Last night the Government handed down the 2020/21 Federal Budget. As we expected this budget is focused on creating jobs through personal tax cuts, business incentives and job creation subsidies. A summary of those changes of particular interest to individuals follows:
Personal Income Tax Changes
Changes to the personal income tax rates that were due to apply from 1 July 2022, have been brought forward. These changes now apply from 1 July 2020 (i.e., from the 2021 income year).
These changes involve:
- increasing the upper threshold of the 19% personal income tax bracket from $37,000 to $45,000; and
- increasing the upper threshold of the 5% personal income tax bracket from $90,000 to $120,000.
These changes are illustrated in the following table (which excludes the Medicare Levy).
| Rate | Current (2019 to 2022) | Proposed (2021 to 2024) |
| 0% | 0 - $18,200 | 0 - $18,200 |
| 19% | $18,201 - $37,000 | $18,201 - $45,000 |
| 32.5% | $37,001 - $90,000 | $45,001 - $120,000 |
| 37% | $90,001 - $180,000 | $120,001 - $180,000 |
| 45% | $180,001+ | $180,001+ |
The Government advised that the personal income tax rate changes that have already been legislated, effective from 1 July 2024 (i.e., from the 2025 income year), remain unchanged. These involve removing the 37% personal income tax bracket, reducing the 32.5% personal income tax bracket to 30%, and increasing the upper threshold of the reduced 30% tax bracket from $120,000 to $200,000.
Changes to the Low Income Tax Offset ('LITO') and Low and Middle Income Tax Offset
The changes that were proposed to the LITO from 1 July 2022, will now be brought forward so that they will now apply from 1 July 2020 (i.e., from the 2021 income year), as follows:
- The maximum LITO will be increased from $445 to $700.
- The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $37,500 and $45,000.
- The LITO will be reduced at a rate of 5 cents per dollar, for taxable incomes between $45,000 and $66,667.
| Current LITO (2021 to 2022) | Proposed LITO (2021 to 2022) | ||
| $0 - $37,000 | Up to $445 | $0 - $37,500 | Up to $700 |
|
$37,001 - $66,666 | $445 - 1.5% of excess over $37,000 |
$37,501 - $45,000 | $700 - 5% of excess over $37,500 |
|
$66,667 + | Nil |
$45,001 - $66,666 | $325 - 1.5% of excess over $45,000 |
|
|
| $66,667 + | Nil |
The current Low and Middle Income Tax Offset ('LAMITO') will continue to apply for the 2021 income year (which is available in addition to the LITO for eligible taxpayers). For example, the maximum LAMITO of $1,080 will be available to taxpayers with taxable incomes of between $48,000 and $90,000 in the 2021 income year.
Cash Payments for Income Support recipients
Two Economic Support payments will be paid to eligible Government income support recipients. The payments will be $250 each and the anticipated payment dates are December 2020 and March 2021. Eligible recipients include those on the Age Pension, Disability Support Pension, Commonwealth Seniors Health Card Holders amongst others.
Superannuation Reforms
Structural flaws in the superannuation system have been identified leading to unnecessary fees and insurance premiums paid on multiple accounts, members paying too much in super fees, underperforming products, and inadequate transparency on how funds are spending members' money.
From 1 July 2021, the proposed reforms will make the system better for members in four key ways:
- An existing superannuation account will be 'stapled' to a member to avoid the creation of a new account when that person changes their
- A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their
- MySuper products will be subject to an annual performance test. Funds that underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation
- The Government will strengthen obligations on superannuation trustees to ensure their actions are consistent with members' retirement savings being For example, trustees will be required to comply with a new duty to act in the best financial interests of members.
Special COVID-19 Superannuation Condition of Release Extended
Regulations that extend the time frame of the special condition of release to access $10,000 from superannuation for individuals experiencing financial difficulties due to COVID-19 have been formally registered.
The ability to withdraw up to $10,000 from superannuation (if certain conditions are met) was initially set to expire on 24 September 2020.
The newly registered Regulations now enable an eligible individual to withdraw up to $10,000 from superannuation (which is not assessable to the individual) until 31 December 2020.
To be eligible, a citizen or permanent resident of Australia (and New Zealand) must require the COVID-19 early release of super to assist them to deal with the adverse economic effects of COVID-19.
In addition, one of the following circumstances must apply:
- The individual is unemployed;
- The individual is eligible to receive one of the following;
- JobSeeker payment;
- Youth Allowance for job seekers (unless they are undertaking full-time study or are a new apprentice);
- Parenting payment (which includes the single and partnered payments);
- Special Benefit; or
- Farm Household Allowance;
- On or after 1 January 2020 either;
- they were made redundant;
- their working hours were reduced by 20% or more (including to zero); or
- they were a sole trader and their business was suspended or there was a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies any other eligibility criteria).