The Federal Budget 2021/22 Explained
The Federal Budget for 2021/22 was announced yesterday, 11th May 2021. Here’s the highlights including tax measures, superannuation changes and extensions to Government support post-covid.
Tax Related Measures
Personal tax rates:
No changes to personal tax rates
LMITO retained for 2021/22:
The Low and Middle Income Tax Offset (LMITO) will be retained for the 2021/22 financial year. This provides a tax reduction ranging up to $1,080 for individuals and $2,160 for couples.
Instant asset write off extended:
The Government’s temporary ‘full expensing’ scheme has been extended until 30th June 2023. The scheme allows businesses with an annual turnover of less than $5 billion to immediately write off the costs of assets, rather than depreciating them. Eligible businesses can write-off eligible assets acquired from 7:30pm 6th October 2020 and first used/installed ready for use by 30th June 2023.
Loss carry-back extended:
The Government’s loss carry-back scheme announced October 2020 will be extended to include the 2021/22 financial year. The scheme allows eligible corporate entities that had a previous income tax liability in a relevant year, and have subsequently made taxable losses, to claim a refund tax offset up to the amount of their previous liability. Eligible corporate entities with less than $5 billion in turnover in a relevant loss year can carry-back losses made in the 2019/20, 2020/21, and 2021/22 income years to a prior income tax liability in 2018/19, 2019/20 and 2020/21 income years.
Individual residency test reformed:
The Government will replace existing tax residency tests with a primary “bright line” test. Under this test, a person who is physically present in Australia for 183 days or more in any financial year will be an Australian tax resident.
Employee share schemes:
The Government will remove the cessation of employment as a taxing point for the tax deferred employee share schemes.
ATO debt recovery:
The AAT will be given the power to pause or modify ATO debt recovery action in relation to disputed debts of small businesses.
The threshold of $250 is to be removed.
Superannuation Related Measures
Super contribution work test:
The test is to be repealed from 1st July 2022 for salary sacrificed and voluntary non-concessional contributions for those aged under 75 years. However, the work test will still be applicable for personal deductible contributions by those aged 67-74 years.
SMSF residency rules:
The rules are to be relaxed by removing the active member test for both SMSF and small APRA funds, as well as extending the central management and control test safe harbour from 2 to 5 years.
Super Guarantee threshold removed:
The $450 per monthly minimum income threshold is to be removed from 1st July 2022.
The eligibility age for downsizer contributions is to be lowered from 65 down to 60 years of age.
First Home Super Scheme:
The scheme will be extended for withdrawals up to $50,000. There are also some technical changes for tax and administration errors in applications.
Domestic violence victims:
The Government will not be proceeding with it’s previous proposal to extend early release of super to victims of family and domestic violence.
Pension Loans Scheme:
The scheme will be expanded to allow access up to 2 lump sums in any 12-month period (up to a total of 50% of the maximum annual Age Pension); together with a Government guarantee that “No Negative Equity” will apply.
Conversions of legacy income streams:
Individuals will be permitted to exit certain legacy income stream products, together with any associated reserves, for a 2-year period. Any commuted reserves will not be counted towards an individual’s concessional contribution cap, and will instead be taxed as an assessable contribution for the fund. This scheme excludes flexi-pensions or lifetime products in APRA-funds or public sector schemes.
Super Guarantee rate increase:
The rate increase is to go ahead as planned, changing from 9.5% to 10% for 2021/22.
The Federal Budget 2021/22 further allocates $1.9 billion for vaccine rollout.
Budget provides $1.5 billion for COVID-related health services, including testing and tracing, respiratory clinics and telehealth.
Revenue and expenditure:
– Total 2021-22 revenues seen at $496.6 billion (23.3% of GDP) before rising to $578 billion in 2024-25.
– Expenses are seen falling by 12.3% in 2021-22 to $589.3 billion reflecting the cessation of the Government’s temporary welfare measures. As a percentage of GDP, total expenses are estimated to reach 32% in 2020-21 and then decline over the forward estimates to 26.4% in 2024-25.
– Net debt is expected to rise to 34.2% of GDP at June 2022 and peak at 40.9% of GDP at June 2025, before decreasing to 37% of GDP at June 2032.
– Gross debt is projected to rise to surpass $1 trillion at 2022-23 from $829 billion at 2020-21.
– Government to help another 10,000 first-home buyers build a new home with a 5% deposit.
– Some 10,000 single parents to purchase a home with a 2% deposit.
– Increasing the amount that can be released under the First Home Super Saver Scheme to $50,000 from $30,000.
– To allow those aged over 60 to contribute up to $300,000 to their superannuation fund if they downsize their home, freeing up more housing stock for younger families.
– Budget provides a further $2.1 billion in targeted support for aviation, tourism, arts and international education providers.
– Tax relief for around 1,000 small brewers and distillers.
– Double its commitment to the “JobTrainer” fund to help create new apprenticeships and traineeships.
– Investing $1.2 billion to build digital infrastructure, skills and cyber security.
– Launching a new patent box, under which income earned from new patents developed in Australia will be taxed at a concessional 17% rate. The patent box will apply to the medical and biotech sectors.
Women, welfare and safety:
– $1.7 billion investment in childcare to help boost workforce participation and women’s economic security.
– New $1.1 billion funding for women’s safety which would deliver more emergency accommodation, legal assistance, counselling and financial support.
– To remove $450 monthly minimum income threshold for superannuation guarantee to help improve economic security for women.
– Announces $15 billion in additional infrastructure commitments, including for a new intermodal terminal in Melbourne and a new airport in NSW
– To spend $13.2 billion over 4 years for National Disability Insurance Scheme.
– To commit $17.7 billion in new aged care funding.
– A $2.3 billion commitment to mental health care and suicide prevention.
– To commit $2 billion to fund preschools.
– To provide more than $19 billion in funding for universities in 2021-22.
– A $10 billion government guarantee to make insurance more affordable in Northern Australia.
– More than $600 million for community and household projects to mitigate the impact of natural disasters.
– $170 million to boost internet and mobile coverage in regional Australia, particularly in bushfire-prone areas.
– The Budget provides over $480 million in new funding for the environment, including $100 million to protect oceans.
– Investing $1.6 billion to fund priority technologies, including clean hydrogen and energy storage.
– The Budget provides $1.9 billion over the decade to strengthen national security, law enforcement and intelligence agencies.
30% Digital games Tax Offset – For eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure (excluding gambling) from 1 July 2022.
Intangible assets depreciation – Option to self-assess effective life for certain intangible assets (eg intellectual property and in-house software).
Brewers and distillers – The excise refund cap for small brewers and distillers will increase to $350,000 from 1 July 2021.
Venture capital – A review of the venture capital tax concessions will be undertaken in 2021.
Child care – Increased subsidies from 1 July 2022.
Access the full Federal Budget 2021/22 Documents here.
Contact our office if you’re after more information on specific information that relates to your personal situation.