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Federal Budget 2020

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Insights From MCA Accountants

Federal Budget 2020

NOT YET LEGISLATED

It is important to note that any announcements made by the Government are not guaranteed to become Law. These announcements need to pass Parliament first, and it’s possible that the Government may need to alter their announced changes in order for them to get through Parliament.

Do not make firm decisions until these have passed Parliament and have become Law.

As these pass through Parliament, we will update the header of each item with Legislated on xxxx.

BUDGET POSITION

It would be remiss to skip over the level of impact COVID-19 will have on the country’s finances. Over the next 4 years, it is expected that we will have budget deficits of around $480 BILLION. To make this worse, that is a best-case scenario where a vaccine is discovered before the end of 2021.

If you think about how many schools, roads, hospitals, police, aged care homes that this could build, it really puts into perspective the challenges we face. The country’s debt will come close to $40,000 PER PERSON. Take out all our children and elderly that cannot work, then the burden on working Australians is massive. The interest bill on our debt totals over $17 BILLION per year.

Given the Government gets its income from our taxes, one way to look at it is that we all have a personal loan of $40,000… Put in that perspective, it’s easy to see how paying back this debt will take generations.

THE NITTY-GRITTY

Click on the below headings to expand each one and read more detail.

Previously announced personal tax cuts scheduled to be introduced in a couple of years will come into effect from 1 July 2020 (yes, backdated). The following changes have been announced:

  • The 32.5% tax bracket will start at $45,000 (currently $37,000)
  • The 37% bracket will start at $120,000 (currently $90,000)


This means more people will continue paying tax at lower tax rates (the 19% tax rate and the 32.5% tax rate) for longer.

Combined with the tax offsets detailed in the following section, people earning $40,000 will pay 21% less tax, and those earning $80,000 will pay 11% less tax as a result of these changes. 11 million taxpayers will receive a tax cut, 7 million will receive a tax cut exceeding $2,000 per year.

We understand that current year tax tables might be adjusted to effectively squeeze 12 months worth of tax cuts into the next 8 months of pay runs to ensure that people get the full benefit before 2021 tax time – but we can’t be sure and we can’t tell how long that would take to implement.

This would mean the current personal tax rates are:

<$18,200 = 0%
$18,201 > $45,000 = $19% of amount over $18,200
$45,001 > $120,000 = $5,092 + 32.5% of amount over $45,000
$120,001 > $180,000 = $29,467 + 37% of amount over $120,000
>$180,001 = $51,667 + 45% of the amount over $180,000

We note that the above exclude tax rebates and the Medicare Levy, so actual tax will differ to the above.

If you want to know exactly how much you will save, the Government has created a calculator you can use at https://budget.gov.au/calculator/index.htm.

More information can be found on the Government’s “tax fact sheet” at https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf.

The “Low Income Tax Offset” (available for people with income under $45,000) will be increased to $700 (from $445). The “Low and Middle Income Tax Offset” will be retained for the 2021 year (which provides up to $1,080 for those on incomes between $37,000 and $126,000).

More information can be found on the Government’s “tax fact sheet” at https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf.

2 payments of $250 each will be given to people receiving certain Government pensions. Payments will be timed in December 2020 and March 2021. The pensions that will receive the payment are:

  • Age pension
  • Disability support pension
  • Carer payment
  • Family tax benefit, including double orphan pension (not in receipt of a primary income support payment)
  • Carer allowance
  • Pensioner concession card holders
  • Commonwealth seniors health card holders
  • Certain veterans’ affairs payment recipients and concession card holders

There were no announcements in the budget around reducing the “deeming rates” that apply to people with investments that are on a Government pension.

As way of background, regardless of what those investments actually earn, the deeming rates assume a set % return on investment and count this as income. The deeming rate is 0.25% on the first $x of assets, and 2.25% above the threshold (the threshold differs between pensions and marital status, hence why we haven’t listed a threshold).

In years of a booming stock market and high interest rates, this is great as returns are generally higher than the deeming rate. In a pandemic however, the deeming rate means people can get lower Government payments. It appears the Government is happy with the balance and don’t see the need to change this.

Similar to the existing Victorian scheme, the federal Government will provide a one-off $1,500 payment to eligible workers that cannot work due to a self-isolation requirement.

Details on which workers are eligible are uncertain at the moment.

Businesses that employ people younger Australians that are currently on JobSeeker, youth allowance, or parenting payment will receive a “hiring credit” of $200 per week (for employees aged between 16 and 29) or $100 per week (30 to 35 year olds).

