2020 Budget Breakdown

Luka Group has broken down the key items and political spin to summarise the main items and how they might affect every day Australians.

It is important to note, any changes proposed in the Budget are not law until they pass through Parliament.

As further guidance is provided by the Government and relevant agencies, we will be providing further analysis.

Please do not hesitate to contact Luka Group on 02 6883 2200 to discuss any points that affect you.

Personal income tax cuts brought forward

Proposed effective date: 1 July 2020

The Government now proposes to bring forward, and retrospectively start from 1 July 2020, the “Stage two” threshold and income ranges that were due to commence from 1 July 2022 as per the previous Budget.

The Government also proposes to retain the LMITO, but only until 30 June 2021. The increase in the LITO from $445 to $700 is also proposed to be brought forward to 2020-21.

Table 2: Proposed in 2020-21 Budget

Marginal tax rate* (%)	Thresholds - income range 2020-21 ($)	Thresholds - income range from 2021-22 to 2023-24 ($)	Thresholds - MTR (%) and income range from 1 July 2024 ($)
0	0 – 18,200	0 – 18,200	0%	0 – 18,200
19	18,201 – 45,000	18,201 – 45,000	19%	18,201 – 45,000
32.5	45,001 – 120,000	45,001 – 120,000	30%	45,001 – 200,000
37	120,001 – 180,000	120,001 – 180,000	–
45	> 180,000	> 180,000	45%	> 200,000
LMITO	Up to 1,080	–	–
LITO	Up to 700	Up to 700	Up to 700

More details:

• The Stage Three tax cuts, already legislated to commence from 1 July 2024, remain unchanged – as shown in Table 1 above.

• LMITO (only available until 30 June 2021) is available in addition to the LITO. The tax offset savings are received as a refund following lodgement and assessment of the person’s tax return.

• Neither LITO nor LMITO are refundable tax offsets, so they can reduce tax liability to nil but not reduce liability for Medicare levy.

LITO:

• From 1 July 2020, LITO is proposed to increase to $700. The increased LITO will be reduced at a rate of 5 cents per $1 for income between $37,500 and $45,000 and 1.5 cents per $1 for income between $45,000 and $66,667.

LMITO:

• The benefit for those earning up to $37,000 is $255.

• Between $37,000 and $48,000, the offset increases at the rate of 7.5 cents per $1 above $37,000 to a maximum offset of $1,080.

• Those earning between $48,000 and $90,000 are eligible for the maximum LMITO benefit of $1,080.

• For income above $90,000, the offset phases out at a rate of 3.0 cents per $1 and is not available when taxable income exceeds $126,000.

Effective tax free threshold for 2020-21 as a result of the changes will increase to $23,226 for those under the Age Pension age. There may be some Medicare Levy payable on this amount.

Business taxation

Temporary full expensing of capital assets

Proposed effective date: 7:30pm, 6 October 2020

The Government is proposing that businesses with aggregated annual turnover of less than $5 billion will be allowed to deduct the full cost of eligible capital assets acquired from Budget night and first used or installed by 30 June 2022.

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 with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off.

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.

Temporary loss carry-back

The Government is proposing to allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later income years.

Corporate tax entities with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Expanding access to some small business tax concessions

Proposed effective date: Various

The Government is proposing to expand access to some small business tax concessions by increasing the small business entity turnover threshold for these concessions from $10 million to $50 million.

Businesses with an aggregated annual turnover of $10 million or more but less than $50 million will, for the first time, have access to up to ten further small business tax concessions in three phases:

• From 1 July 2020, eligible businesses will be able to immediately deduct certain start-up expenses and certain prepaid expenditure.

• From 1 April 2021, eligible businesses will be exempt from the 47 per cent fringe benefits tax on car parking and multiple work-related portable electronic devices (such as phones or laptops) provided to employees.

• From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit pay as you go (PAYG) instalments based on an adjusted notional tax basis, and settle excise duty and excise- equivalent customs duty monthly on eligible goods under the small business entity concession. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021, excluding entities that have significant international tax dealings or particularly complex affairs.

In addition, from 1 July 2021, the ATO’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to businesses below the $50 million aggregated annual turnover threshold.

Observation: For small business CGT concessions, the under $2 million aggregated turnover test remains, or alternatively eligibility can be based on the $6 million maximum net asset value test.

Agricultural sector

Workforce incentives

The availability of workers for the up coming harvest has become a critical issue with the closure of international and state borders, the Government has sought to address this through the following:

• Encouraging recent school leavers to undertake agricultural work by introducing new, temporary independence criteria for Youth Allowance and ABSTUDY recipients

• Providing relocation assistance for Australians and individuals who have a right to work in Australia, to relocate to any harvest or regional area to take up short-term agricultural work, and under the Relocation Assistance to Take Up A Job scheme

• Working holiday maker visa holders working in food processing or the Agricultural sector will be eligible for a further visa and will be exempt from the six-month limit with one employer

• Seasonal worker program and Pacific labour scheme workers, and other visa holders currently in the agricultural sector whose visas are expiring, may have their visas extended for up to 12 months

• ​50,000 new higher education short courses in sectors which include agriculture

• Reduced student contributions for university agriculture courses

Drought assistance

Proposed effective date: Various

The Budget contains ongoing funding for a range of programs and measures targeting drought. An additional $2.0 billion will be provided over five years for concessional drought loans provided through the Regional Investment Corporation. There is also increased funding for programs conducted under the Future Drought Fund, such as the Farm Business Resilience Program and Drought Resilience Adoption and Innovation Hubs. This Budget also extends the On-farm Emergency Water Infrastructure Rebate Scheme owing to the consistently high demand under this scheme.

Superannuation

Superannuation reform

Proposed effective date: 1 July 2021

The Government has announced a number of superannuation measures designed to reduce the number of duplicate accounts held by employees as a result of changes in employment, and to prevent new members joining underperforming funds. These proposals include:

• The Australian Taxation Office (ATO) will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through a “YourSuper” portal.

It is envisaged that the “YourSuper” tool will:

1. Provide a table of simple super products (MySuper) ranked by fees and investment returns.

2. Link individuals to super fund websites where they can choose a MySuper product.

3. Show individuals their current super accounts and prompt them to consider consolidating accounts where they have more than one.

That is, where an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions into the individual employee’s existing fund – with details to be made available to employers via the ATO website.

Where an employee does not have an existing superannuation account, and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into the employer’s nominated default superannuation fund.

• An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. That is, where an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions into the individual employee’s existing fund – with details to be made available to employers via the ATO website. Where an employee does not have an existing superannuation account, and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into the employer’s nominated default superannuation fund.

• Australian Prudential Regulation Authority (APRA) will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test shows they are no longer underperforming. Non-MySuper accumulation products will be added to the benchmarking process from 1 July 2022.

• Transparency and accountability of superannuation funds will be improved by strengthening obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised.

Other superannuation measures

Proposed effective date: Various

There was little movement on a number of previously announced superannuation measures:

• There was no mention of the proposed change to increase the age for non-concessional contribution (NCC) bring-forward purposes to age 67. The bill to enact this previously announced measure is still currently before parliament.

• There was no change to the COVID-19 temporary early release of super measure. Eligible Australian and New Zealand citizens and permanent residents continue to be allowed just one withdrawal opportunity of up to $10,000 from 1 July 2020 until 31 December 2020.

• The Government restated the deferred start date for a number of previously announced SMSF measures:

  • Increasing the maximum number allowed members in an SMSF (or Small APRA funds) from 4 to 6 – start date deferred to the date of Royal Assent of the enabling legislation. This bill has been referred to the Senate Economics Legislation Committee, due to report on 4 November 2020.

  • Changes to the calculation of exempt current pension income have also been deferred from 1 July 2020 to 1 July 2021.

Housing affordability

Extension of first home loan deposit scheme

Proposed effective date: 6 October 2020

The Government will allow an additional 10,000 first home buyers to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5 per cent under the existing First Home Loan Deposit Scheme.

The scheme allows first home buyers to build or purchase a newly built home with a low deposit through participating lenders where available, replacing the need for commercial Mortgage Lenders’ Insurance. Application for the additional guarantees will be available until 30 June 2021.

Observation:

Eligible first home buyers may also be able to take advantage of the Government’s First Home Super Saver Scheme which allows them to use the concessionally taxed superannuation system to save their first home deposit.

In addition, under the Government’s HomeBuilder Scheme, existing owner-occupiers including first home buyers may be eligible for a grant of $25,000 to build or substantially renovate an existing home. First home buyers may also be eligible for state and territory grants and concessions. These measures are designed to promote home ownership and support employment in the construction industry.

Social Security, Families and Aged Care

Economic support payments

Proposed effective date: From November 2020 (first payment) and early 2021 (second payment)

The Government will provide two economic support payments of $250 each to eligible income support recipients and concession card holders. The first payment will be made available from November/December 2020 and the second from early 2021.

Recipients of the following social security payments or concession cards are eligible:

• Age Pension

• Disability Support Pension

• Carer Payment

• Carer Allowance (not in receipt of a primary income support payment)

• Commonwealth Seniors Health Card

• Pensioner Concession Card (not in receipt of a primary income support payment)

• Family Tax Benefit, including Double Orphan Pension

• Eligible Department of Veterans’ Affairs (DVA) payment recipients and concession card holders.

The payments are exempt from taxation and will not count as income for the purposes of any income support payment.

Observation: These payments build on the two previous $750 Economic Support Payments, paid earlier in 2020, in response to the COVID-19 pandemic.

Temporary relaxing the Paid Parental Leave work test

Proposed effective date: 22 March 2020

One of the eligibility criteria for Paid Parental Leave is a work test. Under the current rules, to meet the work test, the parent must have worked in 10 of the last 13 months preceding the birth or adoption of the child.

The Government is proposing to relax the Paid Parental Leave work test for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months preceding the birth or adoption of a child.

Observation: This concessional work test arrangement for Paid Parental Leave will, for a limited time, support new parents whose employment was interrupted by the COVID-19 pandemic.

Release of additional home care packages

Proposed effective date: 220-21 onwards

The Government will further support older Australians accessing aged care by providing additional home care packages. An additional 23,000 home care packages will be released over four years from 2020-21 across all package levels.

Other measures

Removing Capital Gains Tax (CGT) for granny flat arrangements

Proposed effective date: 1 July 2021

The Government is proposing to provide a targeted CGT exemption for granny flat arrangements where there is a formal written agreement in place.

The social security granny flat rules allow people (typically older social security recipients) to transfer assets (typically cash or the recipients’ principal home) to another person (typically the recipients’ adult children) in exchange for a right of occupancy for life in a residential property, without potentially being subject to the usual deprivation rules.

For example, a parent(s) may transfer the title to their home to an adult child in exchange for a lifetime right to reside in this home. In this scenario, depending on the facts of the case, typically:

• There is no deprivation from a social security perspective, and

• The parent(s) continue to be treated as homeowners, with the value of the asset transferred exempted from social security assessment.

Importantly, social security rules do not require a formal agreement to assess a qualifying arrangement under the granny flat provisions.

The CGT rules relating to these granny flat arrangements are complex. As a result, to avoid the risk of incurring a CGT liability, many arrangements are currently undocumented. Unfortunately, this can leave older or disabled people vulnerable once they have transferred the asset to another person.

To address this concern, the Government is proposing a CGT exemption when a granny flat arrangement is created, varied or terminated under a formal agreement providing accommodation for older Australians or people with disabilities.

This proposed change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.

Observation: If legislated, this measure will remove one of the complexities associated with establishing a granny flat interest. Apart from the social security and CGT aspects, there are other matters that should be considered before establishing a granny flat interest. Consideration should also be given to the potential costs, tax, estate planning and future residential aged care issues.

Employment & Construction support

Proposed effective date: Various

The Government has announced a number of other measures intended to accelerate employment growth for Australians, including the following:

• Businesses who take on a new apprentice from 20 October 2020 will be eligible for a 50 per cent wage subsidy, up to certain limits.

• JobMaker hiring credit: In line with Business NSW’s proposal for a Youth Jobs Guarantee, the Budget announces support for young people looking for work. From tomorrow, businesses that take on a jobseeker aged under 35 years will receive a payment of $200 a week for an eligible young person aged 16-29 years and $100 a week for a young person aged 30 to 35 for up to 12 months. Employers must demonstrate they have increased their overall employment. This will help employers get young people back into work, ensuring we don’t lose a generation of workers to this crisis. It is estimated the $4 billion scheme will support around 450,000 young Australians into jobs.

• Support for construction sector: With a sharp slump in population growth, the Budget announces several new initiatives to boost construction. This includes additional incentives for first homebuyers to purchase new dwellings, boosting arrangements to encourage institutional investment into affordable housing and a capital gains tax exemption for granny flats (where there is a formal arrangement for older Australians or persons with a disability). These initiatives complement the existing HomeBuilder scheme ($25,000 grants for eligible renovations or new builds) which applies to eligible contracts entered into up to 31 December 2020.

• The Government is proposing to introduce an exemption from the 47 per cent fringe benefits tax (FBT) for employers providing retraining and reskilling benefits to redundant, or soon to be redundant, employees where the benefits may not be related to their current employment.