We have summarised the key points from the 2020-2021 budget, that we believe will have the most impact on our clients.

Please keep in mind that all budget measures below are proposals and will require the passage of legislation to become effective. 

2020 Federal Budget Summary

Individuals

Personal Tax Rates

The cuts to personal tax rates will be bought forward and be effective from the 1 July 2020.

The measures involve the simple raising of the tax brackets as follows;

  • The upper threshold of the 19% tax bracket will increase from $37,000 to $45,000.
  • The upper threshold of the 32.5% tax bracket will increase from $90,000 to $120,000.

This will be equate to $41 a week for someone who earns between $50,000 and $90,000 per annum and $49 week for someone who earns more than $120,000 per annum.

There will also be an extension of the Low and Middle Income Tax Offset to the 30 June 2021 and an increase in the Low Income Tax Offset.


Business

The business measures announced in last night's Federal Budget will help promote the investment in Small-Medium Enterprises (SMEs).

Here at the key summaries of the announcements:

Instant asset write-off

For those businesses with an aggregated annual turnover of less than $50 million will be allowed an immediate write-off on any asset (new and second hand) purchases after 7.30pm on 6 October 2020 and before 01 July 2022. Any business that exceeds the $50million turnover will only receive the immediate write-off on new business assets.

Loss carry-back

The measure will provide significant help for struggling businesses making current year losses. Any tax paid in respect of a previous year will be refunded to the taxpayer. The constraints on this announcement are;

  • The loss carry-back can only go back as far as the 2019 Financial year
  • The carry-back must not generate a franking account deficit
  • The carry-back will cease at the end of the 30 June 2022 financial year

JobMaker - Creating jobs for the economic recovery

The JobMaker Plan is designed to boost economic growth, create jobs, invest in  future industries and skills, remove red tape, guarantee essential services and restore confidence in a stronger recovery.  One of the measures of JobMaker is 'Supporting Australian's back into jobs', by incentivising businesses to take on additional employees aged between 16 and 35 years old. Around 450,000 positions for young Australians will be supported through JobMaker Hiring Credits.

R&D incentives

The Government is investing an additional $2 billion through the Research and Development Tax Incentive to help innovative businesses that invest in research and development (R&D).

Small claimants (annual turnover less than $20 million)

  • Refundable tax offset of the company tax rate plus 18.5 per cent
  • No cap on cash refunds

Larger claimants (annual turnover of $20 million or more)

  • Streamlined two-tiered intensity test
  • Non-refundable tax offset of the company tax rate plus:
    • 8.5 per cent for R&D expenditure between 0 and 2 per cent R&D intensity; and
    • 16.5 per cent for R&D expenditure above 2 per cent R&D intensity

All Claimants

  • Eligible R&D expenditure threshold increased from $100 million to $150 million per annum
  • Improvements to the administration, integrity and transparency of the R&D Tax Incentive
  • Changes apply from 1 July 2021

Changes to Fringe Benefits Tax (FBT) rules

  • Training courses provided by employers will now be exempt, even if the training isn't relevant to a worker's current role, this is to encourage companies to keep workers on in different roles within their business.
  • Record-keeping requirements will reduce for FBT.
  • Tax concessions currently available to small businesses with an annual turnover of up to $10 million will now be available to businesses with a turnover of up to $50 million.
  • The concessions include immediate deductions of start-up expenses and exemptions from FBT on car parking, phones and laptops provided to employees.

These measures are aimed at encouraging business to invest in their future and to help generate employment.

The access to prior year profits when losses are generated will help provide additional working capital for businesses to assist with future cashflows and investment. 


Superannuation Summary

Pleasingly, the Government committed to their election promise that there will be no adverse tax changes to the superannuation system. In addition, for the first time in a number of years, there were no measures specifically relating to SMSFs in this year’s Budget (although some measures have been deferred).

The Government, however, did announce a package of superannuation reforms to address APRA (industry and retail) superannuation fees and poor performances. The key part of this is a new form of ‘default superannuation’ where a superannuation account will follow an individual (super stapling) when they change jobs, eliminating the need for a new superannuation account to be created every time an individual changes job. The reforms will not only reduce the number of duplicate accounts held by employees as a result of changes in employment, but also prevent new members joining an underperforming fund. These reforms will save Australians an estimated $17.9 billion over 10 years.

Super ‘stapled’ to a member

Effective 1 July 2021

When a person starts a new job and does not nominate a super fund, employers will be required to contribute to the employee’s existing super account, rather than the employer’s default super fund. This means that your existing super will follow you when you change jobs.

