Federal Budget 2021 – What it means for you!
The Federal Budget was released on Tuesday 11th May 2021. This was a “no surprise” budget designed for economic recovery and to build resilience and future essential services. In our view, there were no proposed, major changes to the tax system – in fact, in the eyes of our newest tax recruit, Anna, it might even be called a “boring” budget.
Whilst we have outlined the key points below, we emphasise that some of these measures are, at this stage, proposals, and will require legislation to be passed through both houses of Parliament to gain Royal Assent. Furthermore, we have only highlighted those points that we believe are most relevant to our clients and readers. Should you want a more in depth read, you can view the Tax Institute budget report here, or the ABC has a good overall summary of the Budget “Winners and Losers”.
With the budget announcement we will now be looking to engage with our clients to implement an effective 30 June 2021 tax strategy, to help them minimise their tax obligations. If you think this would help you and your business, please contact us to book in a session with one of our consultants. Alternatively you can book in a meeting directly here.
- The LMITO (low and middle income earners tax offset) has been retained for 2021-2022. This provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 and $2160 for couples lodging tax returns in 2022. Work out how much you’ll save from these tax cuts with this calculator.
- Self-Education Expenses – the exclusion of first $250 of deductions has been removed, although we don’t anticipate this will have a significant impact for either individuals or the economy.
- CPI indexed Medicare Levy low-income thresholds for 2020-21 year announced.
- The individual tax residency rules will be replaced by a new framework with a primary physical presence test (see below).
- Extending ‘The Temporary Full Expensing’ of eligible business assets for 12 months to 30 June 2023 (more on this below).
- Extending the ‘Temporary Loss Carry Back’ rules to allow eligible companies to carry back losses from 2023 to offset previously taxed profits as far back as the 2019 year. Unfortunately, this measure has not been extended to businesses operating in entities other than companies (see below).
- SME Recovery Loan Scheme extended.
- SME extended powers for AAT to pause or modify ATO debt recovery action for small business taxation decisions (see below).
- The Boosting Apprenticeship Commencements wage subsidy will be expanded.
The following measures are expected to apply from 1 July 2022:
- The employer exemption from superannuation guarantee payments for individuals earning less than $450 in salary or wages in a calendar month will be removed.
- 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.
- The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age.
- The maximum amount of contributions that can be released from superannuation under the first home super saver scheme (FHSSS) will be increased from $30,000 to $50,000.
- The central management and control safe harbour test for an SMSF to be considered an Australian superannuation fund will be extended from 2 years to 5 years. Also, the active member test will be removed.
- 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.
EMPLOYEE SHARE SCHEMES
- The cessation of employment taxing point will be removed for tax-deferred employee share schemes that are available for all companies. Only applicable to shares issued on or after 1 July 2021.
- Employers will have red tape reduced for ESS with changes and simplification to disclosure requirements.
- Business looking to attract and retain talent & Unlisted Companies including SME’s will benefit from the changes. More on these changes can be found below.
- A Patent Box Regime for the Australian medical and biotechnology sectors. Corporate income derived from Australian medical and biotechnology patents in income years starting on or after 1 July 2022 will be taxed at a concessional rate of 17%. Unfortunately, it only applies to patents in a very specific industry and only to those submitted after 11 May 2021.
- Increasing the excise refund cap for brewers and distillers from $100,000 to $350,000. The detail is however still to be decided but this change aims to align the industry with the producer rebate for wine producers.
- The automotive research and development tariff concession will be extended for 4 years until 30 June 2025.
THE DIGITAL ECONOMY
- Taxpayers who purchase patents, register designs, copyrights or in-house software will be given the opportunity to self-assess their effective life for decline in value. The measure comes into effect for specified intangible assets acquired after 1 July 2023.
- 30% Digital Games refundable tax offset for investing in qualifying Australian games expenditure will be introduced from 1 July 2022. Games with gambling elements will be excluded. The eligibility criteria and the impact of these measures are yet to be announced.
INDUSTRY SPECIFIC INITIATIVES
- Digital Economy Strategy providing funding new technologies, upskilling the Australian workforce and digitising SME processes.
- Science, Energy & Resource Technology initiatives to drive research capabilities in the space & renewable energy industries.
- Continuation of full and immediate tax deductions.
- International Visa changes to assist with workforce shortages.
- Flood recovery grants.
- Extension of Junior Mining Exploration Incentive (JMEI) scheme until 30 June 2025.
- Aged Care
- $18B Aged Care Reform package with new funding model & transparency around actual care provided.
- $10 per day resident fee supplement.
- Child Care
- From 1 July 2022 – the childcare subsidy will be increased up to a maximum of 95% (applies to second and subsequent child only).
- Additional $22M over 4 years for new and amended services.
- Increase in incentives for Rural doctors to bulk bill.
- Increases in the Pharmaceutical Benefits Scheme (PBS) over 4 years.
- $878M over 5 years for new listings to the PBS.
- $1.9B in extra funding for the rollout of coronavirus vaccines this financial year.
- An additional $1.5B for testing, tracing, telehealth and services related to COVID-19.
- 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.
PROPERTY & CONSTRUCTION
- Indirect support to P&C businesses with $782m over 4 years to increase home ownership and support jobs in the residential construction sector.
- Funding over 2 years for the Home Builder Program to extend the construction commencement requirement from 6 months to 18 months for all existing applicants.
