6 October 2020

The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2020 Federal Budget on 6 October 2020. 


As widely anticipated, the announcement included bringing forward personal income tax cuts already legislated. This involves increasing the low income tax offset (LITO) from $445 to $700; increasing the top threshold of the 19 per cent bracket from $37,000 to $45,000; and increasing the top threshold of the 32.5 per cent bracket from $90,000 to $120,000.  In addition, the Government announced a one-off additional benefit from the low and middle income tax offset.

The Government noted that these changes deliver tax relief to low- and middle-income earners for the 2020-21 income year of up to $2,745 for individuals and up to $5,490 for dual income families, compared with 2017-18 rates and thresholds.

The Treasurer also announced a range of taxation benefits for small and medium businesses, intended to stimulate the business sector leading to jobs growth.

In addition, further superannuation reforms are proposed, aimed at reducing duplicate accounts and improving efficiency, as well as a number of funding measures in the aged care sector.

This summary provides coverage of the key issues of most interest to financial services professionals.

Highlights

Personal income tax

  • Bringing forward of personal income tax cuts through a combination of tax rate threshold changes and tax offsets
  • Exempting granny flat arrangements from capital gains tax
  • Medicare levy thresholds for 2019-20

Business owners

  • Research and Development Tax Incentive
  • Temporary full expensing to support investment and jobs
  • Temporary loss carry-back to support cash flow
  • Clarifying the corporate residency test
  • COVID-19 Response Package — making Victoria’s business support grants non-assessable, non-exempt income for tax purposes
  • Fringe Benefits Tax — exemption to support retraining and reskilling
  • Fringe Benefits Tax — reducing the compliance burden of record keeping
  • Increase the small business entity turnover threshold
  • Boosting apprenticeships wage subsidy
  • JobMaker Hiring Credit
  • Research and Development Tax Incentive
  • Revised Start Dates for Tax Measures

Superannuation

  • Additional funding to address serious and organised crime in the tax and superannuation system
  • Superannuation Reform
  • Defer the start date of the Retirement Income Covenant
  • Facilitating the closure of eligible rollover funds — amendment
  • Revised Start Dates for Superannuation Measures

Social security

  • Further economic support payments

Aged care

  • Ageing and Aged Care
  • COVID-19 Response Package — ageing and aged care

Personal income tax

Bringing forward the second stage of the Personal Income Tax Plan

The Government will bring forward the tax cuts in Stage 2 of the Personal Income Tax Plan (announced in the 2018 Federal Budget) from 1 July 2022 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 low income tax offset (LITO) will increase from $445 to $700. The increased LITO will reduce at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then reduce at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
  • The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.

Taxable income

Stage 2:

Tax payable1 (residents)

2020-21

Up to $18,200

Nil

$18,201 - $45,000

Nil + 19%

$45,001 - $120,000

$5,092 + 32.5%

$120,001 - $180,000

$29,467 + 37%

Above $180,000

$51,667 + 45%

   

 

Retaining the LAMITO for the 2020-21 income year

The Government will retain the low and middle income (LAMITO) in 2020-21. LAMITO 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, LAMITO 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.

Taxable income

Stage 3:

Tax payable1 (residents)

2024-25

Up to $18,200

Nil

$18,201 - $45,000

Nil + 19%

$45,001 - $200,000

$5,092 + 30%

Above $200,000

$51,592 + 45%

   

 

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.

Medicare levy thresholds for 2019-20

The Government has increased the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2019-20 income year. The increases take account of recent movements in the consumer price index so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.

The threshold for singles has increased from $22,398 to $22,801. The family threshold has increased from $37,794 to $38,474. For single seniors and pensioners, the threshold has increased from $35,418 to $36,056. The family threshold for seniors and pensioners has increased from $49,304 to $50,191. For each dependent child or student, the family income thresholds increase by a further $3,533, instead of the previous amount of $3,471.


