This Blog is a work in progress and will be updated over the coming hours and days (First published 6pm, Tuesday October 6th. Last updated Monday October 13th)…
The Treasurer, The Hon Josh Frydenberg, has just completed handing down the 2020-21 Federal Budget speech.
And according to the Government it is all about jobs.
On the face of it, the headlines tomorrow are likely to be all about the new program, predictably titled, JobMaker!
Though giving it a run for its money will be the brought forward tax cuts, and the new ability to claim current losses against prior year profits.
But we will start our summary with the JobMaker…
JobMaker – The Key Elements
The JobMaker Hiring Credit is designed to give businesses incentives to take on additional young job seekers.
The key words here are “additional” and “young”.
The Hiring Credit
The JobMaker Hiring Credit will be available to eligible employers for each new job they create between tomorrow (7 October 2020) and 6 October 2021 and for which they hire an eligible young person, aged 16 to 35 years old.
The credit will be –
- $200 per week for each additional eligible employee they hire aged 16 to 29 years old, or
- $100 per week for each additional eligible employee aged 30 to 35 years old,
- will last for up to a maximum period of 12 months per new job.
Eligible Young Person
To be an eligible young person the person hired must –
- be aged between 16 to 35 years (we believe that includes 16 year olds and 35 year olds and we believe the test applies to their age on the day they are hired though these details are to be confirmed), and
- commence their employment between 7 October 2020 and 6 October 2021, and
- have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one of the previous three months prior to them being hired, and
- have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period, and
- be in their first year of employment with this employer, reflecting that the hiring credit is only available for 12 months for each additional job, and
- must be employed for the period that the employer is claiming for them.
Employers are eligible to receive the JobMaker Hiring Credit if they –
- have an Australian Business Number (ABN), and
- are up to date with tax lodgement obligations, and
- are registered for Pay As You Go (PAYG) withholding, and
- are reporting through Single Touch Payroll (STP), and
- meet the additionality criteria, and
- are claiming in respect of an eligible employee, and
- have kept adequate records of the paid hours worked by the employee they are claiming the hiring credit in respect of.
Importantly, employers do not need to satisfy a fall in turnover test.
The Additionality Criteria
As indicated above, the employer must create a new, additional job during the period 7 October 2020 and 6 October 2021. This is to be known as the Additionality Criteria.
Specifically, the additionality criteria require that there is an increase in:
- the business’ total employee headcount from the reference date of 30 September 2020, and
- the payroll of the business for the reporting period, as compared to the three months to 30 September 2020.
First, the amount of the hiring credit claimed cannot exceed the amount of the increase in payroll for the reporting period. So if existing staff have hours cut in order to cater for the new employee, and therefore the overall payroll cost has not increased, then no credit will be receivable. If existing staff have hours cut in order to cater for the new employee, but the overall payroll cost does increase a little, then the credit will equal the increase. The full credit will only be received if the overall payroll cost has increased by more than the maximum credit based on the $200 and $100 per week amount.
The credit will be claimed quarterly in arrears from the Australian Taxation Office (ATO) commencing from 1 February 2021. So employers will have to fund the cost of the new job entirely until at least that date when credits will start to flow. While there are obvious practical reasons for this, it does seem to be a disincentive for hiring new staff now if the businesses cashflow is already tight, and instead to wait closer to when credits start to flow.
Tax Loss Carry Back – The Key Elements
The Government has announced it will look to allow companies to offset losses against previous profits on which tax has been paid, to generate a refund.
The specifics regarding the announcement will only come once the legislation has been written and ultimately passed by parliament.
However the announcement contains the following key elements –
- The loss carry-back will only apply to companies,
- Losses incurred last tax year (2019-20), this tax year (2020/21) and next tax year (2021-22) will be able to be carried back and offset against profits made in the 2018-19 or later years,
- The carry-back will only be of value if the company had profits in those prior years and paid tax on those profits. If a business was making losses in the past, or otherwise was avoiding paying income tax, there will be no benefit from these measures.,
- The cash benefit of these provisions will only be received when the 2020/21 and/or 2021/22 income tax returns are lodged,
- The amount carried back will be limited so it does not exceed earlier taxed profits and also does not generate a franking account credit.
