Federal Budget Summary - What it means for business
Here is a summary of the key takeaways from a tax perspective of the 2020 Federal Budget announcement and what this means for businesses.
JobMaker Hiring Credit
Date of effect: From 7 October 2020 for 12 months
The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.
Eligible employers will receive:
$200 per week if they hire an eligible employee aged 16 to 29 years
Or $100 per week if they hire an eligible employee aged 30 to 35 years.
The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the eligible employee 's date of employment with a maximum amount of $10,400 per additional new position created.
Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.
To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.
Immediate deductions for investment in capital assets
Date of effect: Acquisition of eligible capital assets from 7:30pm AEDT on 6 October 2020
And first used or installed by 30 June 2022
The Government is really keen for business to invest. This measure enables businesses with an aggregated turnover of less than $5 billion to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use. This means that an asset’s cost will be fully deductible upfront rather than being claimed over the asset’s life.
While many businesses were already eligible for an instant asset write-off for asset purchases of up to $150,000, this measure does not cap the asset’s cost, and eligibility for the higher instant asset write-off has been significantly broadened and extended.
Ability for companies to carry-back losses
Date of effect: Losses from the 2019-20, 2020-21 or 2021-22 income years
Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits in the 2018-19, 2019-20 and 2020-21 income years.
Under this measure, tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.
The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
Currently, companies are required to carry losses forward to offset profits in future years. Under the proposed amendments, companies that do not elect to carry back losses can still carry losses forward as normal.
This measure will interact with the Government’s announcement to allow full expensing of investments in capital assets. The new investment will generate significant tax losses in some cases, which can then be carried back to generate cash refunds for eligible companies.
R&D tax concessions injection and simplification
Date of effect: 1 July 2021
The Government has enhanced its proposed shake-up of the R&D system injecting an additional $2 billion through the Research and Development (R&D) Tax Incentive.
Currently, the R&D Tax Incentive provides the following in respect of eligible R&D activities (for the first $100 million of eligible expenditure):
a 43.5% refundable offset for eligible companies with aggregated annual turnover less than $20m; and
a 38.5% non-refundable tax offset for all other eligible companies.
Note that the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019, before Parliament at the time the Federal Budget was released, proposed various amendments to the R&D Tax Incentive to take effect from the 2019-20 income year. The Government is now delaying (by two years) and enhancing the proposed changes.
Companies under $20m turnover
For companies with an aggregated annual turnover less than $20 million:
The refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate (an increase from 13.5 percentage points above the claimant’s company tax rate as previously announced)
The previously announced annual $4 million cap on cash refunds for R&D claimants will not proceed.
Access to tax concessions extended to businesses up to $50m
Date of effect: Three phases: 1 July 2020, 1 April 2021, 1 July 2021
Announced pre Budget, a range of generous tax concessions normally only available to small and medium businesses, will be available to businesses with an aggregated turnover of up to $50 million.
The expanded concessions will be rolled out in three phases:
From 1 July 2020
Immediate deduction for certain start-up expenses
Immediate deduction for prepaid expenditure
From 1 April 2021
FBT cark parking exemption
FBT exemption on portable electronic devices
From 1 July 2021
Simplified trading stock
PAYG instalments based on GDP adjustment amount
Settle excise duty and excise-equivalent customs duty monthly
Two-year amendment period
Simplified accounting methods
The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.
FBT exemption for retraining and reskilling workers
Date of effect: 2 October 2020
Announced pre Budget, the Government will provide a Fringe Benefits Tax (FBT) exemption for employer-provided retraining and reskilling for employees redeployed to a different role in the business.
Currently, if an employer provides a benefit to an employee that is not directly related to their current job, FBT applies. This measure enables employers to help employees reskill for a new role or another role with a different employer, without incurring FBT.
The exemption does not apply to retraining acquired through salary packaging or training provided through Commonwealth supported places at universities. The exemption also does not extend to repayments towards Commonwealth student loans.
The Government will also consult on potential changes to the law to allow a worker to deduct expenses they personally incur to undertake training directed at future employment and skills (current rules that limit deductions to training related to current employment, may act as a disincentive for workers to retrain and reskill).
Corporate residency test changes
Date of effect: First income year after the date of Royal Assent
Taxpayers have the option to apply the new law from 15 March 2017
The corporate residency tests will be clarified so 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 if both:
the company’s core commercial activities are undertaken in Australia, and
its central management and control is in Australia.
Note that under current law, where a company is incorporated offshore, it is an Australian resident if both of the following apply:
the company carries on business in Australia; and either:
- its central management and control is in Australia; or
- its voting power is controlled by Australian resident shareholders.