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In this special report, our Head of Professional Standards & Technical Services, Craig Meldrum, looks at the key takeout’s from the 2022 Federal Budget and what it means for individuals and businesses, for tax, superannuation and social security that may impact wealth creation and retirement funding strategies for Infocus’ advisers and clients.

The macro

While the global pandemic forced the 2021 Federal budget to be handed down 21 weeks later than it would normally have been delivered, this year’s impending Federal election has meant the 2022 Budget has been handed down 6 weeks earlier than normal (the election is expected to be announced on the 14^th or 21^st of May 2022). And while the 2021 budget was all about the monumental task of managing the health impacts of the pandemic and delivering a budget to provide a road to recovery out of the catastrophic economic black hole caused by the Covid-19 turmoil, that was all largely forgotten about as the Treasurer considered the war in Ukraine, the global supply chain shocks, rising inflation and cost of living pressures (especially in the price at the petrol bowser), stagnant wage growth and the recent flood events in Northern NSW and South Eastern Queensland.

This was Treasurer Josh Frydenberg’s fourth and (given the state of the LNP Coalition’s standing in the polls) potentially last Federal budget, so it was expected there would be lots of giveaways and prizes to woo the electorate. There was also some criticism that if it did promise too much, was it going to be an economically responsible budget or might it actually exasperate the cost of living pressures given the perception that we are entering a period of higher inflation? In other words, did it achieve enough to help ease the cost-of-living pressures for Australians and secure another term for the Coalition while remaining fiscally responsible?

The Treasurer led with a great statistic – a 4% unemployment rate – the equal lowest in 48 years (which is expected to drop further to 3.75% in the September 2022 quarter). Economic theory would suggest that full employment translates to greater demand from employers and a higher cost of labour. Or does commodity-driven inflation, a high rate of immigration, no effective union ownership of the labour market and a technology-driven structural disruption to deployment of human capital lead to sustained wage stagnation to the point that only Government intervention will bridge the gap? The Government has been very proud that there are more women in work, that there are more jobs paying higher wages and that the Jobkeeper program saved 700,000 jobs during the height of the pandemic. But stagnation in wages growth is not so easily solved, so, yes, this budget had to be about spending to address (in some sense) the rising cost of living pressures.

In terms of the high-level numbers, the Treasurer was very proud that we are $100 billion better off than last year, largely off the revenue generated from trade in iron ore, gas and coal. Can we then afford a “cash splash” of a budget? A budget deficit of $78 billion for 2022-23 (3.4 per cent of GDP) is down from the $79.8 billion of a year ago and is projected to more than halve to 1.6% with net debt of $714.9 billion for 2022-23 peaking at $864.7 billion (33.1%) in 2025-26, so maybe?

The goodies (without the detail)

This budget contained a range of individual measures impacting taxation, superannuation, housing, business, health, family, infrastructure, employment, cost of living and national security. The following summary is not complete and focusses only on those areas particular to financial advice and strategy, namely superannuation, taxation, social security, small business and measures designed to ease cost of living pressures. Some of the following announcements are described in more detail further on in this report;

• Temporary reduction in the fuel excise – one of the first announcements was a halving of the fuel excise from about 44 cents per litre to 22 cents per litre for 6 months (starting from midnight on Budget night), at a cost of $3 billion. The fuel excise is a bit of a sacred cow and governments are loathe to meddle with it, but as instant sugar hits go, that’s about a $12 saving per tank for most people.
• $250 cost of living payment – the Government announced that in April 2022, it will provide a one-off cost of living payment of $250 to eligible pensioners, welfare recipients, veterans and concession card holders.
• The Low and Middle Income Tax Offset (LMITO) will be increased by $420 for 2021-22 – while the LMITO is legislated to cease this year (and no announcement was made that it would be extended), the Government did announce a one-off $420 cost of living tax offset for the 2021-22 income year which will see the LMITO increased up to a maximum of $1,500 (for 2021-22 only).
• No changes announced regarding personal tax rates – the legislated Stage 3 personal income tax cuts remain unchanged and will commence in 2024-25.
• Super pension drawdowns – the 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities that was provided during the economic downturn caused by the pandemic will be extended by a further year to the 2022-23 income year.
• Super Guarantee rate – the Budget did not contain any change to the legislated Super Guarantee rate rise from 10% to 10.5% for 2022-23.
• Small business 20% deduction boost: skills training and digital adoption – businesses with aggregated annual turnover less than $50 million will receive a 20% uplift on deductions for eligible expenditure on external training courses and digital technology (the cost of business expenses and depreciating assets that support digital uptake), or, as the Treasurer described it, for every $100 spent, businesses can deduct $120. The measure will apply to eligible expenditure incurred from 29 March 2022 until 30 June 2024 (for skills training) and 30 June 2023 (for digital adoption).
• Digitalising trust returns – the Government has announced that from 1 July 2024, all trust tax return filers will be given the option to lodge income tax returns electronically.
• Paid Parental Leave – the Paid Parental Leave scheme will integrate existing schemes to give eligible families access to up to 20 weeks leave to use in ways that suit their specific circumstances.
• Employee Share Schemes – the Government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit. The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.

