Given the impact of COVID-19 on Australian’s personal finances, business’ cashflow and the wider economic environment, the 2020-21 Federal Budget firmly focuses on supporting Australia’s recovery from our worst economic performance since 1959.
With the goal of boosting consumption to support economic recovery, the Government has announced a number of measures to provide tax relief to individuals to ease the cost of living, and incentives for employers to hire and invest.
A notable addition in this year’s Budget is the introduction of the Government’s Your Future, Your Super reforms. Commencing 1 July 2021, this package includes a range of measures to help improve the superannuation system and help Australians maximise their retirement savings.
Please note that these changes are proposals only and may or may not be made law.
Individuals & Families
Personal income tax cuts
- Immediate tax relief: ‘Stage two’ personal income tax cuts will be brought forward two years, and backdated to 1 July 2020.
- Raised tax brackets: The upper threshold of the 19% tax bracket will rise from $37,000 to $45,000 and the upper threshold of the 32.5% tax bracket will rise from $90,000 to $120,000. The government has created a tax relief estimator that you can use to see how much these changes could reduce the tax you pay on your personal income.
- Boost for workers on lower incomes: Workers on lower incomes will benefit from an extension of the Low and Middle Income Tax Offset (LMITO) for a further 12 months until 30 June 2021. The Low Income Tax Offset (LITO) will also increase from $445 to $700.
First home buyers
- Supporting housing construction: The Government is extending the First Home Loan Deposit Scheme, which means an additional 10,000 first home buyers will be able to secure a loan to buy or build a newly built home with a deposit of as little as 5 per cent.
Support for pensioners, older Australians & welfare recipients
- Two cash payments: Aged pensioners, carers, disability support and concession cardholders will receive two $250 payments. The payments will be made progressively from 30 November 2020 and early 2021 and will not count as income support for the purposes of any income support payment.
- Exempting granny flat arrangements from CGT: 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.
Support for job-seekers
- Incentives for employers to hire: A JobMaker Hiring Credit will be paid for a year to businesses who hire an eligible unemployed worker aged 16 to 35. The rate will be $200 a week for people under 30 and $100 a week for people between 30 and 35, and they must work at least 20 hours a week. The JobMaker Hiring Credit is aimed at filling the gap when the JobKeeper scheme ends next March.
- Support for apprentices and trainees: A wage subsidy will reimburse eligible businesses up to 50% of a new apprentice or trainee’s wages. Subsidies are capped at $7,000 per quarter, per eligible apprentice or trainee, capped at 100,000 places.
Improving business cash flow
- Immediate tax write-off: Businesses with annual turnover of up to $5 billion can write off the full cost of eligible capital assets acquired from 7 October 2020 and first used or installed for use by 30 June 2022.
- Loss carry-back: Eligible companies with an annual turnover of less than $5 billion will be able 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. These companies will be able to apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
Your Future, Your Super package
- Making it easier to choose a super fund: Commencing 1 July 2021, super fund members will have access to a new interactive online comparison tool, YourSuper, aimed to encourage funds to compete harder for members’ savings. This tool will provide a comparison of simple super (MySuper) products, include links to super fund websites where members can choose a MySuper product, and prompt members to consider consolidating their super accounts if they have more than one.
- Employees’ super follows them: Employers will no longer automatically create default super accounts when an employee joins their company. Instead, employees will have their super ‘stapled’ to them so they get to keep their current super fund when they change jobs. By 1 July 2021, if an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund. If an employee does not have an existing superannuation account and does not make a decision regarding a fund, the employer will pay the employee’s super into their nominated default superannuation fund.
- Transparency around underperforming funds: To protect members from poor outcomes and encourage funds to lower costs, superannuation products will be subject to a performance test each year. Funds that fail two consecutive annual underperformance tests will be prevented from taking on new members, and will not be able to re-open to new members unless their performance improves. They will also be required to inform members about their underperformance and refer them to the YourSuper comparison tool.
- Additional trustee obligations: Super fund trustees need to ensure decisions are made in the best financial interest of members and provide better information on management and expenditure.
Have a question about this year’s Federal Budget Summary and what it may mean for you and/or your business? Get in touch with one of our Gallagher experts today.
The information and any advice in this article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement.