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This year’s federal budget as announced on 06 October 2020 was the first recession budget in 30 years and focused on repairing the economic disaster caused by COVID – 19.

 

We have summarised some of the tax changes which were introduced to parliament the following day with the law been passed without any amendments on the same day.

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|  Income tax cuts for Individuals  

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The reduction in personal income tax rates as previously legislated to apply from 01 July 2022 have been brought forward and backdated to 1 July 2020.

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As such, the ATO has now updated its withholding schedules and tax tables to reflect the new personal income tax thresholds. Although the tax cuts should apply to the payment of wages on and from 13 October 2020, employers have been given until 16 November 2020 to implement these changes into their payroll. 

 

Also, while the tax cuts have been backdated to 1 July 2020, employers do not need to consider the over-withheld amounts from wages since the start of the financial year (employees will receive the excess amounts as an additional tax refund or reduced tax payable when their 2020–21 individual tax return is lodged).

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Therefore, our advice to businesses is to attend to the following before 16 November 2020,

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If a payroll software is used to calculate the tax withheld amount from wages:

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We understand that most payroll software are currently in the process of implementing the changes and therefore, you should receive a notice from them shortly to upgrade their software

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If the tax withheld amount from wages are calculated manually:

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Use the applicable withholding schedules and tax tables to apply the new withholding tax amount from wages paid to employees

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|  Loss carry-back for companies  

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Usally a net taxable loss for a company during a tax year can only be carried forward to reduce the taxable profit for a future year. However for the 2019–20, 2020–21, 2021–22 income years, a temporary loss carry-back provisions will allow businesses to carry back the tax losses and offset against the company tax paid during previous income years.

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This will only apply COMPANIES who,

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• has a turnover of less than $5 billon

• makes a tax loss during the 2019-20, 2020-21, 2021-22 income years

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This refundable tax offset which is expected to commence from the 2020 – 21 company tax return will,

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• be limited by requiring that the amount carried back is not more than the company tax paid during the 2018-19, 2019-20, 2020-21 income years

• also depend on the balance of the franking account balance

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|  Instant asset write-off  

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Businesses with an aggregated turnover of less than $5 billion can immediately deduct the full cost of eligible NEW depreciable assets from 06 October 2020 to 30 June 2022.

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Also businesses with an annual turnover of less than $50 million will also be able to fully expense second-hand assets.

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|  Small business concessions expansion  

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Entities with an aggregated turnover of less than $50 million will also now be able to access 10 small business tax concessions.

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|  Still to be legislated - “JobMaker” program  

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Finally, although the measure is still to be legislated, what was interesting to hear from the budget was a proposed “JobMaker” program to encourage businesses to hire younger Australians.

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From what is known to date,

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1. The government is considering contributing the following amounts towards the hiring of younger Australians,

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• $A200 per week aged 16-29

• $A100 per week aged 30-35

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2. Eligible for employers,

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• that have an aggregated turnover of less than $5 billon

• using STP reporting

• NOT claiming “JobKeeper” and “JobMaker” credits at the same time

• that has an increase in the total employee headcount from the reference date of 30 September

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3. Eligible for employees,

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• who worked an average of at least 20 hours per week over the quarter for the employer

• who must have been in receipt of income support payments (such as the Jobseeker payment, Youth Allowance or Parenting Payment) for at least one of the three months before they were hired.

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Employers should be able to claim the credits from the ATO commencing February 2021 but where this program may disappoint businesses is the fact that it is,

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• ONLY applicable to employers that have created new jobs instead of simply replacing existing employees

• ONLY eligible to employees who have received government support and therefore, should not apply to temporary residents

• NOT appliable when employer is receiving JobKeeper support

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More to follow from the ATO once legislated and guidelines issues.

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Disclaimer: 

Information based on facts we have summarised to the above updated date. We have not considered your personal circumstances and should you wish to consider it, please seek professional advice.

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