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2023 Federal Budget

The Federal Treasurer Jim Chalmers handed down the 2023 Federal Budget on 9 May 2023. The following is a list of highlights from a tax and business perspective.

Businesses

Small business instant asset write-off

Small businesses with aggregated annual turnover of less than $10 million will be able to immediately deduct eligible depreciating assets costing less than $20,000, which are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.

With the temporary full expensing finishing on 30 June 2023, extra care will be needed to confirm the delivery and installation of new assets over the new $20,000 limit.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

Halving the increase in quarterly tax instalments

The Government will amend the tax law to set the GDP adjustment factor for pay as you go (‘PAYG’) and GST instalments at 6% for the 2024 income year, a reduction from 12% under the
statutory formula. The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.

The 6% GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million aggregated annual turnover for PAYG instalments), in respect of instalments that relate to the 2024 income year and fall due after the enabling legislation receives Royal Assent.

‘Payday’ super – Increasing payment frequency of employee super

From 1 July 2026, employers will be required to pay their employees’ super at the same time they pay their wages. This will enable employees to track their entitlements to ensure they are being paid on time and in full. Currently, superannuation is required to be paid quarterly.

The Government will undertake a consultation process with the aim of providing details of the final design of the measure in the 2024-25 Federal Budget.

Increasing the visibility of unpaid super for the ATO

The Government is investing $27 million in 2023—24 for the ATO to improve data capabilities, including matching both employers and super fund data at scale. The ATO will also receive $13.2 million to consult and co-design with stakeholders on a new ATO compliance system which will proactively identify instances of under or unpaid super in near-real time.

Small Business Energy Incentive

Small and medium businesses, with aggregated annual turnover of less than $50 million, will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.

A range of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These will include assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. Full details of eligibility criteria will be finalised in consultation with stakeholders.

Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.

Hybrid cars excluded from FBT exemption for electric cars

As previously announced, plug-in hybrid electric cars will be excluded from the fringe benefits tax (FBT) exemption for eligible electric cars from 1 April 2025.

Arrangements entered into between 1 July 2022 and 31 March 2025 can remain eligible for the FBT exemption as long as the exemption applied to the car before 1 April 2025 and the employer has a financially binding commitment to continue providing private use of the car on and after this date.

Small business ATO compliance

Among the programs to reduce the compliance burden on small business is a series of initiatives to cut paperwork. These include:

  • From 1 July 2024, small businesses will be permitted to authorise their tax agent to lodge multiple Single Touch Payroll forms on their behalf.
  • From 1 July 2024, the Australian Taxation Office (ATO) will reduce the use of cheques for income tax refunds.
  • From 1 July 2025, small businesses will be permitted up to 4 years to amend their income tax returns (generally 2 years).

Small business lodgment penalty amnesty

Small businesses with an aggregated turnover of less than $10m, will be able to access a lodgment penalty amnesty program. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.


Individuals & families

Energy price plan relief

$1.5bn has been provided over 5 years to provide targeted energy bill relief and progressing gas market reform.

The Energy Bill Relief Fund will provide targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers.

In partnership with the states and territories, the plan is expected to deliver up to $500 in electricity bill relief for eligible households and up to $650 for eligible small businesses.

Household energy upgrade fund

A $1.3bn Household Energy Upgrades Fund will be established to support home upgrades that improve energy performance. No, the Government is not giving out cash for upgrades but providing $1bn to the Clean Energy Finance Corporation to provide low-cost finance and mortgages in partnership with private financial institutions for home upgrades that save energy.

Access to home guarantee scheme expanded to friends and siblings

As previously announced, from 1 July 2023, access to the Government’s Home Guarantee Scheme will be expanded to joint applications from “friends, siblings, and other family members” and to those who have not owned a home for at least 10 years.


30% tax on super earnings above $3m

An additional tax of 15% on earnings will apply to individuals with a total superannuation balance over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance (TSB) for the new tax uses the current definition and includes amounts in retirement phase pensions.

The calculation for the tax aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

Individuals will have the choice of paying the tax personally or from their superannuation fund and those with multiple accounts can nominate which fund will pay the tax.


We will provide updates as more news/ information comes to light. As always, it’s important to note that the budget announcements aren’t real until the legislation has been finalised.

If you have any questions about how the Budget has affected you or your business, please contact our office on 08 6118 6111 or email hello@prescottsolutions.com.au

More Information

Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.

The material contained in the 2023-24 Budget Update should be used as a guide in conjunction with professional expertise and judgement.  All responsibility for applications of the 2023-24 Budget Update and for the direct or indirect consequences of decisions based on the 2023-24 Budget Update rests with the user.




2022 Federal Budget

The 2022 federal budget has been released. It’s not the spending bonanza that it has been in previous years as the government tries to wind back Covid stimulus. In addition, pre-election budgets are always problematic as the announcements may not eventuate if there is a change in government.

