2020–2021 Federal Budget Announced
In what has widely been described as the most important budget since World War II, Treasurer Josh Frydenberg handed down the Morrison Government’s highly anticipated 2020-21 Federal Budget on Tuesday 6 October.
This time last year, the Federal Government set out to achieve the first budget surplus in over a decade. Now facing unprecedented economic turmoil and the largest budget deficit ever recorded, the focus for 2020-2021 is on economic recovery and creating stability for Australian households and businesses. So what exactly did this budget deliver?
The Government has delivered a 2020-2021 Federal Budget focused on targeted tax incentives that aim to make businesses and individuals invest, grow, create more jobs, and spend money to stimulate the Australian economy as much as possible in the shortest amount of time. Recognising the precarious position of the Australian economy, which has been plunged into a recession by COVID-19 for the first time in nearly 30 years, this year’s budget brings overall spending to $507 billion, including $257 billion in direct economic support. It included some big-ticket spending items, including:
- An additional $17.8 billion in personal income tax relief.
- The JobMaker Hiring Credit, which is estimated to support around 450,000 positions for young people, costing $4 billion.
- An additional $2 billion through the Research and Development Tax Incentive.
- A regional package of more than $550 million to support regional areas recovering from the impacts of COVID-19.
- Cash payments for seniors, carers, and disability support recipients, costing $2.6 billion.
- An extra 23,000 in-home aged care packages costing $1.6 billion.
These measures are forecast to see Australia’s net debt peak at $966 billion in 2024 and success is largely contingent on a COVID-19 vaccine being made available. Let’s take a look in more detail at some of the measures from the 2020-21 Federal Budget, which we believe will play an important part in Australia’s road to recovery from COVID-19.
- Personal income tax relief of $17.8 billion, with $12.4 billion over the next 12 months of Stage 2 personal tax cuts brought forward to 2020-21.
- A one-off additional low to middle income tax offset in 2020-21.
- Business Investment
- Temporary full-expensing – will support $200 billion worth of investment
- Temporary loss carry-back – allowing companies with a loss of up to $5 billion to off-set losses against previous profits on which tax has been paid
- JobHire Credit – supporting 450,000 positions for young people at a cost of $4 billion
- JobTrainer Skills package to further support and encourage apprentices and trainees with $1.2 billion Apprenticeships Wage Subsidy
Business and Industry
- Extending the First Home Loan Deposit Scheme to enable an additional 10,000 first home buyers to purchase a new home.
- Additional $14 billion in new and accelerated infrastructure projects over the next 4 years.
- Fast-tracking $3 billion in shovel-ready projects, in addition to the $2 billion already announced (May 2020).
- Modern Manufacturing Strategy
- $1.3 billion Modern Manufacturing Initiative with co-investment with business to build scale.
- An additional $2 billion for the R&D Tax Incentive.
- Business Investment
- Modernising tax treaty network to eliminate double-taxing.
- Exempting FBT on the provision of re-training for employees redeployed in a different role.
- Improving the ease of doing business
- Insolvency reforms to reduce the complexity, time, and costs, of the restructuring process.
- Changes to responsible lending obligations.
- $4.5 billion to connect broadband from the node to the house for 1 million homes and $29 million to accelerate the roll-out of 5G.
- Digital identity arrangements.
- $24.7 million to help small business operators use technology – 10,000 places for Australian Small business Advisory Service.
- Superannuation – A package of reforms to ensure members’ money is maximised.
- Research sector - $1 billion in new research funding for universities.
- Low emissions technologies
- $1.6 billion provided to ARENA to implement the Low Emissions Technology Statement.
- Gas fired recovery
- $52.9 million to support the gas fired recovery through the development of strategic gas reserve plans to help the manufacturing sector and ensure affordable and reliable gas.
- Building regional resilience
- $550 million to help regional industries recover from COVID.
- $200 million in Building Better Regions fund.
- $2 billion National Water Infrastructure Development Fund.
- $5 billion future Drought Fund.
Employment and Skills
- JobTrainer Skills package to further support and encourage apprentices and trainees.
- $49.5 million to fund an additional 14,485 places at Skills for Education and employment program.
- $251.8 million over 2 years to support the delivery of 50,000 higher education short courses.
- $298.5 million over 4 years to provide an additional 12,000 undergraduate Commonwealth supported places at universities.
- $295.5 million to deliver a new Digital Employment Service Platform to assist jobseekers into employment.
- $183.1 to provide individualised support for jobseekers.
- $21.9 million for the youth-focused Transition to Work program.
- $62.8 million in the new Local Jobs Program.
- $35.3 million over two years to meet an increase in payments under the Fair Entitlements Guarantee Act 2012 to employees who do not receive unpaid wages, leave, notice, or redundancy pay due to the liquidation or bankruptcy of their employer.
- $46.3 million over three years (from 2019-20) to the Fair Work Ombudsman to enhance its advice and education services for businesses and employees on compliance with workplace laws
- $5.1m for the Fair Work Commission to meet additional demand arising from COVID-19.
- $2.1m over 3 years for a new Council to assist in combatting sexual harassment at work.
Tax Measures for Businesses
1. A new “super-charged” instant asset write-off
From 7 October 2020 to 30 June 2022, any business with an aggregated turnover of less than $5 billion can deduct the full cost of new eligible depreciable assets of any value in the year the assets are first used or installed ready for use. The upfront deduction also applies to improvements made to eligible depreciable assets in this period. Unlike the current instant asset write-off available for businesses with a turnover of less than $500 million on new or second-hand depreciable assets costing less than $150,000, the “super-charged” instant asset write-off is only available on new depreciable assets. This “super-charged” instant asset write-off will reduce the after-tax cost of the investment and will undoubtedly play a big part in helping to get the Australian economy back on track.
2. Loss carry-back measure
The budget proposes to allow companies with an aggregated turnover less than $5 billion to offset tax losses incurred in 2020, 2021, or 2022 against profits made in or after 2019 on which tax has been paid. This measure will help improve the cashflow of companies that were profitable and tax-paying previously but are no longer profitable because of COVID-19.
3. Research and Development (R&D)
From 1 July 2021, the Research and Development (R&D) expenditure threshold will be increased from $100 million to $150 million to stimulate companies undertaking more innovative activities.
Companies with aggregate turnover of less than $20 million will be entitled to a refundable offset of the company tax rate (i.e. 30 percent or 25 percent for 2022) plus 18.5 percent. Companies with aggregate turnover of $20 million or more will be entitled to a non-refundable tax offset of the company tax rate plus either 8.5 percent or 16.5 percent depending on how much the company has spent on R&D activities. Although these changes may lead to bigger deductions for R&D expenditure, the complexity of determining the amount of the R&D tax incentive may lead to unnecessary compliance costs.
4. Small and medium business entity concessions
The Government is expanding access to a range of small business entity concessions for entities with an aggregated turnover of less than $10 million and medium-sized businesses with an aggregated turnover of $10 million or more but less than $50 million. Examples of concessions that will apply to the 2021 income tax year are an immediate deduction for eligible start-up expenses or eligible prepaid expenditure and exemption from 47 percent Fringe Benefits Tax (FBT) on car parking provided to employees or multiple phones or laptops provided to employees. From 1 July 2021, the remaining small business concessions, which include simplified trading stock rules and a two-year ATO amendment period, will also apply to medium-sized businesses.
MPAQ will keep members up to date as more information comes to hand.