Business owners

Research and Development Tax Incentive

The Government will make further enhancements to the 2019-20 MYEFO measure Better targeting the research and development tax incentive — refinements to support business Research and Development (R&D) investment in Australia and help businesses manage the economic impacts of the COVID-19 pandemic.

For small companies, those with aggregated annual turnover of less than $20 million, the refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate, and the $4 million cap on annual cash refunds will not proceed.

For larger companies, those with aggregated annual turnover of $20 million or more, the Government will reduce the number of intensity tiers from three to two.

The R&D premium ties the rates of the non-refundable R&D tax offset to a company’s incremental R&D intensity, which is R&D expenditure as a proportion of total expenses for the year. The marginal R&D premium will be the claimant’s company tax rate plus:

  • 8.5 percentage points above the claimant’s company tax rate for R&D expenditure between 0 per cent and 2 per cent R&D intensity for larger companies
  • 16.5 percentage points above the claimant’s company tax rate for R&D expenditure above 2 per cent R&D intensity for larger companies.

The Government will defer the start date so that all changes to the program apply to income years starting on or after 1 July 2021.

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.

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.

Small businesses (with 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.

Temporary loss carry-back to support cash flow

The Government will 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 would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit. 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.

Clarifying the corporate residency test

The Government will make technical amendments to clarify the corporate residency test. The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

COVID-19 Response Package — making Victoria’s business support grants non-assessable, non-exempt income for tax purposes

The Government will make the Victorian Government’s business support grants for small and medium business as announced on 13 September 2020 non-assessable, non-exempt (NANE) income for tax purposes.

State-based grants such as the Business Support Grants are generally considered taxable income by the Commonwealth. Given COVID-19 and the exceptional circumstances Victorian businesses face, providing this additional concessional treatment will assist in their recovery.

The Commonwealth will extend this arrangement to all States and Territories on an application basis. Eligibility would be restricted to future grants program announcements for small and medium businesses facing similar circumstances to Victorian businesses.

The Government will introduce a new power in the income tax laws to make regulations to ensure that specified state and territory COVID-19 business support grant payments are NANE income.

Eligibility for this treatment will be limited to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

Fringe Benefits Tax — exemption to support retraining and reskilling

The Government will introduce an exemption from the 47 per cent fringe benefits tax (FBT) for employer provided retraining and reskilling benefits provided to redundant, or soon to be redundant employees where the benefits may not be related to their current employment. This measure applies from announcement.

Fringe Benefits Tax — reducing the compliance burden of record keeping

The Government will provide the Commissioner of Taxation with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their fringe benefits tax (FBT) returns. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.

Increase the small business entity turnover threshold

The Government will expand access to a range of 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 GDP adjusted notional tax, 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 Commissioner of Taxation’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.

The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.

Boosting apprenticeships wage subsidy

The Government will provide $1.2 billion over four years from 2020-21 to increase the number of apprentices and trainees employed and build a pipeline of skilled workers to support Australia’s economic recovery.

From 5 October 2020 to 30 September 2021, businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.

JobMaker Hiring Credit

The Government will provide $4.0 billion over three years from 2020-21 to accelerate employment growth by supporting organisations to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive $200 per week if they hire an eligible employee aged 16 to 29 years or $100 per week if they hire an eligible employee aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

Revised Start Dates for Tax Measures

The Government will change the start dates for the following measures:

