October 15, 2020

October 15, 2020 | Adviser News


2020-21 Federal Budget

On 6 October 2020, the Treasurer, Mr Josh Frydenberg, delivered the 2020-21 Budget, setting out the economic plan and outlook for Australia for the years ahead. With the Australian economy in recession (the first time in almost 30 years) as a result of COVID-19, there remains substantial uncertainty around the global and domestic outlook, as well as the extent of any longer-lasting economic effects from the pandemic.


With this in mind the 2020-21 Budget set about implementing the Government’s COVID-19 Economic Recovery Plan by supporting Australians with additional COVID-19 response measures, driving job creation through the JobMaker Plan, providing personal tax cuts for most workers, introducing reforms to superannuation to improve outcomes for super fund members and a range of measures to assist businesses over the coming years.

A summary of the key changes announced during the Budget that may impact you and your clients include:

Superannuation reforms – Your Future, Your Super

Your Future, Your Super is intended to improve outcomes for super fund members. The reforms, which should reduce the number of duplicate accounts held by employees as a result of changes in employment and prevent new members joining underperforming funds, include the following four key measures:
 

  1. Fund stapling

    To prevent the creation of unintended multiple super accounts and the erosion of super balances, a new super account will no longer be created automatically every time an individual starts a new job. Instead, their super will be ‘stapled’ to them. Employers will pay super to an existing fund if the individual has one unless they select another fund.

By 1 July 2021:

  • If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.
  • Employers will obtain information about the employee’s existing superannuation fund from the ATO.
  • If 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 their nominated default superannuation fund.
     
  1. YourSuper comparison tool

    A new, interactive, online YourSuper comparison tool will help individuals decide which super product best meets their needs.

By 1 July 2021, the YourSuper tool will:

  • Provide a table of simple super products (MySuper) ranked by fees and investment returns.
  • Link individuals to super fund websites where they can choose a MySuper product.
  • Show individual’s current super accounts and prompt them to consider consolidating accounts if they have more than one.

  1. Annual benchmarking

    The Government is ensuring individual’s hard-earned retirement savings are protected from underperforming super funds.

By 1 July 2021:

  • MySuper products will be subject to an annual performance test.
  • If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021.
  • When funds inform their members about their under-performance, they will also be required to provide them with information about the YourSuper comparison tool.
  • Underperforming funds will be listed as underperforming on the YourSuper comparison tool until their performance improves.
  • Funds that fail two consecutive annual underperformance tests will not be permitted to accept new members. These funds will not be able to re-open to new members unless their performance improves.

    By 1 July 2022, annual performance tests will be extended to other superannuation products.

  1. Improved transparency and accountability

    The Government will ensure superannuation trustees are more accountable and transparent as to how they are managing the retirement savings of their members.

By 1 July 2021:

  • Super trustees will be required to comply with a new duty to act in the best financial interests of members.
  • Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
  • Trustees will provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.
     

In addition to the proposed Super reforms, the following announcements were made.

Personal Income Tax plan

As part of the JobMaker Plan, approximately 11 million taxpayers should benefit from a tax cut backdated to 1 July 2020 in a bid to increase spending and boost economic activity. The government will bring forward its legislated tax cuts in Stage 2 of their Personal Income Tax Plan by two years, lifting the 19% threshold from $37,000 to $45,000, and lifting the 32.5% threshold from $90,000 to $120,000.

Stage 3 of the Government’s Personal Income Tax Plan remains unchanged and commences in 2024-25 as legislated.

Tax Rate

Current tax thresholds 
Income range ($)

Proposed tax thresholds

From 1 July 2020* 
Income range ($)

Tax thresholds 
From 1 July 2024 
Income range ($)

Nil

0 - 18,200

0 - 18,200

0 - 18,200

19%

18,201 - 37,000

18,201 - 41,000 

18,201 - 41,000

32.5%

37,001 - 90,000

41,001 - 120,000

41,001 - 200,000

37%

90,001 - 180,000

120,001 -180,000

-

45%

>180,000

>180,000

>200,000

* Currently scheduled to apply from 1 July 2022.

Tax relief by taxable income^

 

Current

Proposed from 1 July 220

Taxable income ($)

Tax Liability
($)

Tax Liability
($)

Change in Tax ($)

Change in Tax (%)

40,000

4,947

3,887

-1,060

-21.4

60,000

12,147

9,987

-2,160

-17.8

80,000

19,147

16,987

-2,160

-11.3

100,000

26,632

24,187

-2,445

-9.2

120,000

34,432

31,687

-2,745

-8.0

140,000

42,232

39,667

-2,565

-6.1

160,000

50,032

47,467

-2,565

-5.1

180,000

57,832

55,267

-2,565

-4.4

200,000

67,232

64,667

-2,565

-3.8

^ The table provides stylized cameos based on the tax payable for an individual, excluding any transfer payments. The tax liability and tax relief are calculated only taking into account the basic tax scales, low income tax offset, low and middle income tax offset and Medicare levy (with 2017-18 Medicare levy single low-income threshold). Actual outcomes for many individuals and households would differ.

Source:  Australian Government “Lower Taxes” Budget 2020-21 factsheet.

Low Income Tax Offset (LITO)

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 as shown below.

 

Taxable income

Current LITO

Taxable Income

Proposed LITO from 1 July 2020

$37,000 or less

$445

$37,500 or less

$700

$37,001 - $66,666

$445 reducing by 1.5 cents per dollar of taxable income over $37,000

$37,501 - $45,000

$700 reducing by 5 cents per dollar of taxable income over $37,500

$66,667 and over

Nil

$45,001 - $66,666

$325 reducing by 1.5 cents per dollar of taxable income over $45,000

 

 

$66,667 and over

Nil


Low and Middle Income Tax Offset (LMITO)

The Government will retain the LMITO for the 2020-21 income year, providing further targeted tax relief for low- and middle-income earners.  Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2020-21 income year.

Retaining the LMITO for 2020-21, together with bringing forward the tax cuts in Stage 2, provides low- and middle-income earning recipients of the LMITO with an additional benefit, supporting them through the economic recovery.

Providing further support in response to the ongoing COVID-19 pandemic

The Government will provide two separate $250 economic support payments to eligible persons including aged pensioners, carers, disability support and concession cardholder.  The first payment will be in November, followed by a second instalment early next year.

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

Additionally, up to 10 additional psychological therapy sessions each calendar year nationally under the Better Access to Psychiatrists, Psychologists and General Practitioners will be included in the Medicare Benefits Schedule (Better Access) initiative.  This will increase access to mental health care for all Australians who are experiencing more severe or enduring mental health impacts from the COVID-19 pandemic.

Next steps

If you are interested in any of the other announcements from Budget night, Zurich have put together a summary which can be located here.

 

Please be aware the measures mentioned in this article have not yet been legislated, and if passed by Parliament they may end up looking slightly different to the announcements made in the Federal Budget. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such.  It is recommended you seek professional advice from your financial adviser, who will be able to assist you with your retirement planning taking these announcements into consideration.

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