Last night the 2021-22 Federal Budget was revealed. This budget outlines ways for Australia to recover from the Covid-19 pandemic. While we may not yet have put this pandemic behind us, Australia is currently better placed that most other countries to meet any upcoming economic challenges that we may face.
After an extraordinary year dealing with the global pandemic, we have seen the delivery of an extraordinary budget. In line with most developed economies, the focus is on spending and stimulus rather than balancing the budget. This is in keeping with the global trend where economists are no longer concerned about deficits and national debt. In a global context, we are at the low end of the deficit and debt scale but many still have concerns about what we are passing on to future generations. The hope is that through spending and stimulus, the economy will grow and the nation will be in a much better place in years to come.
Some of the key features within this budget are tax cuts, business tax incentives, and more infrastructure. This budget is also providing more funding for schools, hospitals, aged care, mental health, and the NDIS.
Other features of this budget include pathways to improve women’s economic security and safety. This budget has allocated $1.9 billion for a security package, including domestic violence prevention, and an additional $1.7 billion towards childcare funding.
The aged care sector was another big winner within this year’s budget. An additional $17.7 billion has been allocated over a 5 year span to help fund more home care packages, train carers, increase the ‘care minutes’ aged care residents receive per day, and improve the overall health services within this industry.
One significant change in the superannuation area will enable people aged 67-74 to make non-concessional contributions to superannuation which will open up some good opportunities to restructure investments and superannuation post retirement and is a welcome change.
If there is something in the budget that impacts upon you and you would like to discuss, please contact us.
The Budget did not contain many new measures that apply broadly to business, however, they have announced extensions to current incentives and introduced policies to boost the digital economy.
Extension of 2020-21 Budget Measures
The 2021-22 Budget provides for extensions to some of the headline measures from the previous budget – the “full expensing” and temporary loss carry-back rules are both set to be extended for 12 months. Our analysis of these measures from last year is here and a summary of the extensions is as follows:
Assets must be first used or installed ready for use by 30 June 2022
Assets must be first used or installed ready for use by 30 June 2023
Tax losses from the 2020, 2021, and 2022 income years can be carried back to the 2019, 2020, and 2021 income years
Tax losses from the 2020, 2021, 2022, and 2023 income years can be carried back to the 2019, 2020, 2021 and 2022 income years
The Government also announced they would expand the Boosting Apprenticeship Commencements wage subsidy program by uncapping the number of available places and increasing the duration of the subsidy to 12 months from the employment commencement date.
Digital Economy Strategy
The Government will spend $1.2 billion over six years to boost Australia’s digital economy. These measures include:
Allowing taxpayers to self-assess the effective lives of intangible assets for tax depreciation purposes. Intangible assets include patents, registered designs, copyrights, and in-house software. This is scheduled to commence from 1 July 2023 – after the “full expensing” measure has ended.
A $18.8 million refundable 30% Digital Games Tax Offset from 1 July 2022
Enhancement of the myGov platform
Introduction of a “patent box” regime from 1 July 2022 to apply a corporate tax rate of 17% to income derived from Australian medical and biotechnology patents
Super Guarantee rate
The Government did not announce any changes to the currently legislated timeline of superannuation increases. The timeline remains as follows and the rate will be 10% from 1 July 2021.
Year starting 1 July 2021
Year starting 1 July 2022
Year starting 1 July 2023
Year starting 1 July 2024
Year starting on or after 1 July 2025
Super Guarantee threshold
The Budget included an announcement to remove the current $450 per month minimum income threshold for compulsory superannuation contributions. This will have effect from the start of the first income year after Royal Assent. The expected start date is 1 July 2022. For many small businesses this will mean additional paperwork and administration as they will now need to make superannuation contributions on all wage payments, regardless of how small. For casual and part-time workers it will mean that they will accumulate more in the superannuation which will add up over time.
After a few quiet budgets, from a SMSF perspective, there are some welcome surprises for SMSF trustees in this year’s Federal Budget as detailed below.
Also, it is important to note that the Government did not announce an extension to the halving of the account-based pension minimums. The standard minimum drawdowns will apply from 1 July 2021.
Super Guarantee Increase
The Government will not change the legislated increase in the Super Guarantee (SG) rate in this year’s budget.
SG will increase to 10% from 1 July 2021 and then gradually increase to 12% as follows:
SG Rate %
1 July 2021 – 30 June 2022
1 July 2022 – 30 June 2023
1 July 2023 – 30 June 2024
1 July 2024 – 30 June 2025
1 July 2025 – 30 June 2026 and onwards
Work Test Rule Changes and Extension of Bring Forward Provisions
From 1 July 2022 the work test rules will no longer be required to be met by individuals aged 67 to 74 for voluntary contributions like non-concessional contributions and salary sacrifice contributions. The work test will still apply for individuals aged 67 and 74 for personal deductible contributions and requires that 40 hours is worked in 30 consecutive days prior to making a contribution.
