The Government tonight unveiled the 2020-21 Federal Budget at Parliament
House in Canberra.
This year’s budget projects the largest deficit since World War II. The
budget has been framed against a backdrop set by the ongoing impact of
COVID-19 driving Australia’s economy into the first recession in almost 30
years. The budget papers also show Australia is facing its first negative
net migration rate since 1946 and the lowest population growth in more than
a century.
In handing down the Budget speech, Federal Treasurer, Josh Frydenberg
outlined the government’s measures in response to the coronavirus pandemic
that are expected to help bring back Australian jobs and to support
Australian businesses who had been hit hard by the COVID-19 pandemic.
While severely impacted, Australia’s economy has weathered the global
pandemic relatively well. The unemployment rate is expected to have peaked,
falling to 6.8% in August, while underemployment remains around 11%.
The underlying cash balance for the Budget is forecast to be a deficit of
$213.7 billion in 2020-21 and remain in deficit over the forward estimates
period. Gross debt is expected to pass $1.7 trillion, or around 55% of GDP
up from 12.8% in last year’s budget.
Driving the large deficit is the Government’s focus on boosting aggregate
demand and creating jobs. In this context, key budget measures are focused
on incentivising businesses to invest in new assets, to hire unemployed
Australians, and to drive consumer demand through the bringing forward of
personal tax cuts. Additionally, the Government is implementing support
mechanisms for re-skilling of workers, fast-tracking infrastructure
projects, and investment into six priority manufacturing sectors across the
economy.
Some of the key measures announced in the 2020-21 Federal Budget which are
relevant to the private capital industry and the business sector are
detailed below.
Personal income tax cuts brought forward
Millions of Australians will have more money in their pockets within weeks
with tax cuts, scheduled to start in July 2022, are being brought forward
and backdated to July of this year. The Government will bring forward the
second stage of its Personal Income Tax Plan by two years to 1 July 2020
while retaining the low and middle income tax offset (LMITO) for 2020-21. The changes will provide immediate
tax relief to individuals and support the economic recovery and jobs by
boosting consumption.
The Government will provide additional support to Australian taxpayers by
bringing forward the tax cuts in Stage 2 of the Personal Income Tax Plan
from 1 July 2022 to 1 July 2020:
- The top threshold of the 19 per cent personal income tax bracket will
increase from $37,000 to $45,000.
- The low-income tax offset (LITO) will increase from $445 to $700. The
increased LITO will be withdrawn at a rate of 5 cents per dollar between
taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at
a rate of 1.5 cents per dollar between taxable incomes of $45,000 and
$66,667.
- The top threshold of the 32.5 per cent personal income tax bracket will
increase from $90,000 to $120,000.
The Government will retain the LMITO for the 2020-21 income year, providing
further targeted tax relief for low- and middle-income earners. The LMITO
provides a reduction in tax of up to $1,080. It provides a reduction in tax
of up to $255 for taxpayers with a taxable income of $37,000 or less.
Between taxable incomes of $37,000 and $48,000, the value of the offset
increases at a rate of 7.5 cents per dollar to the maximum offset of
$1,080. Taxpayers with taxable incomes between $48,000 and $90,000 are
eligible for the maximum offset of $1,080. For taxable incomes of $90,000
to $126,000, the offset phases out at a rate of 3 cents per dollar.
Consistent with current arrangements, the LMITO will be received on
assessment after individuals lodge their tax returns for the 2020-21 income
year.
Stage 3 of the Personal Income Tax Plan remains unchanged and commences in
2024-25 as legislated.
Investment allowance extension
The Government will support businesses with aggregated annual turnover of
less than $5 billion by enabling them to deduct the full cost of eligible
capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night)
and first used or installed by 30 June 2022. It will improve cash flow for
qualifying businesses that purchase eligible assets and bring forward new
investment to support the economic recovery.
Full expensing in the year of first use will apply to new depreciable
assets and the cost of improvements to existing eligible assets. For small
and medium sized businesses (with aggregated annual turnover of less than
$50 million), full expensing also applies to second-hand assets.
