The Australian Government released its budget for 2021 in October. The budget included tax rate cuts to business and individuals (which had already been planned but brought forward to boost economic growth), changes to superannuation, and new employer cash incentives. The details of these changes will be summarised in our blog as soon as possible. Please check back for updates.
New Individual Tax Rates
Resident tax brackets have been adjusted as per the table below, effectively cutting individual tax for those earning between $37,000 and $120,000 and above. The change is applied retrospectively from 1st July 2020 so taxpayers can expect a larger refund this year, as they would have initially been taxed under the old tax brackets (from July 2020 to October 2020).
Resident tax rates 2020–21
The above rates do not include the Medicare levy of 2%.
Here is how these changes will affect taxpayers:
Further cuts are planned from 2024 financial year which will see the elimination of one of the middle tax brackets and a tax of 30% + Medicare levy for income earned between $45000 and $200,000.
Company Tax Rates
The government announced in previous budgets, the plan to reduce the company tax rate to 25%. Effective from 1st July 2020, the company tax rate (for base rate entities) has been reduced from 27.5% to 26%. It will be reduced to 25% from 1st July 2021. Companies which do not meet the criteria for base rate entity will continue to pay 30% company tax.
Base rate entity company tax rate
A base rate entity is a company that both:
has an aggregated turnover less than the aggregated turnover threshold – which is $25 million for the 2017–18 income year and $50 million from the 2018–19 income year
80% or less of their assessable income is base rate entity passive income – this replaces the requirement to be carrying on a business.
Base rate entity passive income is:
corporate distributions and franking credits on these distributions
royalties and rent
interest income (some exceptions apply)
gains on qualifying securities
a net capital gain
an amount included in the assessable income of a partner in a partnership or a beneficiary of a trust, to the extent it is traceable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
Business Depreciation
The accelerated depreciation has effectively been replaced by “full expensing” which allows eligible businesses to claim a deduction for investment in fixed assets in full, during the year that they are purchased and installed for use. There is no limit on the investment value (e.g. an agribusiness purchases equipment valued at $200,000 net of GST on 1st July 2021 and claims a deduction of $200,000 in full, during the 2022 financial year. Full expensing can be utilised until 30th June 2022.
Temporary Loss Carry-Back
Losses incurred in 2019–20, 2020–21 and/or 2021–22 can be carried back against profits made in or after 2018–19. Eligible companies may elect to receive a tax refund when they lodge their 2020–21 and 2021–22 tax returns. This measure will help companies that were profitable and tax-paying but now find themselves in a loss position due to the COVID-19 pandemic.
For example, a company with turnover of less than $5bn reports a taxable profit of $100,000 in 2019 financial year and pays $27,500 tax. In the 2020 financial year, they report a taxable loss of $50,000. They elect to carry back the loss and claim a tax refund of $50,000 x 27.5% i.e. $13750 which will be refundable to the company as cash.
JobMaker Hiring Credit
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. To be eligible, the employee must have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one of the previous three months at the time of hiring.
The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the Australian Taxation Office (ATO) from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria. The JobMaker Hiring Credit is designed to support new employment. Employers do not need to satisfy a fall in turnover test.
For more information about changes announced in the budget, please visit this website.