Individuals aged 65 to 74 will also be able to use the bring forward provisions subject to the available caps and meeting the total super balance criteria.
This is a welcome change and will provide much greater flexibility and enable the restructuring of investments and superannuation post retirement.
From 1 July 2022 the existing contributions downsizer scheme will be extended to those age 60 and over.
Currently only those over 65 at the time of making the contribution are eligible.
This will allow individuals aged 60 or over to make a one-off contribution to super of up to $300,000 from the proceeds of selling their family home. The home must have been owned for 10 years and this type of contribution falls outside both the normal non-concessional (after tax) contribution caps and also the total super balance rules.
Removing the $450 per month Threshold for SG eligibility
From 1 July 2022 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.
Legacy Retirement Product Conversions
Retirees in receipt of legacy retirement products such as market-linked, life-expectancy, and lifetime pensions will be given the option to exit these products over a 2 year period commencing from the beginning of the first financial year after Royal Assent. Individuals will have the option to fully commute the underlying capital and reserves into the accumulation phase of super.
Relaxing the Residency Rules for SMSFs and SAFs
The Government will relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA funds (SAFs) by extending the central management and control test safe harbour rule from 2 to 5 years for SMSFs and removing the active asset test for both SMSFs and SAFs. The Government expects this measure will have effect from 1 July 2022.
This will allow SMSF and SAF members to continue to contribute to their super fund whilst temporarily overseas, ensuring consistent treatment with members of large APRA-regulated funds.
Sporting Clubs and other Tax Exempt Organisations
Not-for-profit organisations that are not charities can currently self-assess their income tax exemption if they fall within certain categories. They have no ATO reporting obligations. Eligible organisations include:
community service organisations
certain resource promotion organisations
From 1 July 2023, these organisations will be required to report annually to the ATO. They will need to submit an online form and answer certain questions to confirm their eligibility for tax exemption. The government expects that this will ensure only eligible not-for-profit entities are claiming the income tax exemption and other tax concessions.
Low and Middle Income Tax Offset (LAMITO) Extension
The current LAMITO (capped at $1,080) will continue to apply for the 2022 income year. This is available in addition to the Low Income Tax Offset (LITO) for eligible taxpayers. It will automatically apply as an additional tax refund upon lodgement of your 2022 income tax returns.
Medicare Levy Surcharge Thresholds Remain Unchanged for 2 Years
The Medicare Levy Surcharge thresholds will remain at the same level for the next two years (2022 to 2023 income years).
Simplifying the Tax Residency Rules
The current rule to determine whether an individual is a resident for Australian tax purposes will be modernised. The primary test will now be based on whether an individual is physically present in Australia for 183 days or more in an income year.
Individuals who fail the primary test will be subjected to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
This will take into effect from the first income year after Royal Assent (i.e. Proposed to be in the 2023 income year).
Simplifying Self-Education Expenses
The Government proposed to remove the exclusion of the first $250 of deduction for self-education expenses (which is currently non-deductible). This is to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.
It is proposed that this will take effect from the 2023 income year (from the first year after Royal Assent).
Changes to Taxings of Employee Share Schemes (ESS)
A tax-deferred ESS allows employees to defer paying tax in relation to their Employee Share Schemes (ESS) until the income year in which the taxing point occurs (instead of paying tax in the year they acquire the ESS). This is subjected to the employee and the scheme meeting certain conditions.
Under the current rules, the taxing point is the earliest of:
Cessation of employment
In the case of shares – when there is no risk of forfeiture and no restrictions on disposal
In the case of options – when employee exercises the option and there is no risk of forfeiting the shares and no restriction on disposal
The maximum period of deferral of 15 years.
The Government proposed to remove the cessation of employment as one of the taxing points. This will result in the tax being deferred to the earliest of the remaining taxing points.
This change will apply to ESS issued on or after 1 July 2022 (i.e. In the 2023 income year).
Changes to First Home Super Saver Scheme (FHSSS)
The Government will increase the maximum releasable amount for First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. This change will apply from the first income year after Royal Assent (i.e. 2023 income year). However, it may also be expected to take effect prior to 1 July 2022.
Child Care Subsidies
The Government will contribute an additional $1.7 billion into childcare. From 1 July 2022, the Government will:
Increase the childcare subsidies available to families with more than one child aged five and under in childcare by adding an additional 30% subsidy for every second and third child
Remove the Child Care Subsidy annual cap of $10,560 per child per year.
An additional $17.7 billion over five years will be contributed to the aged care system. This includes:
Increasing funding for Home Care Packages to help support senior Australians to remain at home
Increasing funding for residential aged care to improve and simplify residential aged care services.