The measures that might impact you and your business
We’ve summarised the key points and important information you need to know from this year’s Federal Budget.
This year’s Federal Budget was perhaps one of the most anticipated of recent times. With the economy suffering from the impact of COVID-19 there were many Australians looking to this budget for support, especially those businesses hardest hit by the pandemic. There are a range of positive measures in the budget that support businesses large and small but there are also structural changes being proposed for the superannuation industry that could change processes for employers which currently lack detail.
Changes to superannuation
To prevent the creation of multiple superannuation accounts, which lead to additional fees and insurance premiums, the Government has proposed three changes to the way Australians start a superannuation account.
- A new process for choosing a fund when you change jobs, which will see employers using your existing fund, if you do not choose your own.
- YourSuper, a new online tool from the Australian Taxation Office (ATO), for comparing funds, viewing your current funds and selecting a new fund.
- An annual performance test on the MySuper products that super funds hold.
There are also changes strengthening the obligation of super funds to act in the best financial interest of members and disclose information about how they manage members’ money. While the Budget sets out the Government’s intention, not much detail about these reforms has been announced so far.
Choosing a fund
The Government is proposing to change how your superannuation fund is decided when you move from one job to the next. The proposal implements a recommendation of the Banking Royal Commission that if an employee doesn’t choose a new fund when they start a new job, they will continue to use their existing fund. That is, they won’t automatically ’default’ to the super fund of their new employer.
If a new employee does not choose a fund, their employer will identify their existing fund through the ATO, and use this fund to make the employee’s superannuation contributions. Default arrangements (i.e. moving to the employer’s super fund) will continue for employees who do not have an existing super account, such as those joining the workforce for the first time or those who have emptied their existing account through the COVID-19 early release scheme.
YourSuper online tool
To help members compare funds, the Government is proposing to launch a new online comparison called YourSuper. This tool will show members the difference in fees and performance of super funds, making it easier for your employees to choose a super fund that best suits your needs.
Regulator benchmarks on performance
The Government and regulator are focused on improving performance for members. A further proposed reform is to have the regulator, the Australian Prudential Regulation Authority (APRA) develop benchmarks for investment underperformance and to assess every fund’s MySuper (default) products annually. Funds which underperform over two consecutive years from July 2021, will not be able to accept new members. The Government is also proposing to strengthen the obligation of super funds to act in the best financial interests of members. Super funds will also be required to provide members with key information about how they manage and spend their members’ money.
This year’s Federal Budget includes a range of measures designed to support businesses recover from the COVID-19 pandemic, while encouraging renewed investment and the hiring of young, out of work, Australians.
JobMaker Hiring Credit
The JobMaker Hiring Credit of up to $200 per week announced in the 2020/21 Budget will encourage employers to create new jobs for those aged 16 to 35. Employers will receive a credit for each new job they create over the next 12 months for which they hire an eligible young person.
The JobMaker Hiring Credit starts immediately. New jobs created will be eligible for JobMaker for up to 12 months from the date the new position is created.
JobMaker doesn’t apply if the employer is already receiving a wage subsidy for the employee under another Commonwealth program, such as JobKeeper. The employee must work for an average of more than 20 hours per week.
To be eligible, the employee must have received JobSeeker, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months at the time of hiring. Jobs with Commonwealth, state and local governments are not included in the scheme, and neither are the major banks.
Full expensing of eligible depreciable assets
From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022 businesses with turnover of up to $5 billion will be able to fully expense eligible depreciable assets. Temporary full expensing creates a strong incentive for businesses to bring forward investment to access the tax benefit before it expires.
Offset tax loses against previous profit
Companies with turnover up to $5 billion will also be able to temporarily, up to June 2022, offset tax losses against previous profits and tax paid in or after 2018-19. This will help companies that were profitable and tax paying but now find themselves in a loss position due to the COVID-19 pandemic. Temporary loss carry-back assists companies that would otherwise experience a loss to take advantage of the temporary full expensing measure.
With the economy reeling from the impacts of the COVID-19 pandemic, the Government has announced several measures aimed at easing the burden of Australians least able to cope with the worsening economic outlook.
To help Australians through the financial challenges they may continue to face as a result of COVID-19, the Government will provide $2.6 billion through two additional economic support payments of $250 each to pensioners and other eligible recipients, such as people receiving Disability Support Pension or Carer Payment. These payments are on top of the two previous economic support payments of $750 to those on social security and other eligible recipients. This measure will benefit around 5.1 million pensioners.
Pandemic Leave Disaster Payment
The Government is partnering with states and territories to deliver the $34.3 million Pandemic Leave Disaster Payment to help stop the spread of COVID-19. The Payment is a one-off grant of $1,500 to eligible workers who are unable to work and earn income while under a direction to self-isolate or quarantine or who are caring for someone who has tested positive for COVID-19. To date, the Government has made around 10,000 payments to residents of Victoria, New South Wales, Tasmania and Western Australia.
Support for women
The Government is introducing a $240 million package to create jobs, help parents and support women in the workplace. The package will deliver:
- employment programs to support women’s leadership and development, and
- more opportunities for women in science, technology, engineering and mathematics (STEM), business and male-dominated industries.
The $50 million Women@Work plan will expand the Women’s Leadership and Development Program grants and establish a Respect@Work Council to address sexual harassment at work. This builds on the Government’s commitment to support women’s safety at work and at home. An additional $35.9 million is lined up to expand the Boosting Female Founders initiative to provide women entrepreneurs access to expert mentoring and business advice.