More detail on a few of the measures

Personal taxation

Low and Middle Income Tax Offset (LMITO) (for 2021-22 only)

The LMITO will be increased by $420 for the 2021-22 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021-22 (up from the current maximum of $1,080). This one-off $420 cost of living tax offset will only apply to the 2021-22 income year. It remains legislated to only apply until the end of the 2021-22 income year (up to $1,500 instead of $1,080).

The $420 is not subject to tapering so other than where an individual’s tax liability is less than that, all LMITO recipients will benefit from the full $420 increase. The full benefit will be available to those individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000).

Taxable Income (TI)	LMITO (2021-22) Current	LMITO (2021-22) Proposed
$0 – $37,000	$255	$675
$37,001 – $48,000	$255 + ([TI – $37,000] × 7.5%)	$675 + ([TI – $37,000] × 7.5%)
$48,001 – $90,000	$1,080	$1,500
$90,001 – $126,000	$1,080 – ([TI – $90,000] × 3%)	$1,500 – ([TI – $90,000] × 3%)
$126,001 +	Nil	Nil

Marginal Tax Rates

There were no changes to personal tax rates announced in this budget. The Government’s legislated three-stage tax plan that was announced in 2018 and enhanced in 2019 is as follows;

• Stage 1 amended the 32.5% and 37% marginal tax brackets over 2018-19 to 2021-22 and introduced the Low and Middle Income Tax Offset (LMITO);
• Stage 2 was designed to further reduce bracket creep over 2022-23 & 2023-24 by amending the 19%, 32.5% and 37% marginal tax brackets; and
• Stage 3 was aimed at simplifying and flattening the progressive tax rates for 2024–25 and increasing the Low Income Tax Offset (LITO). From 1 July 2024, there will only be 3 personal income tax rates – 19%, 30% and 45%. The Government estimated that around 94 per cent of taxpayers would be on a marginal tax rate of 30% or less (as shown in the tables below).

Amended tax plan (changed amounts in red)

Tax rates (2019-20)	Thresholds	Tax rates (2020-21 & 2021-22))	Thresholds
Nil	$0 – $18,200	Nil	$0 – $18,200
19%	$18,201 – $37,000	19%	$18,201 – $45,000
32.5%	$37,001 – $90,000	32.5%	$45,001 – $120,000
37%	$90,001 – $180,000	37%	$120,001 – $180,000
45%	$180,000 +	45%	$180,000 +
LITO	Up to $445	LITO	Up to $700
LMITO	Up to $1,080	LMITO	Up to $1,080 (Up to $1,500 proposed for 2021-22)

 

Tax rates (2022-23 & 2023-24)	Thresholds	Tax rates (2024-25) onwards	Thresholds
Nil	$0 – $18,200	Nil	$0 – $18,200
19%	$18,201 – $45,000	19%	$18,201 – $45,000
32.5%	$45,001 – $120,000	30%	$45,001 – $200,000
37%	$120,001 – $180,000	–	–
45%	$180,000 +	45%	$200,000 +
LITO	Up to $700	LITO	Up to $700
LMITO	–	LMITO	–

Low Income Tax Offset (LITO) – unchanged

The low income tax offset (LITO) will continue to apply for the 2021-22 and 2022-23 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.

Taxable Income (TI)	LITO (2021-22 & 2022-23)
$0 – $37,500	$700
$37,501 – $45,000	$700 – ([TI – $37,500] × 5.0%)
$45,001 – $66,667	$325 – ([TI – $45,000] × 1.5%)
$66,668+	Nil

Superannuation

Pension drawdowns – 50% reduction extended to 2022-23

Superannuation did not really get any mention in this year’s budget. The only announcement of note concerned the extension by one year of the temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities to 30 June 2023. It is worth noting that there is no requirement for a pension recipient to take the minimum, however people did find it valuable during the period of market turmoil during the pandemic to take less than the standard pension amount to help preserve their pension capital.

