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The story that is the 2020-21 federal budget and beyond.
ECONOMIC RECOVER PLAN FOR AUSTRALIA
In isolation, $33.8 billion seems to be a lot of money until you realise this is how close we are to trillion-dollar government debt.
Along with pizza and beer (thanks Andrew), creating jobs and keeping people in employment was the theme of the night.
Similar to previous support put forward in response to the COVID-19, the key takeaway is that while budgeting a gajillion dollars seems like heaps of money, it means there's a gajillion dollars of new money in the economy. The question is, do you know what is available to you and your customer? Are you in the best position to take full advantage? So what are the low downs?
LOWER TAXES – STAGE 2
Lower taxes are where the real (or faux) meat is in the budget sandwich.
Lower Taxes for Households
In short, the government is bringing forward already legislated tax cuts, increasing the threshold at which certain rates apply (see table below). In effect, the 19% threshold will increase from $37,000 to $45,000 and the 32.% bracket from $90,000 to $120,000.
The key in reading the below is to remember the devil in detail; in comparing the 2017-18 figures to 2020-21, the marketing department in treasury have presented somewhat deceptive savings. While this is justified as the year before stage 1 reforms, all we care about is the difference in our pockets today.
The figures presented by treasury are close to the total benefit you'll receive come tax time, but note they do include the Low and Middle-Income Tax Offset (LMITO), which has been around since 2018-19. The LMITO is not a new benefit of this budget, and 2020-21 will see the last of it.
These changes became legislation in 2018, to come into effect 1 July 2022, but will now be backdated and commence 1 July 2020.
Once the amendments have passed through parliament, the reductions will take effect almost immediately with any residual amounts refunded upon lodgement of 2020-21 tax returns.
For example, if passed 1 January 2021, someone earning $60,000 will see around $20 extra in their pocket, with the remainder including the last of the LMITO, coming in at tax time.
Empowering Business to Grow, Invest and Innovate
There is a bit to this but at a high-level:
- Temporary Full Expensing – for new depreciable assets, full cost; for existing, any improvement made after budget night until 30 June 2022.
- Temporary Loss Carry-Back – companies with losses incurred in 2019-20, 2020-21 and/or 2021-22 can be carried back against profits made in or after 2018-19. You can request a refund upon lodgement of 2020-21 and 2021-22 tax returns.
- Tax Treaty Network – the government is going to do some stuff to modernise and expand these.
- R&D Tax Incentive
- small claimants (turnover <$20M) - 18.5% above claimant’s company tax rate (refundable, no cap)
- large claimants (turnover >$20M) - a wee bit complicated but 8.5% to 16.5% (non-refundable)
- must be an incorporated entity and spend at least $20,000
Cutting Red Tape for Business
- FBT Record-Keeping – small reduction in some of the burdens of record keeping.
- FBT Retraining Exemption – costs of retraining staff for future or unrelated employment now exempt.
Backing Small and Medium Business
- Greater Access to Tax Concessions – this includes a slight expansion of a minimal number of concessions for small and medium businesses; not wide-ranging.
JOBMAKER HIRE CREDIT
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 before 6 October 2021 will have access to the credit for a further 12 months.
Eligible employees include those on JobSeeker Payments, Youth Allowance or Parenting Payment for at least one of the previous three months at the time of hiring.
The standard employee eligibility requirements apply with a few notable exceptions:
- cannot be claiming the JobKeeper Payments;
- the new employee must work at least 20 paid hours per week;
- newly established business or those with no employees cannot claim the first employee.
For those interested in the above, a comprehensive fact sheet can be obtained here: JobMaker Hire Credit
YOUR FUTURE, YOUR SUPER
The key to these reforms is to make the superannuation system more efficient by reducing multiple accounts, reducing fees and weeding out underperforming products and funds.
There is no real impact to small businesses out of this announcement aside from a slight tweak to employee onboarding; employees will nominate an account directly, or employers will obtain from the ATO.
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INSOLVENCY REFORMS FOR SMALL BUSINESS
On the back of the temporary insolvency protections that were introduced by the government back in March 2020 and further extended to December 2020, the government will be making some permanent changes to the insolvency frameworks.
Key Changes
- new 35 business day formal debt restricting process;
- new simplified liquidation pathway;
- measure to support the insolvency sector given the predicted increase in demand.
The key to the reform is to reduce the costs, time and distress associated with the process. It will allow businesses to keep trading under the control of the owners during the process.
The measures will commence 1 January 2021 and will be available to incorporated businesses with liabilities less than $1 million.
CONSUMER CREDIT REFORMS
In short, the governments is going to do stuff with credit laws to reduce barriers to credit, to make the process more efficient and to increase the protection for consumers and small business.
These reforms are very much a work in process, but the keyword missing from the release is "easier"; the changes will make the process more efficient but should not be read as making it easier to gain credit.
As always if you're not sure, drop us a line or shoot me an email jason@illumin8.com.au
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