Oct 17, 20203 min read

2021 Federal Budget simplified for beginners | Tax Institute: Federal Budget 2020-21 (part 1)

Individuals:

Personal Tax Cuts

Bringing forward Stage 2 Personal Income Tax Plan by two years, which was planned to start from 01/07/2022 (2023FY).
3 Stage implementation:

Stage 1: Previously focused on lower income earners
Stage 2: Now focusing on middle income earners

Low income tax offset (LITO) will increase from $445 to $700.
Low and middle income tax offset (LMITO) is retained longer, was to be repealed in 2022 (extended 12 months).
LMITO allows for taxpayers within:

$45,000-90,000 bracket: extra $1,080 in their pocket.
>$120,000 bracket: extra $2,565 in their pocket.

CGT Exemption: Granny flat arrangement

CGT event arises when there is a commercial transaction; for example, when selling a flat that has been rented out to a third party for income-producing purposes. This also allows for tax deductions.

Granny flat: an accommodation in a family home (usually a child’s) and the elderly person is paying rental income or lump sum payment to the home owner for the right to live there.
A Granny Flat Agreement can help elderly parents maintain a pension and take advantage of Centrelink concessions such as Rent Assistance.
However, as there has been a property transaction, there is a potential loss of main residency exemption (with possibility of CGT event).
Hence, many families enter into an informal agreement about how an older person would be cared for while living in a granny flat.
On the other hand, under an informal granny flat arrangement, if the relationship between parents and children breaks down or the promise of care is not delivered, the older person is put at a disadvantage. In some cases, an older person may even be left homeless.

"CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement

providing accommodation for older Australians or people with disabilities."

First Home Loan Deposit Scheme (FHLDS)

Usually first home buyers with less than a 20% deposit need to pay lenders mortgage insurance. Under the Scheme, eligible first home buyers can purchase a modest home with a deposit with as little as 5% (lenders criteria also apply). This is because NHFIC guarantees to a participating lender up to 15% of the value of the property purchased that is financed by an eligible first home buyer’s home loan. https://www.nhfic.gov.au/what-we-do/fhlds/
HomeBuilder provides eligible owner-occupiers (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home. HomeBuilder will assist the residential construction market by encouraging the commencement of new home builds and renovations. https://treasury.gov.au/coronavirus/homebuilder

Companies ONLY:

JobMaker Hiring Credit - Wage subsidy

A new incentive for businesses to employ additional young job seekers.
"Eligible employers will have access to a JobMaker Hiring Credit for each new job they create over the 12 months from 7 October 2020, for which they hire an eligible employee" (eligible period: 07/10/2020- 06/10/2021)
"for a maximum claim period of 12 months from their employment start date."
Employees who are young (age 16-35) AND receives government support (Job seeker, Youth Allowance, Parenting Payment)
- Age 16-29: $200 per week
- Age 30-35: $100 per week
Must work 20 hours per week over the quarter.
Maximum amount of $10,400 per new position created.

Loss Carry Back

Rationale: to help profitable companies (who have paid corporate income tax prior to COVID-19) to use their previous year profits to offset against their current year losses.

Eligibility:

Needs to be a corporate tax entity; not effective to other entities (i.e. no sole trader, trust, partnership).
Passive investment company is NOT eligible.
Less than $5 billion aggregated turnover.
Election; not mandatory or voluntary.

Can carry back losses made in 2020FY- 2022FY to profits taxed in 2019FY- 2021FY.
Companies that do not elect can still carry losses forward as per the usual rules.
Only applies to revenue losses, as capital losses require some time for realisation.
Distributed through “Loss carry back tax offset” (refundable)