Exemption to Support Retraining and Reskilling The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for retraining and reskilling benefits provided by employers 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 where 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 job. 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. Source: Budget Paper No 2, p 15
Reducing the Compliance Burden of Record-Keeping In a most welcome move, the Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling 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. The 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. This measure is estimated to result in a small but unquantifiable decrease in receipts over the forward estimates period. It is hoped that what the Commissioner considers to be “adequate alternative records” does not turn into a compliance burden that is not much less than the existing one. For this to be of true benefit to business, the Commissioner needs to be able to give a heavy weighting towards any document or record that is created in the ordinary course of business or dealings between employees and employers. Source: Budget Paper No 2, p 15
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 10 further small business tax concessions in three phases:
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:
Businesses with aggregated annual turnover of less than $5 billion will be able 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. “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 existing instant asset write-off. Businesses that hold assets eligible for the existing $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. Source: Budget Paper No 2, p 20 Comment The existing $150,000 instant asset write-off remains available under the existing rules for qualification. However, it will be further extended by six months for relevant assets that are first used, or installed ready for use, by 30 June 2021. There is nothing to prevent the "full expensing" deduction to be used to create a tax loss that can be carried back as a deduction to give rise to a tax refund - and thereby generate the funds to help acquire the relevant asset. In fact, it appears to be part of the design features of the measures. See the following example from the ATO website: Bogong Builders Pty Ltd has aggregated annual turnover of $60 million for the 2021-22 income year. On 1 July 2021, Bogong purchases a truck-mounted concrete pump for $1 million, exclusive of GST. Bogong’s taxable income for 2021-22 was $600,000 before the purchase. Without temporary full expensing, Bogong would claim a tax deduction of around $300,000, resulting in a taxable profit of $300,000, and a tax bill of $90,000. Under temporary full expensing, Bogong will instead deduct the full cost of the asset of $1 million, resulting in a tax loss of $400,000. Under temporary loss carry-back, Bogong offsets this tax loss against profits in 2018-19, resulting in a tax refund of $120,000. Without the refund, the company may have had to defer the investment until their cash flow position recovered, or may not have purchased the new pump at at all.
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. Under these measures, 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 an election basis by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Note: Companies that do not elect to carry back losses under this measure can still carry losses forward as normal. Comment There is nothing to prevent the "full expensing" deduction to be used to create a tax loss that can be carried back as a deduction to give rise to a tax refund - and thereby generate the funds to help acquire the relevant asset. In fact, it appears to be part of the design features of the measures. See the following example from the ATO website: Bogong Builders Pty Ltd has aggregated annual turnover of $60 million for the 2021-22 income year. On 1 July 2021, Bogong purchases a truck-mounted concrete pump for $1 million, exclusive of GST. Bogong’s taxable income for 2021-22 was $600,000 before the purchase. Without temporary full expensing, Bogong would claim a tax deduction of around $300,000, resulting in a taxable profit of $300,000, and a tax bill of $90,000. Under temporary full expensing, Bogong will instead deduct the full cost of the asset of $1 million, resulting in a tax loss of $400,000. Under temporary loss carry-back, Bogong offsets this tax loss against profits in 2018-19, resulting in a tax refund of $120,000. Without the refund, the company may have had to defer the investment until their cash flow position recovered, or may not have purchased the new pump at at all.low position recovered, or may not have purchased the new pump at all. Source: Budget Paper No 2, p 21
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. Note that this is in addition to the 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. Source: Budget Paper No 2, p 23
The Government will make technical amendments to clarify the corporate residency test. The law will be amended 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. The measure follows the High Court’s 2016 decision in Bywater Investments Ltd v FCT [2016] HCA 45 and is consistent with the Board of Taxation’s key recommendation in its 2020 report: Review of Corporate Tax Residency. It will mean the treatment of foreign incorporated companies will reflect the position prior to the 2016 court decision. 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 (the date on which the ATO withdrew its ruling TR 2004/15 Income tax: residence of companies not incorporated in Australia – carrying on a business in Australia and central management and control). Source: Budget Paper No 2, p 14 Comment The Board of Taxation’s “Review of Corporate Tax Residency” can be found at https://taxboard.gov.au/consultation/corporate-tax-residency-review
The Commonwealth Government will make the Victorian Government’s business support grants for small- and medium-sized business – as announced on 13 September 2020 – non-assessable, non-exempt (NANE) income for tax purposes. The Commonwealth will extend this arrangement to all states and territories on an application basis. Eligibility would be restricted to future grants program announcements for small- and medium-sized businesses that are facing similar circumstances to Victorian businesses. The Government will introduce a new power in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income. 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. Source: Budget Paper No 2, p 14 Comment Importantly, it should be noted that this treatment can extended to all states and territories “on an application basis” that encounter similar circumstances to Victorian businesses.