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Federal Budget 2020/21
The new federal budget was released on 14 October 2020. Here are some highlights.
Changes affecting individual taxpayers:
Changes to personal income tax rates
The Government has announced that it will change the personal income tax rates from 1 July 2020 onwards. These changes include:
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increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000
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increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000
While the tax cuts are backdated to 1 July 2020, employers have until 16 November 2020 to implement these changes into their payroll system. Individual taxpayers will be eligible for a refund for the amount overpaid from July 2020, when they lodge their tax returns.
Changes to the Low Income Tax Offset
The Government has also announced that it will change the Low Income Tax Offset for the financial year ending 30 June 2020. These include:
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increasing the maximum Low Income Tax Offset from $445 to $700
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reducing at a rate of 5% per dollar for the taxable incomes between $37,500 and $45,000
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reducing at a rate of 1.5% per dollar for the taxable incomes between $45,001 and $66,666
Removing Capital Gains Tax (CGT) for "granny flat arrangements"
From 1 July 2021, a specific CGT exemption will apply to granny flat arrangements. This will cover older Australians or Australians with disabilities transferring their home or the proceeds from the sale of their home to their adult children or other trusted persons in return for the promise of ongoing housing and care.
CGT will not apply to the creation, variation or termination of a written granny flat arrangement providing accommodation for older Australians or people with disabilities. This change will only apply to the agreements that are entered into because of family relationships or personal ties, and will not apply to commercial rental arrangements.
Changes affecting businesses:
JobMaker Hiring Credit
From 7 October 2020, eligible employers can claim $200 per week for each additional eligible employee they hire aged 16 to 29 years old and $100 per 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 job is added.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.
The amount of the credit will be capped at $10,400 for each additional new job created. The total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period.
Eligible employees
An eligible employee must:
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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
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have worked at least 20 hours per week on average for the full weeks they were employed over the reporting period
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have commenced their employment during the period from 7 October 2020 to 6 October 2021
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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
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be in their first year of employment with this employer and must be employed for the period that the employer is claiming for them.
Employees may be employed on a permanent, casual or fixed term basis. There are certain exclusions including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.
Eligible employers
An eligible employer must:
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has an ABN
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is up to date with tax lodgement obligations
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is registered for Pay As You Go withholding
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is reporting through Single Touch Payroll
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has kept adequate records of the paid hours worked by the employee
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is able to demonstrate that the credit is claimed in respect of an additional job that has been created. There must be an increase in the business total employee headcount and also in the payroll of the business for the reporting period.
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Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit.
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Certain employers are excluded, including those who are claiming the JobKeeper payment.
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The minimum baseline headcount is one, so employers who had no employees on 30 September 2020 or who were established after 30 September 2020 will not be eligible for the first employee, but will be eligible for the second and subsequent eligible hires.
Tax-free business support grants
The Victorian Government’s Business Support Grants that was announced on 13 September 2020, will be treated as 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 until 30 June 2021.
Immediate write-off for depreciable assets
From 6 October 2020, businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use until 30 June 2022.
Small businesses with aggregated turnover under $10 million can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Temporary loss carry-back
Corporate tax entities with an aggregated turnover of less than $5 billion will be able to apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
Tax losses for the 2019/20, 2020/21, or 2021/22 income years can either be carried forward and deducted against profits derived in later income years; or carried back against profits made in the 2018/19 and later income years to produce a refundable tax offset.
Vincent Wan
CPA, Registered Tax Agent
October 2020