Under this measure, the existing super account will be ‘stapled’ to the member so that you keep your current super fund when you change jobs. The aim of this measure is to improve member outcomes by reducing unintended multiple super accounts that erode member balances through unnecessary fees and insurance premiums.

This measure implements Recommendation 3.5 of the Hayne Royal Commission.

Employers will be able to obtain the new employee’s existing super fund details from the ATO’s online services. A second phase will be introduced from 1 July 2022 where the ATO will enable payroll systems to obtain employee superannuation details to eliminate the need for manual entry.

It is important to note that the opportunity to nominate a chosen fund is still available under this reform.

Where a new employee does not have an existing superannuation account and does not nominate a superannuation fund, the employer will still pay the employee’s superannuation into the employer’s default superannuation fund.

YourSuper comparison tool – making it easier to choose 

Effective 1 July 2021

A new, interactive, online YourSuper comparison tool, to be developed by the ATO, will make it easier for members to choose their super fund. The online tool will:

  • rank MySuper products by fees and investment returns
  • provide links to super fund websites
  • show the member’s current super accounts and prompt members to consolidate.

This is designed to make it easier for you to compare the fees and performance of super funds across the market and create more competition across the super industry.

Holding funds to account for underperformance

Effective 1 July 2021

By 1 July 2021, APRA will conduct annual benchmarking tests on the net investment performance of MySuper products. If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021. At this time, members must also be provided with information about the YourSuper comparison tool, which will identify any underperforming funds.

Products that have underperformed over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming.

By 1 July 2022, annual performance tests will be extended to other superannuation products.

This may lead to consolidation of the number of super funds in the industry as members rollover to a super fund with better performance. Hopefully this will not lead to the situation we see in the Life Insurance industry where consolidation has arguably gone too far, leading to a lack of choice and competition. Having a simple to use comparison tool will streamline what is currently a very difficult area to compare.

New duties and responsibilities for super fund trustees

Effective 1 July 2021

The Government will ensure superannuation trustees are more accountable and transparent as to how they manage the retirement savings of members.

By 1 July 2021:

  • Superannuation trustees will be required to comply with a new duty to act in the best financial interests of members.
  • Trustees must demonstrate that there was a reasonable basis to support their actions that is consistent with members’ best financial interests.
  • Trustees must provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.

While Section 52(2) (c) of the Superannuation Industry Supervision Act already requires super trustees to perform their duties in the best interest of their members, the new duty is to act in the best financial interests of members. This is in line with the Hayne Royal Commission. This measure is aimed at Industry and Retail Funds(large APRA funds) and will not impact on SMSFs.

SMSF and small APRA funds – deferring the increase in the maximum number of allowable members from four to six

Effective - once enabling legislation receives Royal Assent

In the 2018-19 Federal Budget, the government proposed to increase the maximum number of allowable members in self -managed super funds and small APRA funds from four to six commencing from 1 July 2019. This measure is now proposed to commence from the date the enabling legislation receives Royal Assent.

The Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, was introduced into Parliament on 02 September 2020 and remains before the senate without opposition. Therefore, it is just a matter of time before you will be able to have up to 6 members in a SMSF. This will allow great family wealth creation and succession and we are keen to see this legislation passed.

Superannuation – deferring the start date to reduce red tape

Effective 1 July 2021

In the 2019-20 Federal Budget, the government proposed the budget measure Superannuation — reducing red tape for superannuation funds (exempt current pension income changes). This measure aimed to simplify the process of claiming exempt current pension income in certain circumstances by allowing trustees to choose to use the proportionate method rather than the segregated method. In the 2020-21 budget, the start date has been deferred for another 12 months to 1 July 2021.

Superannuation — deferring the start date of the Retirement Income Covenant

Effective 1 July 2022

The Government is deferring the commencement of the Retirement Income Covenant, announced in Budget 2018-19, from 1 July 2020 to 1 July 2022 to allow continued consultation and legislative drafting to take place. This will also allow finalisation of the measure to be informed by the Retirement Income Review. Existing covenants in the SIS Act include obligations to formulate, review regularly and give effect to investment, risk management and insurance strategies, but not a retirement income strategy. Introducing a retirement income covenant will require trustees to consider the retirement income needs and preferences of their members.

 


Social Security and Family Assistance Summary

$250 Economic Support Payments

Effective December 2020 and March 2021

The Government is providing two separate one-off Economic Support Payments of $250 to individuals receiving eligible income support payments or concession cards.

The $250 payments will be paid progressively from December 2020 and March 2021.

