Federal Budget Review 2020/21

As we begin to analyse the 2020/21 Budget papers, which is close to 1,000 pages, our initial reaction is positive and we are excited that there are stimulus measures for almost everyone.

Personal Tax cuts, employment incentives, company and business Tax breaks, dwelling and infrastructure incentives, are all designed to 'kick-start' the massive Australian economic engine.

The Treasurer has made it clear he intends to empower the ATO to deliver and implement the Tax saving measures to get money into the hands of those who need it most quickly. We saw the success of the Australian Government when they decisively implemented Cash Flow Boost and JobKeeper incentives in response to Covid-19 crisis and expect the Budget measures to follow a similar path.

Clearly the detail is being analysed but it is obvious all businesses need to carefully review their opportunities. Early Planning will be critical to maximise the impact. Highlights include:

Tax Rate Cut City

The budget has included some mouthwatering personal income Tax reductions, reducing Taxes by around $23 billion. This brings forward the Stage 2 Tax cuts, now commencing on 1 July 2020.

The lifting of the Tax thresholds means a marginal Tax rate of 19 cents in the dollar up to $45,000 and 32.5 cents in the dollar up to $120,000. The maximum Tax saving for someone on $120,000 is $2,745, with most people's Tax withholding rate to have marked reductions.

The low-income Tax offset has increased by $255. This increases the maximum benefit to $700. This Tax offset will now continue until the introduction of Stage 3 Tax cuts in the 2025 financial year.

Uncapped Instant Asset Write-Off

Businesses with an annual turnover of less than $5 billion will be entitled to fully expense their new depreciable assets (essentially plant, equipment and specified intangible assets) acquired from 7 October 2020 until 30 June 2022.

Businesses with a turnover of less than $50m can also fully expense secondhand assets.

Furthermore, businesses with a turnover of less than $10m can deduct the balance of their simplified depreciation pool. The attraction of the simplified depreciation regime has increased with the ongoing suspension of the 5 year opt-out rule.

Company Loss Carry-Back

All companies with a turnover of less than $5 billion will be eligible to offset Tax losses against previous profits on which Tax has been paid, to generate a refund.

Losses incurred in 2019/20, 2020/21 and/or 2021/22 can be carried back against profits made in or after 2018/19.

For example, John's Mowing Pty Ltd generated a Taxable profit of $100,000 during 2018/19 and paid Tax of $30,000. In 2019/20 the business generated a loss of $50,000. Upon lodgement of the 2020/21 Tax return the business will be able to elect to apply the loss against the earlier income. This would generate a Tax refund of $15,000.

JobSeeker, JobKeeper and now we have JobMaker.

The Federal Government will pay eligible employers up to $200 per week per additional eligible employee hired between 7 October 2020 and 6 October 2021. Payments will be made on a quarterly basis, commencing in February 2021.

In broad terms, eligible employees are aged between 16 and 35 years, have received either the JobSeeker Payment, Youth Allowance, or the Parenting Payment and have been paid for at least 20 hours of work per week.

The credit will only be applicable to employees hired for new positions, and not applicable to employees hired to replace an existing position.

Further details of on eligible employees and employers are contained within the linked report below.

In addition, the scope of eligibility for the existing apprentice subsidy announced in March 2020 has been expanded to include businesses with more than 200 employees. The subsidy will offer reimbursement of up to 50% of an apprentice wage, capped at $7,000 per quarter per apprentice between 5 October 2020 and 30 September 2021.

Interestingly, the apprentice subsidy is limited to 100,000 placements across the country.

This is a strong, optimistic Federal Budget. The economic strains are reminiscent of those experienced in the Great Depression and during two world wars. It is therefore incumbent on businesses to take advantage of the opportunities immediately as the massive debt this Budget will create is to be a feature of our economy for years to come.

It is imperative you contact your Hall Chadwick adviser soon to arrange a meeting to identify the opportunities buried in the detail. Time is of the essence.

For more information

Read our full Federal Budget analysis here.