The 2020-21 Federal Budget is all about jobs, jobs and jobs. COVID-19 has resulted in the most severe global economic crisis since the Great Depression. This Budget provides an additional $98 billion of response and recovery support under the COVID-19 Response Package and the JobMaker Plan.
The centrepieces of the Budget are a new JobMaker Hiring Credit for businesses and lower taxes for individuals.
Closer to home, pleasingly the Government committed to their election promise that there will be no adverse tax changes to the superannuation system. In addition, for the first time in a number of years, there were no measures specifically relating to SMSFs in this year’s Budget.
However, the Government did announce a ‘Your Future, Your Super’ package to address APRA superannuation fees and poor performances. The four measures in this package are outlined below:
Budget Changes to Superannuation
‘Stapled’ superannuation accounts – A new default system
From 1 July, existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. Employers will be required to pay super contributions to their employees existing superannuation fund if they have one, unless they select another fund.
A ‘YourSuper’ portal
The Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal. The YourSuper tool will provide a table of simple super products (MySuper) ranked by fees and investment returns.
Increased benchmarking tests on APRA funds
Benchmarking tests will be undertaken on the net investment performance of MySuper products, with products that have underperformed facing stringent requirements. Products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
Strengthening obligations on superannuation trustees – Large APRA funds
By 1 July 2021 super trustees of large APRA funds will be required to comply with a new duty to act in the best financial interests of members. Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
This will affect those large APRA funds to ensure they are spending in the best interests of the members, rather than SMSFs.
Personal Income Tax Budget Changes
Changes to personal income tax rates
The Government has announced that it will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income year). 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 are illustrated in the following table (which excludes the Medicare Levy).
|Rate||Rate Current (2019 to 2022)||Proposed (2021 – 2024)|
|0%||0 – $18,200||0 – $18,200|
|19%||$18,201 – $37,000||$18,201 – $45,000|
|32.50%||$37,001 – $90,000||$45,001 – $120,000|
|37%||$90,001 – $180,000||$120,001 – $180,000|
The Government advised that the personal income tax rate changes that have already been legislated, effective from 1 July 2024 (i.e., from the 2025 income year), remain unchanged. These involve abolishing the 37% personal income tax bracket, reducing the 32.5% personal income tax bracket to 30%, and increasing the upper threshold of the reduced 30% tax bracket from $120,000 to $200,000.
Changes to the Low Income Tax Offset (‘LITO’)
The Government announced that it will also bring forward the changes that were proposed to the LITO from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), 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.
|Current LITO (2021 to 2022)||Proposed LITO (2021 to 2022)|
|$0 – $37,000||Up to $445||$0 – $37,500||Up to $700|
|$37,001 – $66,666||$445 – 1.5% of excess over $37,000||$37,501 – $45,000||$700 – 5% of excess over $37,500|
|$66,667 +||Nil||$45,001 to $66,666||$325 – 1.5% of
excess over $45,000
Budget Changes Affecting Business Taxpayers
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.
For this purpose, a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.
The expanded concessions will apply in three phases, as follows:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.
- 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.
- From 1 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.
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.
The JobMaker Hiring Credit will 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 (see employer eligibility requirements below).
Who is an eligible employee?
Employees may be employed on a permanent, casual or fixed term basis.
To be an ‘eligible employee’, the employee must:
- be aged (i.e., at the time their employment started) either:
- 16 to 29 years old, to attract the payment of $200 per week; or
- 30 to 35 years old to attract the payment of $100 per week;
- have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period;
- have commenced their employment during the period from 7 October 2020 to 6 October 2021;
- have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired; and
- be in their first year of employment with this employer and must be employed for the period that the employer is claiming for them.
Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.
Who is an eligible employer?
