The Treasurer delivered the Federal Budget 2021-22 on Tuesday 11 may 2021.
The government has delivered an expansionary budget for 2021-22 which continues to facilitate the economic stimulus to secure Australia’s recovery from the COVID-19 recession.
With an underlying cash deficit in 2021-22 forecasted to be $106.6 billion, the Budget has focused on fiscal policy levers in respect to positive tax measures to further the recovery and growth of our economy.
Summary of Tax incentives to support the recovery 2021-22
Budget measure | Application date |
Personal Income Tax | |
Modernising the individual tax residency rules | First income year after Royal Assent of enabling legislation |
Reducing compliance costs for self-education expense deductions | First income year after Royal Assent of enabling legislation |
Retaining the low and middle income tax offset for 2021–22 | For the 2021–22 income year |
Increasing the Medicare levy low income thresholds | From 1 July 2020 |
Deductions | |
Temporary full expensing extension — for eligible depreciating assets acquired from 7.30 pm AEDT 6 October 2020 | first installed or installed ready for use by 30 June 2023 |
Allowing taxpayer to self-assess the effective life of intangible assets | For eligible intangible assets acquired on or after 1 July 2023 |
Income — Grants and subsidies | |
2021 Storms and Floods – tax treatment of qualifying grants | Qualifying grants received in relation to rainfall events between 19 February 2021 and 31 March 2021 |
Business | |
Temporary loss carry back extension — losses incurred from 2019–20 | Extended to the 2022–23 income year |
Removal of the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS) and reduction in red tape associated with offering ESS. | Interests issued from first income year after the date of Royal Assent of the enabling legislation |
SME Recovery Loan Scheme | Loans available from 1 April 2021 until 31 December 2021 |
Childcare | |
Increasing childcare subsidies and removing the $10,560 cap | Increase to rate from 11 July 2022 Removal of cap from 1 July 2022 |
Superannuation | |
Relaxing residency requirements for SMSFs | First income year after Royal Assent of enabling legislation |
Removing the $450 per month threshold for superannuation guarantee contributions | First income year after Royal Assent of enabling legislation |
Repealing work test for individuals aged 67 to 74 (inclusive) for making voluntary superannuation contributions | First income year after Royal Assent of enabling legislation |
Maximum release under the First Home Super Saver Scheme increased to $50,000 | From start of the first financial year after Royal Assent of enabling legislation |
Personal Income Tax
Modernizing the individual tax residency rules
The Government will replace the individual tax residency rules with a new simplified and modernised framework to determine residency.
The primary test will be a simple ‘bright line’ test
Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
Start date: This measure will commence from the first income year after Royal Assent of the enabling legislation.
VHL Accountants comments:
The new framework intends to simplify Australia’s tax residency rules by making it easier to understand and apply in practice, provide greater certainty and reduce compliance costs for globally mobile individuals and their employers.
Reducing compliance costs for self-education expense deductions
The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. Currently, under s 82A of the ITAA 1936, the first $250 of a prescribed course of education expense is not deductible. However, the $250 reduction can be offset by expenses that are not deductible under s. 8-1, often resulting in no reduction to the self-education deduction. Removing s. 82A will therefore reduce compliance costs.
Start date: The measure will apply for the first income year after Royal Assent of enabling legislation.
VHL Accountants comments:
Removing the $250 exclusion for prescribed courses of education will simplify the tax return process and reduce compliance costs for individuals claiming self-education expense deductions.
Retaining the low and middle income tax offset for the 2021-22 income year
The Government will retain the Low and Middle income tax offset (LMITO)—capped at $1,080 —for the 2021–22 income year.
Consistent with current arrangements, the LMITO will not be adjusted through PAYG withholding, but claimed upon assessment after individuals lodge their tax returns for the 2021-22 income year.
VHL Accountants comments:
This measure builds on the 2020-21 Budget measure to bring forward Stage 3 of the Personal Income Tax Plan. Once implemented, around 95% of taxpayers will face a marginal tax rate of 30% of less.
Increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners.
The threshold for:
Start date: This measure will take effect from 1 July 2020.
VHL Accountants comments:
The effect of this change is to take account of recent CPI movements so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.
Extending tax support for businesses
The Government will continue to support Australian businesses to invest, grow and create more jobs by extending the two tax incentives announced in the 2020-21 Budget by one year — temporary full expensing and temporary loss carry-back. Together, these measures will create a strong incentive for businesses to bring forward investment to access the tax benefits before they expire with an estimated amount of a further $20.7 billion in tax relief to businesses.
Temporary full expensing extension
The Government will amend the Tax law to extend the application of the 2020-21 Budget measure on temporary full expensing measure for 12 months until 30 June 2023.
Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
VHL Accountants comments:
The extension is intended to provide eligible businesses with additional time to access the incentive, including in relation to projects that require longer planning times and continue to support economic recovery 2022-23. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply.
Temporary loss carry-back extension
The Government will extend the temporary loss carry-back measure that was implemented following the 2020–21 Federal Budget for one year. This will allow companies with aggregated turnover of up to $5 billion to carry back (utilise) tax losses from the 2022–23 income year to offset previously taxed profits as far back as the 2018–19 income year when they lodge their 2022–23 tax return.
VHL Accountants comments:
This extension encourages business to invest, concurrent with the Temporary full expensing extension to provide eligible businesses earlier access to the tax value of losses generated by full expensing deductions.
Allowing taxpayers to self-assess the effective life of intangible assets
The Government will amend the Tax law to allow taxpayers to self-assess the tax effective lives of eligible intangible assets, rather than being required to use the effective life currently prescribed by statute.
