2021-22 Federal Budget: Creating Jobs and Rebuilding the Economy
17 May 2021
On Tuesday 11th May, the Federal Budget was released with a focus on the next stage of the Government’s plan to secure Australia’s recovery from the COVID-19 pandemic.
The Government is proposing to do this with:
- Personal income tax cuts
- Business tax incentives
- New apprenticeships and training places
- More infrastructure
- Additional funding for schools, hospitals, aged care, mental health and the NDIS
The theme of this Budget is creating jobs and rebuilding the economy in the form of:
- $2.7 billion funding for more apprenticeships
- $1.7 billion additional funding for childcare
- $500 million for job training and reskilling
Key Budget Announcements
- Retaining the low and middle income tax offset in 2021/22
- Reducing compliance costs for individuals claiming self-education expense deductions
- Modernising the individual tax residency rules
- Increasing the Medicare levy low-income thresholds
- Extending temporary full expensing
- Extending temporary loss carry-back
- Tax concession for Australian medical and biotechnology innovations
- Employee Share Schemes - removing cessation of employment as a taxing point and reducing red tape
- Increased rights for small business in relation to the collection of disputed debts
- Supporting development of digital games
- Tax relief for brewers and distillers
- ATO early engagement service
- Changing residency rules for trusts and limited partnerships
- Repealing the work test
- Expanding access to downsizer contributions
- Removing the $450 per month threshold for superannuation guarantee eligibility
- Relaxing residency requirements for SMSFs
- First Home Super Saver Scheme - increasing the maximum releasable amount to $50,000
Non Tax Related Measures
- Providing support for the health system and delivering a comprehensive vaccination program
- Extension of construction period for HomeBuilder scheme
- New Home Guarantee Scheme
- Increasing child care subsidy
- Increase in Jobseeker
- Increased funding for pest control
Retaining the Low and Middle Income Tax Offset (LMITO) in 2021/22
The LMITO with be retained for the 2021/22 income year. This provides a tax offset of up to $1,080. Taxpayers with a taxable income of $37,000 or less will benefit by a tax offset of up to $255. Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080. For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar.
Modernising the Individual Tax Residency Rules
It is also proposed that the Government replace the individual tax residency rules with a new framework that is easier to understand, provides certainty and reduces compliance costs for globally mobile individuals and their employers. The primary test provides that 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 factors such as physical presence and other measurable, objective criteria.
Reducing Compliance Costs for Individuals Claiming Self-Education Expense Deductions
The Government is proposing to remove the exclusion which provides that the first $250 of self-education expenses, in relation to a prescribed course of education, is not deductible.
Increasing the Medicare Levy Low-Income Thresholds
There will be an increase to the Medicare levy low-income thresholds for singles, families, seniors and pensioners. The threshold for singles will be increased from $22,801 to $23,226. The family threshold will be increased from $38,474 to $39,167. For single seniors and pensioners, the threshold will be increased from $36,056 to $36,705. The family threshold for seniors and pensioners will be increased from $50,191 to $51,094. For each dependent child or student, the family income thresholds increase by a further $3,597 instead of the previous amount of $3,533.
Extending Temporary Full Expensing
A proposed extension the temporary full expensing concession until 30 June 2023. This allows eligible businesses with aggregated annual turnover or total income of up to $5 billion to deduct the full cost of eligible depreciating assets. Assets must generally be first held from 7:30pm AEDT on 6 October 2020 and now first used or installed ready for use by 30 June 2023.
Extending Temporary Loss Carry-Back
The Government is also proposing to extend the temporary loss carry-back rules by one year. Companies with aggregated annual turnover of up to $5 billion will be able to apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years. Companies will be able to elect to carry-back losses (subject to meeting the necessary requirements) in their 2020-21, 2021-22 and now 2022-23 income tax returns.
Tax Concession for Australian Medical and Biotechnology Innovations
A patent box tax regime is being proposed to encourage innovation in Australia. For income years starting on or after 1 July 2022, income derived by a company from Australian medical and biotech patents are proposed to be taxed at a 17 per cent concessional corporate tax rate as opposed to the normal corporate income which is taxed at 30 per cent or 25 per cent for small and medium companies.
Only income generated from granted patents, which were applied for after the Budget announcement will be eligible and the concession is also generally restricted to patents developed from research and development activity undertaken in Australia.
Supporting Development of Digital Games
To promote the growth of the digital games development industry in Australia, the Government is proposing to introduce a Digital Games Tax Offset (DGTO). From 1 July 2022, the DGTO will provide eligible game developers with a 30 per cent refundable tax offset for qualifying Australian games expenditure.
The maximum DGTO a developer will be able to claim in each year is $20 million and will be available in the year when the qualifying expenditure has ceased on a game.
Eligibility criteria will require that the game must not have gambling elements and that a minimum of $500,000 qualifying expenditure has been spent on the game. Details of the eligibility criteria and the definition of qualifying Australian games expenditure will be determined through stakeholder consultation.
