The Government has announced that it will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income year). These changes involve:
These changes are illustrated in the following table (which excludes the Medicare Levy).
|Rate||Current (2019-2020)||Proposed (2021-2024)|
© National Tax & Accountants’ Association Ltd: 06 October 2020
The Government advised that the personal income tax rate changes that have already been legislated, effective from 1 July 2024 (i.e., from the 2025 income year), remain unchanged. These involve abolishing the 37% personal income tax bracket, reducing the 32.5% personal income tax bracket to 30%, and increasing the upper threshold of the reduced 30% tax bracket from $120,000 to $200,000.
The Government announced that it will also bring forward the changes that were proposed to the LITO from 1 July 2022, so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), as follows:
|Current LITO (2021-2022)||Proposed LITO (2021-2022)|
|$0-$37,000||Up to $445||$0-$37,500||Up to $700|
|$37,001-$66,666||$445 – 1.5% of excess over $37,000||$37,501-$45,000||$700 – 5% of excess over $37,500|
|$66,667+||NIL||$45,000-$66,666||$325 – 1.5% of excess over $45,000|
© National Tax & Accountants’ Association Ltd: 06 October 2020
NOTE the Government also announced that the current Low and Middle Income Tax Offset (‘LAMITO’) would continue to apply for the 2021 income year (which is available in addition to the LITO for eligible taxpayers). For example, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.
The Government has announced that it will expand the concessions available to Medium Sized Entities to provide access to up to ten Small Business Concessions.
For this purpose, a Medium Sized Entity is an entity with an aggregated annual turnover of at least $10 million and (less than) $50 million.
The expanded concessions will apply in three phases, as follows:
The Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.
The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.
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 credit for up to 12 months from the date the new position is created.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.
The amount of the credit is capped at $10,400 for each additional new position created. Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question (see employer eligibility requirements below).
Employees may be employed on a permanent, casual or fixed-term basis.
To be an ‘eligible employee’, the employee must:
Certain exclusions apply, including employees for whom the employer is also receiving a wage subsidy under another Commonwealth program.
An employer is able to access the JobMaker Hiring Credit if the employer:
Employers do not need to satisfy a fall in the turnover test to access the JobMaker Hiring Credit. Certain employers are excluded, including those who are claiming the JobKeeper payment.
New employers created after 30 September 2020 are not eligible for the first employee hired but are (potentially) eligible for the second and subsequent eligible hires.
The Government has announced that the Victorian Government’s Business Support Grants for small and medium businesses, as announced on 13 September 2020, are non-assessable, non- exempt income for tax purposes. The Government may extend this arrangement to similar future grants from all States and Territories on an application basis. Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.
The Government has announced it will introduce the following changes to the Capital Allowance provisions:
(a) Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction (what the Budget terms as ‘full expensing’) for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:
(b) As is currently legislated, businesses with aggregated annual turnover between $50 million and $500 million can still deduct the cost of eligible second-hand assets costing less than $150,000 that are purchased from 2 April 2019 and first used or installed ready for use between 12 March 2020 and 31 December 2020 under the enhanced instant asset write-off.
The Government has announced that it will extend the period in which such assets must first be used or installed ready for use by 6 months, until 30 June 2021.
(c) Small businesses (i.e., with an 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 (i.e., up to 30 June 2022).
Furthermore, 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.
The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.
This will allow such companies to generate a refundable tax offset in the year in which the loss is made. The tax refund is 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 companies when they lodge their tax returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
The corporate residency rules are fundamental to determining a company’s Australian income tax liability. The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
This change will ensure the principles governing the residency of foreign incorporated companies will reflect the position prior to the 2016 court decision in Bywater Investments Limited & Ors v. FCT; Hua Wang Bank Berhad v FCT  HCA 45 (after this decision the ATO withdrew Taxation Ruling (‘TR’) 2004/15 and later released TR 2018/5, incorporating the High Court’s residency test).
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017.
In order to reduce regulatory barriers, the Government has announced it will undertake public consultation on making permanent changes to the Corporations Act 2001. These changes would allow companies to call and conduct meetings electronically (with a quorum achievable through virtual attendance of shareholders and officers) and also to provide certainty that company officers can electronically execute a document.
From 2 October 2020, the Government will introduce an FBT exemption for retraining and reskilling benefits provided by an employer to redundant, or soon to be redundant, employees, where the benefits may not be related to their current employment (e.g., where an employer retrains a sales assistant in web design in order to redeploy them to an online marketing role in the business).