Age of beneficiary (years)	Standard percentage factor (%)	Minimum drawdown for 2019-20 to 2021-22 (and 2022-23 proposed) (after 50% reduction)
0 – 64	4	2
65 – 74	5	2.5
75 – 79	6	3
80 – 84	7	3.5
85– 89	9	4.5
90 – 94	11	5.5
95+	14	7

Allowing commutation of certain income streams

The Government had previously announced that the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) would be amended to allow commutations to be made from certain non-commutable pensions to resolve excess transfer balance amounts. It appears that the Government will be proceeding with these amendments to the SIS Regulations.

Social Security and Aged Care

One-off $250 cost of living payment

Social Security and Aged Care also missed out on any big reforms in this budget. The Government has announced that it will make a $250 one-off cost of living payment in April 2022 to eligible pensioners, welfare recipients, veterans and eligible concession card holders.

The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. The payment will only be available to Australian residents who are eligible recipients of the following payments and to concession card holders; Age Pension, Disability Support Pension, Parenting Payment, Carer Payment, Carer Allowance (if not in receipt of a primary income support payment), Jobseeker Payment, Youth Allowance, Austudy and Abstudy Living Allowance, Double Orphan Pension, Special Benefit, Farm Household Allowance, Pensioner Concession Card (PCC) holders, Commonwealth Seniors Health Card holders and eligible Veterans’ Affairs payment recipients and Veteran Gold card holders. Note that a person can only receive one economic support payment, even if they are eligible under more than one category.

Business taxation

Apart from the deduction boosts for small businesses with skills and training and digital adoption and some measures regarding PAYG instalments and tweaks to the PAYG and GST instalment uplift factor, further assistance for businesses employing apprentices and the announcement regarding changes to reduce red tape and accessibility of employee share schemes, there was not a lot to mention with regard to business measures.

Conclusion and where to from here?

While this budget has all the trimmings of a pre-election cash splash with a few goodies, it was pretty light on in terms of any reform. There was mention of some of the big ticket east-coast infrastructure projects including nearly $10 billion in enhancing Australia’s national cyber security efforts, recommitment on spending on women’s health and more on stopping violence against women, recommitment and more funding towards the housing guarantee scheme and the full funding of the NDIS and some efficiency measure, but not a lot more.

With the election so close, voters will be closely watching Labor’s budget reply to see what goodies are on offer, with cost of living relief high on everyone’s agenda. We’ll see.

As with all budget announcements, the measures are proposals only and need to be enacted by Parliament.

I urge readers to contact your financial adviser with any specific questions you may have.

General Advice Warning

The information in this presentation contains general advice only, that is, advice which does not take into account your needs, objectives or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial advice that addresses your specific needs and situation before making investment decisions. While every care has been taken in the preparation of this information, Infocus Securities Australia Pty Ltd (Infocus) does not guarantee the accuracy or completeness of the information. Infocus does not guarantee any particular outcome or future performance. Infocus is a registered tax (financial) adviser. Any tax advice in this presentation is incidental to the financial advice in it.  Taxation information is based on our interpretation of the relevant laws as at 1 July 2020. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Any case studies included are hypothetical, for illustration purposes only and are not based on actual returns.

 

Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL No. 236 523.

 

In this special report, our Head of Professional Standards & Technical Services, Craig Meldrum, looks at the key takeouts from the federal budget and what it means for individuals and businesses. It will include a summary of the tax, superannuation and social security changes that may impact wealth creation and retirement funding strategies for Infocus’ advisers and clients.

The macro

The 2020-21 Federal Budget is most notable in that it has been handed down 21 weeks later than it would normally have been delivered as a direct consequence of the unprecedented chaos and drama caused by the COVID-19 global pandemic. The last time we experienced anything similar was the 1918 flu pandemic (known as the Spanish flu) which was prevalent from February 1918 and lasted until April 1920, infecting around 500 million people (about a third of the world’s population) and leading to between 17 million and 50 million (and by some counts as many as 100 million) deaths worldwide.

For most of 2020, the federal and state governments have had the monumental task of managing the health impacts of the pandemic but particularly in this, his second budget speech, Treasurer Josh Frydenberg’s emphasis was on delivering a budget to provide a road to recovery out of the catastrophic economic black hole caused by the pandemic.

Unlike the catch-cry in the 2019 budget of “return to surplus”, the budget deficit is predicted to hit $213.7 billion and then fall to $66.9 billion by 2023-24, representing 36% of GDP. Total net debt is now expected to reach $703 billion this year and is forecast to peak at a record $966 billion by June 2024. It is expected that the national debt will take over a decade to repay with forecasts dependent on companies confidently hiring and investing for growth, consumers returning to work and spending and on a successful vaccine being developed to combat subsequent waves of infection and allow state borders to open and commerce to flow.

