Offsets – Fiscal Artisans

by Fiscal Artisans
March 30, 2022
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Australian Federal Budget 2022 – the AfterPay Budget – Vote Now Pay Later!

Australian Federal Budget 2022
The AfterPay Budget
 Vote Now Pay Later!

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Last night, Treasurer Josh Frydenburg delivered the Australian Federal Budget for the next 12 months. But in reality, with the election about to be announced – with an expected poll date of May 14, 2022, (the PM mentioned this date on 2GB this morning)  the budget’s main aim is solely to get the Government to that date, and, they hope, elected, despite all polling indications, for a further term of Parliament.  The key elements announced and widely reported relate to what the Government calls ‘cost of living’ support. With costs rising over the last few years and significantly in the last few months due to rising fuel prices, supply issues and a lack of wage rises for most Australians, a ‘correction’ in the economy, with an easing of the financial pressure that many have been feeling over the last few years is desperately needed. So what has been offered and forecast?      

$250 one-off payment to those on the following payments:

  • Age Pension.
  • Disability Support Pension.
  • Parenting Payment.
  • Carer Payment.
  • Carer Allowance (if not in receipt of a primary income support payment).
  • Jobseeker Payment.
  • Youth Allowance.
  • Austudy and Abstudy Living Allowance.
  • Double Orphan Pension.
  • Special Benefit.
  • Farm Household Allowance.
  • Pensioner Concession Card holders.
  • Commonwealth Seniors Health Card holders.
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold cardholders.  

The payments are exempt from tax and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under two or more categories outlined above.  The payment will only be available to Australian residents. This is a one-off payment and NOT an ongoing increase to any of these benefits. The ongoing discussion of the appropriate level of support for pensioners and Jobseekers has not been addressed In the budget. The payment will occur in April 2022 – i.e. after the election has been called but before the polling date.

Temporary reduction in Fuel Excise

The Government will help reduce the burden of higher fuel prices by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel, and all other fuel and petroleum-based products except aviation fuels, for six months. This measure will commence from 12.01 am on March 30 2022, and will remain in place for six months.

However, this may take 2-3 weeks to be seen ‘at the bowser’ as existing stocks are sold and then replaced. Ongoing fluctuations of the crude oil price, production costs and exchange rates may add to or diminish any benefit actually seen at the bowser.

Note that the calculation of indexation will continue to happen over the 6 month period that this ‘relief’ will occur, so when the excise is returned to its ‘normal’ levels in October, we may see a price increase that is well above the 22 cents per litre reduction that we are currently hoping for.

 

Increase in low and middle-income tax offset

For a number of years, there has been a ‘non’ cash refundable’ tax offset that has been continually extended for ‘one more year’. We have this situation again, but this time with a last ‘bonus’ of $420.

This is the “$420” relief payment that has been described as a ‘cost of living’ tax offset in the budget.

 It will apply to everyone who has a taxable income of LESS then $126,000, and its timing is dependent on the lodgement of your 2022 tax returns. i.e. it will NOT be paid before July 1, 2022, and may not be received by many until well into the second half of the year.

Note also that if your total tax payable is less than the total value of the rebate, you may not receive all or any of the benefits.

 What has not been mentioned is that this is – at this stage – the FINAL year of this offset, which has been extended year after year for some years now. With the stage 3 tax cuts due to be introduced in 2024-25, people on ‘middle incomes’ ($45,000 to $126,000) will face an effective tax increase in the 22/23 year (i.e. from July 1), So while anyone with an income under $126,000 will receive a benefit of an extra $420 after July this year, they face an additional tax take of $1,080 after July next year. The ‘Afterpay’ effect!

Changes effective for business – and ‘creating growth opportunities’ 

Skills and training boost.

The Government will introduce a skills and training boost to support small and medium-sized businesses to train and upskill their employees. The boost will apply to eligible Expenditures incurred from 7:30 pm (AEDT) on March 29 2022 (i.e., Budget night) until June 30 2024, by Small and medium-sized businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of Expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and Expenditure on external training courses for persons other than employees. (Without any legislation, this is open to debate, but it may mean that directors of companies/self-employed business owners CANNOT claim their OWN external training. But until we get details, we cannot be certain. That is not likely to occur until after the election as the changes required for this are not likely to pass through Parliament before the election.)

But while this applies to eligible Expenditure incurred from today, the actual benefit (tax deduction) will not occur until June 30, 2023. i.e. Expenditure from today to June 30, 2022, can ONLY be claimed in the NEXT tax year.

So, using Frydenburgs example from budget night. If you spend $100 on training your staff ‘today’, you can claim a $120 tax deduction (which, with a corporate tax rate of 25%, gives a tax benefit of $30 in 2023 instead of $25 in 2022) and reduce your tax sometime after July 1, 2023. 

 Technology Investment Boost

The Government will introduce a technology investment boost to support digital adoption by small and medium-sized businesses. The boost will apply to eligible Expenditures incurred from 7:30 pm (AEDT) on March 29 2022 (i.e., Budget night) until June 30 2023.

Small and medium-sized businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of Expenditure incurred on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems or subscriptions to cloud-based services).

An annual cap will apply in each qualifying income year so that Expenditures up to $100,000 will be eligible for the boost. This equates to a maximum additional deduction of $20,000 per eligible year.

For eligible Expenditure incurred by June 30 2022, the boost will be claimed in tax returns for the following income year. For eligible Expenditure incurred between July 1 2022, and June 30 2023, the boost will be claimed in the income year in which the Expenditure is incurred.