Below are some key announcements from the 2022 budget


Businesses

Digital Adoption

Small Businesses will be able to claim an additional 20 per cent on business expenses and assets that support their digital adoption. This can include items such as portable payment devices, cyber security and cloud-based subscriptions.

We’ll need to wait for further clarity to confirm if laptops or similar devises are included in the bonus deductions.

An annual cap of $100,000 will apply for digital adoption expenditure.

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023, however all claims will be included on the 2023 tax return.

Skills and Training Boost

Small businesses will be able to claim an extra 20 per cent deduction for external training courses provided to employees. The courses must be provided Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

Taxable Payment Report

Taxable Payment reporting is currently required annually for selected industries where payments to subcontractors are reported to the ATO to help combat the ‘cash economy’ and income not being declared.

The reporting frequency is set to increase to align with the BAS lodgement cycle, with the changes expected to take effect from 1 January 2024.

Australian Apprenticeships Incentive System

In its first phase, from 1 July 2022 to 30 June 2024, the Australian Apprenticeships Incentive System will support employers of apprentices in priority and non-priority occupations with a wage subsidy; with apprentices in priority occupations entitled to access direct financial assistance. Priority occupations are those listed on the Australian Apprenticeship Priority List.

From 1 July 2024, following a checkpoint to assess progress, support will be available for priority occupations only, through a mix of employer and apprentice payments, including a hiring incentive for employers; and training support payments for apprentices.

Boosting Apprenticeship Commencements and Completing Apprenticeship Commencements

The Boosting Apprenticeship Commencements wage subsidy supports businesses and Group Training Organisations to take on new apprentices and trainees, to build a pipeline of skilled workers to support a sustained economic recovery.

Through the subsidy, any business or Group Training Organisation that engages an Australian Apprentice between 5 October 2020 and 30 June 2022 may be eligible for a subsidy of 50 per cent of wages paid to a new or recommencing apprentice or trainee. This covers a 12-month period from the date of commencement, to a maximum of $7,000 per quarter.

After 12 months of this support employers will be eligible to transition to the time-limited Completing Apprenticeship Commencements (CAC) wage subsidy for the second and third years of an apprenticeship. Under the CAC, eligible employers will receive a 10 per cent wage subsidy in the second year of an eligible apprenticeship, up to a maximum of $1,500 per quarter per apprentice, and a 5 per cent wage subsidy in the third year of their apprenticeship, to a maximum of $750 per quarter per apprentice.

For more information, see Employer Incentives | Australian Apprenticeships

Instant Asset Write Off

Not a new announcement in the 2022 Budget but a reminder that the Instant Asset Write Off will continue to be available for assets installed and ready for use prior to 30 June 2023.


Individuals

Low and Middle Income Tax Offset (LMITO) extension

The LMITO will be increased from $1,080 to $1,500 for the 2022 financial year and will be available to individuals with income below $126,000.

Cost of Living Payment

The Government will provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to recipients of eligible social security payments and to concession card holders

Temporary Fuel Excise Reduction

There will be a temporary reduction in the fuel excise, with the excise be cut by 22.1 cents per litre. The reduction will be in place from 30 March 2022 until 28 September 2022.

While providing welcome relief at the bowser, Farmers, Transport and other industries will need to account for a reduction in the fuel tax credits claimed on BAS during this period


Women’s Budget Statement

This 2022-2023 budget includes a Women’s Budget Statement, focussed on issues particular to women. There are a raft of issues identified and measures aimed at solving them, including ending violence against women and children, increasing women’s participation in the workforce, improving women’s health and retirement prospects. Amongst the many elements of the Budget spending highlighted in this Women’s Budget Statement, the following stood out:

Child Care and Parental Leave

The Budget allows for an increase in the Child Care Subsidy for families with multiple children and removing the annual Cap on the Subsidy.

Eligible families will be able to access up to 20 weeks paid parental leave to be used by either parent. Currently the Paid Parental Leave is 18 weeks, plus 2 weeks Dad and Partner Pay, so whilst there is no additional government leave available, it does mean that families can choose who takes the available leave and when.

Leadership

To help improve gender equality in leadership roles, the Government has provided funding to the Australian Institute of Company Directors to deliver board diversity scholarships to support women to attend a company directors course.

The Office for Women will oversee a refresh of the Government’s BoardLinks platform to improve its functionality, including navigation and search capability, improving visibility of upcoming government board vacancies, promoting greater board diversity, and providing links to established networks and industry partners.

Superannuation

From 1 April 2022, the Government’s reform to improve the visibility of superannuation assets in family law proceedings will come into effect. The Australian Taxation Office will be able to share information with the Courts on superannuation assets held by parties during family law disputes. This will help deliver fairer and more equitable outcomes for women going through separation proceedings by reducing the scope for former partners to under-disclose their assets.

