Federal Budget 2021-22


FB21H

Kelly+Partners Report

Federal Budget 2021-22 Overview

Our Team of Tax & Superannuation experts summarise the key points for your personal finances, business, private wealth and superannuation.

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Federal Budget 2021-22: Securing Australia's Recovery


Unlike October's Federal Budget, no new large-scale, significant incentives are being introduced. However, to everyone's relief, successful programs introduced in last year's October Federal Budget have been continued, being the temporary full expensing and the loss-carry back measures. ​ ​

Businesses are being encouraged to continue expenditure on assets to secure an immediate tax write-off for depreciable assets that would otherwise be subject to annual depreciation claims under the capital allowance rules. This measure together with the loss carry-back measure can result in some taxpayers securing refunds of prior year taxes!​ ​ ​

This Federal Budget also introduces new targeted changes to the tax system that aims to make Australia more attractive to non-residents, start-ups and new industries, such as:​

  • modernising our tax residency rules;​
  • updating the employee share incentive rules;​
  • changing the tax depreciation rules for eligible intangibles assets such as patents;​
  • introducing a new patent box regime; and
  • ​ other incentives targeting the creative industries and digital games developers.​ ​

Changes to the Super regime were also a key focus of the Government in this year's budget. ​ ​

Key Highlights

FinAnalysis

$161b Budget deficit

The impact of COVID-19 will see the deficit reach $161 billion in 2020-21, improving to $106.6 billion in 2021-22.

Moneyflow

Business Support

$2.1 billion in targeted support for aviation, tourism, arts and international education providers. $1.2 billion to build digital infrastructure, skills and cyber security.

Assets

Extended asset write-off and loss carry-back

Temporary asset write-off extended for another year and loss carry-back expanded to include 2022-23 income year.

TaxCuts

Increased flexibility for super

Various superannuation reforms designed to help retirees boost their super savings, including repealing the super contributions work test, relaxed SMSF residency rules, lump sum Pension Loans Scheme payments

Moneyflow

Encouraging investment in Australia

New patent box for biomedical technology, depreciation for digital intangible assets, and simplifying definition of Australian tax resident

PropertyTax

Housing

First Home Super Save Scheme extended and increased withdrawals of $50,000 from $30,000, another 10,000 first-home buyers will be able to build a new home with a 5% deposit, 10,000 single parents to purchase a home with a 2% deposit.

Personal

 
No changes to personal income tax rates

The Government's Personal Income Plan was designed to lower personal taxation and was to be implemented in three stages. Stage 1 was implemented in June 2018, while Stage 2 commenced in 2021.

Stage 3 of the Government's Personal Income Tax Plan was designed to simplify and flatten the various income tax thresholds and to lower the marginal tax rate for most Australians to 30 per cent or less. This Stage 3 was not changed and remains in place for roll-out in 2024-25.

Rate 2020-21
From 2020-21 Budget
Rate 2024-25
Previously announced
0% $0 — $18,200 0% $0 - $18,200
19% $18,201 - $45,000 19% $18,201 - $45,000
32.5% $45,001 - $120,000 30% $45,001 - $200,000
37% $120,001 - $180,000
45% Above $180,000 45% Above $200,000
LITO Up to $445 LITO Up to $700
 
Extension of tax offsets for low and middle income-earners

A further $7.8 billion in personal income tax cuts will support low and middle income earners worth up to $1,080 for individuals or up to $2,160 for couples.

This is on top of the $25.1 billion of announced tax cuts flowing to households in 2021-22 under the Personal Income Tax (PIT) Plan.

Low and middle income-earner tax offset

Taxable income LMITO
Less than $37,000 $255
$37,001 - $48,000 $255 + 7.5% of income exceeding $37,000
$48,001 - $90,000 $1,080
$90,001 - $126,000 $1,080 - 3% of income exceeding $90,000
More than $126,001 Nil
 
Changes to individual tax residency rules

The previous tax residency rules will be replaced with a new framework with two simple tests:

  • 183-day test: a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident; and
  • Secondary test: where the 183 day test does not apply, secondary tests that depend on a combination of physical presence and measurable, objective criteria will apply.

These new tests will commence in the tax year after Royal Assent, which is likely to be as from July 2022.

 
federal-budget-2021-employee-share-schemes
Changes to deferred taxing point for ESS

Recipients of shares and options under Employee Shares Schemes (ESS) are subject to income tax on either:

  • An upfront basis — when the share or option is received; or
  • Deferred basis — when a 'deferred taxing point' is triggered.