Whether this applies to current subscriptions (such as Xero, office 365 etc.) that are being used or only ‘new’ acquisitions is unclear. And, in the same way, as the ‘skills’ boost, anything incurred that can be claimed in the current year will not be claimed – or provide a tax benefit – until the end of the 22/23 tax year – so the ‘financial benefit’ will not be seen until after July 2023.

Varying the quarterly tax instalments

For those who have ongoing PAYG instalment payments (company tax instalments, investment income or sole traders), the annual calculation of the instalment has often been based on ‘last year’s income plus 10%’ to work out the expected income on which the tax is calculated.

 For the next 12 months, the Government has reduced this ‘uplift’ to 2%, so the amount required to ‘cover’ the quarterly instalment will be lower.

While this will assist cash flow in the short term, the kicker is that if your business HAS increased its profit substantially in the year, it will have a LARGER year-end tax bill, as you will have paid less tax ‘as you go’.

The next change – proposed for January 2024 – is to base PAYG instalments on the ACTUAL quarterly performance “Where Business accounting software permits this”. i.e. we may be approaching the need to lodge ‘adjusted profit reports each quarter’ to calculate the tax instalment that needs to be paid. This may have some benefits where income and expenses are very ‘seasonal’ or where there is a large fluctuation in profit each quarter, meaning less tax is paid when times are harder and more paid when funds are flowing – but it will also require all businesses to be ‘on the ball’ with their accounts every month to keep track of their tax liabilities as they go. There will be more on this AFTER the election! 

Apprentices and trainees

The Government has extended its support in boosting the apprenticeships scheme, providing A$5000 payments to new apprentices over two years and extending subsidies of up to A$15,000 for employers who take them on.

Frydenberg said the Government would also support an additional 800,000 training places with a A$3.7 billion investment. 

Will there be sufficient funding for the TAFE places required for these apprentices? And will they be limited to specific industries? We await more details.

Infrastructure 

The budget also makes commitments to several strategic infrastructure projects around the country.  

There are budget commitments for faster rail projects from Brisbane to the Sunshine Coast, from Sydney to Newcastle, Perth’s METRONET project, the North-South Corridor in South Australia, Great Eastern Drive in Tasmania, and Central Australian Tourism Roads in the Northern Territory.

There is also an investment in the Melbourne Intermodal Terminals to increase the efficiency of the national freight network, and more than A$500 million for local councils to deliver priority projects and A$880 million to better connect regional Australia with ports, airports and other transport hubs.

The worry here is the usual – announcements, not action. And As Leigh Sales on 7:30 last night stated – if you overlay the location of most of the announced plans with the electoral map, they are focused on marginal seats, or seats that the Government need to retain or win. Infrastructure Australia has approved only 12% of the projects, so the announcements don’t tie in with economic or social priority or need in many cases.

 Ok, so what are the costs and the losses?

Renewable energy

Federal government spending on climate change measures will decline every year for the next four years. This includes the spending on carbon credit purchases, the Clean Energy Finance Corporation, Australian Renewable Energy Agency and the Clean Energy Regulator. Spending will drop from $2 billion in 21/22 to $1.3 billion on 25/26. We are 7 years from the 2030 ‘threshold’, and the Government is reducing its activity in this area. Any change will need to come purely from the ‘market’ or state government action.

You would think that the Lismore floods, the bleaching great Barrier Reef, and the constant downpours in Sydney would have affected policy action.

The Rise and Fall of The Arts

It seems that far too many see this area as being ‘just a nice thing to have’, forgetting the size of the industries involved – Film, TV, Music, Theatre, galleries, pubs, clubs, dance etc. But it falls away for some when it comes to the economic factors. A $111.7 billion sector in 2018 – 6.4% of GDP. But not considered worthy of a separate ministerial portfolio in the current Parliament.

Total Federal spending is forecast to reduce by 20% in 22/23, with a $140 million reduction in the RISE funding – from $160 million to $20 million, and then no further after the 22/23 year. This funding supported the ‘rebuild’ of various festivals, tours, exhibitions etc., but needs to continue to help rebuild a sector that was decimated over the last 2 years. There is no growth (beyond marginal CPI increases) in any other part of the Arts funding either. In fact, the total funding is expected to fall from $799 million in 22/23 to $744 million in 25/26. Australian Music Administration spending drops from 6.3 million in 22/23 to nothing in 24/25. Regional Arts funding falls from $18 million to $7 million in 22/23.

At a time when Film Production and post-production, animation, gaming, and music production has the ability to grow and be globally significant, with an “Australian flavour”, the support to grow the sector in all parts of the country is being removed.

Do you wanna build a submarine, I mean a snowman? 

Ring the bell – its closing time…

With the ‘end of the pandemic’ and lockdown provisions, a number of the policies put in place over the last few years are now ending.

Temporary Full expensing will finish June 2022 – so if you want to claim a full 100% tax deduction ‘up front’ for your equipment or business vehicle purchase, it now MUST be ordered by this June 30 and installed for use by June 30, 2023. Any expectations that this would continue have now finished, and from July 1, 2022, the previous depreciation rates will apply again.

This may also have implications for other ‘instant asset write-offs’, which will need to be examined as regulations and legislation are put in place.

The forecasts!

The budget forecasts that a ‘strong labour market’ will mean an unemployment rate of less than 4%. They say that this will drive wages growth with a forecast increase of 3.25% in wages over the coming year.

