I don’t normally watch the budget. It’s usually a bit boring. And they usually provide figures telling us what the position is going to be in 5 years’ time.
The problem is prior to the pandemic we did not really trust our politicians and I am more interested in how my clients are going to be affected in the next 12 months, not necessarily in 5 years’ time. In this day and age, 5 years is too far away. In January only 2% of consults were undertaken by Telehealth and no would have predicted then that by April it would become 24%.
Oh, and the fact that in most cases after 5 years have gone by the figures are totally different so it all becomes a bit meaningless.
I also do not watch it because most, if not all the information is leaked anyway. Why watch something you know is going to happen anyway?
But this year is different.
This budget was touted as the most significant one in a generation. So far, despite my odd annoyance with the way things have been pushed out I think the Federal Government overall has done a good job at keeping the pandemic as far away as possible but at the same time keep the economy functioning.
I have been through several recessions. Most Australians have not. They are debilitating and awful. They hit the hard working fast and hard and can bring misery to those affected. Anything done to avoid that gets a tick in my book.
Generally health care is recession proof which is good news. The bad news is that it is not pandemic proof. Healthcare was one of the first industries to recover but we are still seeing medical professionals suffering financially and professionally, especially in hotspot areas and specifically in Melbourne.
So, what is the plan to get Australia out of it’s first recession in 30 years? As a medical professional, what does it mean to you. Honestly? There is nothing specifically for Healthcare that is headline grabbing so I had delve into the small print and sections that do not appear on Channel 7 or 9.
In many ways this budget is about something I do not really approve of in an economic environment that is not just uncertain but unstable too. Its about getting you and I to spend money to keep the wheels of the economy moving.
In a budget that is encouraging spending on many levels, there are loads of tax related measures for business, as well as a number of positives for individuals. Industry hasn’t been forgotten either with a number of supporting measures specifically for Aged Care. I discuss this below in more detail.
This was a back to basics budget which is about helping businesses so that they can employ people. There are incentives to help business spend more and it is hoped personal tax cuts will encourage us to spend money too.
But then there is the big question no one really wants to ask. How will we pay for it and can we afford it? The answer? Yes, we can but it needs the economy to grow in the long run. As long as growth exceeds the rate of interest paid on Government loans, we can afford it. With interest rates at historical low levels and expected to remain there for many more years I expect growth to return in mid to late 2021 as long as we keep Covid19 at bay.
My personal belief is that because the overall economy was strong prior to the pandemic the recovery once Covid19 is under control will be quick.
There is a change in the Budget that no one seems to want to discuss but could have a profound effect on your wealth. It is, I believe a masterstroke, but because it is not headline grabbing and considered boring it is tucked way in summaries as ‘Other changes.’ I have actually put it at the top because it has the potential over time to make thousands of dollars difference to you.
What are the changes and how will it affect you?
- Superannuation Changes
I have seen many budget summaries today and none have this on the top as a discussion. I don’t believe in sexy reporting. I believe in reporting what makes a real difference to you and this can make a whopper of a difference to you if you hold several retail funds.
Superannuation is not sexy. But it will have a profound effect on your retirement. Whilst changes in personal tax rates could save you a few thousand dollars this year the changes to Superannuation has the ability to save your tens of thousands or in some cases hundreds of thousands.
You see the Superannuation industry makes Billions from you in fees. The more accounts you have the more money they make. There is no real transparency on fees, and you do not really know if your fund is good or which ones are better or worse.
From 1 July 2021, the changes will make the system better for you in three key ways:
- Your superannuation follows you – An existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.
This will stop multiple accounts being set up and removes multiple charges. This one change alone could save tens of thousands of dollars for you.
- Empowering members – A new, interactive, online YourSuper comparison tool will help members decide which super product best meets their needs.
- Holding funds to account for underperformance – MySuper products will be subject to an annual performance test. Funds that underperform will need to inform their members. Funds that fail two consecutive underperformance tests will not be permitted to receive new members unless their performance improves. By 1 July 2022, annual performance tests will be extended to other superannuation products.
I love this. Most medical professionals have no idea how well their Superfund is doing. Not your fault because as I said it’s not exactly sexy.
Now not only will you be told you will have the information you need to decide if you should move to something better.
Again, this has the potential to save you or make you hundreds of thousands of dollars for your retirement.
It also means Superannuation funds cannot rely on member ignorance to keep going. They have to start performing at the highest level or risk being shut down.
Although we are still waiting for the details, I love these proposed changes.
Personal income tax changes
Personal Tax Rates
Personal tax rates were due to come down in a few years but it has been decided that these will be brought forward and backdated to 1 July 2020.
As most medical professionals are high earners there is a benefit of about $2,000 a year. If you earn $500,000 it not that big a deal but if it is being given out it is best to take it.
Its about about $50 a week. Not something to write home about.
- Medical Businesses & Job Maker
JobMaker
I have to admit keeping up with this is getting a bit confusing. First, we had JobSeeker. Then JobKeeper. Now JobMaker. What’s next? Anyway…..
This will make a difference if you are running a medical practice.
If you are thinking of hiring new employees from receptionists to nurses, the Government will introduce a JobMaker Hiring Credit to incentivise businesses to take on additional young job seekers.
But there is a catch. Potential employees must have received the JobSeeker Payment, Youth Allowance (Other), or Parenting Payment for at least one month within the past three months before they were hired
If you would like the full rules and eligibility, please contact us.
Tax-free business support grants
For our clients in Victoria, the Government has announced that the Victorian Government’s Business Support Grants for small and medium businesses, as announced on 13 September 2020, are tax free for tax purposes.
Uncapped immediate write-off for depreciable assets
There have been some serious changes to Capital Allowances for large business (turnover of more than $500 million to $5Bn). I have no clients in that category so this summary ignores these changes.
The rule that is relevant to my clients is the Instant Assets Write off of $150,000 or less. This it will be extended by 6 months, until 30 June 2021.
In addition, any assets that have not been fully depreciated can be deducted if part of their simplified depreciation pool at the end of the income year up to 30 June 2022. OK I know what you are thinking. Plain English Please!
It would be easier if I gave you an example. At 30 June 2021 you have assets which you purchased in 2019 so they are not fully depreciated. Let say they are valued at $30,000. The Government will now allow you to depreciate this fully in one year so that you get a larger tax deduction. Hope that makes more sense!
- Changes affecting companies
Temporary loss carry back for eligible companies
Pre Covid19 most medical businesses were profitable. But that may have changed.
You are now lossmaking you might be eligible for a tax refund because companies can carry back losses from the 2020, 2021 or 2022 income years to offset previously taxed profits made in or after the 2019 income year.
- Aged Care
The government has provided funds for healthcare. For a full list click here.
I believe that there is a massive opportunity in Aged Care. This is an area that is rapidly growing and will continue to grow as our population gets older.
Currently 23,000 home care packages are being delivered. This will increase to 73,000 so if this is an area you are thinking about servicing it would be a wise move.
In addition, the Government realise that additional staff will be required so have put aside $181 million for additional training.
- Other budget announcements
Supporting the mental health of Australians in small business
The Government will provide $7 million in 2020/21 to support the mental health and financial wellbeing of small businesses impacted by COVID-19, including:
- $4.3 million to provide free, accessible and tailored support for small business owners by expanding Beyond Blue’s NewAccess program in partnership with the Australian Small Business and Family Enterprise Ombudsman; and
- $2.2 million to expand a free accredited professional development program that builds the mental health literacy of trusted business advisers (ie people like me) so that they can better support small business owners in times of distress, delivered through Deakin University
