Nina Kazmierczak- Partner and Principal Adviser
Sovereign Wealth Partners
“If ever there was a time for a “break glass in case of emergency” budget, this was it. Coronavirus has put a wrecking ball through the economy, and that means there’s never been a more relevant budget for Australians”. For us, this ABC headline said it all…
Long gone is any suggestion about a return to surplus, in fact deficits are anticipated each year over the medium-term projections to 2030/31. Yikes!
In our summary below we outline 5 bite-sized budget announcements that may apply to you personally. Then we move on to the business spending initiatives.
Please remember, these are only proposals and still need to be passed into legislation.
- Tax Cuts-
Proposed effective date- now/various
First and foremost are tax cuts, which were legislated in the Government’s 2018 plan, now accelerated to apply from 1 July 2020 (instead of 2021). There are 3 main tax changes:
- Low income tax offset has been increased from $445 to $700 providing an additional $255 in tax relief.
- The threshold for the 19% bracket has increased from $37,000 to $45,000. Providing up to $1,080 in tax relief.
- The threshold of the 32.5% bracket will increase from $90,000 to $120,000. Providing tax relief of $1,350.
- In addition, the Government has included an income tax deduction for all work-related education/ retraining. The Government will consult on allowing individuals to claim deductions on training undertaken at their own expense relating to their future Currently we are only eligible to deduct training and education expenses relating to our current employment.
Proposed effective date- various
Given the significant changes imposed in prior years, there was little movement regarding superannuation and previously announced measures.
- There was an increase in the age for non-concessional contribution bring-forward purposes to age 67. You may recall our September article- Legislation changes to Super- how you can continue to build your balance which advised of the 1 July 2020 bill passing, increasing the concessional age to 67. Part two of this Bill, addressing the allowance of non-concessional contributions, is still before parliament.
- Previously announced SMSF measures were restated. This included increasing the maximum number of allowed members from 4 to 6, and calculation changes of exempt current pension income.
- There was no change to the employer Super Guarantee Rate increase schedule. The first 0.5% increase is due to commence from 1 July 2021 bringing the new SGR to 10%.
- Halving of account-based pension minimums continues for FY21.
In addition to the above restated measures, the Government did announce the introduction of improved transparency and accountability of super funds by strengthening obligations on trustees,
to ensure the actions of trustees are always consistent with members’ retirement savings being maximised.
Other proposals announced include several MySuper measures:
- A “YourSuper” portal to compare MySuper funds- an online tool to compare fees and investment returns
- ‘Stapled’ superannuation accounts – ceasing the automatic creation of additional super accounts when changing jobs.
- Increased benchmarking- underperforming MySuper products won’t be allowed to receive new members until performance improves.
Proposed effective date- 1 July 2021
An interesting measure relating to housing is the removal of CGT for granny flat arrangements. However, it does not apply across the board. The government is proposing to provide a CGT exemption for granny flat arrangements where there is a formal written agreement to provide accommodation for older Australians or people with disabilities. It does not apply to commercial rental arrangements.
Eligible first home buyers continue to be able to take advantage of the First Home Super Saver scheme, utilising the concessionally taxed superannuation system to save for their first home.
Effective 6 October 2020, the Government is allowing an additional 10,000 first home buyers to purchase a newly built home with a 5% deposit for the loan. Eligibility criteria applies.
- Social Security, families and aged care
Proposed effective date- now
Continuing support for people not in work, the Government will offer two more tax-free payments of $250 to eligible pensioners and other social security recipients. Seniors card holders will benefit too. The first payment of the two will start being paid out from November. The second part is due to follow in March 2021. We don’t have the exact dates for either yet.
Over the next from 4 years, an additional 23,000 home care packages will be provided across all package levels.
Funds have been allocated for the reform of residential aged care and to support seniors living on their own at home.
- Credit reforms
The Government has announced its intentions to update the National Credit Protection Act 2009, making it “fit for purpose” for 2020 and beyond. The objective will be to simplify the law through changes which reduce the time and cost of credit assessments for consumers and businesses, reducing red tape for consumers seeking a credit product, improve competition by making it easier for consumers to switch lenders, and enhance access to credit for small businesses.
The changes are aimed at improving the ‘one size fits all’ approach to lending to ensure credit assessment is attuned to the needs of the borrower. A key feature of the new Responsible Lending Obligations (RLO) will be allowing lenders to rely on the information provided by borrowers, unless there are reasonable grounds to suspect it is unreliable. Borrowers will be made more accountable for providing accurate information to inform lending decisions, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle. This change will help address the excessive risk aversion which has progressively entered the system, restricting the flow of credit.
For your businesses, and best discussed with your accountant(s), the Government has outlined several tax incentives:
- Temporary full expensing
With the intention to support new investment and provide cashflow benefits, businesses with a turnover up to $5bn will be able to deduct the full cost of eligible depreciable assets of any value in the year they are first used/ installed. Eligible businesses that acquire eligible new or second-hand assets under the enhanced $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021 to first use or install those assets.
- Temporary loss carry back
The Government will also allow companies with turnover up to $5 billion to offset tax losses against previous profits on which tax has been paid to generate a refund. This measure will help companies that were profitable and tax-paying but now find themselves in a loss position due to the COVID-19 pandemic, providing businesses with access to their losses earlier, by way of a cash refund.
- Fringe benefit tax record keeping
The Government will allow employers to use existing corporate records rather than prescribed records to complete their FBT return. Reducing record keeping timeframes.
The Government is exempting employer-provided retraining activities from FBT. It will encourage businesses to retrain and redeploy their workers to new roles within the business.
Whilst we trolled through all the updates, another standout budget summary one liner came from the AFR- Winners and Losers article. The number one loser was… future generations! Budget forecasts indicate that over the next four years Australia’s Government Net Debt to GDP ratio will blow out from under 20% to 43%. Cold comfort, but at least it’s still well under the international average.
On that somber note, your Sovereign adviser will be in touch should any of the above measures impact you directly. Otherwise, feel free to contact us to discuss on (02) 8216 1777 or via firstname.lastname@example.org
Budget summaries and factsheets can be found here.