Income tax cuts brought forward
The Government is planning to bring forward the income tax cuts scheduled for 1 July 2022, which means 11.6 million Australians will have more money in their pockets from as early as this year. These cuts are to be backdated to 1 July 2020.
What do these changes mean?
We’ve put together a case study to show how the tax cut may impact a VicSuper member.
Helen, age 57, is a school teacher. She earns $80,000 plus 9.5% compulsory superannuation. At this salary level, Helen saves another $1,080 in income tax due to the 32.5% marginal tax rate - increasing from $37,000 to $45,000 in this Budget.
What can you do with your tax saving?
Helen has a few options for the extra $1,080 she gained in this year’s Budget. Depending on her current financial situation, she could:
- Enjoy spending the extra money.
- Pay an extra $1,080 off her mortgage or credit card to reduce debt before she goes into retirement by saving on interest payable in future years.
- Contribute extra into her superannuation account. If Helen is not going to reach her $25,000 concessional contribution cap for FY 2021, she could make a pre-tax contribution of $1,649. As this is concessional, her take-home pay is only reduced by $1,080. Helen will be taxed 15% on $1,649 as it goes into superannuation, meaning she adds $1,402 to her superannuation balance, which can then compound over time.
Helen’s options are described in this table:
|Spend and enjoy the tax cut immediately||Use the tax cut to reduce debt||Use the tax cut to make a concessional contribution to superannuation|
|Concessional contribution to superannuation||0||0||$1,649*|
|Tax on taxable income||-$16,467||-$16,467||-$15,931|
|Extra in superannuation||$0||$0||$1,402**|
|Spend the tax cut||-$1,080||$0||$0|
* This is the $1,080 tax cut expressed in pre-tax dollars
** $1,649 less 15% contribution tax
^ Includes the $1,080 tax cut that is used to reduce debt
A summary of the proposals include:
- increasing the upper threshold of the 19% tax bracket from $37,000 to $45,000
- increasing the upper threshold of the 32.5% tax bracket from $90,000 to $120,000
- keeping the Low and Middle Income Tax Offset (LMITO) for 2020-21, after which it will end
- increasing the Low Income Tax Offset (LITO) from $445 to $700.
These measures are of particular interest to employers and staff in the health and education industries.
Health, Disability and Aged Care
The Government will provide $2.0 billion over four years from 2020-21 to further support older Australians accessing aged care, by providing additional home care packages and continuing to improve transparency and regulatory standards. There will be an additional 23,000 home care packages over the next four years, a new Disability Support for Older Australians program to ensure that older Australians with disability who were not eligible for the National Disability Insurance Scheme (NDIS) continue to receive the supports they need, and continued the reform to residential aged care funding.
In addition, the Government will provide $746.3 million over four years from 2020-21 to support older Australians throughout the COVID-19 pandemic. Funding includes $245.0 million in 2020-21 for a COVID supplement to assist all Commonwealth funded residential aged care providers and home care providers with the cost of operating during the COVID-19 pandemic.
The Government is providing an additional $3.9 billion for the NDIS which is providing life changing support to 400,000 Australians with a disability. Disability Support Pension recipients will receive the $250 payment from December and a further $250 payment from March next year. The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements for older Australians or those with a disability.
Skills training and education
The Government has committed an additional $1.2 billion to create 100,000 new apprenticeships and traineeships, with a 50% wage subsidy for businesses who employ them. They’ll also provide $263 million over four years from 2020-21, to continue to improve the quality of the Vocational Education and Training (VET) system. The Government also announced funding for 50,000 new higher education short courses in agriculture, health, IT, science and teaching, 12,000 new Commonwealth supported places for higher education in 2021, and 2,000 indigenous students through the Clontarf Foundation to complete Year 12 and pursue further education or find employment.
A major element of the Government’s plan for economic recovery involves increased infrastructure spending to generate jobs, economic activity and to create enhanced efficiencies economy-wide.
Additional $14 billion in new and accelerated infrastructure projects over the next four years. These projects will support a further 40,000 jobs during their construction. (This investment is part of the Government’s record 10-year transport infrastructure investment pipeline, which has been expanded to $110 billion).
Fast tracking ‘shovel ready’ projects
This measure will provide an extra $3 billion towards projects that are ready to begin, supporting the creation of more jobs and helping with economic recovery. It builds on the $2 billion announced since May 2020.
Infrastructure funding includes $2 billion to deliver small-scale road safety projects and an additional $1 billion for the Local Roads and Community Infrastructure Program, on top of the $500 million already announced. These programs are expected to support over 10,000 jobs over the next two years.
The Government will attract institutional investment from super funds into affordable housing for Australians by increasing its guarantee of the National Housing Finance and Investment Corporation. VicSuper is a strong supporter of affordable housing initiatives with nearly $250 million invested in essential worker affordable housing across Australia and a commitment to increase this investment to $400 million by the end of the year.
The Government is doubling the number of Medicare funded psychological services through the Better Access Initiative, from 10 to 20.
There will be more funding for Lifeline, headspace, Beyond Blue and Kids Helpline, particularly in Victoria. The Government is also providing support for more young Australians with a mental illness to help them participate in the workforce by expanding the Individual Placement and Support program.
Mental wellbeing during this pandemic is a serious issue and one that VicSuper (through Aware Super) has tried to help with through our wellbeing webinar series offered through our partner employers to their employees (our members).
Don't sit there wondering - our team members are here to help!