Last night the Federal Government handed down its Federal Budget for the financial year 21. Now, as was very much predicted the Federal Budget was full of spending measures designed to encourage business investment and to spur economic growth as a recovery for the COVID-19 pandemic.
In relation to measures impacting our clients and members, there were four main areas to take note.
So as per usual we do do a budget briefing paper that is available, so for a full analysis of all the different changes go and check those out.
But for a brief summary, we did see tax cuts. We saw changes to business taxation. We also saw some tinkering in relation to superannuation, but not major. The major issue there was the lack of announcements, which is always good news, and also some additional spending in relation to payments for Social Security entitlements.
Kicking off with the personal tax cuts. Now the Government have done a number of things here. First of all, they are increasing the low income tax offset from the current 445 to 700, or that's what's proposed at least.
Second thing, and this is quite important, is that they're proposing to bring forward the second round of tax cuts that was meant to take effect from the 1st of July 2022 into this financial year and in fact, backdating it all the way back to 1 July of this financial year.
Now the big thing about those is when you look at where people get the tax savings, the people earning up and over $120,000, they'll get a tax cut of about $2,500 per year, compared to the current tax rules. And for people earning between 45 and $90,000, actually when the second round tax cuts that were meant to come in in 2022, we were meant to have the low and middle income tax offset phased out at that time , but what the government has decided to do is to maintain that for an extra 12 months, so people earning between that 45 and $90,000 will get a tax cut for this year of that $1,080.
Moving on to some important business taxation announcements, and there was two main ones here.
The first one relates to temporary full expensing of eligible depreciating assets. Now what this simply will allow is a business with a turnover of less than 5 billion dollars a year to fully offset the cost of going out and buying some eligible depreciating asset, as long as it's purchased after budget announcement time, and before 30 Jun 2022, so they'll be able to fully offset the cost of that asset instead of depreciating it over a number of years.
The other important business tax announcement is the ability for businesses to carry back tax losses and offset them against profits made from the 2018-19 year onwards. Now, the reason why that's really important is if you've got a business that suffered losses due to COVID, you would need to return to profit before you’d be able to fully utilise those losses. Now in this situation, instead of having to wait for the business to return back to profit you will be able to offset those losses against profits made previously from that 2018-19 year onwards.
If we move onto super, probably the most important thing to understand about superannuation announcements tonight is there wasn't a lot. So, we didn't see any announcements in relation to the taxation of superannuation funds or the taxation of superannuation benefits.
Also prior to the Federal Budget there was a lot of noise about potential changes to the legislated increase in the rate of SG. We didn't see any announcements in relation to that, and we also didn't see any announcements in relation to the Retirement Income Report that was handed to the Federal Budget back in July, so we still have to wait for those announcements.
Now, what we actually did see announced on the night was changes to the default super system. So, the way default super works is if an employee starts with a new employer they need to choose their super fund that their SG contributions are going to go into, if they don't choose then the employer’s allowed to make contributions to a default super fund.
Now, the issue with that particular system is every time a person start a job with a new employer, if they don't make a choice in relation to where their SG is going to go to, they end up with another superannuation account, so it's lead to a proliferation of the number of superannuation accounts. Now, to address that issue what the Government is proposing to do is to link the default super fund to the employee, so that super fund will follow that employee around.
Also, what we saw was an announcement in relation to a YourSuper online super comparison tool that the Government proposes to make available to Australians.
And moving onto the final main announcement for clients and members. And this just relates to Social Security payments, now what the Government has announced here is that it intends to make two $250 payments to recipients of certain eligible income support payments.
Now the first payment is proposed to be made in December, with the second payment being made in March. People that will be eligible to these payments include age pension recipients, people receiving DVA payments, carer payment and allowance recipients, as well as recipients of the Commonwealth Seniors Health Card.
For a full list of all the types of benefits and payments that would qualify you for, or a client for these payments see our Budget briefing paper.
That concludes this short analysis of the 2021 Federal Budget announcement. Now if you’ve got any questions please give us a call in the team or see our FirstTech budget briefing paper.
Federal Budget Briefing Paper
On 6 October 2020 the Federal Government handed down its Budget for the 2020–21 financial year. After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.
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