With the Federal Budget being released five months later than usual last night, and with a deficit position aimed at bringing Australia through the recession and COVID times we find ourselves in.
This is the second Federal Budget of Treasurer Josh Frydenberg who in May last year was announcing the first budget surplus in over 11 years and has now announced one of the largest expected deficit budgets since World War II.
The Federal Government has taken a play from the Keynesian Book of Economics. Theories written during and after the Great Depression (written by John Maynard Keynes for those who want to read up further) and modernised as economies and markets have moved. The theory being (in very rough terms) that if we spend money and lower taxes, this will help to keep the economy moving and assist in returning to ‘growth’ in our economies.
As we have commented before a surpluses and deficits shouldn’t be seen as ‘good’ or ‘bad’ at the Federal Budget Level. This is purely an instrument of the Economy we are born into and the System in which we live and during these times should be used to provide some comfort and confidence in the system and to us as individuals within in it.
Before any of these announcements can be implemented, they will require passage through parliament, during this time of crisis we should see most of the tax cuts gain support in parliament and there is talk of an ‘omnibus bill’ to pass these as quickly as possible.
Overview
- The Government is bringing forward ‘stage 2’ of its already planned and legislated tax cuts which were due to commence from 2022. From 1 July 2020 the tax rates of 32.5% will apply to incomes up to $120,000 (previously $90,000 threshold);
- Proposed changes from 2024 will remain with marginal tax rates to reduce the 32.5 percent tax rate down to 30 percent and removal of the 37 percent tax rate so all income earners under $200,000 would pay no more than 30 cents in the dollar;
- Changes to the Low Income Tax Offset (LITO) and Low and Middle Income Tax Offset (LMITO) Thresholds have been announced which increases the effect tax free threshold to $23,226;
- Changes to the Medicare Levy
- The threshold for singles has increased from $22,398 to $22,801.
- The family threshold has increased from $37,794 to $38,474.
- For single seniors and pensioners, the threshold has increased from $35,418 to $36,056.
- The family threshold for seniors and pensioners has increased from $49,304 to $50,191.
- For each dependent child or student, the family income thresholds increase by a further
$3,533, instead of the previous amount of $3,471.;
- Extension of the First Home Deposit Scheme with another 10000 loans being offered along with continuation of the already legislated Home Builder Boost of $25,000 for those under the eligible income levels;
- Relaxation of the Paid Parental Leave ‘Work Test’ which required those accessing the payments to have worked for 10 of the last 13 months prior to adoption or birth of a child (between 22 March 2020 and 31 March 2021). The Government is supporting new parents whose employment was interrupted by COVID-19. As a result, 9,000 individuals will gain eligibility for Parental Leave Pay and 3,500 for Dad and Partner Pay. This change will extend the work test period from 13 months prior to the birth or adoption of the child to 20 months prior, enabling access to Paid Parental Leave (PPL) where eligibility has been impacted by COVID-19..
- By July 2021 the Government announced a ‘Stapled’ super account which would ensure multiple accounts are not setup for people who have transient or multiple work arrangements;
- Self Managed Super Fund memberships which were mentioned last Budget to increase member numbers from 4 to 6 members are still before a Senate Economics Committee which is due to report on the 4th of November 2020;
- There was no change to the COVID-19 temporary early release of super measure. Eligible Australian and New Zealand citizens and permanent residents continue to be allowed just one withdrawal opportunity of up to $10,000 from 1 July 2020 until 31 December 2020.
- Last years announcements to increase the contribution age to align to Centrelink Age Pension Age (without the work test) have started from 1 July 2020 so those up to 67 can make contributions to super within the prescribed limits however we are still waiting for changes to the bring forward provision for Non-Concessional Amounts which is still waiting in parliament;
- Announcement of a ‘Your Super’ portal which will allow people to compare super products in one spot (a menu of ‘my super’ options);
- Benchmark and reporting required by APRA for funds to report net performance against the benchmark to give members transparency of how their fund is doing;
- Improved Transparency and reporting required by Super Fund Trustees to ‘act in members best financial interest’ and present key information on how they plan to manage and spend money in advance of annual Member’s meetings.
- 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.
- Further Economic Support payments of $250 to those in receipt of Centrelink and DVA payments (first in November 2020 and second in early 2021) including the following:
- Age Pension
- Disability Support Pension
- Carer Payment
- Carer Allowance
- Family Tax Benefit
- Double orphan pension
- Commonwealth Seniors Health Card
- Pensioner Concession Card
- Eligible Veterans’ Affairs payment recipients and concession card holders.;
- Removal of Capital Gains Tax on Granny Flat Arrangements (from July 2021). The Capital Gains Tax (CGT) rules relating to granny flat arrangements are complex. As a result, to avoid the risk of incurring a CGT liability, many arrangements are currently undocumented. Unfortunately, this can leave older or disabled people vulnerable once they have transferred the asset to another person;
- Release of additional 23,000 home care packages, to allow further choice around care needs at home rather than in institutional settings.
- Enhanced Instant Asset Write Off – From budget night (6 October 2020) Temporary Full Expense of Capital Assets rather than having to depreciate over time. For entities with turnover up to $5Billion a claim of $150,000 for new capital items can be claimed. Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off.;
- Temporary Loss Carry Back – for entities under $5Billion turnover, any losses generated in 2019-20, 2020-21 and 2021-22 income years can be offset against prior profits in 2018-19 income year or later. 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 will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns;
- Small business will have access to claim expenses around start up of a business (from 1 July 2020);
- From 1 April 2021 removal of Fringe Benefits Tax on Car Parking and multiple electronic devices for Employees;
- Funding for New Apprentices (50% wage Subsidy) and funding for new staff under the ‘Job Maker Hiring Credits’ (depending on age of staff member of $100 or $200 per week). The JobMaker Hiring Credit will be available to employers for each new job they create over the next 12
months for which they hire an eligible young person, aged 16 to 35 years old. From 7 October 2020, eligible employers will be able to claim $200 a week for each additional eligible employee they hire aged 16 to 29 years old; and $100 a week for each additional eligible employee aged 30 to 35 years old.;
- Fringe Benefits exemption on training for staff who are made (or soon to be made) redundant for training which is not related to their current field of employment;
Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics. Money Mechanics is a fee for service financial advice firm who partner with clients in Melbourne, Canberra, Newcastle and Sydney to achieve their life and wealth outcomes. Money Mechanics Pty Ltd (ABN 64 136 066 272) is a Corporate Authorised Representative (No. 336429) of Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL and Australian Credit Licence No. 236523
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.