The 2020 Budget is all about jobs, jobs and spending to make more jobs. We already have JobSeeker and JobKeeper, and now we have JobMaker and JobTrainer.
Each announcement the Treasurer made was translated into jobs. Tax cuts for 11 million taxpayers equals 50,000 new jobs; expanding the instant asset write-off and the carry back of current losses is another 50,000 jobs.
Bringing forward the Stage 2 personal income tax cuts were the order of the day, and there will be no increases in tax in order to pay for spending. So unlike other economic downturns, there will be no deficits tax on high income earners.
One key theme throughout the Budget, is that the Government is keen to improve outcomes for young people. We know this recession has hit young people hard and many have taken early release of their super.
Under this proposal, effective from 1 July 2021, once an employee has a super fund and they change jobs, their new employer will contribute to their existing fund. Employees will however be able to advise their employer to make contributions to a different fund if they wish.
From 1 July 2020, two years earlier than previously legislated, the Stage 2 low income tax offset (LITO) and the thresholds for the 19% and 32.5% personal income tax brackets are proposed to increase. Stage 3 of the Personal Income Tax Plan remains unchanged and commences in 2024/25 as legislated.
|Tax rate||Thresholds for 2020/21 and 2021/22||Schedule from 1 July 2022||Schedule from 1 July 2024|
|Nil||0 - $18,200||0 - $18,200||0 - $18,200|
|19%||$18,201 - $37,000||$18,201 - $45,000||$18,201 - $45,000|
|30%||-||-||$45,001 - $200,000|
|32.5%||$37,001 - $90,000||$45,001 - $120,000||-|
|37%||$90,001 - $180,000||$120,001 - $180,000||-|
|Tax rate||Schedule from 1 July 2020||Schedule from 1 July 2024|
|Nil||0 - $18,200||0 - $18,200|
|19%||$18,201 - $45,000||$18,201 - $45,000|
|30%||-||$45,001 - $200,000|
|32.5%||$45,001 - $120,000||-|
|37%||$120,001 - $180,000||-|
The LITO will increase from $445 to $700 from 1 July 2020. The Government has not brought forward all the changes as per Stage 2 of the tax plan. The low to middle income tax offset (LMITO) will be retained in the 2020/21 financial year. The Government does not intend on retaining LMITO in the 2021/22 financial year. Under current legislation it is set to end in the 2022/23 financial year.
|Taxable income||Low income tax offset - current|
|$37,000 or less||$445|
|$37,001 - $66,666||$445 less [(income - $37,000) x 0.015]|
|$66,667 and over||Nil|
|Taxable income||Low income tax offset – proposed from 1 July 2020|
|$37,500 or less||$700|
|$37,501 - $45,000||$700 less [(income - $37,500) x 0.05]|
|$45,001 - $66,666||$325 less [(income - $45,000) x 0.015]|
|$66,667 and over||Nil|
The proposed bring-forward of the personal income tax thresholds, rates and tax offsets create the following future tax savings.
|Taxable income||Current tax payable||Proposed tax payable||Tax saving^|
Eligible companies can carry back tax losses from the 2019/20, 2020/21 and 2021/22 financial years to offset previously taxed profits in the 2018/19 or later financial years. This will generate a refundable tax offset in the year in which the loss is made.
Corporate tax entities with an aggregated turnover of less than $5 billion are eligible.
The amount that is carried back cannot exceed the earlier taxed profits and the carry back amount cannot generate a franking account deficit.
Businesses with an aggregated turnover of less than $5 billion can deduct the full cost of eligible capital assets acquired from 6 October 2020 that are first used or installed by 30 June 2022.
Businesses with an aggregated annual turnover of less than $10 million can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.
From 1 July 2021 a capital gains tax (CGT) exemption will be introduced for formal, written granny flat arrangements that are created, varied or terminated. This will encourage elderly Australians to enter formal written arrangements which provide them protection in the event of a family or relationship breakdown and reduce the risk of financial abuse.
The Medicare levy thresholds have been increased for the 2019/20 financial year.
Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of the proposed changes.
For further information, please contact your financial adviser or call a member of our ClientFirst team on 1800 913 118.
If you don’t have an adviser you can find one here.