This year’s Federal Budget includes more detail for business owners to digest than has been in a long time. The full report is available here, but we have been busy reading though the detail and have provided you with a summary on some of the key points.
This Budget is aimed at encouraging hiring, investment and spending. This includes wage rebates, investment incentives, new skills initiatives, direct support for employers, business tax cuts and strategies to boost our manufacturing sector. Businesses will also benefit indirectly from personal income tax cuts, infrastructure spending and broader fiscal support aimed at boosting public demand. The Government’s task now is to encourage businesses and households to take advantage of the new programs to deliver stronger economic growth and more jobs.
There are a range of range of economic measures to support businesses and workers in rebuilding the economy. Maintaining a good relationship with your bookkeeper, accountant and other advisors is going to be important, to help you keep accurate financial records and maintain cash flow during this time. We’ll be bringing you more updates as more detail becomes available.
SIGNIFICANT PERSONAL INCOME TAX CUTS (PAID EARLY)
The centerpiece of the Budget were the personal income tax cuts, designed to support spending, including the continuation of the Low and Medium Income Tax Offset.
The changes are worth an estimated $1,080/year for people earning between $45,000 and $90,000. The benefits increase from there up to a maximum of $2,430/year for people earning more than $120,000.
In addition, sole traders will also benefit from the unincorporated tax discount of $1000. Backdating these tax cuts to start on 1 July 2020 is a particularly positive decision and means the extra money will be in bank accounts as soon as the legislation is passed and payroll software is updated.
From an economy-wide perspective, these tax cuts will immediately put extra money in people’s pockets to spend in businesses, including small businesses.
For those people who receive a range of government payments, including aged pension, carer payment and family tax benefit, they will receive two $250 cash payments paid in December and March 2021.
The overall impact of these changes on disposable incomes will depend on what households do with the tax cuts and extra government payments. The extent to which they are saved or used to repay debt will diminish the impact on the economy. In short, the tax cuts need to be spent if they are to help create jobs and boost growth.
JOBMAKER HIRING CREDIT FOR BUSINESSES EMPLOYING NEW STAFF UNDER 35
A JobMaker hiring credit will incentivise businesses to employ additional young workers in order to receive $200 per week per eligible hire under 30 years old and $100 per week for those aged 30-35.
The JobMaker credit is expected to help accelerate growth in employment over the next 12-months, by encouraging businesses to take on additional employees that are young job seekers aged 16 to 35 years old for at least 20 hours per week, who were on JobSeeker, Youth Allowance (Other), or Parenting Payment for at least one of the previous three months at the time of hiring.
It will be paid at the rate of $200 per week for those aged under 30, and $100 per week for those aged between 30-35. The JobMaker Hiring Credit is estimated to support 450,000 positions for young people, costing $4 billion from 2020-21 to 2022‑23.
It’s expected that employers will report JobMaker Hiring Credits using Single Touch Payroll. More details to follow.
APPRENTICE WAGE SUBSIDY SCHEME
The Government is investing an additional $1.2 billion to help Australian businesses employ 100,000 new apprentices or trainees and is available to businesses of all sizes. The subsidy will be available to employers Australia-wide who engage an Australian apprentice or trainee from 5 October 2020 until the 100,000 cap is reached. Employers will be eligible for 50 percent of the wages for a new or recommencing apprentice or trainee for the period up to 30 September 2021, up to $7,000 per quarter. Frydenberg also said the Government was committed to funding:
· 50,000 new higher education short courses in agriculture, health, IT, science and teaching
· 12,000 new Commonwealth supported places for higher education in 2021
· 2,000 indigenous students through the Clontarf Foundation to complete Year 12 and pursue further education or find employment
LOSS CARRY-BACK SCHEME
The Government is allowing companies with up to $5 billion in turnover to offset losses against previous profits on which tax has been paid, to generate a refund.
The tax loss carry-back will be available to around one million companies that employ up to 8.8 million workers, with the temporary provisions costing the government $4.9 billion. Eligible companies may elect to receive a tax refund when they lodge their 2020‑21 and 2021‑22 tax returns.
Please note, the precise detail on how to apply this measure is yet to come. Please ensure you keep in touch to stay up to date as more information becomes available.
TEMPORARY FULL EXPENSING TO REPLACE INSTANT ASSET WRITE-OFF
Extension to the Instant Asset Write Off to June 2022 – Allowing businesses to immediately write off any business assets purchased from 7:30PM on 6th October 2020 with no cap on the value of these assets. Businesses will be able to fully expense eligible depreciable assets immediately, in what has been proclaimed as the largest investment incentive provided by a government.
An expansion of the popular Instant Asset Write-off scheme, the Government is providing a temporary tax incentive to around 3.5 million businesses that employ around 11.5 million workers in a bid to support new investment and increase business cash flow.
Assets will need to be acquired after 7.30pm on 6 October and must be first used or installed by 30 June 2022.
In March, the Government increased the eligible amount for each asset up to $150,000 from $30,000. Now, the Government says there’s no limit on the asset’s price tag. Eligible businesses that acquire eligible new or second-hand assets under the enhanced $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021, to first use or install those assets.