But, Unemployment is being defined as Less than 1 hour of work per week. If we used the same definition as the last time Australia had a sub 4% unemployment rate, we would be looking at something closer to 16.3% taking into account the underemployed levels, so the expectation of wage growth, being based on ‘supply and demand issues alone’ has to be tempered by this factor. Wages won’t necessarily rise if a large pool of underemployed staff can simply have their hours extended instead of being paid ‘more per hour’.

Inflation is forecast to reduce from 4.25% to 3% 2.75% in 23/24, but this will be very dependent on commodity prices falling (including oil), supply change improvements, and exchange rate stability. Any or all of these factors could see inflation stay over 4% p.a. or climb higher – which may lead to interest rate adjustments happening sooner rather than later.

The deficit for the current year is now forecast to be $80 Billion – down by $20 Billion on last year’s forecast (due to higher commodity prices for what we dig up and ship overseas), and ‘stabilise’ at around $78 Billion for the 22/23 year. With ongoing tax revenue increases – arising out of wage and profit growth leading to more tax being paid – the budget is still expected to be $40 Billion in deficit in 25/26.

The Treasurer claims that we have ‘turned the corner’ because the debt peak will now be ‘not as high’ and ‘a bit sooner’ than previously forecast. This sounds like the “Back in Black” pronouncements in the year before the pandemic – which were already proven wrong before that nasty little virus shut most of us into our homes and 5 km walk zones for the last 2 years! A treasurer’s forecasts are often as accurate as the old Lou Richards Kiss of Death Football Tips, so we take much of this with a large pinch of salt.

Total Government spending is around 26% of GDP – It never peaked above 23% of GDP under the previous Labor government. Tax revenue is around 24% of GDP (also higher than the Labor years). So, currently, the Government has what is called a ‘structural deficit’ (in basic terms – it is spending much more than it is earning). While I won’t fall into the simplistic’ home budget’ comparisons, and there are many who will argue that it does not matter if a government runs deficits all the time (as who is going to bankrupt them?), it is much like developing a business – at some point in time, you DO expect that the revenue is going to be greater than the spending, and you recover some or all of the money that you have spent or invested in getting the business going. Repeated waste and inefficiency or politically motivated decisions make this harder to overcome, and governments need to improve their performance in this aspect regardless of their political colours. Much of the deficit could be recovered in this way. E.g. Defence spending, while overall being necessary, has seen so many examples of botched equipment purchases that have cost billions and produced nothing. This money could have been re-purposed for far better uses and saved considerable money and pain. 

In the words of Ross Gittens in the Age / Sydney Morning Herald:

This budget is not as fiscally responsible as the Government would like you to believe when it’s claiming to be the party of good economic management, but nor is it as fiscally irresponsible as it would like you to believe when it is claiming to have fixed your problem with the cost of living.

We await the Opposition’s reply, and let the election campaign begin!

CONTINUE READING
by Fiscal Artisans
May 12, 2021
Uncategorized0

The 2021 Federal Budget. Once in a lifetime.

 

The Australian Federal
 Budget 2021


Once in a lifetime…

 Last night – Tuesday, May 11, 2021, the Treasurer handed down the budget for the 21/22 year.

While the government won’t describe it this way, it is clearly an election budget – given the next election is due by Mid May 2022, so unless they go with a February 2022 budget announcement, there is no time for a follow up before we next go to the polls.

And in the current environment, and with a Government hooked on announcements and re-announcements, rather than significant new action, there is very little in the budget that was not already announced, or simply a continuation of what was already in place but dressed up as a ‘new initiative’.

Many of the forecasts and expectations in the budget are predicated on the assumption that ‘everything will go so very well’ in terms of the vaccine roll-out – despite actual vaccination numbers being less than one-third of the way to what was originally planned. The Federal Government expects interstate borders to remain open, while international borders will stay closed until at least July 2022. (and probably much later).  

And they hope and expect that we will all feel good about everything and get back into the shops (and interstate holiday resorts) and spend like there is nothing to worry about!

They don’t expect wages to rise (they have given up on that fallacy) but that spending will increase, and unemployment will reduce (which it will if you define employment as one hour per week of any gainful activity). The economy is expected to rebound with a 4.5% growth in the coming year (off the low 2020 base, mind you), with growth of around 2.5% p.a. after that.

And, at the end of the budget forecast period, the total Federal Debt is expected to exceed one TRILLION dollars, an amount Dr Evil would not be able to get his head around. And this from the party that wants us to believe ‘are the better economic managers’. That debt will be 40%+ of GDP by 2025 (compared to 10% of GDP under Wayne Swan in 2013). This is a government of high tax, high spending and higher deficits – at least until they get re-elected again in 2022 (and 2025 if they have played their cards right with this budget). In summary the Australian Economy is facing a decade or more of budget deficits, no matter who is in power. or what their historical (or hysterical) philosophical viewpoint is. Goodbye Mr. Freidman, Welcome back Mr. Keynes, come and sit at the big table again!

 Andrew Probyn on the ABC described it as  “the Hot Chocolate Budget – Everyones a winner”. 

I see it much more as a Talking Heads one. Once in a lifetime… 

And you may ask yourself.

Let’s go through the main details related to individuals, professionals, creatives, small business operators, investors, and Super funds.

 

Personal Income Tax changes

Low and Middle Income Tax Offset for the 2022 year.


This is the first of the Talking Heads announcements. i.e. it is not a new change to the tax rate; it is a continuation of a previously announced rebate that was due to expire on June 30, 2021.

