Federal Budget 2020-21
On 6 October 2020, Treasurer Josh Frydenberg delivered the Federal Budget 2020-21. The Budget details how the Morrison Government plans to stimulate spending and encourage business investment on the path to economic recovery.
With the economic impacts of the COVID-19 pandemic continuing to affect the economy, the Budget outlined $85 billion of stimulus over four years, which is centred around immediate asset write-offs, income tax cuts and the extension of JobKeeper.
It is no surprise the Budget is focussed on the roll-out of an enormous Government spending program, supported by a wide range of quickfire measures to encourage business investment and job creation. The Budget is pragmatic in the circumstances and will, hopefully, provide a path to long term structural reform in next year’s Federal Budget.
Below is a detailed analysis of the Budget and the specific impact on individuals and middle-market businesses.
DeficitThe $213.7B deficit is the largest deficit in Australian history, COVID-19 and bushfires having crushed the forecast $6.1B surplus.
Government debtIt is forecast that by 2024 the governments net debt will be double that of 2020, $966.2B or 44% of GDP.
Encouraging investmentImmediate asset write-offs will be available for most businesses, seeking to encourage $200B of investment in depreciable assets by the private sector.
Personal taxTax cuts previously projected for 2022/3 have been brought forward to the current income year. The change will deliver $12.5B to tax payers in the next 12 months.
InfrastructureAn additional $14B is to be provided to the States and Territories over the next 4 years to support 40,000 construction jobs.
Youth employment$5.2B of investment into programs to upskill and employ younger Australians through new apprenticeships, short courses and tax credits for employers giving youth an opportunity.
The Government will bring forward previously legislated changes to reduce personal income tax to take effect retrospectively from 1 July 2020. This measure is designed to stimulate the economy by increasing the disposable income available to individuals. The cuts will be a welcome boost to the local economy and is one of the key initiatives of the Government’s JobMaker Plan.
There has been an increase in the Small Business Entity turnover threshold, allowing more medium-sized businesses the ability to access various concessions.
The Government also announced a capital gains tax (CGT) exemption for the creation, variation or termination of formal granny flat arrangements that provide accommodation for older Australians or people with disabilities.
Significant measures have been announced to support capital investment by business through an expanded instant asset write-off regime, coupled with a tax loss ‘carry-back’ rule which may provide additional cash to businesses. Additional measures are to be introduced to ensure certain Victorian Government Business Support Grants are not taxable.
The Government has announced changes to the R&D tax incentive that will reverse many of the previous R&D reform measures introduced during the 2018-19 Budget and defer the start date to 1 July 2021. In conjunction with the bolstered R&D funding, the Government will also provide an additional $459 million of funding to the CSIRO and $1 billion to universities to ensure that they can continue with their essential research activities.
The Government will introduce key corporate tax residency amendments for foreign incorporated companies, alongside a handful of minor international tax measures. These measures include amendments to clarify Australia’s corporate tax residency rules, strengthening Australia’s investment framework and the extension of pathway to permanent residency to New Zealand Special Category visa holders.
The Government continues to expand the list of countries with exchange of information agreements, adding nine new countries and removing one. These measures provide access to a reduced MIT withholding tax rate of 15% from 30% while further supporting inbound investment opportunities into Australian managed funds.
The Government has announced the “Your Future, Your Super” package to improve the superannuation system, which includes measures such as ‘stapling’ an existing superannuation account to an individual when they change jobs and a new interactive super comparison tool. A number of previously announced measures have also been confirmed to take effect from 1 July 2021.