At a glance

On Tuesday 6 October, Federal Treasurer Josh Frydenberg delivered the 2020–21 Federal Budget. The focus of this year’s Budget is to rebuild the economy in the wake of the COVID-19 pandemic.

With the current deficit of $213.7 billion pushing Australia into recession for the first time in nearly three decades, the government has announced significant stimulus measures to promote economic growth and recovery.

We’ve highlighted some of the key proposals that could impact your own finances. But it’s important to remember that these are only proposals at this stage, and each proposal will only become law if it’s passed by Parliament.

Tax changes

  • Income tax cuts scheduled for 2022 will be brought forward for most income brackets.
  • The Low and Middle Income Tax Offset of up to $1,080 will remain in place for the 2020/21 financial year.

Superannuation reform

  • Employers will no longer create default super accounts for most new employees.
  • From July 2021, the performance of MySuper products will be benchmarked annually, and funds will need to notify members if their MySuper product underperforms.
  • The government’s YourSuper tool will help super fund members compare the fees and returns of different funds.

Social security, health and aged care

  • Two additional payments of $250, to be paid to Government support recipients in Dec 2020 and March 2021.
  • Additional funding will be provided to mental health and suicide prevention programs, the National Disability Insurance Scheme (NDIS) and the Pharmaceutical Benefits Scheme (PBS).
  • Over the next four years, $23,000 additional Home Care Packages will be introduced.

Tax changes

Income tax cuts brought forward

The government has announced that it will bring forward, by two years, Stage 2 of the previously legislated tax cuts that were due to take effect on 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 between taxable incomes of $37,500 and $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667
  • the top threshold of the 19% tax rate will increase from $37,000 to $45,000
  • the top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.

What it could mean for you

If you’re earning between $48,000 and $90,000, these tax cuts will cease to apply from 1 July 2021 due to the Low and Middle Income Tax Offset (LMITO) being phased out from that date. We’ve provided more information about this in the next section.

The government made no announcements about bringing forward the effective date of the Stage 3 tax cuts that were due to take effect on 1 July 2024. In Stage 3, the 37% tax rate will be abolished and the 32.5% tax rate will reduce to 30% and the new rate will apply for incomes ranging from $45,000 to $200,000.

Low and Middle Income Tax Offset to stay for 2020/21

The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO).

In 2019 the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080.

The government had planned to discontinue the LMITO when the Stage 2 tax cuts were to be introduced in mid-2022. But even though the Stage 2 cuts have been moved forward, the LMITO will also remain in place for the 2020–21 financial year.

What this could mean for you

If you qualify for the LMITO you can expect to receive a LMITO payment after you submit your next tax return. Depending on your income, the maximum LMITO you can receive is $1,080. 

Dual income couples can both be eligible for the LMITO, up to a combined total of $2,160. 

However, the LMITO is scheduled to cease next year. This means you could end up paying more tax in the 2021–22 financial year than in 2020–21.

Superannuation reform

No default super accounts for most new employees

Under the current rules, if you start a new job but don’t tell your employer which account to pay your super contributions into, they’ll open an account for you in their default super fund.

This may result in you having multiple super accounts.

By 1 July 2021, your employer will be able to get the details of your current existing super account from the ATO. They will then pay your super contributions into this account, unless you ask/nominate for them to be paid into a different account. 

For people who don’t yet have a super account, their employer will still be able to open an account for them in their default super fund.

What this could mean for you

Over 4 million Australians currently have multiple super accounts, which means they’re paying more than one set of super fees and possibly multiple insurance premiums as well. The government estimates that this costs Australians $450 million each year.

The purpose of this change is to keep people’s super accounts attached to them, so they can easily move the same account from job to job.

By having only one super account, you can stop paying unnecessary fees and insurance premiums that may be eroding your super balance. Having all your super in one place can also help your nest egg grow faster.

MySuper products to be benchmarked annually

MySuper products typically offer members lower fees, simple features and limited investment options than other super funds. They also need to follow strict government guidelines. 

