With claims that the 2020-21 federal budget is the most significant budget in decades, it’s crucial to understand how it will affect you and where you can save.

This year’s budget has a heavy focus on encouraging spending on multiple levels, as well as a range of tax-related measures that will affect not only businesses but individuals.

The 2020-21 federal budget will see a record $213.7 billion deficit, with net debt of $966 billion predicted to peak by June 2024. 

Unemployment is expected to hit its peak at 8% in December 2020, causing the Government to focus on creating jobs and growing the economy. With the measures included in this year’s budget, unemployment is expected to reduce and hit 6.5% by June 2022.

With such a large deficit, there is currently no indication of how the Government is planning to repair the budget, but it’s expected that this will happen when employment rates fall below 6%.

So, what can you expect from the 2020-21 federal budget? Have a look below to see what will affect you and how you can take advantage of what’s on offer.

Changes to Income Tax Brackets

What Is It?

Every taxpayer is split up into a different tax bracket depending on their income level. In Australia, we have a ‘progressive’ tax system which means that the more you earn, the more tax you’ll end up paying.

In the 2020-21 budget, the Government has made some changes to the way the brackets are set up and has provided some relief to specific taxpayers.

How Does It Work?

The changes that the Government has made to income tax brackets can be split into two categories.

• One-off tax relief
  Low to middle-income earners will be receiving a one-off tax relief of up to $1,080 for singles and $2,160 for couples or dual-income families.If you’re eligible for this one-off tax relief, your employer will reduce the amount of tax taken out of your regular pay. This means that you will get paid more on payday. This relief is going to be backdated to 1st July 2020 and continue through until the end of this financial year.
• Stage 2 tax cuts
  The planned changes for 2022 regarding the existing tax brackets have been brought forward to 1st July 2020. There are three significant changes here:
  • The low-income tax offset is being increased from $445 to $700. This is an additional $255 in tax relief.
  • The top threshold for the 19% personal income bracket is being increased from $37,000 to $45,000. This could provide up to $1,080 in tax relief.
  • The top threshold for the 32.5% marginal tax rate is being increased from $90,000 to $120,000. This could provide $1,350 in tax relief.

Who Does It Affect?

These changes will affect anyone earning over $37,000.

How Much Can You Save?

When it comes to the one-off tax relief change, singles are eligible to save up to $1,080, and couples can save up to $2,160.

When it comes to the changes in tax brackets, the Australian Government has provided the following breakdown to show just how much you can save.

• A $40,000 taxable income could save up to $1,060
• A $60,000 taxable income could save up to $2,160
• A $80,000 taxable income could save up to $2,160
• A $100,000 taxable income could save up to $2,445
• A $120,000 taxable income could save up to $2,745
• A $140,000 taxable income could save up to $2,565
• A $160,000 taxable income could save up to $2,565
• A $180,000 taxable income could save up to $2,565
• A $200,000 taxable income could save up to $2,565

Any Actions or Steps You Should Take

These changes will be looked after for you automatically. Your employer will apply the one-off tax relief changes if this applies to you, and the changes in tax brackets will be automatically applied.

JobMaker Hiring Credit

What Is It?

The newly introduced ‘JobMaker’ Hiring Credit encourages employers to hire young people from the ages of 16-35 to help stimulate the economy.  

It’s hoped that the scheme will help accelerate the growth of employment by giving businesses an incentive to hire young people, who have been particularly hard hit in the pandemic.

How Does It Work?

The scheme has been split up into two tiers:

1. Young people aged 16-29: employers will receive a subsidy of $200/week
2. Young people aged 30-35: employers will receive a subsidy of $100/week

Additionally, to be eligible, the young people that are being hired need to work at least 20 hours a week and have received a JobSeeker Payment, Youth Allowance or Parenting Payment for at least one of the previous three months at the time of hiring.

These payments will be made to employers quarterly and can be claimed after 1st February 2021.

It’s estimated that the JobMaker Hiring Credit will support around 450,000 employment positions and will cost $4 billion between 2020-21 to 2022-23.

Who Does It Affect?

The JobMaker Hiring Credit will affect businesses looking to employ young people and young people who are looking for work.

How Much Can You Save?

As a business, you will save either $100 or $200 every week, depending on the age of your new employee. However, remember that government payments will be made quarterly.

