On Tuesday night (May 11th 2021) the Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2021 Federal Budget. We have now reviewed all aspects of the Budget and our analysis summarises what it may mean for you and/or your business and superannuation fund.
On the personal taxation front, the proposed changes include an extension to the low and middle income earner tax offset, modernising the tax residency rules and simplifying self-education deductions.
For businesses, there are proposed extensions to full expensing and loss carry back rules, as well as a number of employment boosting initiatives.
The superannuation changes include First Home Super Saver Scheme improvements, a reduction in the downsizer contribution minimum age, repeal of the work test and changes to the SMSF residency rules and legacy products.
There are also changes for not-for-profits, philanthropy, child-care, social security and significant expenditure on aged care.
This summary provides coverage of the key issues we believe will be of most interest to our clients.
Personal income tax
- Retaining LAMITO
- Modernising the individual tax residency rules
- Reducing compliance costs for individuals claiming self-education expense deductions
- Medicare levy thresholds for 2020-21.
- Temporary full expensing extension
- Temporary loss carry-back extension
- Digital Economy Strategy — self-assessing the effective life of intangible depreciating assets
- Addressing Workforce Shortages in Key Areas — JobTrainer Fund — extension
- Building Skills for the Future — Boosting Apprenticeship Commencements wage subsidy — expansion
- Getting Vulnerable Australians Back into Work — additional support for job seekers
- SME Recovery Loan Scheme
- Employee Share Schemes — removing cessation of employment as a taxing point and reducing red tape
- Patent Box — tax concession for Australian medical and biotechnology innovations.
- First Home Super Saver Scheme — increasing the maximum releasable amount to $50,000
- First Home Super Saver Scheme — technical changes
- Reducing the eligibility age for downsizer contributions
- Repealing the work test for voluntary superannuation contributions
- Removing the $450 per month threshold for superannuation guarantee eligibility
- Early release for victims of family and domestic violence
- Legacy retirement product conversions
- SMSFs — relaxing residency requirements
- Transfer of superannuation to the KiwiSaver Scheme.
Not-for-profits and philanthropy
- Not-for-profits — enhancing the transparency of income tax exemptions
- Philanthropy — updates to the list of specifically listed deductible gift recipients.
- Child care subsidy
- Other measures
- Increasing the Flexibility of the Pension Loans Scheme
- Enhancing Welfare Integrity Arrangements
- Increased support for unemployed Australians
- Whole-of-government response to Royal Commission into Aged Care Quality and Safety
Personal income tax
Retaining LAMITO in the 2021-22 income year
The Government will retain the low and middle income tax offset (LAMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners.
The LAMITO provides a reduction in tax of up to $1,080. Taxpayers with a taxable income of $37,000 or less will benefit by up to $255 in reduced tax. 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 $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with current arrangements, the LAMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.
|Taxable income ($)||LAMITO for 2020-21 and 2021-22|
|0 – 37,000||$255|
|37,001 – 48,000||$255 + (Taxable income – 37,000) * 7.5%|
|48,001 – 90,000||$1,080|
|90,001 /126,000||$1,080 – (Taxable income – 90,000) * 3%|
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. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers.
The new framework, based on recommendations made by the Board of Taxation in its 2019 report to Government Reforming individual tax residency rules — a model for modernisation, will be easier to understand and apply in practice, deliver greater certainty, and lower compliance costs for globally mobile individuals and their employers.
Reducing compliance costs for individuals claiming self-education expense deductions
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.
Medicare levy thresholds for 2020-21
The Government has increased the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2020-21 income year. The increases take account of recent movements in the consumer price index so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
The threshold for singles has increased from $22,801 to $23,226. The family threshold has increased from $38,474 to $39,167. For single seniors and pensioners, the threshold has increased from $36,056 to $36,705. The family threshold for seniors and pensioners has 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.
Temporary full expensing extension
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.
Temporary loss carry-back extension
The Government will further support Australia’s economic recovery and business investment by extending the 2020-21 Budget measure titled JobMaker Plan — temporary loss carry-back to support cash flow. 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.
Digital Economy Strategy — self-assessing the effective life of 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.
The tax effective lives of such assets are currently set by statute. Allowing taxpayers to self-assess the tax effective life of an asset will allow for a better alignment of tax the tax treatment of these assets with that of most tangible assets.
Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.
This measure will allow taxpayers to adopt a more appropriate useful life and encourage investment and hiring in research and development.
Addressing Workforce Shortages in Key Areas — JobTrainer Fund — extension
The Government will provide $506.3 million over two years from 2021-22 to extend the JobTrainer Fund. This includes an additional $500 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.
Building Skills for the Future — Boosting Apprenticeship Commencements 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.
The Government will also provide 5,000 additional gateway service places and in-training support services to encourage and support more women commencing in non-traditional trade occupations.