What this will mean is that a tax offset of UP TO $1,080, that applies to low and middle-income levels, will continue on, and avoids what would have been a tax increase applying to these income levels on the 21/22 year


                                                        Proposed LMITO for 2022


$37,000 or less

Up to $255

$37,001 to $48,000

$255 + 7.5% of excess over $37,000

$48,001 to $90,000

$1,080

$90,001 to $126,000

$1,080 – 3% of excess over $90,000

$126,001 +

Nil


This tax offset is not made in regular wages – it is paid out when the tax returns are lodged and based on your net taxable income once all income and deductions are taken into account.

And, again, it only applies for ‘one more year’. So after July 1, 2022, this offset is currently due to expire. But the tax cuts legislated for incomes above $120,000 will continue beyond that date.

Same as it ever was.

Medicare Levy Low-income thresholds.

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

  • The threshold for singles will be increased from $22,801 to $23,226.
  • The family threshold will be increased from $38,474 to $39,167.
  • The threshold for single seniors and pensioners will be increased from $36,056 to $36,705.
  • The family threshold for seniors and pensioners will be increased from $50,191 to $51,094.
  • For each dependent child or student, the family income thresholds increase by a further $3,597, up from the previous amount of $3,533.

 Tax residency rules being changed.

This is being touted as a ‘simplification’. What it really is doing is capturing a lot more people under the definition of Australian Residence for Tax Purposes.

The primary test will be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.

Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

So, what this means is that people from overseas who are in Australia for 183 days or more, say on a working visa – are treated as Australian Residents for tax purposes – meaning that any income earned overseas (i.e. in their ‘homeland’) will also be subject to Australian tax.

This is significantly different from past arrangements, where people who had a ‘permanent abode’ and family overseas would be seen as non-resident for tax purposes. As Australian Residents, they may also be liable to the Medicare levy – even if they are not entitled to Medicare entitlements! We await the detail of this announcement once legislation is put into place.

Self Education deductions – removing the $250 exclusion

Currently, the first $250 of a prescribed course of education expense is not tax-deductible.
Removing this $250 exclusion is expected to reduce compliance costs for individuals claiming self-education expense deductions. In reality, this ‘exclusion’ is commonly covered by deduction claims in other areas (like vehicle use or home office expenses anyway)
This measure will have effect from the first income year after the date of Royal Assent of the
enabling legislation. This will inevitably mean that this will not apply until the year BEGINNING July 1 2022, so it will not be able to be claimed on your tax return until after June 30, 2023.


Employee Share Scheme changes – ‘cessation of employment’ no longer a taxing point

The Government will remove the ‘cessation of employment’ taxing point for tax-deferred Employee Share Schemes (‘ESS’) that are available for all companies.
This change will apply to ESS interests issued from the first income year after the Royal Assent of the enabling legislation. (So not likely to occur before July 1 2022)
Currently, under a tax-deferred ESS, where certain criteria are met, employees may defer tax until a later tax year (‘the deferred taxing point’). The deferred taxing point is the earliest of:
(a) cessation of employment;
(b) in the case of shares, when there is no risk of forfeiture and no restrictions on disposal;
(c) in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal; and
(d) the maximum period of deferral of 15 years.
This change will remove the ‘cessation of employment’ taxing point (i.e., point (a) above) and result in tax being deferred until the earliest of the remaining taxing points (i.e., points (b) to (d) above).
So, should you receive shares under an ESS from an employer and then leave the employer before the shares become ‘available’ to you, then leaving the employer will not automatically mean that the share issue is now subject to Income Tax. Of course, this does not necessarily change the scheme’s rules (nor will it have any impact on shares already issued under the current rules) – which may have an ‘automatic issue or default’ clause in the scheme that will take effect on your departure anyway.

Business Taxpayers – Changes And Continuations

Temporary Full expensing Extended

In the prior year (2020/21) Federal Budget, the Government announced amendments to allow businesses with an aggregated turnover of less than $5 billion to access a new temporary full expensing of eligible depreciating assets until June 30 2022. Temporary full expensing became law on October 14 2020.
In the 2021/22 Federal Budget, the Government has announced that temporary full expensing will be extended by 12 months to allow eligible businesses with aggregated annual turnover or the total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30 pm AEDT on October 6, 2020, and first used or installed ready for use by June 30 2023. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses.
Same. As. It. Ever. Was. If they repeat this again in the following tax year, they won’t be able to call it ‘temporary’ any more – it might even qualify for a permanent emplyment contract!
So, if you did not buy the equipment you needed for your business (any ABN registered business with a turnover up to $5 Billion p.a. – so we know who this is really aimed at), you can safely look to order that equipment now and up to June 30, 2022, and have it installed and ready to use on or before June 30, 2023, to be able to claim 100% of the purchase price against your business income in the same tax year. June 26 to 30 will be frantic days at the likes of Officeworks, Harvey Norman, Commercial vehicle yards and various plant and equipment places!

So can you buy a Porsche and get a 100% deduction? – only if it is under the luxury car limit and can show enough business use! Maybe that EV order might finally be possible though – so long as it does not ruin your weekends.