Any Actions or Steps You Should Take

This benefit needs to be claimed by the employer, so make sure to claim it if your employees are eligible!

Pensioner and Welfare Payments

What Is It?

There has been a seen decrease in spending from pensioners through the COVID-19 pandemic, with many choosing to be more cautious with their money than ever before.

In an attempt to stimulate the economy, the Government will be gifting two separate payments of $250 to pensioners and other eligible recipients.

How Does It Work?

In December 2020 and March 2021, eligible recipients will receive payments of $250 in the hopes that they will spend it and stimulate their local economies.

Who Does It Affect?

This will affect around 5.1 million eligible pensioners, low-income families, veterans and eligible concession cardholders who do not receive primary income support payments.

How Much Can You Save?

A total of $500 will be gifted to eligible recipients over two payments.

Any Actions or Steps You Should Take

These payments will be made to you automatically if you are eligible.

Extension of the Coronavirus Supplement

What Is It?

The Government has decided to extend the coronavirus supplement until 31st December 2020 in an attempt to support further those who have been struggling throughout the COVID-19 pandemic.

How Does It Work?

Whilst the supplement will still be available; the rate will be reduced and available in two different tiers.

1. $250 payment – this is available to permanent employees who have lost their employment, sole traders, casual workers and contract workers who meet income tests, self-employed individuals and eligible individuals caring for someone affected by COVID-19.
2. $750 payment – this is available to those who are already receiving social security, veterans or eligible concession cardholders.

Who Does It Affect?

This will affect those who have been heavily affected by the COVID-19 pandemic and are already receiving the coronavirus supplement.

How Much Can You Save?

Depending on the category that you fall into, you can receive additional fortnightly payments of $250 or $750.  

Any Actions or Steps You Should Take

The coronavirus supplement will automatically be applied if you’re eligible.

Capital Gains Tax Exemptions for Granny Flats

What Is It?

This initiative will allow people building granny flats to house older Australians or an individual with a disability to be exempt from paying capital gains tax on the construction.

How Does It Work?

Commencing on 1st July 2021, subject to the passing of legislation, capital gains tax will not apply to the creation, variation or termination of formal, written granny flat arrangements.

This will help in the arrangement of housing for older and more vulnerable Australians.

These arrangements will only apply to agreements that are entered into because of personal ties or family relationships and won’t apply to commercial rental arrangements.

Who Does It Affect?

This initiative will affect people who are looking at building a granny flat and entering into an arrangement with a family member or friend.

How Much Can You Save?

You can save the entirety of the capital gains tax that would have been charged on your new granny flat.

Additional First Home Loan Deposit Scheme Spots

What Is It?

The Government has committed an additional 10,000 spots to the First Home Loan Deposit Scheme for the 2020-21 financial year, in an attempt to support eligible first home buyers purchase a home sooner than they otherwise would have been able to.

How Does It Work?

The First Home Loan Deposit Scheme allows for first home buyers to put down a deposit as low as 5%.

Usually, without a 20% deposit, home buyers will need to pay lenders insurance. However, the First Home Loan Deposit Scheme guarantees up to 15% of a property’s value to participating lenders, meaning that you don’t need to pay lenders insurance.

There are property price caps on the scheme that differ depending on where you’re buying your first home, so make sure you check out the cap in your area.

The Government has committed to another 10,000 spots in the scheme, in addition to the already existing 20,000 spots. It’s expected that the additional spots in the scheme will stimulate $800 million in economic activity.

Who Does It Affect?

First home buyers will be eligible for this help.

How Much Can You Save?

Depending on the value of the property being purchased, mortgage lenders insurance can be saved on completely, and up to 15% of the property’s value can be paid in mortgage payments instead of as part of your deposit.

Any Actions or Steps You Should Take

When applying for your home loan, make sure that you work with a participating lender and fill out an application for the scheme.

Small Business Asset Write Off

What Is It?

Small business asset write-offs are a temporary tax incentive that allows businesses with up to $5 billion in annual turnover (99% of companies in Australia) to write off the full value of new assets acquired by the business.

How Does It Work?

From 7:30 pm on 6th October 2020, this tax incentive will allow small businesses to immediately write off the full value of assets that were purchased after 7:30 pm on 6th October 2020 and are first used or installed before 30th June 2022.