This budget is all about business confidence and jobs – jobs, jobs and more jobs. Recognising that particularly women and young people have been hardest hit with losing their jobs during the turmoil, the Coalition’s mantra of “the best form of welfare is a job” was on display as the Treasurer rolled out a range of spending measures designed to encourage businesses to employ and grow.

The Treasurer announced the JobMaker Hiring Credit which is expected to create 450,000 jobs for young people and will be available for businesses for up to a year. It will give $200 a week to employers who hire workers aged 16-30, and $100 a week for workers aged 30-35. To qualify, new employees must have been on JobSeeker and be given at least 20 hours of work a week with all businesses except the major banks being eligible.

The Government reconfirmed its commitment to the already-announced $1 billion JobTrainer program for school-leavers to provide more low-cost training places and $1.2 billion towards wage subsidies for 100,000 new apprenticeships and traineeships. Also unveiled was the new Women’s Economic Security Statement which provides for $240 million of funding measures over the forward estimates that focus on increasing jobs for women in traditionally male-dominated industries like construction, more co-funded grants for women who fund their own start-ups and a focus on encouraging girls and women to pursue careers in the STEM fields (science, technology, engineering and mathematics).

The big boost for small, medium and large enterprises (with a turnover of less than $5 billion) was $26.7 billion allocated to provide 99% of business with an instant asset write off for 100% of the cost of eligible assets.

For individuals, the measures seek to put money back in people’s pockets with a range of personal tax cuts, an extension to the Low- and Middle-Income Tax Offset (LMITO) and instant cash handouts for pensioners and disability carers who will receive two cash payments of $250 — the first from December 2020 and the second from March 2021.

While it waits for the final report from the Royal Commission into Aged Care Quality and Safety (due next year), the Treasurer announced that older Australians will also benefit from a $1.6 billion spend over the next four years to introduce 23,000 additional home care packages, allowing people the option to remain living at home. He also announced Capital Gains Tax (CGT) relief measures for granny flat arrangements.

More detail on a few of the measures

Personal taxation

The Government has announced $17.8 billion in personal income tax relief to get money back into people’s pockets and support the economic recovery (including $12.5 billion over 2020-21) with the majority of the benefit targeted at those on incomes below $90,000.

The Government’s three-stage tax plan was announced in 2018 and enhanced in 2019;

• Stage 1 amended the 32.5% and 37% marginal tax brackets over 2018-19 to 2021-22 and introduced the Low- and Middle-Income Tax Offset (LMITO);
• Stage 2 was designed to further reduce bracket creep over 2022-23 & 2023-24 by amending the 19%, 32.5% and 37% marginal tax brackets; and
• Stage 3 was aimed at simplifying and flattening the progressive tax rates for 2024–25 and increasing the Low-Income Tax Offset (LITO). The Government estimated that around 95 per cent of taxpayers would be on a marginal tax rate of 30% or less (as shown in the tables below).

2019 Budget: Tax plan

Tax rates (2017-18)	Thresholds	Tax rates (2018-19 to 2021-22)	Thresholds
Nil	$0 – $18,200	Nil	$0 – $18,200
19%	$18,201 – $37,000	19%	$18,201 – $37,000
32.5%	$37,001 – $87,000	32.5%	$37,001 – $90,000
37%	$87,001 – $180,000	37%	$90,001 – $180,000
45%	$180,000 +	45%	$180,000 +
LITO	Up to $445	LITO	Up to $445
LMITO	–	LMITO	Up to $1,080

 

Tax rates (2022-23 & 2023-24)	Thresholds	Tax rates (2024-25) onwards	Thresholds
Nil	$0 – $18,200	Nil	$0 – $18,200
19%	$18,201 – $45,000	19%	$18,201 – $45,000
32.5%	$45,001 – $120,000	30%	$45,001 – $200,000
37%	$120,001 – $180,000	–	–
45%	$180,000 +	45%	$200,000 +
LITO	Up to $700	LITO	Up to $700
LMITO	–	LMITO	–

The good news out of this budget is that the Government wants to bring forward the tax cuts from Stage 2 of its plan to begin immediately. The Treasurer announced a 3-stage rollout of the relief such that;

1. The low-income tax offset (LITO) will increase from $445 to $700;
2. The top threshold of the 19% bracket will increase from $37,000 to $45,000. This will provide up to $1,080 in tax relief; and
3. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000. This will provide tax relief of up to $1,350.

