This year’s Federal Budget was announced on Tuesday 2nd April. An ‘election budget’ with future…
The 2020/21 federal budget has been touted as the most important budget since World War II and its big focus is tax cuts and jobs! The budget’s focus is on stimulating the economy through job creation and getting Australians and our economy through the COVID-19 pandemic so that we are in a stronger position to recover. From what the government is saying, spending is on the cards till at least 2024, when they predict that unemployment will return to pre-COVID-19 times.
|YEAR||UNEMPLOYMENT||REAL GDP||DEFICIT PA||NET DEBT|
The government has proposed bringing forward (stage 2) income tax cuts that were scheduled for 1 July 2022, to now (backdated to 1 July 2020, two years earlier than previously legislated. What this means for working Australians is more money in your pocket starting now.
|Taxable Income||Tax savings^|
^ The above tax savings compare current tax rates with the proposed tax rates. Tax savings may differ from Government publications which compare 2017/18 tax rates with the proposed tax rates.
Stage Two – Tax Cuts
The proposed bring-forward of the personal income tax thresholds, rates and tax offsets will create the following future tax savings.
Stage 2 includes the expansion of the low-income tax offset (LITO) and the expansion of the 19% and 32.5% thresholds for personal income tax brackets. Which more Australians will be in lower tax brackets paying less tax as detailed above.
Stage 3 of the Personal Income Tax Plan remains unchanged and commences in 2024/25 as legislated.
Current Tax Schedule
|Tax rate||Thresholds for 2020/21 and 2021/22||Schedule from 1 July 2022||Schedule from 1 July 2024|
Proposed Tax Schedule
|Tax rate||Schedule from 2020/21||Schedule from 1 July 2021||Schedule from 1 July 2024|
Low Income Tax Offset
The government has proposed that the LITO will increase from $445 to $700 from 1 July 2020. The government has not brought forward all the changes as per Stage 2 of the tax plan. The low to middle income tax offset (LMITO) will be retained in the 2020/21 financial year. The Government does not intend on retaining LMITO in the 2021/22 financial year. Under current legislation it is set to end in the 2022/23 financial year.
|Taxable Income||LITO – Current||LITO – Proposed from 1 July 20202|
|$37,000 or less||$445||$700|
|$37,001 – $45,000||$445 less (income – $37,000) x 0.015||$700 less (income – $37,500) x 0.05|
|$45,001 – $66,666||$325 less (income – $45,000) x 0.015|
|$66,667 and over||Nil||Nil|
Medicare levy thresholds
The government has proposed increasing the Medicare levy thresholds for the 2019/20 financial year.
|Single – SAPTO*||$35,418||$36,056|
|Family – SAPTO*||$49,304||$50,191|
Private health insurance cover – increase in maximum age of dependants
From 1 July 2020, the government will increase the maximum age of dependants allowed under Private Health Insurance policies from 24 years to 31 years and no age limit will apply for dependants with a disability.
As the country finds itself in a recession, much of the focus for the 2020-21 Budget has been on social security measures to support Australian’s who are out of work.
$250 economic support payments
The government has announced two tax-free economic support payment and will be paid to those who qualify:
- Age Pension
- Disability Support Pension
- Carer Payment
- Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income
- Carer Allowance (not in receipt of a primary income support payment)
- Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment)
- Commonwealth Seniors Health Card holders
- eligible Veterans’ Affairs payment recipients and concession card holders.
The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. The first payment will be in November 2020 and the other in early 2021.
JobKeeper Payment Extension
The JobKeeper payment extension announced on 21 July 2020 provides continued support until 28 March 2021, with the payment targeted to those businesses that continue to be most significantly affected by the economic downturn. The level of the JobKeeper payment is being tapered to enable businesses to transition towards their longer-term plans and a two-tiered payment is also being introduced to better match the payment with the incomes of employees. The ATO will also be given additional resources to manage the JobKeeper and JobMaker programs.
Paid Parental Leave Work Test
The work test for paid parental leave for births and adoptions has been reduced from needing to work 10 of the last 13 months, to 10 of the last 20 months. This will be applicable for births and adoptions that occur between 22 March 2020 and 21 March 2021.
