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:

  1. deal with reforms to the structure of the tax systems which are needed;
  2. changes in the corporate tax rate; or
  3. include reforms in respect of fringe benefits tax regime, GST and the CGT rollover relief.

ECONOMIC FORECASTS

The budget must be considered in light of the economic forecasts/predications of the Government:

  1. 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;
  2. the unemployment rate will reduce from 6.9% to 4.5% by 2024/25.  The Reserve Bank has raised concerns about this;
  3. there will be marginal wage increases over this time (if any);
  4. development and administration of the vaccine;
  5. forecasted higher tax receipts; and
  6. CPI will remain largely static.

WHAT IS IN THE BUDGET

What’s new

  1. $15.2 billion over 10 years in new commitments to road, rail and community infrastructure projects across Australia;
  2. $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 
  3. $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/).

Key measures 

  1. low and middle-income tax offsets extended for a year;
  2. business tax relief continued;
  3. the change to the tax rate for small and medium companies of 25% from 1 July 2021; and
  4. 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

Change Details
Employee Share Schemes – removing cessation of employment as a taxing point and reducing red tape

Cessation no longer a taxing point

  • Removes the taxing point that happens when an employee leaves group employment and retains the tax-deferred shares and options. 
  • This is usually taxed when they vest or are exercised and assumes that the employee is still with the corporate entity and can leave the employee with an unfunded tax liability without the ability to sell the underlying shares to fund the liability.
  • The amendments will only apply to future issues. 

Reducing red tape

  • Streamlining the requirements for unlisted companies who charge employees to acquire ESS interests or who lend money to them for that purpose.
  • Simplified disclosure requirements and exemptions from licensing, anti-hawking and advertising requirements – will apply to offers valued up to $30,000 per employee per year (up from the current $5,000 limit).  
  • Where employers do not charge for option/share plans, the disclosure requirements will be removed and offers will be exempt from licensing, anti-hawking and advertising requirements.  
  • The amendments will apply 3 months after Royal assent.  
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.
 

Digital Economy

Change  Details
Patent Box – tax concession for Australian medical and biotechnology innovations
  • The new regime is designed to encourage innovation in Australia in the medical and biotechnology fields by offering a competitive tax rate for income derived from Australian owned and developed patents.
  • Corporate income derived from Australian medical and biotechnology patents will be taxed at a concessional effective corporate tax rate of 17% (rather than the 30% or 25% rates that otherwise apply to corporate taxpayers from 1 July 2021). The regime will require eligible patents to be developed in Australia.
  • Proposed to take effect on or after 1 July 2022.
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
  • Alignment of the treatment of tangible assets and intangible assets.  The taxpayers will have the option to be able to self-assess the effective life of the asset. This may be shorter than the statutory effective life, allowing deductions to be brought forward.
  • Eligible intangible assets include patents, registered designs, copyright, in-house software, licenses and telecommunications site access rights. Goodwill remains non-depreciable.
  • The change will begin on 1 July 2023.
Digital Games Tax Offset
  • The Digital Games Tax Offset will provide a 30% refundable tax offset, capped at $20 million per year, for qualifying Australian digital games expenditure. 
  • The offset will be ongoing from 1 July 2022.
     

Small business

Change Details
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
  • Currently, eligible distillers and brewers are able to access a refund of 60% of the excise they pay up to an annual cap of $100,000 (per financial year). 
  • Eligible distillers and brewers will be able to receive a full remission of any excise they pay up to an annual cap of $350,000. 
  • Take effect from 1 July 2021.
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.
Insolvency
  • Possible reform of the law relating to the “safe harbour” for Directors protecting them from liability for insolvent trading.
  • Corporate structures involving trusts are to be reviewed to provide clarity during insolvency, ensuring that approximately 550,000 trading trusts are also able to benefit from the existing protections for small businesses previously introduced in the 2020 Federal Budget.
  •  A review of the Safe Harbour Provisions introduced as part of the 2017 Insolvency Law Reforms Act to ensure that they remain fit for purpose. 
  • From 1 July 2021, Statutory Demand thresholds for corporate entities will increase from $2,000 to $4,000.
  •  Amendments to company schemes of arrangement to include a ‘debtor-in-possession model’, which would provide a moratorium on creditor enforcement while schemes are negotiated between creditors and the company itself. Currently, such moratoriums are only available to companies that are placed into external administration.