Temporary Loss Carryback extension

In the 2020/21 Federal Budget, the Government announced amendments to introduce a temporary loss carryback measure. Broadly, this initial measure allowed ‘corporate tax entities’ with an aggregated turnover of less than $5 billion to carryback tax losses made in the 2020, 2021 and/or 2022 income years to claim a refund of tax paid (by way of a tax offset) in relation to the 2019, 2020 and/or 2021 income years. The rules relating to the temporary loss carryback regime have been enacted and are contained in Division 160 of the ITAA 1997.
In the 2021/22 Federal Budget, the Government has announced that the loss carryback measure will be extended to allow eligible companies (i.e., with an aggregated turnover of less than $5 billion) to also carry back (utilise) tax losses from the 2023 income year as well to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income year.
So, again, this is not a new provision. It is a continuation of what has already been in place. This was announced in the 20/21 budget – In October 2020, and is yet to take effect as the first year in which the loss carryback can be claimed is the (current) 20/21 tax year. So this is effectively a re-announcement of an announcement with an extension. Olympic diving trials, anyone?
This policy has been in place in the past – Wayne Swan as the Labour treasurer, implemented this in 2012 to take effect from the 2014 year – and this was repealed in Joe Hockey’s ‘leaners and lifters’ budget!
Still, it may benefit businesses (not sole traders though – they are not eligible) who have been impacted by the Covid lockdowns in the 2021 and 2022 years, where they can reclaim some or all of the the tax paid in past years. Review your business position when preparing your 2020/21 tax returns later this year.
Coupled with the instant asset write off and ‘temporary full expensing’ provisions, there is scope for businesses to purchase large equipment items (perhaps on finance arrangements) before June 30 and use the losses to claim back tax previously paid. Again, seek advice on this and get an accurate poicutre of your business’ operating results before taking action.

Digital economy strategy (including self-assessing the effective life of intangible depreciating assets)

The Government will provide $1.2 billion over six years from 2022 for the Digital Economy Strategy, ‘to support Australia to be a leading digital economy and society by 2030’. From an income tax, investment incentive perspective, the Digital Economy Strategy includes the following:
(a) The Government will allow taxpayers to self-assess the tax-effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software. This measure will apply to assets acquired from July 1 2023, after the temporary full expensing regime has concluded. (So its impact is still years away in terms of investment potential)
The tax-effective lives of such assets are currently set by statute. Allowing taxpayers to self-assess the tax effective life of an asset will allow for a better alignment of tax outcomes with
the underlying economic benefits provided by the asset. It will also align the tax treatment of
these assets with that of most tangible assets.
Taxpayers will continue to have the option of applying the existing statutory effective life to
depreciate these assets.
(b) The Government will provide $18.8 million over four years from 2022 for a Digital Games Tax Offset to provide a 30% refundable tax offset for qualifying Australian digital games expenditure ongoing from July 1 2022, with the criteria and definition of qualifying expenditure to be determined through industry consultation.
(c) The Government will provide $200.1 million over two years from the 2022 income year to develop and transition government services to a new, enhanced myGov platform, providing a central place for Australians to find information and services online.
Well, it’s a start.

Where innovations or ‘new work’ creates assets like patents and copyright, the traditional approach was that the cost of developing these assets was written off over a legislated ‘life’.

For most copyright (like music copyright), this was over a 25 year period. With these changes – which will not apply until after July 1, 2023 (after the next election again) the creator can’ self assess’ the life of the patent or copyright etc. This will have benefits in claiming the cost of developing or creating the patent or copyright over a shorter period of time, which is ’a start’.

The Digital Games offset – well, all I can say is that it is about time!

The video game industry globally is bigger than Film and TV ($250 BILLION p.a. annually). The cost of developing high-quality material is akin to a Movie or TV production. The benefits for digital artists, music composers, film crew, computer programmers and the like is self-evident. Australia has some incredible people ion these fields, and compared to extractive and other industries, they have ben chreonically undersupported, leading to much of this talent going over seas to continue careers – and build busineses. This is among the many ‘new industries’ that virtually did not exist just a few decades ago, that need to be developed, enhanced and enabled to grow in Australia. The future is creating new things, not digging up fossilised dinosaurs and burning them. 

But the amount allocated so far is pitiful. Breaking this down, they are estimating $4.7 million p.a. in offsets will be paid – again starting from July 1, 2023. Based on a 30% offset, this equates to $15.6 million p.a. in Digital Games production costs. And, like the Film Production offsets, the minimum spend to make a claim appears to be $500,000. (Note that the Film offset threshold is also being lifted to $1 million as of July 1, 2021.) Lets see the detial and how this wil be maanged – as it is we have to wait over 15 months before it starts to take effect, and potnetially 3 yesrs before it has an impact on the tax revenues of the government.

So, while it is good that the Federal Government is starting to recognise the value of the Digital Games industry and following the lead (again) of states like South Australia and Victoria in this area, the announcement itself is well short of what it needs to be.

And when you compare it to the $100 million p.a. being allocated to actually making MyGov useful, it gives greater context on this as well. Hopefully, this is just a starting point, and we see this industry being developed and supported in the same way as film and TV production has been supported over the years, even though much more needs to be done there.

Superannuation changes

Removing the work test for voluntary contributions

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps. (i.e. the annual caps and the total balance caps) Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.
The measure will have effect from the start of the first income year after Royal Assent of the  enabling legislation, which the Government expects to have occurred before July 1 2022. 
Currently, individuals aged 67 to 74 years (inclusive) can only make voluntary contributions (both concessional and non-concessional) to their superannuation fund or receive contributions from their spouse if they satisfy the work test (subject to a limited work test exemption). Generally, to satisfy the work test, an individual must be working for at least 40 hours over a period of not more than 30 consecutive days in the income year the relevant contribution is made.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

Reducing the age limit for downsizer contributions – sell your house and add to your super!

