Last night the Federal Government handed down the Budget for 2021/22. A big spending budget designed to support Australia’s economic recovery and business investment.
The budget contains a number personal and business tax measures that you may need to be aware of.
PERSONAL TAX MEASURES
Changes to individual tax residency rules
The Government will replace the individual tax residency rules with a new and arguably simpler framework.
A ‘bright line’ primary test will be introduced, resulting in a person who is physically present in Australia for 183 days or more in any income year being treated an Australian tax resident (subject to the application of applicable Double Tax Agreements). Individuals who do not meet this primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
This new framework is based on recommendations made by the Board of Taxation in 2019 and is welcome. However, it remains to be seen how the secondary tests will be implemented.
Personal income tax
- The low-and middle-income tax offset will be retained for the 2021/22 year. The offset was intended to be an interim measure under the “Personal Income Tax Plan” but has been retained despite the tax cuts having been brought forward to the 2020/21 income tax year.
- The non-deductibility of the first $250 of self-education expenses for prescribed courses of education will be removed.
- Individual resident tax rates for 2020-21:
|Taxable income||Tax on this income|
|0 – $18,000||Nil|
|$18,001 – $45,000||19 cents for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45 cents for each $1 over $180,000|
The above rates do not include the Medicare levy of 2%
The following changes to superannuation are expected to have effect from 1 July 2022:
- The $450 per month minimum income threshold for the superannuation guarantee will be removed. This means that employers will now have to pay the superannuation guarantee for employees earning below that monthly threshold. For employees, whose employment terms provide that pay is calculated exclusive of super, this may require employers to pay the superannuation guarantee (which will be 10.5% from 1 July 2022) on top of their existing pay. For other employees, this may mean that their take home pay will be reduced by the amount of superannuation guarantee paid, although the overall amount received will stay the same.
- Individuals aged 67 to 74 years will be allowed to make non-concessional contributions or receive salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. The work test requires that individuals work at least 40 hours over a 30-day period in the relevant financial year. Individuals will still have to meet the work test to make personal deductible contributions.
- The maximum releasable amount of contributions under the First Home Super Saver Scheme will be increased from $30,000 to $50,000. This scheme allows individuals to release voluntary contributions along with associated earnings for the purpose of buying their first home.
- The eligibility age to make downsizer contributions to super will be reduced from 65 to 60 years of age. A downsizer contribution allows individuals selling their main residence to contribute up to $300,000 from the disposal proceeds into their super.
- The residency requirements for self‑managed superannuation funds (SMSFs) and small APRA‑regulated funds (SAFs) will be relaxed 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 will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas.
In conjunction with the Government’s recent media release on 8 May 2021 to improve opportunities for home ownership, the Government has committed to:
- The Australian Government has announced a new program called The Family Home Guarantee, which provides eligible single parents with dependants the opportunity to build a new home or purchase an existing home with a deposit of two per cent, subject to the individual’s ability to service a home loan. From 1 July 2021, 10,000 Family Home Guarantees will be made available over four financial years.
The Family Home Guarantee is aimed at single parents with dependants, regardless of whether that single parent is a first home buyer or previous owner-occupier. Applicants must be Australian citizens, at least 18 years of age and have an annual taxable income of no more than $125,000.
- The New Home Guarantee is being extended for a second year with an additional 10,000 guarantees. This will assist first home buyers wanted to build a new home or purchase a newly built home with a deposit of five per cent.
- The First Home Super Saver Scheme (as noted above) will be continued, with the maximum amount of voluntary contributions increasing from $30,000 to $50,000.
BUSINESS TAX MEASURES
Temporary loss carry-back rules extended.
The 12-month extension will allow eligible businesses with aggregated turnover of less than $5 billion to carry back tax losses from the 2022/23 income year to offset previously taxed profits as far back as the 2018/19 income year when they lodge their 2022/23 tax return.
The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry‑back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Temporary instant asset write-off of assets extended.
The instant asset write-off was introduced in last year’s federal budget and were due to end in 2021/22.
The 12-month extension will allow eligible businesses with aggregated turnover of less than $5 billion to deduct the full cost of all new depreciable assets and the cost of improvements to existing eligible assets acquired from 7 October 2020 and first used or installed ready for use by 30 June 2023.
Self‑assessing the effective life of intangible depreciating assets.
Taxpayers will be allowed to self‑assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in‑house software. This measure will apply to assets acquired from 1 July 2023, after the temporary instant asset write-off of assets regime has concluded.
The tax effective lives of intangible assets are currently fixed, whereas the effective lives of tangible assets can already be self-assessed. Allowing taxpayers to self‑assess the tax effective life of assets allow for a better alignment of tax outcomes with the underlying economic benefits provided by the asset.
Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.
Introduction of a patent box tax concession
To encourage innovation in Australia, corporate income derived from patents will be taxed at a concessional effective corporate tax rate of 17%, compared to the headline corporate tax rate of 30% for large businesses and 25 per cent for small to medium businesses.
The patent box will apply to income derived from Australian medical and biotechnology patents that has been developed domestically. The Government will also consult on whether a patent box would be an effective way of supporting the clean energy sector.
The concession will apply for income years starting on or after 1 July 2022, allowing time for both industry consultation and to design the scheme.
The requirement for domestic development is designed to encourage additional investment and hiring in research and development activity and encourage companies to develop and apply their innovations in Australia.
Digital games tax offset
To encourage Australian participation in the $250 billion global games development industry, a Digital Games Tax Offset for expenditure on qualifying Australian games expenditure of at least $500,000 will be introduced. The Government will consult with industry on the criteria and definition of qualifying expenditure, but games with gambling elements or that cannot obtain a classification rating will not be eligible. The refundable offset of 30% will be available from 1 July 2022 to Australian resident companies and foreign resident companies with a permanent establishment in Australia, and the maximum claim per year is $20 million.
Employee Share Schemes
The Government is supporting Australian companies by removing the cessation of employment taxing point for tax-deferred employee share schemes. By removing the cessation of employment taxing point, the measure will result in tax being deferred until the earliest of the remining taxing points:
- For shares – when there is no risk of forfeiture and no restrictions on disposal; or
- For options – when the employee exercises the option and there is no risk of forfeiting the resulting share and no restrictions on disposal; or
- Maximum period of deferral of 15 years.
The amendment is intended to attract and retain talent within Australia.