AADA welcomes October’s Federal Budget as an important step in driving the recovery in the automotive industry and the wider economy.
“We hope the measures announced in the Budget will be a shot in the arm for the industry, which had been struggling even before the pandemic and has now experienced 30 months of consecutive falling sales,” said AADA CEO James Voortman.
“The Government is encouraging businesses to invest and employ more people while bringing forward tax cuts will give consumers more disposable income which will trickle down into the economy.
“JobKeeper payments were crucial in allowing Dealers to stay connected to their employees through the first six months of this crisis. We acknowledge the ongoing commitment to employment through the support offered for businesses employing new apprentices and unemployed youth.”
Mr Voortman said the Budget acknowledged that business investment would be crucial to Australia’s economic recovery through the newly announced temporary full expensing coupled with the instant asset write-off. However, he expressed disappointment that the Government had resisted removing some of the legacy automotive taxes for an industry that is doing it tough.
“The import tariff and the luxury car tax are protecting a domestic manufacturing industry which no longer exists and their removal could benefit consumers and retail businesses,” he said.
The 2020-21 Federal Budget is the first since the COVID-19 pandemic. The measures announced are focused on kick-starting the economy by incentivising businesses to employ and invest, while providing tax cuts to most Australians. It builds on the already historically high levels of spending by the Government through programs such as JobKeeper and the instant asset write-off.
This budget will provide a boost to the economy which will give businesses and consumers confidence to spend. Hopefully that flows through to the automotive sector. This budget also provides incentives for dealerships as businesses to invest, to employ out of work youth and to take on apprentices.
The outlook for the economy shows a challenging 2020-21 with a gradual recovery over the next four years. Economic Growth is forecast to decline by 1.5% this year, before strongly bouncing back with growth of nearly 5% next financial year, stabilising to around 3% over the forward estimates.
Unemployment is estimated to peak at 7.25% this financial year, which is lower than initial forecasts and encouragingly it stabilises, edging close to 5% over the next four years.
Much of Australia’s economic growth has been built on the back of high historic levels of migration. Forecasts suggest a fall from around 154,000 persons in 2019-20 to be around -72,000 persons by the end of 2020-21, before increasing to around 200,000 persons in 2023-24.
Personal Income Tax Cuts
In this Budget, the Government is delivering $17.8 billion in personal income tax relief, including $12.5 billion over the next 12 months. Around 11.6 million individuals will receive a tax cut in 2020-21.
The Government estimates this measure will boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.
Temporary Full Expensing
The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 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 secondhand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $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.
Members should monitor the ATO Website which will provide further information on the measure.
Apprenticeships Wage Subsidy
The Government will provide $1.2 billion over four years from 2020-21 to increase the number of apprentices and trainees.
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 per cent of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.
The Government will provide $4.0 billion over three years from 2020-21 to organisations to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.
Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll 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 of the eligible employee 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 (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.
Temporary Loss Carry-Back To Support Cash Flow
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.
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 election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
This measure is subject to the passage of legislation and members should monitor the ATO website which provide further information on how to claim the tax offset.
Future Fuels Package
A Future Fuels Fund will provide $74.5 million over four years to enable businesses to integrate new vehicle technologies, perform integration analysis and develop improved information on electric vehicles and charging infrastructure.
Luxury Car Tax
Disappointingly, the LCT remains on the books. While the tax has been revised down by $0.7 billion over the four years, it will still raise over $2.2 billion over the forward estimates.
Passenger Vehicle Tariff
The passenger vehicle tariff remains on the books but declines dramatically in 2022-23 and beyond. While there is no explanation for this, the likely reason is that Treasury has factored in a Free Trade Agreement with the EU and/or the UK in the coming years.