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.
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:
|Reduction in tax payable||% change in|
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.
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.
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.
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.
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.
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.
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.
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 include:
• $36.6m for changes to the Environment Protection and Biodiversity Conservation Act
• $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.