2020 Budget: Amended tax plan

Tax rates (2019-20)	Thresholds	Tax rates (2020-21)	Thresholds
Nil	$0 – $18,200	Nil	$0 – $18,200
19%	$18,201 – $37,000	19%	$18,201 – $45,000
32.5%	$37,001 – $90,000	32.5%	$45,001 – $120,000
37%	$90,001 – $180,000	37%	$120,001 – $180,000
45%	$180,000 +	45%	$180,000 +
LITO	Up to $445	LITO	Up to $700
LMITO	Up to $1,080	LMITO	Up to $1,080

If passed, the tax cuts will be back-dated to 1 July 2020, with refunds of withholding tax collected over the last four months to be built into wages until the end of this financial year.

Taxpayers who earn between $45,000 and $90,000 will benefit with an extra $1,080 and those earning more than $90,000 taking home up to $2,565 extra.

From 2024-25, the 3-stage tax plan is still in effect to reduce the 32.5% marginal tax rate to 30% and more closely align the middle tax bracket of the personal income tax system with corporate tax rates. In 2024-25, the entire 37% tax bracket will be abolished under the Government’s already legislated plan. Therefore, with the Government’s announced changes, from 2024-25, there would only be 3 personal income tax rates – 19%, 30% and 45%.

As mentioned, the Government announced it would extend for another year the non-refundable low and middle income tax offset (LMITO). The reduction in tax provided by LMITO will remain at $1,080 per annum ($2,160 for dual-income couples) with the base amount at $255 per annum for the 2020-21 income year.

Taxable Income (TI)	LMITO
$0 – $37,000	$255
$37,001 – $48,000	$255 + ([TI – $37,000] × 7.5%)
$48,001 – $90,000	$1,080
$90,001 – $125,999	$1,080 – ([TI – $90,000] × 3%)
$126,000 +	Nil

Superannuation – “stapled” super accounts

Superannuation did not get much of a mention in this year’s budget however the few measures announced were targeted more at the superfunds themselves rather than at members.

The Treasurer noted that Australian’s pay $30 billion a year in super fees and highlighted structural flaws that need addressing. He pointed to unnecessary fees and insurance premiums on multiple accounts, high fees for too many underperforming funds and what he described as a lack of accountability to their members for their conduct and the outcomes they deliver to the members including a lack of transparency on how they spend their members’ money.

The key measure revolves around the concept that a fund “follows” the member, so that a new fund doesn’t need to be opened each time a worker starts a new job. By 1 July 2021, where an employee does not nominate an account at the time they start a new job, employers will need to obtain information about the employee’s existing superannuation fund from the ATO and pay their superannuation contributions to their existing fund.

The Government says that there are currently 6 million super accounts for 4.4 million people costing members $450 million in unnecessary fees. It is expected that consolidating multiple accounts will result in 2.1 million fewer accounts over 10 years and save members an estimated $2.8 billion in duplicated fees, insurance premiums and lost earnings.

The Treasurer announced a new comparison tool called YourSuper, designed to help workers decide which super product will best meets their needs. By 1 July 2021, the YourSuper tool will:

• Provide a table of simple super products (MySuper) ranked by fees and investment returns.
• Link workers to super fund websites where they can choose a MySuper product.
• Show their current super accounts and prompt members to consider consolidating their superfunds if they have multiple accounts.

The Government hopes the ability for members to compare the fees and performance of superfunds will drive competition, reduce cost and improve member outcomes.

In order to hold funds to account for underperformance and to increase accountability and transparency, from 1 July 2021, MySuper products (and from 1 July 2022, other superannuation products) will be subject to an annual performance test and listed on the YourSuper comparison tool as underperforming until they improve.

From 1 July 2021, superfund trustees will also be required to comply with a new duty to act in the best financial interests of their members.

There is no detail on how this measure would be implemented, but under a best interests framework, trustees would need to demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests. Trustees will need to provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings. The Government expects that a reduction in waste in the super system, and improving transparency and accountability, could lead to an increase of $1.1 billion in retirement savings over 10 years.

Social Security and Aged Care

Social security has been in the news for most of this year with the introduction of the JobKeeper and JobSeeker payments to tackle the massive unemployment crisis caused by the economic impacts of the pandemic.

The Government has forecast that unemployment will peak at 8% in the December quarter (2020) but will reduce to 5.5% by 2023-24. And while economic growth is tipped to fall by 3.75% this year, the Government has forecast a sharp turnaround as post-COVID business and consumer confidence kick starts the economic engine with projected growth of 4.75% in 2021/22.

