Last night the Federal Government handed down its Budget for the 2020–21 financial year.
The Budget’s focus for this year is to regrow the economy by creating job opportunities and encouraging spending.
SOME KEY BUDGET ANNOUNCEMENTS WERE
• Bringing forward the income tax cuts that were scheduled for 2022
• Helping members pay less in super fees and holding super funds accountable for poor performance
• Additional support payments for Age Pension and welfare recipients
• Temporary full expensing to encourage business investment, and tax changes to help businesses offset their tax losses against past profits.
It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they are legislated.
Personal tax cuts Effective 1 July 2020
The Government has announced it will bring forward, by two years, stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022.
As a result, from 1 July 2020:
• The Low-Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar for taxpayers that have taxable incomes between $37,500 and $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar for taxpayers that have taxable incomes between $45,000 and $66,667.
• The top threshold of the 19% tax rate will increase from $37,000 to $45,000, and
• The top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.
The Government has also announced that the Low and Middle Income Tax Offset (LMITO), which was due to be removed with the commencement of the stage two tax cuts on 1 July 2022, will be maintained for the 2020 – 2021 yearly only
However, it should be noted that the tax cut of $1,080 for individuals earning between $48,000 and $90,000 will only apply for this year and will cease to be apply from 1 July 2021 due to LMITO being phased out from that date. Other individuals earning below $126,000 will also be impacted (to a lesser extent) by the removal of LMITO from 1 July 2021.
Effective 1 July 2021
When a person starts a new job and does not nominate a super fund, employers will be required to contribute to the employee’s existing super account, rather than the employer’s default super fund. Under this measure, the existing super account will be ‘stapled’ to the member so that they keep their current super fund when they change jobs.
The aim of this measure is to improve member outcomes by reducing unintended multiple super accounts that erode member balances through unnecessary fees and insurance premiums. This measure implements Recommendation 3.5 of the Hayne Royal Commission. Employers will be able to obtain the new employee’s existing super fund details from the ATO’s online services. It is important to note that the opportunity to nominate a chosen fund is still available under this reform
Your Super Comparison Tool
Effective 1 July 2021
A new, interactive, online YourSuper comparison tool, to be developed by the ATO, will make it easier for members to choose their super fund.
The online tool will:
• Rank MySuper products by fees and investment returns
• Provide links to super fund websites
• Show the member’s current super accounts and prompt members to consolidate.
The Your Super tool will make it easier for members to compare the fees and performance of super funds in the market creating more competition amongst super funds.
Holding Super Funds to account for underperformance
Effective 1 July 2021
By 1 July 2021, APRA will conduct annual benchmarking tests on the net investment performance of MySuper products.
If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021. At this time, members must also be provided with information about the YourSuper comparison tool, which will identify any underperforming funds.
Funds that fail two consecutive annual underperformance tests will not be permitted to accept new members until a further annual test shows that they are no longer underperforming. By 1 July 2022, annual performance tests will be extended to other superannuation products.
The reporting of underperforming funds is likely to encourage members to rollover to a super fund with better performance, hence may lead to a consolidation of a number of super funds in the industry.
New responsibilities for Super Fund Trustees
Effective 1 July 2021
The Government will ensure superannuation trustees are more accountable and transparent as to how they manage the retirement savings of members.
By 1 July 2021:
• Superannuation trustees will be required to comply with a new duty to act in the best financial interests of members.
• Trustees must demonstrate that there was a reasonable basis to support their actions that is consistent with members’ best financial interests.
• Trustees must provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.
This new duty is to act in the best financial interests of the members
SOCIAL SECURITY – ECONOMIC SUPPORT PAYMENT
Effective December 2020 and March 2021
The Government is providing two separate one-off Economic Support Payments of $250 to individuals receiving eligible income support payments or concession cards.
The $250 payments will be paid progressively from December 2020 and March 2021. Eligible individuals must be in receipt of eligible income support payments as at 27 November 2020 and/or 26 February 2021.
• Age Pension (including Age Pension (Blind))
• Carer Allowance*
• Carer Payment
• Commonwealth Seniors Health Card
• Disability Support Pension (including Disability Support Pension (Blind))
• Double Orphan Pension*
• DVA Gold Card
• DVA Payments
• DVA Seniors Card
• Family Tax Benefit (fortnightly recipients) *
• Family Tax Benefit (lump sum recipients) *
• Pensioner Concession Card (PCC) holders (covers non-income and asset test PCC holders and customers who have an extended entitlement to a PCC even though their payment has stopped).
Please note – * If they are not receiving a primary income support payment
Please note that individuals eligible for the Coronavirus Supplement of $250 per fortnight, such as Job Seeker, are not eligible for the one off $250 Economic Support Payment. In addition, if an individual only holds a Low-income Heath Care Card, they do not qualify either for the $250 one off Economic Support Payment.
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