On Tuesday 6 October 2020, the Australian Government handed down its Federal Budget with the focus on supporting individuals and businesses to stimulate growth in the economy through job creation opportunities and boosting household spending.
It’s important that you take the time to understand what the Budget proposals mean – and how they might affect you personally. Do note that these are proposals only at this stage and will come in effect once legislated.
Understanding the Tax Cuts proposed
Personal
To stimulate household spending in this current year, the Government has announced it will bring forward – by two years – those legislated tax cuts originally meant for 1 July 2022.
Meaning, from 1 July 2020:
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the upper threshold of the 19% tax rate will be extended from $37,000 to $45,000
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the upper threshold of the 32.5% tax rate will be extended from $90,000 to $120,000
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the Low Income Tax Offset (LITO) will increase from $445 to $700. This reduces as your income increases within the threshold.
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the Low and Middle Income Tax Offset (LMITO) – originally legislated to be removed with the commencement of these stage two tax cuts in July 2022 – will remain for the 2020/21 year only.
What does this mean for you?
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For this year, the LMITO will assist in providing a tax benefit of about $1,080 for individuals earning between $48,000 – $90,000.
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Individuals earning up to $37,500 will receive an increase in the LITO from $445 to $700
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The changes are intended to provide immediate tax relief to individuals. However, there’re no proposals directing employers in adjusting PAYG rates yet.
Business Support
The Government announced significant programs intended to stimulate investment and job growth.
Temporary full expensing
In a major move to drive business investments and activity, the Government will allow eligible businesses to immediately deduct the full cost of eligible capital assets acquired from budget night (6 October 2020) and June 2022.
Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets for businesses with aggregated annual turnover of less than $5 billion.
Full expensing also applies to second-hand assets for small and medium-sized businesses with aggregated annual turnover of less than $50 million.
Enhanced instant asset write-off
Business 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 existing expanded instant asset write-off measure
Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets
Temporary loss carry-back
Another major initiative announced by the Government is to allow businesses with annual turnover of less than $5 billion to carry back tax losses from 2018/19 through to 2021/22 income years to offset previously taxed profits in the 2018/19 or later years.
The carry back allowable losses must not be greater than the profit taxed in the earlier years and a carry back loss will not generate a franking account deficit.
JobMaker Hiring credit
To support businesses to hire, the Government has announced a weekly payment – for businesses who hire eligible new employees – for 12 months for each new job.
To be eligible, new employees must be between 16 and 35 years old. For employees between 16 and 30, the business will be eligible for $200 per week. For employees between 30 and 35 years old, the business will be eligible for $100 per week.
Employees must be engaged for at least 20 hours per week and all businesses (except for the major banks) are eligible. To be eligible, employers will need to demonstrate an increase in overall employee headcount and payroll for each additional new position created.
What does this mean for you?
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Assuming in 2018/19 income year, a business made $2M in profits taxed at a marginal rate of 30% ($600,000). Then in 2020/21 income year, made a loss of $1M.
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The business can offset $1M against the profit of $2M, giving a net taxable income of $1M to be taxed at a marginal rate of 30% ($300,000).
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This will give rise to a tax credit of $300,000 in the 2020/21 income year.
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Do note that a business can choose to not carry-back their losses. In that case the normal carry forward losses rules still apply.
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Small businesses can now hire apprentices and receive Government help for this.
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Eligible employees are required to work a minimum of 20 hours per week and receive JobSeeker, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.
Superannuation: Your super, your future
The Government is proposing changes to the superannuation system. The changes are designed to reduce the duplicate accounts held by employees as a result of changes in employment and prevent new members from joining underperforming funds.
From 1 July 2021, Your super, your future will ensure that where a new employee does not nominate a fund, employer must pay to employees existing fund – which can be obtained from the ATO.
Where there’s no existing fund, employees have the right to choose their own fund but if no choice is made, then the employer’s default fund will be used.
The Government is proposing a super comparison tool, allowing members to easily compare funds by fees and investment performance. Further to this, it is proposed that super funds will be prevented from receiving new members if the fund underperforms for 2 consecutive years.
What does this mean for you?
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The Government recognises that superannuation is your money and you need to take control of what you are invested in and who you are invested with.
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It is now more important than ever to understand what exactly makes up your investment mix.
Supporting you through the changes
This year has been a challenging time for everyone. This document is a snapshot of some of the key areas that may impact you. The changes are many and could be overwhelming. This document is general in nature and has not been produced with your personal circumstances in mind. If you have any concerns, or would like to discuss your financial strategy, it’s more important than ever to get in touch. Feel free to arrange an appointment by contacting us on
02 9121 4545 or [email protected]