The Government will reduce the age limit from which downsizer contributions can be made by eligible individuals, from 65 to 60 years of age.
The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred before July 1 2022. (So this would take effect from July 1, 2022, if Royal Assent is received.)
The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to their superannuation fund, of up to $300,000 per person, following the disposal of an eligible dwelling, where certain conditions are satisfied.

Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution for the contribution to qualify as a downsizer contribution.

Removing the $450 per month threshold for Superannuation Guarantee (‘SG’) eligibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

The measure will have effect from the start of the first income year after Royal Assent of the
enabling legislation, which the Government expects to have occurred before July 1 2022. (so again, it is likely to commence from 22/23, not in the coming tax year.

This means for small business and the self-employed (through companies and trusts) that superannuation payments will be compulsory for ALL employees – full or part-time – no matter what the monthly or annual income levels are. This will have implications regarding payments made to business owners as directors fees or ‘end of year bonuses’ from profits, where super had not been paid during the year. An SGC’ trap’ can occur for business owners, so tax planning and cash flow budgeting will be important to ensure that business owners do not fall foul of these implications.

While it is a good move to ensure that all employees are eligible for superannuation contributions, regardless of the number of hours worked or monthly salaries paid, proper planning will be required in the lead up to this being implemented.

“The Women’s Budget”

With the uproar around Canberra, following the Brittany Higgins disclosures (and a certain former minister who has been on medical leave that no one can refer to, for fear of litigation), much was touted before the budget about the increased level of support for ‘women’s services and issues’. And the numbers on a broad level look substantial – but break it down and compared to other measures, and you are left wondering.

There’s $8 billion on residential aged care and $7.5 billion on aged care home packages (both over a 5 year period – 2 elections!) with another $6 billion on infrastructure (women still like roads) and $2 billion-sized chunks disbursed to mental health, vaccines and child care.

There’s a billion dollars for “women’s safety”, which breaks down into $261 million towards domestic and sexual violence prevention programs with the states (over 2 years), resulting in, amongst other things, an additional $10 per day per resident for residential daycare (How many chicken nuggets is that going to provide?) a $164 million trial of cash-and-kind grants for women fleeing violence, $90 million on consent education, and $320m for women’s legal services and children’s contact centres for the safer management of children in families undergoing separation or dispute.

But that is not per annum.

That is “over the forward estimates”, meaning that is the funding generally for the next 3 – 4 years. Compared to spending on other areas (like defence equipment and support for fossil fuel industries or the Diesel Fuel Rebate), it is paltry and will not go very far towards improving the health and safety of many women and families impacted by Domestic Violence. It is likely that more will be spent on political advertising over this time than will be spent helping to stop family violence.

It has also been stated that the elimination of the $450 per month Superannuation threshold will ‘substantially assist women with their ability to build up their retirement incomes.” Let that sink in. The way to help women is to provide super to them when they are earning less than $103 per week. Interesting outlook!

JobSeeker Increase (already in place).

It was mentioned again that the base JobSeeker payment has been increased by $50 per fortnight – but that increase was announced and started on April 1, at the end of JobKeeper, so it’s a bit disingenuous to have it mentioned as a ‘new increase’. (and what it really was, was a reduciton form the ‘temporary Covid inspiroed boost” that applied for 6 months and was phased out in line with the JobKeeper arrangmeents.

What IS increasing is the need to apply for 20 jobs per month – up from 15 – as of July 1, 2021!

A good way to increase activity in the economy is to bring people up from below the poverty line and give them the ability to survive and get out to find work. The increase does not do enough to achieve this.

Childcare changes

Subsidies for second and subsequent children in Childcare will be increased to 95 per cent. The annual cap of $10,560 per child (or $203 per week) will be removed, benefitting higher-income earners impacted by the Income threshold. Again, this will not apply until July 1, 2022. This applies to Child care (or early learning), not after school care – so those with Primary school children won’t get additional support from this announcement.

Infrastructure

Break out the HiViz vests! $110 Billion in the announcements. But this is over 10 years, with very little actually being undertaken in the next 12 months. Victoria has been allocated $3.3 Billion over the 10 years – but only $397.7 million over the next 4 years. Even the much-vaunted ‘inter-modal hub’ is more than 4 years away. So what has been allocated will be announced to us many times over the coming years. Over and over again.

The Unannounced Budget items.

An area that has had little or no discussion in the main press is the ‘allocated but unannounced’ component of the budget. Over 9 Billion dollars of funding has been allocated in the budget process, but what that is for and how it will be allocated, is yet to be announced. Apparently, $3.75 BILLION of this is to be ‘announced’ over the next 12 months
This is the spending that will likely be targeted – one way or the other – for promises to be made leading up to the 2022 and possibly the 2025 election campaigns. Stand by for a raft of ‘community programs’ support schemes and targeted funding aimed at marginal electorates in the coming 6 – 12 months.
So, we face 6 months or more of additional announcements aimed squarely at keeping eyes distracted from what is not happening in regards to renewable energy matters, climate change, education, universities, returning Australians, Quarantine in Hotels and of Refugees, bushfire remediation, flood and reef repairs and the like. Instead, there will be a succession of ‘big cheques’, road and rail announcements in the regions, sports halls and barbeques, HiViz vests, Rugby Tops and Baseball caps. all the way to the next election – which will probably be announced when we finally get to over 15 million people vaccinated ‘at least once.’
While some are praising this budget – bascially because the Government has abandoned austerity and continued some benefits in the hip pocket areas, there are many, missed opportunities. When a Government is incurring a $160 Billion+ deficit, and not looking at significant reductions in that level for many years, the money can be better spent on improving the society (not just the economy) and providing a significant reset for many areas. Accept that this is a long term plan – not just look over the horizen to the next political cycle – and plan for the major changes that are needed.
You know, like a well managed business, corporation or dictatorial regime woud do. Make your own choices about the comparision you prefer.
So as David Byrne or Kermit would say:
‘You might ask yourself – how did I get here?’

