Here’s what got the attention of our specialist tax team
The focus of Treasurer Josh Frydenberg’s 2020/2021 Federal Budget announced on 6 October was squarely on using fiscal policy to stimulate the economy and guide Australia out of recession.
For many of our clients and beneficiaries, the changes in the marginal tax rates and tax offsets will be important as they impact all Australians who prepare tax returns each year. For those who are wage earners, expect to see an increase in take home pay – while investors and others may find a more favourable tax outcome in next year’s tax return.
Those on support payments and pensions will be pleased to note the additional $250 payments to be made to age pensioners and other pension recipients.
It was reassuring that there is incentive (in the form of CGT relief) for agreements to be in place for ‘granny flat’ arrangements - which may have the additional benefit of formalising arrangements and protecting the interests of older Australians.
It was also nice to be reminded of the tax-deductibility of our two perpetual charitable trusts, established earlier this year to support our communities to recover and rebuild following disasters.
The Budget will now move through the parliamentary process which may mean adjustments – but a summary of measures is outlined below.
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.
• The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.
• The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.
• The low-income tax offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
The Government will retain the Low- and Middle-Income Tax Offset (LMITO) for the 2020-21 income year. The LMITO provides a reduction in tax of up to $1,080. It provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.
Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080.
For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2020-21 income year.
Stage 3 of the Personal Income Tax Plan remains unchanged and commences in 2024-25 as legislated.
Temporary full expensing to support investment and jobs
The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (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.
Second Women’s Economic Security Package
The Government will provide support for the Second Women’s Economic Security Package. The package includes $90.3 million over three years from 2020-21 for concessional work test arrangements for Paid Parental Leave in response to COVID-19. Specifically, relaxing 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, instead of 10 of the last 13 months, preceding the birth or adoption of a child.
COVID-19 RESPONSE PACKAGE
Further economic support payments
The Government will provide $2.6 billion over three years from 2020-21 to 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, including Double Orphan Pension (not in receipt of a primary income support payment)
• 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.
Supporting vulnerable Australians overseas
The Government will provide additional support to vulnerable Australian citizens whose return to Australia has been impacted by the restrictions arising from COVID-19. The support includes loans to eligible Australians overseas to cover costs of temporary accommodation, living expenses and tickets for commercial flights.
Access to COVID-19 vaccines and consumables
The Government will commit to supply and production agreements for access to safe and effective COVID-19 vaccines once they are available, as part of Australia’s COVID-19 Vaccine and Treatment Strategy.
This includes $1.7 billion over two years for agreements to access the University of Oxford/AstraZeneca vaccine and the University of Queensland/CSL Limited vaccine with local manufacturing provided by CSL Limited/Seqirus Australia.
A further $24.7 million will be provided for the supply and storage of vital consumables, such as needles and syringes, to ensure vaccines can be administered once available.
The Government has also committed $123.2 million to join the COVID-19 Vaccines Global Access (COVAX) Facility, co-led by Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations and the World Health Organization, to provide Australia access to a diverse portfolio of COVID-19 vaccine candidates that are being developed globally.
SUPPORTING OUR HOSPITALS
Simpler and more affordable private health cover for all Australians
The Government will provide $19.5 million over four years from 2020-21 to improve the access and affordability of Private Health Insurance which includes increasing the maximum age of dependants allowed under Private Health Insurance policies from 24 years to 31 years, and removing the age limit for dependants with a disability
The Government will provide $159.6 million over four years from 2020-21 to implement reforms to superannuation to improve outcomes for superannuation fund members.
The reforms, which will reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, include:
• Australian Taxation Office to develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal and an existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. Future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers.
• Australian Prudential Regulation Authority to conduct benchmarking tests from July 2021 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 that shows they are no longer underperforming. Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022. The funding for this initiative will be met through an increase in levies on regulated financial institutions.
• Improved transparency and accountability of superannuation funds by strengthening obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised.
SUPPORTING OLDER AUSTRALIANS
Exempting granny flat arrangements from capital gains tax
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.
Equity Trustees has written previously about potential elder abuse – Beware the granny flat option.
Updates to the list of specifically listed deductible gift recipients
Equity Trustees was pleased to be reminded that our two perpetual charitable trusts, created to support communities to rebuild following disasters, are approved tax-deductible charities.
Since the 2019-20 MYEFO, the following organisations have been approved as specifically listed deductible gift recipients from 1 July 2019:
• Australian Volunteers Support Trust
• Community Rebuilding Trust
Taxpayers may claim an income tax deduction for gifts of $2 or more to these organisations.
Improving the Delivery of Electoral Education Programs
Just for something a little different – we noticed that the Government will provide $6 million in capital funding across two years from 2020-21 to the Australian Electoral Commission (AEC) to design and install a public exhibition space in the Museum of Australian Democracy. Something to keep in mind the next time you visit Canberra post-COVID!
To find out more about any of the measures outlined above and how they might impact you, please contact your client relationship or trust manager directly.
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