Eligible individuals must be in receipt of the following payments as at 27 November 2020 and/or 26 February 2021:

  • Age Pension (including Age Pension (Blind))
  • Carer Allowance*
  • Carer Payment
  • Commonwealth Seniors Health Card
  • Disability Support Pension (including Disability Support Pension (Blind))
  • Double Orphan Pension*
  • DVA Gold Card
  • DVA Payments
  • DVA Seniors Card
  • Family Tax Benefit (fortnightly recipients)*
  • Family Tax Benefit (lump sum recipients)*
  • Pensioner Concession Card (PCC) holders (covers non-income and asset test PCC holders and customers who have an extended entitlement to a PCC even though their payment has stopped).

* if they are not receiving a primary income support payment.

Note: if you are eligible for the Coronavirus Supplement of $250 per fortnight (e.g. JobSeeker Payment recipients) then you are not eligible for the one-off $250 Economic Support. If you only hold a Low Income Health Care Card, you will not qualify for the one-off $250 Economic Support.

Youth Allowance and ABSTUDY independence test

Effective 1 January 2021

The Government is making a temporary change to the criteria used to determine independence for Youth Allowance and ABSTUDY. The independence test is important as young people who are considered independent from their parents are not subject to the Parental Income Test. There are a number of ways of meeting the independence test; however, a common method is to meet the workforce participation criteria which require young people to work 30 hours per week for at least 18 months within a two-year period. Under this temporary measure, from 1 January 2021 all Youth Allowance and ABSTUDY applicants will automatically be deemed to have worked over the six-month period from 25 March 2020 to 24 September 2020.

This assists young people to meet the workforce participation criteria even if they were unable to gain work due to the impact of Coronavirus in 2020.

Parental Leave Pay – Work test extension

Effective – Child born or adopted between 22 March 2020 and 31 March 2021

The Government is temporarily extending the work test for Paid Parental Leave and Dad and Partner Pay from 13 months to 20 months, for those affected by the Coronavirus pandemic.

To be eligible for the extended work test, the individual must:

  • not meet the current work test because their employment is impacted by the Coronavirus pandemic, and
  • have a child born or adopted between 22 March 2020 and 31 March 2021. For Parental Leave Pay, the work test period for these parents will be extended from 13 months to 20 months before either the:
  • birth or adoption of their child, or
  • start of their Dad and Partner Pay period.
  • This means work undertaken by the parent before Coronavirus can be counted towards the work test. In the extended 20-month work test period, these parents will need to meet the work test requirements of:
  • 330 hours in a 10-month period, and
  • no more than a 12-week break between work days.

Services Australia will contact parents who had a claim for Parental Leave Pay or Dad and Partner Pay rejected from 22 March 2020 due to not meeting the work test, to invite them to test their eligibility under the revised rules. If you believe you fit into this category, it is worthwhile immediately contacting Centrelink to have your situation reviewed.

DVA Disability Pensions – exempt for rent assistance and income support payments

Effective – Measures staggered between 1 July 2021 and 20 Sept 2022

Several changes will be made to the DVA Disability Pension including:

  • exempted from the Social Security Act income test
  • exempted from the calculation of rent assistance under the Veterans Entitlement Act
  • renamed Disability Compensation Payment.

Under current rules, those who receive a reduction in social security payments due to the inclusion of the DVA Disability Pension under the income test receive a payment called DFISA (Defence Force Income Support Allowance) to compensate for the reduction. If the proposal to exempt the DVA Disability Pension from the social security income test is legislated, DFISA can be abolished as it is no longer required.

Pension Loans Scheme – additional resources 

Effective June 2021 and ongoing

The Government is making the following improvements to the services available to customers regarding the Pensions Loan Scheme:

  • loan calculator to help people test their eligibility and estimate loan balances
  • electronic loan repayments
  • online services to make changes to loan terms and print itemised statements
  • improved access to specialist staff
  • joint online claim for partnered customers
  • ability to complete regular loan reviews online.

The Pension Loan Scheme is an underutilised Scheme that lets older Australians access a voluntary non-taxable fortnightly loan from Centrelink. The maximum amount of the loan is 1.5 times the maximum payment rate of your eligible pension each fortnight. The loan may be secured against property you own and outstanding loan balances may be repaid from your Estate. The new measures will make it easier to understand and apply the scheme.

Aged Care

More funding for Home Care packages

Effective from 2020-21

The Government will improve waiting times for Home Care Packages by increasing funding for 23,000 additional home care packages across all package levels over four years from 2021-2021. In addition, improvements will be made to navigating the aged care system including classifying the care needs of older Australians through one unified system.

Both of these measures are very welcome, however the 23,000 additional packages probably falls well short of what is required. The impact of the Corona Virus on Aged Care homes, has really shown the benefits of remaining in your own home for as long as possible and Home Care packages allow this to happen.

