We were quietly hoping for something really ground-breaking with this year’s budget. Given all that has happened this year the government were in a strong position to deliver some (desperately needed) tax reform and provide some vision for a better Australia.  As Churchill stated: “Never let a good crisis go to waste”.

This budget has not promoted reform or the “vision thing”.  Rather, as suggested by the NSW Chamber of Commerce, it is designed to get Australia “back on track”.  It’s a budget designed to address an economic crisis, to address an immediate need.   The government has simply determined that it will spend $100 billion ($50 billion in tax concessions and $50 billion in spending) to create business investment economic growth, and to reduce unemployment – to take us back to where we were before the COVID crisis

Let’s take a look at the measures most likely to affect you.

INDIVIDUALS

Tax cuts

The already legislated “stage two” tax cuts are being brought forward two years to be effective from 1 July 2020. This involves raising the 19% bracket from $37,000 to $45,000 and raising the 32.5% bracket from $90,000 to $120,000.   The “stage 3” cuts which are aimed at higher income earners are still legislated to start at 1 July 2024. No change here.  The impact is as follows:

Taxable
income
2017-18
Tax payable
2020-21
Tax payable
Reduction in tax payable% change in
tax payable
$40,000$4,947$3,887-$1,060-21.4%
$60,000$12,147$9,987-$2,160-17.8%
$80,000$19,147$16,987-$2,160-11.3%
$100,000$26,632$24,187-$2,445-9.2%
$120,000$34,432$31,687-$2,745-8.0%

Tax offsets

The “lamington” offset (low and middle income tax offset, LMITO) which was due to expire is being extend for a year to 30 June 2021. This offset gives a maximum benefit of $1,080 and starts to go down from there once you earn over $90,000 and it gets to zero once you earn $126,000 or more.

The low income tax offset (LITO, no cake-based nickname) has been increased from $445 to $700 for anyone earning $37,000 or less. Earning more than this means it will taper off until it eventually is worth $0 once you get to $66,667.

BUSINESS

Instant asset write-off

In one of the largest budget measures, costing approximately $27 billion, the Government has announced that any business with a turnover of less than $5 billion can claim an immediate deduction for the cost (uncapped) of eligible depreciable asset purchased after 7:30pm on 6th October 20202.  The assets must be installed and ready for use by 30 June 2022. Note that an Eligible depreciable asset is a new asset or is the cost of improvement to an existing eligible asset.

This measure should be considered separately to the Instant asset write off which allowed businesses with a turnover up to $500 million to claim an immediate deduction for assets, new or second hand, costing less than $150,000.  The instant assets write off has been extended to 30 June 2021.

Note that business that have carried forward asset pool balances can write those off in full.

Please note that it is likely the motor vehicle depreciation limit (currently $59,136) will still apply so if you race out to buy a new 7 series BMW, you likely only be able to claim a maximum of $59,136 in depreciation with the rest being lost in the ether.

Loss carry-back

These rules were around a few years back and are quite neat. Normally you can only carry losses forward to offset future profits, but these rules allow you to go backwards and take a current year loss and apply it to prior year profits – years where you’ve paid tax – so you can get a tax refund.

Under the measure, losses incurred in the 2019/20, 2020/21 or 2021/22 income years may be carried back against profits made in or after the 2018/19 income year. Eligible companies may elect to receive the tax refund when they lodge their 2020/21 and 2021/22 tax returns. The tax loss carried back cannot exceed the prior year taxed profits or generate a franking account deficit.

JobMaker

The new “JobMaker” credit is available to subsidise the cost of hiring someone previously on a government allowance. Eligible employers can claim a JobMaker Hiring Credit for each additional new job they create for an eligible employee from 7 October 2020 to 6 October 2021. The JobMaker Hiring Credit will be available from the date of employment for up to 12 months and capped at $10,400 for each additional new position created. 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 employee must have worked at least 20 hours per week, averaged over a quarter and have received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one month out of the three months before they were hired.

SMALL BUSINESS

Support for mental health of small business owners

The Government will provide $ million in 2020-21 to support the mental health and financial well being of small businesses impacted by COVID-19, including:

  • $4.3 million to provide free accessible and tailored support for small business owners by expanding Beyond Blue’s NewAccess program; and
  • $2.2 million to expand free accredited professional development program that builds the mental health literacy of trusted business advisers so that they can better support small business owners in times of distress.

