What does it mean for you?
The measures at a glance:
Planned personal tax cuts (Stage 2) have been brought forward to 1 July 2020 as have new Low Income Tax Offsets (LITO). Low and Middle Income Tax Offsets (LMITO) have been retained for the 2020-21 year.
- Personal Tax Cuts effective 1 July 2020
The threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
The threshold of the 32.5% tax bracket will increase from $90,000 to $120,000
A new LITO (to a maximum of $700) has been brought forward to 2020-21, and the LMITO (to a maximum of $1,080) has been retained for the 2020-21 year.
For low and middle income taxpayers, this means relief of up to $2,745 for singles, and $5,490 for dual income families.
Once legislation is passed, the Australian Taxation Office (ATO) will update its withholding tables so the effect of the personal tax cuts will be passed on to salary and wage earners immediately, putting more money in people’s pockets to spend.
However, you will need to wait a little longer to spend any tax offsets you maybe entitled to. These won’t be applied until you lodge your 2020-21 income tax return.
People receiving a range of government support payments (e.g. aged pension, carer payment, family tax benefit) will receive two payments of $250 to be paid in December 2020 and March 2021.
Job Creation
Two initiatives have been announced to support job creation.
- JobMaker Hiring Credit – this is a 12 month subsidy paid to eligible businesses that hire 16 to 35 year olds for at least 20 hours per week who were on JobSeeker. The maximum subsidy is $200/week for those under 30 and $100/week for those aged 30-35.
For full details please see:
https://budget.gov.au/2020-21/content/factsheets/download/jobmaker_hiring_credit_factsheet.pdf
- Apprentice Wage Subsidy Scheme – businesses taking on new apprentices will be eligible for a 50% wage subsidy. The scheme will support 100,000 apprentices.
Business Investment Initiatives
- Extension of the Instant Asset Write Off – designed to improve cash flow for qualifying businesses purchasing eligible assets and to encourage new investment to support the economic recovery.
Businesses with aggregated annual turnover of less than $5 billion will be able to immediately depreciate/write off the full cost of eligible assets acquired from 7.30pm AEDT 6 October 2020 and first used or installed by 30 June 2022.
Full expensing of the cost in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For small and medium-sized businesses, full expensing also applies to second-hand assets.
Small businesses (aggregated annual turnover of less than $10 million) can also deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Other concessions apply to businesses with an aggregated annual turnover between $50 million and $500 million.
- Loss Carry-Back Reintroduced – this mechanism will allow corporate tax entities that have paid tax in the past, but now find themselves in a tax loss position, to carry their loss back to those past years to obtain a refund of some of the tax previously paid.
Although loss carry back provisions were enacted in 2013, they were repealed the following year and under current law companies must carry losses forward to offset profits in future years.
Corporate tax entities with an aggregated annual turnover of less than $5 billion will be able to offset losses incurred to June 2022 against prior profits made in or post the 2018-19 financial year.
Loss carry back provisions are features of many comparable taxing regimes and Australia is somewhat out of sync in comparison and many experts suggest such provisions should be a permanent, rather than short term feature of corporate tax legislation.
The budget contains a myriad of other changes, which are beyond the scope of this update.
Further details of the budget can be found at:
https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf
It is important to note that nothing outlined above is currently legislated. There are a limited number of scheduled sitting days between now and the end of the year for the Government to pass the legislation. This could mean it may be some time before taxpayers have certainty on all of the measures announced on Budget Night.
How effective will the Budget be in driving Australia’s Economic Recovery?
Will the initiatives outlined provide the confidence needed to drive a post Covid-19 recovery? Will Australians be prepared to spend extra household income generated by tax cuts and offsets, or will they be more hesitant, given the loss of jobs and the pressure of meeting debt obligations during the pandemic?
Only time will tell.
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