From 1 July 2022, legislation comes into effect that removes the $450 per month income threshold under which employees do not have to be paid the superannuation guarantee by their employer. The measure will improve the coverage of the superannuation system, making a real difference to the retirement savings of around 300,000 lower income workers per month, 200,000 of whom are women. Whilst we would also want them to tackle the reason why so many women are earning less than $450 per month, removing this threshold means that at least those impacted will be receiving superannuation.

Also from 1 July 2022, the work test for non-concessional and salary sacrificed contributions to superannuation for individuals aged 67 to 75 will be removed, and the eligibility age for the downsizer contribution will be reduced from 65 to 60 years. As women are more likely to make voluntary contributions to their superannuation than men, this additional flexibility will increase the ability for women to make contributions later in life.

The extension of the downsizer contribution scheme – where the family home is sold and proceeds are contributed to superannuation – the extension applies to younger cohorts which will particularly benefit people with moderate superannuation balances, including women; women currently account for around 55 per cent of downsizer contributions

Housing

Announced in the 2021-22 Budget, the Family Home Guarantee is the first housing policy designed to specifically help single parents. The Family Home Guarantee supports single parents to build or purchase a home with a deposit of as little as two per cent. To build on the early success of this program, the Government is doubling the number of places available under the Family Home Guarantee to 5,000 per year to 30 June 2025.


We will provide updates as more news/ information comes to light. As always, it’s important to note that the budget announcements aren’t real until the legislation has been finalised.

If you have any questions about how the Budget has affected you or your business, please contact our office on 08 6118 6111 or email hello@prescottsolutions.com.au

 

More Information

Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.




Are COVID-19 grants and funding tax free?

Most people would think that money provided by the Government to support people and business during a crisis would be tax free? Otherwise, it’s like giving money with one hand and then taking it away with the other, isn’t it?

But, the tax laws don’t work like that. To make a payment tax-free, legislation is required to enable it to be classified as exempt income or non-assessable non-exempt income. In general, any income received will be assessable unless the Government has legislated for it to be tax-free. JobKeeper for example was not tax free and anyone who received it in 2020-21 will need to declare it in their income tax return.

At the Federal Government level, the Prime Minister recently announced that the COVID-19 Disaster Payment will be tax free and legislation enabling this change is before Parliament. Other payments however, such as Pandemic Leave Disaster Payment, remain taxable.

The Treasurer has also been granted the power to make State and Territory grants tax-free but only from 13 September 2020, and only if they request the Commonwealth Government to make it tax free. If you’re confused, it’s not surprising. The result is a mix of tax treatments depending on what support you received and from whom. To date, only a series of Victorian business grants are tax-free (but we expect more will be made tax free).

The general rule is that grants are likely to be taxable unless they are specifically excluded from tax. If the grant relates to your continuing business activities, then it is likely to be included in assessable income for income tax purposes. The position can be different in cases where the payment is made so that the entity can commence a new business or cease carrying on a business but there will still often be some tax implications.




Business in a post pandemic environment

Countries that have experienced the worst of the pandemic give Australian businesses an insight into what to expect in a post-lockdown environment.

Australia, like New Zealand, has managed COVID-19 on an elimination basis. That is, lockdowns and border closures to keep the virus out. And, it has worked comparatively well with New Zealand suffering 26 deaths (0.5 per 100,000 people) and Australia 910 (3.7 per 100,000), compared to the UK with over 128,000 deaths (191 per 100,000), India over 400,000 (29.8 per 100,000), Brazil over 500,000 (250.4 per 100,000), and the United States over 600,000 (184.3 per 100,000).

But the flip side of a COVID-19 elimination strategy is a slow vaccine rollout – not only are global vaccine supplies predominantly directed to first world nations with higher mortality rates but vaccination reticence has taken hold (the “I’ll wait and see what happens” mentality). Deciding whether to get a vaccination (and making the appointment) is easy to put off when your life, and the well-being of those around you, is not in danger. We saw this psychology at play in Sydney and Melbourne when vaccination rates increased in response to the spread of the Delta variant.

While all of this might not have a direct impact on businesses, it does impact on the timing of the recently announced National Plan to transition Australia’s COVID response, and this plan will determine what the business environment will be like over the coming year.

The National Plan has signalled a policy shift from our current focus on COVID infection rates, to two new key determinants – vaccination and hospitalisation rates.

At present, Australia has administered 33 vaccination doses per 100 people. New Zealand is just over 26 doses per 100 utilising Pfizer and the recently approved Johnson & Johnson’s Janssen COVID-19 vaccine, and Japan over 42 doses per 100.

