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Budget 2020 | Individuals

October 2020


Tax cuts, cash payments, and the relief of CGT on granny flats are the headline measures in the Federal Budget, with extra spending on aged care in the home.

The Treasurer has brought forward its planned phase 1 and phase 2 tax cuts to more than 11 million taxpayers, backdated to 1 July 2020, as well as providing extra cash payments to eligible recipients, in the hope that Australians will start to spend rather than save.

With job losses, reduced hours, and fewer opportunities to spend since COVID-19 hit our shores, Australians still in work have been saving more while those out of work with little savings to fall back on aren't able to spend.

It will be interesting to see whether the measures encourage Australians to get out and spend or if it ends up going into paying down debt or into savings.

Individual Measures

Personal income tax cuts

Date of effect

1 July 2020

As widely predicted, the Government has brought forward stage two of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation).

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will "boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22."

Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government's plan comes to fruition.

Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.

 

Tax thresholds

Tax rate

Current

From 1 July 2020

From 1 July 2024

0%

$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

 

45%

>$180,000

>$180,000

>$200,000

LITO

Up to $445

Up to $700

Up to $700

Bringing forward the personal income tax plan will:

  • Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
  • Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
  • Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

$250 economic support payments

Date of effect

November 2020 and early 2021


Two additional economic support payments of $250 each will be made 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.

Capital gains tax removed from 'granny flats'

Date of effect

1 July 2021 subject to the passage of the legislation

 The current rules for entering a formal granny flat arrangement with a relative, such as an elderly parent, means there is a risk of capital gains tax (CGT) applying. Announced pre-Budget, this measure provides a targeted CGT exemption for granny flats under certain conditions.

Under the arrangement, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities. 

The exemption only applies to family arrangements or other personal ties and will not apply to commercial rental arrangements.

Since CGT can be tricky, we strongly recommend seeking the guidance of your accountant before putting any agreements in place regarding granny flats.

10,000 additional places in First Home Loan Deposit Scheme

Date of effect

6 October 2020

Announced pre Budget, from 6 October 2020 until 30 June 2021, an additional 10,000 places will be available for first home buyers under the First Home Loan Deposit Scheme to support the purchase of a new home or a newly built home.

The scheme enables first home buyers to purchase a home with a deposit of as little as 5% without mortgage insurance.

There are currently 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme.

While the deposit is often very difficult for first home buyers to accumulate, they should ensure that they have the ability to manage the increased size of any mortgage, particularly with current and projected levels of unemployment.

Aged care support

$1.6bn to help elderly stay at home

As previously announced, the Government has committed to a broad package of aged care funding predominantly focussed on helping older Australians remain at home. $1.6 billion has been provided over four years from 2020-21 to release an additional 23,000 home care packages across all package levels.

The number of home care packages will have increased threefold from around 60,300 in 2013 to around 185,500 in 2021.

Aged care industry monitoring and support

An additional $400 million will see an injection in cash for infrastructure supporting the aged care industry including a new serious incident response scheme and monitoring services.

Seek advice

We urge any clients who are looking for tax planning advice or understanding of how these measures may impact their tax position to contact us via email or phone 02 9957 4033 for more information.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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