Federal Budget 2020-21 review

UPDATED 19 October 2020 –

We hosted a webinar run by Tim Howard, Technical Consultant at BT on Friday 16 October. Tim unpacked the budget announcements and discussed what is likely still to come.

You can watch a recording of the webinar online via the link below.

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Treasurer Josh Frydenberg handed down the Federal Government’s 2020-21 Budget on 6 October. Originally delayed in May due to the COVID-19 pandemic, this budget has been highlighted as the most significant in decades.

The Government is concentrating on a clear path out of the first recession Australia has experienced in almost 30 years, and much of the budget is focused on job creation and personal financial security… there is very little that will directly affect self-funded retirees.

All the proposals outlined will need to pass legislation before they become effective.

Personal income tax cuts

Personal income tax cuts

Prior to the announcements, it was speculated that the Government would bring forward the second stage of its planned income tax changes. This is now confirmed, and the start date has been backdated to 1 July 2020 for the stage-two tax cuts.

Once legislation is passed:

  • the top threshold of the 19% tax bracket will increase to $45,000 (from $37,000)
  • the top threshold of the 32.5% tax bracket will increase to $120,000 (from $90,000)
  • the low-income tax offset (LITO) will increase from $445 to $700.

In addition, the LMITO (low- and middle-income tax offset) will continue through the financial year 2020-21. This offers a reduction in tax of up to $1,080 for individuals with a taxable income between $37,001 and $126,000.

Rate (%) Current tax thresholds
from 1 July 2018 Income range ($)
New tax thresholds
from 1 July 2020
Income range ($)
Tax Free 0 — 18,200 0 — 18,200
19 18,201 — 37,000 18,201 — 45,000
32.5 37,001 — 90,000 45,001 — 120,000
37 90,001 — 180,000 120,001 — 180,000
45 >180,000 >180,000
LITO Up to 445 Up to 700
LMITO Up to 1,080 Up to 1,080

Further economic support payments

Following on from the economic support payments made earlier in 2020, the Government has announced two additional payments of $250 each. The first is set to be paid in December 2020 and the second from early 2021, and they will be made to eligible recipients of the following payments:

  • Age Pension
  • Disability Support Pension
  • Carer Payment
  • Family Tax Benefit, including Double Orphan Pension
  • Carer Allowance
  • Pensioner Concession Card (PCC) holders
  • Commonwealth Seniors Health Card holders
  • Eligible Veterans’ Affairs payment recipients and concession card holders.

These payments are tax-free and are not included in any assessment for income support payments.

Aged care support

Aged care support

To further support the Aged Care sector in response to COVID-19, the Government has committed $2.0 billion over four years from 2020-21. This funding will help older Australians who are accessing aged care, by providing additional home care packages as well as continuing to improve transparency and regulatory standards. This includes:

  • $1.6 billion over four years from 2020-21 for the release of an additional 23,000 home care packages across all package levels
  • $125.3 million over three years from 2020-21 to replace the Commonwealth Continuity of Support Programme with a new Disability Support for Older Australians program
  • $91.6 million over two years from 2020-21 to continue the reform to residential aged care funding
  • $4.6 million over two years from 2020-21 to review the support care needs of senior Australians who live in their own home and determine how best to deliver this care in the home.
Support for business

Support for business

As part of this budget, the Government has announced an extensive range of measures designed to support businesses. These are expected to encourage a boost in investment and help businesses navigate the current economic downturn. It’s important to note that many of these financial measures are only temporary.

One of the most significant proposals is the immediate deduction of capital asset investments. Businesses with a turnover of less than $5 billion can claim a tax deduction for the full cost of eligible capital assets. This immediate deduction is applicable now until 30 June 2022. This initiative is designed to stimulate business investment.

This is highly beneficial as the asset’s cost will be fully deductible upfront rather than being claimed over the asset’s life. While many businesses were already able to claim the $150,000 instant asset write-off, this new measure does not cap the asset’s cost.

In addition, for small to medium sized businesses with a turnover less than $50 million, second-hand assets could also be eligible for the immediate deduction.

JobMaker Hiring Credit

JobMaker Hiring Credit

Another initiative to support businesses and employment is the new JobMaker Hiring Credit. This is outlined as a weekly payment for businesses that hire eligible new employees. It will be paid quarterly in arrears and will be available for up to 12 months from the contracted employment date.

To be eligible, employers need to hire new employees between the ages of 16 and 35. The payments will be:

  • $200 per week for employees aged 16 to 29 years or
  • $100 per week for employees aged 30 to 35 years.

There is a maximum amount of $10,400 payable per additional new position filled. The new employees must work at least 20 hours a week and all businesses are eligible – with the exception of the major banks.

Superannuation

Superannuation

The Government has not made any major changes to the superannuation system in this budget. As expected, the current measures designed to support Australians through the COVID-19 pandemic will continue. This includes early access to super, due to end 31 December 2020, and the lower pension drawdown rates, which will continue for the full 2020-21 financial year.

However, there have been reforms announced that are designed to improve outcomes for superannuation fund members. These are primarily focused on reducing the number of duplicate super accounts that can result from changing employment and also restricting the ability of new members joining underperforming funds.

From 1 July 2021, Your Future, Your Super will mean that individuals retain their existing super fund when they change jobs. There will also be a new online comparison tool available that will enable people to easily compare fund fees and performance and make an informed decision based on their personal needs. There are however, concerns about how performance will be measured and potential unintended consequences.

Your adviser will discuss any budget measures that may affect you personally in your next review meeting. If you have any questions in the meantime, please contact our team for more information. Read more Financial Industry articles.

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