Lets leave it to Kermit to explain…Once in a Lifetime

To discuss any matters arising out of the Budget, or relating to your business, investment, taxation or related financial matters, please call us at Fiscal Artisans on

0409 788 399

or email to

stuart.smith@fiscalartisans.com.au

CONTINUE READING
by Fiscal Artisans
October 7, 2020
Uncategorized0

The 2020 Federal Budget. Big Budget Spending for a Post-Covid World.

 

 “We’re back in black, oh yeah we’re BACK in BLACK.


Its May, 2019. And Josh Frydenberg grins and tells us that he has ‘brought the budget back into surplus in the coming year”

Not in the year that he was reporting on (2018/19), but in the year ahead – 2019/20.

Looking back now, it now reminds me of watching The Western Bulldogs play Essendon just a few months after this statement was made – in August 2019.

Essendon started brilliantly, kicking the first goal after just 20 seconds*

The Cheer squad was singing – They are Back in Black Baby! Break out the limited-edition coffee mugs and toast their success! (Or Break out a cigar perhaps?)

Well, we all know that you don’t determine the result of an AFL game after one minute. Nor do you proclaim the success of your financial forecasts in the moments after you announce them. But the treasurer was certainly not backwards in announcing just how successful they were going to be in the future.

And by the end of the financial year?

A year filled with economic downturns (The Myefo update in December 2019 had already shown a reduction in the ‘expected surplus’) then catastrophic bushfires before we faced a Global Pandemic that shut the economy down, meant that All the forecasts were not worth the paper they were printed on.

And like Essendon – not firing a shot until the game was well and truly over, the economic results sunk further and further into the abyss.

Like Essendon, they were well behind even before the Quarter time siren had sounded. But now, they blame the result on the last quarter’s performance, telling us they were ‘in the game’ right up until then.

So, the 19/20 financial year went from an estimated 10 billion surplus to a $150 billion plus deficit. Like Essendon losing by 104 points after being 6 points up!

As we all know, from far too many AFL disappointments, you never assume the result before the game even begins. Plan, and proceed optimistically, but never ever assume you know beforehand exactly how things are going to pan out. It’s why the bookmakers make far more than they pay out!

So, what do we have this year? In looking over the announced elements of this budget, I am looking at things from two viewpoints – what will the budget do to assist tax payers and businesses now or this year in improving their overall position, and what impact will it have on them later – beyond the next 12 months?

So much of the forecasting on this budget is predicated on a Vaccine-inspired, Post-Covid recovery. It is expecting that all state borders other than WA will open up by the end of the year (Xmas on the Gold Coast anyone?), and that Covid flareups like we have had in Victoria will be ‘largely contained’.

The biggest assumption of all is that a Covid 19 vaccination program will be fully in place by the end of 2021. That means not just that a vaccination is approved, but produced and a full immunisation program agreed and put in place by the end of the year. I admire optimism, but there are so many moving parts, and vested interests in play that I have my doubts that this will be in place by then. The budget assumes Australia’s economy will look fairly v-shaped next year. The budget papers expect Australia’s real GDP to fall 3.75% this calendar year, but to grow at 4.25% in 2021 — double what it was before the pandemic.

It’s a big call which underpins a lot of the government’s fiscal thinking, including in assistance to the unemployed and other areas of social security and welfare, where spending will fall to below 2019 levels from next year, “reflecting the impact of and recovery from the COVID-19 pandemic”.

The government says recovery will be driven by easing virus containment measures, and improving business and consumer confidence.

 So really, it all depends on if Australians (especially the rich) will spend.

 

For the recovery to look as v-shaped as Frydenberg wants, middle- and high-income earners will have to spend their tax cuts. Businesses will respond to asset write-offs and tax offsets by investing in stuff. A wage subsidy of $200 a week lasting just 12 months will be enough to get them hiring young Australians, who in turn will spend and keep the economy humming along.


All in all, it’s a whole lot of ifs. 

 

Another assumption is that the population slowly rises again.


The budget papers assume a gradual return of international students and permanent migrants, and a gradual increase in international travel through to the end of next year.


At the same time, net overseas migration is expected to go into the negative (-72,000) next year for the first time since 1946, before finally returning to above 200,000 in 2023-24. 


That longer-term return to normal, assumes people keep coming to Australia. And even the short-term forecasts could be tinged with optimism — as the ABC reported this week, international student numbers have fallen right off a cliff. And cutting university funding while increasing the cost of various courses – some by up to 115% – won’t make it easier for students to come back to study from any location

1.  The Budget at a Glance:


Year Ending

Budget Deficit  

Billion
Spend   Billion
% of GDP

Tax 

Billion
% of GDP

Net Debt  

Billion
% of GDP
2021
213.7
 670.3
34.40
424.6
21.80
703.2
36.10
2022
112.0
 567.5
28.20
413.8
20.60
812.1
40.40
2023
  87.9
 574.9
27.40
442.9
21.10
940.4
42.80
2024
  66.9
 596.6
27.10
487.6
22.10
966.2
43.80

 Note that the estimates for 2020-21 are all considerably higher than the July update from the Treasurer for the same period. This may reflect the additional items in the budget that had not been allowed for at the time, as well as a ‘look’ at the scoreboard midway through the first quarter!)