Tax Relief for Brewers and Distillers
A proposed increase to the excise refund cap for distillers and brewers that will, from July 1 2021, allow all eligible brewers and distillers to will receive full remission (up from 60 per cent) of any excise they pay on the alcohol they produce up to a cap of $350,000 each financial year (increased from $100,000).
Employee Share Schemes - Removing Cessation of Employment as a Taxing Point and Reducing Red Tape
The Government is proposing to remove the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, taxpayers are subject to tax on ESS interest (shared or options) either up-front or at a deferred taxing point. This change will result in tax being deferred until the earliest of the remaining taxing points:
- 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; or
- the maximum period of deferral of 15 years.
The Government is also making regulatory improvements to the ESS regime, in order to reduce red tape.
Increased Rights for Small Business in Relation to the Collection of Disputed Debts
The Government is proposing that small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to have ATO debt recovery actions (such as actual recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest) paused until their underlying case is decided by the AAT.
ATO Early Engagement Service
The ATO will introduce a new early engagement service to support new business investments into Australia. The service will:
- provide “up front” confidence to investors about how Australian tax laws will apply,
- be tailored to the particular needs of each investor,
- offer support in relation to any or all federal tax obligations,
- accommodate specific project timeframes, and other time sensitive aspects of a transaction such as foreign investment review board (FIRB) approvals,
- provide access to expedited private binding rulings and advance pricing agreements; and
- integrate with the tax aspects of the FIRB approval process (if applicable) to ensure no duplication of information requests.
The service is proposed to be available for eligible investors from 1 July 2021.
Changing Residency Rules for Trusts and Limited Partnerships
The Government announced that it will consult on amending the residency rules for trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency changes.
Repealing the Work Test
The Government is proposing that from 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test (40 hours in 30 days) when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions. These individuals will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.
The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.
Access to concessional personal deductible contributions for individuals aged 67 to 74 will still be subject to meeting the work test.
Expanding Access to Downsizer Contributions
A proposal to reduce the minimum age for the downsizer contribution from 65 to 60 to allow persons aged 60 or above to make a one-off post-tax contribution of up to $300,000 per person (or $600,000 per couple) when they sell their family home. The measure is proposed to apply from 1 July 2022.
Downsizer contributions can be made after the sale of a person’s current or former principal place of residence, held for a minimum of 10 years. Downsizer contributions do not count towards the concessional and non-concessional contributions caps. People with balances over the total super balance cap (which is $1.7 million from 1 July 2021) are also able to make a downsizer contribution.
Removing the $450 per month Threshold for Superannuation Guarantee Eligibility
The Government is proposing to remove the current $450 per month minimum income threshold, under which employees do not have to be paid superannuation guarantee by their employer.
Relaxing Residency Requirements for SMSFs
The Government is proposing to relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types. This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas.
SMSFs that do not satisfy the central management and control test and active member test are treated as non-resident funds (which are non-complying funds). Tax concessions (deductible contributions and 15% tax rate) are not available for non-complying funds.
First Home Super Saver Scheme - Increasing the Maximum Releasable Amount to $50,000
An increase to the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) is being proposed from $30,000 to $50,000.
Non Tax Related Measures
Providing Support for the Health System and Delivering a Comprehensive Vaccination Program
The Government is providing $1.5 billion in this Budget to support the health system alongside the roll-out of COVID-19 vaccines. This includes continued funding for telehealth services, COVID-19 testing and support to prevent outbreaks in remote communities.
Increase in Jobseeker
The Government is providing $9.3 billion in additional funding for income support recipients. From 1 April 2021, the rates of JobSeeker Payment and other working-age income support payments increased permanently by $50 per fortnight. The Government has also raised the income free area for JobSeeker Payment, Youth Allowance (other) and Parenting Payment Partnered to $150 per fortnight.
Increasing ChildCare Subsidy
The Child Care Subsidy is proposed to be increased by 30% for the second or subsequent child, up to a cap of 95 per cent. The Child Care Subsidy annual cap is also proposed to be removed to ensure that families are not penalised by hitting the cap.
Extension of Construction Period for HomeBuilder Scheme
The Government is proposing to extend the six month construction commencement period to 18 months for all existing applicants under the scheme.
New Home Guarantee Scheme
From 1 July 2021 to 30 June 2022, 10,000 New Home Guarantees will be made available over four years to eligible single parents with dependants to build a new home or purchase an existing home with a minimum deposit of two per cent, subject to an individual’s ability to service a loan.
Increased Funding for Pest Control
The Government is investing $385.5 million for our biosecurity systems, as well as $29.1 million in pest and weed reduction activities to help farmers manage threats to their livestock and crops. The Government is also funding cutting edge technologies for increased surveillance and targeting specific threats like African swine fever and khapra beetle breaches.
For more information visit budget.gov.au or if you have specific questions about how the 2021-22 budget may impact you or your business, please speak with your local Boyce accountant.
Please note that the budget measures will only take effect once they become law. We will provide a further update once they have been legislated.