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The Federal Budget was released on Tuesday 6th October.

Whilst we have outlined the key points below, we emphasise that these measures are, at this stage, proposals, and will require legislation to be passed through both houses of Parliament.

Furthermore, we have only highlighted those points that we believe are most relevant to our clients and readers. The full budget can be found here, whilst the ABC has a good summary of the Budget  “Winners and Losers”.

Key Points:

• Individuals: Tax cuts for workers from 1 July 2020 – more money in pockets for more Australians.
• Individuals: Payments for Pensioners
• Business: ‘JobMaker’ Hiring Credit scheme – business support for hiring employees aged 16-35 who were on JobSeeker.
• Business: Asset write off – businesses that make new investments will be able to write off the entire cost in one year, rather than having the asset depreciate over several years.
• Business: Changes to how companies can manage losses
• Business: Access to generous tax concessions for a wider range of businesses
• Business: R&D Tax Concessions
• Business: Victorian business support grants to be tax-free
• Business/Individuals: No changes to JobKeeper or JobSeeker
• Economic Stimulus: $110 billion in infrastructure investment over 10 years
• Economic Stimulus: Construction
• Economic Stimulus: Manufacturing
• Economic Stimulus: Womens Economic Security Statement
• Economic Stimulus: Mental Health
• Economic Stimulus: Vaccines
• Assumptions

Tax Cuts

The Government will bring forward its planned tax cuts meaning millions of Australians will have more money in their pockets, potentially from the end of October. These tax cuts were scheduled to start in July 2022 but will be brought forward and backdated to July this year.

Bringing forward the personal income tax plan will:

• Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
• Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
• Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

The Government hopes Australians will spend the additional cash, to help offset the economic activity lost this year.

Work out how much you’ll save from these tax cuts with this calculator.

Payments for Pensioners

Tax-free payments of $250 will be made to pensioners and others on government support, including those on a Disability Support Pension, Carer Allowance. Find the full list here. The payments will roll out in December 2020 and March 2021.

JobMaker Hiring Credit scheme

While there are no changes to the JobKeeper scheme set to send in March 2021, a fresh wage subsidy program called the JobMaker Hiring Credit has been announced.

The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers will receive:

• $200 per week if they hire an eligible employee aged 16 to 29 years or
• $100 per week if they hire an eligible employee aged 30 to 35

The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll. Employers will be able to claim $200 each week for every employee hired after 7th October 2020 aged between 16 and 29, and $100 each week for every employee aged between 30 and 35.

To be eligible, the employee will need to have worked for a minimum of 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 prior to when they are hired.

The only businesses explicitly excluded from this scheme are the major banks.

Asset Write Off

Treasurer Josh Frydenberg said the write off was good news for “99% of businesses”. From Tuesday 5th October, businesses with a turnover of up to $5 billion will be able to write off the full value of any eligible asset they purchase up to $150,000.

The Government is really keen for business to invest. This measure enables businesses with an aggregated turnover of less than $5 billion to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use.

For businesses with an aggregated turnover under $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 existing 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.

If your business is in need of a new car, truck, machinery, computer, phone or other business essential, this tax break will provide some relief. Chat to us if you have any questions.

Ability for Companies to Carry-back Losses

Companies with an aggregated turnover of less than $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.

Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.

The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

Currently, companies are required to carry losses forward to offset profits in future years. Under the proposed amendments, companies that do not elect to carry back losses can still carry losses forward as normal.

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.

Note that loss carry-back rules were introduced some years ago by the Gillard government. The rules were repealed and were only operational in the 2012-13 year.

ATO document ‘Loss carry back’

Access to Tax Concessions Extended to Businesses up to $50m

Announced pre Budget, a range of generous tax concessions normally only available to small and medium businesses will be available to businesses with an aggregated turnover of up to $50 million.

The expanded concessions will be rolled out in three phases:

The eligibility turnover thresholds for other small business tax concessions will remain at their current levels. Further articles of interest – Expanding access to small business tax concessions to support jobs , ATO document ‘Increase the small business entity turnover threshold’

R&D Tax Concessions

The Government has enhanced its proposed shake-up of the R&D system injecting an additional $2 billion through the Research and Development (R&D) Tax Incentive.

Currently, the R&D Tax Incentive provides the following in respect of eligible R&D activities (for the first $100 million of eligible expenditure):

• a 43.5% refundable offset for eligible companies with aggregated annual turnover less than $20m; and
• a 38.5% non-refundable tax offset for all other eligible companies.

Note that the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019, before Parliament at the time the Federal Budget was released, proposed various amendments to the R&D Tax Incentive to take effect from the 2019-20 income year. The Government is now delaying (by two years) and enhancing the proposed changes.

