• Federal Budget 2020-2021

Expert Commentary - Federal Budget 2020-21

IFRS Advisory - Using the cash provided by Government stimulus

This year’s ‘stimulus’ budget includes a smorgasbord of income support, stimulus measures and tax cuts. The details on how to access them, how to qualify for them, and how they will be administered is only beginning to sharpen with the announcements in the Federal Budget.

The budget even introduces an option for organisations to receive a refund on tax they have already paid when submitting their tax returns in the coming end of financial year. While organisations’ immediate focus will be to access the cash, these stimulus measures and tax cuts will introduce a secondary challenge to most organisations who have not previously had to account for any significant form of government assistance.

Post COVID-19 financial statements will have to clearly articulate how organisation used the cash generated by the various government stimulus measures and tax cuts to create jobs and improve shareholder value. Professional judgement and expertise will be required to develop the accounting policies and estimates to account for significant government assistance, tax cuts and resulting deferred tax implications.

Aletta Boshoff
National Leader, IFRS Advisory

Kevin Frohbus
Partner, IFRS Advisory

Real Estate & Construction – Jobs for residential construction

The Federal Government announced in the Budget an extension to the existing First Home Loan Deposit Scheme in a bid to continue its support for the construction sector.

The Budget announcement is said to allow a further 10,000 Australians to build their first home with as little as a 5% deposit. Under the program, the government will guarantee 15% of the loan without the purchaser requiring mortgage insurance.
The extended scheme also increases the property price caps to as much as $950,000 for a new build in Sydney, NSW.

The announcement does, however, limit the program to new builds, rather than allowing the purchase of an existing new dwelling as is possible under the existing scheme. This is clearly a move to maximise the impact of the budget announcement on the residential construction sector by requiring new builds.

Overall, it’s pleasing to see the government recognising the importance of the construction sector for the Australian economy. The announcement to extend the First Home Loan Deposit Scheme is in addition to the $680 million Homebuilder scheme announced in June which also supports the residential construction sector.

Read further comment from Andres on The Urban Developer.

Andres Reith
National Leader, Real Estate & Construction

Tax – FBT and CGT

As the Treasurer has said, it’s all about jobs. The government is expecting unemployment to cap out at about 8%, and it’s looking or expecting to have about a million jobs created over the next four years, with about half of those to be supported by government. So, what’s in the treasurer’s toolbag?

The first tool is the JobMaker Hiring Credit Scheme. This scheme will help employers employ people who have been unemployed, such as on JobSeeker, by providing a wage subsidy of up to $200 per week for 12 months.

The second tool is an apprentice’s wage subsidy. This scheme will provide a 50% wage subsidy for employers who bring on new apprentices or trainees.

The third tool is around skills training. The government has announced an exemption from fringe benefits tax for expenses that employers incur in retraining their staff The final tool is changes to small business tax concessions. This will allow businesses to focus less on administration, and more on their core business - thereby creating jobs with changes to small business tax concessions.

Watch James' video explainer on YouTube.

James Trainor
Partner, Tax

Tax – Corporate/Personal Tax

This Budget has more content and detail than any I have seen in over 20 years of analysing Budgets. In particular there are key changes to corporates - big and small- and personal tax cuts for Australians. The corporate tax changes include:

  • Carry back of losses for the 2020, 2021 or 2022 financial years for companies – there are some traps to be aware of including threshold applies and franking account can’t be put into a deficit.
  • There are changes to the depreciation of some assets - immediate asset right offs will be extended to apply to all businesses with less than $5 billion.
  • Changes to the rules around residency of companies that have been incorporated offshore, to ensure only companies with significant economic connection to Australia, will have Australian residency. There will also be more money in the tax payers pocket, with stage 2 tax cuts announced in last year’s Budget being fast-tracked, and back-dated from July 20 – with savings ranging from $20-$50 per week depending on the tax payers salary.

Watch Neil's video explainer on YouTube.

Neil Billyard
Partner, Tax

Tax – R&D Tax Incentives

The 2020 Budget is great news for claimants of the R&D tax incentive. Not only does it reduce the uncertainty that has been hanging around since the introduction of the Bill to make changes to the program, but it will also increase confidence going forward for claimants to undertaking R&D in Australia.

For the vast majority of claimants, the government’s proposal is not a significant change to the status quo. It is however, a significant change to what had been proposed in the original bill when it was introduced in 2018, and subsequently as it was reintroduced in 2019. In particular, for refundable claimants, it removes the cap on the amount of cash that companies can now get back. It also increases the refundable offset rate. The intensity premium has also been adjusted so that all claimants will receive at least the 8.5% and for companies with an R&D spend of over 2% of total expenses will get the premium of the additional 8%.