With a strong emphasis on jobs, the Government made no mention of increasing the base rate of the JobSeeker (formerly Newstart) unemployment benefit. The additional coronavirus supplement, currently $250 a fortnight, which is scheduled to end at the end of December, will return the benefit to its pre-pandemic rate. However, Social Services Minister Anne Rushton said there would be more announcements about JobSeeker before the end of the year.

As mentioned, pensioners and disability carers will receive two cash payments of $250 — the first from December 2020 and the second from March 2021.

Specific to retirement living options for older Australians, on top of the announcement of an additional 23,000 home care packages, the Government has announced that it will provide a targeted capital gains tax (CGT) exemption for granny flats (where there is a formal agreement in place). Under the measure, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement and is designed to address the adverse tax consequences for property owners (where that property is the principal residence of the taxpayer) while providing protection for older parents or people with disabilities.

Business taxation

To add to the solvency reforms to help protect distressed businesses and assist them to work their way through financial hardship and get back to normal operations, the Treasurer announced measures to support small, medium and large businesses with an aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible depreciable assets. He stated that this measure should help over 99% of businesses to write off the full value of any eligible asset they purchase for their business.

In a measure designed to improve cash flow and to encourage new investment to support the economic recovery, eligible assets (including new depreciable assets and the cost of improvements to existing eligible assets, and for small and medium-sized business, second-hand assets) acquired from 7:30pm (AEDT) on 6 October 2020 and first used or installed by 30 June 2022, can be fully expensed in year of first use.

Further, small businesses can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. Also, businesses that acquired eligible assets under the pre-existing enhanced $150,000 instant asset write-off (IAWO) provisions will have until 30 June 2021 to first use or install those assets.

Conclusion and where to from here?

Unlike the 2019 Budget, the Government has moved from a platform of continued sustainable and responsible economic management and a mantra of “return to surplus” to something much different. The 2020 budget has all the trimmings of a pre-election cash splash, except this is not a pre-election budget. The economic ruin brought about by the worst calamity in the modern age (which has not been a market-driven, debt-driven or geo-political initiated event) has demanded apolitical, bi-partisan action to stave off a potential 1930’s-style depression, so the Government didn’t really have much choice.

Ideological biases aside, a Liberal Coalition government is generally always going to try to create economic activity by appealing to the business community, by creating the economic levers to generate jobs and providing the tax incentives to foster the business and individual confidence to invest and grow. They could always do more and time will tell whether what has been proposed is enough.

As with all budget announcements, the measures are proposals only and need to be enacted by Parliament. This year, the COVID-interrupted sitting dates mean there are limited sitting days for the Government to pass its legislative reforms. The big question is, given it could be a while before many of the measures are enacted, will businesses and individuals have the confidence to start investing and spending to get the economy cranking again?

I urge clients of Infocus advisers to contact your adviser with specific questions.

General Advice Warning

The information in this presentation contains general advice only, that is, advice which does not take into account your needs, objectives or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial advice that addresses your specific needs and situation before making investment decisions. While every care has been taken in the preparation of this information, Infocus Securities Australia Pty Ltd (Infocus) does not guarantee the accuracy or completeness of the information. Infocus does not guarantee any particular outcome or future performance. Infocus is a registered tax (financial) adviser. Any tax advice in this presentation is incidental to the financial advice in it.  Taxation information is based on our interpretation of the relevant laws as at 1 July 2020. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Any case studies included are hypothetical, for illustration purposes only and are not based on actual returns.

Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL No. 236 523.

The weekend saw more drama and uncertainty as more and more people are impacted by the coronavirus which now has a firm foothold in Australia. What is first and foremost a health crisis has become very quickly an economic crisis with many businesses closing their doors, markets falling at a great rate of knots, the Federal government moving to mandatorily close restaurants, cafes, bars, clubs, cinemas and gyms and State governments moving to shut their borders and close schools. The social reality is looking ugly with messaging on social/spatial distancing, continued panic buying at supermarkets and the big question of a potential lock down.

What we want to examine here is the Government’s announcement of a second round of stimulus to try to curb the economic disaster that is starting to hit home.

The Government announced yesterday [Sunday 22 March 2020] an additional $66.1bn economic stimulus package in response to the coronavirus (COVID-19). The package includes a $550 per fortnight supplement for job seekers (doubling the current payment), a further $750 stimulus payment for pensioners, cash flow payments up to $100,000 (minimum $20,000) to SME employers and charities, regulatory protection for SMEs and directors, early release of superannuation measures, pension minimum draw downs reduced by 50%, and deeming rates cut by a further 0.25%.

