Earlier tonight, the Treasurer handed down the 2021-22 Federal Budget.
For your information, I’ve listed out some of the key budget measures announced, as well as the overall economic update contained within the budget papers.
Economic Update
Forecast Budget Positions
- 2020-21 -$161.0bn (down from -$213.7bn previously forecast)
- 2021-22 -$106.6bn (down from -$112.0bn previously forecast)
- 2022-23 -$99.3bn
GDP
- 2020-21 -1.25% (up from -1.50% previously forecast)
- 2021-22 4.25% (down from 4.75% previously forecast)
- 2022-23 2.50%
Unemployment Rate
- 2020-21 5.50% (down from 7.25% previously forecast)
- 2021-22 5.00% (down from 6.50% previously forecast)
- 2022-23 4.75%
CPI
- 2020-21 3.50% (up from 1.75% previously forecast)
- 2021-22 1.50% (unchanged)
- 2022-23 2.25%
ATO-specific Budget Measures
No Specific Budget Measures announced.
Fringe Benefits Tax Changes
No Specific Budget Measures announced.
Individual Income Tax Rate Changes
Retaining the LMITO for the 2021-22 income year
The Government will retain the LMITO for the 2021-22 income year, providing further targeted tax relief for lowand middle-income earners.
The LMITO provides a reduction in tax of up to $1,080. It provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080. For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.
Increasing the Medicare Levy Low-Income Thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2020 to take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.
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. For single seniors and pensioners, the threshold 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 instead of the previous amount of $3,533.
Self-Education Expenses
The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
The first $250 of a prescribed course of education expense is currently not deductible. Removing the $250 exclusion for prescribed courses of education will reduce compliance costs for individuals claiming self education expense deductions.
Instant Asset Write Off (yes, it still deserves its own heading)
The Government will extend the 2020-21 Budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023 to further support business investment and the creation of more jobs.
Temporary full expensing will be extended 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.
The 12-month extension will provide eligible businesses with additional time to access the incentive. This will encourage businesses to make further investments, including in projects requiring longer planning times, and continue to support economic recovery in 2022-23. 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. From 1 July 2023, normal depreciation arrangements will apply.
Note – the passenger vehicle (car) depreciation limit for passenger motor vehicles of $59 136 will continue to apply.
Small Business Budget Measures
Increased powers for the Administrative Appeals Tribunal (AAT)
The Government will extend the power of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action in relation to disputed debts that are being reviewed by the Small Business Taxation Division (SBTD) of the AAT.
Small business entities that file an application in relation to tax matters before the SBTD of the AAT on or after the commencement date will be able to apply for a pause or modification of the Commissioner’s debt recovery actions, until the underlying dispute has been decided by the AAT.
Temporary loss carry-back extension
The extension will allow eligible companies to carry back (utilise) 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.
Loss carry-back encourages businesses to invest, utilising the 2021-22 Budget measure titled Temporary full expensing extension by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions.
Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry-back. 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.
Superannuation Budget Measures
Early Release of Superannuation for victims of family and domestic violence
The Government will not proceed with a measure to extend early release of superannuation to victims of family and domestic violence.
First Home Saver Scheme
The Government will increase the maximum releasable amount of voluntary concessional and nonconcessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Downsizer Superannuation Contributions
The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
Repeal of the Work Test for Voluntary Superannuation Contributions
The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
Removing the $450/month threshold for Superannuation Guarantee
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. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
SMSFs – relaxing Residency Requirements
The Government will relax residency requirements for self-managed superannuation funds (SMSFs) 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. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
This measure will allow SMSF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds. This will provide SMSF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities.
Other Business Measures
Apprentice Wage Subsidy – Expansion
The Government will provide an additional $2.7 billion over four years from 2020-21 to expand the Boosting Apprenticeship Commencements wage subsidy to further support businesses and Group Training Organisations to take on new apprentices and trainees.
This measure will uncap the number of eligible places and increase the duration of the 50 per cent wage subsidy to 12 months from the date an apprentice or trainee commences with their employer.
From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.
JobTrainer Fund
The Government will provide $506.3 million over two years from 2021-22 to extend the JobTrainer Fund. This includes an additional $500.0 million in funding for the National Partnership Agreement on the JobTrainer Fund, to be matched by contributions from the states and territories, to deliver around 163,000 additional low fee and free training places in areas of skills need, including 33,800 additional training places to support aged care skills needs and 10,000 places for digital skills courses.
Eligibility for the Fund will be expanded to include selected employed cohorts that are continuing to be affected by COVID-19. This measure also includes $6.3 million for a campaign to encourage take-up of training opportunities.
Patent Box – Tax Concession for Medical & Biotechnology Innovations
The Government will introduce a patent box tax regime to further encourage innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17 per cent, with the concession applying from income years starting on or after 1 July 2022.