Aged Care Support for Older Australians
The government will provide $2.0 billion over four years from 2020-21 to further support older Australians with the following initiatives
- $1.6 billion over four years from 2020-21 for the release of an additional 23,000 home care packages across all package levels. $125.3 million over three years from 2020-21 to replace the Commonwealth Continuity of Support Programme with a new Disability Support for Older Australians program
- $91.6 million over two years from 2020-21 to continue the reform to residential aged care funding
- $4.6 million over two years from 2020-21 to review the support care needs of senior Australians who live in their own home and determine how best to deliver this care in the home.
Whilst the increase in homecare packages is a welcomed introduction, with 100,000 older Australians currently waiting for home care packages there is still a massive gap in supply and demand.
Capital Gain Exemption for granny flat arrangements
From 1 July 2021 a capital gains tax (CGT) exemption will be introduced for formal, written granny flat arrangements that are created, caried or terminated. This will help encourage Australians to enter formal arrangements which will in turn help protect older Australians from financial abuse. The current CGT implications act as a disincentive to enter formal granny flat arrangement, which often leave the elderly at risk of financial abuse or homelessness.
The government has proposed a range of reforms to superannuation to reduce the cost of duplicate accounts, improve performance of MySuper funds and increase transparency in fund management.
Once an employee has a superfund, an employer will contribute to their existing fund. The employer will be able to log into the ATO and discover the employee’s super fund. This measure will avoid the unnecessary creation of additional super funds for members when they change employers. It is also complementary to the recent changes to employment laws that prohibit future enterprise agreements from mandating an employer chosen super fund.
YourSuper Comparison Tool
The ATO will develop a system that allows Australians to compare super accounts and identify if their superfund in underperforming. This is a helpful tool however the concern is that most people in underperforming superfund are disengaged consumers. They will likely be too disengaged to bother using the tool and therefore the net impact of this tool is expected to be low.
The tool will also display all current superfunds held by the individual and prompt them to consider consolidating their accounts into one fund.
JobMaker Hiring Credits
JobMaker will allow eligible employers to receive the following for each eligible employee for a period of up to 12 months from the date of employment of the eligible employee.
|16-29||$200 per week|
|30-35||$100 per week|
To be eligible, the employer cannot be receiving another Commonwealth wage subsidy program for the same employee.
To be an eligible employee, the employee must:
- be aged 16 to 35
- have worked at least 20 paid hours per week on average for the full weeks they were employed over the reporting period
- commenced their employment between 7 October 2020 and 6 October 2021
- have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired
- be in their first year of employment with this employer, reflecting that the hiring credit is only available for 12 months for each additional job, and
- must be employed for the period that the employer is claiming for them. Employees may be employed on a permanent, casual, or fixed term basis.
Between 5 October 2020 and 30 September 2021 business of any size can claim the new boosting apprenticeships wage subsidy for new apprentices or trainees who start during this period, capped at 100,000 places. Eligible business will be reimbursed up to 50% of their apprentices or trainees wages up to $7,000 per quarter.
Carry back tax losses
Eligible companies can carry back tax losses from the 2019/20, 2020/21 and 2021/22 financial years to offset previously taxed profits in the 2018/19 or later financial years. This will generate a refundable tax offset in the year in which the loss is made. Corporate tax entities with an aggregated turnover of less than $5 billion are eligible. The amount that is carried back cannot exceed the earlier taxed profits and the carry back amount cannot generate a franking account deficit.
|Tax losses from 2019/20, 2020/21 and 2021/22||Cab offset previous taxed profits in 2018/19 for later financial years||Election made when lodging 2020/21 or 2021/22 tax returns||Receive a tax refund|
Full deduction for capital asset expenditure (‘Instant asset write-off’)
Businesses with an aggregated turnover of less than $5 billion can deduct the full cost of eligible capital assets acquired from 6 October 2020 that are first used or installed by 30 June 2022.
Businesses with an 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.
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