The federal budget is always a keenly anticipated event, and with the issues that we’ve been dealing with in 2020, this year’s budget is even more anticipated than most.
This year’s budget is estimated to produce a record deficit for 2020/21, expected to be -$213.7 billion (11.0 per cent of GDP).
The Budget balance is expected to improve to an estimated deficit of $66.9 billion (3.0 per cent of GDP) in 2023-24. The underlying cash balance is projected to further improve over the medium term to a deficit of $49.5 billion (1.6 per cent of GDP) in 2030-31.
With the cornerstone of the budget being reduced taxation and jobs, let’s look at some of the key highlights.
2022/23 tax cuts brought forward to 2020/21
Effective date: From July 1, 2020
The upper threshold of the 19 per cent tax bracket is proposed to increase to $45,000 from $37,000 from July 1, 2020. The upper threshold of the 32.5 per cent tax bracket is also proposed to increase from $90,000 to $120,000. The current and proposed tax rates are summarised in the table below.
|Current tax brackets||Proposed 2020/21 brackets|
|Taxable Income||Tax payable||Taxable Income||Tax payable|
|$18,200 or less||Nil||$18,200 or less||Nil|
|$18,201 – $37,000||Nil + 19% for each dollar over $18,200||$18,201 – $45,000||Nil + 19% for each dollar over $18,200|
|$37,001 – $90,000||$3,572 + 32.5% for each dollar over $37,000||$45,001 – $120,000||$5,092 + 32.5% for each dollar over $45,000|
|$90,001 – $180,000||$20,797 + 37% for each dollar over $120,000||$120,001 – $180,000||$29,467 + 37% for each dollar over $120,000|
|$180,001+||$54,097 + 45% for each dollar over $180,000||$180,001+||$51,667 + 45% for each dollar over $180,000|
The increased Low Income Tax Offset (LITO) is also proposed to be brought forward to the 2020/21 tax year. LITO is proposed to apply as outlined in the table below.
|Taxable income||2020/21 saving|
|$37,500 and below||$700|
|$37,501 to $45,000||$700 minus 5c for every dollar over $37,500|
|$45,001 to $66,667||$325 minus 1.5c for every dollar over $45,000|
Temporary loss carry-back for businesses
Effective date: July 1, 2019
Businesses significantly impacted by the coronavirus pandemic will have access to earlier cashflow through the use of this proposed provision than would be the case were all losses required to be carried forward.
Broadening temporary upfront deductions on capital assets for business
Effective date: October 6, 2020
This suite of enhanced upfront deductions aims to encourage all businesses to make investments in depreciable capital assets.
CGT on Granny Flats to cease
Effective date:on Royal Assent
It is hoped that the removal of CGT from these arrangements will encourage clients to formalise granny flat arrangements, and therefore remove any risk that vulnerable elder Australians will be subject to abuse from the owner of the accommodation should their relationship deteriorate.
As such, you should look to formalise such arrangements (upon the passing of the changes) to ensure security of tenure and that CGT will not apply to the arrangement.
Jobs and manufacturing
JobMaker hiring credit
Over three years from 7 October 2020
To support organisations in taking on new employees, the Government proposes to pay a hiring credit for up to 12 months for each new job. This is available from 7 October to employers who hire eligible employees age 16 to 35.
The credit will be paid quarterly in arrears at the rate of $200 per week for those age 16 to 29, and $100 per week for those age 30 to 35. Eligible employees are required to work a minimum of 20 hours per week and receive 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.
To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created.
Apprenticeships wage subsidy
From 5 October 2020
From 5 October 2020 to 30 September 2021, businesses of any size will be able to claim a new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.
The wage subsidy will support school leavers and workers displaced by the Coronavirus-related downturn to secure sustainable employment.
Super funds to be “stapled” to employees
Effective date: by July 1, 2021
This proposed new process could dramatically reduce the number of super accounts accrued over your working life. It does also mean that you and your adviser should be regularly reviewing your super fund to ensure it still meets your needs.
Additional COVID-19 stimulus payments
Effective date: from November 2020
In March and July, additional payments were made to social security recipients. In November 2020, and again in early 2021, two additional tax-exempt payments of $250 each are proposed to be made to recipients of the following payments and benefits:
- Age Pension
- Disability Support Pension
- Carer Payment
- Family Tax Benefit, including Double Orphan Pension
- Carer Allowance
- Pensioner Concession Card holders
- Commonwealth Seniors Health Card holders
- Veteran Service Pension; Veteran Income Support Supplement; Veteran Compensation payments, including lump sum payments; War Widow(er) Pension; and Veteran Payment.
- Veteran Gold Card holders
These payments represent small, but welcome, additional bonuses for social security recipients.
Relaxed Paid Parental Leave work test
Effective date: from March 22, 2020
The relaxing of the work test will allow more parents to qualify for government-funded Paid Parental Leave.
First Home Loan Deposit Scheme to be expanded
Effective date: the 2020 calendar year
By lifting the borrower’s security amount to 20 per cent, the lender should no longer require the borrower to take out mortgage protection insurance. The cost of such insurance can vary from hundreds to thousands of dollars a year, depending on the age of the life insured, the size of the loan and associated repayments, and the events covered.
It is important to note that the new guarantees are only available for new builds and newly built homes, not existing homes.
Home care packages funded
Effective date: from July 1, 2020
The Government proposes to commit to funding for an additional 23,000 home care packages across all levels over 4 years.
Those waiting for a home care package may now see their wait reduced.
Lindale Insurances Pty Ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a Franchisee of Fiducian Financial Services Pty Ltd, Level 4, 1 York Street, Sydney NSW 2000. AFSL 231103 ABN 46 094 765 134L
Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of Fiducian. They cannot be reproduced in any form without the express written consent of the author.