Companies under $20m turnover

For companies with an aggregated annual turnover less than $20 million:

• The refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate (an increase from 13.5 percentage points above the claimant’s company tax rate as previously announced)
• The previously announced annual $4 million cap on cash refunds for R&D claimants will not proceed.

Companies over $20m turnover

For companies with aggregated annual turnover of $20 million or more, the previously announced R&D intensity premium, originally intended to apply across three tiers, will now apply across two tiers.

Note the intensity premium will tie the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.  The marginal R&D premium will be the company’s tax rate plus:

• 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
• 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 previously announced intensity premiums varied from 4.5 to 12.5 percentage points).

The R&D expenditure threshold – the maximum amount of R&D expenditure eligible for concessional R&D

tax offsets – will be increased as intended from $100 million to $150 million per annum.

Victorian Business Support Grants to be Tax-free

The Government will make the Victorian Government’s business support grants for small and medium business tax-free (non-assessable, non-exempt (NANE) income) for tax purposes.

This program will be extended to all States and Territories on an application basis and is restricted to future grants programs.

State-based grants such as the Business Support Grants are generally considered taxable income unless legislation enables them to be treated as non-assessable, non-exempt income.

No Changes to JobKeeper or JobSeeker

JobKeeper
The JobKeeper scheme is set to end on the 28th March 2021 as announced previously.

JobSeeker
More announcements surrounding JobSeeker are expected before the end of the year, so we will keep you updated.

As it stands, the Government isn’t planning on increasing the base rate of the JobSeeker unemployment benefit. The additional coronavirus supplement, currently $250 a fortnight, will end at the end of December, returning the benefit to its pre-pandemic rate.

Infrastructure

Announced ahead of the Federal Budget, transport infrastructure spending is a big winner with each State and Territory sharing in an additional $7.5 billion to fast track investment in projects. Working in consultation with the State and Territories, the projects have been identified as “ready to go” or “shovel ready.”

Morrison Government delivers $7.5 billion boost for transport infrastructure across nation

Construction

The $688 million HomeBuilder scheme gives cash grants for people to renovate or build new homes.

Builders will also benefit from extra support for first home buyers to encourage them to buy new houses and stimulate construction.

Manufacturing

$1.3 billion has been allocated to boosting Australia’s manufacturing sector and securing supply lines. The six areas of focus are defence, space, medicine and medical products, food and beverages, resources technology and recycling and clean energy. The aim is to create jobs across the country and help the economy recover, as well as help Australia become more self-sufficient in future disasters.

Womens Economic Security Statement

While the Global Financial Crisis acutely affected men, women have been disproportionately affected by the COVID-19 pandemic. Research in Australia, and across the world shows that women have lost more hours, more jobs and therefore more pay than men in recent months.

Women dominate frontline worker roles including healthcare, early childhood and aged care. Despite the critical role of these industries, these jobs are typically underpaid, insecure and cannot be done remotely. For the past two decades Australia’s gender pay gap has been between 14 – 20%. If the trends we’re seeing with lost hours and jobs continue, this gap is expected to widen.

A $240 million Women’s Economic Security Statement was unveiled in the budget that includes funding to help women in male-dominated industries like construction, more co-funded grants for women-founded start-ups, a focus on encouraging girls and women to pursue careers in STEM and more for Respect@Work council to tackle sexual harassment in workplaces.

Another part of the Women’s Economic Security Statement is a change to the work test for paid parental leave to help people who might’ve been found ineligible because of the COVID-19 pandemic.

The budget does not include any immediate assistance for women looking for work now, with much of the other assistance going to industries like construction.

Mental Health

The mental toll of the pandemic and the associated resulting lockdowns and restrictions has been recognised and the Government has extended a few key services. From Tuesday 5th October, the number of Medicare-funded psychological services doubled from 10 to 20.

This comes after the Government announced subsidised telehealth services, including for mental health services, would be extended until the end of March 2021.

There are hints that more announcements will come once reports on mental health and suicide are released in coming weeks.

Vaccines

As expected, the Government is putting billions towards COVID-19 vaccines, mainly the University of Oxford and the University of Queensland.

Another $10 million is going to the CSIRO to fast-track the development of a vaccine in Australia if and when it becomes available.

Assumptions

This budget is based on some economic assumptions, mainly that a COVID-19 vaccine will be rolled out to Australians by the end of 2021.

The budget also assumes we won’t see any more widespread outbreaks – and lockdowns – as has been the case in Victoria.

Furthermore, the budget assumes all state borders will be open by Christmas, with the exception of WA.

Tourism and international travel are assumed to remain low through the latter part of 2021.

Get in touch

Got a question? Please don’t hesitate to get in touch. As always, we will keep you informed as more details are released.

Stay safe & well!