Start date: This measure will apply to assets such as patents, registered designs, copyrights and in-house software acquired on or after 1 July 2023 (after the temporary full expensing regime has concluded).
VHL Accountants comments:
It is intended that allowing taxpayers to self-assess the tax effective life of an asset will allow for a better alignment of tax outcomes with the underlying economic benefits provided by the asset. It will also align the tax treatment of these assets with that of most tangible assets. This measure is certainly a sensible and pleasing change to support the simplification of the tax system and reduce tax compliance costs.
Employee Share Schemes – Removing cessation of employment as a taxing point
The Government will remove the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS) that are available for all companies, as well as reduce red tape associated with offering ESS.
This change will result in tax being deferred until the earliest of the remaining taxing points, that is:
Removing red tape
The Government will also reduce red tape for ESS by:
Start date: This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.
VHL Accountants comments:
Consistent with the growing trend for ESS arrangements to provide that an employee can remain entitled to the benefits of ESS despite cessation of employment, the announced changes recognizes this trend and defers the taxing point to the time where the shares are no longer subject to restrictions on sale or at risk of forfeiture. It is intended that this measure will help Australian companies to engage and retain the talent they need to compete on a global stage, and make it easier for businesses to offer employee share schemes.
SME Recovery Loan Scheme
Building on the July 2020 COVID-19 Response Package, the SME Recovery Loan Scheme provides participating lenders with a guarantee for 80% of secured or unsecured loans of up to $5 million for a term of up to 10 years and with interest rates capped at 7.5 per cent.
This measure will be extended to support SMEs, including self-employed individuals and non-profit organisations who have a turnover of up to $250 million and have either:
Loans can be used by the SME for a broad range of business purposes, including to support investment and refinancing existing loans. Lenders will be able to offer borrowers a repayment pause of up to two years. Loans can be either unsecured or secured (excluding residential property)
Start date: Loans will be made available from 1 April 2021 until 31 December 2021.
VHL Accountants comments:
This measure will support the economic recovery of, and provide continued assistance to, firms that received JobKeeper or are eligible flood-affected businesses.
Income — Grants and subsidies
2021 Storms and Floods – tax treatment of qualifying grants
The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods that occurred due to rainfall events between 19 February 2021 and 31 March 2021.
These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.
VHL Accountants comments:
This measure intends to respond to community concerns and provide continued assistance to affected communities to benefit from the entire grant through the income tax exemption.
Women’s Economic Security Package
Making child care more affordable
The Government has announced that it will invest an additional $1.7 billion into child care to encourage greater workforce participation and to reduce the cost of child care by increasing the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and subsequent children aged five years and under in care, increasing the maximum CCS rate from 85% to 95% for these children from 11 July 2022.
The Government will also remove the $10,560 cap on the child care subsidy for families with family income of $189,391 to $353,679 — from 1 July 2022.
VHL Accountants comments:
The Government recognizes that current child care subsidies and caps present structural disincentives for families to return to the workforce or accept additional working hours. The measures intend to make child care more affordable and encourage greater workforce participation. While the proposed changes are a step in the right direction, the measures are quite complex and limited in that families must have both children under the age of 5 in child care in order to be eligible for the subsidy. In this case, some families would also lose the benefits from this measure.
Superannuation
SMSFs – relaxing residency requirements
The Government will ease the residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by:
Start date: This measure will have effect from the start of the first income year after Royal Assent to the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
VHL Accountants comments:
This will allow SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities and further encourage families to fully utilize and accumulate funds for retirement.
Removing the $450 per month threshold for superannuation guarantee
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
Start date: This measure will have effect from the first income year after Royal Assent of enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
VHL Accountants comments:
The effect of this change is that around 300,000 individuals will receive additional superannuation guarantee payments each month, 63 per cent of whom are women. Further to this benefit, employers will also likely be eligible for the low income superannuation tax offset (LISTO).
First Home Super Saver Scheme: Maximum release increased to $50,000
The Government will increase the maximum amount of voluntary contributions that can be released from superannuation under the First Home Super Saver (FHSS) Scheme from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.
The Government will also make technical changes to the legislation underpinning the FHSS Scheme to assist applicants who make errors on their release applications — to apply retrospectively from 1 July 2018.
Start date: This measure will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022.
VHL Accountants comments:
It is intended that the measure will ensure the FHSS Scheme continues to help first home buyers in raising a deposit more quickly.
Flexible Super- Repealing work test for voluntary superannuation contributions
The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without needing to meet the work test (working at least 40 hours over a 30-day period in the relevant income year). However, individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
Start date: The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
VHL Accountants comments:
This measure is intended to simplify the contributions rules and to increase flexibility for older Australians to save for retirement through superannuation.
Reducing eligibility age for downsizer contributions
The Government will reduce the eligibility age for individuals making downsizer contributions into superannuation from 65 to 60 years of age. The downsizer contribution allows eligible individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional contribution caps.
Start date: The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
VHL Accountants comments:
This measure will improve the flexibility for Australians to contribute to their superannuation savings and may encourage people to downsize sooner and increase the supply of family homes.
Disclaimer
This content is intended for general information in summary form on tax and legal matters at the time of first publication and is not intended to provide, and should not be relied upon in place of appropriate professional advice. Please consult your tax, legal and accounting advisors before acting or relying on any content provided.
References
https://budget.gov.au/2021-22/content/factsheets/download/factsheet_tax.pdf
https://budget.gov.au/2021-22/content/bp2/download/bp2_2021-22.pdf