What does the 2021 Federal Budget mean for you and your clients?
Presented by Keat Chew, Head of Technical Services Nigel Smith, Technical Services Consultant 13 May 2021 This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.
Disclaimer
Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) is a provider of superannuation and investment products and services, and information contained within this presentation about Netwealth’s services is of a general nature which does not take into account your or your client’s individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before making a decision before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. This information has been prepared by Netwealth. Whilst reasonable care has been taken in the preparation of this presentation using sources believed to be reliable and accurate, to the maximum extent permitted by law, Netwealth and its related parties, employees and directors are not responsible for, and will not accept liability in connection with any loss or damage suffered by any person arising from reliance on this information. Unless specified, all information in this document is as at 09/10/2020. This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.
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Housekeeping
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2020 Federal Budget Review (General use)
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Meet today’s speakers
Keat Chew Head of Technical Services Netwealth Nigel Smith Technical Services Consultant Netwealth
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Session overview
1. Taxation - Personal 2. Taxation - Business 3. Superannuation 4. Social Security 5. Winners and losers
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Taxation Personal
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Personal Income Tax reduction plan – 3 stages We are now in Stage 2 : Middle income bracket creep protection
Rate (%)
Stage 2 From 1 July 20 Income range ($)
Tax free
0 - $18,200
0 - $18,200
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$18,201 – $37,000
$18,201 – $45,000
32.5
$37,001 – $90,000
$45,001 – $120,000
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$90,001 – $180,000
$120,001 – $180,000
– $37k or less, $255 in tax offset
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>$180,000
>$180,000
Low & middle income tax offset (LMITO)
Up to $1,080
Up to $1,080
– Between $37k and $48k, tax offset increase 7.5c per $ up to max of $1,080
Low income
Up to $445
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• From 1 July 2020, increase LITO from $445 to $700 – Increased LITO reduced at 5.0c per $ between $37,500 and $45,000, and 1.5c per $ between $45,000 and $66,667 • LMITO of $1,080 is retained for extra (next) financial year
– Between $48k and $90k, max offset of $1,080
tax offset (LITO) 9
Stage 2 tax incentives
Stage 1 FY 19/20 Income range ($)
2020 Federal Budget Review (General use)
Up to $700
– Between $90k and $126k, offset phases out at 3c per $
Personal Income Tax reduction plan – Stage 3 Stage 3: Simplify the tax system – and further tax benefit
Rate (%)
Stage 1 FY 19/20 Income range ($)
Stage 2 From 1 July 20 Income range ($)
New tax thresholds From 1 July 2024 Income range ($)
Tax free
0 - $18,200
0 - $18,200
0 - $18,200
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$18,201 – $37,000
$18,201 – $45,000
$18,201 – $45,000
32.5/30.0*
$37,001 – $90,000
$45,001 – $120,000
*$45,001 - $200,000
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$90,001 – $180,000
$120,001 – $180,000
-
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>$180,000
>$180,000
>$200,000
Low & middle income tax offset (LMITO)
Up to $1,080
Up to $1,080
-
Low Income
Up to $445
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• No change to the timing for the introduction of Stage 3 tax benefit Strategic considerations and impacts • LITO and LMITO are non-refundable offsets, only available to tax residents to reduce tax liability (not even against Medicare levy) • Consider income split and direct income to lower earning spouse • Does allow more assets outside super
tax offset (LITO) 10
Stage 3 yet to come?
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Up to $700
Up to $700
• Use personal deductible contributions to manage income
Medicare levy threshold changes
Increased thresholds from 1 July 2020
Strategic consideration and impact
• $23,226 (ex $22,801) for individuals and $39,167 (ex $38,474) for families
• Reduce income below the threshold where no Medicare levy (or Medicare levy reduction) applies
• Additional amount for each dependant child/student of $3,597 (ex $3,533) • Single seniors and pensioners, threshold increased to $36,705 (ex $36,056) • Family threshold for seniors and pensioners increased to $51,094 (ex $50,191)
– With good planning, various tax offsets and deductions may assist in an individual earning $30k to $40k income paying little or no tax (including Medicare levy) at all • Any deductible expenses will reduce assessable income for Medicare levy purposes – Main one being personal deductible contributions to super – Don’t forget unused carry forward concessional cap may be available
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Taxation Business
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Expensing capital assets – time extension Full expensing for businesses with aggregated T/O < $5b • Deduct full cost of eligible capital assets purchased after 7:30pm AEDT 6 October 2020 – First used or installed by 30 June 2023 (ex 2022) – New depreciable assets only – Cost of improvements on existing eligible assets • For those with T/O < $50m, full expensing can be applied to second hand assets
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Strategic considerations and impacts • Huge incentive to get business to invest over the next couple of years • Advance depreciation gives upfront cashflow (and gets cashflow moving) – Additional cash for other purposes e.g. employment • Any asset purchased in this period could potentially maximise benefit • Consider bringing forward investments
Loss relief carry back – time extension Applies only to eligible companies with T/O < $5b
Strategic considerations and impacts
• Normally, losses can only be carried forward
• Carry back losses only available to companies
• Allows carry back losses for FY20, 21, 22 and now 23 – Extended by 1 year – To offset profits for FY19 or later years Providing refundable tax offset in the year of loss • Loss ‘carry back’ offset prior year profits (tax already paid) – Tax offset calculated based on tax rate of year of loss • Carry back loss no more than the amount of taxed profit – Must not generate a franking account deficit • Refunds based on the carry back losses will be available on lodging FY21 and FY22 and FY23 tax returns 14
