Below are some of the key takeaways announced in the Australian Federal budget for 2020-21. In the budget, many areas were touched upon. However, we have narrowed it down to the most significant measures that are aimed at taking Australia through this economic crisis and bounce back up as quickly as possible. 

Reduction in Taxes

The tax burden will be reduced for many Australian citizens with over 11 million set to receive a cut of $47 per week. This will apply to high-income earners. Middle-income-earners can also expect a cut of $21 per week, with the previous budget tax cut rolling on for lower-income earners. In the Federal budget, there is also an increase in the upper limit of the 19% tax bracket, which will become $45,000. The 32.5% marginal rate will increase to $120,000 from a previous figure of $90,000. 

Incentives for Employers

There has been a big focus on ensuring that jobs can be retained and that further opportunities can be provided. Youth unemployment, in particular, has focused on, since they are the demographic that has been hit hardest during this recession. The government has pledged funds of $200 per week for firms to hire youth. This incentive will apply for firms that take on young workers who had previously been on jobseekers. Additionally, the government will cover 50% of the wage for apprenticeships and traineeships. 

Welfare Supplements & Educational Funding

Additional welfare supplements will include payments of $250 to pensioners, and an extension to job keeper payment support which will be extended to 28th March 2021. The Coronavirus supplement will also be extended to December 31st 2020. Educational funding will include a $1 billion injection into the university research sector. Additionally, there will be added funding for online short courses that aim to re-skill unemployed workers. A total of $299m will be given for universities to add 12,000 more places for the new year. 

Funding for Small Businesses 

The vast majority of businesses in the country (those with a turnover of less than $5 Billion) will be eligible for deductions involving the cost of capital incurred after budget night and used before 30 June 2022. Smaller and medium businesses will be able to benefit from expensing second-hand assets. Businesses earning between $50 million and $500 million will be able to expense assets that are valued at less than $150,000. NBN Co will receive $4.5 to ensure a smooth rollout of the 5G network across the country. 

Investment in Healthcare & COVID -19 Treatments

Healthcare is set to receive significant investment in light of the Covid-19 pandemic. There will be packages set out for elderly Australians that are waiting for home care, and this will cost $1.6 billion. An additional $2.3 billion will be spent on investing in Covid-19 treatments and vaccines. A further $750 million has been pledged for Covid-19 testing and $171 million for respiratory clinics that are managing Covid-19 cases. $798.8 million will be given to the national disability insurance agency, and for the NDIS quality commission. There will also be a new tax exemption for granny flats where this arrangement involves an elderly individual or someone with a disability. 

Funding for Infrastructure

There is also a range of pre-announced measures that deal with infrastructure, the environment, and energy budgets. The government has pledged to renew the Australian Renewable Energy agency by another ten years from 2022 at a total cost of $1.4 billion. $50 million will be spent on carbon capture that could help to cut down emissions. $67.4m will be budgeted for oceans and marine ecosystems. Recycling policies will receive $249.6 over the next four years. 

Another large investment for the next four years goes to various infrastructure projects. In total, $14 billion will be spent on modernisations in each state and territory. This includes the Melbourne to Brisbane inland rail.

Superannuation Fund

Individuals will no longer need to create multiple accounts for these funds when changing employers. A new tool will be set up to help individuals monitor the performance of their funds. 

Recommended Actions

We have devised a list of actions that you can take to save on your tax bill based on these takeaways.

  • When you sell an asset, you might face tax issues in the future. This is due to the Federal Budget 2021 taking 100% of your proceeds and business income. This can result in businesses registered as a trust, sole trader, or a partnership that pays more tax than the benefit they received during the purchase. 
  • When a registered company purchases an asset of $100,000 against an offsetting profit, the tax for the same is calculated as $26,000. This essentially means that you have to repay $74,000 of the fund. 
  • You are not entitled to claims on Motor Vehicles
  • Companies and trusts that benefit from Fringe Benefits Tax may have to pay a loan on cars, and this can be greater than the benefits received initially during the purchase. This is true for companies that purchased cars that cost more than $59,132, which is the max limit set for 2020/21. 
  • Banks will start to look at write-offs as the signal of loss, and such businesses may not receive a favourable assessment. So, to ensure the client’s serviceability is not affected, it’s ideal not to use personal and business lending options with instant asset write-off. Take any decision on this front after consultation with a financial expert. That said, we can help you with this by doing accounting and tax depreciation schedules.
  • Chattel mortgage repayments can have a bigger impact on the serviceability of lending, including home loans and business lending. Ensure that you make timely purchases keeping in mind your current financial condition so that you are not impacted by the purchases. With our help, you can be better equipped to make the right purchase decisions. 

Federal Budget Summary

The Australian budget is designed to get the country through one of the worst economic crises in their history. This new Federal budget is unlike most, and it is hoped that these measures will be enough to stimulate the economy. You will have seen a variety of costs that are being undertaken. Whilst some have been planned, many others have been forced due to the ongoing economic impact of the pandemic. It remains to be seen whether any of these measures may be modified in accordance with the ever-changing situation. We will keep you updated with any potential changes to the federal budget initiatives once they come into effect.