2021–22 Special Budget Edition
On Tuesday 11 May, the Treasurer, the Hon Josh Frydenberg MP, delivered the Federal Budget 2021–22, his third Budget.
Two years ago, in his first Budget speech, the Treasurer announced that the Budget “is back in the black”. One pandemic later, there is only red.
So far, the Government has committed $291 billion (or 14.7% of GDP) in direct economic support for individuals, households and businesses. The Budget deficit for 2020–21 is forecast to be $161 billion, although that is almost $53 billion less than what was forecasted in last year’s Budget. The Treasurer has not produced an austerity Budget – net debt as a share of GDP is predicted to peak at just over 40% in 2024–25. “Debt and deficit” are seemingly no longer bad.
As emergency COVID-19 support concludes, the Government says it will focus on the transition to sustainable private sector-led growth to create jobs. The unemployment rate is forecast to fall to 4.75% by mid-2023 (lower than pre-pandemic levels).
The Government acknowledges that the continued economic recovery will rely on the effective containment of COVID-19 outbreaks both in Australia and abroad and will be a key factor in the timing of the reopening of international borders, which could weigh on the outlook for the tourism and education sectors.
Further, ongoing global trade tensions and the potential for further trade actions continue to pose risks to the outlook for Australian exports. More broadly, downside risks to the outlook for the global economy from ongoing outbreaks of the virus in major economies, including India, could have implications for Australia’s domestic economy.
If you want to read the Budget papers, you can find them at budget.gov.au.
Big picture highlights of this year’s Budget
Some of the key spending measures are:
An additional $17.7 billion over 5 years in response to the Royal Commission into Aged Care Quality and Safety, including:
National Disability Insurance Scheme (NDIS)
Women’s Economic Security
Training and skills
Jobs and wages
Infrastructure (specific projects):
Budget measures for individuals
Tax and superannuation highlights
Low and middle income offset retained (again)
As widely predicted, the low and middle income tax offset (LMITO) will be retained for 2021-22, thus avoiding an effective tax increase for many taxpayers. This is how the LMITO (also called the Lamington) is calculated. The benefit will depend on a taxpayer’s taxable income.
Amount of LMITO
$37,001 – $48,000
$255, plus 7.5% of the excess
$48,001 – $90,000
$90,001 – 126,000
$1,080, less 3% of the excess
The low income offset (LITO) has not been touched. The maximum amount of the LITO is $700, payable for taxable incomes up to $37,500. No LITO is payable once taxable income reaches $66,667.
Amount of LITO
$700, less 5% of the excess
$325, less 1.5% of the excess
Medicare levy thresholds
The Medicare levy low-income threshold for singles for 2020–21 is $23,226 (compared to $22,801 for 2019–20). The family income threshold is $39,167 (compared to $38,474 for 2019-20), increasing by $3,597 for each dependent child or student (compared to $3,533 for 2019-20).
For single seniors and pensioners eligible for the senior Australians and pensioners tax offset (SAPTO), the Medicare levy low-income threshold for 2020–21 is $36,705 (compared to $36,056 for 2019–20). The family threshold for seniors and pensioners eligible for SAPTO is $51,094 (compared to $50,191 for 2019-20). The threshold increases by $3,597 for each dependent child or student.
No changes to tax rates
There were no changes to the income tax rates. As a reminder, the rates in the table below are legislated to apply for the 2020–21, 2021–22, 2022–23 and 2023–24 income years.
Income tax rates 2020-21 to 2023-24 — residents
Up to $18,200
$180,001 and over
The rates legislated to apply from 2024–25 are also unchanged. From 2024–25, a 30% rate will apply to the $45,001–$200,000 bracket, doing away with the 32.5% and 37% rates.
Simplified residency test
The individual tax residency rules will be replaced with a new, modernised framework. The primary test will be straightforward – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. 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.
The new framework is based on recommendations made by the Board of Taxation in its 2019 report on the residency rules. It will apply from the first income year after the enabling legislation receives assent.
Working holiday makers who stay in Australia for more than 6 months will become residents under the simplified test. Will the so-called “backpacker tax” be scrapped as a consequence? The Budget papers are silent.
The first $250 of a prescribed course of education expense is currently not deductible. The Government will remove that limitation, with effect from the first income year after the enabling legislation receives assent.
Pension Loans Scheme
The flexibility of the Pension Loans Scheme will be improved by providing access to advance payments through allowing participants to access up to 26 fortnights’ worth of top-up payments as a lump sum and introducing a No Negative Equity Guarantee.
New deductible donations
The Government announced 3 new organisations (DGRs) eligible to receive tax deductible donations:
In addition, the DGR status of Cambridge Australia Scholarships Limited and Foundation 1901 Limited has been extended for 5 years (to 30 June 2026 and 31 August 2026 respectively).
A full income tax exemption will be available for the pay and allowances of Australian Defence Force (ADF) personnel deployed to Operation Paladin from 1 July 2020. Under Operation Paladin, ADF personnel are deployed in Israel, Jordan, Syria, Lebanon and Egypt.
Members of NZ sporting teams
The Government will ensure that New Zealand maintains its primary taxing right over members of its sporting teams and support staff in respect of Australian income tax and FBT liabilities that arise from exceeding the 183-day test in the Australia-NZ double tax agreement, as a result of being located in Australia for league competitions because of COVID-19.
The measure will apply to the 2020–21 and 2021–22 income and FBT years.
The temporary full expensing incentive will be extended for 12 months until 30 June 2023. Temporary full expensing allows businesses with an annual aggregated turnover under $5 billion to deduct the full cost of eligible depreciating assets, as well as the full amount of the second element of cost (e.g. improvement costs and transport costs).