The hiring must increase the overall headcount and payroll of the business (i.e. you can’t sack someone, replace them with an eligible person and claim the money), plus:

  • The employee must work an average 20 hours per week or more
  • The employee must have been on an eligible Government payment for at least one month out of the past 3 months
  • The employer must have an ABN and be registered for PAYG Withholding
  • The employer must be reporting wages via Single Touch Payroll
  • The employer must be up to date with their tax lodgements

We note that businesses receiving JobKeeper are ineligible for this scheme.

Few details are provided on how this will be implemented, but given it is essentially a small-scale JobKeeper, we expect it will be administered in a similar way but with quarterly reporting.

The Government’s factsheet on the JobMaker hiring credit can be found at https://budget.gov.au/2020-21/content/factsheets/download/jobmaker_hiring_credit_factsheet.pdf.

50% wage subsidy will be available (up to $7,000 per quarter) for 100,000 new or recommencing apprentices. Wages paid from 5 October 2020 to 30 September 2021 will be eligible for the scheme.

Subsidy payments are made quarterly in arrears, and relevant forms will be available from your Australian Apprenticeship Support Network provider, and you can be eligible for this subsidy for more than one apprentice.

More information is available at https://www.employment.gov.au/boosting-apprenticeship-commencements.

Businesses with a turnover under $5 billion will be able to deduct the FULL COST of eligible purchases of new assets between 7 October 2020 and 30 June 2022. In previous years there have been various limits (from $10,000 to $150,000) – these limits will disappear.

In addition, businesses that have assets currently being depreciated may be eligible to write those assets off in full.

We stress that eligible assets exclude things like buildings and other similar assets, and second-hand assets are excluded.

We also stress that unless specific rules are introduced to the contrary, most cars will be limited to a deduction of the “luxury car limit”, being around $65k.

We note that second-hand assets may still be eligible under the existing $150,000 write-off until 31 December 2020.

If you remember nothing else, please remember this…

Deductions are generally only helpful if you are making profits. If you are paying no tax, then an extra tax deduction will not put any extra money in your pocket. Don’t go and spend $200,000 on a new harvester thinking the Government is paying for 30% of it – because chances are you may not actually see a tax benefit this year due to the current economic climate.

We can’t recommend highly enough how important it is to seek advise before purchasing an asset if you are relying on the tax benefits to fund it.

More information can be found on the Government’s “tax fact sheet” at https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf.

The threshold at which some of the small business concessions can be accessed will move from $10mil to $50mil. The concessions that this will apply to include:

  • Immediate deduction for certain start-up expenses
  • Exemption from FBT on car parking and multiple electronic devices provided to employees
  • Access to simplified trading stock rules
  • Use of instalment amount for quarterly tax instalments (PAYG Instalments)
  • A two year amendment period (from the year ending 30 June 2022)


This creates a “dog’s breakfast” of sorts around the small business concessions with the $50mil threshold applying to some rules, a $5 billion threshold for a few others, a $10mil threshold applying to another couple, and a $2mil threshold applying to a few more (particularly the capital gains concessions).

Companies (and we stress it is only applicable for companies,) will be able to offset current tax losses against past profits and receive a tax refund. These rules will apply to losses made in the 2020, 2021 and 2022 financials years, and those losses can be offset against profits made in the 2019, 2020, and 2021 financial years.

We note that while you can apply losses in the 2020 year, it appears that you won’t receive a benefit until you lodge your 2021 tax return.

This measure is a little more complicated than it seems, so please ensure you consult with your accountant on this one.

More information can be found on the Government’s “tax fact sheet” at https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf.

Training for employees being redeployed into different roles will now be fringe benefits tax free. Similar to the rules around deductibility for self-education for individuals, where the training did not directly relate to an employees current role, the training attracted FBT. This tax burden on businesses wishing to improve the knowledge of its workforce will be removed.

The existing research and development tax rebate will be expanded, mainly for businesses with a turnover under $20 million.

The tax rebate will be increased to +18.5% above the company tax rate (currently +13.5%) and caps will be abolished.

Larger businesses will have the “intensity” bands reduced which make it easier to access the R&D scheme.

When we saw this headline pop up on the TV, we panicked. Superannuation reform… not again.

Thankfully these reforms are all about making it easier for people to keep track of their super and ensure that it is invested wisely, and not at all about tax changes.

