Tax cuts, business investment and job creation took centre stage in the Federal Budget this year, as the Australian Government seeks to reboot growth and repair the damage wrought by COVID-19 on Australia’s economy and employment.

Treasurer Josh Frydenberg emphasised the Coalition’s focus on tax by bringing forward the start date for the next round of tax changes. Backdated to 1 July 2020, the measures will provide immediate tax relief for individuals and small businesses. They also represent a significant step in reshaping Australia’s current progressive tax system.

In addition, the reintroduction of measures allowing the carry-back of tax losses and a significant expansion of existing asset write-offs should help to support medium and small businesses that have been facing some of the toughest trading conditions in living memory.

Early start to personal tax cuts

At the centre of the tax changes announced by the Treasurer is a new 1 July 2020 start date for the next stage of the Government’s tax plan.

Under the Stage 2 changes:

  • The existing low-income tax offset increases from $445 to $700,
  • The upper limit of the 19 per cent tax bracket increases from $37,000 to $45,000, and
  • The upper limit of the 32.5 per cent bracket increases from $90,000 to $120,000.

There is also a one-year extension of the low and middle-income tax offset (LMITO) during 2020-21 worth up to $1,080 for individuals and $2,160 for dual-income couples.

Companies gain full asset write-off

For businesses, a major announcement was the introduction of a temporary tax incentive allowing the full cost of eligible depreciable assets to be written off in the year they are first used or installed ready for use. This will also apply to the cost of improvements.

From 6 October 2020, companies with a turnover of up to $5 billion – accounting for over 99 per cent of Australian businesses – can fully claim eligible depreciable assets as an expense until 30 June 2022. This will significantly reduce the cost of eligible assets by providing a cash flow benefit.

INFUSION360 Case Insight

Scanwise Radiology Pty Ltd has long been contemplating the purchase of a new, state of the art MRI machine to expand on its existing x-ray and ultrasound services from 1 January 2021, valued at $2 million. Scanwise Radiology will now be eligible to claim an immediate deduction for the purchase, which will provide an immediate cash flow benefit of $520,000 ($2m x 26%) as a result of a reduced income tax liability for the 2021 financial year. 

Temporary carry-back of tax losses

Companies with turnovers of up to $5 billion will also be able to generate a tax refund by offsetting tax losses against previous profits on which tax has been paid. Losses incurred in 2019-20, 2020-21 and 2021-22 can be carried back against profits made in or after 2018-19.

Under the new measure, eligible companies can elect to receive a tax refund when they lodge their 2020-21 and 2021-22 returns. This will help previously profitable companies that are making losses due to COVID-19 access a cash refund to keep the business running, or to take advantage of the new full write-off provision.

INFUSION360 Case Insight

Opulent Beauticians Pty Ltd is a successful, retail-based beautician business in the heart of Sydney’s Hills district. In the 2019 financial year, the company recorded a $200,000 tax profit, resulting in an income tax liability of $55,000. During the 2021 financial year, the company was forced to close for 3 months due to COVID19 mandatory lockdown measures. This resulted in a taxable loss of $100,000 for the financial year ended 30 June 2021. As a result of the tax carry-back measures, Opulent Beauticians can now offset the refundable tax offset against previous tax paid, providing an immediate cash flow benefit in addition to not having to wait until the next financial year (2022) to utilise the tax losses against profits. 

JobMaker hiring credit for young employees

Businesses will now be able to access a new JobMaker Hiring Credit if they hire additional employees working at least 20 hours a week.

From 7 October 2020, eligible employers will be able to claim $200 a week for each new employee they hire aged between 16 and 29, and $100 a week for additional hires aged 30 to 35 years old. New employees must have been unemployed or in education prior to hiring.

New jobs created until 6 October 2021 will attract the hiring credit for up to 12 months, with the credit claimed quarterly in arrears from the ATO.

INFUSION360 Case Insight

Luigi Plumbers Pty Ltd provides commercial plumbing services and solutions on residential and large construction projects. As a result of an increase in new approvals, Luigi Plumbers is looking at employing a full-time administration assistant to oversee tenders and quotes. They were very impressed with Sam, a 24-year-old former barista who was recently laid off from his previous role, and is ideal for this new role. Luigi Plumbers is able to claim $200 per week for up to 12 months, thereby reducing the cost of employing Sam by 25%.  

More small business tax concessions

The Treasurer also made several announcements prior to the Budget providing valuable tax concessions for small businesses. From 1 July 2020, the annual turnover test for a range of business tax concessions will increase from $10 million to $50 million. This includes immediate deductions for eligible start-up expenses and prepaid expenditure.

INFUSION360 Case Insight

Dr Pamela has recently decided to establish a medical practice which will be operated through Sophrosyne Medical Pty Ltd. To ensure the business is maximising its revenue potential and set up for success, Pamela incurs $18,000 in legal and business advice. Sophrosyne Medical will now be able to immediately deduct the $18,000 start-up costs in the 2021 financial year. 

In addition, from 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices such as phones and laptops provided to employees.

From 1 July 2021, eligible businesses will be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax, settle excise duty monthly and enjoy a two-year (instead of four-year) amendment period for income tax assessments.

If you would like to discuss how to make the most of these and other Budget announcements, or how these measures will impact you, contact the INFUSION360 Advisory team on 1300 038 746 or info@infusion360.com.au.