Small businesses with turnover of less than $10 million will also be allowed to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. This measure is estimated to deliver $26.7 billion in tax relief over the forward estimates, and $3.2 billion over the medium term.
ADDITIONAL INCENTIVES FOR BUSINESSES INVESTING IN R&D
Research and Development, the adoption of digital technology, and affordable and reliable energy will be critical to Australia’s future economic prosperity.
The Government has tapped $2 billion in additional R&D incentives in order to remove “the cap on refunds, lifting the rate to 18.5 percentage points and rewarding those businesses that invest the most”.
The money for R&D:
- $459 million in additional funding to the CSIRO
- $1 billion for new research funding for our universities, backing our best and brightest minds whose ideas will help drive our recovery
- $1.9 billion in new funding as part of our energy plan to support low emissions and renewable technologies, helping to lower emissions and address climate change
It’s expected the new funding will support more than 11,400 companies that claim R&D incentives.
JOBMAKER DIGITAL BUSINESS PLAN
Announced last week, $800 million is being invested in a series of measures to help Australia become a leading digital economy by 2030 and to improve productivity, income growth and jobs by supporting the adoption of digital technologies by Australian businesses.
The largest portion ($420m) of the funding is set to go towards merging the Australian Business Register with 31 other registers used by government agencies, with another $120 million incentivising businesses to take up digital technologies, and $19.2 million to help businesses start transacting online.
In relation to small businesses, $22.2 million will be spent on supporting small business’ adoption of digital technologies through an expansion of the Australian Small Business Advisory Service – Digital Solutions program, a Digital Readiness Assessment tool and a Digital Directors training package.
It also includes a promise to bring all Government agencies up to speed with e-Invoicing by 2025, which will see their supplies paid faster and more easily.
CYBER SECURITY PROGRAM
These digital-enablement programs, which will help business owners run their operations more efficiently and increase the confidence of small businesses to engage in the digital economy, will play a critical role in facilitating the take-up of the other new jobs and investment programs.
As with the tax cuts, the key to the success of these business-based programs is that they must be used. Businesses will need to have the confidence to take on new staff and buy new equipment if the economy is to feel the full benefit of these programs.
TAX CONCESSIONS AND CHANGES TO FRINGE BENEFITS TAX (FBT)
Businesses with an aggregated annual turnover between $10 million and $50 million will have access to up to 10 small business tax concessions as part of the 2020–21 budget, delivered in three phases:
- 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 the 47 percent fringe benefits tax 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 also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021
Additionally, 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.
INFRASTRUCTURE PROJECTS GET A BOOST
The Budget isn’t leaving all the responsibility of economic recovery to businesses and households, there was also an additional $7.5 billion spending for new national-level infrastructure projects. This funding is in addition to the $100 billion infrastructure fund (over ten years) announced in previous Budgets. In addition, $3.5 billion has been allocated for upgrades to the NBN roll-out to deliver more Fibre to the Premises connections.
Small businesses are also likely to benefit from the additional $1 billion for the Local Roads and Community Infrastructure program. This is for smaller, local projects to help councils to deliver immediate upgrades of local roads, footpaths and street lighting.
For small businesses to benefit from infrastructure projects, three things need to happen. Firstly, small businesses need to be sub-contractors for these projects. Secondly, the government must enforce the requirement that its payment terms are also reflected through to subcontractors. Finally, the government must mandate the use of e-invoicing to simplify and speed up payments through supply chains.
SUPPORT FOR CONSTRUCTION SECTOR
With a sharp slump in population growth, the Budget announces several new initiatives to boost construction. This includes additional incentives for first homebuyers to purchase new dwellings, boosting arrangements to encourage institutional investment into affordable housing and a capital gains tax exemption for granny flats (where there is a formal arrangement for older Australians or persons with a disability). These initiatives complement the existing HomeBuilder scheme ($25,000 grants for eligible renovations or new builds) which applies to eligible contracts entered into up to 31 December 2020.
The Government will invest $1.5 billion to boost Australian manufacturing in areas where Australia already enjoys an advantage. The Modern Manufacturing Initiative will support Australian businesses to scale-up in priority areas including resources technology, food and beverage, medical products, recycling and clean energy, defence and space. Roadmaps to guide investments in these priority sectors will be co-designed with industry. Manufacturing will also be boosted by recent announcements relating to gas supply.
REGIONAL TOURISM RECOVERY
The Government will invest over $250 million for a Regional Tourism Recovery Package. Regional communities will benefit from $200 million in grants through the Building Better Regions Fund with $100 million of the fund earmarked for tourism-related infrastructure projects that will boost regional tourism.
BUDGET SUCCESS DEPENDS ON CONFIDENCE TO SPEND AND INVEST
The success of this Budget in rebooting the economy largely depends on the public response. Households will need to be confident enough to spend the tax cuts and businesses will need to be willing to invest in their future and hire new staff. If the tax cuts sit in bank accounts, business hiring and investment programs go unused and infrastructure projects are delayed then the economic recovery is less likely to eventuate.
As a result, the Federal Government will need to remain vigilant, and be prepared to make future policy adjustments, if businesses and households do not respond to this plan for recovery.
As always, if you have any questions, please get in touch with us. In the meantime, we will be working hard to understand how best your business can benefit from these changes.