Where do we start? 

There was no doubt heading into this year’s budget that this would be something different – the fact that it was delivered during daylight savings time as it was pushed back from May to October was only the start.

The economic impact of Coronavirus/COVID-19 has resulted in the economy contracting by a record 7% during the June quarter alone, and resulted in a forecast record deficit for 2020-2021 of $213.7 billion – equivalent to 11% of GDP.

That is not a typo – a $213.7 billion deficit. The magnitude of this size deficit cannot be comprehended compared to $40-$50 billion deficits delivered during the response to the GFC in 2009-2011, which at their peak were a comparatively small 4.2% of GDP. 

The Government has already spent $507 billion since the onset of the pandemic, over half of which is direct economic support such as JobKeeper and the Cash Flow Boost, as well increases in JobSeeker.

Still, apparently things could be a lot worse. Compare Australia’s GDP fall of 7% to the falls of 12.2% in New Zealand, 11.5% in Canada, 13.8% in France, and 19.8% in the United Kingdom.

Is a deficit a bad thing? Certainly there is an argument that budget deficits are necessary to enable the economy to rebound and recover, particularly given the impact that 2020 has brought to Australia, and more particularly to regions such as Victoria which have endured more hardship than other states..

There is no doubt that with the economic damage that lockdowns, travel restrictions and social restrictions have created in both domestic and export trade, that it is going to take a record breaking effort to recover economically. A large part of this will be government investment into areas such as infrastructure and other initiatives in order to create jobs and to also build future benefits in the economy through these projects. 

It may also take a monumental social effort to during the next few years for the country to work its way through the ongoing impacts and try and return some form of normality, whatever that may look like in the future.

How well this recovery takes shape, and at what speed the economy can recover, remains to be seen. 

Specific budget measures
We have highlighted in the sections below the major announcements affecting individuals and businesses. 

On top of these amounts, there have been major spending initiatives that will apply through various programs to industries such as agriculture, tourism, defence,  health, child care, and other areas such as infrastructure, regional Australia, improvements to the adoption of digital technologies by Australian businesses, and various other payments and initiatives. 

No doubt there will be further announcements as the details and conditions of eligibility for all of these spending initiatives are finalised. As the details are released, we will endeavour to keep you up to date with the myriad of changes that will come through.

Individuals

The major announcement in the Budget is the bringing forward of tax cuts that were previously announced to commence on 1 July 2022, and they will now commence on 1 July 2020 (i.e. this financial year). 

These changes are:

• increase the 19% tax threshold from $37,000 to $45,000
• The low income tax offset will be increased from $445 to $700
• Increase the 32.5% tax threshold from $90,000 to $120,000
• Retain the low and middle income tax offset of $1,080 for those on incomes between $48,000 and $90,000 (phasing out for incomes up to $126,000)

These additional tax cuts will be deliver tax savings of $1,080 for those on incomes of $45,000, and up to $2,430 in tax savings for those incomes of $120,000 and higher. 

As these measures apply from 1 July 2020, this will immediately reduce the amount of tax withheld, thereby increasing take home pay once the legislation is passed in parliament.

Further economic support payments
The government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients of the following payments and health care card holders:

• Age Pension
• Disability Support Pension
• Carer Payment
• Family Tax Benefit
• Carer Allowance
• Pensioner Concession Card
• Commonwealth Seniors Health Card holders
• Eligible Veteran’s Affairs payment recipients and concession card holders

Exempting granny flats from capital gains tax
The government will provide a targeted CGT exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. 

Businesses

Full depreciation on eligible capital assets For businesses with aggregated turnover of less than $50 million, they will now be able to deduct the full cost of depreciable assets acquired from 7:30pm on 6 October 2020 (Budget night), and first used or installed by 30 June 2022. This has removed the previous limit of $150,000 which was announced earlier in the year.

Temporary loss carry-back
Companies with aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year – losses from the 2019-20, 2020-21 or 2021-22 income years can offset previously taxed profits in the 2019-2019 or later income years. The tax refund will be available when the company lodges its 2020-21 and 2021-22 tax returns (i.e. no refund until July 2021 at the earliest).

