We have summarised the key points from the 2021-2022 budget, that we believe will have the most impact on our clients.

Please keep in mind that all budget measures below are proposals and will require the passage of legislation to become effective. 

2021 Federal Budget Summary

Individuals

Low and middle income tax offset

The low and middle income tax offset (LMITO) was originally introduced for the 2019 financial year and was extended in the 2021 budget to expire on the 30 June 2021. The LMITO has been extended again to the 30 June 2022.

The LMITO offset amount is between $255 and $1,080 and the amount received is dependant on your taxable income. This is demonstrated in the below table:

Taxable income Offset
$37,000 or less $255
Between $37,001 and $48,000 $255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080
Between $48,001 and $90,000 $1080
Between $90,001 and $126,000 $1080 minus 3 cents for every dollar of the amount above $90,000

Source: https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Low-and-middle-income-earner-tax-offsets/

Self-education expense deductions

To reduce compliance costs and simplify the income tax return the Government is removing the exclusion of the first $250 of deductions for prescribed courses of education. This measure will apply for the first income year after Royal Assent.

Individual tax residency rules

The government is proposing to replace the individual tax residency rules with a new easier to understand framework to provide certainty and reduce compliance costs for globally mobile individuals and their employers.

  • Primary Test - A person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.
  • Secondary tests – Will depend on a combination of physical presence and measurable, objective criteria.

These changes will apply from 1 July following Royal Assent. 


Business

The measures announced in last night's Federal Budget are intended to allow business to invest, grow and create new jobs.

Here are the key summaries of the announcements:

Temporary full expensing of depreciating assets

The temporary full expensing has been extended to 30 June 2023.

  • Applies to eligible businesses with aggregated annual turnover or total income of up to $5 billion
  • Immediate deduction of the cost of eligible depreciating assets
  • Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

Temporary loss carry-back

The Temporary loss carry-back will also be extended to the 30 June 2023. This allows companies to obtain a refund of tax paid in previous income years when they incurred a loss in later income years.

  • Applies to companies with an aggregated annual turnover of up to $5 billion
  • Tax losses incurred during the 2020, 2021, 2022 and 2023 financial years to offset tax paid in 2019 or later years
  • The losses carried back must not generate a franking account deficit
  • The losses carried back cannot be more than earlier year profits
  • The tax refund will be available to companies when they lodge their 2021, 2022 and 2023 tax returns

Patent box

To encourage investment in the Australian medical and biotech technologies the government has introduced a patent box.

  • Applies from 1 July 2022
  • Income derived from Australian medical and biotech patents will be taxed at a concessional tax rate of 17%
  • Only applies to granted patents that were applied for after the budget announcement

The government will also investigate applying the same method of patent box to the clean energy sector.

Employee share scheme

To support Australian companies to attract and retain employees the deferred taxing point of cessation of employment will be removed. After the removal of the cessation of employment taxing point, the measure 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 restrictions on disposal
  • the maximum period of deferral of 15 years.

The Government is also making regulatory improvements to the ESS regime, reducing red tape, by:

  • removing disclosure requirements, and exempting the offer from licensing, anti-hawking and advertising prohibitions for ESS, where employers do not charge or lend to the employees to whom they offer ESS
  • increasing the value of shares that can be issued to an employee with simplified disclosure requirements, and exemptions from licensing, anti-hawking and advertising requirements, from $5,000 to $30,000 per employee per year (leaving unchanged the absence of such a value cap for listed companies), where employers do charge or lend for issuing employees shares in an unlisted company

Applies from 1 July following royal assent. 

Digital games tax offset

The digital games tax offset (DGTO) applies to the digital games development industry in Australia.

  • 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 DGTO will be available in the year when the qualifying expenditure has ceased on a game
  • The maximum DGTO a developer will be able to claim in each year is $20 million
  • The minimum of $500,000 qualifying expenditure has been spent on the game
  • The game must not have gambling elements

Brewers and distillers - Excise refund scheme 

From 1 July 2021, all eligible brewers and distillers 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).

Self-assess the effective life of intangibles

Currently, the effective life of intangible assets are prescribed by the income tax act. Unlike tangible assets taxpayers do not have the ability to self-assess the effective life of intangible.

