2020 Federal budget overview

As widely anticipated, the announcement included bringing forward personal income tax cuts already legislated. Together, these changes deliver tax relief to low- and middle-income earners for the 2020-21 income year of up to $2,745 for individuals and up to $5,490 for dual income families.

This summary provides coverage of the key issues of most interest to you. We have expanded the key points below on the following pages.

 

	Tax Changes: Immediate personal tax relief for individuals – income tax cuts scheduled Exempting granny flat arrangements from capital gains tax
	Superannuation Employers will no longer create default superannuation accounts for most new employees. From July 2021, the performance of MySuper products will be benchmarked annually, with underperforming funds being required to notify members. New tools available to help fund members compare options.
	Social Security Covid-19 response package – further economic support payments
	Business Owners Extension of the provision allowing small business to instantly write-off asset purchases Temporary loss carry-back to support cash flow Covid-19 response package – Victorian Government grants JobMaker hiring credit

Personal income tax – In detail

The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 while retaining the low and middle income tax offset (LAMITO) for 2020-21. The changes will provide immediate tax relief to individuals and support the economic recovery and jobs by boosting consumption.

Bringing forward the second stage of the Personal Income Tax Plan

The following changes have been announced:

• The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.
• The low-income tax offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
• The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.

Taxable income	Stage 2: Tax payable1 (residents)
Up to $18,200	Nil
$18,201 – $45,000	Nil + 19%
$45,001 – $120,000	$5,092 + 32.5%
120,001 – $180,000	$29,467 + 37%
Above $180,000	$51,667 + 45%

 ¹Plus Medicare levy.

Example of tax savings

Taxable income	2017-18 tax liability	Annual tax savings since 2018*	Total tax saved with second round of tax cuts*	Total Savings
$20,000	$0	$0	$0	$0
$21,000	$87	$87	$87	$174
$22,000	$279	$255	$255	$510
$23,000	$569	$255	$255	$510
$24,000	$859	$255	$255	$510
$25,000	$1,149	$255	$255	$510
$30,000	$2,397	$255	$255	$510
$40,000	$4,947	$480	$580	$1,060
$50,000	$8,547	$1,080	$1,080	$2,160
$60,000	$12,147	$1,080	$1,080	$2,160
$70,000	$15,697	$1,080	$1,080	$2,160
$80,000	$19,147	$1,080	$1,080	$2,160
$90,000	$22,732	$1,215	$1,215	$2,430
$100,000	$26,632	$915	$1,665	$2,580
$120,000	$34,432	$315	$2,565	$2,880
$140,000	$42,232	$135	$2,565	$2,700
$160,000	$50,032	$135	$2,565	$2,700
$180,000	$57,832	$135	$2,565	$2,700
$200,000	$67,232	$135	$2,565	$2,700

What does this mean?

For an individual earning $90,000 p.a. they will save an additional $1,215 in tax in addition to the previous savings, bringing total savings to $2,430.
More money in the hands of taxpayers should help boost spending, although household savings rates increased during Covid and it remains to be seen if more will need to be done to encourage spending and return confidence.

Supporting Older Australians — exempting granny flat arrangements from capital gains tax

The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

CGT consequences are currently an impediment to the creation of formal and legally enforceable granny flat arrangements. 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. This measure will remove the CGT impediments, reducing the risk of abuse to vulnerable Australians.

SUPERANNUATION – IN DETAIL

Superannuation reform

The Government will provide $159.6 million over four years from 2020-21 to implement reforms to superannuation to improve outcomes for superannuation fund members. The reforms, which will reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, include:

• the Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal
• an existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers
• Superannuation trustees will be required to comply with a new duty to act in the best financial interests of members, this has been in place for financial advisers for many years and will drastically change intra-fund advice and benefit many clients with industry superannuation accounts and those without a financial adviser.
• from July 2021 the Australian Prudential Regulation Authority will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.

How does this benefit me?

How your super fund performs can make a big difference to the amount of money you have when you retire. This change means that your super fund will need to tell you if your fund has underperformed compared to other super funds. You can then make a decision about whether you want to stay with your fund or change to another fund.

4 million Australians currently have multiple super accounts, and this means they’re paying more than one set of super fees and possibly multiple insurance premiums as well. The Government estimates that this is costing Australians $450 million each year. The intention of this change is to keep people’s super accounts attached to them, so they can take them from job to job. By having only one super account, you can stop paying unnecessary fees and insurance premiums that may be eroding your super balance. Having all your super together can also help your super savings accumulate faster.

Social security – in detail

COVID-19 Response Package — further economic support payments

The Government will provide $2.6 billion over three years from 2020-21 to provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients and health care card holders. These payments are exempt from taxation and will not count as income support for the purposes of any income support payment.

• Two separate $250 economic support payments will be provided to eligible recipients. The first payment will be made from November 2020 and the second from early 2021. A one-off $1,500 pandemic leave payment will be made to eligible individuals who are unable to work and earn income while under a direction to self-isolate, quarantine or who are caring for someone who has tested positive to COVID-19.
• The independence test for Youth Allowance and ABSTUDY will be temporarily revised from 1 January 2021. Young people who are seeking to qualify as independent for the purposes of assessing Youth Allowance (student) and ABSTUDY payment eligibility will also be provided with incentives to participate in seasonal work in the agricultural industry. Veterans’ disability pensions will be exempt from the income test for Commonwealth Rent Assistance (CRA) and income support payments.

How does this benefit me?

You may be eligible for the two payments of $250 if you’re currently receiving:

• Age Pension (including Age Pension (Blind))
• Carer Allowance*
• Carer Payment
• Commonwealth Seniors Health Card
• Disability Support Pension (including Disability Support Pension (Blind))
• Double Orphan Pension*
• DVA Gold card
• DVA Payments
• DVA Seniors Card
• Family Tax Benefit (fortnightly recipients)*
• Family Tax Benefit (lump sum recipients)*
• Pensioner Concession Card (PCC) holders (covers non income and asset test PCC holders and people who have an extended entitlement to a PCC even though their payment has stopped).

Business owners – in detail

Temporary full expensing to support investment and jobs

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 (Budget night) and first used or installed by 30 June 2022. It will improve cash flow for qualifying businesses that purchase eligible assets and bring forward new investment to support the economic recovery.

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.

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.

COVID-19 Response Package — making Victoria’s business support grants non-assessable, non-exempt income for tax purposes

The Government will make the Victorian Government’s business support grants for small and medium business as announced on 13 September 2020 non-assessable, non-exempt (NANE) income for tax purposes.

State-based grants such as the Business Support Grants are generally considered taxable income by the Commonwealth. Given COVID-19 and the exceptional circumstances Victorian businesses face, providing this additional concessional treatment will assist in their recovery.

The Commonwealth will extend this arrangement to all States and Territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.

The Government will introduce a new power in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income.

Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

JobMaker Hiring Credit

The Government will provide $4.0 billion over three years from 2020-21 to accelerate employment growth by supporting 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.