Businesses with aggregated annual turnover between $50 million and $500
million can still deduct the full cost of eligible second-hand assets
costing less than $150,000 that are purchased by 31 December 2020 under the
enhanced instant asset write-off. Businesses that hold assets eligible for
the enhanced $150,000 instant asset write-off will have an extra six
months, until 30 June 2021, to first use or install those assets.
Small businesses (with aggregated annual turnover of less than $10 million)
can deduct the 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 opt-out will continue to be suspended.
Research and Development Tax Incentive
The current R&D Tax incentive Bill that proposed the introduction of
$1.8 billion in cuts over four years from 20-19-20 has been abandoned. This
provides some certainty for innovative companies as the current RDTI regime
will apply for the 2019-20 and 2020-21 Financial Years. The government will
also enhance previously announced reforms to invest an additional $2
billion through the Research and Development Tax Incentive. These changes
will commence from 1 July 2021 and the government estimates this will help
more than 11,400 companies that invest in research and development to
create the jobs for the medium to long term.
The Government will make further enhancements to the 2019-20 MYEFO measure Better targeting the research and development tax incentive —
refinements to support business Research and Development (R&D) investment in Australia and help businesses
manage the economic impacts of the COVID-19 pandemic.
For small companies, those with aggregated annual turnover of 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, and the $4 million cap on
annual cash refunds will not proceed.
For larger companies, those with aggregated annual turnover of $20 million
or more, the Government will reduce the number of intensity tiers from
three to two. This will provide greater certainty for R&D investment
while still rewarding those companies that commit a greater proportion of
their business expenditure to R&D.
The R&D premium ties the rates of the non-refundable R&D tax offset
to a company’s incremental R&D intensity, which is R&D expenditure
as a proportion of total expenses for the year. The marginal R&D
premium will be the claimant’s company tax rate plus:
- 8.5 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
- 16.5 percentage points above the claimant’s company tax rate for R&D
expenditure above 2 per cent R&D intensity for larger companies.
The Government will defer the start date so that all changes to the program
apply to income years starting on or after 1 July 2021, to provide
businesses with greater certainty as they navigate the economic impacts of
the COVID-19 pandemic.
All other aspects of the 2019-20 MYEFO measure will remain unchanged,
including the increase to the R&D expenditure threshold from $100
million to $150 million per annum.
This measure is estimated to decrease the underlying cash balance by $2.0
billion over the forward estimates period.
Temporary loss carry-back to support cash flow
The Government will allow eligible companies to carry back tax losses from
the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed
profits in 2018-19 or later income years.
Corporate tax entities with an aggregated turnover of less than $5 billion
can apply tax losses against taxed profits in a previous year, generating a
refundable tax offset in the year in which the loss is made. The tax refund
would be limited by requiring that the amount carried back is not more than
the earlier taxed profits and that the carry back does not generate a
franking account deficit. The tax refund will be available on election by
eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
Currently, companies are required to carry losses forward to offset profits
in future years. Companies that do not elect to carry back losses under
this measure can still carry losses forward as normal.
This measure will promote economic recovery by providing cash flow support
to previously profitable companies that have fallen into a tax loss
position as a result of the currently weaker economic conditions,
themselves associated with the economic impact of COVID-19. Loss carry-back
will also support the incentive for companies to invest under the measure.
Changes to fringe benefits tax and other small business tax concessions
Businesses with an aggregated annual turnover between $10 million and $50
million will get access to tax breaks including on fringe benefits tax and
simplified regulations. From July 1 2020, eligible businesses will be able
to immediately deduct specified start-up expenses and some prepaid
expenditure. They will get simplified trading stock rules, remit PAYG
instalments based on GDP adjusted notional tax, and will be able to settle
excise duty and excise-equivalent customs duty monthly on eligible goods.
Businesses will also no longer have to pay fringe benefits tax if they pay
to
retrain or reskill employees
who are moved to a different role in the business.
From 1 April 2021, these businesses will no longer have to pay FBT on free
car parking provided to employees in non-commercial car parks and various
work-related portable electronic devices, such as phones or laptops,
provided to employees.
Accelerating digital transformation
The Government is investing a further $419 million to fund the full roll
out of the Modernising Business Registers program to significantly
streamline interactions with government by allowing businesses to quickly
view, update and maintain their business registry data in one location.
