The dust has settled on the Federal Budget which was announced at the start of last month. After the Government’s initial response to COVID-19, which included the JobKeeper payment, boosting cashflow for employers and additional payments to those on income support, the Budget’s focus was on supporting the economic recovery.

The 2020/21 Budget brings the Government’s overall support during the COVID-19 pandemic to $507 billion, including $257 billion in direct economic support. It contains billions of dollars in fast-tracked personal tax cuts and business incentives, with a focus on growing the economy so Australia can create jobs, increase economic resilience and reverse the impact of the lockdowns earlier in the year.

Some of the key changes outlined in the Budget are explained in more detail below.

Personal tax cuts

Tax cuts were the centrepiece of the Budget, with the announcement that the Government will bring forward its second stage of cuts in an attempt to increase consumer spending and boost the economy.

The upper threshold of the 19% tax bracket will rise from $37,000 to $45,000 and the upper threshold of the 32.5% tax bracket will raise from $90,000 to $120,000.

Those who earn between $45,000 and $90,000 will end up with an extra $1,080, and those earning over $90,000 taking home up to $2,565 extra each year. Workers on lower incomes will also benefit from an increase in the low-income tax offset, which will rise from $445 to $700.

Importantly the cuts will be backdated to 1 July 2020 which means more than 11 million Australians will receive an immediate tax cut once company payrolls have been adjusted.

A boost for pensioners and carers

A range of welfare recipients, including pensioners and disability carers, will receive two cash payments of $250 – the first from December and the second from March 2021.

Older Australians will also benefit from a $1.6 billion spend over the next four years to introduce 23,000 additional home care packages. Further initiatives in the sector are expected with the release of the Royal Commission into Aged Care Quality and Safety final report in February 2021.

Your Future, Your Super package

The Budget also unveiled changes to Australia’s $3 billion superannuation industry. The Your Future, Your Super package is forecast to save Australians an estimated $17.9 billion, beginning 1 July 2021.

Under the changes, new super accounts will no longer be automatically created every time a worker starts a new job. Instead, super accounts will follow workers when they change jobs, unless they opt to move to the new employer’s default super fund. This will prevent unnecessary duplication of accounts, which can eat away at member returns.

Super funds will be required to meet an annual performance test by the Australian Prudential Regulation Authority (APRA) to protect members from poor outcomes and to encourage lower costs. Poor performing funds will need to notify their members of their underperformance and will be blocked from taking on new members if returns do not improve.

The performance test will initially apply to simplified ‘MySuper’ funds with lower cost balanced investment options but will be extended to all other super products in 2022. To assist members in choosing the right fund for their needs, the Government will establish an online comparison tool known as ‘YourSuper’, providing information about super fees and returns.

Super funds will also be subject to a new requirement ensuring they act in the best interests of their members, in a bid to improve accountability and transparency. These changes aim to create more competition, lower fees and will put pressure on underperforming funds.

Support for regional Australia

Farmers and rural communities are set to benefit from $2 billion in funding over ten years for improved water infrastructure. Regional businesses will also benefit from the Government’s expansion of the instant asset write-off scheme. While there is no direct solution to the labour shortage in regional Australia, the Government is going to prioritise partner visas where sponsors live outside major cities.

Business tax changes

For businesses, the biggest item in the budget was the instant asset write-off for those with a turnover of up to $5 billion. From 7 October 2020, businesses will be able to write off the full value of any eligible asset they purchase which is first used and installed by 30 June 2022. According to Treasurer Josh Frydenberg, ‘99%’ of businesses will benefit from the scheme.

Businesses with aggregated annual turnover of less than $5 billion will also be able to apply tax losses from the 2019-20, 2020-21 and 2021-22 income years against previously taxed profits from the 2018-19 and later tax years by claiming a refundable tax offset in the loss year.

In addition, tax concessions currently available to small business with annual turnover up to $10 million have been extended to businesses with turnover up to $50 million. These organisations will have access to up to ten small business tax concessions, including deductions of certain start-up and prepaid expenses, exemptions from the 47% fringe benefits tax on car parking, phones and laptops, simpler trading stock rules and easier PAYG instalments.

Businesses will also receive incentives to hire younger workers under the Government’s $4 billion JobMaker hiring credit, with businesses receiving up to $200 per week for hiring an eligible employee.

For more detailed information on the Budget and how it affects you, please visit Budget 2020-21.