Federal Budget 2020/21

On Tuesday 6 October, Treasurer Josh Frydenberg handed down the 2020/21 Federal Budget, which was one of the most eagerly anticipated Budgets in recent memory given the economic impacts felt across the country in the wake of the ongoing COVID-19 situation.

Some described it as the most important Budget since World War II, given the rising levels of national debt and unemployment that we have witnessed in the past eight months. Naturally, there was an eagerness to see the Government’s response to Australia’s first recession in 30 years.

The numbers

Some of the key numbers announced include:

  • Deficit to peak at $213.7 billion in 2020/21
  • Net debt to peak at $966.2 billion in 2023/24
  • $7.5 billion for major infrastructure projects
  • Income tax cuts for 11.5 million Australians
  • Real GDP to fall 1.5% in 2020/21
  • Unemployment to reach 7.25% in 2020/21

Personal income tax changes

Tax rate changes

The Government has announced that it will bring forward changes to the personal income tax rates that were due to apply from 1 July 2022, so that these changes now apply from 1 July 2020 (i.e., from the 2021 income year). These changes involve:

  • increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000;
    and
  • increasing the upper threshold of the 32.5% personal income tax bracket from $90,000 to
    $120,000.

These changes mean that an employee on $50,000 will be $1,080 better off in 2020-21, whilst an employee on $120,000 will be $2,430 better off when compared to 2019-20.

These tax cuts will be backdated to 1 July 2020 and are expected to be legislated and come into effect in the coming weeks.

Income tax offset changes

In addition, the Government will bring forward changes proposed to the low income tax offset (LITO) from 1 July 2022, so they now apply from 1 July 2020.

  • The Government will increase the low income tax offset (LITO) for taxpayers with taxable incomes of less than $37,000 from $445 to $700.
  • The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
  • The LITO will be reduced at a rate of 1.5 cents per dollar, for taxable incomes between $45,000 and $66,667.

Note, the Government also announced that the current Low and Middle Income Tax Offset (‘LAMITO’) would continue to apply for the 2021 income year (which is available in addition to the LITO for eligible taxpayers). For example, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.

Changes affecting business taxpayers

Small business tax concessions

Around 20,000 small to medium businesses will access up to ten small business tax concessions for the first time. This includes immediate deductions for eligible start-up expenses, exemption from the 47% fringe benefits tax on car parking provided to employees, exemption from the 47 per cent fringe benefits tax on multiple work-related portable electronic devices (e.g. phones or laptops) provided to employees.

JobMaker Hiring Credit

The Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers. 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. New jobs created until 6 October 2021 will attract the credit for up to 12 months from the date the new position is created.

The JobMaker Hiring Credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. Employers will need to report quarterly that they meet the eligibility criteria.

The amount of the credit is capped at $10,400 for each additional new position created. Furthermore, the total credit claimed by an employer cannot exceed the amount of the increase in payroll for the reporting period in question

For more detail about eligibility for employers and employees click here.

Tax-free business support grants

The Government has announced that the Victorian Government’s Business Support Grants for small and medium businesses, as announced on 13 September 2020, are non-assessable, nonexempt income for tax purposes. The Government may extend this arrangement to similar future grants from all States and Territories on an application basis. 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.

Instant full value asset write-off for business

The Government has announced it will introduce changes to the Capital Allowance provisions. Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:

  • The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
  • The asset was first used or installed ready for use by 30 June 2022.
  • The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for these purposes, a business with an aggregated annual turnover of less than $50 million), in which case the asset can be second-hand.

Changes affecting companies

Temporary loss carry back for eligible companies

The Government has announced that it will introduce measures to allow companies with a turnover of less than $5 billion to carry back losses from the 2020, 2021 or 2022 income years to offset
previously taxed profits made in or after the 2019 income year.

This will allow such companies to generate a refundable tax offset in the year in which the loss is made. The tax refund is 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 companies when they lodge their tax returns for the 2021 and 2022 income years. Note that, companies that do not elect to carry back losses
under this measure can still carry losses forward as normal.

FBT changes

FBT exemption for retraining and reskilling employees

From 2 October 2020, the Government will introduce an FBT exemption for retraining and reskilling benefits provided by an employer to redundant, or soon to be redundant, employees, where the benefits may not be related to their current employment (e.g., where an employer retrains a sales assistant in web design in order to redeploy them to an online marketing role in the business).

This measure is designed to encourage employers to assist redundant workers to transition to new employment opportunities within or outside an employer’s business (e.g., to prepare such employees for their next career), without triggering an FBT liability.

Reducing the compliance burden of FBT record keeping

The Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns. The measure will have effect from the start of the first FBT year (i.e., on 1 April) after the date of Royal Assent of the relevant legislation.

Currently, the FBT legislation prescribes the form that certain records must take, and forces employers (and in some cases employees) to create additional records in order to comply with FBT obligations.

Superannuation reforms

For the first time, Australians will automatically keep their superannuation fund when they change employers. ‘Stapling’ the super fund to the employee will ensure that their super follows them when they change jobs, stopping the creation of unintended multiple accounts.

From 1 July 2021, the proposed reforms will make the system better for members in four key ways:

Your superannuation follows you

An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.

Empowering members

A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their needs.

Holding funds to account for underperformance

MySuper products will be subject to an annual performance test. Funds that underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation products.

Small fund membership increased from four to six members

The Government restated an intention to increase the maximum number of fund members that can participate in a self-managed superannuation fund (SMSF) and a small APRA fund to six members (up from four). This measure was originally announced in the 2018-19 Budget and amending legislation is currently before the Senate with a start date from Royal Assent.

An increase in permitted member numbers to six would be a welcome change that should provide more opportunities for families to pool wealth in a common super fund structure for investment and access investment opportunities that would not otherwise be available. It may also make it easier for families to hold particular assets in a super fund structure and transition these to the next generation.

Other announcements

Supporting Pensioners

The Government will provide two additional Economic Support Payments of $250 to pensioners and other eligible recipients. These two one-off payments will take place in December, and then again in March 2021.

Extension to the First Home Loan Deposit Scheme

An additional 10,000 first home buyers will be able to purchase a new home sooner under the extension to the First Home Loan Deposit Scheme. The additional 10,000 places will be provided in 2020/21 to support the purchase of a new home or a newly built home. This will allow first home buyers to secure a loan to build a new home or purchase a newly built dwelling with a deposit of as little as 5%, with the Government guaranteeing up to 15% of a loan.

Home care packages

A further 23,000 home care packages will be available to address important aged care services. 2,000 of the packages are at level four – the highest level of care, 8,000 at level three, 8,000 at level two and 5,000 at level one (basic needs).

Securing Australia’s water supply

An investment of $2 billion for new projects under the National Water Infrastructure Development Fund will support the next generation of water infrastructure.

A further $50 million to build on-farm dams, tanks and troughs will also help create jobs in rural communities impacted by recent droughts and economic downturn as a result of COVID-19.

Supporting you

We can help with any additional information you might require about the 2020 Budget and what the announcements might mean for your financial situation. You can also access a number of dedicated fact sheets which contain more information about each of the Budget measures. Please speak to us if you have any questions, you can contact us here.