After a procession of doorstops, major speeches, high-vis visits and 'pressers' (media jargon for press conferences) with pre-budget announcements, the Federal Treasurer, Josh Frydenberg brought down the much-anticipated 2021/21 Federal Budget on the evening of Tuesday 6 October. Traditionally, business and individuals await the ‘what’s in it for me’ budget news in May each year. But as it has affected so many aspects of life this year, coronavirus caused the deferment of the Budget to October.
The budget included good news for both businesses and individuals and we’ll cover off on just a few highlights at this stage. As more specific details are rolled out, we’ll dive deeper and provide more explainers on the implications for you and your loans or business finance.
Before launching into the measures, a quick mention of the timing in terms of rolling out the budget measures. The process is that the Treasurer ‘brings down’ the Budget in the House of Representatives, which is the official terminology for announcing or releasing the budget.
The budget is a bill which needs to pass both the House of Representatives and the Senate in order for it to be brought into law and the measures implemented. Historically, there are many examples of Governments having issues getting their budget bill through the Senate when they have not held the balance of power.
Fortunately, the opposition agreed with the urgency of the measures in the 2020/21 Budget, in regard to tax cuts and business investment, and the bill was fast-tracked through the Senate. It was passed on Friday 9 October, just 3 days after first being announced. Subject to certain legislative processes and the ATO updating their systems and documentation, key initiatives are now in effect.
Budget Bonuses for Individuals
For tax payers, the big win is in the bringing forward of Stage 2 of the Government’s tax plan which was announced and started in the 2018/19 tax year. In short, tax cuts for many workers. Stage 2 was due to come into effect in 2022 but it has been brought forward to 1 July 2020. Yes, July was 3 months before the Treasurer made the announcement, how does that work? We explain.
Changes to several tax brackets are the key components:-
- Threshold for the 19% tax bracket increases to $45,000 from $37,000.
- Threshold for the 32.5% tax bracket increases to $120,000 from $90,000.
A refund of tax already paid for eligible tax payers will be reconciled in the 2020/21 income tax return. So if you are eligible for lower taxes, you’ll start receiving more in your pay packet by November. The delay is to allow the ATO to prepare the new tax schedules and software companies to update their payroll systems. But you’ll have to wait until after July 2021 to get your refund on already paid tax.
For low and middle income earners, the low and middle income offset continues into this tax year. This can represent up to $1080 for some tax payers.
We have already written an article on another budget initiative relevant to Jade Finance – changes to the consumer credit laws. These changes are designed to ease the flow of credit to individuals and small businesses and will come into effect in April 2021 if passed by parliament. Refer to our article for more information.
Budget Bonuses for Business
The Government has emphasised that the 2020/21 Budget has a business-driven and jobs creation approach. Underpinning the framework are major benefits to businesses, especially in the area of investment allowances. An area which is of course our specific sphere of interest.
We will analyse the measures in further detail in future articles, but the benefits we have identified for our business customers include:-
- Extension of the Instant Asset Write-Off scheme for SMEs (turnover up to $500m) extended to 30 June 2021 for eligible assets up to $150,000.
- Temporary full-expensing for second-hand assets for SMEs.
- Temporary investment incentive for businesses with turnover to a maximum of $5 billion which includes fully deducting assets acquired between 6 October 2020 and the scheme deadline of 30 June 2022.
As the bill passed Parliament on 9 October, these measures are now ‘law’ and may be the reason you’ve been waiting for to acquire new assets. We’ll delve into more detail in future articles but if you would like to source a finance quote on the purchase of cars, trucks or equipment or just have an initial discussion about your options, our consultants are available to assist you.
These major business investment allowances are related to realise tax benefits through accelerating the depreciation of the assets. Deducting the full amount in the current tax year instead of having to depreciate a percentage per year over several years.
In order to realise this benefit, the asset must be purchased either outright with cash or with the appropriate finance product. That is, a finance facility where the asset is entered in your business balance sheet such as Chattel Mortgage. Rent to Own and leasing are off balance sheet products but do present their own tax deductible elements.
We recommend a conversation with your accountant around which finance product is suited to your business for your asset acquisition.
If the budget has raised questions or your interest in proceeding with an investment or purchase and you require finance, please contact us and discuss your loan requirements with a Jade Finance consultant. Call 1300 000 008
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