Last night the Government handed down the 2020/21 Federal Budget. As we expected this budget is focused on creating jobs through personal tax cuts, business incentives and job creation subsidies. A summary of those changes of particular interest to business follows:
Outright Deduction of Capital Assets until 30 June 2022
Businesses with aggregated turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm on 6 October 2020 and first used or installed ready for use by 30 June 2022.
Full expensing (instant write off) will apply in the first year of use, for all new depreciable assets, the cost of improvements to existing eligible assets and, for small and medium sized businesses, second-hand assets.
Small businesses (turnover of less than $10 million) can also deduct the balance of their simplified depreciation pool at the end of the financial year up to 30 June 2022.
Temporary Loss Carry Back for Eligible Companies
Measures will be introduced to allow companies with 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 companies to generate a refundable tax 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.
The tax refund will be available on election by eligible companies when they lodge their tax returns for the 2021 and 2022 income years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
JobMaker Hiring Credits
A JobMaker Hiring Credit will be introduced to incentivise businesses to take on additional young job seekers. This scheme is aimed at increasing your work force and is not available for replacing employees you currently have who may leave.
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/additional 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).
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 average for 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 employer and must be employed for the period that the employer is claiming for
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 lodgement obligations;
- 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. Broadly, there must be an increase in the business' total employee headcount and also in the payroll of the business for the reporting period (based on a comparison over a specified reference period).
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.
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.
FBT Changes
There are several changes in relation to Fringe Benefits Tax, specifically in relation to retraining/reskilling employees and record keeping, provision of portable electronic devices and car parking.
Insolvency Reforms
Insolvency reforms will be implemented, effective from 1 January 2021 (subject to the passing of legislation) to support small business, including the following:
- The introduction of a new streamlined process to enable eligible incorporated small businesses (broadly, those with liabilities of less than $1 million) in financial distress to restructure their
- Simplifying the liquidation process for eligible incorporated small businesses (to allow faster and lower-cost liquidations, increasing returns for creditors and employees).
- Support for the insolvency sector (to ensure it can respond effectively to increased demand and to the needs of small business).
Currently, the insolvency system faces a number of challenges. These include an increase in the number of businesses in financial distress due to COVID-19, a 'one-size-fits-all' system, and high costs and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early thereby reducing their opportunity to restructure and survive.
Temporary insolvency and bankruptcy protections that were introduced in March 2020 to provide relief for businesses impacted by COVID-19 are due to expire on 31 December 2020 (e.g., under these measures, directors are temporarily relieved from personal liability for trading while insolvent). However, the number of companies being put into external administration is expected to increase significantly, putting additional stress on the system. Therefore, the above proposed reforms will help more businesses to successfully get to the other side of the crisis.
Expanding access to Small Business Tax Concessions
The concessions available to Medium Sized Entities will be expended to include 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:
- From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid
- 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
- 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
- Eligible businesses will generally have a two-year amendment period apply to income tax assessments for income years starting from 1 July
- 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