The Incentives for Australian Apprenticeships Program will be delayed by three months to commence on 1 October 2021, replacing the current Australian Apprenticeships Incentive Program (AAIP) with a simplified Australian Apprenticeships pathway, which will be easier for employers to access and navigate. The AAIP and Additional Identified Skills Shortage payments will also be extended to 30 September 2021 to ensure eligible apprentices continue to receive support throughout the deferral period and minimise disruption to apprentices and their employers.
This measure builds on the 2020-21 Budget measure titled JobMaker Plan — boosting apprenticeships wage subsidy.
Getting Vulnerable Australians Back into Work — additional support for job seekers
The Government will provide $258.6 million over four years from 2020-21 to increase participation in the labour market and modify existing unemployment services to further increase support for job seekers. This package includes:
- $213.5 million over four years from 2021-22 to expand the Local Jobs Program to 51 employment regions and to extend the program for three years from 30 June 2022 to 30 June 2025. The Local Jobs Program supports tailored approaches to accelerate reskilling, upskilling, and employment pathways in selected regions, supporting Australia’s economic recovery from the COVID-19 pandemic
- $15.6 million in 2021-22 to increase all wage subsidies to $10,000 for eligible participants in jobactive, Transition to Work, and ParentsNext to incentivise employers to hire eligible disadvantaged job seekers. This will align with wage subsidies commencing under the New Employment Services Model measure from 1 July 2022
- $15.5 million over two years from 2020-21 to provide more people the opportunity to explore and start their own small business, by providing an additional 1,000 places under the New Business Assistance with New Enterprise Incentive Scheme program and an additional 350 places under the Exploring Being My Own Boss Workshop program
- $7.9 million over three years from 2020-21 to incentivise employment services providers to ensure job seekers referred from Online Employment Services before 30 June 2022 are appropriately supported into employment as quickly as possible. Employment services providers providing support to job seekers who transition to face-to-face services after three months or more in Online Employment Services will be eligible for outcome payments immediately, rather than after three months under existing arrangements
- $6.2 million over two years from 2020-21 to deliver a combination of up to 26 physical and virtual Jobs Fairs across the country between June 2021 and June 2022. Jobs Fairs provide an opportunity for job seekers to talk to employers and learn about jobs, training and career options in their area
- $1.6 million over two years from 2020-21, to amend the Relocation Assistance to Take Up a Job program to provide additional support for job seekers relocating to take up employment, including short term agricultural work under AgMove. Eligibility requirements under this program will be changed so that relocating participants who take up a minimum of 40 hours work in at least two weeks can receive up to $2,000 in relocation assistance, and those who take up a minimum of 120 hours work in at least four weeks can receive up to $6,000 in relocation assistance. The age requirement for the program will also be changed from 18 years to 17 years to support school leavers
- extending flexibility available within mutual obligation requirements enabling job seekers to satisfy these requirements through undertaking study, for an additional six months from 31 December 2021 to 30 June 2022, to align with the commencement of the New Employment Services Model measure from 1 July 2022.
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
- 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.
Employee Share Schemes — removing cessation of employment as a taxing point and reducing red tape
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.
Employers use ESS to attract, retain and motivate staff by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount.
Currently, under a tax-deferred ESS, where certain criteria are met employees may defer tax until a later tax year (the deferred taxing point). The deferred taxing point is the earliest of:
- cessation of employment
- in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
- in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal
- the maximum period of deferral of 15 years
This change will result in tax being deferred until the earliest of the remaining taxing points.
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
This measure will help Australian companies to engage and retain the talent they need to compete on a global stage.
Patent Box — tax concession for Australian medical and 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. Australia currently taxes profits generated by patents at the headline corporate rate (30 per cent for large businesses and 25 per cent for small to medium enterprises from 1 July 2021).
The patent box will offer a competitive tax rate for profits generated from Australian owned and developed patents. The requirement for domestic development will encourage additional investment and hiring in research and development activity and encourage companies to develop and apply their innovations in Australia.
First Home Super Saver Scheme — increasing the maximum releasable amount to $50,000
The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released. The increase in maximum releasable amount will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022. This measure will ensure the FHSSS continues to help first home buyers in raising a deposit more quickly.
First Home Super Saver Scheme — technical changes
The Government will make four technical changes to the legislation underpinning the First Home Super Saver Scheme (FHSSS) to improve its operation as well as the experience of first home buyers using the scheme. These four changes assist FHSSS applicants who make errors on their FHSSS release applications by:
- increasing the discretion of the Commissioner of Taxation to amend and revoke FHSSS applications
- allowing individuals to withdraw or amend their applications prior to them receiving a FHSSS amount, and allow those who withdraw to re-apply for FHSSS releases in the future
- allowing the Commissioner of Taxation to return any released FHSSS money to superannuation funds, provided that the money has not yet been released to the individual
- clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps
Reducing the eligibility age for downsizer 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.