Temporary full expensing only applies to new assets located and principally used in Australia. Taxpayers can choose not to apply temporary full expensing to a depreciating asset (the choice cannot be revoked).
Loss carry-back extended
The loss-carry back available to companies with an annual aggregated turnover of less than $5 billion will be extended by 12 months. This will allow eligible companies 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.
The amount carried back cannot be more than the earlier taxed profits and the carry-back cannot generate a franking account deficit.
Companies that do not elect to carry back losses can still carry losses forward as normal.
Pausing ATO debt recovery actions
The Government will allow small businesses to apply to the AAT (the Small Business Taxation Division) to pause or modify ATO debt recovery actions where the debt is being disputed in the AAT. A small business is one with annual aggregated turnover less than $10 million.
When considering applications, the AAT will be required to consider the potential effect on the integrity of the tax system and ensure that there is a genuine dispute with the ATO.
This measure will apply in respect of proceedings commenced on or after the date the enabling legislation receives assent. It could save small businesses several thousands of dollars in court and legal fees.
Employee share schemes
The Government will remove the cessation of employment taxing point for tax- deferred employee share schemes (ESS). This change will apply to ESS interests issued from the first income year after the enabling legislation receives assent.
As a result, tax will be deferred until the earliest of the remaining taxing points:
In addition, the Government will reduce red tape for ESS by:
Depreciation – intangible assets
Taxpayers will be allowed to self-assess, for depreciation purposes, the effective life of intangible assets such as patents, registered designs, copyrights and in-house software. This will apply to assets acquired on or after 1 July 2023 (after the temporary full expensing regime has concluded).
Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.
A similar measure was first proposed in December 2015 but was dropped when the relevant legislation (a 2017 Bill) was before the Senate.
Storm and flood grants exempt
The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia (the grants will be non-assessable non-exempt income).
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia 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.
Tax relief for small brewers and distillers
The excise refund cap for small brewers and distillers will increase from $100,000 to $350,000 per year from 1 July 2021.
From that date, eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.
Digital games offset
As part of its Digital Economy Strategy (see below), the Government will provide a refundable digital games tax offset to eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. Games with gambling elements, or that cannot obtain a classification rating, will not be eligible.
The digital games offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia.
Medical and biotechnology incentive
The Government will introduce a patent box tax regime to further encourage innovation in Australia, by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%. The patent box will apply to income derived from Australian medical and biotechnology patents.
The concession will apply from income years starting on or after 1 July 2022.
The Government will also consult on whether a patent box would be an effective way of supporting the clean energy sector.
Corporate tax residency rules
The Government announced in the 2020–21 Budget that the law would be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a "significant economic connection to Australia".
The Government has now announced that it will consult on broadening this amendment to trusts and corporate limited partnerships.
Other measures that affect business include:
Digital Economy Strategy – tax and other measures
The Government released its Digital Economy Strategy on 6 May, but as part of the 2021-22 Budget. The Strategy is intended to target investments that will underpin improvements in jobs and productivity and make Australia’s economy more resilient. There is a dedicated website at https://digitaleconomy.pmc.gov.au.
Measures announced by the Government include:
First Home Super Saver Scheme
As noted above, the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme (FHSSS) will be increased from $30,000 to $50,000 (anticipated to start in 2022–23).
Other changes (to apply retrospectively from 1 July 2018) will assist FHSSS applicants who make errors on their FHSSS release applications, for example, by allowing individuals to withdraw or amend their applications prior to receiving a FHSSS amount.
In addition, the ATO will be allowed to return to a super fund any released FHSSS money that has not been paid to the individual. The money will be treated as the fund’s non-assessable non-exempt income and will not count towards the individual’s contribution caps.
SMSFs – residency requirements
The Government will relax residency requirements for self-managed super funds (SMSFs) and small APRA-regulated funds, by extending the central control and management test safe harbour from 2 to 5 years for SMSFs and removing the active member test for both fund types. The measure is anticipated to apply from 1 July 2022.
Legacy retirement products
There will be a 2-year period for individuals to convert a specified range of legacy retirement products, together with any associated reserves, to newer, more flexible products (currently, these products can only be converted into another like product). Products covered will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution.
This measure will apply from the first financial year after the enabling legislation receives assent.
Other superannuation measures
Other superannuation measures announced as part of the Budget include:
The Government will not proceed with a measure to extend early release of super to victims of family and domestic violence.
No changes to superannuation guarantee
There had been speculation that the Government might defer the legislated increases in the super guarantee (SG) rate, but that did not happen in the Budget. Accordingly, the SG rate is still due to increase from 9.5% to 10% from 1 July 2021, and by 0.5% per year from 1 July 2022 until it reaches 12% from 1 July 2025.
Note that the SG opt-out income threshold will increase to $275,000 from 1 July 2021 (it is currently $263,157).
Key tax dates
21 May 2021
April monthly BAS due
28 May 2021
March quarter SG due
21 June 2021
May monthly BAS due
30 June 2021
Super guarantee contributions must be paid by this date to qualify for a tax deduction in 2020-21
14 July 2021
Issue PAYG payment summaries if not reporting through STP
21 July 2021
June monthly BAS due
28 July 2021
Lodge and pay June quarterly BAS
Pay June quarterly PAYG instalment
Employee super guarantee contributions due
June quarter SG due
31 July 2021*
Finalisation declaration due if reporting through STP
1 Aug 2021*
Fuel tax credit rates change
14 Aug 2021*
July monthly BAS due
PAYG withholding annual report due if not reporting through STP
28 Aug 2021*
June quarter SG charge statement due
Taxable payments report due
7 Sep 2021
Deadline for application for super guarantee amnesty
*Next business day
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