Under the existing ESS rules, the deferred taxing point is the earliest of:

  • Cessation of employment
  • In the case of shares, when there is no risk of forfeiting the shares and no restriction on disposal
  • In the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting shares and no restriction on disposal
  • 15 years

Under the proposed changes, cessation of employment will no longer be a deferred taxing point. This means that employees will no longer be taxed on shares/options that may be subject to ongoing restrictiosn when employment ceases.

Business

 
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Temporary asset write-offs

Temporary asset write-offs will now be available until 30 June 2023. This allows businesses with turnover of up to $5 billion to immediately deduct the full cost of eligible depreciating assets until 30 June 2023.

The 12-month extension will provide eligible businesses with additional time to access the incentive, encouraging them to make further investments, including in projects requiring longer planning times.

All other elements of temporary asset write-offs will remain unchanged, including the alternative eligibility test based on total income and a track-record of investment, which will continue to be available to businesses.

From 1 July 2023, normal depreciation arrangements will apply.

Key requirements

  • Available to businesses with turnover OR total income of less than 2 billion
  • Asset must be acquired after 7:30pm on 6 October 2020 and must be used or held ready for use before 30 June 2023
  • Unlike the instant asset write-off, there is no cost limit for this deduction
 
federal-budget-2021-temporary-loss-carry-back
Temporary loss carry-back extended

Businesses can carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year. The offset is available in the 2021, 2022 and the 2023 income tax returns.

The tax refund will be available when businesses lodge their 2020-21, 2021-22 and now 2022-23 tax returns.

Limitations include:

  • Losses carried back cannot exceed earlier taxed profits
  • The carry-back amount must not generate a franking account credit
  • The company must have lodged tax returns for the loss year and the previous 5 years

Companies can elect where or not to apply the loss carry back. Companies that carry back losses under this measure can still carry losses forward as normal.

 
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Patent box corporate tax concessions

Under the Patent Box Scheme, income derived from Australian medical and biotech patents that have been developed in Australia will be taxed at a concessional rate of 17%, down from the current rate of 30% for large businesses and 25% for SMEs.

The Scheme is intended to encourage investment in, and retention of, Australian medical and biotech patents.

Only granted patents, which were applied for after the Budget announcement, will be eligible.

Over twenty countries currently have patent boxes, including the UK and France. The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards. The Government will consult closely with industry on the design of the patent box and to determine whether a patent box is also an effective way of supporting the clean energy sector. 

 
federal-budget-2021-pause-disputed-debt-collection
ATO debt recovery for small businesses

Small businesses (with turnover of under $10 million) will be able to pause or modify Australian Taxation Office (ATO) debt recovery actions in cases that are under review by the Administrative Appeal Tribunal (AAT). Debt recovery actions include recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest.

Currently when a small business taxpayer has a dispute with the ATO, they can only pause or modify ATO debt recovery actions through the court system.

Small businesses will be able to apply to the new Small Business Taxation Division of the AAT, rather than the court system, to have ATO debt recovery actions paused until their underlying case is decided by the AAT.

 
federal-budget-2021-intangible_assets
Self-assessing intangible assets

Taxpayers will be able to self-asses the tax effective life of eligible intangible depreciating assets (e.g. patents, registered designs, copyrights, and in-house software). The measure is aimed at encouraging investment into the digital economy.

Taking effect from 1 July 2023 (at the inclusion of the temporary asset write-off regime), this will better align the tax life of an asset with the underlying economic benefits provided by the asset.

Private Wealth

 
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Extending access to downsizer contributions

From 1 July 2022, the minimum age for the downsizer contribution will be lowered from 65 to 60. This will allow Australians nearing retirement to make a one-off post-tax contribution of up to $300,000 (or $600,000 per couple) when they sell their family home that they have held for at least the last 10 years.

The measure is designed to make it more flexible for Australians to contribute to their superannuation savings, and may encourage people to downsize sooner and increase the supply of family homes.

Downsizer contributions do not count towards the member's concessional and non-concessional contributions caps, and they form part of the member's tax-free component.