The patent box will apply to income derived from Australian medical and biotechnology patents. The Government will also consult on whether a patent box would be an effective way of supporting the clean energy sector.
SME Recovery Loan Scheme
The Government will support the economic recovery of, and provide continued assistance to, firms that received JobKeeper or are eligible flood-affected businesses through the SME Recovery Loan Scheme.
The Government will provide participating lenders with a guarantee for 80 per cent of secured or unsecured loans of up to $5 million for a term of up to 10 years and with interest rates capped at 7.5 per cent, with some flexibility around variable rate loans.
Loans can be used by the SME for a broad range of business purposes, including to support investment and refinancing existing loans. Lenders will be able to offer borrowers a repayment pause of up to two years.
To be eligible, SMEs, including self-employed individuals and non-profit organisations, will have a turnover of up to $250 million and have been either:
- recipients of the JobKeeper Payment between 4 January 2021 and 28 March 2021; or
- located or operating in a local government area that has been disaster declared as a result of the March 2021 New South Wales floods and were negatively economically impacted.
Other Taxation Measures
2021 Storms and Floods – Tax Treatment
The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.
Digital Economy Strategy – Intangible Depreciating Assets
The Government will allow taxpayers 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 full expensing regime has concluded.
Employee Share Schemes
The Government will remove the cessation of employment taxing point for the tax- deferred Employee Share Schemes (ESS) that are available for all companies. This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.
The Government will also reduce red tape for ESS by:
- removing regulatory requirements for ESS, where employers do not charge or lend to the employees to whom they offer ESS
- where employers do charge or lend, streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.
Modernising the Individual Tax Residency rules
The Government 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.
Not for Profit Income Tax Exemptions
The Government will provide $1.9 million capital funding in 2022-23 to the ATO to build an online system to enhance the transparency of income tax exemptions claimed by not-for-profit entities (NFPs).
Currently non-charitable NFPs can self-assess their eligibility for income tax exemptions, without an obligation to report to the ATO. From 1 July 2023, the ATO will require income tax exempt NFPs with an active Australian Business Number (ABN) to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption.
Other Notable Budget Measures
Agriculture 2020
The Government will provide $850.4 million over five years from 2020-21 for a package of measures to back-in the farm sector’s ambition of a $100 billion industry by 2030, support Australia’s soils and biodiversity stewardship, and maximise the benefits of Australia’s fisheries and forestry resources.
Respect@Work
The Government will provide further funding over four years to implement its response to the Respect@Work Report. Funding includes:
- $9.3 million over four years from 2021-22 to support the implementation of the Government’s response to the Respect@Work: Sexual Harassment National Inquiry Report; including for the Respect@Work Council Secretariat
- $6.0 million over four years from 2021-22 to the Workplace Gender Equality Agency and the Australian Public Service Commission to strengthen reporting on sexual harassment prevalence, prevention and response
- funding for additional legal assistance for specialist lawyers with workplace and discrimination law expertise.
As part of this measure, Comcare will provide sexual harassment education to Workplace Health and Safety (WHS) inspectors and employers within the Commonwealth WHS system.
Family Law System
The Government will provide $123.8 million over four years to support the reform of the family law system and improve access and safety for children and families.
Building Australia’s Resilience
The Government will provide $1.2 billion over five years from 2020-21 to improve Australia’s capability to better prepare for, respond to, and recover from natural disasters.
As part of this measure, the Government will establish a new national agency to help support local communities respond to large-scale natural disasters and undertake new initiatives to manage the impact of future events and the changing climate. This will see the separation of the Government’s response and recovery functions, with Emergency Management Australia (EMA) in the Department of Home Affairs to co-ordinate responses to national emergencies and a new National Recovery and Resilience Agency (NRRA) to lead resilience to and recovery from hazards and disasters. Both agencies will work closely with state and territory counterparts.
COVID-19 Response Package – Aviation and Tourism support
The Government will provide $1.8 billion over four years from 2020-21 to continue to support the aviation and tourism sectors as part of the Government’s response to the COVID-19 pandemic, support transition to recovery, and stimulate tourism.
Digital Economy Strategy
The Government will provide $1.2 billion over six years from 2021-22 (including $127.7 million in capital funding over two years from 2021-22) for the Digital Economy Strategy, to support Australia to be a leading digital economy and society by 2030. The Digital Economy Strategy is about investing in the settings, infrastructure and incentives to grow Australia’s digital economy to ensure businesses across all sectors are able to lift productivity and be globally competitive. The Digital Economy Strategy includes support for the following priorities:
- Enhancing our Artificial Intelligence (AI) capability
- Investing in emerging aviation technologies
- Investment incentives
- Unlocking the value of data
- Digital infrastructure and skills
- Enhancing Government Services Delivery
- Small and Medium Enterprise (SME) digitalisation
- Improving safety, security and trust
Royal Commission into Defence and Veteran Suicide
The Government will provide $174.2 million over two years from 2021-22 for a Royal Commission into Defence and Veteran Suicide.
