The Federal Government announced their 2020-21 Budget on 6 October 2020. This Budget was due in May 2020 but was delayed due to the global pandemic and economic uncertainties. The Budget, as always, is a huge document with multiple parts. Collectively it is longer than War and Peace which sits at 1225 pages. We have provided a high level summary for you below and have attached a downloadable PDF for a slightly more in depth overview. Alternatively you can read the whole Budget 2020-21 here.

Individuals

Tax cuts

The “Stage Two” tax cuts are being brought forward and backdated to 1 July 2020. The 19% tax bracket will be raised from $37,000 to $45,000 and raising the 32.5% tax bracket from $90,000 to $120,000. 

The “Stage Three” cuts will not come into effect this financial year.

Stage Two of Personal Income Tax Plan received Royal Assent on 14 October 2020.

For those who are curious how much you will save each year in tax? There is a handy calculator on the Budget Website. https://budget.gov.au/calculator/index.htm

Tax offsets

The Low and Middle Income Tax Offset, LMITO, which was due to expire is now being extended for a year to 30 June 2021. This will provide individuals with a maximum benefit of $1080 who earn up to $90,000. It will taper down to zero once you earn $126,000 or more.

The Low Income Tax Offset, LITO, has been increased from $445 to $700 for anyone earning $37,000 or less. Earning above $37,000 means it will taper off to zero when you are earning $66,667.

First Home Owners

There is an extension in place of the First Home Loan Deposit Scheme. An additional 10,000 places will be provided in 2020-21 to support the purchase of a new home or newly built home. Under this scheme the individuals will be able to secure a home with as little as a 5% deposit. The Government will guarantee up to 15% of the loan.

The Government is also preparing a capital gain tax exemption for Granny Flats. However, this will not be in effect until 1 July 2021, don’t start converting the shed just yet.

Business

Instant asset write-off

Business with a turnover less than $5 billion can fully deduct the cost of any depreciable asset purchased after 7:30pm on 6^th October 2020. Small businesses with carried forward asset pool balances can write those off in full.

JobMaker

Here we have another “Job” alias to trip over. JobSeeker, I mean JobKeeper, I mean JobMaker…… This incentive is great for businesses. The Government will subsidise the cost of hiring someone previously unemployed and receiving a Government incentive such as Jobseeker. They class it as a “Hiring Credit”. Employers will be able to claim a JobMaker Hiring Credit for each additional new job they create from 7 October 2020 to 6 October 2021. It will be capped at $10,400 for a 12 month period for each new position created. The employer will receive $200/week as a wage subsidy for new employees aged between 16 to 29 years and $100 per week for new employees aged between 30 to 35 years. The new employees must have been receiving JobSeeker, Youth Allowance or a Parenting Payment for at least one month out of the three months prior to being hired.

Loss carry-back

Losses incurred in the 2019/20, 2020/21 and 2021/22 income years may be carried back against profits made in or after the 2018/19 income year. Eligible companies may elect to receive the tax refund when they lodge their 2020/21 and 2021/22 tax returns. The tax loss carried back cannot exceed the prior year taxed profits or generate a franking account deficit.

Tax residency of foreign-incorporated companies

The new rules state that the company needs to have a significant economic connection to Australia and the company will only be considered a resident if the company’s core commercial activities are undertaken in Australia as well as the central management and control being on our shore. Previously, all foreign incorporated companies that had directors carrying on meetings and making decisions from Australia were likely to be deemed an Australia resident company.