  • Taxpayers can self-assess the effective life of certain depreciating intangible assets for tax purposes to better align the tax depreciation deductions with the economic benefits provided by the asset.
  • Applies to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.
  • Will apply to eligible assets acquired following the completion of temporary full expensing

Corporate tax residency rules

In the 2020-2021 Budget, the Government announced amendments to clarify the corporate residency test to address uncertainty for foreign incorporated entities. The amendments were to treat companies incorporate offshore as an Australian tax resident if they have a significant economic connection to Australia. The tests will be satisfied when both criteria are meet;

  • The company’s core commercial activities are undertaken in Australia
  • Its central management and control is in Australia

In the 2021-2022 Budget, the Government announced it will consult on broadening this amendment to trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency amendment.

Small business entities increase rights to pause the collection of disputed debts

The Government will make it simpler, faster and cheaper for small businesses to pause or modify Australian Taxation Office (ATO) debt recovery actions in relation to cases under review by the Administrative Appeal Tribunal (AAT) by broadening the AAT’s powers to pause actions until the underlying dispute is resolved.

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 AAT to have ATO debt recovery actions paused until their underlying case is decided by the AAT. Such action includes recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest.


Superannuation Summary

All the changes announced for Superannuation are positive and in the spirit of making super simpler and encouraging Australians to fund their own retirement. We look forward to all the measures being legislated.

No Work Test for Non-Concessional Contributions

Effective 1 July 2022

In very welcome news, the Government will allow anyone aged 67 to 74 to make non-concessional contributions or salary sacrifice contributions without having to meet the work test. Existing Contribution Cap limits remain. Currently, if you are aged 67 -74 you can only make voluntary contributions if you meet a work test - and are working 40 hours in any 30-day period during the year you wish to contribute.

Unfortunately, the new measure is not expected to commence until 1 July 2022.

Once legislated, it will mean that anyone up to the age of 74 can make voluntary contributions to super subject to existing cap limits. Please note that people aged 67-74 who wish to make personal deductible contributions to super will still have to satisfy the existing work test.

This will provide for simpler contribution rules, and importantly allow older Australians to continue to save for retirement using super, up until age 74. This is a very welcome measure.

Downsizer Contributions

Effective 1 July 2022

The Government will reduce the eligibility age to make a downsizer contribution from 65 to 60 from 1 July 2022. The scheme allows a one-off, post-tax contribution of $300,000 per person from selling a house with contributions not counted towards the non-concessional cap. This means that anyone over the age of 60 may contribute up to $300,000 per individual from the sale of a principal place of residence as a Downsizer contribution. Please note that the normal rules around eligibility remain – if unsure, please contact one of our Wealth Managers to ensure you understand your position.

Super Guarantee Threshold

Effective 1 July 2022

The Government will remove the $450 per month minimum income threshold under which employees do not have to be paid the superannuation guarantee from 1 July 2022. The measure is expected to boost the superannuation savings of lower-income Australians, 63% of whom are women, however, will also lead to a reduction in take-home pay under most circumstances.

Given the amount of Super withdrawn under COVID measures in the past two years, this is good news for many casual or part-time workers trying to rebuild their super, although expected to commence from 1 July 2022.

Super Guarantee To Increase

Effective 1 July 2021

The Government has confirmed that the scheduled increase of the Super Guarantee Contribution rate from 9.5% to 10% will proceed from 1 July 2021. This is excellent news for employees, however, may be tough for some employers in the current environment. If you are currently salary sacrificing to super in addition to your Employer Super Guarantee Contributions, you may need to adjust your contributions accordingly.

Legacy Retirement Product Conversions

Effective from the first financial year after the date of Royal Assent of the enabling legislation

Again, in a move that will bring welcome simplicity and relief to people stuck in older super products, the Government will allow individuals to exit a specified range of legacy retirement products, together with any associated reserves, over a two-year period. The legacy retirement products 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.

Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap. This will allow people particularly in Self Managed Super Funds (SMSFs) to simplify their affairs, and in some cases remove unfair assessment of these products under the Transfer Balance Cap rules.

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions. This measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation, so we will watch this space with interest.

Relaxing residency required for SMSF's

Effective 1 July 2022

The Government will relax residency requirements for SMSFs and small APRA regulated funds by extending the central management and control test safe harbour from two to five years for SMSFs and removing the active member test for both SMSFs and small APRA funds. This measure is expected to commence from 1 July 2022.

Given the number of Australians who live and work overseas this is very good news, particularly when some Australians are having to remain overseas for longer than expected due to COVID.

The SMSF Association (of which we are members) advocated for the central management and control test to be increased from two to five years and for the active member test to be removed in their 2021 Federal Budget submission.

