The recent Federal Budget announcement was a robust response to the impact of the global pandemic. The significant fiscal spending plans will support individuals and businesses by way of tax cuts, hiring incentives and COVID-19 related support payments. What does this mean for contractors?
We have laid out below which parts of the new Budget will affect contractors (known as independent professionals or IPros at Entity Solutions, a People2.0 Company) the most, as well as those businesses managing contingent workers.
Entity Solutions, a People2.0 Company supports hundreds of companies with managing their contingent workforce, and all the associated contractual and financial obligations. We also partner with recruitment agencies and individual contractors. Get in touch if you have any questions about how the below might impact you or your business.
Thanks to our friends at FMD Financial for the summary.
Personal Income Tax
Tax cuts brought forward
‘Stage two’ personal income tax cuts from last year’s Budget will be brought forward two years and backdated to 1 July 2020. From this date the 19% marginal tax rate bracket will increase from $37,000 to $45,000 and the 32.5% marginal tax rate bracket from $90,000 to $120,000.
If you are earning up to $120,000 per year, this will mean an extra $2,000 in your FY21 tax return. The Government wants you to spend it.
‘Stage three’ tax cuts are on schedule for 1 July 2024, where the 32.5% tax rate will reduce to 30% and will also be extended to $200,000 (effectively removing the 37% tax bracket completely). This means that the 45% tax bracket will then start from $200,000.
Low Income Tax Offset (LITO)
To further support low income earners, from 1 July 2020, LITO is proposed to increase to $700 from $445 for those earning under $37,000. The increased LITO will be reduced at a rate of 5 cents per $1 for income between $37,500 and $45,000 and 1.5 cents per $1 for income between $45,000 and $66,667. The Low and Middle Income Tax Offset is unchanged.
Medicare Levy for low income earners
The Medicare Levy low income threshold will increase for everyone to account for the rise in the cost of living.
There are no material changes to superannuation rules with minor changes mostly to benefit younger accumulators. In particular, from 1 July 2021, an existing superannuation account will be ‘stapled’ to a member to avoid creating a new super account when a person changes jobs.
First Home Buyers
The Federal Government has offered an additional 10,000 places in the First Home Loan Deposit this financial year (up from the current 10,000 per year).
This scheme assists first home buyers with as little as a 5% deposit to access loans without having to pay lenders mortgage. Eligibility is limited.
You can read more details about the Budget on the FMD website.