Extension to JobKeeper
The extension to JobKeeper has been previously announced, and will extend JobKeeper to eligible businesses through to March 2021.

Boosting apprenticeships wage subsidy
From 5 October 2020 to 30 September 2021, businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places. 

JobMaker Hiring Credit
The JobMaker Hiring Credit will be available to eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll, and they will receive $200 per week if they hire an eligible employee aged 16 to 29 years, or $100 per week if they hire an eligible employee aged 30 to 35 years.

The JobMaker Hiring Credit will be available for up to 12 months from the date of employment, with a maximum amount of $10,400 per additional new position created.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one month out of the three months prior to when they are hired.

The Federal Government has made its long awaited announcement on the future of JobKeeper. The program will be extended to 28 March 2021, and will lower the payment rates as follows:

• From 28 September 2020 to 3 January 2021 the payment will be $1,200 per fortnight for full-time employees, and $750 for other employees and business participants
• From 4 January 2021 to 28 March 2021, the payment will be $1,000 per fortnight for full-time employees, and $650 for other employees and business participants

The turnover tests will still require a drop of 30% in turnover, however the tests will compare the June 2020 quarter and September 2020 quarters to the corresponding periods in 2019, and both quarters must show the decline in turnover.

From 28 March 2021, it is anticipated that the JobKeeper program will end.

it is estimated that the cost of this extended package will be $16 billion, with $30 billion already paid out to date. This is a large number, but well short of the initial estimates of $130 billion.

Life After JobKeeper – prepare now, prepare hard

A quick analysis of our clients shows that only one-third of those currently on JobKeeper will continue to receive it after 28 September 2020. This is a result of turnovers in June not meeting the 30% decline, and it is further expected that turnover in September will likely increase for some of the remaining businesses so that even more will be ineligible.

Government support is being paid for by Government debt – the budget deficit is expected to be around $184 billion in a year we were expecting a $7.1 billlion surplus, and national debt is expected to balloon to $677 billion by 30 June 2021, compared to the balance of $487 billion at 30 June 2020.

This level of government support obviously cannot continue indefinitely.

So what will be your reality without JobKeeper? 

Trying to stay eligible for JobKeeper
Some businesses will look at the tests and try to manoeuvre their income so that they qualify for the extended JobKeeper – keeping in mind June quarter has ended so it cannot be adjusted. There are also anti-avoidance provisions which are in place for this exact reason.

It is fine to qualify if your business is genuinely affected, however knocking back work and income to qualify for government support has flow on effects.

Getting bank finance
Obtaining finance from the banks is becoming increasingly difficult. Reforms as a result of the Royal Commission, combined with increased lending standards as a result of COVID and the expected economic impact is making it an increasingly more difficulty and lengthy process to get funding. If you need money in two months, you should be applying now to make sure you have a chance of getting it in time.

Banks will not lend against JobKeeper income, so they will exclude amounts received when assessing your ability to service loans. We have heard of instances where incomes have been deliberately decreased to access benefits like early access to superannuation, but then those same people wanted bank funding to access the first home owner grant and the $25k building incentive. What seemed like a good idea at the time came back to bite with no finance available. 

Lost opportunity?
As a business owner, you also need to consider whether deferring income and declining work is a smart business decision. The opportunity might not be there again in 3-6 months.

Unemployment is forecast to hit 9.0% in the December 2020 quarter, which means that employment opportunities and the reduction of JobKeeper is showing the true extent of the impact coronavirus is having on our economy.

The old saying “cash is king” rings as true today as it ever did. Taking on as much work as you can while you can is probably the best idea, as you can’t be too sure what the next 12-24 months will bring. 

Cash management is the key
With that framework in mind, having a buffer and managing cash is going to be the number one thing everyone can do – whether as a business or as an individual.

If solvency is an issue now, then seek advice on what your options are. Various initiatives to delay insolvencies and bankruptcies ends in October, so it is expected there will be a large increase from recent numbers which have been abnormally and artificially low. 

As we always advise – make the decisions now while you have the choice, before someone else takes that choice away and makes the decisions for you.