This will make it easier to start, run and close a business. Over the next
two years, the Government will invest $256 million in the expansion of its
Digital Identity system and will provide an additional $9.6 million for
fintech trade and investment flows.
The Commonwealth will mandate e-invoicing by all agencies by 1 July 2022,
with over 80 per cent of invoices being able to be received electronically
by 1 July 2021. An amount of $419 million will be allocated to modernise
business registers and $256 million to expand the Digital Identity
initiative.
A further $11.4 million will be invested into a new Regtech
Commercialisation Initiative, to make it easier for businesses to comply
with regulations. Government agencies and regulators will collaborate with
SMEs to develop technology-driven solutions to improve policy and service
delivery.
Jobmaker Plan
The five-year JobMaker Plan, which focuses on driving sustainable, private
sector-led growth and job creation, recognises that a stronger economy
will strengthen the budget and ensure Australia is well placed to respond
to future shocks. A
JobMaker Hiring Credit
will be available to employers for each new job they create over the next
12 months for which they hire a person aged 16 to 35 years old who received
JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at
least one of the previous three months at the time of hiring. Employers
will be eligible to receive the JobMaker Hiring Credit for up to 12 months.
This will replace continuance of the JobKeeper payment beyond March. From 7
October 2020, eligible employers will be able to claim $200 a week for each
additional eligible employee they hire aged 16 to 29 years old; and $100 a
week for each additional eligible employee aged 30 to 35 years old. New
jobs created until 6 October 2021 will attract the JobMaker Hiring Credit
for up to 12 months from the date the new position is created.
JobTrainer Fund
A $1 billion JobTrainer Fund will be established to create up to 340,000
free or low-cost training places for school leavers and job seekers. This
builds on the government’s
commitment
of an additional $1.2 billion to create 100,000 new apprenticeships and
traineeships, with a 50 per cent wage subsidy for businesses who employ
them.
Infrastructure spending
A $7.5 billion new investment in national transport infrastructure is
another
government initiative
that aims to boost the national economy and create jobs. The funding will
focus on fast-tracked road and rail projects around Australia and is
estimated to support 40,000 direct and indirect jobs Australia-wide.
In addition, Australian states will have access to a $10 billion pool of
infrastructure funding designed to encourage them to spend by providing
more for those who get the money out the door the quickest.
Manufacturing
The government recently announced has selected priority industries to
develop Australia’s advanced manufacturing capability where it will provide
an extra
$1.5 billion over four years
. These include resources technology and critical minerals processing, food
and beverage, medical products, recycling and clean energy, defence, and
space. These industries will benefit from co-investment in large projects,
grants for transformational investment in technologies and processes, as
well as supply chain resilience. The plan will also focus on building
“supply chain resilience”, after the COVID-19 pandemic exposed the risks of
not having enough capability to quickly produce large amounts of vital
items, such as personal protective equipment.
Simplified trade system
The Government will invest $28.6 million to support initiatives to
modernise Australia’s trade system and streamline border services, to
reduce administrative complexity and improve the efficiency of
international trade. Simplifying the regulatory foundations of a future
single trade window will be an important part of this work. At present, 28
agencies regulate trade at the border, applying more than 120 pieces of
Commonwealth regulation. The single window will build on fundamental reform
of trade regulations and processes and ultimately harness cost-effective IT
systems, to make it easier for businesses to be a part of global supply
chains.
Strengthening Australia’s Foreign Investment Framework
The Government will provide $86.3 million over four years to implement a
new ICT platform to support more effective and efficient foreign investment
application processing and compliance activities across Government and a
new consolidated Register of Foreign Ownership of Australian Assets. This
is in addition to net funding of $54.1 million over four years announced in
the July 2020 Economic and Fiscal Update, for Reforming Australia’s Foreign Investment Framework.
The Government will also simplify the foreign investment fee framework and
adjust fees from 1 January 2021. The revised fees will ensure that foreign
investors, not Australian taxpayers, bear the costs of administering the
foreign investment system.
