However – currently, this rebate is set to be removed on June 30, 2021. This will mean an effective INCREASE in the net tax payable on taxable incomes up to $100,000 in the 2021/22 year. 

The net effect of these changes on various income levels are shown here:

		Net tax payable
		Allowing for tax rates and offset changes						Effective tax rate %
Taxable income	2020	2021	2022	Diff 2020 – 2021  $	Diff 2020 – 2021  %	Diff 2021 – 2022  %	2020	2021	2022
30,000	$2,142	1,887	2,142	$255	12%	-12%	7.14	6.29	7.14
40,000	$4,467	3,800	4,279	$668	15%	-11%	11.17	9.50	10.70
50,000	$7,467	6,387	7,467	$1,080	14%	-14%	14.93	12.77	14.93
60,000	11,067	9,987	11,067	$1,080	10%	-10%	18.45	16.65	18.45
70,000	14,617	13,537	14,617	$1,080	7%	-7%	20.88	19.34	20.88
80,000	18,067	16,987	18,067	$1,080	6%	-6%	22.58	21.23	22.58
90,000	21,517	20,437	21,517	$1,080	5%	-5%	23.91	22.71	23.91
100,000	25,717	24,187	24,967	$1,530	6%	-3%	25.72	24.19	24.97
150,000	45,997	43,567	43,567	$2,430	5%	0%	30.66	29.04	29.04
180,000	57,697	55,267	55,267	$2,430	4%	0%	32.05	30.70	30.70
200,000	67,097	64,667	64,667	$2,430	4%	0%	33.55	32.33	32.33
250,000	90,597	88,167	88,167	$2,430	3%	0%	36.24	35.27	35.27
400,000	161,097	158,667	158,667	$2,430	2%	0%	40.27	39.67	39.67

I expect that there will be ‘new announcements’ on this over the coming year. Probably leading up to an early election in late 2021. It’s pointless claiming that the government is trying to stimulate the economy with tax cuts if they only last for 12 months for a significant proportion of the population that are struggling the most.
There has been press saying that the backdating of the tax cut will occur by adjusting the tax to be deducted in the rest of the year – resulting in 12 months of tax cuts being provided over a 9 (or fewer months) period. I cannot see this myself, as it will require the legislation to be rushed through, made official and then the ATO needs to inform employers and payroll software providers on how this is to be implemented. Instead, I see the likelihood that there will be a ‘set date’ for payroll changes, after which a reduced tax amount is deducted from pays, with the balance of the tax benefit provided when tax returns for 2021 are lodged after July 1, 2021. (EDIT) As I prepare this, it as confirmed that the tax saving from July 1 until the tax cuts are processed will only be received once people lodge their 2021 tax returns after June 30 next year.

3    Changes affecting business taxpayers

Who is an eligible employee?

Employees may be employed on a permanent, casual or fixed term basis.

To be an ‘eligible employee’, the employee must:

·       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;

·       have worked at least 20 paid hours per week on averagefor the full weeks they were employed over the reporting period;

·       have commenced their employment during the period from 7 October 2020 to 6 October 2021;

·       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

·       be in their first year of employment with this employerand must be employed for the periodthat the employer is claiming for them.

Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.

Who is an eligible employer?

An employer is able to access the JobMaker Hiring Credit if the employer:

·       has an ABN;

·       is up to date with tax lodgementobligations;

·       is registered for Pay As You Go withholding;

·       is reporting through Single Touch Payroll;

·       is claiming in respect of an ‘eligible employee’;

·       has kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of; and

·       is able to demonstrate that the credit is claimed in respect of an additional job that has been created.

 

Employers do not need to satisfy a fall in turnover test to access the JobMaker Hiring Credit. Certain employers are excluded, including those who are claiming the JobKeeper payment.
So if your business is receiving JobKeeper for the October to December 2020 or January to March 2021 period you are NOT eligible for the JobMaker support payment.

New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires. 

 

3.3  Tax-free business support grants

The Government has announced that the Victorian Government’s Business Support Grants for small and medium businesses, as announced on 13 September 2020, are 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 and for payments made between 13 September 2020 and 30 June 2021.

Essentially, this means that with the Three rounds of support grants announced so far by the Victorian Government, Rounds 1 and 2 are ASSESSABLE for income tax, but round 3 is NOT assessable. At least we have some certainty (In Victoria, not sure what they will do about other states yet) for grants announced after September 13, including the Third round of grants, the Sole trader support and the hospitality support packaged. But the difference in the treatment of the various rounds of grants is difficult to understand.

 

 

3.4  Uncapped immediate write-off for depreciable assets

The Government has announced it will introduce the following changes to the Capital Allowance provisions:

(a)      Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediatededuction (what the Budget terms as ‘full expensing’) forthe full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:

• The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
• The asset was first used or installed ready for use by 30 June 2022.
•  The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.

(b)      As is currently legislated, businesses with aggregated annual turnover between $50 million and $500 million can still deductthe cost of eligible second-hand assets costing less than

$150,000 that are purchased from 2 April2019 and firstused or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off.

The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021.

(c)       Small businesses (i.e., with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies (i.e., up to 30 June 2022).

Furthermore, the provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

So, as of October 7 effectively, all businesses with a turnover of less than $5 BILLION (i.e. most businesses in Australia) can claim a 100% tax deduction on ALL eligible equipment items purchased and installed for use by June 30, 2022.