AGRICULTURE

While much of the Australian economy has been hit hard by coronavirus, Australian agriculture finds itself in a very different position. Though the virus has undoubtedly had an impact on agriculture, people still need to eat and many parts of the industry (particularly in staples), have continued to perform. Indeed, coronavirus is arguably not the biggest challenge facing Australian agriculture at present.

Tax changes

Refer above.

National Water Grid

The budget sets out an additional $2b over 10 years to fund priority water infrastructure projects for agriculture and to increase water security. This includes (alongside states) an additional $162.5m for Wyangala Dam and $121.0m for the Dungowan Dam.  However, the budget also announced that the government will now not proceed with the National Water Infrastructure Loan Facility, previously announced in 2017. This facility was intended to provide concessional loans to state and territory governments for water infrastructure. Not entirely coincidently, this facility was intended to cost $2b when it was set up. In effect, 2020-21 budget has redirected the priority from concessional loans to grant funding.

Modern Manufacturing Strategy

The Modern Manufacturing Strategy sets out $1.5b over five years to improve competitiveness, scale and resilience in Australian manufacturing. The strategy will focus on six areas: resources technology and critical minerals processing, food and beverages; medical products, recycling and clean energy, defence and space. The strategy includes:

• $1.3b to establish the Modern Manufacturing Initiative 

• $107.2m for supply chain vulnerabilities

• $52.8m for manufacturing modernisation 

• $30m to improve competitiveness 

• $20m to Industry Growth Centres

Supporting regional Australia 

While not an explicit support to agriculture, the budget does provide $552.9m over the forward estimates for support for regional Australia, including for community infrastructure, health, R&D, tourism, regional recovery and digitisation.

Support for agricultural exporters

The budget provides $328.4m over the forward estimates to help agricultural exporters do business. This includes $222.2m to modernise ICT systems and business processes, $71.1m for the financial sustainability of export certification services and $35.2m for “targeted interventions” and regulatory reforms.

Murray-Darling communities investment package  

The budget provides $269.6m for the Murray-Darling basin. This includes:

• $37.6m to extend the Murray-Darling Basin Economic Development Program;

• $24.5m for community grants for river and wetland health;

• $4.2m for Indigenous River Rangers;

• $38.7 for compliance, including to set up the Inspector-General of Water Compliance;

• $25m to improve metering systems, particularly in the northern basin;

• $7.5m track and ecological, economic and social conditions;

• $6m for improved information; 

• $70.5m to accelerate at-risk projects in the Basin Plan; and

• $18m for Basin Plan implementation.

Drought support

The budget sets out $155.6m for drought support, including: 

• $50m in 2020-21 for the On-farm Emergency Water Infrastructure Rebate Scheme; 

• $19.6m in 2021-22 to extend the drought function of the National Drought and North Queensland Flood Response and Recovery Agency for a further year,

• $86m over four years to establish eight Drought Resilience and Adoption Hubs. 

Other measures

Other measures include:

• $36.6m for changes to the Environment Protection and Biodiversity Conservation Act

1999;

• $2.4m to extend the Improved Access to Agricultural and Veterinary Chemicals program.

These are the core measures likely to be of interest, but if you’d like more information there is a good summary here. Please also remember that none of this is legislated just yet, but it doesn’t appear too controversial so I imagine it’ll mostly get waived through.

The PrincipleFocus Federal Budget edition of TaxWise covers:

  • Budget measures for individuals
  • Tax concessions for medium businesses
  • Other business Budget measures

As always, if there is anything the team can help you with, please give us a call.

As official interest rates hover at an all-time low of 0.25%, SMSFs are being challenged to generate acceptable returns through defensive assets such as cash and term deposits.

SMSF trustees are now starting to look towards investing in high-risk assets such as derivatives because they think they can outperform the market and get a quick return.

Typically, very few SMSFs make a profit from these types of investments. And unless they’re professional stockbrokers, most of them post losses (sometimes significant ones) and take only short-term gains. 

With the ATO warning SMSF trustees not to use derivatives as a speculative tool, here’s what you need to know thanks to ASF audits.

Legislation was recently passed to bring in a new registration system for directors of companies in Australia.

