2021 federal budget highlights

Federal Budget 2020 (1)

Last night, the Federal Government unveiled its 2020/21 Budget on what they called a paved road to recovery. A recovery highly focused on creating jobs, jobs, and more jobs.

We have all heard about JobKeeper and JobSeeker decreasing and eventually fading out in March 2021, but where will the next billions of dollars be allocated to?

In this article we are going to focus mainly on the initiatives that will be immediately accessible to individuals and small businesses.


Personal income tax cuts - from 1 July 2020

Originally intended to apply from 1 July 2022, the tax cuts will be back dated to 1 July 2020.

Once the budget is passed into law (ie ASAP), the ATO will release new tax rates for employers to calculate PAYG Withholding for their staff.

What you need to do as an employer

Xero, Keypay and other software providers will update these tax rates automatically when they are released, and it means that you’ll need to withhold less PAYGW for your staff – meaning that they get an increase in the net pay transferred to them each payrun.

Key tax rate changes

  • 19% tax bracket increased to $45,000 (up from $37,000)
  • 32.5% tax bracket increased to $120,000 (up from $90,000)
  • Low-income tax offset increased from $445 to $700
  • Continuation of the $1,080 Low Middle Income Tax Offset (LMITO)

This translates into real tax savings for the 2021 year of $1,060 if you are earning $40,000 up to $2,565 if earning $180,000. These savings will be passed on each pay run.

You can calculate how much tax you will save using this calculator.

These rates are relevant for business owners as these are ultimately the tax rates paid on all monies taken out of a company or trust. This is an important consideration when it comes to tax planning and we will be ensuring we maximize the benefits for our clients come tax planning time pre 30 June 2021.


JobMaker Hiring Credit - from 7 October 2020

Eligible employers will be able to claim $200 a week for each additional employee aged between 16-29 and $100 a week for those aged 30-35 years old.

This will apply for new jobs created until 6 October 2021 and the credit will continue for 12 months from when the position is created.

The employer will be able to claim quarterly in arrears from 1 February 2021 and the employer will need to report on a quarterly basis to confirm eligibility. The subsidy is capped at $10,400 for each new position.

Who is an eligible employer?

  • Must have an active ABN
  • Be up to date with tax lodgments
  • Be registered for PAYGW
  • Report your payroll via STP (this is everyone using Xero or a similar platform for payroll)
  • Kept adequate records (ie timesheets)
  • Demonstrate a new job has been created. Increased overall head count or increased total payroll value from the reference period.
  • Hire an eligible employee

Who is an eligible employee?

  • Aged 16-35
  • Work a minimum of 20 hours per week
  • Have commenced employment between 7 October 2020 and 6 October 2021
  • Have been receiving JobSeeker, Youth Allowance, or Parenting Payment for at least one month in the past three months (this is a key requirement which cannot be overlooked)
  • Be in their first year of employment and employed for the period claiming.
  • Not receiving another subsidy under Commonwealth program.


No further extension of JobSeeker or JobKeeper

Clearly the government are looking to taper off support measures with JobKeeper which is still ending in March 2021.

No announced extension of the Coronavirus Supplement for those on JobSeeker past 31 December 2020 (currently at a rate of $250 per fortnight)

The government is clearly shifting focus from support mode to empowering businesses so they can recover and invest in growth.


Full expensing of assets - from 7 October 2020 until 30 June 2022

From now on, all eligible business will be able to immediately expense the entire value of business plant and equipment purchased as a tax deduction. Previously the immediate write off threshold was capped at $150,000 – now it is unlimited until 30 June 2022.

This means that businesses will no longer have to depreciate large plant and equipment purchases over several years – the tax benefit will be 100% available in the year of purchase.

This is available to all businesses with up to $5b turnover (yes billion – over 99% of businesses in Australia will be eligible for this).

The assets must be new but can include the cost of an improvement to an existing asset. Importantly small businesses with aggregated turnover of less than $50 million the asset can also apply this rule to second hand assets.


Ability to carry back losses – from lodgement of 2021 company returns

Companies with aggregated turnover of less than $5 billion will be able to carry back tax losses generated in the 2020, 2021 and 2022 financial years to offset previously taxed profits in the 2019 and later financial years.

Losses can be applied against taxed profits generating a refundable tax offset in the year the loss is made. The amount carried back can not be more that the earlier taxed profit and the offset cannot exceed the balance of tax paid by the entity (the franking account balance).

The objective of this provision is to allow once profitable companies to obtain a refund of tax they have paid in prior years to help their cashflow during their recovery.

The refund will be available when lodging 2021 and 2022 tax returns.

Carry forward losses remain the same and are not affected by the carry back election.


100,000 new apprenticeships subsidies – from 5 October 2020.

A business (or Group Training Organisation) that takes on a new Australian apprentice will be eligible for a 50% wage subsidy, regardless of geographic location, occupation, industry or business size.

The scheme will be available until the 100,000 cap has been reached.

Under the subsidy, employers will be eligible for up to 50% of the wages of a new or recommencing apprentice or trainee for the period up to 30 September 2021. The maximum subsidy is $7,000 per quarter.

The subsidy is paid in arrears and is available for wages paid from 5 October 2020 to 30 September 2021.

Eligible businesses are those that:

  • Engage an Australian Apprentice between 5 October 2020 and 30 September 2021, and
  • The Australian Apprentice or trainee is undertaking a Certificate II or higher qualification and has a training contract that is formally approved by the state training authority.


Changes to small business tax concessions

  • From 1 July 2020
    • Increase in turnover limit for eligible businesses from $10m to $50m
    • Access to immediate write off startup costs and prepaid expenditure
  • From 1 April 2021 – FBT exemptions on carparking and mobile electronic devices for staff
  • From 1 July 2021
    • Access to simplified trading stock rules
    • Access to 2-year amendment period
    • Access to simplified accounting method determination for GST


R&D tax concessions increased - from 1 July 2021

An extra $2 billion injected to the Research and Development Tax Incentive will mean an increase in the R&D tax incentive from 13.5% to 18.5% for companies under the $20 million turnover. For larger businesses, there will be changes in the existing tier system.

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.

There will be no cap on the refund amount either which is great news.


First home buyers

Expansion of previously announced first home buyers support providing $25,000 to build a new home or to rebuild.

Extension of First Home Loan Deposit Scheme to support first home buyers to buy with a deposit as low as 5%.

Continued support for first home buyers will be welcomed by the construction industry and property developers.


Final thoughts

The budget contained plenty more initiatives and infrastructure investments around the country supporting regions, manufacturing, digital development and more. This budget represents an unprecedented level of investment in the economy designed to reboot the economy and lower unemployment rates over the next couple of years.

If you would like more information on how these announcements relate to your personal situation, please get in touch with Link Advisors for chat.