Below is a high level summary of some of the key budget announcements. Future newsletters will cover off these topics in more detail, as legislation is passed.

1. Personal income tax changes

1.1 Personal income tax rates

Changes to the personal income tax rates that were due to apply from 1 July 2022 will be brought forward to apply from 1 July 2020.  These changes involve:

• • increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and
  • increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

These changes will no doubt be built into your payroll software.

1.2 Changes to the Low Income Tax Offset (‘LITO’)

Changes that were proposed to the LITO from 1 July 2022, will now apply from 1 July 2020 as follows:

• • The maximum LITO will be increased from $445 to $700
  • The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
  • The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,000 and $66,667.

1.3 Low and Middle Income Tax Offset (‘LAMITO’) 

Low and Middle Income Tax Offset (‘LAMITO’) will continue to apply for the 2021 income year   (which is available in addition to the LITO for eligible taxpayers).

2. Business Taxpayers:

2.1 Expanding access to Small Business Tax Concessions:

The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions.

Access to up to 10 Small Business Concessions will expand to include Medium Business

A Medium Sized Entity is an entity with an aggregated annual turnover of at least
$10M and <$50 million.

The expanded concessions will apply in three phases:

Phase 1:  From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

Phase 2:  From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.

Phase 3 from 2 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 generally have a two-year amendment period apply to income tax assessments for income years starting 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.

2.2 JobMaker Hiring Credit: 

The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.

• • From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old and $100 a week for each additional eligible employee aged 30 to 35 years old.

• • New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.

• • To be claimed quarterly in arrears by the employer from the ATO from 1 February 2021.

• • Employers will need to report quarterly that they meet the eligibility criteria.

• • The amount of the credit is capped at $10,400 for each additional new position created.

• • Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question.

You will need to assess your eligibly as an employer, and the eligibility of your employees, with some of the key points highlighted below:

• • Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.

• • You are able to demonstrate that the credit is claimed in respect of an additional job that has been created.  Broadly, there must be an increase in the business’ total employee headcount and payroll.

• • Employers do not need to satisfy a fall in turnover test to access the Credit.

• • Certain employers are excluded, including those claiming the JobKeeper payment.

• • New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires.

We will send out more information once legislation is passed.

2.3 Tax–free business support grants

• • The Victorian Government’s Business Support Grants for small and medium businesses, as announced on 13 September 2020, are non-assessable, non- exempt income for tax purposes.
  • The Government may extend this arrangement to similar future grants from all States and Territories on an application basis.  Eligibility for this treatment will be limited to grants announced on or after 13 September 2020.

2.4 Uncapped immediate write-off for depreciable assets:

The Government has announced it will introduce the following changes to the Capital Allowance provisions:

(a)  Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as ‘full expensing’) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:

•  The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).

•  The asset was first used or installed ready for use by 30 June 2022.

•  The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.

(b)  As is currently legislated, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the cost of eligible second-hand assets costing less than $150,000 that are purchased from 2 April 2019 and first used or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off.

The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021.

(c)   Small businesses (i.e., 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 (i.e., up to 30 June 2022).

Furthermore, 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.

3. Changes affecting companies:

3.1 Temporary loss carry back for eligible companies:

• • Companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.

• • This will allow such companies to generate a refundable tax offset in the year in which the loss is made.  The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit.

• • Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

3.2 Clarifying the corporate residency test

• • The Government will amend the law to provide 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 where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

4. FBT changes

4.1 FBT exemption for retraining and reskilling employees

• • From 2 October 2020, the Government will introduce an FBT exemption for retraining and reskilling benefits provided by an employer to redundant, or soon to be redundant, employees, where the benefits may not be related to their current employment (e.g., where an employer retrains a sales assistant in web design in order to redeploy them to an online marketing role in the business).

• • The Government will also consult on allowing an individual to claim a tax deduction for education and training expenses they incur themselves, where the expense is not related to their current employment (e.g., where the expense relates to future employment).

4.2 Reducing the compliance burden of FBT record keeping

• • The Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.

5. Other budget announcements 

5.1 Removing CGT for ‘granny flat arrangements’:

• • A targeted CGT exemption will apply from 1 July 2021 (subject to the passing of legislation), for‘granny flat arrangements’.

• • Under this exemption, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities.

5.2 Superannuation reforms:

From 1 July 2021:  the proposed reforms will make the system better for members in four key ways:

• • Your superannuation follows you – An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.

• • Empowering members – A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their needs.

• • Holding funds to account for underperformance – MySuper products will be subject to an annual performance test.  Funds that underperform will need to inform their members.  Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation products.

• • Increased accountability and transparency – The Government will strengthen obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised. For example, trustees will be required to comply with a new duty to act in the best financial interests of members.

5.3 Additional funding to address serious & organised crime in the tax and superannuation system:

The Government will provide $15.1 million to the ATO to target serious and organised crime in the tax and superannuation systems. This extends the 2017/18 Budget measure Additional funding for addressing serious and organised crime in the tax system by a further two years to 30 June 2023.

5.4 Supporting the mental health of Australians in small business – COVID-19 response package 

The Government will provide $7 million in 2020/21 to support the mental health and financial wellbeing of small businesses impacted by COVID-19

5.5 Insolvency reforms to support small business

The Government will implement certain insolvency reforms, effective from 1 January 2021 (subject to the passing of legislation) to support small business, including the following:

• • A streamlined process to enable eligible incorporated small businesses (broadly, those with liabilities of less than $1 million) in financial distress to restructure their debt.

• • Simplifying the liquidation process for eligible incorporated small businesses.

• • Support for the insolvency sector.