Other Measures

Digital skills for older Australians

The Government will provide the Be Connected Program until 2023-24 to support Australians aged over 50 to gain the skills they need to participate in the digital economy.

Pharmaceutical Benefits Scheme (PBS)

The Government has proposed a few measures regarding the PBS from 2020-21, including:

  • implementing a revised and improved approach to the administration of PBS rebate receipts associated with medicines that have Special Pricing Arrangements; and
  • providing over four years new and amended listings on the Pharmaceutical Benefits Scheme (PBS) and the Repatriation Pharmaceutical Benefits Scheme (RPBS).

The PBS is available for clients receiving the Pensioner Concession Card, Health Care Card, Low Income Health Care Card and Commonwealth Seniors Health Card.


Economy

The Federal Government last night brought down a historic stimulatory budget not seen since the ending of the second World War.

The COVID -19 pandemic has had a profound impact on the Australian economy and its health system, last nights budget was designed to provide the necessary stimulus to lead the economy to recovery of the next 4 years.

According to Treasury the Australian economy is expected to contract by 1.5 % this financial year and rise by 4.75% in the 2021/2022 financial year. The Government expects that growth will continue for 2022/2023 at a rate of 2.75% and 3.0% for 2023/2024.

Treasury has further advised that unemployment is expected to rise to 7.5% by mid 2021 before declining to 6.5% by mid 2022, unemployment is not expected to fall to 4.5% until mid 2024.

The Government expects that government spending and fiscal support for the economy will lead to a deficit in 2021 of 11.1% of GDP or $214b for the 2020/2021 financial year. Further the government expects further  deficits over the next few years, although declining with a deficit of 2.7% of GDP or $49.5b in 2023/2024. These deficits will have a significant impact on Australia’s debt levels rising to 43.8% of GDP by 2023/2024 or approximately $950b.

Although the level of debt that Australia will incur over the coming years is significant and unseen before, this level of debt is still significantly smaller than other OECD countries in particular the UK and USA.

The global economic outlook  is expected to be bleak with global economic output expect to decline by 4.5% in 2020, however some of this impact will be softened to Australia as China, Australia’s major trading partner, is expected to grow by 5.75% in 2021. China accounts for one third of Australia’s trade.

The levels of deficits and national debt forecast by the Government are unpinned by the substantial fiscal support the government has and will be providing to the economy now and for some years to come. The main focus of the Governments plan is ensure that as many businesses survive the economic downturn as possible to ensure that those businesses continue to employ and at the same time invest in important infrastructure projects to create new jobs.

These initiatives include $1.3b for Governments modern manufacturing plan targeting 6 national manufacturing priorities which are:

  • Food and beverage manufacture
  • Resource technology and critical minerals processing
  • Medical products
  • Recycling and clean energy
  • Defence
  • Space

Further the government intends to provide $14b for new and accelerated infrastructure projects, $2b for water infrastructure, $2b for research and development incentives together with additional funding for CSIRO and universities.

The Government has also announced additional funding for regional Australia with $200m for Building Better Regions Fund, $220m investment in improved internet and mobile services and $100m in Regional Airports infrastructure upgrades.

We must remind ourselves that these are historic times caused by a once in a century pandemic, the budget last night is the right response to the current circumstances.


Brian_Richards_HEADSHOT_round-image_v2Brian Richards LLB B/Bus CTA FCA FCPA

Taxation Specialist, Brian Richards will share his opinion on how the 2020 Federal Budget will shape the nation and impact you, your savings, your business and the community.

To read more, click here


We have broken the full budget down into 6 main categories for usability.

Individual_Summary   Business_Summary   Superannuation_Summary   Social_Security_Summary   Economy_Summary  

We're here to help

If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.


Sources:

https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme

https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1269

https://mk0smsfassociatcb4hf.kinstacdn.com/wp-content/uploads/2020/10/SMSF-Association-Federal-Budget-20-21-Summary.pdf

https://www3.colonialfirststate.com.au/content/dam/colonial-first-state/docs/adviser/campaign/firstech-2020-federal-budget-briefing-paper.pdf

 

Our liability is limited by a scheme approved under Professional Standards Legislation, except where we provide financial services as an authorised representative of Ulton Wealth Services Pty Ltd (holder of Australian Financial Services License No. 497721). 
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individuals needs and you should seek advice from your financial adviser before making any investment decisions. Sub Authorised Representative No.245052 of Ulton Wealth Management Pty Ltd. All Ulton Wealth Managers can provide financial services as Sub-Authorised Representatives of Ulton Wealth Management Pty Ltd. ABN 73 168 815 450 | Corporate Authorised Representative 460875 of Ulton Wealth Services Pty Ltd | ABN 86 614 308 628 | AFSL 497721.

 

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