Australia will pursue an elimination (or ‘double doughnut’) strategy until vaccination rates rise to a level where the risk of hospitalisation and death from the virus is relatively low. However, we don’t know what these thresholds look like at present with the Government and COVID-19 Task Force yet to make its recommendations.

Australia cannot move from an elimination strategy to ‘living with COVID’ in a few months without unacceptable hospitalisation and death rates – for example, the UK is moving to no restrictions despite over 160 people dying of COVID and just under 2,500 hospitalised in the last 7 days.

The National Plan identifies four stages and the actions of each of those stages. In brief:

  1. Phase 1 – Current strategy
  2. Phase 2 – Post vaccination phase – eased restrictions for those who have been vaccinated and lock-downs only when hospitalisation rates spike
  3. Phase 3 – Consolidation phase – no lockdowns and pursuit of a ‘vaccination passport’ concept where those who are vaccinated can travel freely domestically, and travel bubbles extended to more countries.
  4. Final phase – the living with the virus stage with uncapped inbound arrivals including accepting non-vaccinated international travellers if they pass a pre and post arrival COVID test.

Data is only just emerging on the impact of vaccination rates on hospitalisations and death rates, but only a small number of countries have enough of their populations vaccinated to provide a reliable sample – Israel (120 doses per 100 people), the UK (119 per 100) and the US (100 per 100). Even when the Australian vaccination targets are confirmed, we should expect these phases to move over time if hospitalisations increase beyond acceptable levels and if new and deeper data suggests a change in tack (like with the rollout of the AstraZeneca vaccine). In addition, it is likely that the States and Territories will continue to have the final say on what is acceptable. All of this means that while we will have a National Plan, business should remain vigilant and prepare for a potentially longer transition period than what is announced.

The National Plan’s impact on business

The economic impact of COVID-19 is unlike any other, with some businesses suffering a fatal blow while others have benefited. COVID’s impact varies sector by sector and region by region as we bounce from one set of operating conditions to another depending on the Government’s response to outbreaks.

Cashflow is a dominant concern with ABS data showing a decline in the number of businesses expecting an increase in revenue between February (27%) and July 2021 (18%).

The National Plan will impact differently on different sectors and it will be important for business operators to understand the potential impact on them at each phase.

  • Phase 1 – Be prepared for further ad-hoc lockdowns and restrictions
  • Map the impact of restrictions on your business, your cashflow and your team and what you will need to survive. Understand whether it is worth trading, the cost of trading and the potential of hibernating.
  • Model contingency scenarios and understand the best available action.
  • Phase 2 – taking advantage of eased restrictions
  • Lock-in any COVID gains – this might be keeping or adapting any new services, building on new technologies, or nurturing a database of new customers (while protecting your relationship with your existing customers). Business has changed, understand what has changed and how you can benefit from these changes.
  • Phase 3 – no lockdowns and returning travel
  • Understand what your customer base will look like when restrictions ease? If your business benefited from COVID, is there a potential to be detrimentally impacted when your customers have greater choice. If eased restrictions open new or returning opportunities, what can you do to drive this business to you?

COVID impacts differently depending on the business, the sector, and geographic location. There is no one size fits all approach to surviving and thriving. If you would like us to review your businesses circumstances and ensure you have the depth of information you need to make the right decisions, please contact us.




2021 Federal Budget

What a difference a year makes! Last year, we were facing very uncertain times and grappling to understand what the future will look like, so much so, even the Federal Budget was delayed. Fortunately, the outlook is now more optimistic with global vaccines rolling out and the Australian economy generally performing well.

Business & employers

Temporary full expensing extension (depreciation)

Date of effect: Assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023

Businesses with an aggregated turnover of less than $5 billion will be able to continue to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use. Introduced in the 2020-21 Budget, this measure will enable an asset’s cost to continue to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. The extension means that the rules can apply to assets that are first used or installed ready for use by 30 June 2023.

Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.

The car limit will continue to place a cap on the deductions that can be claimed for luxury cars.

From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million will revert back to $1,000.

Second-hand assets

For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.

Small business pooling

Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the full balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they voluntarily leave the system will presumably continue to be suspended.

Opt-out rules

Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.

Temporary loss-carry back extension

Date of effect: Losses from the 2019-20, 2020-21, 2021-22 or 2022-23 income years

Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21, 2021-22 and 2022-23 income years to offset previously taxed profits in the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.

The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.

Before the measure was introduced in the 2020-21 Budget, companies were required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses can still carry losses forward as normal.

This measure will interact with the Government’s announcement to extend full expensing of investments in depreciating assets for another year. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies

Residency tests rewrite

Date of effect: The first income year after the date of Royal Assent of the enabling legislation.

Determining whether an individual is a resident of Australia for tax purposes can be complex. The current residency tests for tax purposes can create uncertainty and are often subject to legal action.