This second COVID-19 stimulus package brings the Government’s total package to $189bn (or 9.7% of GDP), when combined with the initial $17.6bn package announced on 12 March 2020, and the $105bn of RBA funding to support lending to SMEs.

Cash payments to SME employers and charities up to $100k (minimum $20k)

The Government said it will provide a tax-free payment up to $100,000 for eligible small and medium sized entities (SMEs), and not-for-profits (including charities) that employ people, with a minimum payment of $20,000. These payments seek to help businesses’ and NFPs’ cash flow so they can keep operating, pay their rent, electricity and other bills and retain staff.

Under the enhanced scheme from the first stimulus package, employers will receive a payment equal to 100% of their salary and wages withheld (up from 50%), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment will be increased from $2,000 to $10,000.

SMEs with aggregated annual turnover under $50m and that employ workers are eligible. NFPs entities, including charities, with aggregated annual turnover under $50m and that employ workers will now also be eligible. This will support employment at a time where NFPs are facing increasing demand for services.

An additional payment is also being made from 28 July 2020. Eligible entities will receive an additional payment equal to the total of all of the Boosting Cash Flow for Employers payments received. By linking the payments to business to staff wage tax withholdings, the Treasurer said businesses will be incentivised to hold on to more of their workers. The payments are tax free and there will be no new forms.

The payments will be delivered by the Tax Office as a credit on activity statements from 28 April 2020. The Government expects 690,000 businesses employing 7.8 million people and 30,000 not-for-profits will be eligible for measures in the stimulus package.

The Commonwealth is also offering to guarantee unsecured loans to small businesses of up to $250,000 for up to three years.

Temporary relief for directors of distressed businesses

The Government will temporarily increase from $2,000 to $20,000 the threshold at which creditors can issue a statutory demand on a company, and the time companies have to respond to statutory demands will be extended from 21 days to 6 months. Temporary relief will also be provided for directors from any personal liability for trading while insolvent. The Corporations Act 2001 will also be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the Coronavirus.

Job seeker supplement of $550 per fortnight

The Government will implement a new temporary Coronavirus supplement of $550 per fortnight, effectively doubling the current payment for job seekers. This Coronavirus supplement will be paid for the next 6 months to both existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit. Eligible income support recipients will receive the full amount of the $550 Coronavirus supplement on top of their payment each fortnight.

Further $750 payment for pensioners

In addition to the $750 stimulus payment for pensioners announced on 12 March 2020, the Government will provide a further $750 payment to social security and veteran income support recipients and eligible concession card holders, except for those who are receiving an income support payment that is eligible to receive the Coronavirus supplement.

This second $750 payment will be made automatically from 13 July 2020 to around 5 million income support recipients and eligible concession card holders. Around half of those that benefit are pensioners. The first $750 payment will be made from 31 March 2020 to people who will have been on one of the eligible payments any time between 12 March 2020 and 13 April 2020.

Superannuation early release up to $20,000 over 2 years

The Government will allow individuals in financial stress as a result of the Coronavirus to access a tax-free payment up to $10,000 from their superannuation in 2019-20, and a further $10,000 in 2020-21. Eligible individuals will be able to apply online to the ATO through myGov for access of up to $10,000 of their superannuation before 1 July 2020. You will also be able to access up to a further $10,000 from 1 July 2020 for another 3 months. You will not need to pay tax on amounts released and the money you withdraw will not affect Centrelink or Veterans’ Affairs payments.

To apply for early release, superannuation members must satisfy any one or more of the following requirements:

• you are unemployed; or
• you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
• on or after 1 January 2020:
  • you were made redundant; or
  • your working hours were reduced by 20 per cent or more;
  • or if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

Eligible members accessing their superannuation can apply directly to the ATO through the myGov website: www.my.gov.au. You will need to certify that you meet the above eligibility criteria. After the ATO has processed your application, they will issue you with a determination. The ATO will also provide a copy of this determination to your superannuation fund, which will advise them to release your superannuation payment. Your fund will then make the payment to you, without you needing to apply to them directly. However, to ensure you receive your payment as soon as possible, you should contact your fund to check that they have your correct details, including your current bank account details and proof of identity documents. Separate arrangements will apply if you are a member of a self-managed superannuation fund (SMSF). Further guidance will be available on the ATO website: www.ato.gov.au.

In terms of timing, members will be able to apply for early release of superannuation from mid-April 2020.