Stress test
If your business is still running well, but particularly if it is not, then start to look at stress testing your numbers to work out:

• What is the breakeven point of your business? i.e. the income you have to earn to make neither a profit nor a loss, that is, zero profit.
• How much of a fall in income will it take to go from profit to breakeven?
• if you do only breakeven, can you service your debts?
• Have you had debts, rent, payroll tax etc. deferred that will become due in 2021, and can you afford to pay them?
• Do you need to cut costs now to ensure the survival of your business in 6-12 months time?

What if everyone is wrong, and things are ok?
What if they’re not?

If the predictions are all media hype, then the worst that can happen is that you have a much stronger business, and a much stronger financial position to move forward in 2021. 

If they are correct though, you will be prepared and ready for whatever the future brings.

If you have any concerns about your business or financial position, reach out to us to discuss.

If we cannot directly help with a particular issue, we have a network of professionals who we can put you in contact with.

Upcoming Dates 28 July 2020 Make superannuation guarantee contributions for the June 2020 quarter to super funds by this date. 28 July 2020 Lodgement and payment of quarterly June 2020 Instalment Activity Statements  31 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 19 or fewer employees 21 August 2020 Lodgement and payment of monthly July 2020 Activity Statements 25 August 2020 Lodgement and payment of quarterly June 2020 Business Activity Statements

A lot of people would have sat down in June 2019 or July 2019 to plan out the 2020 financial year – no one could have predicted the changes that have occurred over the last four months!

Coronavirus, economic and social shutdown and restrictions for over three months, government assistance packages that will extend to over $200 billion, and a raft of packages like JobKeeper, JobSeeker, business Cash Flow Boost, and increased asset write-offs all aimed at trying to the economic ship afloat.

As a result of all of this, there are some things that have stayed the same for 30 June planning, but there are a number of new issues and benefits that need to be thought about.

We’ve listed out below the key points to keep in mind when tidying up for the 2020 financial year, as well as others that will assist into 2021.

Minimum wage increase from 1 July 2020

For anyone not covered by an award, the new national minimum wage will be $753.80 per week, or $19.84 per hour.

This applies to the first full pay period on or after 1 July 2020. This increase will be applied to awards in 3 stages to the first full pay period on or after 1 July 2020, 1 November 2020 and 1 February 2021.

If you haven’t already, review your award and ensure that you are paying the correct amount to your staff.

Businesses

Some of the key things to plan before 30 June 2020:

Superannuation – pay before 30 June for a tax deduction Pay employee and personal superannuation by 23 June 2020, so that it reaches the super fund by 30 June 2020 and you can claim a tax deduction in your 2020 tax return.

Any super that is paid and reaches the fund after 30 June 2020 will be a tax deduction in the 2021 financial year.

Depreciation – $150k instant asset write-off for new and pooled assets -The government has extended the $150,000 instant asset write-off until 31 December 2019 – remember that the asset must be installed ready for use by 30 June 2020 to be able to claim the deduction in the 2020 financial year.

One flow on of the $150,000 asset write-off is that any assets pooled for depreciation will have the full pool balance written off for the 30 June 2020 year where the written down balance of the pool is under $150,000. This will see a lot of assets written off in full for the 2020 year, and reducing taxable income substantially in some cases.

It is just bringing forward deductions to the 2020 year however, as once the assets are written off, then there won’t be any depreciation in future years, and any disposal of assets will see the full sale price being included as income.

Prepayments – Prepay expenses before 30 June 2020 to claim a tax deduction.

Expenses such as rent, subscriptions, licence fees etc. that are for a service that will be used within 12 months will be deductible at the time of payment (for businesses under $10 million turnover)

Deferring Income – Consider deferring invoicing to customers to have the income fall into the next financial year. This needs to be weighed up against the business case for bringing forward cashflow – given the economic situation this may not be the best course of action for a lot of businesses, as getting paid could be vastly more important.

Write-off bad debts – Any debts that are declared as bad debts by 30 June 2020 will be a tax deduction in the 2020 year. There will also be a corresponding GST adjustment to claim back GST previously paid.

Writing off the debt as a bad debt does not mean you can’t still chase the debt. The declaration of a bad debt is an internal action to declare it as unrecoverable for tax and accounting purposes. If the debt is subsequently collected, then you would include the receipt as income and pay the corresponding GST at the time it is received.

