Budget Update 2021

Last night, Treasurer Josh Frydenberg delivered a somewhat ‘free spending budget’.

Despite the considerable debt that has been incurred in lieu of the pandemic; Australia’s economic rebound from the COVID-19 has given the government more money to play with than first expected.

The 2021/22 budget sees increased funding to social programs such as disability services, aged care and mental health, as well as women’s economic security. Whilst the underlying intention is to drive employment growth for the country.

We have highlighted some of the key budget announcements to impact small business below:

BUSINESS TAX

Temporary full expensing extension

 

The Government has announced that temporary full expensing will be extended by 12 months to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

 

All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses

Temporary loss carry-back extension

In the prior year (2020/21) Federal Budget, the Government announced amendments to introduce a temporary loss carry-back measure. Broadly, this initial measure allowed ‘corporate tax entities’ with an aggregated turnover of less than $5 billion to carry back tax losses made in the 2020, 2021 and/or 2022 income years to claim a refund of tax paid (by way of a tax offset) in relation to the 2019, 2020 and/or 2021 income years.

In the 2021/22 Federal Budget, the Government has announced that the loss carry-back measure will be extended to allow eligible companies (i.e., with aggregated turnover of less than $5 billion) to also carry back (utilise) tax losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income year. Consistent with the current law, the tax refund available under this measure is limited by requiring that the amount carried back is not more than the earlier taxed profits and does not generate a franking account deficit.

PERSONAL TAX

Modernising the individual tax residency rules

 

The Government has announced that it will replace the individual tax residency rules with a new, modernised framework.

 

The primary test will be a simple ‘bright line’ test – 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.

Low and Middle Income Tax Offset (LMITO)

 

The Government has announced that it will retain the LMITO for one more income year, so that it will still be available for the 2022 income year. Under current legislation, the LMITO was due to be removed from 1 July 2021. The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers and is available in addition to the Low Income Tax Offset (‘LITO’). The LMITO is proposed to apply as follows for the 2022 income year:

 

  • $37,000 or less            Up to $255
  • $37,001 to $48,000      $255 + 7.5% of excess over $37,000
  • $48,001 to $90,000      $1,080
  • $90,001 to $126,000    $1,080 – 3% of excess over
  • $90,000 $126,001+      Nil

Increasing the Medicare levy low-income thresholds

 

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

 

  • 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.
  • The threshold for single seniors and pensioners 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, up from the previous amount of $3,533.

SUPERANNUATION

Removing the work test for voluntary contributions

 

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.

 

Currently, individuals aged 67 to 74 years (inclusive) can only make voluntary contributions (both concessional and non-concessional) to their superannuation fund, or receive contributions from their spouse, if they satisfy the work test (subject to a limited work test exemption). Generally, to satisfy the work test, an individual must be working for at least 40 hours over a period of not more than 30 consecutive days in the income year the relevant contribution is made.

 

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

Removing the $450 per month threshold for Superannuation Guarantee (‘SG’) eligibility

 

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

 

The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

Should you wish to discuss any of the above further, please feel free to contact us.