Businesses will also be able to claim full deductions for the cost of improvements on any existing depreciating assets.

Who Does It Affect?

This incentive affects businesses with an annual turnover of up to $5 billion.

How Much Can You Save?

You can write off the full value of assets that qualify for the incentive.

Any Actions or Steps You Should Take

Make sure that you remember to claim your acquired assets properly come tax time!

Example

Pete owns a coffee roasting company, Pete’s Pour Pty Ltd, which has an aggregate annual turnover of $15 million in the 2021-22 financial year. Pete’s Pour Pty Ltd purchased a new coffee roaster for $200,000, exclusive of GST, on 1 July 2021.

Without temporary full expensing, Pete’s Pour Pty Ltd would be able to claim a total tax deduction of around $60,000 for 2021-22, with the rest of the cost being depreciated in years to come. 

Under temporary full expensing, Pete’s Pour Pty Ltd can instead claim the full $200,000 for the new coffee roaster in 2021-22. This is approximately $140,000 more than before. 

At the 2021-22 tax rate for small and medium companies, which is 25%, Pete’s Pour Pty Ltd will pay around $35,000 less tax in 2021-22. This will boost the company’s cash flow and help Pete to grow his business.

Loss Carry-Back Provision 

What Is It?

The loss carry-back provision is another temporary tax provision that will allow eligible businesses to carry-back tax losses made in 2020-21 and 2021-22 to offset tax paid on profits from 2019 onwards.

The refunding of previously paid tax to the ATO when a loss is later incurred can be described as ‘loss carry back’.

How Does It Work?

By refunding previously paid tax, companies can offset their overall profits and boost the cash flow of struggling businesses.

Who Does It Affect?

This provision will particularly affect businesses that were successful and posting profits pre-COVID-19 but are now struggling.

How Much Can You Save?

You can be refunded on tax paid in previous years to the ATO, so this will depend on how much tax you’ve paid in previous years.

Example

Sarah owns a clothing manufacturing company, Sarah’s Fits Pty Ltd, which has an aggregate annual turnover of $40 million. In 2018-19, Sarah’s Fits Pty Ltd made a tax profit of $4 million and paid $1.2 million in income tax. 

As a result of COVID-19’s effects and customer demand, Sarah’s Fits Pty Ltd makes a tax loss of $1 million in 2019-20. Under the treatment of losses in the current law, Sarah’s Fits Pty Ltd would be carrying these losses forward until it was able to make a taxable profit. 

Under temporary loss carry-back, when Sarah’s Fits Pty Ltd is lodging its 2020-21 company tax return, it will receive a tax refund of $300,000 in recognition of this loss and the tax that was paid in 2018-19. 

Continuing in 2020-21, reduced trading means that Sarah’s Fits Pty Ltd makes another tax loss of $400,000. The company paid enough tax in 2018-19 to also offset the loss from 2020-21, resulting in a further refund of $120,000.

Sarah’s Fits Pty Ltd is able to use its $520,000 refund to stay in business, retain as many employees as possible and transition back into business as usual. 

Key Takeaways From the 2020-21 Federal Budget

This year’s federal budget is one of the most important that a government has released in decades and has opportunities that many people will be able to take advantage of.

The focus on encouraging spending, trying to lower unemployment rates through incentives, and multiple tax breaks and available incentives are worth taking a look into for everyone.

It can be confusing to try and digest all of the information that’s out there at the moment regarding the federal budget.

Here at Box Advisory Services, we’re experts in making sure that you’re able to make the most of this new budget and the avenues available to you.

Get in touch with us, and we can make sure that every opportunity available to you personally is taken advantage of.

Further Reading and Information

Australian Taxation Office. (2020). Latest News On Tax Law and Policy. https://www.ato.gov.au/general/new-legislation/latest-news-on-tax-law-and-policy/?anchor=Budget%202020-21#Budget%202020-21
Commonwealth of Australia 2020. (2020). Budget Fact Sheets. Budget 2020-21. https://budget.gov.au/2020-21/content/factsheets/index.htm
Commonwealth of Australia 2020. (2020). Economic Recovery Plan for Australia. Budget 2020-21. https://budget.gov.au/index.htm
Commonwealth of Australia 2020. (2020). Budget 2020-21 Overview. Budget 2020-21. https://budget.gov.au/2020-21/content/overview.html