The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

Education, skills & training

Apprenticeship scheme uncapped

Boosting Apprenticeship Commencements provides a 50% wage subsidy to employers and Group Training Organisations to take on new apprentices and trainees. The measure will uncap the number of eligible places and increase the duration of the 50% wage subsidy to 12 months from the date an apprentice or trainee commences with their employer.

From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.

 


Superannuation

$450 per month threshold for super guarantee eligibility removed

Date of effect: The first financial year after Royal Assent of the enabling legislation, expected to be 1 July 2022

Currently, employees need to earn $450 per month to be eligible to be paid the superannuation guarantee. This threshold will be removed so all employees will be paid super guarantee regardless of their income earned.

The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month once the threshold is removed.

Work test repealed for voluntary superannuation contributions

The first financial year after Royal Assent of the enabling legislation, expected to be 1 July 2022

Individuals aged 67 to 74 years will be able to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test. The contributions are subject to existing contribution caps and include contributions under the bring-forward rule.

Currently, the ‘work test’ requires individuals aged 67 to 74 years to work at least 40 hours over a 30 day period in a financial year to be able to make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse.

Personal concessional contributions will remain subject to the ‘work test’ for those aged between 67-74.

Expanded access to ‘downsizer’ contributions from sale of family home

Date of effect: The first financial year after Royal Assent of the enabling legislation, expected to be 1 July 2022

The eligibility age to access downsizer contributions will decrease from 65 years of age to 60.

Currently, downsizer contributions enable those over the age of 65 to contribute $300,000 from the proceeds of selling their home to their superannuation fund. These contributions are excluded from the existing age test, work test and the $1.7 million transfer balance threshold (but will not be exempt from your transfer balance cap).

Both members of a couple can take advantage of the concession for the same home. That is, if a couple have joint ownership of a property and meet the other criteria, both people can contribute up to $300,000 ($600,000 per couple).

Downsizer contributions apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.


Low and middle income tax offset extended

Date of effect: From 1 July 2021 to 30 June 2022

As widely predicted, the Low and Middle Income Tax Offset (LMITO) will be extended for another year. The LMITO provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 and will be retained for the 2021-22 year.

Child care subsidy increase for families with multiple children under 5 in child care

From 1 July 2022 the Government will:

  • Increase child care subsidies available to families with more than one child aged five and under in child care, and
    Remove the $10,560 cap on the Child Care Subsidy.
  • For those families with more than one child in child care, the level of subsidy received will increase by 30% to a maximum subsidy of 95% of fees paid for their second and subsequent children (tapered by income and hours of care).

Under the current system, the maximum child care subsidy payable is 85% of child care fees and it applies at the same rate per child, regardless of how many children a family may have in care.

Why? In October 2020, analysis by the Grattan Institute revealed that mothers lose 80%, 90% and even 100% of their take-home pay from working a fourth or fifth day after the additional childcare costs, clawback of the childcare subsidy, and tax and benefit changes are factored in.

“Unsurprisingly, not many find the option of working for free or close to it particularly attractive. The “1.5 earner” model has become the norm in Australia. And our rates of part-time work for women are third-highest in the OECD.

Childcare costs are the biggest contributor to these “workforce disincentives“. The maximum subsidy is not high enough for low-income families, and the steep taper and annual cap limit incentives to work beyond three days, across the income spectrum,” the report said.

JobTrainer extended

The Government has committed an additional $500 million to extend the JobTrainer Fund by a further 163,000 places and extend the program until 31 December 2022. JobTrainer is matched by state and territory governments and provides job seekers, school leavers and young people access to free or low-fee training places in areas of skills shortages.




JobMaker Hiring Credit Guide

Following our previous blog, we now have more clarity regarding JobMaker and have compiled a guide for you here.

To recap, JobMaker is a credit paid quarterly to eligible businesses for new employees hired on or after 7th October 2020 in a newly formed role.

The JobMaker payment will depend upon three tests being satisfied:

  • Employer eligibility
  • Employee eligibility
  • ‘Additionality’ test

As well as the above tests, there are a number of exclusions from the scheme which need to be considered when determining if a business is able to access JobMaker.

Due to the restrictions to eligibility this scheme will be challenging to access for employers and prospective employees, which is contrary to what the media has previously suggested. So for those businesses that want to apply for JobMaker it is important that they have a clear understanding of the eligibility requirements, the enrolment process and ongoing compliance.

For further detail about the scheme, refer to our comprehensive guide to JobMaker

Important Dates

Some important JobMaker dates to remember:

  • The first JobMaker period ends on 6 January 2021.
  • The ATO have extended the enrolment deadline so you can enrol for JobMaker at any time before the end of the claim period for the relevant JobMaker period.
  • For the first JobMaker period, which ends on 6 January 2021, the claim period ends on 30 April 2021. This means that the deadline for enrolling with the ATO for entities wanting to make a JobMaker claim for that period is also 30 April 2021.
  • Claims for the first JobMaker period can be made from 1 February 2021.

