The annual federal budget is usually delivered on the second Tuesday of May.
Due to the uncertainty of the full economic impacts of the Covid-19 pandemic, the Government announced on 6 March 2020 that it had decided to defer the 2020–21 Budget until 6 October 2020.
In review, the budget provides good and positive incentives for struggling businesses. This includes incentives to employ people and recover from any negative Covid-19 affects. The budget also provides for tax cuts, which will benefit individuals in the lower to medium income brackets.
The key tax measures in the 2020–21 Budget are likely to mainly benefit small to medium enterprises and individuals.
Below is a summary of the key budget measures that apply to individuals and to small businesses.
Small Businesses
Further extension to instant asset write-off
The Government has announced that it will support businesses with an aggregated annual
turnover of less than $5 billion by enabling them to deduct the full cost of eligible depreciable assets acquired from 7:30pm (AEDT) on 6 October 2020 and first used or installed by 30 June 2022.
Full expensing the cost in the year of first use will apply to new depreciable assets and the
cost of improvements to existing eligible assets. For small and medium-sized businesses,
full expensing also applies to second-hand assets.
Unlike the instant asset write off previously introduced, there is no cap to the cost of the
eligible asset.
Temporary loss carry back for eligible companies
The Government has announced that it will introduce measures to allow 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.
The tax refund will be available on election by eligible companies when they lodge their tax
returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry
back losses under this measure can still carry losses forward as normal.
Example
In the 2018–19 and 2019–20 income years, Zipline Adventures Pty Ltd paid tax of $3 million
on $10 million of taxable income (i.e. the company made an annual taxable profit of $5
million, which attracted tax of $1.5 million each year).
In 2020–21, the company made a tax loss of $4 million.
Under the current law, the company can carry the loss forward to offset against assessable
income in a future income year.
Under loss carry-back, the company can choose to carry-back the $4 million loss against the
taxes paid in the 2018–19 and 2019–20 income years. It claims a refundable tax offset of
$1.2 million in its 2020–21 income tax return.
JobMaker Hiring Credit
The JobMaker Hiring Credit will be available to employers for each new job they create over
the next 12 months for which they hire an eligible young person, aged 16 to 35 years old.
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 JobMaker Hiring Credit for up to 12
months from the date the new position is created.
To be eligible, the employee must have received the JobSeeker Payment, Youth Allowance
(Other), or Parenting Payment for at least one of the previous three months at the time of
hiring.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the
Australian Taxation Office (ATO) from 1 February 2021. Employers will need to report
quarterly that they meet the eligibility criteria.
The JobMaker Hiring Credit is designed to support new employment.
Individuals
The Government announced that it will bring forward Stage 2 of the Personal Income Tax
Plan first introduced in the 2019–20 Budget by two years, from 1 July 2022 to 1 July 2020.
Under the revised plan:
- the upper income threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
- the upper income threshold of the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
The low and middle income tax offset (LMITO) (see Table 3 on page 10) which is worth up to $1,080, will be retained until 1 July 2021.
The bringing forward of the Stage 2 personal tax cuts by two years means people who earn:
- between $45,000 and $90,000 will have an additional $1,080 of post-tax income in 2020–21;
- more than $120,000 will have an additional $2,565 of post-tax income in 2020–21.
Stage 3 of the Personal Income Tax Plan remains unchanged and commences from 2024–25 as legislated.