While the pre-budget announcements took a lot of the excitement and anticipation out of the formal release of the 2020 Federal Budget on 6 October, at least all is now known and people can start making plans accordingly. If your plans include buying a new car with a personal car loan, then there are several aspects of the budget of relevance. There is also relevance for our existing Jade Car Loans customers.
This was a very different budget announcement for several reasons not least being that it was delayed from May to October due to coronavirus and the primary focus had to be on dealing with the economic effects of the pandemic.
With our area of interest being car loans, we cover the measures announced in the budget that may influence your car buying and financing. The two in particular are the income tax cuts and changes to consumer credit laws.
While much of the focus is on a business-led recovery, the budget does include the big ticket item of interest for most wage-earning individuals – income tax cuts! While exciting, some of these tax cuts were already planned and included in the multi-stage tax changes announced in last year’s budget.
So what’s in it for you?
Personal Income Tax Changes
In the 2018 Federal Budget, the Government announced a raft of changes to personal income tax across 3 stages. Stage 1 has already been introduced and Stage 2 was to be introduced from 1 July 2022. But in good news for some taxpayers, Stage 2 of the Personal Income Tax Plan will be brought forward to 1 July 2020.
What are the changes?
Some of the changes to personal income tax were already legislated, which means they were already slated to happen.
These are the new arrangements as slated to start from 1 July 2020 rather than 2022:-
- The low income tax offset is increased from $445 to $700.
- The LAMITO (low and middle income tax offset) remains for the 2020/21 tax year. This can represent a tax reduction of up to $1080 depending on income.
- An additional one-off benefit to the low and middle income tax offset.
- The 19% tax bracket threshold increases from $37,000 to $45,000.
- The 32.5% tax bracket threshold increases from $90,000 to $120,000.
What does this mean for you?
In a nutshell, if your income falls in the relevant tax brackets, you may be paying less tax. That is you will have less tax deducted from your wages starting from 1 July 2020 and more dollars to spend.
The Government has announced these tax cuts will be back-dated so those in those categories will be due to be refunded the tax they’ve already paid since 1 July 2020 to when the new tax schedules are put in place.
Normally changes to income tax are announced in the Federal Budget in May and brought into effect from the following 1 July in line with the financial year. This provides for a streamlined transition to any new tax rates for businesses. However, the delay of the budget from May to October has meant these tax changes are out of sync with the usual implementation schedule.
Following these Budget announcements, the Federal Opposition quickly announced it would support these key budget measures. By informing the Treasury of this decision, the ATO could proceed with preparing the necessary revised tax schedules and distributing them to businesses.
Work also needs to be done with payroll tax software systems to be adjusted to the new rates so businesses can start paying employees the new amounts. According to reports, the new rates should be in place by November.
So what of the ‘overpayment’ of July-October tax? Your wages would have been deducted tax at the old rate during this period and as such you may be due a refund. This could be an opportunity for some to consider a new business car loan. There was some initial confusion post-budget around this aspect. The Treasurer’s wording to the effect of getting cash into the hands of consumers in weeks was taken by some to mean that taxpayers would receive a cash refund in November-December. However, on further questioning, this was clarified that any ‘refunds’ would be applied to the tax return when submitted at the end of the financial year, 30 June 2021.
The LAMITO is also applied at tax return time.
What could this mean for your car loan?
With more dollars in your pocket each week from now on, you may consider now is the time to get that new car. Head to our Business car loan calculator to work out a rough idea of estimates on the car you are considering.
Personal Secured Car Loans allow for additional payments to be made. So you may choose to use your tax cut to pay off your car loan earlier.
Changes to Consumer Credit Laws
Another major inclusion regarding personal car loans in the 2020/21 Budget relates to changes to consumer credit laws. We covered the issue in great detail when the pre-budget announcement was made by Treasurer Josh Frydenberg.
We encourage you to refer to that article, but in brief, the Government intends to simplify the existing consumer credit laws, especially regarding perceived barriers and duplication in the process, to allow a better flow of credit. This includes considerations around low doc car finance. These laws are slated to come into effect from April 2021 and will not impact current car loans or those that have applications currently being quoted or processed with Jade Car Loans or other lenders.
If the budget has increased your interest in buying a new car, contact Jade Car Loans at 1300 000 003 for a quote on a Secured Car Loan.
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