Individuals

Work from home expenses – Recognising that a lot of people worked from home during April and May, the ATO has introduced a short cut method to calculate your deduction for working from home.

Using this method, you can claim 80 cents per hour for each hour you work from home during the period 1 March 2020 to 30 June 2020. This method covers all of your work from home expenses, such as: phone expenses internet expenses the decline in value of furniture and equipment electricity and gas for heating, cooling and lighting.

If you use this method, you can’t claim any other expenses for working from home. You can continue to use the existing fixed rate method of 52 cents per hour, which includes depreciation of furniture purchased, but allows you to claim phone and internet expenses, consumables and depreciation on equipment.

Superannuation – If you make a personal superannuation contribution to your super fund, and the fund receives it before 30 June 2020, you may be able to claim this contribution as a deduction on your 2020 tax return.

Things to consider: make sure you don’t exceed your $25,000 concessional contributions cap. You may have a higher cap if you didn’t use all of your cap last year and can bring forward the unused portion (only if your super balance is under $500,000).

Make sure the fund receives your contribution by 30 June 2020 You will need to send the fund a “Notice of Intent to Claim a Deduction For Personal Super Contributions” form, and receive an acknowledgement from your fund before you lodge your tax return.

Superannuation co-contribution – If you are eligible then you may receive a co-contribution from the government for personal contributions made to superannuation.

The maximum co-contribution is $500, which will be paid for contributions of $1,000 if your income is below $38,654. The co-contribution will reduce as your income increases, or the amount you personally contributed reduces.

Motor Vehicle expenses – If you are using the logbook method to claim your motor vehicle expenses (i.e. work related percentage of all costs), then you need to make sure you have actually completed your logbook!

One of the major areas for audit by the ATO is motor vehicle claims, and the first thing they ask for in an audit is your logbook. The logbook must be kept for at least 12 continuous weeks, and contain the following:

• when the logbook period begins and ends the car’s odometer readings
• at the start and end of the logbook period the total number of kilometres the car travelled during the logbook period
• the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
• the odometer readings at the start and end of each subsequent income year your logbook is valid for
• the business-use percentage for the logbook period
• the make, model, engine capacity and registration number of the car.
• For each journey, record the:
  • reason for the journey (such as a description of the business reason or whether it was for private use)
  • start and end date of the journey odometer readings at the start and end of the journey kilometres travelled.

If you start a logbook before 30 June 2020, then it will still be valid for the 2020 financial year. if you don’t have a logbook, then start one today!

Capital gains and losses – If you have had a capital gain during the year, then consider selling other assets which might create a capital loss to offset gain.

Most typically this is done with shares held, as it is easy to sell the shares on market quickly and trigger any loss that you may be sitting on with those shares.

Note that the date for CGT is contract date, so you will need a contract date of 30 June 2020 or earlier to have the capital loss in the 2020 year.

Property depreciation reports – If you have recently bought a rental property, or have recently renovated a rental property, then you should consider obtaining a quantity surveyor’s report to maximise the depreciation claim.

You only need the depreciation report prepared before your tax return is prepared, however if you order the report now, then the fee for the report will be a tax deduction in the 2020 year. Contact us if you need a referral to a quantity surveyor.

Donations – Consider donations to your favourite charities or cause before 30 June 2020 to claim a tax deduction.

Ensure that the charity is a registered deductible gift recipient – you can look them up on the Australian Business Register by searching for their name or ABN, and this will tell you if they are a deductible gift recipient.

Upcoming Dates

30 June 2020 Superannuation payments must reach the super fund to be deductible in the 2020 year

30 June 2020 Lodge the Single Touch Payroll reports for all wages paid during 2020 financial year – in most cases this will be making sure the last pay run has been lodged

14 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 20 or more employees

21 July 2020 Lodgement and payment of monthly July 2020 Activity Statements

28 July 2020 Make superannuation guarantee contributions for the June 2020 quarter to super funds by this date.

28 July 2020 Lodgement and payment of quarterly June 2020 Instalment Activity Statements

31 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 19 or fewer employees

25 August 2020 Lodgement and payment of quarterly June 2020 Business Activity Statements