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FEDERAL BUDGET 2020-21

09/10/2020

The Government’s focus for the 2020-21 Budget is to regrow the economy, create job opportunities and encourage spending.  The spending will result in a cash deficit of $213.7 billion for 2020-21 with unprecedented net debt to peak at close to $1 trillion in June 2024.  

The superannuation measures will mainly affect public offer funds.  Employees’ super balances on changing employment will remain with the same fund, with cost savings.   Underperforming funds will be named and published. There will be higher fund mobility as members switch between funds for the better performer (with fees).  A well managed SMSF with clear investment and retirement objectives will offer stability amidst possible volatilities.

Below is a summary of the main superannuation and tax measures.

The proposed effective date for the super measures is 1 July 2021.

1.    “New” trustee duty

  • Super trustees will be required to comply with a new duty to act in the best financial interest of members.
  • The trustees must also demonstrate that there is a reasonable basis to support their actions being consistent with member’s best interests.
  • The trustees will provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings (for public offer entities).

The “new” trustee duty reiterates the significance of the financial interest aspect of the trustee duty in sub-section 52(2)(c) of the SIS Act.  This subsection provides that the trustee must perform the trustee’s duties and exercise the trustee’s powers in the best interest of the beneficiaries which is an integral part of the SIS trustee covenants.

SMSF trustees are also the members and ipso facto will look after their super interests prudentially.  Nevertheless, documentation of a robust and appropriate decision-making process is also tantamount to good governance and compliance.

2.    Superannuation will be “stapled” to the member

On change of employment, the new employer will pay the member’s super to their existing super fund unless a new fund has been selected.

  • Employers will obtain information about the employee’s existing super fund from the ATO.  The employer will do this by logging onto ATO online services and entering the employee’s details.  The employer will pay contributions for the employee to the selected account.
  • If the employee does not have an existing super account and does not make a decision regarding a new fund, the employee will pay contribution for the employee into their nominated default super fund.

This measure is to prevent unintended multiple accounts and save duplicate fees and insurances.  If the member’s super account is an SMSF, the SMSF will be selected (stapled).

3.    Underperforming funds

Funds will have to “account for” underperformance. Currently, this measure will only apply to MySuper products.   However, it was stated in the budget paper “Non-MySuper accumulation products where the decision of the trustee determines member outcomes will be added (to this measure) from 1 July 2022”.

  • MySuper products will be subject to an annual performance test.  
  • Underperforming funds will be listed as underperforming on a YourSuper comparison tool.  It will need to inform members about its underperformance by 1 October 2021 as well as the YourSuper comparison tool.  
  • Funds that fail two consecutive underperformance tests will not be permitted to accept new members unless their performance improves.

This measure is more targeted to public offer funds.  The selection of benchmarks for the performance test will be significant.

4.    Personal income tax

The Government will bring forward stage two of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020.  In addition, the Low and Middle Income Tax Offset (LMITO) for the 2020-21 income year (only) will also be retained.

On implementation the measure will:

  • increase the Low Income Tax Offset (LITO) from $445 to $700
  • increase the top threshold of the 19% personal income tax bracket from $37,000 to $45,000 and
  • increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000

These changes will result in the following tax rates for residents for 2020-21 income year

 Taxable income

 Tax on income

 0 to $18,200

 Nil

 $18,201 to $45,000

 19 cents for each $1 over $18,200

 $45,001 to $120,000

 $5,092 plus 32.5 cents for each $1 over $45,000

 $120,001 to $180,000

 $29,467 plus 37 cents for each $1 over $120,000

 $180,001 and over

 $51,667 plus 45 cents for each $1 over $180,000

 

5.    LMITO for 2020-21

By retaining LMITO for 2020-21 income year, a tax reduction of up to $1,080 will be available. Unused LMITO cannot be refunded.  It does not reduce the Medicare levy.

 Taxable income

 Offset

 $37,000 or less

 $255

 Between $37,001 to $48,000

 $255 plus 7.5 cents for every dollar above $37,000 up to a maximum of $1,080

 Between 48,001 and $90,000

 $1,080

 Between 90,001 and $126,000

 $1,080 minus 3 cents for every dollar above $90,000

 

6.    CGT exemption for granny flat arrangements

The CGT exemption for granny flats will apply to arrangements for older Australians or those with a disability.  The exemption will only apply if there is a formal written agreement.

The proposed effective date is the first income year after the date of Royal Assent of the enabling legislation. The measure is to remove CGT impediments, reducing the risk of abuse of older Australians.

7.    Other tax & corporate measures

  • The Government will increase the small business entity threshold from $10m to $50m per annum for a range of small business concessions.  
  • Businesses with aggregated annual turnover of less than $5 billion can immediately deduct the full cost of new eligible depreciating assets that are first used or installed by 30 June 2022.
  • FBT exemption for employer-provided retraining and reskilling benefits for redundant or soon to be redundant employees.
  • A loss carry-back regime will be introduced.  Eligible corporate entities with less than $5 billion turnover can carry back losses made in the 2019-20, 2020-21 and 2021-22 financial years to a prior financial year’s income tax liability in the 2018-19, 2019-20 and 2020-21 financial years, with limitations.
  • Clarifying the “corporate residency” test for non-Australian incorporated companies.  A company that is incorporated offshore will be treated as an Australian resident if it has a significant economic connection to Australia, where both the company’s core commercial activities are undertaken in Australia, and its central management and control is in Australia.


For further information regarding this article, please contact SUPERCentral on 02 8296 6266.