The SMSF Association advises that “removing this test significantly simplifies the residency rules for both SMSFs and small APRA funds. This measure will allow SMSF and small APRA fund members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA regulated funds. The removal of the active member test means that as long as the fund was established in Australia (or holds an asset in Australia) and the central management ordinarily remains in Australia, an SMSF member can continue to contribute to a fund of their choice.”

First Home Super Saver Scheme (FHSSS)

Effective 1 July 2022

The Government will increase the maximum amount of voluntary concessional and non-concessional contributions able to be released from FHSSS accounts from $30,000 to $50,000 from 1 July 2022. This means all voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released. The Government has also announced some minor amendments to the administration of the FHSSS to provide additional flexibility to the recipient and the ATO to make amendments to their application and withdrawal amount allowing an increase or decrease of the applied amount prior to a payment being made with no penalty to the recipient.

So far, the First Home Super Saver Scheme has not been a very popular method of saving for your first home deposit, and it will be interesting to see if the increased release amounts will make a difference. There are interesting strategies available to First Home Savers when you combine the ability to make catch up concessional contributions (if your Total Super Balance is under $500,000) with this scheme. If you are on a higher income and can make contributions to super for your future home, you should discuss this with one of our Wealth Managers. High net worth families with the ability to distribute income to their adult children, may also have a useful way of assisting with a house deposit in a tax-effective manner. If you would like to know more – please contact one of our Wealth Managers.

New Super Thresholds

Effective 1 July 2021

With all the ongoing Pandemic coverage it has been easy for most people to miss that several Super thresholds are increasing from 1 July 2021. These measures were already in place and in many cases are indexation of existing amounts flagged some years ago. It is useful to ensure you are aware of the new thresholds from 1 July 2021:

Measure From 1 July 2021 Current
Concessional Contribution Cap $27,500 $25,000
Non-Concessional Contribution Cap $110,000 (or $330,000 over 3 years) $100,000 (or $300,000 over 3 years)
Transfer Balance Cap $1,700,000 $1,600,000
Account Based Pension Payments Return to usual minimum payment levels Usual minimum payment levels halved due to COVID measures
Super Guarantee 10% 9.5%

 


Social Security and Family Assistance Summary

Pension loan scheme

Currently, the Pension Loans Scheme allows older Australians to obtain a voluntary non-taxable fortnightly loan from Centrelink. The loan and all costs and accrued interest must be repaid to the Commonwealth, including from your Estate. Under current rules, the amount you can access as a loan is up to 1.5 times the maximum payment rate of your eligible pension each fortnight.

In the Budget, the Government has announced that they will be increasing the flexibility of the Pension Loans Scheme (PLS) by allowing participants to access up to two lump-sum advances in any 12 month period up to a total value of 50% of the maximum annual rate of the aged pension. Based on current Age Pension rates, the total PLS is around $12,385 per year for singles, while couples combined could receive around $18,670. The Government will also introduce a No Negative Equity Guarantee meaning that the Government will not claim back more than the sale price of the house used to guarantee the payment when it is sold.

Note, the total amount eligible people can receive under the pension loans scheme, including any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.

To raise awareness of the Pension Loan Scheme, the Government will also spend $21 million on advertising and raising awareness of the scheme.

Aged Care

Anyone who has contact with the Aged Care system either as a resident or a family member of a resident will know that the system is in desperate need of a cash injection. The Government announcement of $17.7 billion to be spent on aged care reform is an excellent start and a direct response to the Royal Commission into the quality and safety of the system. The funding includes spending on:

  • $6.5 billion for 80,000 additional Home Care Packages over the next two years
  • $798.3 million to provide greater access to respite care services and payments to support carers
  • $7.8 billion for a new funding model for residential aged care, with a $10 per person per day supplement of the Basic Daily Fee
  • $189.3 million over four years from 2020-21 to implement the new funding model, the Australian National Aged Care Classification (AN-ACC)
  • $117.3 million to support structural reforms, including the implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program

We await further detail with interest and hope that the proposed changes will not make the existing application process more complicated.

