The 2020-21 Federal Budget has been described as the most anticipated in our history defining its post-COVID road to recovery despite the country experiencing its worst economic conditions since World War 2. In this article we sift through the federal budget’s contents and what they mean for our nation’s SMEs.
Personal income tax cuts
The government has brought forward tax cuts due to be introduced in mid-2022 and backdated them to 1 July. Valued at $158 billion, the announced changes are hoped to be implemented by the end of October and see those earning between $45,000 and $90,000 retain an additional $1,080 for the current financial year. Workers earning more than $90,000 will pocket $2,565, while employees earning over $120,000 will take home the maximum benefit.
In summary, the top threshold of the 19 per cent tax bracket will increase from $37,000 to $45,000, while the top threshold for the 32.5 per cent tax bracket will be lifted from $90,000 to $120,000.
The next stage of the government’s wage subsidies is aimed at supporting almost 500,000 young Aussies gain employment by incentivising businesses to recruit new staff with a hiring credit.
The $4 billion JobMaker hiring credit is designed to stimulate employment growth by incentivising businesses to employee additional workers aged 16 to 35 years old. The payments will be available to eligible employers over 12 months from 7 October 2020 for each additional new job created for an eligible employee.
To be eligible, employers must demonstrate that the new employee will increase overall employee headcount and payroll. They will receive $200 per week if they hire an eligible employee aged 16 to 29 years old or $100 per week if they hire an eligible employee aged 30 to 35 years old. All businesses, other than the major banks, will be eligible. Capped at 12 months, the JobMaker hiring credit will also have a maximum amount of $10,400 per additional new position created.
To be eligible, an 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 being employed.
Instant asset expensing
Described by the Treasurer as a “game changer”, this measure will cover 3.5 million businesses, helping them make investments, dramatically expand production capacity and create tens of thousands of jobs. In the federal budget rules, more than 99% of businesses will be able to write off the full value of any eligible asset they purchase for their business.
From now until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. For small and medium-sized businesses with aggregated annual turnover of less than $50 million, full expensing also applies to second-hand assets.
Small 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.
Loss carry-back for businesses
The federal budget rules state the government is permitting companies with turnover up to $5 billion to offset losses against previous profits on which tax has been paid, to generate a refund. Losses incurred up to 2021‑22 can be carried back against profits made in or after 2018‑19. Eligible companies may elect to receive a tax refund when they lodge their 2020‑21 and 2021‑22 tax returns.
Tax concessions, including changes to FBT
Businesses with an aggregated annual turnover between $10 million and $50 million will have access to up to 10 small business tax concessions as part of the 2020–21 budget.
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. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021.
Additionally, 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.
$1.2 billion to employ 100,000 new apprentices
The government is investing an additional $1.2 billion to help Australian businesses employ 100,000 new apprentices or trainees. The subsidy will be available to employers who engage an Australian apprentice or trainee from 5 October 2020 until the 100,000 cap is reached. Employers will be eligible for 50 per cent of the wages for a new or recommencing apprentice or trainee for the period up to 30 September 2021, up to $7,000 per quarter.
The State of the Economy
The Treasurer revealed $213.7 billion in 2020-21, with an expectation of this falling to $66.9 billion by 2023-24. Australia’s economy contracted by 7% in the June quarter.
Gross debt will increase to $872 billion (45% of GDP) this year and stabilise at around 55% of GDP in the medium term.
Net debt will increase to $703 billion (36% of GDP) this year before peaking at 44% of GDP in June 2024 and declining to less than 40% of GDP over the medium term.
GDP is forecast to fall by 3.75% this calendar year and the unemployment rate is forecast to peak at 8% in the December quarter. Next calendar year, GDP is forecast to grow by 4.25% and the unemployment rate is forecast to fall to 6.5% in the June quarter 2022.