- Extension of the First Home Loan Deposit Scheme to provide 10,000 new home guarantees in 2021-22 to build or purchase a new home with a 5% deposit.
- Establishing the Family Home Guarantee with 10,000 places from 2021–22 to support single parents with dependants to enter, or re-enter, the housing market with a deposit of 2%.
- Funding to offer additional short courses, innovation in online and offshore delivery models, new employment pathways to bridge education & employment.
- Extension to the existing FEE-HEL loan fee extension to 31 December 2021.
IN MORE DETAIL
Below we expand on a couple of the main highlights that we believe most relevant to our business & individual clients:-
EXTENSION of the TEMPORARY FULL EXPENSING
- Extension of the temporary ’full expensing’ measures, previously outlined in last year’s Budget, for a further 12 months to 30 June 2023. This is in a bid to encourage continued investment by business and the creation of new jobs.
- Eligibility for the temporary ‘full expensing’ measure will remain unchanged, meaning businesses with an aggregated annual turnover of less than $5b will be able to deduct the full cost of expenditure on new Division 40 depreciable assets, or improvements to existing depreciable assets, that are acquired after 6 October 2020 and first used or installed ready for use by the extended date of 30 June 2023.
- The Luxury car limit remains for non-commercial vehicles with passenger car limit expensing of $59,136 for the 2020–21 income year
- All other elements of the temporary ‘full expensing’ regime will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. SMEs with aggregated annual turnover of less than $50m will also continue to be able to fully expense both new and second-hand eligible assets.
- From 1 July 2023, normal depreciation arrangements will apply.
EXTENSION to TEMPORARY LOSS CARRY-BACK OFFSET
- The temporary loss carry back offset will be extended by one year to apply for 2022–23 income year losses.
- Eligible corporate tax entities with aggregated turnover of less than $5 billion will be able to carry back losses from the 2022–23 income year to offset previously taxed profits made in or after the 2018–19 income year. The loss that can be carried back is limited by the amount of earlier taxed profits and cannot generate a franking account deficit.
- Eligible companies can elect to carry back losses under this measure for any or all of the 2019–20 to 2022–23 income years.
- You can learn more about this offset by reading the ATO document ‘Loss carry back’ guide.
EXTENDED POWERS for AAT to PAUSE or MODIFY ATO DEBT RECOVERY
- The introduction of legislation to allow small businesses (including individuals carrying on a business) with an aggregated annual turnover of less than $10 million per year to pause or modify ATO debt recovery action in the event that such debt is being disputed in the Administrative Appeals Tribunal (AAT).
- The changes will allow the Small Business Taxation Division of the AAT to pause or modify any ATO debt recovery actions – such as garnishee notices and the recovery of general interest charges or related penalties – until the underlying dispute is resolved by the AAT.
- The changes will take effect from the date of assent of the amending legislation.
EMPLOYEE SHARE SCHEMES
- The cessation of employment taxing point will be removed for tax-deferred employee share schemes (ESS) that are available for all companies. The change will apply to ESS interests issued from the first income year after assent of the amending legislation.
- Under existing rules for a tax-deferred ESS, where certain criteria are met, employees may defer tax until a later tax year (known as the deferred taxing point). By removing the cessation of employment taxing point, the deferred taxing point will be the earliest of:
- in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
- in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal, and
- the maximum period of deferral of 15 years
- The following regulatory changes will also be made for ESS where employers do not charge or lend to employees under the ESS:
- disclosure requirements will be removed and the offer will be exempted from licensing, anti-hawking and advertising prohibitions, and
- for shares in an unlisted company, the maximum value of shares that can be issued to an employee with the simplified disclosure requirements and above exemptions will be increased from $5,000 to $30,000 per employee per year (no such value cap exists for listed companies).
- The regulatory changes will apply 3 months after assent of the amending legislation.
PATENT BOX REGIME
- The Government will introduce a new patent box tax regime to tax corporate income derived from patents at a concessional rate of 17%.
- The Patent Box Regime is proposed to apply from income years starting on or after 1 July 2022 and will initially apply to the Australian medical and biotechnology sectors. Further consultations will be undertaken on the detailed design of the regime and the potential to include sectors such as the clean energy sector.
- The patent box measure builds on the JobMaker Research and Development Tax Incentive announced in the 2020–21 Budget, by offering a competitive tax rate for profits generated from Australian owned and developed patents.
- Designed to incentivise companies to retain and commercialise patented inventions and to pursue patent protection for new inventions in their home country, rather than taking this offshore to jurisdictions with lower tax rates.
INDIVIDUAL TAX RESIDENCY RULES SIMPLIFIED
- Under the new primary test, a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident for tax purposes. Individuals who do not meet the primary test will be subject to secondary tests that consider a combination of physical presence and other measurable, objective criteria.
- Currently, an individual who is physically present in Australia for 183 days or more in an income year will not be an Australian resident if their usual place of abode is overseas and they have no intention to take up residence in Australia. The new framework is based on recommendations made by the Board of Taxation in the 2019 report Reforming individual tax residency rules — a model for modernisation.
- The measure will have effect from the 1 July following assent of the enabling legislation.
GOT A QUESTION?
Please don’t hesitate to get in touch. As always, we will keep you informed as more details are released.
Stay safe & well!