This measure is designed to encourage employers to assist redundant workers to transition to new employment opportunities within or outside an employer’s business (e.g., to prepare such employees for their next career), without triggering an FBT liability.
Currently, FBT is payable if an employer provides training to redundant, or soon to be redundant, employees and that training does not have a sufficient connection to their current employment.
The FBT 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 claim a tax deduction for education and training expenses they incur themselves, where the expense is not related to their current employment (e.g., where the expense relates to future employment).
The Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns. The measure will have effect from the start of the first FBT year (i.e., on 1 April) after the date of Royal Assent of the relevant legislation.
Currently, the FBT legislation prescribes the form that certain records must take, and forces employers (and in some cases employees) to create additional records in order to comply with FBT obligations.
This measure will allow employers (with what the Commissioner determines as adequate alternative records) to rely on existing corporate records, removing the need to complete additional records. This will reduce compliance costs for employers while maintaining the integrity of the FBT system.
A targeted CGT exemption will apply from 1 July 2021 (subject to the passing of legislation), for ‘granny flat arrangements’. Broadly, these involve older Australians or people with disabilities transferring their home or the proceeds from the sale of their home (and/or other assets) to their adult children or other trusted persons in return for the promise of ongoing housing and care.
Under this exemption, 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.
This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.
This measure is consistent with the recommendations made in the Board of Taxation’s Review of Granny Flat Arrangements, the Government’s National Plan to Respond to the Abuse of Older Australians announced on 19 March 2019, and the 2017 Australian Law Reform Commission’s Report: Elder Abuse — A National Legal Response.
The Government will provide $159.6 million over four years from 2020/21 to implement reforms to improve outcomes for superannuation fund members.
Currently, structural flaws in the superannuation system mean that unnecessary fees and insurance premiums are paid on multiple accounts, members pay too much in super fees, underperforming products are costing members in lost retirement savings, and there is inadequate transparency on how funds are spending members’ money.
From 1 July 2021, the proposed reforms will make the system better for members in four key ways:
The Government will clarify privileges and immunities, including income tax exemptions, available to Australian individuals performing short term missions on behalf of the International Monetary Fund (‘IMF’) and three institutions of the World Bank Group (‘WBG’). The measure will apply retrospectively from 1 July 2017.
This measure will clarify that Australian short-term experts are entitled to an exemption from income tax for their relevant income from the organisations. This aligns Australia’s domestic legislative framework with its international obligations and provides certainty for taxpayers. This outcome is consistent with Australia’s longstanding support for and contributions to the IMF and the WBG.
The Government will provide $15.1 million to the ATO to target serious and organised crime in the tax and superannuation systems. This extends the 2017/18 Budget measure Additional funding for addressing serious and organised crime in the tax system by a further two years to 30 June 2023.
The Government will provide $7 million in 2020/21 to support the mental health and financial wellbeing of small businesses impacted by COVID-19, including:
$4.3 million to provide free, accessible, and tailored support for small business owners by expanding Beyond Blue’s NewAccess program in partnership with the Australian Small Business and Family Enterprise Ombudsman; and
$2.2 million to expand a free accredited professional development program that builds the mental health literacy of trusted business advisers so that they can better support small business owners in times of distress, delivered through Deakin University.
The Government will implement certain insolvency reforms, effective from 1 January 2021 (subject to the passing of legislation) to support small business, including the following:
Currently, the insolvency system faces a number of challenges. These include an increase in the number of businesses in financial distress due to COVID-19, a ‘one-size-fits-all’ system, and high costs and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early thereby reducing their opportunity to restructure and survive.
Temporary insolvency and bankruptcy protections that were introduced in March 2020 to provide relief for businesses impacted by COVID-19 are due to expire on 31 December 2020 (e.g., under these measures, directors are temporarily relieved from personal liability for trading while insolvent). However, the number of companies being put into external administration is expected to increase significantly, putting additional stress on the system. Therefore, the above-proposed reforms will help more businesses to successfully get to the other side of the crisis.
Regulations that extend the time frame of the special condition of release to access $10,000 from superannuation for individuals experiencing financial difficulties due to COVID-19 have been formally registered.
The ability to withdraw up to $10,000 from superannuation (if certain conditions are met) was initially set to expire on 24 September 2020.
The newly registered Regulations to the SIS Act will now enable an eligible individual to withdraw up to $10,000 from superannuation (which is not assessable to the individual) until 31 December 2020.
