key changes in the Federal Budget

We summarise the below key changes announced in the Federal Budget that was delivered on 6 October 2020.  This is for informational purposes and does not take the place of advice suited to your circumstances.   Should you require any further information or explanation please contact your accountant at SH Tait & Co.
INDIVIDUAL TAXPAYERS:

Changes to personal income tax rates

The Government has legislated to bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income year). These changes include: 

• increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and 
• increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

 The current and proposed tax brackets are summarised below (excludes the Medicare Levy). 

​Employers are to reduce the tax withheld from 13 October 2020.

Changes to the Low Income Tax Offset ('LITO')

The Government announced that it will also bring forward the changes that were proposed to the LITO from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), as follows:

• The maximum LITO will be increased from $445 to $700.
• The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
• The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,000 and $66,667.

The current and proposed LITO are summarised below:  

Note that, the Government also announced that the current Low and Middle Income Tax Offset (‘LAMITO’) would continue to apply for the 2021 income year (which is available in addition to the LITO for eligible taxpayers). For example, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.  

BUSINESS TAXPAYERS:
Expanding access to Small Business Tax Concessions
The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions.   

For this purpose, a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.   

The expanded concessions will apply in three phases, as follows:

1. From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
2. From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.
3. 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.
   • Eligible businesses will generally have a two-year amendment period apply to income tax assessments for income years starting 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. 

JobMaker Hiring Credit
The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.   

From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old. New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created. 

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria. 

The amount of the credit is capped at $10,400 for each additional new position created.  Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question (see employer eligibility requirements below). 
Who is an eligible employee?
Employees may be employed on a permanent, casual or fixed term basis.  To be an ‘eligible employee’, the employee must:

• be aged (i.e., at the time their employment started) either:
  • 16 to 29 years old, to attract the payment of $200 per week; or
  • 30 to 35 years old to attract the payment of $100 per week;
• have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period;
• have commenced their employment during the period from 7 October 2020 to 6 October 2021;
• have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired; and
• be in their first year of employment with this employer and must be employed for the period that the employer is claiming for them. 

Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.  
Who is an eligible employer?
An employer is able to access the JobMaker Hiring Credit if the employer: 

• has an ABN
• is up to date with tax lodgment obligations;
• is registered for Pay As You Go withholding;
• is reporting through Single Touch Payroll;
• is claiming in respect of an 'eligible employee'
• has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of; and
• is able to demonstrate that the credit is claimed in respect of an additional job that has been created. Broadly, there must be an increase in the business’ total employee headcount and also in the payroll of the business for the reporting period (based on a comparison over a specified reference period). 

Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit. Certain employers are excluded, including those who are claiming the JobKeeper payment.   New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires. 
Uncapped immediate write-off for depreciable assets

The Government has announced it will introduce the following changes to the Capital Allowance provisions:

1. Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as ‘full expensing’) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:
   • The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
   • The asset was first used or installed ready for use by 30 June 2022.
   • The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.

·  As is currently legislated, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the cost of eligible second-hand assets costing less than $150,000 that are purchased from 2 April 2019 and first used or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off. The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021.

1. Small businesses (i.e., 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 (i.e., up to 30 June 2022). Furthermore, 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.  

 
CORPORATE TAX PAYERS INCLUDING PTY LTD COMPANIES:

Temporary loss carry back for eligible companies

The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.
   
This will allow such companies to generate a refundable tax offset in the year in which the loss is made. The tax refund is 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 companies when they lodge their tax returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal. 
The application of these new measures to our corporate business clients will be considered during tax planning work performed in April / May 2021.

OTHER BUDGET ANNOUNCEMENTS:
Supporting apprentices and trainees
The Australian Government is extending and expanding the Supporting Apprentices and Trainees wage subsidy, to include medium-sized business who had an apprentice in place on 1 July 2020.  Eligible employers can apply for a wage subsidy of 50% of an eligible apprentice or trainee’s wages paid until 31 March 2021.
·        Your small business may be eligible if:
·        you employ fewer than 20 people; or
·        you are a small business with fewer than 20 people, using a Group Training Organisation; and
·        the apprentice or trainee was undertaking an Australian Apprenticeship with you on 1 July 2020 for claims after this date. Claims prior to 1 July 2020, will continue to be based on the 1 March 2020 eligibility date.
·        Your medium-sized business may be eligible if:
·        you employ fewer than 200 people; or
·        you are a medium business with fewer than 200 people, using a Group Training Organisation; and
·        the apprentice or trainee was undertaking an Australian Apprenticeship with you on 1 July 2020.
Any employer (including all small, medium or large businesses and Group Training Organisations) who re-engages an apprentice or trainee displaced from an eligible small or medium business may also be eligible for the subsidy. Further information is available at https://www.australianapprenticeships.gov.au/search-aasn
  
