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Budget Overview

Capital Partners
Capital Partners
Posted 09.10.2020 in Company News
On Tuesday night, Treasurer Josh Frydenberg delivered the federal budget for the 2020-21 financial year, with a key target area being ‘jobs and growth’. The following is a high-level overview of the budget looking at proposed income tax cuts, business support measures, superannuation changes and matters relating to social security.
Economic Overview:

The 2020-21 budget will produce an estimated deficit of $213.7 billion which is predicted to reduce to $66.9 billion by 2023-24. In terms of key economic indicators, real GDP is projected to reduce by 1.5 percent for the 2020-21 financial year and unemployment levels are set to peak at 7.25 percent.

Income Tax Cuts:

The Government has announced that it will bring forward stage two of its Income Tax Plan by two years whilst retaining the low and middle-income tax offset (LMITO) for 2020-21. This will impact approximately 11.6 million Australians and provide an estimated $17.8 billion in tax relief. The tax cuts have been backdated to 1 July 2020 which will result in slightly more take-home pay for individuals for the remainder of the year.

Summary of the Stage 2 changes and proposed 2024 changes:

  • The top income threshold for the 19% tax bracket will increase from $37,000 to $45,000.
  • The top income threshold for the 32.5% tax bracket will increase from $90,000 to $120,000.
  • The new tax thresholds announced for 1 July 2024 will see the tax rate from $45,000-$200,000 reduced to 30%

  • The Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000 and at a rate of 1.5 cents per dollar for incomes between $45,000 and $66,667.

Changes to the Medicare levy threshold:

*For each dependent child or student, the family income thresholds increase by a further $3,533, instead of the previous amount of $3,471.

These changes will provide individuals with up to $2,745 and dual income families with up to $5,490 in tax-relief for the current financial year.

Capital Gains Tax (CGT) exemption for granny flat arrangements:

A CGT exemption will apply for granny flat arrangements where there is a formal written agreement. The exemption will apply to older Australians or those with a disability.

CGT consequences often act as an impediment to the creation of a formal and legally enforceable granny flat arrangement. When faced with a potentially significant CGT liability, families often opt for informal arrangements, which can lead to financial abuse and exploitation in the event that the family relationship breaks down. By taking away the CGT impediments it is hoped that there will be a reduction in the risk of abuse towards vulnerable Australians.

Business Support Measures:

To help stimulate business investment, the Government has announced that it will allow eligible businesses to immediately deduct the full cost of eligible capital assets between now and 30 June 2022. Eligible businesses are deemed as those with a turnover of less than $5 billion.

Full expensing in the first year of use will apply to new depreciable assets as well as the cost of improvements for existing eligible assets. Full expensing will also apply to second-hand assets for businesses with an aggregate turnover of less than $50 million per annum.

The $150,000 instant asset write-off that was announced as part of the Covid-19 stimulus has also been extended by six months, until 30 June 2021.

Another key support measure announced was that businesses with turnover of less than $5 billion will now be able to carry back losses from 2019-20 to 2021-22 to offset previously taxed profits from 2018-19 or later years. However, the carry back must not be greater than the profit taxed in the earlier year.

The Government has announced the rolling out of ‘The Job Hiring Credit’ to help accelerate employment growth and job creation. The Job Hiring Credit will provide a weekly payment for businesses who hire eligible new employees.

The criteria are as follows:

  • It will be available to eligible employers over a 12 month period starting 7 October 2020.
  • Employers must demonstrate that the new employee will increase the overall headcount.
  • Employers will receive $200 per week if they hire an eligible employee aged 16-29.
  • Employers will receive $100 per week if they hire an eligible employee aged 30-35.
  • To be eligible, the employee will need to have worked a minimum of 20 hours per week, averaged over a quarter, and received either Jobseeker, Youth Allowance or Parenting Payment for at least one month out of the three prior to when they are hired.
Superannuation:

There have been several minor changes to the Superannuation environment, with the previously announced Covid-19 measures relating to early access to super and the reduction of the minimum pension rates set to continue.

‘Your Future, Your Super’ reforms have been put in place to reduce the number of duplicate accounts held by employees as a result of changes in employment and to prevent new members from joining underperforming funds.

From July 2021 existing superannuation accounts will be ‘stapled’ to a member to prevent the creation of a new account when a member changes their employment. Furthermore, the ATO will put in place a comparison tool whereby new employees can select a superannuation product from a table of ‘MySuper’ products.

To protect members from poor outcomes and to lower costs, ‘MySuper’ products will also be required to meet an annual objective performance test with persistently underperforming products unable to take on new members.

To ensure that trustees are acting in the best interests of their members superannuation funds will also be required to provide better information regarding how they manage and spend members money.

Social Security:

The Government has announced that it will provide $2.6 billion of economic support in the form of two separate $250 payments to eligible recipients. These payments are tax exempt and will not count as income support for the purposes of any income support payment.

The Job keeper payment will also continue until 28 March 2021, with the level of Job Keeper payment being tapered to help businesses transition towards their longer-term plans.

Aged Care:

The Government will provide $2 billion over a four-year period to further support older Australians who need access to aged care by providing additional home care packages.

 

Sources:

https://www.macquarie.com.au/advisers/federal-budget-2020/clients.html?utm_source=newsletter&utm_medium=email&utm_campaign=WVOW_FederalBudget

https://fpa.com.au/wp-content/uploads/2020/10/FPABudgetWrap_2020.pdf

https://www.pwc.com.au/publications/federal-budget-2019/personal-tax.html

 

Capital Partners
Capital Partners
Capital Partners
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