A – If a company makes a loss this year (2020-21) but it made profits in 2018-19 and 2019-20, it can carry back the loss and offset it against the profits in those prior years.
B – If a company makes a loss this year, and it made a loss in 2019-20 but a profit back in 2018-19, then it may carry back the losses from both years to the 2018-19 year.
C – If a company made a loss in 2019/20 but a profit in 2018-19 and a profit this year (2020-21) it will still get to carry back the 2019-20 loss to the 2018-19 year.
Even if you had a loss in the 2019-20 year (being the year we are presently preparing tax returns for) and are carrying it back to 2018-19, the announcement indicates you won’t get to do the carry back, and therefore won’t get the benefit of it, UNTIL you lodge your 2020-21 company income tax return!!!
Personal Income Tax Cuts – The Key Elements (Updated October 13th)
During the Budget the Government announced it would bring forward Stage Two of its already legislated Personal Income Tax Plan.
As of, Friday the 9th of October, the proposed cuts passed both houses of parliament and will become law.
Under the already legislated personal tax cut plan, tax cuts were to be implemented in three stages –
- The first stage has already been implemented and applied from the 2018-19 tax year,
- Stage two was scheduled to start on 1 July 2022. But this will now be brought forward, and in fact backdated to 1 July 2020.
- Stage three retains its planned start date of 1 July 2024.
Now passed, which Labor indicated they would support, the legislated change to the Stage Two start date announced will see the tax rates for this tax year (2020-21) adjusted as follows –
- The 19% tax rate will now apply all the way up to $45,000 (up from $37,000),
- The 32.5% tax rate will then apply up to $120,000 (up from $90,000).
Low to middle income earners will also receive additional boosts –
- The low income tax offset will also increase from $445 to $700, plus
- This year (2020-21) low-and middle-income earners will receive an additional one-off tax benefit of up to $1,080 from the low and middle income tax offset (LMITO) (Note: the LMITO was previously to be removed with the commencement of Stage two).
With the new tax rates applying this year, as well as to pay periods where tax has already been withheld from salary and wages, for the remainder of the year employees will see a reduction in tax withheld from their earnings to pass on the tax saving and offset the previously over paid tax, increasing disposable income each pay period.
As of today, Monday the 13th, the ATO have now updated the various tax withholding tables to reflect the new tax rates.
The updated withholding tables apply to payments made on or after 13 October 2020.
However, for those that require more time to implement the changes, the old withholding rates may be used until 16 November 2020 (though in the interests of team harmony, we recommended putting this change to the top of your list and to give your employees the benefit of the tax cuts asap).
It was initially suggested that the full year’s tax cut could be condensed into withholding for the remainder of this financial year. However, unfortunately that has not happened.
So, the additional tax withheld so far this financial year will boost most employees’ refunds come tax time 2020/21.
Instant Write-off of Eligible Asset Purchases
Truth is for many small to medium businesses, this announcement won’t make a huge difference as the majority of assets being purchased have been able to be instantly written off for some time. Though thresholds did apply and now under this announcement those thresholds will be removed until 30 June 2022.
Plus, much larger businesses will now also get to enjoy the instant write-offs.
Under the announcement, the full cost of an eligible asset acquired and first used, or installed ready for use, by 30 June 2022 may be fully deducted regardless of its cost (previous thresholds were $150,000 and $30,000 before that).
This deduction is available for any business with an aggregated annual turnover of less than $5b, so yes, that covers all CapitalQ Community Members 😉
The deduction will be available in the income year the asset is first used or installed ready for use.
An outright deduction will also be available for the cost of improvements to existing eligible depreciable assets.
In the case of second-hand assets, the instant write-off will also apply, but this is only for businesses with turnovers under $50m!
Small Business Depreciation Pools Write-off Extended
Similarly, this announcement won’t mean a lot for many small to medium businesses, as they most likely will have written off their depreciation pools in the 2020 tax year.
However, for those that retained a pool, they will now be able to write it off in full, regardless of its closing balance, in the 2021 tax year.
For those that qualify under this new provision, this could be quite a substantial bonus tax saving for the business without the requirement to make any purchases or cash outlay!
Check back again for more updates…