What a difference a year makes! We’ve gone from last year’s expectations of being “back in the black” for the first time in several years, to record deficits not seen in the post-war era.
The massive extent of the Federal Government’s fiscal stimulus was obviously expected and encouraged by many, with the inevitable analysis of which groups gained and lost the most from this year’s Budget measures.
Some of the key areas of focus include:
Personal tax cuts
The centrepiece of the Budget was the bringing forward of stage two of the previously announced tax cuts from 1 July 2022, not just to 2021, but backdated to 1 July 2020. This was a surprise move, and one that provides a more immediate cashflow benefit.
Now that the legislation has been passed, employees should have seen an increase in their after-tax pay from November, although they will have to wait until lodging their 30 June 2021 tax return to get the benefit of the tax cut that relates to the period from July to October 2020.
Those paying PAYG instalments, including investors and business owners, would need to vary their instalments by estimating their expected tax for 2021 under the reduced rates in order to gain an immediate benefit.
Any individuals earning less than $126,000 will also benefit from the decision to retain the Low and Middle-Income Tax Offset (LMITO) for 2021, despite the tax cuts, although again this benefit will not be received until lodging their 2021 tax returns, and the benefit is short-lived as it disappears from 2022.
Tax concessions for small business
Business taxes were a key focus of the Budget, with the government wanting to do everything possible to help drive economic activity, especially as JobKeeper continues to wind down.
One initiative has been to progressively expand the scope of certain key small business concessions that have previously been available only to those with aggregated turnover up to $10 million by raising the turnover threshold to $50 million.
Instant asset write-off concessions
Another major area is further changes to the rules on outright deductions for capital asset purchases, with all business having aggregated turnover up to $5 billion being able to deduct the cost of new depreciable assets (subject to the normal luxury car limits) purchased from Budget night (October 6) up to 30 June 2022. For second-hand assets, the existing concession for claiming purchases costing up to $150,000 still applies for turnover up to $500 million that are purchased by 31 December 2020, with an extra six months being granted until 30 June 2021 to first use or install such assets.
Loss carry-back rules
The next major initiative is the temporary re-introduction of loss carry-back rules, which existed briefly in 2013. Any corporate entity with aggregated turnover of less than $5 billion may choose to carry-back the benefit of losses from the 2020, 2021 or 2022 years where tax has been paid in 2019 or later years. The benefit will be received as a refundable tax offset, limited to the amount of previously taxed profits and ensuring that the tax offset does not produce a franking account deficit for the company.
While this is a very welcome measure and one to be applauded, unfortunately the first opportunity to claim the tax offset will be on lodgement of the company’s 2021 tax return, so it will be some months before any direct cash flow impact will be felt.
There were only minor changes to superannuation this year, focused around improving efficiency for members of larger funds. These changes include the proposed development of a new YourSuper portal that will enable new employees to choose from a table of MySuper products, the “stapling” of an existing account to a member to avoid the creation of a new account when changing employment, and MySuper benchmarking of products by APRA from July 2021 to improve transparency.
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