The Federal Treasurer, Mr. Josh Frydenberg, handed down the 2021/22 Federal Budget at 7:30 pm (AEST) on 11 May 2021.
The economy has rebounded stronger than expected from the COVID-19 recession, which has resulted in a budget deficit of $161 billion, $52.7 billion lower than the government's expected deficit. The Government is taking the opportunity to use this budget to boost the domestic economy, announcing various measures to support businesses and individuals with job creation, incentives, tax relief and superannuation changes.
Various existing tax reliefs have been extended for another 12 months, including the low and middle income tax offset, the temporary company loss carry back rules and the full expensing of depreciating assets. These will grab the headlines but there are several other important measures including a new individual tax residency bright-line test, tax concessions for medical and biotechnology innovations and removal of the $450 threshold to be eligible for superannuation guarantee.
The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.
The key highlights are set out below:
Individuals
ASF TAKEAWAYS: Individuals claiming self-education expenses and low income Australian taxpayers will benefit. The extension of the low and middle-income tax offset (LMITO) is worth a maximum of $1,080 for individuals and $2,160 for couples. Also, recent case law judgements have muddied the precedents around tax residency status in Australia, and clarity around this is welcome.
The low and middle income tax offset, available to taxpayers earning less than $126,000 per year, will remain for the 2021–22 income year.
Individual tax residency rules to be simplified under the new framework. We will wait for this to become law to provide more details.
The current limitation for claiming a self-education expense, where the first $250 of the allowable deduction is denied, will be removed. The proposal is for this to be effective from 1 July 2021.
CPI indexed Medicare levy low-income threshold amounts for singles, families, and seniors and pensioners for the 2020–21 year announced. Going forward, families earning less than $39,167 will be exempt from Medicare Levy (other thresholds apply for individuals, seniors and pensioners)
A full income tax exemption for pay and allowances of ADF personnel deployed to Operation Paladin from 1 July 2020.
Funding to increase home ownership, support jobs in the residential construction sector and enhance housing data.
Companies and businesses
ASF TAKEAWAYS: Overall, the budget allows SME businesses and business owners with the extended timeframes to invest in new equipment or upgrade to existing equipment. Companies that paid tax in FY19 and FY20 but now may have tax losses (planning idea – could be due to the full expensing!!!) for FY20, FY21 and FY23 can get tax refunded. The ESS change is well received - businesses can look to attract and retain talent via Employee Share Schemes without the tax or disclosure complexities. Businesses should take note that all employees will now have access to super guarantee payments and the loss on fuel tax credits will impact our logistics clients.
Temporary full expensing of eligible assets will be extended by 12 months to 30 June 2023. Since October 2020, businesses with aggregated turnover of less than $5b are able to deduct the full costs of eligible new assets that are ready to use and/or installed, and businesses with aggregated turnover of less than $50m can also claim second-hand assets.
The temporary loss carry back offset will be extended by one year to apply for 2022–23 income year losses. Businesses with aggregated turnover of less than $5b can offset losses in 2019 - 2023 income tax years against previously taxed profits, potentially as far back as the 2018 – 2019 income year.
Support for the SME Recovery Loan Scheme to support SMEs with turnover of up to $250m that were recipients of the JobKeeper Payments in the March 2021 quarter. Under the scheme, the Government will provide lenders with a guarantee of 80% of loans up to $5m for a term of up to 10 years. Interest rate capped at 7.5%.
Income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.
Superannuation guarantee exemption for employees earning less than $450 in a month will be removed. This will take effect from 1 July 2022.
The cessation of employment taxing point will be removed for tax-deferred employee share schemes that are available for all companies. This applies for any ESS shares issued on or after 1 July 2021.
A refundable tax offset for investing in qualifying Australian games expenditure will be introduced from 1 July 2022.
Taxpayers with certain intangible depreciating assets such as patents, copyrights, in-house software etc. will be given the choice of using the statutory effective life or self-assessing the decline in value from 1 July 2023.