Increased support for unemployed Australians

Effective – 1 April 2021

As already legislated, the government has made several changes to working-age payments from 1 April 2021:

  • the base rate of working-age payments has been increased by $50 per fortnight. This increase applies to JobSeeker Payment, Youth Allowance, Parenting Payment, Austudy, ABSTUDY Living Allowance, Partner Allowance, Widow Allowance, Special Benefit, Farm Household Allowance and for certain Education Allowance recipients under the Department of Veterans' Affairs Education Scheme.
  • the income-free area of certain working-age payments has been increased to $150 per fortnight. This applies to JobSeeker Payment, Youth Allowance (other), Parenting Payment Partnered, Widow Allowance and Partner Allowance.
  • the temporary waiver of the Ordinary Waiting Period for certain payments was extended to 30 June 2021
  • the eligibility criteria for JobSeeker Payment and Youth Allowance (other) for those required to self-isolate or care for others due to COVID-19 was extended to 30 June 2021.
  • face-to-face servicing for job seekers has recommenced, implementing a graduated return in job search requirements from 15 per month from April 2021 to 20 per month from July 2021, and mandating job seekers in online employment services to complete their career profile in the jobactive system, to allow better job matching.

Economy

The Australian economy has shown remarkable resilience in the face of the COVID‑19 pandemic with the economy rebounding at the fastest pace on record over the second half of 2020. The economy is now expected to exceed the pre-pandemic level of activity in early 2021, nine months earlier than expected in the 2020‑2021 Budget.

According to Treasury the Australian economy will grow by 1.25% in 2021 and rise by 4.25% in 2021-2022. The Government expects that there will be a decline of 2.25% for both the 2022-2023 and 2023-2024 financial years before growing in the 2024-2025 financial year by 2.5%

Almost one million jobs have been added to the economy since the worst of the crisis. There are now more Australians employed than ever before. The unemployment rate has fallen rapidly and is set to recover five times faster than the recovery from the last recession in the 1990s, reducing the potential for longer‑term damage in the labour market and supporting growth in the medium term.

The unemployment rate grew to 6.9% in 2019-2020 which then declined to 5.5% in 2020-2021. The unemployment rate is expected to fall to 5% in mid‑2022 before falling further to 4¾ % in mid‑2023. The unemployment rate in Australia has only been sustained below 5 %$ once since the early 1970s and in this Budget, we are on a trajectory to do so again.

Over the next four years, the deficit will nearly halve as a stronger economy improves the bottom line. The underlying cash deficit in 2021‑2022 is forecast to be $106.6 billion (5.0 % of GDP). This is expected to improve over the forward estimates to a $57.0 billion deficit (2.4 % of GDP) in 2024‑2025 and to a deficit of 1.3 per cent of GDP by the end of the medium term. These deficits when compared to the deficits in the US budget of 14.7% of GDP in calendar 2020 and 13.9% of GDP in calendar 2021 are mild[1].

Compared to the 2020‑2021 Budget, the underlying cash deficit has improved by $52.7 billion in 2020‑2021. With improved anticipated budget deficits than the Australian recovery will have the ability to support bigger social programs in the years to come.


Brian_Richards_HEADSHOT_round-image_v2Brian Richards LLB B/Bus CTA FCA FCPA

Taxation Specialist, Brian Richards will share his opinion on how the 2021 Federal Budget will shape the nation and impact you, your savings, your business and the community.

To read more, click here


We have broken the full budget down into 6 main categories for usability.

Individual_Summary   Business_Summary   Superannuation_Summary   Social_Security_Summary   Economy_Summary  Other Summary-1

We're here to help

If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.


Sources:

The Commonwealth of Australia, Budget 2021-22, https://budget.gov.au/

Australia Taxation Office, First home super saver scheme,   https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/

SMSF Association 2021-2022 Federal Budget Summary https://www.smsfassociation.com/resource-library/2021-2022-federal-budget-update

FirstTech Federal Budget Briefing 11 May 2021, https://www3.colonialfirststate.com.au/adviser/platforms/news-and-updates/cfs-news/federal-budget-may-2021.html

Australian Government Services, How much can you get, https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-get

https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Low-and-middle-income-earner-tax-offsets/ 

https://budget.gov.au/2021-22/content/factsheets/download/factsheet_tax.pdf

https://budget.gov.au/2021-22/content/bp2/download/bp2_2021-22.pdf 

 

Our liability is limited by a scheme approved under Professional Standards Legislation, except where we provide financial services as an authorised representative of Ulton Wealth Services Pty Ltd (holder of Australian Financial Services License No. 497721). 
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individuals needs and you should seek advice from your financial adviser before making any investment decisions. Sub Authorised Representative No.245052 of Ulton Wealth Management Pty Ltd. All Ulton Wealth Managers can provide financial services as Sub-Authorised Representatives of Ulton Wealth Management Pty Ltd. ABN 73 168 815 450 | Corporate Authorised Representative 460875 of Ulton Wealth Services Pty Ltd | ABN 86 614 308 628 | AFSL 497721.

 

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