Whilst BDO welcomes these changes, we implore the government to maintain the course and not continuously tinker with the program – and not let this be just a COVID-19 response, but to actually invest in Australia into the future.

Watch Nicola's video explainer on YouTube.

Nicola Purser
Partner, Tax

Corporate Finance – Likely increase in transactional activity

As the Government winds back support measures such as JobKeeper and pumps up economic stimulus in the form of big infrastructure spending, there is likely to be a continued and steady increase in transactional activity. This increase will coincide with reforms to insolvency laws and restructuring processes, in turn creating further opportunities or presenting challenges, depending on the circumstances.

Understanding how to navigate the environment and regulations, while at the same time managing cash flows and securing funding, will be imperative in determining who the winners will be. Organisations looking to come out on top by capitalising on opportunities and proactively managing difficult situations will need advisers equipped with a broad range of skillsets.

BDO’s Corporate Finance and Business Restructuring teams have consolidated their skill sets to ensure our clients have the support they need.

Steven Sorbello
Office Managing Partner, Brisbane
National Leader, Corporate Finance

Manufacturing – Modern Manufacturing Strategy

The Modern Manufacturing Strategy is a positive first step to securing Australia’s future growth in manufacturing and fuelling economic recovery.

At the centre of the plan is a $1.3 billion investment aimed at getting manufacturers on the right growth trajectory - through targeted support to better commercialise their operations, enter new export markets and innovate through closer collaboration between government, research and industry.

Significant measures also include plans to reduce energy costs, an additional $2 billion investment in R&D tax incentive and $107 million dedicated to strengthening supply chains of critical goods. As both energy and R&D are substantial costs for manufacturers, with studies showing that Australian manufacturers can spend up to 20-40% on gas and electricity and contribute approximately 25% of Australia’s total R&D spending, these measures will provide much-needed relief allowing the sector to focus its efforts on innovating and establishing itself as a global leader of high-quality manufactured goods.

Finally, a $2.8 billion wage subsidy to support apprenticeships and trainees will allow manufacturers to bring in new talent and upskill their workforce to meet the demands of an evolving sector.

Read further comment from Ryan on Australian Manufacturing and watch his video explainer on YouTube.

Ryan Pollett
National Leader, Manufacturing & Wholesale

Business Services - Supporting business cashflow

The JobKeeper incentive has assisted many businesses to preserve and build on cash reserves. Whilst it would have been great to see more incentives for the private business space, the budget has provided several areas to support cashflow.

Although backdating of personal income tax cuts might be more of a matter for individual taxpayers and, for businesses, bring some administration burden initially, businesses will see the cash benefit from reduced PAYG Withholdings, particularly in the September quarter.” The ability to temporarily offset tax losses against previous profits and tax paid will also avail a business’s cash from previous tax paid.

With the introduction of temporary full expensing of depreciable assets for businesses with turnover below $5 billion, the incentive may enable funding assets now rather than further into the future. It will be important for business owners to understand how these measures will support their business growth and operational cashflows.

Matt Laming
National Leader, Business Services

Business Services – Small & Family Businesses

The Federal Government wants Australian businesses to keep spending and keep hiring, and is giving them a significant tax break to help them do so.

In particular, JobKeeper and JobSeeker have a new stablemate, with the Treasurer announcing the new JobMaker Hiring Credit Scheme, designed to encourage businesses to get young - and not so young - people off welfare and into a job.
From tomorrow, eligible employers will be entitled to claim $200/week for each eligible new employee aged 16-29, and $100/week for employees aged 30-35.

Pandemic support also includes a new loss carry-back provisions, allowing businesses that make a loss in the 2020, 2021 or 2022 financial year to offset the loss against profits made, and taxes paid, from 2019 onwards. While this tax concession will be welcomed by small and family businesses, the resulting tax refunds in 2021 - may come too late for many who are struggling right now.

Will Sinclair
Partner, Business Services

Immigration

The Government’s Migration Program aims to maximise the economic benefits - including in regional areas - while growing the Family Stream: maintenance of the 2020-21 Migration Program planning level at 160,000; the one-off increase of Family Stream places from 47,732 to 77,300 places; and prioritising the Skill Stream (Employer Sponsored, Global Talent and Business Innovation and Investment Program visas) and onshore Visa applicants and Partner Visa applicants where the relevant sponsor resides in a designated area.