The heavy vehicle road user charge will be increased to 26.4 cents per litre from 1 July 2021. This will reduce the fuel tax credit claims.
The Boosting Apprenticeship Commencements wage subsidy will be expanded.
Not-for-profits
ASF TAKEAWAYS: The Government is taking steps to increase the integrity of the NFP sector.
From 1 July 2023, income tax exempt NFPs with an active ABN will be required to submit the information used to self-assess their eligibility for the exemption in an online annual self-review form.
Australian Associated Press Ltd, Virtual War Memorial Limited and Scripture Union Queensland have been added to the list of specifically listed DGRs for a period beginning 1 July 2021.
Cambridge Australia Scholarships Limited and Foundation 1901 Limited have had their DGR status extended by 5 years.
Superannuation
ASF TAKEAWAYS: Allowing taxpayers at the end of their working career to boost their superannuation balances is a good policy, so both the removal of the work test and the extension of the downsizers contribution gets a tick from us. We will watch with interest in there is any significant take-up of using superannuation to purchase your first property.
From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making or receiving non-concessional superannuation contributions or salary sacrificed contributions. Currently, if you are within this age group, you must have worked at least 40 hours in a 30 day period to be able to make this contribution. Interestingly, this change does not apply for personal deductible contributions.
From 1 July 2022, the eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. This is the one-off, post tax contribution of $300,000 from the proceeds of selling the primary residence.
The maximum amount that can be released from superannuation under the first home super saver scheme (FHSSS) will be increased from $30,000 to $50,000 from 1 July 2022.
Relaxing the residency requirements for SMSF’s, with the central management and control safe harbour test for an SMSF to be considered an Australian superannuation fund extended from 2 years to 5 years. Also, the active member tests will be removed once the law is enacted.
Pensioners with a market-linked, life expectancy or lifetime pension in their superannuation fund will be granted a 2-year window in which they can choose to commute the outstanding benefit plus any associated reserves into a contemporary superannuation pension.
The government will not proceed with a measure to extend early release of superannuation to victims of family and domestic violence.
The ATO will be given additional funding to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts.
Aged care and social security
ASF TAKEAWAYS: Aged Care and Child Care facility operators should be over the moon, and the additional investments and measures will support growth in revenues. sectors. Parents with more than one child in care will also be better off from 1 July (but not if you have only one child).
A total of $17.7 billion in funding will be provided for aged care initiatives in response to the Royal Commission on Aged Care Quality and Safety.
Changes to the pension loans scheme to improve uptake include access to 2 advance payments (conditions apply), and the introduction of a “no negative equity guarantee”.
The childcare subsidy will be increased up to a maximum of 95% from 1 July 2022 for families with more than one child in care (aged 5 years and under).
The base rate of several unemployment benefits will be increased by $50 per fortnight from 1 April 2021. Other eligibility conditions and waiting periods have also been relaxed.
Other changes
ASF TAKEAWAYS: Great news if you are brewing or distilling in Australia. The concessional treatment for patents should also see more companies register patents in Australia rather than overseas.
Excise relief for small brewers and distillers will be expanded.
The automotive research and development tariff concession will be extended for 4 years until 30 June 2025.
Extension of the HomeBuilder program, which provides eligible owner occupiers with a grant of $25,000 to build a new home or undertake substantial rebuilds. This has been extended from 6 months to 18 months for all existing applications.
Income tax derived from patents will be taxed at a concessional rate of $17% from 1 July 2022 and will initially apply to Australian medical and biotechnology sectors. This will apply on top of any R&D tax credits.
Overall, the Government has delivered a solid budget, with emphasis on job creation, infrastructure spending and economic changes. We are glad that no major changes have been introduced to the tax system.
If you want more details on any particular measure, and how it will impact your business or you personally, please reach out to the ASF team.