expenses for the year.
The marginal R&D premium will be the claimant’s company tax rate plus:
- 8.5 percentage points above the claimant’s company tax rate for R&D expenditure between 0 per cent and 2 per cent R&D intensity for larger companies
- 16.5 percentage points above the claimant’s company tax rate for R&D expenditure above 2 per cent R&D intensity for larger companies.
The Government will defer the start date so that all changes to the program apply to income years starting on or after 1 July 2021.
All other aspects of the 2019-20 MYEFO measure will remain unchanged, including the increase to the R&D expenditure threshold from $100 million to $150 million per annum.
Fringe Benefits Tax
Exemption to support retraining and reskilling
Effective from 6 October 2020 there will be an exemption from the 47 per cent fringe benefits tax (FBT) 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.
This measure will provide an FBT exemption for a broader range of retraining and reskilling benefits, incentivising employers to retrain redundant employees to prepare them for their next career. The exemption will not extend to retraining acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth supported places at universities, which already receive a benefit, or extend to repayments towards Commonwealth student loans.
Reducing the compliance burden of record keeping
The Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.
The Government will provide $159.6 million over four years from 2020-21 to implement reforms to superannuation to improve outcomes for superannuation fund members.
The reforms, which will reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, include:
- the Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal Treasury;
- an existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment;
- 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 that shows they are no longer underperforming;
- improved transparency and accountability of superannuation funds by strengthening obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised.
Revised Start Dates for Tax and Superannuation Measures
The Government will change the start dates for some previously announced measures including:
- increasing the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six has been revised from 1 July 2019 to the date of Royal Assent of the enabling legislation;
- The start date for removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution MITs has been revised from 1 July 2020 to the income year commencing on or after three months after the date of Royal Assent of the enabling legislation;
- The start date for the targeted amendments to Division 7A has been revised from 1 July 2020 to the income year commencing on or after the date of Royal Assent of the enabling legislation;
- The start date for reducing red tape for superannuation funds (exempt current pension income changes) has been revised from 1 July 2020 to 1 July 2021.
Jobmaker hiring credit for new employees
JobMaker hiring credit to employers from 7 October 2020 for each new job (must increase overall employment) created over the next 12 months for which they hire an eligible (currently on Jobseeker, Youth Allowance or Parenting Payment) young person –
- $200 per week for a new eligible employee aged 16 – 29 years
- $100 per week for a new eligible employee aged 30 – 35 years
Boosting apprenticeships wage subsidy
From 5 October 2020 to 30 September 2021, businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period.
Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places. The wage subsidy will support school leavers and workers displaced by the COVID-19 related downturn to secure sustainable employment.
First home buyers
The first home buyers first home loan deposit scheme extended to an extra 10,000 buyers.