June 9, 2021
The Federal budget was announced on 11 May 2021. It is the Government’s second COVID-19 influenced budget and is focused on bringing Australia out of the impacts of COVID-19 rather than working towards ‘budget surpluses’.
The budget's focus is to reverse years of neglect in a number of areas impacted most by COVID-19 (such as the elderly and socially disadvantaged) and address more recent criticisms and failings of the Government (such as economic security and issues of safety for women).
The budget does not:
- deal with reforms to the structure of the tax systems which are needed;
- changes in the corporate tax rate; or
- include reforms in respect of fringe benefits tax regime, GST and the CGT rollover relief.
The budget must be considered in light of the economic forecasts/predications of the Government:
- the deficit will halve over the next 4 years but only after increasing further with a net debt peak of $980.6 billion in 2024/25;
- the unemployment rate will reduce from 6.9% to 4.5% by 2024/25. The Reserve Bank has raised concerns about this;
- there will be marginal wage increases over this time (if any);
- development and administration of the vaccine;
- forecasted higher tax receipts; and
- CPI will remain largely static.
WHAT IS IN THE BUDGET
- $15.2 billion over 10 years in new commitments to road, rail and community infrastructure projects across Australia;
- $17.7 billion allocated over five years for the aged care sector to increase access to safe and quality care as well as provide the aged care sector workforce with funds to address skills and staffing shortages; and
- $1.2 billion package for the Digital Economy Strategy (the Government’s announced plan to develop the infrastructure and incentives to assist with building the digital economy see: https://digitaleconomy.pmc.gov.au/).
- low and middle-income tax offsets extended for a year;
- business tax relief continued;
- the change to the tax rate for small and medium companies of 25% from 1 July 2021; and
- changes to personal tax brackets (the current tax brackets are to remain in place until 2023-24. From 1 July 2024, a tax bracket of 30% will apply to taxable income between $41,001 and $200,000. The 37% tax bracket is to be abolished. The top marginal tax rate of 45% (unchanged from the current top marginal tax rate) will apply to taxable income exceeding $200,000).
Corporate tax matters
|Employee Share Schemes – removing cessation of employment as a taxing point and reducing red tape||
Cessation no longer a taxing point
Reducing red tape
|Corporate collective investment vehicle revised start date||The 2021-22 Budget that the CCIV regime would be finalized with the revised commencement date of 1 July 2022.|
|Temporary loss carry-back extension||Corporate tax entities (which include corporate limited partnerships and public trading trusts) with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous income year.
Once extended, the measure permits tax losses from the 2019-20 to 2022-23 income years to be offset against previously taxed profits made no earlier than the 2018-19 income year.
|Temporary full expensing extension||The Government will also extend the temporary full expensing measure announced in the 2020-21 Budget will be extended by a further 12 months to 30 June 2023.
Under the measure, businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed by 30 June 2023.
|ATO ‘early engagement service’ for first-time foreign investors||The ATO will introduce a new early engagement service designed to encourage and support new business investments into Australia.
The early engagement service is said to:
• provide ‘upfront confidence’ to investors about how Australian tax laws will apply;
• be ‘tailored’ to the particular needs of each investor;
• offer ‘support’ in relation to any or all federal tax obligations;
• accommodate specific project timeframes and other time-sensitive aspects of a transaction (e.g. FIRB approvals); and
• incorporate access to ‘expedited’ private rulings and advance pricing arrangements.
The ATO will consult with businesses and other stakeholders to develop the early engagement service during May and June 2021. It is intended that the service will be available for ‘eligible investors’ (although it is not explained who these are) from 1 July 2021.
|Patent Box – tax concession for Australian medical and biotechnology innovations||
|Venture capital rules||The Government will review these tax incentives to ensure current arrangements are fit-for-purpose and support genuine early-stage Australian start-ups.|
|Self-assessing the effective life of intangible depreciating assets||
|Digital Games Tax Offset||
|Increased authority of AAT||Small business entities (with an aggregated turnover of less than $10 million per year) that file an application in relation to tax matters before the small business tax decision of the AAT will be able to apply for a pause or modification of the Commissioner’s debt recovery actions (such as garnishee notices and the recovery of general interest charge or related penalties) until the underlying dispute has been decided by the AAT.|
|Aligning the excise refund scheme for brewers and distillers with the producer rebate for wine producers||
|Visa Changes||The most relevant is the removal of the requirement for applicants for the Temporary Activity visa (subclass 408) to demonstrate their attempts to depart Australia if they intend to undertake agricultural work. The period in which a temporary visa holder can apply for a Temporary Activity visa has been extended to 90 days prior to visa expiry.|
|Modernising residency rules||The reform is based on the Board of Taxation’s Report on residency and includes the following:
|Retaining the low and middle-income tax offset for the 2021-22 income year||
The Government has announced it will retain the Low and Middle-Income Tax Offset (LMITO) introduced in the 2019-20 Budget.
The LMITO will be worth $255 for a taxpayer with $37,000 of taxable income and increase at a rate of 7.5 cents in the dollar to a maximum of $1,080 for someone whose taxable income is between $48,001 and $90,000. It will continue to phase out at a rate of 3 cents in the dollar for individuals with taxable incomes above $90,000, falling to zero at a taxable income of $126,000.
|Homebuilder Grant and Family Home Guarantee||
|Enhancing the transparency of income tax exemptions||
$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 NFPs.
From 1 July 2023, the ATO will require income tax-exempt NFPs (with an active ABN number) to submit online self-review forms for each income year, outlining the information used to self-assess their eligibility for the exemption. This measure seeks to ensure that income tax exemptions are only accessed by eligible NFP's.
|First home super savings scheme – increase in the maximum amount available to be released||
|Reducing the eligibility age for downsizer contributions||
|Removing the work test for super||
|Residency of SMSFs||
|Increasing workforce participation||The Budget will provide $258.6 million over four years from 2020-21 for job seekers to encourage increased participation in the workforce by focusing on upskilling workers and facilitating employment opportunities.
This announcement includes:
|APRA funding||The Government has announced additional funding for APRA to supervise and enforce increased transparency and accountability measures as part of the 'Your Future, Your Super' reforms and for Super Consumers Australia. The funding will partially be met through an increase in levies on regulated financial institutions.|