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– Significant incentive for upfront cashflows which otherwise may not be recovered for years • Good business planning can optimise amount of refund – E.g. super contributions deductible to the company • Use it in conjunction with full expensing of capital asset – Asset purchase fully deductible instantly, creating loss which can be carried back to offset earlier year profits
Superannuation
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First Home Super Saver Scheme Maximum release amount to increase to $50,000
To assist with release application errors (from 1 July 2018)
• Expect to apply from 1 July 2022
• Increase ATO discretion to amend/revoke applications
What is the maximum release amount
• Allow to withdraw/amend application prior to receiving FHSSS amount, and to be able to re-apply for release
• Contributions from 1 July 2017 – 100% of eligible non-concessional contributions – 85% of eligible concessional contributions – Limited to an annual limit of $15,000 and total across all years of $50,000 in contributions – FIFO contributions rule applies • Plus associated earnings on these contributions at deemed rate of return (90 day Bank Bill rate + 3%)
• Allow ATO to return released funds to super if not yet paid to applicant • Clarifying that money returned to super by ATO not counted against applicant’s cap Strategic consideration and impact • Now even better, contribute more to make up the $50,000 – For a couple, 2 times $50,000 – Can use unused CC cap but watch annual $15k limit – Requires at least 4 years of contribution, start early • Only applies from expected date of 1 July 2022, plan ahead
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More flexible super Reducing eligibility age for downsizing contributions
Strategic consideration and impact
• Expected from 1 July 2022, minimum age lowered to 60
• Plan ahead for the downsizer contribution
• All other requirements remain the same
– Make sure client is age 60 at time of contribution
Work test changes
– All other rules remain the same
• Expected from 1 July 2022, no longer required for those age 67 to 74 – When making or receiving NCC or salary sacrificed contributions – Brought forward NCC aligns with work test abolition • Work test still needed for personal deductible contribution Removing the $450 per month threshold for SG • Expected to apply from 1 July 2022 SG rate increase (10% on 1 July 2021 rising to 12% on 1 July 2025) to go ahead as planned 17
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• Watch out for interaction between downsizing contributions and NCC (with regard to $1.6m/$1.7m TSB) • Work test abolition for NCC allows more time for contributions to be made – Allows spouse contributions – Also allows more effective estate planning through recontribution strategies
Legacy product conversions Ability to exit market-linked, life-expectancy and lifetime • Products first commenced prior to 20 Sep 2007 • From any provider, including SMSF Exceptions to the above • Flexi-pensions offered by any providers
Can choose to fully commute and transfer capital, including reserves back to accumulation • Commence ABP, pay lump sum or leave in accumulation • Any commuted reserves not counted against CC cap • But taxed as assessable contribution to fund (15% tax)
• Lifetime products offered by large APRA regulated DB or public sector DB schemes
Existing Centrelink treatment will not transition over
2 year period provided for the conversion
Strategic consideration and impact
• Not compulsory to convert
• A great exit plan for those wanting access flexibility
• Start from 1st FY of date of Royal assent of legislation
• Will not cause a Centrelink debt to arise
– Particularly allowing access to the reserves • Need to consider Centrelink impact • Important to consider if the whole amount can remain in the pension phase – Will lose capped defined benefit income stream status
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SMSF and small APRA funds Residency requirements relaxed
Strategic consideration and impact
• Expected from 1 July 2022
• Will make it easier for non resident trustees of SMSF to satisfy the residency rule
Central control and management test safe harbour period • Extended from 2 to 5 years for SMSFs – Obviously, not required for APRA funds Active member test removed for both fund types • Allows contributions to continue to be made whilst overseas
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– Otherwise the usual remedy still available • Encourage contributions to continue to be made from overseas – Ensuring that the annual caps are being used and making effective contributions over a number of years
Social Security
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Improving pensions loans scheme Immediate access to lump sums
Strategic consideration and impact
• Max advance lump sum of 50% of max Age pension
• A cashflow source for those at age pension age
– On current rate, $12,385 (singles) and $18,670 (couples) per year in 1 or 2 instalments No negative equity guarantee • Borrower or estate will not owe more than MV of their property • Brings it in line with private sector reverse mortgages Expected to apply from 1 July 2022
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• An alternative to reverse mortgages – A transparent scheme operated by the government – Available to both Centrelink pensioners and self funded retirees • Certainly an improvement to the current scheme – Will help to promote a less known government incentive (scheme)
Various other Centrelink changes From 1 Apr 2021, increase base rate of working age payments by $50 per fortnight • Applies to a number of payments such as JobSeeker Payment, Youth Allowance, Parenting Payment, Austudy etc From 1 Apr 2021, increase income free area to $150 per fortnight for certain working age payment • Applies to JobSeeker Payment, Youth Allowance (other), Parenting Payment Partnered, Widow Allowance and Partner Allowance Temporary waiver of Ordinary Waiting Period for certain payments • Extended another 3 months to 30 June 2021
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Strategic consideration and impact • Beneficial and improves cashflows for these Centrelink recipients
Winners & Losers
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Who are the winners and losers?
Winners
Losers
• Companies and businesses
• Employers
• Most individuals – Taxpayers – Super lovers – First home buyers – Young families • Retirees • Aged Care
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Questions and answers
Thank you Contact Keat Chew Head of Technical Services 1800 888 223 keat@netwealth.com.au
Nigel Smith Technical Services Consultant 1800 888 223 nigel@netwealth.com.au
Thank you
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