Key requirements

  • The home must be located in Australia and when sold be wholly or partially exempt from capital gains tax under the main residence exemption (or would be entitled if it had been purchased after 20 September 1985)
  • The size of the contribution is limited to the sales proceeds and is only available for one dwelling
  • The contribution is required to be made within 90 days of receiving the proceeds (usually settlement)
  • The member must provide their super fund with the approved Form when making, or prior to making, the contribution

 
federal-budget-2021-pause-disputed-debt-collection
Repealing the work test for voluntary super contributions

From 1 July 2022, the work test requirement will be removed for individuals aged 67-74 to make non-concessional or salary sacrifice super contributions.

Individuals under age 75 will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria (i.e. currently three times the annual non-concessional cap of $100,000 over a period of 3 years — $300,000). Bring forward eligibility is currently limited to age 65 with legislation yet to be passed to increase the age limit to 67.

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 67-74 will still be subject to meeting the work test.

 
federal-budget-2021-pause-disputed-debt-collection
Change to minimum super guarantee threshold

From 1 July 2022, the $450 per month minimum income threshold will be removed. Currently under the threshold, employees are not eligible to receive superannuation guarantee contributions from their employer (unless there is another super guarantee exemption that applies).

The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee contributions each month with this measure and that 63% of these would be women.

The removal of the minimum threshold will mean that changes will be needed to payroll systems for employers.

No change announced to the superannuation guarantee rate increases:

  • From 1 July 2021: Increased from 9.5% to 10%
  • From 1 July 2022 until 1 July 2025: Increased in increments of 0.5% per year
  • From 1 1 July 2025: Rate will reach 12%.
 
federal-budget-2021-smsf-residency-requirements
Relaxing residency requirements for SMSFs and small APRA funds

From 1 July 2022, the residency requirements for SMSFs and small APRA-regulated funds (SAFs) will be relaxed. The Central management and control test safe harbour will be extended from 2 years to 5 years for SMSFs and the active member test will be removed for both funds.

This will allow SMSF members to continue to make contributions to their SMSF while they are temporarily overseas. These proposed changes allow parity with members of large APRA-regulated funds and will provide SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities.

 
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Conversion of legacy income stream SMSF products

Retirees will be provided with a temporary option to transition from legacy retirement products to more flexible and contemporary retirement products. Designed to simplify the retirement system, this measure will promote efficiency and reduce costs in the superannuation system.

Currently, individuals are locked into certain products that restrict access to capital and flexibility of drawdowns, preventing them from effectively using their retirement savings for health, aged care, and other large expenses in retirement.

A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products. Importantly, it will not be compulsory for individuals to take part.

Retirees with these products will be able to completely exit them by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.

Commuted reserves will not be counted towards an individual's concessional contributions cap and will not trigger excess contributions. Instead they will be taxed as an assessable contribution of the fund (15% tax rate). Any existing social security treatment that applies to the legacy income streams will not transition over for those who opt for the conversion and the existing transfer balance cap limits will apply for individuals commuting and starting new income streams.

The Governmnent is recommending that anyone considering taking up this option should seek independent financial advice.

 
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Improving the Pension Loans Scheme (PLS)

From 1 July 2022, the Government will introduce a No Negative Equity Guarantee for Pension Loan Schemes (PLS) and allow people access to a capped advance payment in the form of a lump sum.

Eligible people will be able to receive a maximum lump sum advance payment equal to 50 per cent of the maximum Age Pension. Based on current Age Pension rates, this is around $12,385 per year for singles, while couples combined could receive around $18,670. A maximum of two advances totalling up to the cap amount are permitted in a year, for those who do not want to take an advance in one instalment.

A No Negative Equity Guarantee will mean that borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages.

The PLS is a voluntary, reverse mortgage type loan available to assist older Australians who wish to boost their retirement income by unlocking equity in their real estate assets. Through the PLS, people can receive additional regular fortnightly payments with the payments accruing as a debt secured against their Australian property. The PLS allows a fortnightly loan of up to 150 per cent of the maximum rate of Age Pension and an interest rate, currently set as 4.5 per cent, is charged.

Pension Loans Scheme (PLS)

  Full-rate Age Pension Part-rate Age Pension Self-funded retirees
Existing PLS $12,385 per year for singles and $18,670 for couples Part rate of $12,385 per year for singles and $18,670 for couples $37,155 per year for singles, $56,011 per year for couples
Increased flexibility from 1 July 2022 Full-rate Age Pension + Lump sum of entire annual PLS amount Part-rate Age Pension + Lump sum of up to 50% of full Age Pension Existing amounts under PLS + Lump sum of up to 50% of full Age Pension

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