Tuesday night’s Federal Budget, delivered 5 months late due to the COVID-19 pandemic, contained a variety of measures across taxation, superannuation, social security and aged care that will affect many of our clients and their financial plans. Please note that these proposals are not yet legislated, and as always, the team at AGS Financial Group are well placed to advise you on your strategic options as these proposals progress.

Key elements of the budget include:

Personal Taxation

Personal income tax cuts brought forward

The government has already legislated a sequence of personal income tax changes, and the budget has proposed a bring-forward with retrospective start from 1 July 2020 of the “Stage two” income threshold ranges that were due to commence from 1 July 2022.

The Government also proposes to retain the Low and Middle Income Tax Offset (LMITO), but only until 30 June 2021. The increase in the Low Income Tax Offset (LITO) from $445 to $700 is also proposed to be brought forward to 2020-21.

The table below summarises the current and new proposed personal tax rates, thresholds and offsets:

 

Marginal Tax Rate (%)	Current Thresholds 2020/21 ($)	Proposed Thresholds 2020/21 ($)	Proposed Thresholds from 2021/22 ($)	Marginal Tax Rate (%)	Proposed Thresholds from 2024/25 ($)
0	0 – 18,200	0 – 18,200	0 – 18,200	0	0 – 18,200
19	18,201 – 37,000	18,201 – 45,000	18,201 – 45,000	19	18,201 – 45,000
32.5	37,001 – 90,000	45,001 – 120,000	45,001 – 120,000	30	45,001 – 200,000
37	90,001 – 180,000	120,001 – 180,000	120,001 – 180,000	–	–
45	180,001+	180,001+	180,001+	45	200,000+
LMITO	Up to $1,080	Up to $1,080	–	LMITO	Nil
LITO	Up to $445	Up to $700	Up to $700	LITO	Up to $700

Note: excludes Medicare (2%)

Assuming the proposal passes legislation, this will mean a retrospective adjustment for wages paid in this year to date to correct the tax withheld. For most employees this should result in a refund of overpaid tax.

Superannuation

Changes to default superannuation – ‘Your Future, Your Super’

The Government has announced a number of superannuation measures designed to reduce the number of duplicate accounts held by employees as a result of changes in employment, and to prevent new members joining underperforming funds. These proposals, effective 1 July 2021 include:

• The ATO to develop a “YourSuper” tool so that new employees can select a superannuation product ranked by fees and investment returns, as well as prompt them to consider consolidating accounts;
• Superannuation accounts to be “stapled” to a member, to avoid the creation of new accounts when members change jobs. Where employees do not nominate an account at commencement of employment, the existing fund is to be used.
• Australian Prudential Regulation Authority (APRA) 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 shows they are no longer underperforming.
• Transparency and accountability of superannuation funds will be improved by strengthening obligations on superannuation trustees to ensure their actions are consistent with members’ interests.

Social Security, Aged Care and Housing Affordability

Economic support payments

The Government will provide two economic support payments of $250 each to eligible income support recipients and concession card holders. The first payment will be made available from November/December 2020 and the second from early 2021.

Temporarily relaxing the Paid Parental Leave work test

Under the current rules, to meet the work test for Paid Parental Leave, the parent must have worked in 10 of the last 13 months preceding the birth or adoption of the child.

The Government is proposing to relax the Paid Parental Leave work test for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months preceding the birth or adoption of a child.

Release of additional home care packages

The Government will further support older Australians accessing aged care by providing additional home care packages. An additional 23,000 home care packages will be released over four years from 2020-21 across all package levels.

Extension of first home loan deposit scheme

The Government will allow an additional 10,000 first home buyers to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5 per cent under the existing First Home Loan Deposit Scheme. The scheme allows first home buyers to build or purchase a newly built home with a low deposit through participating lenders where available, replacing the need for commercial Mortgage Lenders’ Insurance.

Removing Capital Gains Tax (CGT) for granny flat arrangements

The Government is proposing to provide a targeted CGT exemption for granny flat arrangements where there is a formal written agreement in place. Such arrangements are entered to transfer ownership of a family residence from an aged or disabled family member to another in return for an agreement to provide ongoing accommodation and support. The CGT rules relating to granny flat arrangements are complex. As a result, to avoid the risk of incurring a CGT liability, many arrangements are currently undocumented. Unfortunately, this can leave older or disabled people vulnerable once they have transferred the asset to another person.

Small & Medium Business

Measures promoting Employment

The Government has announced a number of measures intended to accelerate employment growth for

Australians, including the following:

• Businesses who take on a new apprentice from 20 October 2020 will be eligible for a 50 per cent wage subsidy, up to certain limits.
• Organisations who take on new employees may qualify for the new JobMaker Hiring Credit. Depending on the age of the new employee, a weekly credit of $200 or $100 will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.
• The Government is proposing to introduce an exemption from the 47 per cent fringe benefits tax (FBT) for employers providing retraining and reskilling benefits to redundant, or soon to

Temporary full expensing of capital assets

Effective 6 October 2020 the Government is proposing that businesses with aggregated annual turnover of less than $5 billion will be allowed to deduct the full cost of eligible capital assets acquired from Budget night and first used or installed by 30 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 small and medium sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second-hand assets.

Businesses 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 enhanced instant asset write-off.

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

The Government is proposing to 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.

This means if you operate a company that was profitable in the 2018/19 financial year and paid tax on those profits – you will be able to get a refund of those taxes paid to the extent you incur taxable losses in the 2019/20, 2020-21 or 2021-22 financial years. If you made a loss in the 2019/20 financial year and have already lodged your company tax return, you will need to speak with your accountant to discuss options to amend your return and take advantage of this measure.

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 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.

Expanding access to some small business tax concessions

The Government is proposing to expand access to some small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.

Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will, for the first time, have access to up to ten further small business tax concessions in three phases:

• From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

• From 1 April 2021, eligible businesses will be exempt from the 47 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees.

• From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on an adjusted notional tax basis, and settle excise duty and excise equivalent customs duty monthly on eligible goods under the small business entity concession. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.

In addition, from 1 July 2021, the ATO’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

Contact us for Advice and Assistance

Naturally, as these measures become law, we are on hand to assist you with understanding and responding to the changes. As always, please contact us should you require any advice or assistance with your plans.

 

Prepared from briefings gratefully received from: AMP, The Association of Super Funds of Australia, the Financial Planning Association and MLC.

 

Published : 06 Oct 2020