On 11 May 2021, Treasurer Josh Frydenberg released the 2021/22 Federal Budget. With a potential Federal Election looming and the need to continue to stimulate the economy in the COVID-19 era, the Federal Budget is big on spending commitments and measures designed to encourage business investment and expansion. Large spending commitments have been made in the areas of public infrastructure, national security, health and aged care.
Detailed below are measures announced in the Federal Budget that are relevant to the clients of Banks Group:
Individual tax measures
- As previously announced, the Low and Middle Income Tax Offset (LMITO) has been extended and will continue to apply for the 2021/22 financial year.
The tax offset of up to $1,080 will continue to provide tax relief to those taxpayers in the low and middle income tax brackets.
For taxpayers with taxable income of less than $37,000, the tax offset will be $255. For those taxpayers with taxable income of between $37,000 – $48,000, the tax offset will be between $255 and $1,080. For those taxpayers with taxable income between $48,000 – $90,000, the tax offset will be $1,080. For those taxpayers with taxable income between $90,000 – $126,000, the tax offset will progressively reduce from the $1,080 amount. Taxpayers with taxable income above $126,000 will not receive any tax offset.
It should also be noted that in addition to the LMITO, the Low Income Tax Offset (LITO) will continue to apply for the 2021/22 financial year and remains unchanged. Under the LITO, taxpayers with taxable income of less than $37,500 receive a tax offset of $700. The LITO is progressively reduced up until taxable income of $66,666 at which point the LITO ceases.
- The Federal Government has announced that the rule that prevents a tax deduction being claimed for the first $250 of self-education expenses will be removed. This measure is scheduled to apply from the financial year commencing after the amending legislation receives royal assent.
- The Federal Government has announced that it will adopt recommendations previously outlined by the Board of Taxation in relation to the reform of tax residency rules for individuals.
By way of background, the current tax residency rules for individuals are based on a complex set of rules that test residency based on four separate criteria (ordinarily resides test, 183-day test, domicile test and superannuation fund test).
In accordance with the Board of Taxation recommendations, the proposed new residency rules will consist of a 183-day primary test to determine residency. Failing the 183-day primary test, the new residency rules will contain secondary tests for determining residency which will be based on four separate objective factors:
- The right to permanently reside in Australia;
- Australian accommodation test;
- Australian family test; and
- Australian economic connections test.
The amendments to the personal residency rules will be effective from the financial year commencing after the legislation introducing the amendments receives royal asset.
Business tax measures
- The Federal Government has announced that the current “full expensing” measures will be extended for a further 12 months up until 30 June 2023.
As a reminder, the full expensing rules were introduced in October 2020 as a stimulus measure to encourage business investment. Under the rules, from 6 October 2020, businesses are eligible to claim an immediate deduction for the full cost of new depreciating assets that they purchase provided the aggregated turnover of the business is less than $5 billion. If the business represents a small or medium size business (i.e. aggregated turnover is less than $50 million), the business will be eligible to immediately deduct the cost of new or second hand asset purchases.
- Similar to the 12-month extension for the full expensing measures, the Federal Government has announced that the loss carry-back measures available to companies will also be extended by 12 months to 30 June 2023.
Once again, as a reminder, the loss carry-back rules allow a company to carry back a tax loss incurred in the 2020 – 2023 financial years to offset tax paid in any prior year occurring in the 2019 – 2022 financial years. For example, a company that pays tax on taxable income in say the 2021 financial year could receive a refund of some/all of the tax paid if the company subsequently makes a tax loss in the 2023 financial year.
- Under the current rules in the Employee Share Scheme provisions, an employee cannot defer the taxing point on equity granted to them under an Employee Share Scheme arrangement beyond the point in time they cease to be employed by the employer.
The Federal Government announced in the budget that cessation of employment will no longer represent a cap to the deferred taxation point on employee share scheme interests. This means that those taxpayers that have been granted with equity interests in an employee share scheme arrangement can potentially continue to defer the taxation of those equity interest after cessation of employment. Subject to a maximum deferral period of up to 15 years, the deferred taxing point will generally represent the point in time that share interests no longer have a genuine risk of forfeiture or options are exercised.
The above amendment is scheduled to apply to ESS interests issued from the financial year commencing after the legislation introducing the amendments receives royal asset.
- The Federal Government announced the introduction of a new refundable tax offset to stimulate business investment in digital gaming. Businesses that spend a minimum of $500,000 on qualifying Australian games expenditure will qualify for a 30% refundable tax offset in relation to the expenditure incurred.
The measure is scheduled to be introduced from 1 July 2022.
- The Federal Government announced that the income tax laws will be amended to enable taxpayers to self-assess the effective life of intangible assets such as patents, designs, copyrights and in-house software. From 1 July 2023, taxpayers will no longer be required to adopt the effective life determinations outlined by the ATO in relation to these types of assets and will therefore be eligible to depreciate these types of assets based on their own self-assessment determinations.
- The Federal Government has announced that Small Businesses Entities (i.e. entities with aggregated turnover of less than $10 million) will be eligible to apply to the Small Business Tax Division of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery actions until the matter has been resolved by the AAT.
- The work test will be repealed for taxpayers aged between 67 – 74 years of age for non-concessional contributions and salary sacrificed contributions. The work test will continue to apply however for taxpayers wishing to make personal deductible contributions (i.e. concessional contributions).
Currently, individuals aged between 67 – 74 years of age can only make voluntary contributions if they work at least 40 hours in a 30 day period in the financial year they wish to make the contribution.
The Government announced that the measure is expected to commence on 1 July 2022.
- The Superannuation Guarantee $450 per month threshold will be removed from 1 July 2022. This will result in employers being required to make quarterly superannuation contributions on behalf of low earning employees that earn less than $450 in a month.
- The minimum eligibility age to make “downsizer” superannuation contributions will be reduced from 65 to 60. Under the downsizer superannuation contribution rules, a taxpayer is eligible to make a non-concessional contribution of up to $300,000 (i.e. up to $600,000 per couple) from the proceeds received from selling their home that they have lived in for at least 10 years previously.
The downsizer superannuation contribution cap is separate from the ordinary non-concessional contribution cap rules and is also not subject to the rules that prevent taxpayers making non-concessional contributions where their superannuation balance is above $1.6 million ($1.7 million from the 2022 financial year).
The Government announced that they expect the change to commence from 1 July 2022.
- The Government has announced that the maximum amount of voluntary superannuation contributions that can be withdrawn under the First Home Super Saver Scheme (FHSS) will be increased from $30,000 to $50,000.
The Government announced that they expect the change to commence from 1 July 2022.
If you have any questions relating to the Federal Budget and how it may impact you, please do not hesitate to get in touch with us via your Banks Group representative, (03) 9810 0700 or firstname.lastname@example.org.