Small business COVID-19 Adaption Grant Program
The objective of this program is to support small businesses subject to closure or highly impacted by the coronavirus (COVID-19) shutdown restrictions announced by the Queensland Government, to adapt and sustain their operations, and build resilience.  The first round of funding for this program is 100% subscribed, however round two is currently open specifically to regional businesses, noting that subscription is nearing capacity.  To be a 'regional business', your principal place of business must be in a local government area within Queensland that is not identified as a South East Queensland (SEQ) location.
To be eligible, your business must:

• have been subject to closure or otherwise highly impacted by current shutdown restrictions announced by Queensland's Chief Health Officer on 23 March 2020
• have experienced a minimum 30% decline since 23 March 2020, over a minimum 1-month period due to the onset and management of COVID-19
• employ staff and have fewer than 20 employees at the time of applying for the grant (employees must be on your payroll and does not include the business owner(s))
• have a valid Australian Business Number (ABN) active as at 23 March 2020
• be registered for GST
• have a Queensland headquarters
• have an annual turnover over $75,000 for the 2018–19 or 2019–20 financial year, or you can provide financial records that show this will be met for recently started small businesses
• have a payroll of less than $1.3 million
• not be insolvent or have owners or directors that are an undischarged bankrupt.

The available grant amount is a minimum of $2,000 and up to a maximum of $10,000 per eligible small or micro business.
In recognition of the significant impacts of COVID-19 on small businesses, the funding can be used towards meeting a variety of ongoing costs, including the following:

• financial, legal or other professional advice to support business sustainability and diversification
• continuing to meet business operational costs including utilities, council rates, rent, telecommunication charges, insurance fees, licensing or franchise fees
• strategic planning, financial counselling or business coaching aligned to business development and diversification
• building the business through marketing and communications activities (e.g. content development – web pages, mobile apps, visual and audio media etc.)
• digital/technological strategy development

 
Modern Manufacturing Initiative
This Modern Manufacturing Strategy (the Strategy) is led by industry, for industry, to help our manufacturers to scale-up, become more competitive and build more resilient supply chains. The Australian Government will be a strategic investor in this, in order to drive productivity and create jobs for Australians, both now and for generations to come.  Key initiatives will deliver immediate and long-term economic benefits.

• $1.3 billion Modern Manufacturing Initiative – The MMI will transform manufacturing businesses and help them to scale-up, translate ideas into commercial successes and integrate into local and international value chains.
• $107.2 million Supply Chain Resilience Initiative – The Supply Chain Resilience Initiative will help Australia address identified gaps in critical supply chains.
• $52.8 million Manufacturing Modernisation Fund round two – The Manufacturing Modernisation Fund round two will deliver quick action to unlock business investment on shovel ready projects.

 
The program is targeted at growth opportunities in the following areas:
 

• Resources Technology & Critical Minerals Processing
• Food & Beverage
• Medical Products
• Recycling & Clean Energy
• Defence
• Space  

This funding is targeted at substantially large businesses who are looking to further ‘scale up’ their operations.  More information on the funding available is at https://www.industry.gov.au/news-media/modern-manufacturing-initiative-and-national-manufacturing-priorities-announced
Insolvency reforms to support small business

The Government will implement certain insolvency reforms, effective from 1 January 2021 (subject to the passing of legislation) to support small business, including the following:   

• The introduction of a new streamlined process to enable eligible incorporated small businesses (broadly, those with liabilities of less than $1 million) in financial distress to restructure their debt.
• Simplifying the liquidation process for eligible incorporated small businesses (to allow faster and lower-cost liquidations, increasing returns for creditors and employees).
• Support for the insolvency sector (to ensure it can respond effectively to increased demand and to the needs of small business).  

Currently, the insolvency system faces a number of challenges. These include an increase in the number of businesses in financial distress due to COVID-19, a ‘one-size-fits-all’ system, and high costs and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early thereby reducing their opportunity to restructure and survive. Temporary insolvency and bankruptcy protections that were introduced in March 2020 to provide relief for businesses impacted by COVID-19 are due to expire on 31 December 2020 (e.g., under these measures, directors are temporarily relieved from personal liability for trading while insolvent). However, the number of companies being put into external administration is expected to increase significantly, putting additional stress on the system. Therefore, the above proposed reforms will help more businesses to successfully get to the other side of the crisis.  If your business is in significant financial distress, please contact our office before 31 December 2020 so that we can discuss these provisions in further detail.