The federal government believes there are too many underperforming super funds in the market, which is impacting the retirement savings of many Australians. So from 1 July 2021, each MySuper product will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by 1 October 2021.

Furthermore, if a MySuper product underperforms for two consecutive years, it won’t be permitted to accept new members until its performance improves.

By 1 July 2022, all super funds will be subject to this annual benchmarking test – not just MySuper products.

What this could mean for you

How your super fund performs can make a big difference to the amount of money you have when you retire. Under this Budget initiative, your super fund will need to tell you if it’s underperformed against other super funds. 

You can then decide whether you want to stay with your current fund or change to another fund.

A new comparison tool for super funds

To help members easily compare super funds, the government will release an interactive online comparison tool called YourSuper by 1 July 2021. 

This tool will:

  • rank MySuper products by their fees and investment returns
  • provide links to super fund websites
  • show if you have more than one super account so you can decide if you want to consolidate them.

What this could mean for you

Choosing a super fund can be daunting. This tool will make it easier to see what each super fund charges in fees and how each fund has been performing. 

However, it’s important to remember that past performance is not always an indication of future performance. That’s why it’s always best to speak to a financial planner before making any decisions about your super.

Social security, health & aged care

Two support payments for welfare recipients

Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.

This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.

What this could mean for you

You may be eligible for the two payments of $250 if you’re currently receiving the: 

  • 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) (covers non-income and asset test PCC holders and people who have an extended entitlement to a PCC even though their payment has stopped).

* You might not be eligible if you’re receiving a primary income support payment. For more information, contact Centrelink or speak to a financial planner. 

Further funding for health programs

The coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will double from 10 to 20, effective immediately. 

The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability. 

Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.

What this could mean for you

If you currently access any of these services, or think you may need to in the future, it’s important to understand what you’re eligible for. 

As a first step, speak to your doctor. 

Additional Home Care Packages introduced 

After committing $1.6 billion to the aged care sector in response to the pandemic, the government has announced an additional $1.6 billion in funding over the next four years. 

Waiting times for Home Care Packages will be reduced with the introduction of 23,000 additional packages across all package levels. This will also give more people the option to stay at home while still receiving the aged care services they need. 

In addition, a range of improvements will make it easier to navigate the aged care system. These improvements will include classifying the care needs of older Australians through one unified system.

There may be further funding announcements to come, after the conclusion of the Royal Commission into Aged Care Quality and Safety next year.

What this could mean for you

If you or a loved one is likely to need care now or in the near future, speak to a financial planner. They can help you apply for an aged care assessment to determine which type of care will be the most suitable. 

We can help you plan for the best

A financial planner can help by clearly explaining the key legislative changes as a result of the Budget and what it may mean for you and your financial wellbeing. They can also discuss your financial goals and help you put a financial plan in place to achieve them. If you already have a plan, it might be a good time for a review with your planner to update and make sure you stay on track to reach your goals.

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Things you should know

The information on this webpage has been prepared by Commonwealth Financial Planning Limited ABN 6‌5 0‌03 9‌00 1‌69 AFSL 231139 (Commonwealth Financial Planning, a wholly-owned non-guaranteed subsidiary of Commonwealth of Australia ABN 4‌8 1‌23 1‌23 1‌24. Financial Planners are representatives of Commonwealth Financial Planning. The information on this web page contains general advice only. It does not take into account any of your objectives, your financial situation, or your needs. You should consider whether the information is appropriate for you, having regard to your objectives, financial situation and needs before you act on the information. Also, before you make any decision about whether to acquire a financial product you should read the relevant product disclosure statement.  You should also consider talking to a financial planner to assist you in this process. The information on this web page is based on proposed regulatory requirements and laws as at 7 October 2020, which may be subject to change if passed by Federal parliament. While care has been taken in the preparation of this web page, no liability is accepted by Commonwealth Financial Planning, its related entities, agents and employees for any loss arising from reliance on this web page. Commonwealth Financial Planning is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your Financial Planner is not a Registered Tax Agent. Consequently, tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent.

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