  • The start date for the 2018-19 MYEFO measure Petroleum Resource Rent Tax — changing the PRRT settings to get a fair return (compliance and administration changes) has been revised from 1 July 2019 to the income year commencing on or after three months after the date of Royal Assent of the enabling legislation
  • The start date for the 2018-19 Budget measure Tax Integrity – removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution MITs (as amended by the 2018-19 MYEFO measure Revised start dates for tax measures) has been revised from 1 July 2020 to the income year commencing on or after three months after the date of Royal Assent of the enabling legislation
  • The start date for the 2016-17 Budget measure Ten Year Enterprise Tax Plan — targeted amendments to Division 7A (as amended and modified by 2018-19 Budget measure Tax Integrity – clarifying the operation of the Division 7A integrity rule and the 2019-20 Budget measure Tax Integrity – further consultation on amendments to Division 7A) has been revised from 1 July 2020 to the income year commencing on or after the date of Royal Assent of the enabling legislation
  • The start date for the 2017-18 MYEFO measure Deductible gift recipient reform — strengthening governance and integrity and reducing complexity (as amended by the 2018-19 MYEFO measure Revised start dates for tax measures) has been revised from 1 July 2020 to three months after the date of Royal Assent of the enabling legislation

These revisions are a result of the reprioritisation of Government resources and the shortened parliamentary sitting period in 2020 due to COVID-19.


Superannuation

Additional funding to address serious and organised crime in the tax and superannuation system

The Government will provide $15.1 million to the Australian Taxation Office (ATO) to target serious and organised crime in the tax and superannuation systems. This extends the 2017-18 Budget measure Additional funding for addressing serious and organised crime in the tax system by a further two years to 30 June 2023.

Superannuation Reform

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:

  • the ATO will develop systems so that new employees will be able to select a MySuper product through a YourSuper portal
  • 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 through an automated provision of information to employers
  • from July 2021 the Australian Prudential Regulation Authority 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 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.
  • improved transparency and accountability of superannuation fund trustees to ensure their actions are consistent with members’ retirement savings being maximised.

Defer the start date of the Retirement Income Covenant

The Government is deferring the commencement of the Retirement Income Covenant, announced in Budget 2018-19, from 1 July 2020 to 1 July 2022 to allow continued consultation and legislative drafting to take place during COVID-19. This will also allow finalisation of the measure to be informed by the Retirement Income Review.

Further information can be found in the press release of 22 May 2020 issued by the Assistant Minister for Superannuation, Financial Services and Financial Technology.

Facilitating the closure of eligible rollover funds — amendment

The Government will amend the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 which enacts the measure Superannuation — facilitating closure of eligible rollover funds first announced in the 2019-20 MYEFO. The amendment will:

  • defer by 12 months the start date of the measure that prevents superannuation funds transferring new amounts to eligible rollover funds (ERFs)
  • defer the date by which ERFs are required to transfer accounts below $6,000 to the ATO to 30 June 2021 and the date the remaining accounts are to be transferred to the ATO to 31 January 2022
  • allow all superannuation funds to voluntarily transfer amounts to the ATO in circumstances where the trustee believes it is in the best interests of that member, such as amounts that would otherwise have been transferred to an ERF.

These amendments respond to requests from superannuation funds to provide additional time and flexibility for superannuation funds to transfer amounts to the ATO.

Revised Start Dates for Superannuation Measures

The Government will change the start dates for the following measures:

  • The start date for the 2018-19 Budget measure Superannuation — increasing the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six has been revised from 1 July 2019 to the date of Royal Assent of the enabling legislation
  • The start date for the 2019-20 Budget measure Superannuation — reducing red tape for superannuation funds (exempt current pension income changes) has been revised from 1 July 2020 to 1 July 2021
  • The start date for the 2015-16 Budget measure Cutting Red Tape – lost and unclaimed superannuation, to allow the ATO to pay lost and unclaimed superannuation amounts directly to New Zealand KiwiSaver accounts, has been revised from 1 July 2016 to six months after the date of Royal Assent of the enabling legislation.

Social security

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.