Changes to the Business Innovation and Investment Migration Program
From 1 July 2021, the Government will streamline and improve the operation
of the Business Innovation and Investment Program (BIIP). The Government
will introduce changes to improve the quality of investments and
applicants. Visa application charges for BIIP visas will also be increased
by an additional 11.3 per cent (above regular CPI indexation) on 1 July
2021.
These changes will sharpen the focus of the BIIP program on higher value
investors, business owners and entrepreneurs and improve the economic
outcomes of the BIIP.
This measure is estimated to have no net impact on receipts over the
forward estimates period. The Department of Home Affairs will be provided
with $1.2 million to implement the proposal.
FBT exemption to support retraining and reskilling
The Government will introduce an exemption from the 47 per cent fringe
benefits tax (FBT) for employer provided retraining and reskilling benefits
provided to redundant, or soon to be redundant employees where the benefits
may not be related to their current employment. This measure applies from
announcement.
Currently, FBT is payable if an employer provides training to redundant, or
soon to be redundant, employees and that training does not have sufficient
connection to their current employment. This measure will provide an FBT
exemption for a broader range of retraining and reskilling benefits,
incentivising employers to retrain redundant employees to prepare them for
their next career.
The exemption will not extend to retraining acquired by way of a salary
packaging arrangement. It will also not be available for Commonwealth
supported places at universities, which already receive a benefit, or
extend to repayments towards Commonwealth student loans.
The Government will also consult on allowing an individual to deduct
education and training expenses they incur themselves where the expense is
not related to their current employment. Individuals can currently deduct
education or training expenses they incur which are sufficiently related to
their current employment. The current system may act as a disincentive for
Australians to retrain and reskill to support their future employment and
career. The Government will consult on potential changes to the current
arrangements to determine whether deductions should also be targeted to
future employment and skills needs.
Increase to the small business entity turnover threshold
The Government will expand access to a range of small business tax
concessions by increasing the small business entity turnover threshold for
these concessions from $10 million to $50 million.
Businesses with an aggregated annual turnover of $10 million or more but
less than $50 million will for the first time have access to up to ten
further small business tax concessions in three phases:
- From 1 July 2020, eligible businesses will be able to immediately deduct
certain start-up expenses and certain prepaid expenditure.
- From 1 April 2021, eligible businesses will be exempt from the 47 per
cent fringe benefits tax on car parking and multiple work-related portable
electronic devices (such as phones or laptops) provided to employees.
- From 1 July 2021, eligible businesses will be able to access the
simplified trading stock rules, remit pay as you go (PAYG) instalments
based on GDP adjusted notional tax, and settle excise duty and
excise-equivalent customs duty monthly on eligible goods under the small
business entity concession. Eligible businesses will also have a two-year
amendment period apply to income tax assessments for income years starting
from 1 July 2021, excluding entities that have significant international
tax dealings or particularly complex affairs.
In addition, from 1 July 2021, the Commissioner of Taxation’s power to
create a simplified accounting method determination for GST purposes will
be expanded to below the $50 million aggregated annual turnover threshold.
These changes will simplify eligibility and reduce red tape for around
20,000 businesses, as more turnover thresholds will align to the aggregated
annual turnover threshold for a base rate entity for company tax purposes.
The eligibility turnover thresholds for other small business tax
concessions will remain at their current levels.
Superannuation
Tonight, the government announced that new super accounts will no longer be
automatically created every time a worker changes jobs to stop the creation
of unintended multiple super accounts. Under
Your Super Your Future Reforms
a new super account will no longer be created automatically each time a
person starts a new job. Instead, the employer will pay super to the
employee’s existing superannuation fund if they have one, unless they
select another fund.
Affordable Housing
An additional $1 billion of low-cost finance will be provided by the
National Housing Finance and Investment Corporation to attract
institutional investment to support the construction of affordable housing
taking the total concessional finance that has been made available to
community housing providers to $3 billion.
The government will also invest $150 million in the Indigenous Home
Ownership Program to construct new homes in regional areas, creating more
jobs and helping hundreds of indigenous families buy their own home.