This is a considered response in these turbulent times where the focus must be on maintaining the integrity of Australia’s borders, and the prosperity and security of our open and diverse society. There will be ongoing and significant reforms to Australia’s Migration Program as part of the ongoing transformation of the management of our borders and movement of goods and people. Watch this space.

Maria Jockel
Legal Principal and National Leader, Migration Services

Infrastructure Investment

The 2020 budget has delivered an infrastructure boost, as Treasurer Josh Frydenberg and the Morrison Government confirm the Australian Government’s allocation of over $20 billion in additional funding towards infrastructure investments, playing a critical role in the Federal Government’s plan towards economic recovery from the COVID-19 pandemic.

This infrastructure commitment includes the introduction and acceleration of road safety upgrades, shovel-ready projects and vital water and recycling infrastructure. This will support job retention and growth, whilst simultaneously assisting the economy in an effort to suppress the impacts of COVID-19.

Capital investment in Australia’s infrastructure is a welcome boost for the economy, however challenges emerge when taxpayers rightly demand value for money. Ensuring that this wave of public infrastructure investment is applied swiftly, yet wisely and delivered with a commercial mindset, is of utmost importance.

Joubert Breet
Partner, Risk Advisory

Cyber Security – A step in the right direction

The 2020 Federal Budget is great news for Australia’s cyber security capability and builds on the Prime Minister’s commitment to positioning Australia as a digital leader.

An additional $201.5 million will be provided over four years (and $40.5 million per year ongoing) to help implement Australia’s Cyber Security Strategy 2020 to keep Australians and businesses secure online. This builds on the Cyber Enhanced Situational Awareness and Response (CESAR) package to enhance Australia’s cyber security capabilities and assistance provided to Australians, taking the Government’s total funding for the 2020 Cyber Security Strategy to $1.7 billion.

Substantial amounts have been allocated to various sectors, including:

  • Enhancing the Australian Federal Police’s capabilities to fight cybercrime and improved coordination with states and territories
  • Developing innovative approaches to improve cyber security skills
  • Improving cyber security resilience of SMEs
  • Strengthening the protection of critical infrastructure assets (including Healthcare, Energy and Natural Resources)
  • Enhancing the information technology network and cyber security functions of community sport clubs
  • Strengthening the resilience and cyber security of agricultural export systems.

Overall, it’s great to see the Government’s continued commitment to protecting Australians against the changing cyber threat landscape.

Leon Fouche
National Leader, Cyber Security

Business Restructuring – Businesses facing insolvency ignored

The Federal Budget included many measures designed to increase spending and investment to stimulate economic activity.  These measures will assist many businesses that have taken a painful but non-terminal hit to earnings. Still, they will not help the many businesses facing insolvency once the stimulus measures expire during the next six months.

While the Government recently released changes to insolvency and restructuring laws aimed to assist small business (those with total liabilities <$1m) restructure and survive, they did not provide additional funding to support the implementation of these measures.

Larger businesses outside this threshold (i.e. debts >$1m) and industries most severely impacted like Retail, Hospitality, Tourism, Sport & Entertainment etc. have also not been specifically supported.

Amongst the many positives of this budget, there has been a missed opportunity to encourage and support the turnaround and restructuring culture envisaged by the 2017 “Safe Harbour” legislation.

Shaun McKinnon
Partner, Advisory

Transfer Pricing

While the Budget may not have any direct Transfer Pricing implications, the Government’s spending initiatives could have flow-on consequences and opportunities for Australian MNEs and subsidiaries of MNEs operating in Australia. Overall, the top three Government initiatives that MNEs should be aware of include:

  1. Allowing certain corporate entities (including limited risk distributors, service providers and manufacturers) with a turnover of less than $5 billion to carry back losses could lead to further scrutiny from the ATO and other tax authorities regarding the level of local substance and risk.  Tax authorities have already noted their concern and focus to ensure companies are not allocating excessive expenses and/or losses arising from COVID-19 to local entities. Given the Government initiative will result in cash tax refunds one can expect a closer analysis by the ATO of actual losses incurred in the Australian business. 
  2. While the Modern Manufacturing Strategy and changes to the R&D Tax Incentive bring many positives for the industry, MNEs will need to pay careful attention to the nature of R&D undertaken locally, including actual risk and effective IP ownership, which are relevant from a transfer pricing perspective and continue to be a key focus area of the ATO.
  3. Regarding the Digital Business Plan, there may be unanswered questions as to what the electronic execution of documents could mean for tax and transfer pricing purposes. In addition, any expansion of the ‘digital identity’ to cover SGEs to allow them to lodge CbCR local files more easily and cost-effectively would be welcomed.

Zara Ritchie
National Leader, Transfer Pricing Services