Let us know if we can assist you in any way by contacting our office on 08 6118 6111 or hello@prescottsolutions.com.au




JobMaker Hiring Credits: What We Know So Far

We’ve had quite a few questions about the JobMaker hiring credit announced in the 2020-21 Federal Budget. The legislation enabling the JobMaker scheme has not passed Parliament as yet and until this occurs, the JobMaker rules are not certain and may change. More details should be available soon and we’ll let you know as soon as we have some certainty. Here is what has been announced so far:

What is JobMaker?

JobMaker is a credit available to eligible businesses for hiring additional employees (not if you are merely replacing someone who left). The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021.

The credit provides:
• $200 per week for new employees between 16 to 29 years of age, and
• $100 a week for new employees between 30 to 35 years of age.

Payment is from the start date of the employee for 12 months.

When do the credits start?

Assuming the legislation passes Parliament and your business and the employee are eligible, and the ‘additionality’ test is passed (see How can we access JobMaker), credits can be claimed for employees hired from 7 October 2020 until 6 October 2021. The credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. The credit is an incentive for the employer to support wage costs and not passed onto the employee.

How can we access JobMaker?

There are three tests for JobMaker:

Employer eligibility

  • Has an ABN
  • Up to date with tax lodgements
  • Registered for PAYG
  • Reporting through single touch payroll
  • Keeps adequate records of the paid hours worked by the employee they are claiming the credit for
  • Another employer is not claiming JobMaker for the same employee

Employee eligibility

  • Received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one month within the three months before they were hired
  • Between 16 and 35 years of age at the time their employment started
  • Worked at least 20 hours per week on average for the full weeks employed for the period being claimed. If the employee worked less than 20 hours, the employer cannot claim JobMaker for them during that period
  • Started work between 7 October 2020 and 6 October 2021
  • The first year of employment with the employer
  • The employer is not receiving other forms of assistance from the Commonwealth Government for the employee, for example JobKeeper or an apprenticeship subsidy

Additional employee test (additionality test) The employer’s:

  • Total employee headcount on the last day of the reporting period increased by at least one additional employee compared initially to 30 September 2020, then to the previous reporting period.
  • Total payroll for the reporting period increased compared initially to the September quarter 2020 (July, August, September 2020), then to the previous reporting period. The hiring credit cannot exceed the increase in payroll.

Government entities or agencies, banks and other institutions subject to the bank levy, businesses in liquidation, and foreign Government entities (unless a resident entity), are unable to access JobMaker.

I can only claim JobMaker if the number of employees and payroll increases. What happens if one of my team resign? Through no fault of the business?

Your business can only receive JobMaker for your eligible employees if total employee headcount and payroll increases. If the headcount or payroll decreases or remains the same, JobMaker cannot be claimed for that period.

For example, if you had three staff at September 2020 and hired an additional two employees in late October 2020, your business can claim JobMaker for the two new employees assuming the business and the employer are eligible and payroll has increased compared to the September 2020 quarter. However, in December 2020, one of your original staff members resigns. As a result, your business can only claim JobMaker for one eligible employee in December as your headcount has increased by one, not two, compared to the September 2020 baseline.

A similar baseline concept applies to payroll. If you employed new eligible employees in October 2020 but your overall payroll remained the same or only increased marginally because the hours of your existing staff reduced when the two new employees were employed, then the JobMaker credit will only be the additional payroll amount. That is, if the JobMaker credit for the two employees for the quarter is $8,960, but payroll compared to the September 2020 quarter only increased by $1,200, then the JobMaker credit you receive would be $1,200. The JobMaker credit cannot exceed the increase in payroll.

Each month, employers will need to ensure they pass these ‘additionality’ tests before claiming.

Your headcount and payroll increase is measured on the last day of each reporting period from the date your first new employee started. For example, if your first new employee joined in October 2020, your baseline is set at that point. If a new employee starts in January 2021, your payroll and headcount baseline is measured from the last reporting period, in this case, December 2020 for headcount and the December quarter for payroll. That is, your baseline commences from the date your new employee starts and then is reassessed each reporting period to ensure there is an increase.

If I don’t hire new staff until January 2021, can I claim JobMaker for 12 months or only up to 6 October 2021?

JobMaker is available for 12 months for eligible employees hired from 7 October 2020 until 6 October 2021. If you hire new employees from January 2021, JobMaker is available for 12 months for these employees assuming that the employees and business are eligible and the ‘additionality’ test is passed.

The baseline for the ‘additionality’ tests – headcount and payroll – starts from the start date of your new employee. The Government has indicated that the baseline for the ‘additionality’ test will be adjusted in the second year of the program to ensure an employer can only receive JobMaker for 12 months for each additional position created. The detail of exactly how these rules will work has not been released as yet.

