Info & Tips – 2020 Federal Budget

Recently the Federal Government outlined the budget for the upcoming year. Below we’ve outlined the major changes and some tips on how to make the most of the announcements.

For Business & Staff

Instant tax deduction for asset purchases

If your business turnover is less than $5 billion per year, you will be able to write off the full value of any eligible asset you purchase after budget night and before June 2022. This is an expansion of the instant asset write-off, which was only available to small and medium businesses. This provision previously had a limit of $150,000 – the limit is now removed.

Tax Cuts

• The Government is bringing forward the second round of tax cuts
• These cuts are planned to be backdated to July this year
• The Low- and Middle-Income Tax Offset of $1,080 will remain for another year

What does this mean if you employ staff?

• Employers have until November 16, 2020 to implement updated tax table and begin withholding the reduced PAYG amounts from staff wages
• Cloud based systems such as Xero, Quickbooks Online and MYOB Essentials should update their tax tables automatically
• If you are using desktop software, you will need to check with your software provider to ensure you are up to date. You may need to upgrade and update your files and software

What does this mean for you personally?

• If you’re earning between $45,000 and $90,000, you will end up with an extra $1,080
• If you’re earning more than $90,000, you will take home up to an extra $2,565

PRO TIP: Put your tax cut to good use! Some ideas on how best to use your tax cut are included at the bottom of this article

JobMaker

The Government will give hiring credit of $200 a week to employers who hire anyone aged 16-30, and $100 a week for any worker aged 30-35. New employees must have been on JobSeeker and be given at least 20 hours of work a week

Financial Planning

Superannuation

• Performance Testing – From July 2021, all MySuper products will be subjected to an annual performance test and if the fund underperforms, members must be notified by the fund.
• YourSuper – The Government is releasing an online tool which will help you compare the fees and returns on super funds to help you make an informed choice
• No more multiple accounts – When changing jobs, no longer will employers need to set up default accounts for new employees. Employers will now be able to access your existing super details directly from the ATO. This will reduce the amount of super funds set up and fees paid by employees.

PRO TIP: Don’t wait for the Government to tell you if you are in a poor performing super fund. Compare your super today and get in touch with our Financial Planning team to help you if needed.

Older Australians

• Cash payments – Two more cash payments of $250 for a range of welfare recipients, including pensioners and disability carers; the first from December 2020 and the second from March 2021
• Home Care – $1.6 billion spend over the next four years to introduce 23,000 additional home care packages, giving people the option to keep living at home.

PRO TIP: Make sure you regularly review and report your assets and income with Centrelink. A reduction in assets and income can make a significant difference to your payments.

First Home Buyers

The First Home Loan Deposit Scheme has been expanded to give another 10,000 first home buyers an opportunity to get into the property market with a deposit as small as 5%. Caps on prices have also been raised by as much as $250,000 depending on the area.

PRO TIP: Remember a small deposit of 5% means you will need to borrow 95% of the property value which will lead to you paying more interest over the life of the loan. Further, a 5% deposit does not leave much of a buffer if property prices fall. This can lead to you having negative equity (where you owe more than your home is actually worth).

Using your tax cut to maximise your savings goals

The below shows how you could use your personal tax cuts to maximise your savings goals

Mortgage

If you had a mortgage of $400,000 with an interest rate of 3.00% over a 30-year period

• An extra $1,080 per year (paid monthly) results in your mortgage being paid more than two years earlier and $18,266 in interest savings
• An extra $2,565 per year (paid monthly) results in your mortgage being paid nearly five years earlier and $38,545 in interest savings

Investment

You invest your tax cut of $1,080 per year into an investment account earning 8% interest over 10 years

• Total Amount Invested Over 10 Years – $10,800
• Total Interest Earned Over 10 Years – $5,471
• Total Savings – $16,271

If you invest your tax cut of $2,565 per year into an investment account earning 8% interest over 10 years

• Total Amount Invested Over 10 Years – $25,650
• Total Interest Earned Over 10 Years – $12,994
• Total Savings – $38,644

  Superannuation

  If the idea of a tax cut sounds good, you could take this further again and put this money into superannuation and claim a tax deduction.

  If you are earning between $45,000 to $90,000, and you contribute your tax cut of $1,080 to superannuation, you will pay 15% tax on the contribution ($162) rather than your marginal tax rate of 34.5% ($372.60) if you earnt this money outside of superannuation. A tax saving of over $200.

  Further, if you are earning more than $90,000, and contribute your tax cut of $2,565 into superannuation, you will pay $384.75 tax on the contribution. Compare this to earning the $2,565 outside superannuation where you will be taxed $1000.35. This is a tax saving of $615.60.

  It is important to remember however that this money will be locked away for retirement so this needs to be considered prior to making and contributions.

  Always speak to a financial professional before making any of these types of decisions.

  *Tax rates include the Medicare Levy of 2%