In 2019 Australians welcomed the first budget surplus in 11 years. In 2020 we are now faced with the largest budget deficit on record.
COVID-19 has devastated the country. The 2020-2021 Federal budget will attempt to revive the economy by delivering timely tax cuts to individuals, concessions to businesses and cash payments to welfare recipients.
Businesses
Immediate asset write-off to continue
From 12 March to 31 December 2020 businesses with a turnover of less than $500 million can claim a tax deduction for new or second-hand assets costing $150,000 or less. This measure has been extended to 30 June 2022 for businesses with a turnover of less than $5 million.Â
In addition, businesses with a turnover less than $10 million will be able to write off their simplified depreciation pool at the end of the year.
Company loss carry back
Currently company tax losses can only be offset against future profits. The government has announced that companies with a turnover of less than $5 billion will be able to claim losses against previous profits. This measure will apply for losses incurred in the 2019-2020, 2020-2021 & 2021-2022 years against profits in the 2018-2019 or later years. This will be available to companies when they lodge their 2020-2021 or 2021-2022 tax returns.Â
Fringe Benefits Tax (FBT)
FBT exemptions will be extended for employers providing retraining and re-skilling. Previously this exemption was only available for training that was closely connected to current employment. This will encourage employers to retain redundant employees and prepare them for their next career.
JobMaker Hiring Credit
The JobMaker Credit will be available for 12 months to eligible employers who create new positions between 7 October 2020 and 6 October 2021. Credits of $200 per week are available for employees aged 16-29 years and $100 per week for employees aged 30-35. The employee will need to have worked for minimum of 20 hours per week averaged over a quarter. The employee must have also received either JobSeeker, Youth Allowance or Parenting Payment in one out of the three months prior to their employment.Â
Individuals
Personal Tax Cuts
Personal tax cuts that were scheduled to commence on 1 July 2022 will be brought forward to 1 July 2020. This could mean savings of up to $50 per week. Â
These tax cuts will be delivered as an increase in your take-home pay and should commence immediately after the budget has been passed by parliament. Many Australians have already paid too much tax in the first few months of the financial year. It is currently unclear if this will be adjusted in future pay cycles. Overpayments will likely form part of an additional credit when you lodge your return at the end of the year.
Low Income Tax Offset
From 1 July 2020 the low income tax offset has been increased from $445 to $700. You receive the full $700 if your income is below $37,000. The amount is phased out to zero at incomes above $66,667.
Low & Middle Income Tax Offset (LMITO)
Taxpayers first saw the LMITO of up to $1,080 on their 2019 tax returns. This was due to run for two years, including the 2020 year. This offset will now continue for the 2021 year also. You receive $255 if your income is under $37,000, and $1,080 for incomes between $48,001 and $90,000. Once you earn over $126,000 LMITO is phased out completely.
Welfare Recipient Cash Payments
Welfare recipients will receive two $250 payments from the Government. The first of these will be paid in December 2020 and the second in March 2021.
First Home Loan Deposit Scheme
The government has already helped nearly 20,000 first home buyers. A further 10,000 places will be offered to first home buyers to obtain a loan to build a new home or purchase a newly built home with a deposit of only 5%. The government will back the difference between the 5% and the normal 20% required for a home deposit negating the need for mortgage insurance. Applications can be made as part of the standard home loan application process from 6 October 2020 to 30 June 2021.
Capital Gains Tax (CGT) Exemption for Granny Flats
The budget will put in place CGT exemptions for granny flat arrangements. From 1 July 2021, CGT will not apply to granny flat arrangements where there is a formal agreement in place and a family or personal tie.Â
Paid Parental Leave Changes
Previously, new parents had to work 10 out of the last 13 months before the birth or adoption of a child to access paid parental leave. This will be extended to 10 out of 20 months for births or adoptions between 22 March 2020 and 31 March 2021.
Superannuation Reform – Multiple member accounts
From 1 July 2021 employers will be able to obtain information about an employee’s existing superannuation account rather than automatically creating a new default account when an employee does not complete a nomination form.
Further information on the 2020-2021 Federal Budget can be found here.
If you would like to find out more, please contact JHL Accounting.