The 2020 Budget is all about jobs, jobs and spending to make more jobs. We already have JobSeeker and JobKeeper, and now we have JobMaker and JobTrainer.
Each announcement the Treasurer made was translated into jobs. Tax cuts for 11 million taxpayers equals 50,000 new jobs; expanding the instant asset write-off and the carry back of current losses is another 50,000 jobs.
Bringing forward the Stage 2 personal income tax cuts were the order of the day, and there will be no increases in tax in order to pay for spending. So unlike other economic downturns, there will be no deficits tax on high income earners.
One key theme throughout the Budget, is that the Government is keen to improve outcomes for young people. We know this recession has hit young people hard and many have taken early release of their super.
What you need to know
- > The Budget is forecast to result in a record deficit peaking at $966 billion (44% of GDP) in 2024. However, thanks to record low interest rates, this comes with only a minimal increase in interest payments.
- > Jobs are the Government’s primary focus — creating jobs and keeping jobs, with the introduction of the JobMaker plan (including a $100-$200 per week hiring credit for eligible employees/employers and reimbursement of up to 50% of an apprentice’s training) and the JobTrainer fund.
- > Tax cuts will play a major role and, unlike other economic downturns, there will be no deficits tax on high income earners. Stage 2 personal income tax cuts are to be brought forward 2 years, backdated to 1 July 2020, with tax savings for around 7 million Australians of $2,000 or more.
- > Business Owners will be able to carry back tax losses from the 2019/20, 2020/21 and 2021/22 financial years to offset previously taxed profits in the 2018/19 or later financial years. This, coupled with the Instant Asset Write-off provisions and expanded access to tax concessions for small business, is calculated to generate spending and create jobs.
- > Aged care gets a boost with 23,000 additional home care packages. Great news for the 100,000 Australians on the waiting list for these packages.
- > Superannuation measures called ‘Your Future, Your Super’ include a stronger focus on reducing fees and costs by increasing transparency and reducing the incidence of individuals with multiple super funds.
- > Social security — aged pensioners, veterans and eligible concession card holders will get $250 in December and another $250 in March 2021. However, there is no mention of extending JobSeeker.
Tax
From 1 July 2020, two years earlier than previously legislated, the Stage 2 low income tax offset (LITO) and the thresholds for the 19% and 32.5% personal income tax brackets are proposed to increase. Stage 3 of the Personal Income Tax Plan remains unchanged and commences in 2024/25 as legislated.
Current tax schedules
| Tax rate | Thresholds for 2020/21 and 2021/22 | Schedule from 1 July 2022 | Schedule from 1 July 2024 |
| Nil | 0 – $18,200 | 0 – $18,200 | 0 – $18,200 |
| 19% | $18,201 – $37,000 | $18,201 – $45,000 | $18,201 – $45,000 |
| 30% | – | – | $45,001 – $200,000 |
| 32.5% | $37,001 – $90,000 | $45,001 – $120,000 | – |
| 37% | $90,001 – $180,000 | $120,001 – $180,000 | – |
| 45% | $180,000+ | $180,000+ | $200,000+ |
Proposed tax schedules
| Tax rate | Schedule from 1 July 2020 | Schedule from 1 July 2024 |
| Nil | 0 – $18,200 | 0 – $18,200 |
| 19% | $18,201 – $45,000 | $18,201 – $45,000 |
| 30% | – | $45,001 – $200,000 |
| 32.5% | $45,001 – $120,000 | – |
| 37% | $120,001 – $180,000 | – |
| 45% | $180,000+ | $200,000+ |
Proposed low income tax offset phase out
| Taxable income | Low income tax offset – proposed from 1 July 2020 |
| $37,500 or less | $700 |
| $37,501 – $45,000 | $700 less [(income – $37,500) x 0.05] |
| $45,001 – $66,666 | $325 less [(income – $45,000) x 0.015] |
| $66,667 and over | Nil |
The amount of the tax savings
The proposed bring-forward of the personal income tax thresholds, rates and tax offsets create the following future tax savings.
| Taxable income | Current tax payable | Proposed tax payable | Tax saving^ |
| $20,000 | $0 | $0 | $0 |
| $40,000 | $4,467 | $3,887 | $580 |
| $60,000 | $11,067 | $9,987 | $1,080 |
| $80,000 | $18,067 | $16,987 | $1,080 |
| $100,000 | $25,717 | $24,187 | $1,530 |
| $120,000 | $34,117 | $31,687 | $2,430 |
| $140,000 | $42,097 | $39,667 | $2,430 |
| $160,000 | $49,897 | $47,467 | $2,430 |
| $180,000 | $57,697 | $55,267 | $2,430 |
| $200,000 | $67,097 | $64,667 | $2,430 |
Carry back tax losses
Eligible companies can carry back tax losses from the 2019/20, 2020/21 and 2021/22 financial years to offset previously taxed profits in the 2018/19 or later financial years. This will generate a refundable tax offset in the year in which the loss is made.
Corporate tax entities with an aggregated turnover of less than $5 billion are eligible.
The amount that is carried back cannot exceed the earlier taxed profits and the carry back amount cannot generate a franking account deficit.
Full deduction for capital asset expenditure (‘Instant asset write-off’)
Businesses with an aggregated turnover of less than $5 billion can deduct the full cost of eligible capital assets acquired from 6 October 2020 that are first used or installed by 30 June 2022.
Businesses with an aggregated annual turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to
be suspended.
Capital gains tax exemption for granny flat arrangements
From 1 July 2021 a capital gains tax (CGT) exemption will be introduced for formal, written granny flat arrangements that are created, varied or terminated. This will encourage elderly Australians to enter formal written arrangements which provide them protection in the event of a family or relationship breakdown and reduce the risk of financial abuse.
Medicare levy thresholds
The Medicare levy thresholds have been increased for the 2019/20 financial year.
Social security and aged care
$250 economic support payments
Two tax-free economic support payments will be paid to aged pensioners, veterans and eligible concession card holders – one payment in November 2020 and the other in early 2021.
Aged care support for older Australians
From 2020/21 the Government will provide 23,000 additional home care packages across all package levels.
Superannuation — Your Future, Your Super
Fund stapling
Under this proposal, effective from 1 July 2021, once an employee has a super fund and they change jobs, their new employer will contribute to their existing fund. Employees will however be able to advise their employer to make contributions to a different fund if they wish.
What’s next?
Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.
If any of these proposals raise questions, concerns or opportunities for you, please contact us.
This information is issued by RI Advice Group Pty Ltd (RI Advice), ABN 23 001 774 125, which holds Australian Financial Services Licence Number 238429 and is a summary of RI Advice ‘s understanding of the proposed Federal Budget 2020/21 changes announced on 6 October 2020. RI Advice is a company within the IOOF Group of companies, consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. The changes are subject to the passing of legislation and, accordingly, may not become law or may change. Please note that the information is based on RI Advice’s interpretation of the proposed changes as at the date of issue of this document. Accordingly, you must not do or refrain from doing anything in reliance on this information without obtaining suitable professional advice. In addition, the information is of a general nature and may not be relevant to your/your client’s individual circumstances. Before making any investment decision you must consider the relevant PDS, available on request by calling RI Advice. This information does not consider your personal circumstances and is general advice only. You should not act on any recommendation without obtaining professional financial advice specific to your circumstances. If you wish to opt out of future communications, please contact us.