Women’s Economic Security Package
The Government will provide $1.8 billion over five years from 2020-21 to improve women’s workforce participation and economic security. Funding includes:
- $1.7 billion over five years from 2020-21 (and $671.2 million per year ongoing) to assist families by reducing out of pocket costs and supporting parental choice through increasing the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and subsequent children aged five years and under in care, up to a maximum CCS rate of 95 per cent for these children, commencing on 11 July 2022; and removing the CCS annual cap of $10,560 per child per year commencing on 1 July 2022
- $42.4 million over seven years from 2021-22 to establish the Boosting the Next Generation of Women in Science, Technology, Engineering and Mathematics (STEM) Program by co-funding scholarships for women in STEM in partnership with industry
- $38.3 million over five years from 2021-22 to increase grant funding available through the Women’s Leadership and Development Program
- $13.9 million over four years from 2021-22 to establish an Early Stage Social Enterprise Foundation focused on providing capacity building and financial support for early stage social enterprises that improve the safety and economic security of Indigenous women
- $12.2 million over two years from 2021-22 to fund an additional round of the National Careers Institute Partnership Grants program to support projects that facilitate career opportunities and career pathways for women
- $10.7 million over two years from 2021-22 to extend the family law small claims property pilot and Legal Aid Commission family law property mediation trial for settlement of property of less than $500,000 following a relationship breakdown
- $2.6 million over three years from 2021-22 to expand the Career Revive program to support more medium to large regional businesses attract and retain women returning to work after a career break
- $0.6 million over three years from 2021-22 for the Women in STEM Ambassador to develop an evaluation toolkit to support standardised evaluation planning and reporting tools for the STEM sector in the evaluation of STEM gender equity initiatives. Funding for this will be met from within the existing resources of the Department of Industry, Science, Energy and Resources
- expanding the Mid-Career Checkpoint Program to Victoria, beyond existing pilots in Queensland and New South Wales, and expanding eligibility to include people who have been absent from work due to caring responsibilities for six months or more and existing workers at risk of unemployment, primarily targeting female dominated, COVID-19 affected industries. Training grants of up to $3,000 will also be available to support skills and training needs to increase employability and support career advancement. Funding for this will be met from within the existing resources of the Department of Education, Skills, and Employment.
Women’s Safety
The Government will provide $998.1 million over four years from 2021-22 (and $2.3 million in 2025-26) for initiatives to reduce, and support the victims of Family, Domestic and Sexual Violence (FDSV) against women and children.
Universal Access to Pre-School
The Government will provide $1.6 billion over four years from 2021-22 (and $589.0 million per year ongoing) to make an ongoing Commonwealth funding contribution to preschool.
Aged Care
The Government will provide a $17.7 billion whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety (the Royal Commission).
COVID-19 Response Package
The Government will provide $879.0 million over two years from 2020-21 to continue the health response to the COVID-19 pandemic, to support access to health care services and reduce the risk of community transmission of COVID-19.
The Government will provide $845.3 million over two years from 2020-21 to support the Government’s emergency response to COVID-19. Funding includes:
- $487.0 million over two years from 2020-21 to expand quarantine services in the Northern Territory. The cost of this measure will be partially recovered from people who quarantine at this facility
- $271.5 million in 2020-21 to extend activities under the National Partnership on the COVID-19 Response
- $86.8 million over two years from 2020-21 to expand activities of the National Incident Centre and to support the National Medical Stockpile.
The Government will provide $1.9 billion over five years from 2020-21 to distribute and administer COVID-19 vaccines to residents of Australia.
The Government will provide funding to the Department of Industry, Science, Energy and Resources to work with the Department of Health to develop an onshore mRNA vaccine manufacturing capability in Australia.
Sport 2030
The Government will provide $243.2 million over four years from 2020-21 to continue support for the implementation of the national sport plan, Sport 2030. Funding is also being provided for initiatives to support sport and physical activity in the Australian community.
Mental Health
The Government will provide $2.0 billion over four years from 2021-22 for the National Mental Health and Suicide Prevention Plan, including initiatives to be progressed with states and territories for a new national agreement on mental health and suicide prevention.
Emissions Reduction and New Investments
The Government will provide $1.6 billion over ten years from 2021-22 (including $761.9 million over four years from 2021-22) to incentivise private investment in technologies identified in the Government’s Technology Investment Roadmap and Low Emissions Technology Statements, grow new export industries, create jobs and reduce emissions.
Budget/Tax Questions?
If you have any questions about tonight’s budget, or would like to discuss some of the specific measures, please don’t hesitate to get in touch.