My business did not have employees in September but I hired my first employee in late October. Can I claim the JobMaker credit for them?

Businesses with no employees on 30 September, cannot claim JobMaker for their first employee. However, JobMaker can be claimed for your second and any subsequent employees that started on or before 6 October 2021.

Can the business get JobKeeper and JobMaker?

No. Once your business exits JobKeeper and is no longer receiving JobKeeper payments for any employees or business participants, if eligible, the business could then start to receive JobMaker credits. The business is eligible for the hiring credit in the reporting period following your JobKeeper exit date.

If you have any question about how JobMaker can help your business, please contact our office on 08 6118 6111 or email hello@prescottsolutions.com.au

The JobMaker credit and the details of how the rules will apply are subject to change. Please do not make decisions based on the JobMaker information available as the final shape of the legislation could change. We will provide a summary of the rules and how you can claim the JobMaker hiring credit as soon as the rules are confirmed.




2020 Federal Budget

After being postponed from its usual home in May, the Federal Budget was (finally) announced on 6th October. While Covid19 has had a clear impact on the economy global economy, the message from this year’s budget came with a clear message – increase spending to reignite the economy.

Below are some key announcements

Businesses

Supporting business and investment

Instant Asset Write Off

From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. The cost of improvements to existing eligible depreciable assets made during this period can also be fully deducted.

The previous limit of $150,000 was set to revert back to $1,000 in December 2020, and while we expected a higher amount to be announced in the Budget, having an uncapped limit on equipment purchases was a surprise, particularly with the turnover threshold increasing to $5b which will cover 99% of businesses.

Managing cash flow will be more important than ever, and businesses will need to weigh up both the cash and tax impact for major purchases. Please contact us to discuss ways we can help you create and manage your cash flow forecast!

Note: the luxury car limit of $59,136 still applies.

Temporary loss carry-back to support cash flow

Loss carry-back will be available to around 1 million companies that employ up to 8.8 million workers. Losses incurred up to 2021‑22 can be carried back against profits made in or after 2018‑19. Eligible companies may elect to receive a tax refund when they lodge their 2020‑21 and 2021‑22 tax returns.

In other words, if you make a profit (and pay tax) in the 2019 year or later, you will be able to claim a credit for the tax previously paid in the 2021 & 2022 tax return, and can be used in conjunction with the Instant Asset Write Off above.

The carry-back will only be available to Corporate Tax Entities (eg: Pty Ltd Companies).


R&D tax concessions injection and simplification

From 1 July 2021, the Government has enhanced its proposed shake-up of the R&D system injecting an additional $2 billion through the Research and Development (R&D) Tax Incentive.

Currently, the R&D Tax Incentive provides the following in respect of eligible R&D activities (for the first $100 million of eligible expenditure):

  • a 43.5% refundable offset for eligible companies with aggregated annual turnover less than $20m; and
  • a 38.5% non-refundable tax offset for all other eligible companies.

Note that the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019, before Parliament at the time the Federal Budget was released, proposed various amendments to the R&D Tax Incentive to take effect from the 2019-20 income year. The Government is now delaying (by two years) and enhancing the proposed changes.

Companies under $20m turnover

For companies with an aggregated annual turnover less than $20 million:

  • The refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate (an increase from 13.5 percentage points above the claimant’s company tax rate as previously announced)
  • The previously announced annual $4 million cap on cash refunds for R&D claimants will not proceed.

Companies over $20m turnover

For companies with aggregated annual turnover of $20 million or more, the previously announced R&D intensity premium, originally intended to apply across three tiers, will now apply across two tiers.

Note the intensity premium will tie the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.  The marginal R&D premium will be the company’s tax rate plus:

  • 5 percentage points above the claimant’s company tax rate for R&D expenditure between 0 per cent and 2 per cent R&D intensity for larger companies
  • 5 percentage points above the claimant’s company tax rate for R&D expenditure above 2 per cent R&D intensity for larger companies (the previously announced intensity premiums varied from 4.5 to 12.5 percentage points).

The R&D expenditure threshold – the maximum amount of R&D expenditure eligible for concessional R&D

tax offsets – will be increased as intended from $100 million to $150 million per annum.


 

JobMaker Hiring Credit

The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

To be eligible;

  • The employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and;
  • received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

 

The ‘Job’ family of announcements is getting quite large now with JobKeeper, JobSeeker, JobTrainer and the broader JobMaker Plan. While it is expected that the JobMaker Hiring Credit will lay claim the JobMaker name in general media, there will no doubt be confusion for these – particularly with some employees needing to be under JobSeeker to be eligible for the JobMaker Hiring Credit


Boosting Apprenticeships Wage Subsidy

From 5 October 2020 to 30 September 2021, businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places. The wage subsidy will support school leavers and workers displaced by the COVID-19 related downturn to secure sustainable employment.