The downsizer contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional contribution caps.
This measure will allow more older Australians to consider downsizing to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.
Repealing 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.
Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30-day period in the relevant financial year. Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.
Removing the $450 per month threshold for superannuation guarantee eligibility
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.
This measure will improve equity in the superannuation system by expanding the superannuation guarantee coverage for individuals with lower incomes.
Early release 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.
Legacy retirement product conversions
The Government will allow individuals to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. The measure will have effect from the first financial year after the date of Royal Assent of the enabling legislation. The measure will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps.
This measure will permit full access to all of the product’s underlying capital, including any reserves, and allow individuals to potentially shift to more contemporary retirement products.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate), recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension.
The existing transfer balance cap valuation methods for the legacy product, including on commencement and commutation, continue to apply.
SMSF — relaxing residency requirements
The Government will relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) 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 and SAF 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 and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities.
Not for profits and philanthropy
Not-for-profits — enhancing the transparency of 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. This measure will ensure that only eligible NFPs are accessing income tax exemptions.
Child care subsidy
Starting on 1 July 2022 the Government will provide $1.7 billion over 5 years (and $671.2 million per year ongoing) to:
- Increase the child care subsidies available to families with more than one child aged five and under in child care, benefitting around 250,000 families. For those families with more than one child in child care, the level of subsidy received will increase by 30 percent to a maximum subsidy of 95 per cent of fees paid for their second and subsequent children
- remove the $10,560 cap on the Child Care Subsidy, benefitting around 18,000 families.
Increasing the Flexibility of the Pension Loans Scheme
The Government will provide $21.2 million over four years from 2021-22 to improve the uptake of the Pension Loans Scheme by:
- allowing participants to access up to two lump sum advances in any 12 month period, up to a total value of 50 per cent of the maximum annual rate of the Age Pension – currently the Pension Loans Scheme is paid fortnightly only
- introducing a No Negative Equity Guarantee so borrowers will not have to repay more than the market value of their property
- raising awareness of the Pension Loans Scheme through improved public messaging and branding
Increased support for unemployed Australians
The Government will provide $9.5 billion over five years from 2020-21 to increase support for people eligible for working age payments including JobSeeker Payment, further strengthen mutual obligation requirements and maximise job seekers’ ability to find and retain employment.
This measure will provide:
- $9.3 billion over five years to:
- increase the base rate of working-age payments by $50 per fortnight from 1 April 2021. This increase applies to JobSeeker Payment, Youth Allowance, Parenting Payment, Austudy, ABSTUDY Living Allowance, Partner Allowance, Widow Allowance, Special Benefit, Farm Household Allowance and for certain Education Allowance recipients under the Department of Veterans’ Affairs Education Scheme
- increase the income-free area of certain working-age payments to $150 per fortnight from 1 April 2021. This applies to JobSeeker Payment, Youth Allowance (other), Parenting Payment Partnered, Widow Allowance and Partner Allowance
- extend the temporary waiver of the Ordinary Waiting Period for certain payments for a further three months to 30 June 2021
- expand the eligibility criteria for JobSeeker Payment and Youth Allowance (other) for those required to self-isolate or care for others as a result of COVID-19 for a further three months to 30 June 2021
- $197.0 million to enable job seekers to participate in an intensive activity after six months of unemployment, including participating in approved intensive short courses, with some job seekers required to participate in Work for the Dole
- $12.0 million to provide stronger incentives through Relocation Assistance to Take Up a Job by providing the $2,000 incentive payment upfront and expanding eligibility to enable job seekers to access the incentive when they take up ongoing work for more than 20 hours per week
- $2.5 million to establish an employer reporting line to refer job seekers who are not genuine in their job search and increase auditing of job applications to ensure job seekers are making genuine applications
- $1.5 million to better support job seekers by recommencing face-to-face servicing for job seekers, implementing a graduated return in job search requirements from 15 per month from April 2021 to 20 per month from July 2021, and mandating job seekers in online employment services to complete their career profile in the jobactive system, to allow better job matching.
Whole-of-government response to Royal Commission into Aged Care Quality and Safety
The Government will provide $17.7 billion over 5 years as a whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety to improve safety and quality and the availability of aged care services. The funding includes:
- improvements in governance and regional access, including funding to develop a new aged care Act to replace both the Aged Care Act 1997 and the Aged Care Quality and Safety Commission Act 2018
- a range of measures to support home care, including funding to develop a new home care program and to release 80,000 additional home care packages over two years from 2021-22
- a range of measures to improve residential aged care quality and safety, including a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers
- reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
- a range of measures to grow and upskill the aged care workforce.