Under the new regime, every director will be assigned a unique identifier known as a Director Identification Number (DIN) that will stay with them across all companies they are, or become, a director of.

Do I need to get a DIN?

If you are a director, you will need a DIN.

If you are not yet a Director, you can apply for a DIN, provided you will become a director within 12 months of applying.

When do I need to get one?

The exact start date for the system has not been determined yet, but all reports suggest it will be introduced in early 2021 or before June 2022 at the latest.

When the system is introduced, a 12-month transition period will commence where:

  • a new director will be required to apply for a DIN within 28 days of appointment, and
  • existing Directors will be given a grace period to apply for a DIN.

When the 12-month transition period expires, a new director must register for a DIN before being appointed.

How do I get one?

Only the Registrar will have the power to cancel, change, or reissue a DIN. The exact process has not been confirmed yet, but we do know each individual will be required to verify their identity.

What happens if I do not get a DIN?

There can be significant financial and criminal penalties if you:

  1. fail to apply for a DIN
  2. provide false information when applying for a DIN, or
  3. apply for multiple DINs.

It’s not small penalties either – it could be hundreds of thousands [even millions] of dollars and potentially lead to imprisonment. Therefore, it is important to get it right when the time comes.

Where to from here?

Given the implications of getting it wrong, directors, companies and aspiring start-ups should be prepared. Make sure you are across the upcoming changes and speak to your accountant or lawyer to ensure you are ready to organise a DIN when the time comes.

The following changes will apply to JobKeeper fortnights commencing 28 September 2020.

Key changes

Actual decline in turnover test:

For JobKeeper fortnights from 28 September 2020 you will need to meet an actual decline in turnover test. An actual decline in turnover test will need to be met for each extension period:

  • Extension 1: from 28 September 2020 to 3 January 2021
  • Extension 2: from 4 January 2021 to 28 March 2021

The actual decline in turnover test is similar to the original decline in turnover test. However:

  • It must be done for specific quarters only. For Extension 1 – September 2020 quarter must be compared to the September 2019 quarter. For Extension 2 – December 2020 quarter must be compared to the December 2019 quarter.
  • You must use actual sales made in the relevant quarter, not projected sales, when working out your turnover
  • You must allocate sales to the relevant quarter in the same way you would report those sales to a particular business activity statement if you were registered for GST.

If you are not eligible for JobKeeper under Extension 1 because you do not satisfy the turnover test, you may still be eligible for JobKeeper under Extension 2 if you satisfy the later turnover test. If the “basic” actual turnover test is not appropriate to your circumstances, an alternative turnover test may be available. Details of the alternative tests are yet to be released by the ATO or Treasury.

Rates of payment

For an employee or eligible business participant to receive the Tier 1 (higher) rate of JobKeeper payments in each extension period they will need to satisfy the 80-hour threshold:

The Tier 1 rate will apply to:

  • Eligible employees who worked for 80 hours or more in the four weeks prior to the last day of the pay period that ended before either 1 March 2020 or 1 July 2020, and
  • Eligible business participants who were actively engaged in the business for 80 hours or more in February 2020 and provide a declaration to that effect.

In some circumstances, alternative reference periods may apply for determining the 80 hour threshold (e.g. where the employee was on unpaid emergency leave during the relevant 4 week period).

Key Dates

  • Businesses will have to wait until the end of September when they complete their BAS before applying the decline in turnover test for the Extension period 1 (as the test is now based on actual GST turnover).
  • For the JobKeeper fortnights stating 28 September and 12 October 2020, the ATO is allowing employers until 31 October to meet the wage condition for employees. 
  • Monthly business declarations for October (the first two fortnights of the extension) will need to be made by 14 November 2020. If you were eligible for JobKeeper 1.0 you need to tell the ATO whether the Tier 1 (higher) or Tier 2 (lower) payment rate applies to your eligible employees or business participants in the monthly declaration form.

For further information please see the ATO website or contact us at PrincipleFocus.

This toolkit prepared by the ATO includes a helpful directory of links to help small businesses find information, tools, calculators and services to help them at tax time and throughout the year, as well as several fact sheets for small businesses. This includes information on home-based business expenses, motor vehicle expenses, travel expenses and using your company’s money or assets.