Sorry, that does not mean you can claim your new Porsche (or plane or yacht!)  as a full tax deduction this year! (the key word is eligible) As there was already – for small business (less than $10 million turnover) a $150,000 threshold for equipment purchases. For vehicles, the luxury car limit would still apply (Unless specifically removed by the ATO) So for most business, this change actually provides no additional benefit – it extends the existing accelerated depreciation rules, but it does not add significantly to the tax or cashflow benefits. For larger businesses (i.e. turnover above $50 million to $5 Billion) yes, it provides some short-term tax benefit, but you have to wonder who this will benefit the most. And if a listed corporate pays less tax, and does not fully ‘frank’ their dividends as a result – it is the small investor and the superannuation funds that will end up paying more tax! (But it certainly favors the offshore investor for the same reason) 

The ‘instant write off’ of small business asset pools is again already in place for asset pools worth less then $150,000. But this additional benefit won’t be seen until the 2021 tax returns are lodged, so there is no immediate benefit to businesses, or to cashflow from this change. 

Businesses would still need to find funds from cashflow, cash reserves, or bank funding to pay for new equipment. All of these have been hard to find, and bank and lease finance has become as rare as an Adelaide Crows win.  It is hoped that the banks will start working with businesses as we go forward but they have been very ‘Covid wary’ and probably will be until there is a clear path out of lockdown and an improved economic outlook. Catch 22. No cash, no loans, no equipment, no tax benefit, no economic boost.

4.     Changes affecting companies

Temporary loss carry back for eligible companies

The Government has announced that it will introduce measuresto allow companieswith a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.

This will allow such companiesto generate a refundabletax offset in the year in which the loss is made. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit. (So if Franked Dividends have already been paid to shareholders, the loss claim will be limited)

The tax refundwill be available on electionby eligible companieswhen they lodgetheir tax returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

 

So, in looking at the 2019/20 tax returns – for the year just passed, we have the possibility of offsetting loses in that year against profits in the 2019 year. That ‘could’ mean getting some tax back that had been paid by business entities in the 2019 year.

But! At this stage, it appears that we will have to wait till after the end of the  2021 tax year – so the first ‘refunds’ would not happen before July or August 2021. So this provides NO additional cashflow in the remainder of this financial year.

 

5.    FBT exemption and deductions for retraining

6.  Superannuation

Super will be paid to a new employee’s existing account

An existing superannuation account will be “stapled” to a member to avoid the creation of a new account when that person changes their employment.

By July 2021 if an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existingfund. Employers will obtain information about the employee’s existing superannuation fund from the ATO.

This is a significant and long overdue change – as previously the ATO were not making this information readily available to employers, leaving it to employees to identify their superannuation funds to their new employers. But this will also put the obligation onto employers to ‘know their employee’.

If an employee does not have an existing superannuation account and does not elect a fund, the employer will pay the employee’s superannuation into the employers nominated default superannuation fund.

7. Social security

COVID-19 response package — further economic support and pandemic leave payments

Further economic support payments

Two separate $250 economic support payments will be provided to eligible recipients. The first payment will be made from November 2020 and the second from early 2021.

Payments will be made to eligible recipients of the following benefits and health care card holders:

• Age Pension
• Disability Support Pension
• Carer Payment
• Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment)
• Carer Allowance (not in receipt of a primary income support payment)
• Pensioner Concession Card holders (not in receipt of a primary income support payment)
• Commonwealth Seniors Health Card holders
• ·eligible Veterans’ Affairs payment recipients and concession card holders.

Looks similar to the Rudd /Swan Cash payments in the time of GFC. Derided then as the “Harvey Norman / Plasma grants”, but rehashed, reduce, and reused in 2020/21. This time limited to benefit holders , as ‘you don’t need support if you have a job’ appears to be the mantra.

JobSeeker payments have been reduced from the peak ‘doubling’ that occurred in March 2020., and there is no announcement on a ‘permanent’ change to the base rate, so at this stage, JobSeeker will revert back to a $40 per day payment at the end of December. JobSeekers can only hope that Josh and Scomo have some goodies lined up for Christmas.

8. R&D tax incentive changes

Feel free to contact us and discuss your situation and look at how we set up your business, investment or financial strategy in the best way possible. Or to just talk and lament another year of football games gone wrong!

Happy to see your comments on the blog as well.

Cheers

Stuart

 

 

*https://www.afl.com.au/news/39741/match-report-essendon-v-western-bulldogs

ESSENDON                     1.1         1.3       1.7         4.9 (33)
WESTERN BULLDOGS  6.3       10.3     16.6     21.11 (137)

By midway through the first quarter, Essendon was 3 goals down. They scored their second goal with less than ten minutes remaining in the game after the Bulldogs scored 21 straight.

It would be like going without income for 50 weeks after receiving a payment on the first day of the year – and not realizing that was going to be almost a fifth of your entire salary for the year. And claiming how much money you had made for the year on July 1. 

Never assume the result of your actions from the first few minutes, days or weeks of activity. The game is not over till it ends. Whatever your game is.

 

Information in this blog sourced from:

NTAA Federal Budget handout

Wolters Kluwer Overview

Crikey

The Guardian

The Age

Xero