For more detail and to access the Budget Papers, visit: www.budget.gov.au
In August 2020, the Australian Investment Council lodged a
pre-budget submission
outlining policy initiatives aimed at regaining investment momentum,
creating jobs and stimulating economic growth. The Council also provided
Treasury with its
Roadmap to Recovery: Creating a stronger and more dynamic economy
policy document, which leverages industry data and a comprehensive member
survey
Mental Health Funding
The 2020-21 Federal Budget includes $101 million of additional funding to
provide access to 10 additional Medicare subsidised psychological therapy
sessions for people with a mental health care plan, so that they can
continue to access the services they need.
Investing in medical research
The Government is investing $47 million over four years to accelerate
research into diabetes and cardiovascular diseases which affect millions of
Australians. A $50 million contribution will be made to establish the
Victorian Melanoma and Clinical Trials Centre at the Alfred Hospital, to
help researchers better understand melanoma.
University research and commercialisation
To help drive change in universities, the Government will undertake a
scoping study of potential options to accelerate the translation and
commercialisation of university research. These options will include new
partnerships between universities and industry and opportunities for
investments.
The Government is providing $1 billion in new research funding to the
university sector in 2020‑21.and will invest $41.6 million over four years
to establish a Strategic University Reform Fund to encourage universities
to undertake innovative reform projects that align with priority areas
within local communities. The Government is also delivering the 2020 update
of the $1.9 billion Research Infrastructure Investment Plan to ensure
investment into national research infrastructure is being maintained to
support world leading research and attract international collaboration. An
additional $459.2 million over four years will be provided to the
Commonwealth Scientific and Industrial Research Organisation including $5
million to enhance agricultural and grazing research facilities.
Australia’s Cyber Security Strategy 2020
The Government will provide an additional $201.5 million to deliver the
2020 Cyber Security Strategy. As part of the Strategy, among other
initiatives, the Government will invest $128.1 million to counter
cybercrime and $37.7 million in growing Australia’s cyber security skills.
Foreign Influence Transparency Scheme — extension
An additional $7.3 million over four years from 2020-21 (and $1.9 million
ongoing) will be provided to extend the Foreign influence Transparency
Scheme introduced on 20 December 2018.
Export Market Development Grants — scheme simplification
The Government will simplify and reorient the Export Market Development
Grants Scheme (EMDG) to more effectively support export-ready small and
medium enterprises. This follows an
independent review
of the EMDG scheme which made ten recommendations centred on cutting red
tape, increasing awareness of the scheme and giving exporters more funding
certainty.
Second Women’s Economic Security Package
The Government is investing in women’s economic security and supporting
increased female workforce participation through the 2020 Women’s Economic
Security Statement. The Government will provide $240.4 million over five
years from 2020‑21 to increase women’s workforce participation, improve
earning potential and enhance economic independence.
Global business and talent attraction taskforce
A Global Business and Talent Attraction Taskforce has been established to
attract business and talent to Australia. The taskforce brings together
experts from across the Commonwealth, states and territories as well as the
private sector and will encourage international businesses and exceptional
talent to move to Australia to support the recovery and boost local jobs.
National Action Plan to Combat Modern Slavery 2020-25
The 2020-21 Budget has allocated $10.6 million to implement the
Government’s next five-year National Action Plan to Combat Modern Slavery
2020-25, which will guide government’s response to fighting this crime and
supporting victims. This funding will help equip businesses to manage
supply chain risks, provide multi-year grant funding opportunities for
organisations to deliver projects to combat modern slavery in Australia,
and assist international partners to address modern slavery and human
trafficking.
Investment in new energy technologies
The Government has released the first Low Emissions Technology Statement to
accelerate the development of future technologies to lower emissions,
increase investment, lower costs and create jobs to support the economic
recovery.
The Statement will in part be delivered through a $1.9 billion investment
package. The Australian Renewable Energy Agency (ARENA) and the Clean
Energy Finance Corporation will have their remits broadened to support this
next wave of technologies. ARENA will receive $1.6 billion in new funding,
including $1.4 billion in base funding, to accelerate the development of
new and emerging technologies that will cut emissions in sectors like
agriculture, manufacturing and transport. ARENA will also become a clean
technology grants hub for future initiatives, including Future Fuels and
microgrids.