The 2020-21 Federal Budget is a road to recovery paved with cash.
JobMaker Hiring Credit – Date of Effect 7 October 2020 for 12 months
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 years.
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.
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.
Immediate Deductions for Investments in Capital Assets
Date of Effect – Acquisition of eligible capital assets from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
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. This means that an asset’s cost will be fully deductible upfront rather than being claimed over the asset’s life.
While many businesses were already eligible for an instant asset write-off for asset purchases of up to $150,000, this measure does not cap the asset’s cost, and eligibility for the higher instant asset write-off has been significantly broadened and extended (the existing $150,000 instant asset write-off applies to businesses with turnover less than $500 million and will not apply to purchases after 31 December 2020).
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.
Small Business Pooling
Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules 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.
Ability for Companies to Carry-Back Losses – Date of Effect: Losses from the 2019-20, 2020-21 or 2021-22 income years
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.
R&D Tax Concessions Injection and Simplification – Date of Effect 1st July 2021
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.
Access to Tax Concessions extended to Businesses up to $50m – Three phases 1st July 2020, 1st April 2021 and 1st July 2021
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:
From 1st July 2020
|Immediate deduction for certain start-up expenses:
Eligible new businesses can immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice as well as amounts paid to Government agencies to set up the business entity.
Immediate deduction for prepaid expenditure:
Eligible businesses can choose to claim an immediate deduction for prepaid expenses where the payment is for a period of service which is 12 months or less and ends in the next income year.
From 1st April 2021
|FBT cark parking exemption:
Eligible employers will be exempt from FBT on certain car parking benefits provided to employees.
FBT exemption on portable electronic devices:
Eligible employers will be able to provide more than one portable electronic device that is mainly for work use to an employee in a single FBT year and apply an FBT exemption (e.g., phones and laptops).
From 1st July 2021
|Simplified trading stock:
Eligible businesses can choose not to conduct a stocktake if there is a difference of less than $5,000 between the opening value of trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year.
PAYG instalments based on GDP adjustment amount:
Eligible businesses can pay an ATO calculated PAYG instalment amount based on the last reported income (i.e., as reported in the most recent tax return) adjusted by a GDP adjustment factor. This removes the need to calculate the PAYG instalment each period based on a percentage of instalment income.
Settle excise duty and excise-equivalent customs duty monthly:
On eligible goods, this concession enables eligible businesses to apply to defer settlement of their excise duty and excise equivalent customs duty from a weekly to a monthly reporting cycle.
Two-year amendment period:
Eligible businesses will have a two-year amendment period apply to income tax assessments, excluding entities that have significant
international tax dealings or particularly complex affairs.
Simplified accounting methods:
The Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to eligible businesses below the $50 million aggregated annual turnover threshold.
The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.
FBT Exemption for Retraining and Reskilling Workers – Date of Effect 2 October 2020
Announced pre Budget, the Government will provide a Fringe Benefits Tax (FBT) exemption for employer-provided retraining and reskilling, for employees who are redeployed to a different role in the business.
Currently, if an employer provides a benefit to an employee that is not directly related to their current job, FBT applies. This measure enables employers to help employees reskill for a new role or another role with a different employer, without incurring FBT.
The exemption does not apply to retraining acquired through salary packaging or training provided through Commonwealth supported places at universities. The exemption also does not extend to repayments towards Commonwealth student loans.
The Government will also consult on potential changes to the law to allow a worker to deduct expenses they personally incur to undertake training directed at future employment and skills (current rules that limit deductions to training related to current employment, may act as a disincentive for workers to retrain and reskill).
Corporate Residency Test Changes
Date of Effect – First income year after the date of Royal Assent
Date of Effect – Tax payers have the option to apply the new law from 15 March 2017
The corporate residency tests will be clarified so that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied if both:
- the company’s core commercial activities are undertaken in Australia, and
- its central management and control is in Australia.
Note that under current law, where a company is incorporated offshore, it is an Australian resident if both of the following apply:
- the company carries on business in Australia; and
- its central management and control is in Australia; or
- its voting power is controlled by Australian resident shareholders.
The announced change follows the High Court’s 2016 decision in Bywater Investments Ltd v Federal Commissioner of Taxation that departed from the long-held position on the definition of a corporate resident. Following this decision, the ATO issued TR 2018/5 effective from 15 March 2017 expressing its view that if a company has its central management and control in Australia, and it carries on business, it will carry on business in Australia for the purposes of the ‘central management and control’ test. In line with this view, a company will be an Australian resident for tax purposes notwithstanding the fact that no trading or investment operations of the business take place here. This was not the ATOs previous view set out in the now withdrawn TR 2004/15.
The Government’s announcement follows the Board of Taxation’s subsequent recommendation that amendments bring the treatment of foreign incorporated companies back to the position pre the 2016 court decision.
FBT Record Keeping Simplified – Date of Effect First FBT Year (1st April) after the date of Royal Assent of enabling legislation
The Tax Commissioner will be given the power to simplify record keeping requirements for fringe benefits tax purposes by enabling employers to rely on existing corporate records, rather than employee declarations and other prescribed records to complete FBT returns.
Managed Investment Trust Withholding Rate Standardised Across Intenational Information Sharing Agreements – Date of Effect 1st July 2021
The list of jurisdictions that have an effective information sharing agreement with Australia will be updated such that residents of those listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15% on certain distributions, instead of the default rate of 30%.
The measure will add the Dominican Republic, Ecuador, El Salvador, Hong Kong, Jamaica, Kuwait, Morocco, North Macedonia and Serbia, and remove Kenya from the existing 122 jurisdictions on the list. These new jurisdictions have entered into information sharing agreements since the previous update in 2019.
Victorian Business Support Grants to be Tax-Free
Date of Effect – Grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.
As previously announced, 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.
100,000 New Apprenticeships – Date of Effect 5 October 2020
Announced pre Budget, from 5 October 2020 a business (or Group Training Organisation) that takes on a new Australian apprentice will be eligible for a 50% wage subsidy, regardless of geographic location, occupation, industry or business size. The scheme will be available until the 100,000 cap has been reached.
Under the subsidy, employers will be eligible for up to 50% of the wages of a new or recommencing apprentice or trainee for the period up to 30 September 2021. The maximum subsidy is $7,000 per quarter.
The subsidy is paid in arrears and is available for wages paid from 5 October 2020 to 30 September 2021.
Eligible businesses are those that:
- Engage an Australian Apprentice between 5 October 2020 and 30 September 2021, and
- The Australian Apprentice or trainee is undertaking a Certificate II or higher qualification, and has a training contract that is formally approved by the state training authority.
Special Regional COVID-19 Funding Measures
The Government has committed close to $552 million over four years from 2020-21 to assist regional Australia recover from the impacts of COVID-19 and recent natural disasters including:
- $207.7 million over five years from 2020-21 for round 5 of the Building Better Regions Fund
- $100 million over two years from 2020-21 to facilitate Regional Recovery Partnerships with states, territories and local governments in 10 priority investment regions
- $51 million over two years from 2020-21 to assist regions heavily reliant on international tourism
- $50.3 million over four years from 2020-21 to support the Rural Health Multidisciplinary Training program
- $41 million over three years from 2020-21 to support R&D activities in regional areas
- $30.3 million over two years from 2020-21 to extend Round One of the Regional Connectivity Program to improve access to digital technologies