Personal tax

Change Details
Modernising residency rules The reform is based on the Board of Taxation’s Report on residency and includes the following:
  • for individuals who were not residents in the preceding income year, a commencing residency individual is a resident of Australia where the individual is present in Australia for 45 days or more in an income year and satisfies two or more ‘factors’ (such as the right to reside permanently in Australia (including citizenship and permanent residency), Australian accommodation, Australian family and Australian economic connections);
  •  for individuals who were residents in the preceding income year, a test comprising three standards applies as follows
    • a long-term resident individual ceases residency in Australia for the current income year if they spend:
      •  less than 45 days in Australia in each of the two preceding income years.
      • less than 45 days in Australia in the current income year; and
    • a short-term resident individual ceases to be a resident if they spend less than 45 days in the current income year and satisfy less than two ‘factors’.  
  • an individual will cease residency on the day after departure from Australia if they:
    • reside in Australia for the three consecutive income years prior;
    • undertake employment overseas that is mandated to be for a period of more than two years at the time employment commences;
    • have accommodation available continuously in the place of employment for the duration of their employment; and
    • return to Australia for less than 45 days in each income year that they continue their overseas employment after the year in which they depart.
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
  • The HomeBuilder Grant has been reopened and is supported by $774 million of funding over two years.
  • The construction commencement requirement has been extended from six months to 18 months.
  • The expansion of the Family Home Guarantee will provide:
    • 10,000 further places to allow single parents with dependents to enter the housing market.  Eligible parties to access deposits as low as 2%.
    • 10,000 eligible first home buyers to either build new homes or purchase newly constructed homes with deposits as low as 5%.

Not-for-profit

Change Details
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.

Super changes

Changes Details
First home super savings scheme – increase in the maximum amount available to be released
  • An increase in the maximum releasable amount of voluntary concessional and non-concessional contributions made under the first home super saver scheme from the existing level of $30,000 to $50,000.  This is expected to apply after 1 July 2022.
  • Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will be able to count towards the total amount able to be released.
Reducing the eligibility age for downsizer contributions
  • The eligibility age will be reduced to 60 years (from 65 years).  
  • This is expected to apply before 1 July 2022.
  • Downsizer contributions are one-off post-tax contributions to a person’s superannuation fund of up to $300,000 per person, where that money is sourced 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.
Removing the work test for super 
  • Individuals currently aged 67 to 74 years can only make voluntary contributions (whether concessional or non-concessional) to their superannuation if they work at least 40 hours over a 30 day period in the relevant financial year.
  • Expected to take effect prior to 1 July 2022.
Residency of SMSFs
  • Relaxation of the rules such that the SMSF and members now only need to meet two rules to be eligible for concessional tax treatment:
    • the fund must be established in Australia or hold an asset in Australia; and
    • the members cannot be temporarily absent from Australia for more than five years.
  • This will enable SMSF members to be absent from Australia for longer than is currently the case, whether for work, education or due to COVID-19. It will also enable overseas members to continue to contribute to their Australian SMSF without penalty within the five year period. 
  • Expected to apply to new arrangements from 1 July 2022.

Other announcements

Changes Details
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:
  • $213.5 million over four years to expand the Local Jobs Program, which provides for reskilling and upskilling workers in selected regions;
  • $15.6 million to incentivise employers to hire disadvantaged job seekers by increasing all wage subsidies to $10,000 for eligible participants in jobactive, Transition to Work, and ParentsNext;
  • $15.5 million over two years to encourage small business startups 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 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;
  • $6.2 million over two years to deliver more Jobs Fairs across the country between June 2021 and June 2022; and
  • $1.6 million over two years 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.
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.