Federal Budget – Key Takeaways

Federal Budget – Key Takeaways

On 6 October, the Government released the Federal Budget for 2020/21.

It was a budget designed to stimulate the economy and create new jobs. Below is a summary of the key takeaways and some planning opportunities all business owners should consider taking advantage of.

Summary

These announcements are explained in more detail further in this article. 

  • Individual tax cuts
  • Immediate write-off of depreciable assets – no limit on cost
  • Claim losses against prior years profits (companies)
  • Incentives for hiring staff and apprentices (JobMaker and apprentice subsidy)
  • Expanded access to Small Business Entity concessions
  • Insolvency reforms for small business
  • No update regarding Div 7A and pre UPE changes

Key insights and planning opportunities

These announcements create planning opportunities.

There are differences in how the opportunities will apply to taxpayers depending on their circumstances.

  • Business owners currently drawing a salary of only $90k / year should review if an increase to $120k is effective tax planning (bearing in mind Single Touch Payroll reporting means this must be decided and actioned before 30 June 2021)
  • Cash flow forecasting for capital expenditure – taking into account not only funding of the investment, and the benefit of the tax deduction now, BUT, also proper consideration of the increased tax in future years
  • Consider whether capital expenditure should be deferred until FY 2022 (rather than FY 2021) – depending on marginal rates of tax and if losses are quarantined or a company can utilise the loss carry back provisions
  • Consider whether capital expenditure should be brought forward to FY 2021 to take advantage of 26% tax rate, which changes to 25% on 1 July 2021
  • Consider eligibility for subsidies on hiring new staff and plan recruitment accordingly
  • Consider whether dividends can be deferred to ensure the loss carry back provisions can be accessed
  • Planning around owner’s remuneration – is salary preferred to access loss carry back provisions compared to a current dividend policy?
  • In July 2021 – review whether your business can benefit by changing BAS reporting to Cash basis under the extension for Small Business Entities
  • April to June 2021 – consider prepayment of expenses to bring forward tax deductions
  • Monitor debtors, actively collect cash. As more relief is provided to small businesses with insolvency reforms, make sure you are protecting your own business by focusing on cash owed to you.

For more information on these planning opportunities, please contact us to discuss further.

Details of key announcements

Bring forward of individual tax cut effective 1 July 2020

Stage 2 of the previously announced individual tax cuts have been brought forward to apply from 1 July 2020.

  • 19% threshold will be between $18,200 and $45,000 (previously $18k to $37k)
  • 32.5% threshold will be between $45,000 and $120,000 (previously $37k to $90k)

Represents a saving of:

  • $1,080 for taxpayers earning between $45,000 and $90,000
  • $2,430 for taxpayers earning more than $120,000

Stage 3 of the individual tax cuts remain scheduled to apply from 1 July 2024.

Immediate write-off of depreciable assets – 7:30pm 6 Oct 2020 to 30 June 2022

Eligible depreciable assets can be tax deducted in full by all businesses (less than $5b turnover) up to 30 June 2022. There is no limit to the cost of the asset.

This concession applies to businesses.

The assets need to be installed and ready for use for deduction.

Businesses with aggregate turnover less than $50m, this immediate write-off applies to second-hand assets. For larger businesses it only applies to new assets.

Businesses with turnover between $50m and $500m can continue to rely on previous measures allowing write-off in full for second-hand assets under $150k up to 30 June 2021.

Businesses with turnover less than $10m turnover will immediately write-off the pool balance in 2021. It is not yet clear how this will apply in 2022 for businesses up to $50m.

Loss carry-back

Election can apply in FY 2021 and FY 2022 tax returns for companies.

Losses for FY 2020, FY 2021and FY 2022 can be carried back against prior taxable incomes from the FY 2019, FY 2020, FY 2021 income years.

Will generate a refundable tax offset.

Cannot exceed the profits previously taxed in those years.

Cannot result in a franking account deficit.

Does not apply to businesses run in trusts, partnerships, or sole traders.

JobMaker hiring credits

For eligible employees hired from 7 October 2020 for 12 months.

Eligible employees will need to:

  • Work for more than 20 hours per week
  • Have in the 3 months prior to being employed have received JobSeeker, Youth Allowance, or Parenting Payment for at least 1 month
  • Aged 18-29 creates a $200 / week credit to the business
  • Aged 30-35 creates a $100 / week credit to the business

Is credited quarterly in arrears by the ATO.

Wage subsidy for new apprentices

50% subsidy for businesses that take on new apprentices from 5 October 2020 to 30 September 2021.

Limited to 100,000 placements nationwide.

Limited to $7,000 per quarter per apprentice.

Expanded access to Small Business Entity concessions

Turnover threshold increased from $10m to $50m.

From 1 July 2020 – immediate write-off of prepaid expenses.

From April 2021 – FBT exemptions (car parking / multiple portable electronic devices).

From 1 July 2021 – all other concessions (including):

  • including simplified GST reporting – cash flow benefits to a business that has debtors exceeding creditors
  • 2-year amendment period for tax returns

Div 7A and Pre UPEs – No Update

While not specifically included in the announcements, it is an important omission.

There is no update to when or how the Div 7A and Pre UPE rules will change.

Although this creates uncertainty for taxpayers managing existing Div 7A and pre-UPEs, the benefit is that any additional tax burden resulting from the update to the rules is deferred for the time being.

Insolvency reforms for small businesses

For businesses with less than $1m in debt.

New rules to streamline access to debt restructure and professional assistance compared to voluntary administration.

 

Should you have any questions on the Budget announcements or if you would like to discuss some of these planning opportunities that may be available, please do not hesitate to contact our office for more information.

 

Disclaimer

The information provided in this article does not constitute advice.  The information is of a general nature only and does not take into account your individual situation.  It should not be used, relied upon, or treated as a substitute for specific professional advice.  We recommend that you contact Brentnalls WA before making any decision to discuss your particular requirements or circumstances.