The Federal Government delivered the 2020-21 budget – they announced tax cuts for individuals, increased access to small business entity tax concessions, an introduction of JobMaker hiring credit, wage subsidy for new apprentices and much more.

Key initiatives include:

– Personal income tax cuts from 1 July 2020

– A $4 billion ‘JobMaker’ Hiring Credit to encourage businesses to take on additional employees aged 16 to 35 years old

– $110 billion in infrastructure investment over 10 years

– Immediate deductions for business investment in capital assets

– Changes to how companies can manage losses

– Access to generous tax concessions for a wider range of businesses

By comparison to many other countries, Australia has managed the COVID-19 pandemic well. The budget is aimed at stimulating economic activity, through tax cuts, job creation incentives, investment in infrastructure, and incentives for employers to take on new employees.

The economy 

– The Treasurer revealed $213.7 billion in 2020-21, with an expectation of this falling to $66.9 billion by 2023-24

– Net debt predicted to peak at $966 billion by June 2024

– Australia’s economy contracted by 7% in the June quarter

– Gross debt will increase to $872 billion (45% of GDP) this year and stabilise at around 55% of GDP in the medium term

– GDP is forecast to fall by 3¾% this calendar year and the unemployment rate is forecast to peak at 8% in the December quarter. Next calendar year, GDP is forecast to grow by 4¼%, and the unemployment rate is forecast to fall to 6½% in the June quarter 2022.

For individuals

Personal Tax Cuts

As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation).

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.”

The individual resident tax rates are present in the table below:

$250 economic support payments

Two additional economic support payments of $250 each will be made to eligible recipients of the following payments and health care card holders in November and early next year:

– Age Pension

– Disability Support Pension

– Carer Payment

– Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment)

– Carer Allowance (not in receipt of a primary income support payment)

– Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment)

– Commonwealth Seniors Health Card holders

– Eligible Veterans’ Affairs payment recipients and concession card holders.

Capital Gains Tax Removed from ‘Granny Flats’

At present, if you enter into a formal granny flat arrangement with a relative, such as an elderly parent, there is a risk of capital gains tax (CGT) applying.

Announced pre-budget, this measure provides a targeted CGT exemption for granny flats under certain conditions. Under the arrangement, 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. 

The exemption only applies to family arrangements or other personal ties and will not apply to commercial rental arrangements.

10,000 additional places in First Home Loan Deposit Scheme

Announced pre Budget, from 6 October 2020 until 30 June 2021, an additional 10,000 places will be available for first home buyers under the First Home Loan Deposit Scheme to support the purchase of a new home or a newly built home. The scheme enables first home buyers to purchase a home with a deposit of as little as 5% without mortgage insurance. There are currently 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme.

$1.6bn to help elderly stay at home

As previously announced, the Government has committed to a broad package of aged care funding predominantly focussed on helping older Australians remain at home. $1.6 billion has been provided over four years from 2020-21 to release an additional 23,000 home care packages across all package levels.

The number of home care packages will have increased threefold from around 60,300 in 2013 to around 185,500 in 2021.

Superannuation accounts ‘stapled’ to individuals

This reform will ensure individuals continue to use their existing superannuation fund when they change jobs. The fund will be “stapled” to the individual to prevent the duplication of superannuation fund accounts when changing employers.

From 1 July 2021:

– If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.

– Employers will obtain information about the employee’s existing superannuation fund from the ATO.

– The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay superannuation contributions into the employee’s account.

– If an employee does not have an existing superannuation account and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into their nominated default superannuation fund.

The Government expects that future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers.

For Businesses

JobMaker Hiring Credit

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 investment in capital assets

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).

Second hand assets

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.

Ability for companies to carry-back losses

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.

Access to tax concessions extended to businesses up to $50 million

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:

100,000 new apprenticeships

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.

Infrastructure

Water infrastructure

The Government will provide $2 billion over ten years from 2020-21 for the development and delivery of a 10-year rolling program of priority water infrastructure investments, including grant funding for the planning and construction of water infrastructure in partnership with the states and territories.

Transport infrastructure

Announced ahead of the Federal Budget, transport infrastructure spending is a big winner with each State and Territory sharing in an additional $7.5 billion to fast track investment in projects. Working in consultation with the State and Territories, the projects have been identified as “ready to go” or “shovel ready.”

New South Wales

$2.7 billion investment in transport infrastructure. Key investments include:

– $560 million for the Singleton Bypass on the New England Highway

– $360 million for the Newcastle Inner City Bypass between Rankin Park and Jesmond

– $120 million for the Prospect Highway Upgrade

– An additional $491 million for the Coffs Harbour Bypass taking the total contribution to $1.5 billion.

And, for those that catch the train each day to work, there are upgrades planned for commuter carparks along the North Shore to St Marys (T1), and the T8 East Hills Line at Campbelltown, Revesby and Riverwood.

Other:

$1 billion university research package

The Government has committed $1bn in 2020-21 to safeguard Australia’s research sector against the impacts of the COVID-19 pandemic by supporting investments in nationally significant research infrastructure, securing research jobs and strengthening partnerships between universities and industry.

Modern manufacturing

As previously announced, the Government has committed to $1.5 billion over five years from 2020-21 to support its Modern Manufacturing Strategy. This strategy has picked six industry winners including resources technology & critical minerals processing, food & beverages, medical products, recycling & clean energy, defence, and space.

$1.9 billion for new energy technology

As previously announced, the Government has committed $1.9 billion over 12 years from 2020-21 to continue funding the Australian Renewable Energy Agency (ARENA), expand the investment mandate of the Clean Energy Finance Corporation (CEFC), and invest in low emissions technologies, network infrastructure, dispatchable generation and reliable supplies in the National Electricity Market (NEM).

Initiatives include investment in:

– emerging low emission technologies to increase their commercial readiness

– a co-investment fund that supports industrial, freight and agricultural businesses to identify and adopt technologies to reduce emissions and increase productivity

– a Future Fuels Fund, which would enable businesses to integrate new vehicle technologies, perform integration analysis and develop improved information on electric vehicles and charging infrastructure

– pilot studies for microgrids in regional and remote areas

– improving productivity and lower energy costs in the building and hotels sectors

– the development of a technology neutral regional hydrogen export hub to boost regional economies

Women’s economic security

$231 million over four years has been provided for the Second Women’s Economic Security Package, including:

– $90.3 million over three years to relax the Paid Parental Leave work test for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months, instead of 10 of the last 13 months, preceding the birth or adoption of a child

– $47.9 million over four years to increase grants for the Women’s Leadership and Development Program, including funding for the Academy of Enterprising Girls and Women Building Australia

– $35.9 million over five years to increase the number of co-funded grants to women-founded start-ups under the Boosting Female Founders Initiative

– $25.1 million over five years to establish a Women in Science, Technology, Engineering and Mathematics (STEM) Industry Cadetship program to support 500 women working in STEM industries to complete an Advanced Diploma through a combination of study and work-integrated learning experiences