Economic forecasts

GDP: -1.5% (up from -0.2% in July update); 4.75% in 2021-22
Unemployment: 7.25% (up from 7.0% in July update)
CPI: 1.75% in 2020-21
Nominal GDP: -1.75%
Terms of trade: -1.5%
Household consumption: -1.5%
Dwelling investment -11%
Wage price index: 1.25%
Business investment: -9.5%
Population: 1.58 fertility rate (down from 1.69 in July update)

2.   Personal income tax

2.1  Changes to personal income tax rates

The Government has announced that it will bring forwardchanges to the personal incometax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income year). These changes involve:

  • increasing the upper thresholdof the 19% personal income tax bracketfrom $37,000 to $45,000; and
  • increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

These changes are illustrated in the following table (which excludes the Medicare Levy).

Rate                           Current (2019 to 2022)                     Proposed (2021 – 2024)

0%    

                   0 – $18,200   

0 – $18,200   

19%    

        $18,201 – $37,000   

      $18,201 – $45,000   

32.5%    

        $37,001 – $90,000   

    $45,001 – $120,000   

37%    

       $90,001 – $180,000   

  $120,001 – $180,000   

45%    

       $180,001+   

   $180,001+   
The Government advised that the personal income tax rate changes that have already been legislated, effective from 1 July 2024 (i.e., from the 2025 income year),remain unchanged. These involve abolishing the 37% personal incometax bracket, reducingthe 32.5% personalincome tax bracketto 30%, and increasing the upper threshold of the reduced 30% tax bracket from $120,000 to $200,000.


2.2     Changes to the Low Income Tax Offset (‘LITO’)

The Government announced that it will also bring forward the changes that were proposed to the LITO from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), as follows:

  • The maximum LITO will be increased from $445 to $700.
  • The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
  • The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,000 and $66,667.

 

 Current LITO (2021 to 2022)                                Proposed LITO (2021 to 2022)

$0 – $37,000

Up to $445

$0 – $37,500

Up to $700

$37,001 – $66,666

$445 – 1.5% of excess over $37,000

$37,501 – $45,000

$700 – 5% of excess over $37,500

$66,667 +

Nil

$45,001 to $66,666

$325 – 1.5% of

excess over $45,000

 

 

$66,667 +

Nil

 

Note that, the Government also announced that the current Low and Middle Income Tax Offset (‘LAMITO’) would continue to apply for the 2021 income year (which is available in addition to the LITO for eligible taxpayers). For example, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.


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

3.1   Expanding access to Small Business Tax Concessions

The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions.
For this purpose, a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million

The expanded concessions will apply in three phases, as follows:

1.     From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

2.     From 1 April 2021, eligible businesses will be exempt from FBT on car parking and multiple work-related portable electronic devices, such as phones or laptops, provided to employees.

            3.     From 1 July 2021:

  • Eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on GDP adjusted notional tax and settle excise duty and excise-equivalent customs duty monthly on eligible goods.
  • Eligible businesses will generally have a two-year amendment period apply income tax assessments for income years starting from 1 July 2021.
  • The Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

3.2   JobMaker Hiring Credit

The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.

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 until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.

The amount of the credit is capped at $10,400 for each additional new position created. Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question (see employer eligibility requirements below). So,, a business cannot qualify for this support by simply replacing an existing employee with a new ‘qualifying employee’. Nor can they sack and re-hire their existing employees.

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. 

·      Apprentice wage subsidy scheme – businesses that hire new apprentices will be eligible for a 50% wage subsidy. The $1.2 billion scheme will support 100,000 apprentices and be available to businesses of all sizes. Given that over 140,000 apprenticeship positions have ben lost in the recent past, this is a much needed, but still lacking, initiative.

 

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

Employer-provided retraining and reskilling for redundant, or soon to be redundant, employees will be exempt from fringe benefits tax.
Currently, employers providing training that is not sufficiently connected to an employee’s current employment may be subject to fringe benefits tax. The exemption will apply for retraining towards a position within or outside of the employer’s business. Retraining provided through a salary packaging arrangement or commonwealth supported places at universities will not be eligible for the exemption.
When enacted, the exemption will apply from 2 October 2020.
Changes to tax deduction rules for self-education expenses unrelated to current employment will also be considered by the government in consultations.

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.
The payments will be exempt from tax and will not count as income support for the purposes of any income support payment.

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

For small companies (annual turnover of less than $20 million) the refundable R&D tax offset will be set at 18.5 percentage points above the claimant’s company tax rate and there will be no cap on annual cash refunds.
With a current income tax rate of 26% in 2020/21(Reducing to 25% in  2021/22) this means that the R&D tax rebate will be 44.5% for the 2021 year, and 43.5% in 21/22

There is a lot more to breakdown and review in the budget – like the comparison in the subsidy given to Gas investments ($50 million) compared to Electric Vehicle development ($5 million) or Carbon Capture & Storage (Also $50 million) and $70 million for a regional hydrogen export hub. And more money for School Chaplains than there is for Mental Health support for teenagers – sounds like a big “Hail Mary’ to me.
But these are the key items currently in play, and I am sure there will be a need to refine and review much of what has bene suggested. The tax changes won’t be stopped in Parliament, but there will be a big push to increase the Social Security support and provide further support for targeted sectors of the economy. Everyone loves a winner, and we all choose different sides, but right now we need all of the ‘little guys’ to be winning, not just the big boys.

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



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