Aged care

Ageing and Aged Care

The Government will provide $2.0 billion over four years from 2020-21 to further support older Australians accessing aged care by providing additional home care packages as well as continuing to improve transparency and regulatory standards. Funding includes:

  • release of an additional 23,000 home care packages across all package levels - $1.6 billion over four years from 2020-21
  • replace the Commonwealth Continuity of Support Programme with a new Disability Support for Older Australians program to ensure that older Australians with disability who were not eligible for the National Disability Insurance Scheme continue to receive the supports they need - $125.3 million over three years from 2020-21
  • continue the reform to residential aged care funding including undertaking ‘shadow assessments’ using the Australian National Aged Care Classification - $91.6 million over two years from 2020-21
  • provide additional funding for the Business Improvement Fund to continue assisting eligible aged care providers to improve their financial operations - $35.6 million over two years from 2020-21
  • administer the new serious incident response scheme - $29.8 million over three years from 2021-22
  • support the operation of the My Aged Care system - $26.9 million in 2020-21
  • maintain the capacity of the Aged Care Quality and Safety Commission in its ongoing regulation and compliance of the aged care sector - $26.0 million in 2020-21
  • delay the implementation of payment in arrears and on invoice for home care services as well as provide transition support to providers to adjust to these arrangements - $21.0 million over four years from 2020-21
  • defer the introduction of a cost recovery levy for unannounced site visits - $11.4 million in 2020-21
  • provide additional dementia services and training programs - $11.3 million in 2020-21
  • establish a network of care coordinators to assist younger people in residential aged care or who are at risk of entering residential aged care to look for more age-appropriate accommodation and supports - $10.6 million over three years from 2020-21
  • support the Aged Care Workforce Industry Council to implement the Aged Care Workforce Strategy - $10.3 million over three years from 2020-21
  • review the support care needs of senior Australians who live in their own home and determine how best to deliver this care in the home - $4.6 million over two years from 2020-21
  • support the Department of Health and the Aged Care Quality and Safety Commission to respond to requests from the Royal Commission into Aged Care Quality and Safety - $4.1 million in 2020-21.

Further information can be found in the press releases of 30 September and 1 October 2020 issued by the Minister for Aged Care and Senior Australians.

COVID-19 Response Package — ageing and aged care

The Government will provide additional funding to support older Australians throughout the COVID-19 pandemic ($700.2 million including income tax revenue impacts). Funding includes:

  • a COVID supplement to assist all Commonwealth funded residential aged care providers and home care providers with the cost of operating during the COVID-19 pandemic. This assistance includes a further lump sum payment paid to every residential aged care provider, as well as continuation of the 30 per cent increase to the viability and homeless supplements for eligible residential and home care providers - $245.0 million in 2020-21
  • support the direct care workforce through a third instalment of the workforce retention bonus and additional funding for the second instalment - $205.1 million over two years from 2020-21 ($159.0 million including income tax revenue impacts)
  • continue the COVID-19 aged care preparedness measure that supports aged care providers to manage and prevent outbreaks of COVID-19, including infection control. This includes a number of measures to directly support the aged care workforce -$103.4 million in 2020-21
  • expand support under the Supporting Aged Care Workers in COVID-19 Grant Opportunity for aged care providers in designated COVID-19 ‘hotspots’ - $92.4 million in 2020-21
  • support residents of aged care facilities who temporarily leave care to live with their families - $71.4 million in 2020-21
  • enhance the skills and competencies of Enrolled Nurses and Registered Nurses working in aged care by expanding the Australian College of Nursing Scholarship Program and establishing an Aged Care Transition to Practice Program to help graduate nurses transition to the aged care workforce, and to establish a skills development program for nurses and personal care workers working in residential aged care - $10.8 million over five years from 2020-21
  • support the operation of the Victorian Aged Care Response Centre - $9.1 million in 2020-21
  • support the ongoing regulation of the aged care sector by the Department of Health and the Aged Care Quality and Safety Commission - $9.0 million in 2020-21.

This measure builds on the July 2020 Economic and Fiscal Update measure titled COVID-19 Response Package — ageing and aged care.

To date the Government has committed over $1.6 billion ($1.5 billion including income tax revenue impacts) in COVID-19 specific supports for the aged care sector since the pandemic commenced.

 

Additional information

1

Plus Medicare levy