This clipping is from the September 14 issue of The Australian Financial – Monday, 14 Sep 2020 – Page 35

After five years of strong gains, little growth is forecast for agricultural land prices over the next 18 months as east coast farmers focus on drought recovery and the economic slowdown weighs on farm revenue and confidence .

After notching up healthy compound annual growth rate of 8.8 per cent over the past five years – concentrated in 2017 and 2018 – Rabobank’s index for farmland prices rose 5 per cent in 2019. And from this year, land markets will enter a new phase, according to the lender’s latest Australian Agricultural Land Price Outlook.

‘‘ The aggressive rise in land prices is behind us, and we are expecting a period of low, if any, growth in 2020,’’ report author, Rabobank agricultural analyst Wes Lefroy said. ‘‘ Ultimately though, this will vary by quality, region and production type. If agricultural land prices can hold the significant gains they have made over the past five years in the year ahead, through the worst economic crisis we are facing in decades due to the coronavirus pandemic , this will be a great result for landholders.’’

Such is the diversity of agricultural land markets, though, that marquee sales were still likely in some districts, especially for high-rainfall properties with scale. However, median agricultural property prices in some regions may contract over the next 18 months, the report said.

Any decline would not be major, though, thanks to macro-economic factors including low interest rates and the expected weakening in the Australian dollar – along with the overall healthy state of farm balance sheets across the country, it said.

The report notes that the impact of drought on land prices can be delayed, with low or zero growth in prices even as rainfall improves.

‘‘ In drought-affected regions, there has been a shortage of properties on the market with many potential sellers choosing to hold off until conditions improved, and this reduced supply had been supportive of price growth,’’ Mr Lefroy said. ‘‘ However, as seasonal conditions have improved, we will see an increased stream of lower-quality properties come to the market, with sellers trying to take advantage of the high price environment.’’

Prices for agricultural commodities are expected to decline over the next 18 months on the back of weakening demand as the economy contracts and government stimulus is reduced, the report noted.

Copyright © 2020 The Australian Financial Review

Our latest TaxWise Business newsletter is now available. Topics covered include; Changes to JobKeeper, Cash flow boost changes, Superannuation guarantee amnesty expires soon, Tax changes, Scammers and Key tax dates.

Our latest TaxWise newsletter is now available. Topics covered include;

JobKeeper updates, Cash flow boost changes, COVID-19 early release of Superannuation, Income Tax Returns, Scammers and Key tax dates.

Earlier this month the Federal Government announced a key change to the JobKeeper employee eligibility requirements. From 3 August 2020, workers employed from 1 July 2020 and meet the other eligibility requirements will become eligible for JobKeeper.

The ATO has now released further information on this change, and details of how it will be administered.

Please note that this change to employee eligibility will affect the current JobKeeper scheme as well as the extended JobKeeper scheme (JobKeeper 2.0). The change in employment date to 1 July 2020 does not apply for JobKeeper fortnights that ended before 3 August 2020 (that is, employees must continue to satisfy the 1 March 2020 test to be an eligible employee for JobKeeper fortnights ended before 3 August 2020).

Overview of eligibility requirements from 3 August 2020
An employee is an eligible employee for a JobKeeper fortnight starting on or after 3 August 2020 if they:

  • are employed by at any time in the JobKeeper fortnight;
  • didn’t receive any of these payments during the JobKeeper fortnight:
    • government parental leave or Dad and Partner Pay;
    • a payment in accordance with Australian workers compensation law for an individual’s total incapacity for work;
    • agree to be nominated;
    • were either an eligible employee for a JobKeeper fortnight ended before 3 August 2020 using the 1 March test or they meet certain conditions at 1 July 2020 (the 1 July test):

At 1 July 2020 they were employed as either a:

  • non-casual employee; or
  • long term casual employee not a permanent employee of any other employer;
  • they were 18 years or older (if they were 16 or 17, they can also qualify if they were independent or not studying full time on 1 July 2020); and
  • were an Australian resident under the Social Security Act 1991 or a Special Category (Subclass 444) Visa Holder.

For the fortnights commencing on 3 August 2020 and 17 August 2020, the ATO are allowing employers until 31 August 2020 to meet the wage condition for all new eligible employees included in the JobKeeper scheme under the 1 July eligibility test. This means that employers will have until 31 August to pay employees who meet the 1 July test any top up amounts, so they meet the $1500 a fortnight minimum wage condition.