Currently superannuation funds charge excessive fees and rarely outperform key stock market indicators. For example, you can invest in a simple managed fund that invests in the ASX 200 (largest 200 shares on the stock market) at a low fee, and easily outperform most superannuation funds.

It’s actually scary how poor most superannuation funds perform, and the level of fees they charge for the “privilege” of performing poorly.

The Government will implement the following changes:

  • Employers will not be able to automatically set up new superannuation accounts for you (often when you change jobs your new employer will create a new superannuation account for you – doubling your fees)
  • A national database of superannuation funds will be created clearly displaying the performance and fees of each fund, allowing for an easy comparison
  • Under performing superannuation funds will be banned from accepting new members
  • Superannuation funds will have the legal obligation to make decisions that are in the best financial interest of their members (which is scary to think they currently don’t have this obligation)

More information can be found on the Government’s superannuation factsheet at https://budget.gov.au/2020-21/content/factsheets/download/your_future_your_super_factsheet.pdf.

Somewhat of a hot topic prior to the budget were rumors that the Government were planning to delay the increase of the Superannuation Guarantee Rate from it’s current level of 9.5%.

These changes did not materialise, so the current planned increase to 10% on 1 July 2021 is still current policy. We will note however that there is another federal budget in May 2021 (before this increase kicks in), so there is still opportunity for the Government to make this change if that is their ultimate intention.

An extra 10,000 places have been offered in the First Home Loan Deposit Scheme – where the Government provides security over (up to) 15% of property, allowing home buyers to buy with a 5% deposit and not pay lenders mortgage insurance.

There are income tests and various conditions, all of which – plus more information – is available at https://www.nhfic.gov.au/what-we-do/fhlds/.

The independence test will be temporarily adjusted to make it easier for eligible people to receive the youth allowance payment.

Generally, the main residence exemption does not apply to “granny flats” – because the exemption can only cover one dwelling. This adds a layer of risk and cost to families that build granny flats to accommodate their relatives.

A capital gains tax exemption will be created for granny flats to remove this tax disincentive. The exemption will apply to granny flats occupied by elderly relatives, and relatives with disabilities.

It is important to note that a formal written agreement for the granny flat must be in place, and it is unknown if it applies to existing granny flats or not at this point.

Recently announced support by the Victorian Government will be tax-free. It does not apply to previous payments, and will apply to any future payments by other states should they be made under similar circumstances.

To help stimulate the economy by removing some red-tape, the Government is committing to a deregulation agenda. One focus appears to be situations where business have to provide the same data multiple times to different Government agencies.

Amongst the measures are:

  • Reduced record keeping requirements for FBT (largely around using existing record keeping requirements and not imposing additional record keeping)
  • Improving digital technologies to save time and money (for example the application for the child care subsidy will be improved)
  • Reforming the insolvency system
  • Simplifying access to credit for consumers and small businesses

There are many, many other measures in the budget that we won’t go into detail on. These include:

  • $250 million for the Bureau of Meteorology
  • $130 million for the Great Barrier Reef Marine Park Authority and the tourism industry around our reef
  • $156 million to support farmers and communities in drought
  • $7 million to implement a ban on exporting recycling
  • $328 million to make doing business easier for agricultural exporters
  • $270 million for the Murray-Darling Basin
  • $40 million to assist the Attorney-General and FairWork to respond to COVID
  • $132 million to assist family law matters
  • $202 million to enhance our cyber security profile
  • $796 million to drive Australia to become a digital economy
  • $231 million to assist women staying in the workforce
  • $553 million to assist regional businesses impacted by COVID
  • Over $1 billion for defence industry to support our COVID response
  • $314 million to support early childhood education to remain viable through COVID
  • Over $1 billion to provide more places in higher education
  • $97 million to modernise the Australian Electoral Commission
  • $2 billion to create 23,000 new home care packages
  • $1.7 billion to ensure all Australians have access to a COVID vaccine if and when available
  • Over $250 million to support mental health
  • $700 million for aged care
  • Over $2 billion for health services to assist with the COVID fight
  • Over $10 billion to subsidise medicines on the PBS list
  • $300 million to the Australian Federal Police to enhance frontline services
  • $460 million for the CSIRO to continue research
  • $1.5 billion to reboot our manufacturing sector
  • $356 million to assist the aviation industry secure domestic services
  • Over $10 billion in infrastructure spending on roads and related items
  • $799 million to continue funding the NDIS

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