The 2020/21 Federal Budget Oct 8, 2020

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Treasurer Josh Frydenberg announced the 2020/21 Federal Budget on Tuesday, 6 October 2020. The major themes of this year’s announcement include tax cuts, job spending, business bonuses and a $200+ billion deficit.

We’ve summarised the major announcements that could affect you below. These announcements are currently just proposals and will need to pass through Parliament before becoming law.

Tax cuts

The Government intends to bring forward tax cuts originally slated to begin in July 2022. These tax cuts could see the 32.5% tax threshold increased from $37,000 to $45,000, and the 37% tax threshold increased from $90,000 to $120,000 (see Table 1 below). These changes are proposed to be backdated to commence from 1 July 2020.

Table 1 – proposed tax changes

Marginal tax rateCurrent income thresholdsNew income thresholds (from 1 July 2020 – 1 July 2023)
0%$0 – $18,200$0 – $18,200
19%$18,201 – $37,000$18,201 – $45,000
32.5%$37,001 – $90,000$45,001 – $120,000
37%$90,001 – $180,000$120,001 – $180,000
45%> $180,00> $180,000
Please note these tax rates do not include the current Medicare levy of 2%.

It’s also proposed that the Low Income Tax Offset be increased from $445 to $700, and the Low and Middle Income Tax Offset of up to $1,080 remains in place until 2021/22.

What will this mean for you?

Most working Australians could see some form of tax relief in 2020/21 under these proposals.

Savings are in comparison to tax paid in 2019/20. Source: ABC Federal Budget Cheat Sheet

Stimulus payments

Two $250 income support payments could be available to eligible income support recipients, pensioners and concessional card holders in the 2020/21 financial year. The first of these payments is proposed to be made in November or December 2020, with the second available in early 2021.

What will this mean for you?

A total of $500 could be made available to recipients of the following payments and benefits:

  • Age Pension
  • Disability Support Pension
  • Carer Payment
  • Carer Allowance
  • Commonwealth Seniors Health Card
  • Pensioner Concession Card
  • Family Tax Benefit
  • Eligible Department of Veterans’ Affairs (DVA) payment recipients and DVA concession card holders.

Tax offsets and asset write-offs for businesses

Several proposals have been included in the Budget to encourage business investment and spending for businesses with less than $5 billion in turnover. Eligible businesses could be able to offset tax losses that occurred between 1 July 2019 and 30 June 2022 against the profits earned in 2018/19 and onwards. A full tax write off could also be made available for eligible capital assets purchased from 7 October 2020 (and used or installed by 30 June 2022).

What will this mean for you?

If you are an eligible business owner, these proposals could provide cash flow support if your profits have been affected as a result of COVID-19. You may be able to more easily offset your tax losses against past profits, as well as write off the entire cost of new investments for your business.

Other items of interest

  • An exemption on Capital Gains Tax for “granny flat” arrangements with older Australians and those with disabilities. This measure is expected to take effect from 1 July next year and apply to formal arrangements made between family relationships or other personal ties. It’s hoped this will encourage a more formalised approach to these arrangements to reduce the risk of financial abuse or exploitation following a breakdown of relationships.
  • Superannuation reforms could see super fund accounts ‘stapled’ to individual members to avoid the creation of multiple accounts when they change jobs. Members who move to a new employer would then continue to be paid super into their current super fund (rather than the new employer’s default fund).
  • JobMaker could allow employers to claim subsidies on new workers hired from 7 October 2020. A $200 per week subsidy is proposed for all new workers aged 16 – 29, and a $100 per week subsidy for those aged 30 to 35 (subject to certain conditions).
  • A relaxed Paid Parental Leave work test could be applied to births between 22 March 2020 and 31 March 2021. Those applying for Paid Parental Leave may only need to have worked in 10 of the 20 months before the birth or adoption.

This article is intended as general information only. If you’d like any further information about the proposals in this year’s Federal Budget, the financial advisers at Intrust360° would love to help! You can give them a call on 1300 001 360, or book an appointment online.