To be eligible, a citizen or permanent resident of Australia (and New Zealand) must require the COVID-19 early release of super to assist them to deal with the adverse economic effects of COVID-19.
In addition, one of the following circumstances must apply:
The individual is unemployed
The individual is eligible to receive one of the following
On or after 1 January 2020 either
Please contact our office at 03 9587 7316for assistance if your financial circumstances have taken a turn for the worse due to COVID-19 and you wish to see if you are eligible to access your superannuation.
In a decision of the Administrative Appeals Tribunal, a taxpayer, Mr Bell, was denied a deduction for $21,565.73 of work-related vehicle expenses for the 2016 income year.
Mr Bell was a construction worker who predominantly worked on a construction site in an eastern suburb of Melbourne and lived approximately 100 kilometres away from that worksite.
Mr Bell owned a ute that had a load-carrying capacity of more than one tonne – so it fell outside the definition of a ‘car’ for the purposes of the ITAA 1997.
Mr Bell claimed a total deduction for $24,865.73 for motor vehicle expenses and received an allowance under his Enterprise Bargaining Agreement.
This allowance did not vary with the amount of travel undertaken and totalled $15,221 for the year.
Mr Bell contended that he was required to use his vehicle to transport heavy/bulky goods (tools) between his home and his workplace and to collect supplies and equipment from hardware stores while travelling between his workplace and his home.
Ordinarily, travel from home-to-work (and back again) is considered non-deductible. However, if an employee is required to carry heavy/bulky equipment for which there are no secure storage facilities at work, the travel between home and work with the heavy/bulky equipment can be considered deductible.
Unfortunately for Mr Bell, the evidence before the Tribunal indicated that there were safe and secure storage facilities for his tools (the bulky/heavy equipment) at the worksite.
Accordingly, Mr Bell was unable to rely upon the ‘bulky goods’ exception to re characterise home-to-work travel as being a deductible work expense.
Instead, it retained its ordinary private and non-deductible status.
Mr Bell was unsuccessful in advancing the argument that he was entitled to a deduction in relation to the motor vehicle expenses because he was in receipt of an allowance.
However, Mr Bell was able to convince the ATO that he had undertaken at least some work-related travel using his vehicle. The ATO allowed Mr Bell a deduction under the ‘cents per kilometre method’ up to the maximum dollar amount for 5,000 kilometres for the 2016 income year of $3,300.
This decision provides a timely reminder that simply carrying bulky equipment between home and work will not make these trips deductible, where there is a secure place for the equipment to be stored at the employee’s worksite. The decision also highlights the fallacy of assuming that being in receipt of an allowance somehow entitles the taxpayer to an offsetting deduction.
The taxpayer was technically ‘lucky’ that he was allowed the ‘cents per kilometre method’ deduction for work-related travel, given that his motor vehicle fell outside the definition of a ‘car’.
This is because the cents per kilometre method only applies to ‘cars’, so it could be said that the ATO was generous to the taxpayer in these circumstances.
Please contact our office, at 03 9587 7316, if you have any queries as to the deductibility of work-related travel.
Please contact our office on 03 9587 7316 for further assistance.
Broadly, JobKeeper Payments received by an employer are assessable income to the employer.
Likewise, the payments an employer subsequently makes to an employee that are funded (in whole or in part by the JobKeeper Payment) are generally allowable deductions to the employer.
The ATO has recently issued some guidance for employers in receipt of JobKeeper Payments.
For sole traders, they will need to include the payments as business income in their individual tax return.
For a taxpayer that has repaid (or is in the process of repaying) any of their JobKeeper payments to the ATO, these amounts do not need to be included in their tax return.
NOTE a business would be refunding JobKeeper payments to the ATO if it had been discovered that the business had incorrectly claimed JobKeeper payments and had either voluntarily disclosed this to the ATO, or the ATO made this determination as a result of audit activity.
The normal rules for deductibility apply in respect of the amounts a taxpayer pays to their employees, even where those amounts are subsidised by the JobKeeper payment.
That is, if the underlying salary is deductible, then it is still deductible to the employer where it has been subsidised by a JobKeeper payment.
For employees who have received JobKeeper payments, these will be included as salary and wages (or an allowance) in their income statement (or payment summary) as provided by their employer.
If you have any queries about the JobKeeper Payment scheme, please contact our office.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
You are welcome to contact our office on 03 9587 7316 or email firstname.lastname@example.org for further advice and assistance.