2021 Federal Budget Update & Highlights

Written by: Ash Nadan
Published on:
October 18, 2020
Tax
2021 Federal Budget Update & Highlights

On the 6th of October 2020, the Federal government delivered a budget speech which was arguably like no other one presented before. The profound impact of the Covid 19 has affected Australia on many levels. The effects of the pandemic have been wide reaching and the impacts are likely to be felt in the Australian Economy for years to come.

The path to recovery will be highly focussed on jobs creation or perhaps resurrection, with many businesses now facing some uncertainty in relation to JobKeeper payments being reduced from October 2020 before being phased out in March 2021. 

The questions remain how this plan will increase economic resilience and create a more competitive and income-generating economy. The projected debt levels are also a cause for concern with the forward estimates projecting net debt to balloon at $966.2 Billion by 2024. On the other side of the spectrum the treasury has pencilled in rapid recovery should a vaccine become available in the near future and have predicted an average growth of 3.5% in the next three Financial years. In regard to the unemployment rate the treasury expects the rate to hover around 5.5% by mid-2024.

Let us take a step back now from the macro level and focus our attention on the main aspects of the budget for the SME world.


Income Tax Cuts – Personal

Looking back at the 2019/20 budget the announced certain Tax cuts as part of its Personal Income Tax Plan. These Tax cuts originally scheduled for 2022 has been brought forward and will apply from the 1 July 2020. These cuts will have to go through the legislative process but are expected to pass within the next couple of weeks. We expect most payroll software providers such as Xero, MYOB & QuickBooks etc to update these cuts automatically when they are released. The employees will essentially have an increase in their take home pay with less withholding being applied.


Tax Rate Changes 

  • The top threshold of the 19 %  personal income tax bracket will increase from $37,000 to $45,000. 
  • The top threshold of the 32.5 % personal income tax bracket will increase from $90,000 to $120,000.
  • 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 The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667. 

You can calculate the actual impact on your Taxes by using this calculator .

As an example, an individual with a taxable income of $120,000 for the 2021 FY can expect to receive tax relief of $2,745.

This will be an essential consideration when we will complete the Tax planning exercise for the 2021 Financial Year.

Impact of Tax Relief brackets listed below:


Increase in Small business Entity Turnover Threshold

The Government will expand access to a range of small business tax concessions 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 for the first time 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.

These changes will simplify eligibility and reduce red tape for around 20,000 businesses, as more turnover thresholds will align to the aggregated annual turnover threshold for a base rate entity for company tax purposes. The eligibility turnover thresholds for other small business tax concessions will remain at their current levels

JobMaker Hiring Credit 

In an effort to create additional jobs for the 12-month period from the 6th of October 2020 to 06 October 2021 for eligible employees between the age of 16 and 35. The first box to tick would be to demonstrate that the new employee will increase overall headcount and payroll expense.

For the prescribed 12-month period after an eligible employee is added, an eligible employer may claim a Hiring credit from the ATO in the form of:

  • $200 a week for each additional eligible employee aged 16 to 29 years old
  • $100 a week for each additional employee aged 30 to 35 years old

The maximum amount of Hiring credit claimed by an employer will be $10,400 per eligible employee.

Please see a summary of the eligibility criteria below.

Who is an eligible employer?

  • Must have an active ABN
  • Be up to date with tax lodgements
  • Be registered for PAYGW
  • Report your payroll via STP (this is everyone using Xero or a similar platform for payroll)
  • Kept adequate records (i.e. timesheets)
  • Demonstrate a new job has been created. Increased overall head count or increased total payroll value from the reference period.
  • Hire an eligible employee

Who is an eligible employee?

  • Aged 16-35
  • Work a minimum of 20 hours per week
  • Have commenced employment between 7 October 2020 and 6 October 2021
  • Have been receiving Jobseeker, Youth Allowance, or Parenting Payment for at least one month in the past three months (this is a key requirement which cannot be overlooked)
  • Be in their first year of employment and employed for the period claiming.
  • Not receiving another subsidy under Commonwealth program.


Temporary Full Expensing of Capital Assets from 7th October 2020 until 30th June 2022

The government has made the announcement of a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

Businesses with annual aggregated turnover of less than $5 billion will be entitled to an immediate tax deduction for the full cost of new eligible capital assets and improvements to existing eligible assets acquired from 7 30 pm on the 6 October 2020 and first used or installed by 30 June 2022 

  • Businesses with aggregated turnover of less than $50 million will also be entitled to an immediate tax deduction for the full cost of second-hand assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022 
  •  Businesses with aggregated annual turnover between $50 million and $500 million can claim an immediate deduction for the full cost of eligible second-hand assets costing less than $150,000 if they are purchased by 31 December 2020 and installed ready for use by 30 June 2021 
  • Small businesses with aggregated turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year under the new measure.


Loss Carry Back Provision for Companies

Temporary Tax relief will be allowed to eligible companies to carry back losses  made in 2020 to the 2022 FY to offset tax paid on profits made by eligible companies from the 2019 FY onwards. 

The losses applied under the ‘’carry back provision’’ will essentially generate a refundable tax offset in the year it is incurred. It is to be noted that the losses carried back cannot exceed the prior year profit and the offset amount cannot be more that the balance of tax paid by the entity

This provision will be available with the lodgement of the 2021 and 2022-Income Tax Returns for the company.


Apprenticeship Wage Subsidy

The Government has earmarked $1.2 Billion to increase the number of apprentices and trainees employed in Australia. This new subsidy is accessible by businesses of all sizes and will be available from 5 October 2020 to 30 September 2021 for those apprentices and trainees commencing employment during this period. Eligible businesses will be reimbursed with up to 50% of the apprentice or trainee’s wages worth up to $7,000 per quarter. 

This subsidy will be capped at 100,000 places. In order to minimise disruptions to these new apprentice arrangements, the commencement of the Incentives for Australian Apprenticeships Program will be delayed until 1 July 2021.


Research and Development Tax Incentives 

From 1 July 2021, companies with a turnover of less than $20 million will attract a tax incentive of 18.5% above the prevailing company tax rate. With a 25% company tax rate proposed for the 2022 financial year, companies with sufficient losses will retain the ability to receive 43.5 cents for every dollar spent on R&D


COVID 19 – Business Support Grants 

NANE (NON – ASSESSABLE, NON- EXEMPT INCOME)

The Government has announced that business support grants received by small and medium-sized businesses will be treated as non-assessable, non-exempt income (NANE income). 

The measure is currently applicable for any grant payments received by Victorian businesses under the ‘Business Resilience Package’ announced by the Victorian Government. 

Grant payments that are not identified by the Government as eligible payments under this measure will continue to be treated as taxable income.

Eligibility to treat grant payments announced by States and Territories as NANE income will be determined on an application basis and will be restricted to grant programs announced on or after 13 September 2020 in relation to payments made from 13 September 2020 to 30 June 2021. 

The Government has conferred a regulation making power in the income tax laws which is intended to ensure that eligible COVID-19 related business support payments will be treated as NANE income.


Conclusion

It is to be noted that this Budget carries with it the hopes of economic recovery of every Australian that have experienced and suffered through the impacts of the Covid-19 pandemic. Unprecedented times called for unprecedented measures which have been highlighted In the budget for the pillars of the economy and major industries. We hope that this paves the way for the revival of the economy at every level.

Should you have any more questions or require more specific advice on your group’s position in light of these announcements please get in touch with us.


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