Individuals

Lower taxes for Individuals

The ‘Stage 2’ tax reforms have been brought forward from 1 July 2022, to 1 July 2020

  • The threshold for the 19c Tax Bracket has increased from $37,000 to $45,000
  • The threshold for the 32.5c Tax Bracket has increased from $90,000 to $120,000
  • Low Income Tax Offset (LITO) will increase from $445 to $700
  • The Low and Middile Income Tax Offset (LMITO) of $1,080 will continue for the 2021 year

Tax RateCurrentFrom 1 July 2020From 1 July 2024
0%$0 - $18,200$0 - $18,200$0 - $18,200
19%18,201 - $37,00018,201 - $45,00018,201 - $45,000
30%$45,001 - $200,000
32.5%$37,001 - $90,000$45,001 - $120,000
37%$90,001 - $180,000$120,001 - $180,000
45%>$180,000>$180,000>$200,000
LITOUp to $445Up to $700Up to $700

To see how the tax cuts will impact you, check out the Tax Relief Estimator


10,000 additional places in First Home Loan Deposit Scheme

Announced pre Budget, from 6 October 2020 until 30 June 2021, an additional 10,000 places will be available for first home buyers under the First Home Loan Deposit Scheme to support the purchase of a new home or a newly built home. The scheme enables first home buyers to purchase a home with a deposit of as little as 5% without mortgage insurance. There are currently 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme.


Capital gains tax removed from ‘granny flats’

At present, if you enter into a formal granny flat arrangement with a relative, such as an elderly parent, there is a risk of capital gains tax (CGT) applying.

Announced pre Budget, this measure provides a targeted CGT exemption for granny flats under certain conditions. Under the arrangement, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities.

The exemption only applies to family arrangements or other personal ties and will not apply to commercial rental arrangements.

The changes will come into effect from 1 July 2021, provided the legislation is passed

Removing Capital Gains Tax for Granny Flats


Paid Parental Leave

The Paid Parental Leave works test will be relaxed for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months, instead of 10 of the last 13 months, preceding the birth or adoption of a child


Superannuation Reform

In a good move for both employers and employees, the ATO will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal. This will help cut down duplicate super funds when changing jobs. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers


 

We will provide updates as more news/ information comes to light. As always, it’s important to note that the budget announcements aren’t real until the legislation has been finalised.

If you have any questions about how the Budget has affected you or your business, please contact our office on 08 6118 6111 or email hello@prescottsolutions.com.au

 

More Information

 

Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.

The material contained in the 2020-21 Budget Update should be used as a guide in conjunction with professional expertise and judgement.  All responsibility for applications of the 2020-21 Budget Update and for the direct or indirect consequences of decisions based on the 2020-21 Budget Update rests with the user.




2019 Federal Budget – What it means for you!

This year’s Budget is rather unique as it occurred just before a federal election.

While there are many parts of this years’ Budget that apply to future years, we have summarised below the key changes you need to know about for the next 12 months.

Remember, if the Federal Government changes then the Budget changes below probably won’t happen and other decisions by the new Government will happen.

It certainly makes life difficult when trying to decide whether to do something now or wait until after the election.

There are 3 key areas we would like to make you aware of.

LOWER TAXES

Tax cuts were the headline act of this year’s “back in black” (a forecast return to surplus) bonanza.

The government has announced immediate tax relief for low and middle income earners (earning from $48,000 to $90,000) of up to $1,080 for singles or up to $2,160 for dual income families to ease the cost of living.

If the Coalition Government is re-elected, then this means immediate cash back to individuals in July 2019 when they lodge their tax returns.

The Coalition will also be lowering the 32.5 per cent rate to 30 per cent in 2024-25, increasing the reward for effort by ensuring a projected 94 per cent of taxpayers will face a marginal tax rate of no more than 30 per cent.

INSTANT ASSET WRITE OFF

Smaller businesses (income under $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 from budget night 2 April 2019 up until 30 June 2020. This has increase from the previous amount of $25,000, which if legalisation is passed, will approve a deduction of up to $25,000 from 29 January 2019 to 2 April 2019.

Medium sized businesses (income from $10 million to $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 from budget night 2 April 2019 to 30 June 2020.

SUPERANNUATION

Fortunately, super hasn’t been tinkered with too much this time.

The government will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without meeting the work test from 1 July 2020. People aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule.

Those up to and including age 74 will be able to receive spouse contributions, with those 65 and 66 no longer needing to meet a work test.

NEXT STEPS

We’re here to help you! If you have any questions about how the 2019 Budget affects you – please contact our office and one of our expert accountants will help you!