Business Incentives, Income Tax Cuts Lead Budget to Damp COVID Impact & Reboot Economy
The Australian Government has unveiled the Federal Budget for 2020/2021 designed to pull Australia out of the most severe global economic crisis since the Great Depression amidst the COVID-19 pandemic.
Incentives to encourage businesses to invest, and the bringing forward of personal income tax cuts headlined the budget, all designed to put money in people’s pockets so they can start spending and raise the economy from the COVID-19 downturn.
Treasurer Josh Frydenberg committed a further $98 billion on top of the $257 billion the government has already directly pumped into economic support aimed at dulling the impact COVID-19 and underpinning the nation’s recovery. It’s all about jobs, said the Treasurer, creating them and getting people who have lost jobs or had their working hours reduced, back into employment.
The Budget is expected to result in a hefty deficit of $213.7 billion, shrinking to $66.9 billion by 2023-24. Net debt will increase to $703 billion this year and is projected to peak at $966 billion or 44 percent of GDP in 2024.
Keep in mind, this budget outcome may well be a best-case scenario. It is predicated on a successful vaccine for COVID-19 being found and administered, and the assumption that internal borders will be open by Christmas this year and internationally by the end of 2021. It’s also built on the premise that no other global crisis emerges.
The Treasurer said the putting the budget deep into deficit and pumping up spending was the heavy price the government had to pay to save lives and livelihoods.
See below for an overview of the Budget measures announced this week. As with all budget announcements, the measures proposed must still be legislated and accepted by both Houses of Parliament before they become law.
To find out how the budget may affect your financial situation, please contact your CountPlus One professional.
New funding in the budget includes $25 billion in direct COVID-19 response measures and $74 billion in new measures to create jobs. Here is a rundown:
Tax breaks for business
Measures aimed at helping to buoy Australia’s economy in the face of the pandemic include a move to further expand the instant asset write-off tax break initiative for businesses, which was extended earlier this year.
The government will now allow 99% of businesses to write off the full value of assets they purchase. Businesses with turnover of up to $5 billion will be able to immediately deduct the full cost of eligible depreciable assets acquired from 6 October 2020 and first used or installed by 30 June 2022.
Treasurer Josh Frydenberg said this will unlock investment, expand the productive capacity of the nation and create tens of thousands of jobs.
The government will also temporarily allow companies with a turnover of up to $5 billion to offset tax losses against previous profits on which tax has been paid.
At the same time, the government is providing $105 million in tax relief to expand access to a range of small business tax concessions by lifting the aggregated annual turnover threshold for these concessions.
Businesses with an aggregated annual turnover between $10 million and $50 million will, for the first time, be able to access up to 10 small business tax concessions.
The expanded concessions will apply in three phases, with the first phase starting from 1 July 2020. The changes will reduce red tape and support around 20,000 businesses to attract workers and retain jobs, the government said.
The federal government will also enhance previously announced reforms to invest an additional $2 billion through its Research and Development Tax Incentive.
These changes will commence from 1 July 2021 and are expected to help more than 11,400 companies that invest in research and development to create the jobs of today and tomorrow.
A focus on Jobs
The Budget makes no changes to the March 28 end date of the JobKeeper wage subsidy, but does outline a fresh wage subsidy.
The new $4 billion JobMaker Hiring Credit initiative will be payable for up to 12 months for each new job and is available from 7 October to employers who hire eligible employees aged 16 to 35.
The Hiring Credit will be paid quarterly in arrears at the rate of $200 per week for those aged between 16 to 29, and $100 per week for those aged between 30 and 35. Eligible employees are required to work a minimum of 20 hours per week.
To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created. Treasury estimates that this will support around 450,000 jobs for young people.
The only businesses explicitly excluded from the new initiative are the major banks.
The JobMaker initiative follows an earlier announcement of expanded training subsidies, with the government pledging to cover half the wages of 100,000 new apprenticeships and traineeships.
Personal Income Tax Cuts
The government is bringing forward its second stage of tax cuts, which means millions of Australians will have more money in their wallets, potentially from the end of October.
It’s planning on back-dating the cuts to July this year, and, to make up for the four months that have already been, those refunds will be built into wages until the end of this financial year.
This means people who earn between $45,000 and $90,000 will end up with an extra $1,080.
Higher income earners will benefit the most, with people earning more than $90,000 taking home up to $2,565 extra.
The government is also keeping the Low and Middle Income Tax Offset for an extra year.
The table below details the new personal income tax rates and thresholds, to be backdated and applied from 1 July 2020:
Current Tax thresholds
New Tax thresholds from 1 July 2020
$0 – $18,200
$0 – $18,200
$18,201 – $37,000
$18,201 – $45,000
$37,001 – $90,000
$45,001 – $120,000
$90,001 – $180,000
$120,001 – $180,000
Low Income Tax Offset (LITO)
Up to $445
Up to $700
Up to $530
Up to $1,080
The already legislated reduction of the 32.5% marginal tax rate to 30% and removal of the 37% personal income tax bracket from 1 July 2024 remains unchanged.
The government also announced two additional economic support payments of $250 to pensioners and other eligible recipients, worth $2.6 billion.
JobKeeper wage subsides have already been increased a further six months until 28 March 2021. And the Coronavirus Supplement has been extended until 31 December 2020 at a rate of $250 per fortnight from 25 September 2020.
The budget doesn’t update the future of JobSeeker payment rates beyond Christmas.
From 1 July 2021, a new Your Future, Your Super package will improve the superannuation system in the following ways:
Australians will automatically keep their superannuation fund when they change employers, stopping the creation of unintended multiple accounts.
A new online Your Super comparison tool will help people compare the performance of funds which will be required to meet an annual performance test.
Business & Manufacturing
The government will allocate $1.5 billion for manufacturing in six target areas: space, medicine, food and beverage, defence, resources tech, recycling and clean energy.
The ATO will offer simplified GST accounting methods for businesses with turnovers under $50million.
Fringe Benefits Tax is to be removed for many businesses. Companies with turnovers of between $10 million and $50 million will be able to access up to 10 small business tax concessions.
Further economic support payments
Two further economic support payments of $250 will be paid in December 2020 and March 2021 to eligible recipients of the following payments and health care card holders:
Disability Support Pension
Family Tax Benefit
Commonwealth Seniors Health Card
Eligible DVA payments
DVA Gold or Seniors Card
These payments will be received tax-free and will not count towards the income test of eligible pensions or allowances.
If you are eligible for one of the above payments/concession cards on 27 November 2020, you will be eligible for the December 2020 payment. If you are eligible for one of the above payments/concession cards on 26 February 2021, you will be eligible for the March 2021 payment.
Parental Leave Pay and Dad and Partner Pay
The work test eligibility period for Parental Leave Pay and Dad and Partner Pay will be extended to 20 months prior to the birth or adoption of the child, up from 13 months. The work test eligibility will be:
Worked at least 10 of the 20 months prior to the birth or adoption of the child or date of claim, and
Worked at least 330 hours in that 10 month period.
This will enable access to these payments where eligibility has been impacted by COVID-19.
Additional home care packages
Further support will be provided to older Australians who wish to remain in their own home, instead of entering residential aged care through the release of an additional 23,000 home care packages across all package levels.
The above information is a condensed overview only. Please contact your CountPlus One relationship manager or reach out to us on 1300 360 186 or [email protected]