On Tuesday 11 May, Federal Treasurer, Josh Frydenberg handed down the 2021/22 Federal Budget. It is understood that the 2021/22 Budget measures have been motivated by the recession faced in 2020 with the purpose of supporting accelerated economic recovery and growth.
BUSINESS AND COMPANIES
Temporary Full Expensing
The Government has announced that the temporary full expensing of depreciating assets will be extended for a further 12 months until 30 June 2023.
Under this extension, business that generate an aggregate turnover less than $5 billion are able to deduct the full cost of eligible depreciating assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
Employee Share Scheme change
The Government has announced that the cessation of employment taxing point will be removed. This means there will be a change in the deferral of tax until the earliest remaining taxing points that is:
- 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;
- The maximum period of deferral of 15 years.
Temporary Loss Carry Back Extension
To assist companies with their cash flow during the economic recovery the Government announced that the introduction of temporary loss carry back measures in the last Budget will be continued for a further year. Key points indicated by the budget are as follows:
- Companies are now able to carry back losses incurred up until 30 June 2021 and far back as the year ended 30 June 2019.
- Eligibility is limited to companies that have a turnover of $5 billion or less
SME Recovery Loan Scheme
The SME Recovery Loan Scheme provides lenders a government guarantee for 80 per cent of secured or unsecured loans of up to $5 million. The maximum loan term is years with interest rates capped at 7.5 per cent. This loan scheme will be extended to support SMEs that meet the following criteria:
- Have a turnover of up to $250 million and either:
- received the JobKeeper Payment from 4 January 2021 or;
- were located or operated in a disaster declared area in respect of the March 2021 floods in NSW.
- Loans will be made available from 1 April 2021 until 31 December 2021.
Option for taxpayers to self-assess the effective lives for intangibles
The Government has declared that instead of being required to use the effective life currently prescribed by statute, tax law will be amended to allow taxpayers to self-assess the effective life of certain intangible assets from 1 July 2023.
This option applies to the following intangible assets:
- Registered designs
- In-house software
As part of the Government’s broader Digital Economy Strategy, $10.7 million has been allocated for a new pilot program for work-based digital cadetships. The idea of this measure is to implement a 4–6 month cadetship program which is designed to deliver digital skills and formal training and on-the-job learning.
Increasing the Medicare levy low-income thresholds
The Government announced from 1 July 2020, there will be an increase in the Medicare levy low- income thresholds for singles, families, and seniors and pensions. In doing so, individual or families who had a taxable below the low-income threshold will be exempt from paying the Medicare Levy.
The following changes to the Medicare low-income threshold are as follows:
|Medicare low-income threshold||As at 30 June 2020||As at 1 July 2020|
|Single – seniors and pensioners||$36,056||$36,705|
|Family – seniors and pensioners||$50,191||$51,094|
|Family – for each dependent child or student*||$3,533||$3,597|
*For each dependent child or student, the family income threshold is increases by the above amount
Extension of Low and middle income tax offset into 2021-22 Financial Year
With the low and middle income tax offset (LMITO) due to end in the 2019-2020 income year, the Government has announced the retainment of LMITO for the 2021-2022 financial year. For the individual taxpayer, this measure will provide significant tax relief predominantly for low and middle income earners.
The benefits of the extension will vary depending on the taxpayer’s relevant income level:
|$37,000 or less||Benefit of up to S255|
|$37,000 – $48,000||$255 plus 7.5c per $1, maximum offset of $1,080|
|$48,000 – $90,000||$1,080 (maximum)|
|$90,000 – $126,000||$1,080 less 3c per every $1 exceeding $90,000|
Child Care Reform
In an initiative to increase the affordability of childcare and boost participation in the workforce, the Budget outlines the following changes to the Child Care Subsidy (CCS) commencing 1 July 2022:
- For families, the childcare subsidies will be increased by 30 percentage points for the second and third child that is in childcare aged 5 years or younger.
- The $10,560 annual cap on the Child Care Subsidy will be removed.
Superannuation and Retirement
Work test abolished
At present, any individual who is aged 67 – 74 years old must be working at least 40 hours over a 30 day period in the relevant income year (work test) in order to make concessional or non-concessional voluntary contributions to superannuation or receive contributions from a spouse. The Government has announced that from 1 July 2022, the work test will no longer need to be met for individuals aged 67-74 wishing to make contributions to superannuation (subject to existing contribution caps).
Removal of the $450 per month threshold for superannuation guarantee
From 1 July 22, the Superannuation Guarantee $450 per month minimum income threshold where employees are not paid superannuation guarantee by their employers will be removed.
Changes to Individual Residency Tests
The Government has announced that the existing tests for individual tax residency rules will be simplified, replacing current rules with the following:
- Primary test: An individual will be an Australian tax resident if the “bright line” test is satisfied – under which the individual is physically present in Australia for 183 days or more in any income year.
- Secondary tests: For individuals who do not satisfy the primary “bright line” test, a number of secondary tests are applied depending on a combination of physical presence and measurable, objective criteria.
Introduction of a patent box – tax concession for Australian medical and biotechnology innovations
Proposed to commence from 1 July 2022, the Government has announced the introduction of a patent box. The patent box will be applied to income earned from the development of new patents in Australia and will be taxed at a concessional 17% rate. The patent box will apply to the medical and biotech sectors.
Corporate tax residency rules
In the Federal Budget 2020–21, the Government announced amendments to clarify the corporate tax residency test. Under the current corporate residency test, a company that is incorporated overseas will be deemed an Australian resident for tax purposes if it has a ‘significant economic connection to Australia.’ As part of the Budget 2021-22, the Government has provided further comment and announced that it will consult on broadening on the previous announced amendment for trusts and corporate limited partnership.
The timeframe for the consultation is yet to be announced.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. The information in this news post has been sourced from The Tax Institute – Federal Budget Report 2021-22.