Employees who have been nominated by a previous employer

If an employee has previously been nominated as an eligible employee by another employer, or as an eligible business participant they can be nominated by a new employer where they meet all the following conditions for JobKeeper fortnights starting on or after 3 August 2020:

  • between 1 March 2020 and 1 July 2020, the employee stopped being:
  • an employee of their previous employer; or
  • actively engaged as an eligible business participant;
  • at the time they agree to be nominated they had not been rehired by their previous employer or restarted being actively engaged as an eligible business participant; and
  • they meet other requirements to be an eligible employee for JobKeeper fortnights starting on or after 3 August 2020 (including the 1 July test).

Nominating employees

Where an employer has not previously been enrolled in the JobKeeper scheme, they must inform relevant employees of their election to participate in JobKeeper within 7 days of enrolment and detail the steps the employee must take to agree to be nominated.

If an employer has already enrolled to participate in JobKeeper and has additional employees that become eligible on or after 3 August 2020 using the 1 July test, they must provide an Employee Nomination Notice to their new eligible employees.

It is important to remember that under the one-in all-in principle that an employer must provide an Employee Nomination Notice to all new eligible employees.

An updated nomination form can now be found on the ATO website here.

Rules for those under 18 years old

If an employee was 17 at 1 March 2020, they may be eligible for JobKeeper from 3 August 2020 under the 1 July test, if they turned 18 on or before 1 July 2020.

If an employee turned 16 between 2 March and 1 July 2020, they may now be an eligible employee from 3 August 2020, under the 1 July test, if they were independent or not in full-time study on 1 July 2020.

Further information about these changes can be found on the ATO website here.

The change to the employee test was first announced earlier this month by the Federal Government as part of their response to the ongoing pandemic and tougher restrictions in Victoria. 
We will update you with more information as it becomes available. Please contact the PrincipleFocus office if you require further clarification.

Key points

  • An additional $2 billion announced for the RIC’s drought-related loans
  • Applications for interest-free loan terms will close 30 September
  • Applications received after 30 September will still have record low interest rates
  • AgriStarter Loan applications will open from 1 January 2021
  • An additional $50 million in RIC operational funding to deliver more loans

The additional funding is in response to solid demand for RIC’s drought loan products and effectively doubles RIC’s total farm and small business loan funds to $4b.

Minister for Agriculture, Drought and Emergency Management David Littleproud said unprecedented demand for the concessional loans showed what a useful support mechanism it had become for rural businesses.

“These loans have been critical in helping farmers and small businesses facing hardship due to the drought.”

A new record low variable interest rate of 1.92 per cent for farm business loans and 1.46 per cent for water infrastructure loans will be effective from 1 August 2020.

RIC Chief Executive Officer Bruce King said, “The new variable interest rate for farming loans provides valuable savings with interest repayments of around $19,200 per year for a $1 million loan at the variable rate of 1.92 per cent, or $96,000 over five years.”

The RIC’s Drought Loan offers up to $2 million and the AgBiz Drought Loan up to $500,000, both loans are currently interest free in the first two years, for applications received before 30 September 2020.

However, the two-year interest free period, which has been offered since last November, will not be available for Drought Loan and AgBiz Drought Loan applications received after 30 September.

Applications received after 30 September, will be updated to provide a five-year interest-only period, followed by principal and interest for the remainder of the 10-year term.

RIC Chief Executive Officer Bruce King also welcomed the additional $2 billion funding for drought-related loans to support farmers and farm-related small businesses and an additional $50 million in RIC operational funding over the next four years.

“The additional funding announced today will help us to continue to provide affordable loans to the agriculture sector, as well as invest in more resources to support our process and meet the incredible existing demand for our loans as quickly as possible.”

RIC’s AgriStarter Loans service designed for the next generation of Australian farmers, will open for applications from 1 January 2021, with an additional $75 million allocated for loan applications this financial year.

The AgriStarter Loan will offer up to $2 million for establishing a new farm business, buying an existing farm business or succession planning. Click here to register your interest for the AgriStarter Loan.

For more information on the funding available please visit the RIC website or contact your Client Manager who can assist you with this application process.