Pension minimum draw down rate reduced by 50%

The minimum annual payment for account-based and similar pensions is calculated as a percentage of the account balance as at 1 July each year. The government has announced that the minimum annual payment will be reduced by 50% for 2019-20 and 2020-21. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.

Age	Current minimum pension drawdown (p.a.)	Proposed minimum drawdown (p.a.)	Example $500,000 (current)	Example $500,000 (proposed)
< 65	4%	2.0%	$20,000pa	$10,000pa
65 – 74	5%	2.5%	$25,000pa	$12,500pa
75 – 79	6%	3.0%	$30,000pa	$15,000pa
80 – 84	7%	3.5%	$35,000pa	$17,500pa
85 – 89	9%	4.5%	$45,000pa	$22,500pa
90 – 94	11%	5.5%	$55,000pa	$27,500pa
95+	14%	7.0%	$70,000pa	$35,000pa

Social security deeming rates reduced further

On top of the deeming rate changes made at the time of the first package, the Government will reduce the deeming rates by a further 0.25% to reflect the latest rate reductions by the RBA. As of 1 May 2020, the lower deeming rate will be 0.25% and the upper deeming rate will be 2.25%.

As per the table below, for either a single person or a couple with (for example) $100,000 of financial assets subject to deeming, this effectively reduces Centrelink/DVA means testing on $250 per annum of deeming earnings. As the pension reduces by 50 cents per dollar above the relevant thresholds this might result in a modest increase of ($250/26) x 0.50 = $4.80 per fortnight.

	Thresholds	Current rates	$100,000	Proposed rates	$100,000	Difference
Single	Up to $51,800	0.50%	$259	0.25%	$129.50	$129.50
	Over $51,800	2.50%	$1,205	2.25%	$1,084.50	$120.50
			$1,464		$1,214	$250
Couple	Up to $86,200	0.50%	$431	0.25%	$215.50	$215.50
	Over $86,200	2.50%	$345	2.25%	$310.50	$34.50
			$776		$526	$250

SME loan guarantee scheme

The Government will establish the “Coronavirus SME Guarantee Scheme” to support SMEs to get access to working capital. Under the Scheme, the Government will guarantee 50% of new loans issued by eligible lenders to SMEs. The Government said this support seeks to enhance the willingness and ability of banks to provide credit to SMEs with the Scheme able to support $40bn of lending to SMEs.

The Scheme will complement the original announcement by the Government to cut red-tape to allow SMEs to get access to credit faster. It also complements announcements made by banks to support small businesses with their existing loans by deferring repayments for up to 6 months. It further supports the Reserve Bank’s $90bn term funding facility for banks, that will reduce the cost of lending, with particular incentives to lend to SMEs. The Government said it will also guarantee up to $20bn to support $40bn in SME loans.

It is important to note that the above measures have not as yet been legislated. The federal parliament is sitting today and potentially Tuesday to get these measures debated. The endorsement of the two packages will be the focus of both the House of Representatives and the Senate.  Otherwise that will be it for this week, when four sitting days had been scheduled. The next sitting was meant to be three days for the May 12 budget, but on Friday Treasurer Josh Frydenberg postponed the budget to October to allow more time to gauge the impact of the virus. It means the treasurer will also need to move supply bills in parliament this week to ensure the continuity of government in the 2020/21 financial year.

We’ll continue to watch for the legislated measures and communicate as soon as they receive assent. Please do not hesitate to contact the team with any questions.

This information has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this content is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

We know that many of you are being faced with extreme uncertainty and an overwhelm of information and possible scenarios. Please know that we are here for you in your time of need and that it’s more important than ever to reach out to our team as your own circumstances change.

If you are unsure how to process the ever-changing circumstances and what it means for you, we’ve put together some questions for you to consider.

• Consider your personal risks first. Do you or someone in your family have a health issue that puts you at increased risk? Make sure you protect yourself and your loved ones as a priority.
• Take care of the important things that you can control now. For example, make the sure the binding death nomination on your super is up to date. It’s certainly not a comfortable topic to think about but for your own peace of mind it’s important to have this in order.
• Do you have any loans that may be difficult to service now or in the coming weeks?
• What is your employment situation? Do you need to consider the reality of losing your job or being made redundant?
• Do you have an investment property? Is it possible your tenant will struggle to meet their rent payments?
• Has or will your cashflow/household budget be impacted?

If you are faced with any or all of these circumstances, please talk to our team so we can help you navigate this uncertain and challenging time. We’ll work through your individual needs and discuss all the options available to support you.