FEDERAL BUDGET 2020-21 SUMMARY – Partners Private Wealth

The Australian Government’s 2020-21 Federal Budget is one firmly focused on lifting the Australian economy out of the deepest economic contraction in the last 25+ years via private sector investment and job creation.  As the Treasurer, Josh Frydenberg touched on in his speech last night, approximately 80% of all jobs in the Australian economy exist in the private (non-Government) sector and these jobs have borne the brunt of adverse economic impacts flowing from Covid-19 and shutdowns.

To kick start spending in the economy, private sector investment and job creation the Government has announced key changes to;

  • Personal Income Tax Rates (bring forward of tax cut plan)
  • Business Support via Temporary:
    • Full Expensing of Capital Assets
    • Loss Carry Back to Support Cash Flow
    • JobMaker Hiring Credit

More broadly the Government also announced proposed changes to;

  • Social Security Recipients – Further Economic Support Payments
  • Aged Care – Additional Funding Support including for Home Care Packages
  • Older Australians – Exempting Granny Flats from Capital Gains Tax

For further detail on these items please read on.

 

Personal Income Tax

Bringing forward the Personal Income Tax Plan and retaining the low and middle income tax offset.

The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 while retaining the low and middle income tax offset (LMITO) for 2020-21.

The changes are intended to provide immediate tax relief to individuals and support the economic recovery and jobs by boosting consumption by providing around $17.8 billion in tax relief to around 11.6 million Australians, including $12.5 billion over the next 12 months.

Source: Australian Government (Canberra)

Business Support

Temporary Full Expensing

In a major initiative to promote business investment, the Government has announced it will allow eligible businesses to immediately deduct the full cost of eligible capital assets acquired between now and

30 June 2022. The initiative will be limited to businesses with a turnover of less than $5 billion.

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 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.

This initiative is expected to provide $26.7 billion in tax relief for businesses over the next four years, with $1.5 billion in the current financial year.

Temporary Loss Carry-Back

In another initiative intended to allow eligible businesses to better manage the current economic downturn, the Government has announced that eligible businesses will be able to carry back tax losses from 2019-20 to 2021-22 to offset previously taxed profits from 2018-19 or later years. The initiative will be limited to businesses with a turnover of less than $5 billion.

The carry back allowable must not be greater than the profit taxed in the earlier year and a carry back will not generate a franking account deficit.

This initiative is expected to provide around $4.9 billion in support over the forward estimates and, as it is a time limited measure, will not have a significant long term impact on the budget.

JobMaker Hiring Credit

To support employment, the Government has announced a weekly payment for businesses who hire eligible new employees. The payment will last for twelve months and is available immediately. To be eligible, new employees must be between 16 and 35 years old. For employees between 16 and 30, the business will be eligible for $200 per week. For employees between 30 and 35 years old, the business will be eligible for $100 per week. Employees must be engaged for at least 20 hours per week and all businesses (except for the major banks) are eligible.

Social Security

Further Economic Support Payments

The Government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients of the following payments and health care card holders:

  • Age Pension
  • Disability Support Pension
  • Carer Payment
  • Family Tax Benefit
  • Carer Allowance (not in receipt of a primary income support payment)
  • Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment)
  • Commonwealth Seniors Health Card holders
  • eligible Veterans’ Affairs payment recipients and concession card holders.
  • The payments are exempt from taxation and will not count as income support for the purposes of any income support payment.Aged Care

Aged Care

Additional Funding to Support Aged Care Sector Response to Covid

The Government will provide $2.0 billion over four years from 2020-21 to further support older Australians accessing aged care by providing additional home care packages as well as continuing to improve transparency and regulatory standards. Funding includes:

  • $1.6 billion over four years from 2020-21 for the release of an additional 23,000 home care packages across all package levels
  • $125.3 million over three years from 2020-21 to replace the Commonwealth Continuity of Support Programme with a new Disability Support for Older Australians program
  • $91.6 million over two years from 2020-21 to continue the reform to residential aged care funding
  • $4.6 million over two years from 2020-21 to review the support care needs of senior Australians who live in their own home and determine how best to deliver this care in the home.

Older Australians

Exempting Granny Flat Arrangements from Capital Gains Tax (CGT)

The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

CGT consequences are currently an impediment to the creation of formal and legally enforceable granny flat arrangements. When faced with a potentially significant CGT liability, families often opt for informal arrangements, which can lead to financial abuse and exploitation in the event that the family relationship breaks down. This measure will remove the CGT impediments, reducing the risk of abuse to vulnerable Australians.

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