An employer is able to access the JobMaker Hiring Credit if the employer:
- has an ABN;
- is up to date with tax lodgement obligations;
- is registered for Pay As You Go withholding;
- is reporting through Single Touch Payroll;
- is claiming in respect of an ‘eligible employee’;
- has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of; and
- is 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 also in the payroll of the business for the reporting period (based on a comparison over a specified reference period).
Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit.
Certain employers are excluded, including those who are 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.
Tax-free business support grants
The Government has announced that 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 and for payments made between 13 September 2020 and 30 June 2021.
Uncapped immediate write-off for depreciable assets
The Government has announced it will introduce the following changes to the Capital Allowance provisions:
- 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.
- 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.
- 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.
Budget Changes Affecting Companies
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.
Clarifying the corporate residency test
The corporate residency rules are fundamental to determining a company’s Australian income tax liability. 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.
This change will ensure the principles governing the residency of foreign incorporated companies will reflect the position prior to the 2016 court decision in Bywater Investments Limited & Ors v. FCT; Hua Wang Bank Berhad v FCT  HCA 45 (after this decision the ATO withdrew Taxation Ruling (‘TR’) 2004/15 and later released TR 2018/5, incorporating the High Court’s residency test).
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017.
Meetings conducted via virtual attendance
In order to reduce regulatory barriers, the Government has announced it will undertake public consultation on making permanent changes to the Corporations Act 2001. These changes would allow companies to call and conduct meetings electronically (with a quorum achievable through virtual attendance of shareholders and officers) and also to provide certainty that company officers can electronically execute a document.
Other Budget Announcements
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’. Broadly, these involve older Australians or people with disabilities transferring their home or the proceeds from the sale of their home (and/or other assets) to their adult children or other trusted persons in return for the promise of ongoing housing and care.
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.
This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.
This measure is consistent with the recommendations made in the Board of Taxation’s Review of Granny Flat Arrangements, the Government’s National Plan to Respond to the Abuse of Older Australians announced on 19 March 2019, and the 2017 Australian Law Reform Commission’s Report: Elder Abuse — A National Legal Response.
Additional funding to address serious and 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.
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, including:
- $4.3 million to provide free, accessible and tailored support for small business owners by expanding Beyond Blue’s NewAccess program in partnership with the Australian Small Business and Family Enterprise Ombudsman; and
- $2.2 million to expand a free accredited professional development program that builds the mental health literacy of trusted business advisers so that they can better support small business owners in times of distress, delivered through Deakin University.
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:
- The introduction of a new 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 (to allow faster and lower-cost liquidations, increasing returns for creditors and employees).
- Support for the insolvency sector (to ensure it can respond effectively to increased demand and to the needs of small business).
Currently, the insolvency system faces a number of challenges. These include an increase in the number of businesses in financial distress due to COVID-19, a ‘one-size-fits-all’ system, and high costs and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early thereby reducing their opportunity to restructure and survive.
Temporary insolvency and bankruptcy protections that were introduced in March 2020 to provide relief for businesses impacted by COVID-19 are due to expire on 31 December 2020 (e.g., under these measures, directors are temporarily relieved from personal liability for trading while insolvent). However, the number of companies being put into external administration is expected to increase significantly, putting additional stress on the system. Therefore, the above proposed reforms will help more businesses to successfully get to the other side of the crisis.
In addition to previous COVID-19 relief, there are also further economic payments for pensioners
How can we help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please call us to arrange a time to meet so that we can discuss your particular circumstances in more detail.
SMSF Options is the home of Australia’s leading Self Managed Super Fund (SMSF) accountants, auditors, and advisers.
Covering all aspects of SMSF, our Gold Coast based team are passionate about what we do and take pride in our expertise. We know when it comes to Self-Managed Super, we can get the best possible outcomes for you and your fund.
Whether you are just starting off, transitioning to retirement or looking at the best way to pass wealth on to the next generation, we will help you maximize the benefits by assisting you with everything from setting up your own fund to looking after the daily administration, lodging your income tax return and arranging the fund audit.
Guy Wuoti – SMSF Options
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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