What did we learn from the 2020-21 Federal Budget update? 

SuperannuationInstant asset write-offLoss carry backIndirect taxPersonal TaxHealth & MedicalProperty & ConstructionAgribusiness

The 2020-21 Federal Budget was deferred from May to October 2020 due to the extraordinary circumstances brought about by the COVID-19 pandemic. During those six months, the economic damage caused by the pandemic has resulted in the first recession in decades and the most severe economic crisis since the Great Depression.

The Federal Budget Report Card,

Tony Fulton

Director, Tax Services

Who makes the grade in the Federal Budget?Indirect taxIndividual tax rate changesIndirect taxesSuperannuationInternationalFringe benefits taxLoss carry backR&D TaxIndustryAgribusinessProperty & ConstructionHealth


- 2020/21

R&D Tax

While the economic implications have been severe on Australia, the nation has weathered the crisis comparatively better than other developed western nations, with a contraction in the June quarter of 7.0% compared to the United Kingdom of 19.8%, Canada of 11.5% and New Zealand of 12.2%. Despite those comparisons, Australia’s own deficit is expected to balloon out to $213.7b, or the equivalent of 11.0% of GDP for the June 2021 year, with net debt expected to peak at $966b by June 2024. 

This is an incredible turnaround from the earlier expectations of a budget surplus in the June 2021 year. 

How will the Federal Budget 2020 impact you?

If you have any questions or require further information regarding the Federal Budget 2020-21 announcement, click the below button to contact an RSM adviser. 


 A plus or C minus?

Internationals corporate residency

For mid-sized businesses, the expanded access to small business tax concessions for companies with turnover up to $50m will be welcome. The measure provides access to a range of concessions including immediate deductions for prepayments and FBT exemptions for car parking and multiple electronic devices provided to employees. 

To spark consumer spending, the earlier legislated Stage 2 tax cuts will be brought forward and back dated to 1 July 2020, from their previously legislated start date of 1 July 2022. The stage two cuts lift the threshold at which the 37 per cent tax rate applies from $90,000 to $120,000, thereby targeting middle income earners. The Government will also make permanent the Low and Middle Income Tax Offset (LMITO) by lifting the threshold for the 19 per cent tax rate from $37,000 to $45,000. While there was speculation in the media that the Government might contemplate an earlier start date to the Stage 3 tax cuts, the Government has clearly decided to avoid the fight over accelerating tax benefits to middle and upper income earners. 

Innovation and technology received a boost through changes to the R&D tax incentive, with the scrapping of the $4m refund cap imposed on businesses with turnover under $20m, and refinements to the proposed R&D “intensity” test to make the incentive more generous, especially for larger companies. The Federal Budget also commits to a significant amount on infrastructure spending in an effort to feed the extensive pipeline of infrastructure projects to drive economic activity over the mid to longer term horizon and jobs growth in the construction sector and related services. 

With the Federal Budget being delivered towards the end of the school year, our analysis seeks to “grade” each measure on their potential effectiveness of meeting the stated objective – rebuilding the economy, enabling businesses to rebound from the crisis, and stimulating spending to drive jobs growth. 

Ultimately, history will judge how effective it will be in driving that rebound. 

The Government’s pledge is that the Budget will drive a business-led recovery with a major focus on measures that are intended to spark a wave of new investment by business. The mantra of this Budget is firmly “Jobs, Jobs and Jobs” with each announcement carefully measured in terms of potential jobs creation. 

Read our full analysis >

The crisis has significantly impacted businesses and individuals, causing economic distress to businesses resulting in a wave of stand-downs and redundancies pushing unemployment to 6.8% in August, but it is expected to climb over the remainder of the June 2021 year. Unemployment has been kept at bay by the extensive business support and stimulus measures in the form of the JobKeeper scheme, cash flow boost and a range of other tax payment exemptions and deferrals. 

The Government’s pledge is that the Budget will drive a business-led recovery with a major focus on measures that are intended to spark a wave of new investment by business. The mantra of this Budget is firmly “Jobs, Jobs and Jobs” with each announcement carefully measured in terms of potential jobs creation. In terms of tax measures, front and centre of the Budget’s announcement is the self-described “game changer” of the Instant Asset Write-Off. This provides an immediate tax write off for expenditure on depreciable assets that would otherwise be subject to annual depreciation claims under the capital allowance rules. The measure significantly expands on the existing rules with uncapped eligible investment spending for corporates with turnover of up to $5b. This deliberately excludes the top-end of town including the major banks and miners. The measure applies immediately from Tuesday, 6 October 2020. 

Coupled with the Loss Carry Back measure, which provides the ability for corporates to carry back losses to earlier years when taxes were paid, in many cases pre-COVID-19, these are potentially powerful tools. 

The Loss Carry Back measure allows corporate taxpayers that incur tax losses during the crisis and for years out to 2022, to offset those losses against taxable years back to 2018-19 and seek refunds of income taxes in those earlier years. 

Our view is that the Federal Budget response is appropriately designed to stimulate investment spending in the near term and tax concessions will be welcomed by many small to mid-sized businesses. However, the longer term benefits of this budget will be limited, and there is still major work to be done on more extensive tax reform to address some of the structural impediments that the current tax system creates for investment and longer term jobs growth – the internationally uncompetitive corporate tax rate and the mix of taxes at federal and state level in particular. Whether the current Government has the stamina for that fight remains to be seen.  

Read our full analysis >
Fringe benefits tax (FBT)