The Government has delivered the 2021-2022 Federal Budget (Budget) with Treasurer Josh Frydenberg announcing it as the ‘recovery budget’, getting people back to work.
From a business perspective, the emphasis of this Budget is very much on recovery and rebuilding to boost economic activity and drive down unemployment levels. Tax measures have featured heavily.
Currently, the economic outlook is better than anyone dared hope at the height of the pandemic just a year ago, but challenges remain.
Unemployment, at 5.6%, has already fallen below pre-pandemic levels and is expected to fall sharply to 5% by mid 2022. But wage growth remains stubbornly low, currently growing at rate of 1.25% and forecast to rise by just 1.5% next year. This is well below inflation which is forecast to rise 3.5% in 2020-21 and 1.75% in 2021-22.
The Treasurer forecast a budget deficit of $161 billion this financial year (7.8% of GDP), $52.7 billion less than expected just six months ago, and $106.6 billion (5% of GDP) in 2021-22.
Net debt is forecast to increase to $617.5 billion (30% of GDP) by June this year before peaking at $980.6 billion four years from now.
Tax related measures summarised:
- Personal tax rates
No changes were made to personal tax rates, with the Government having already brought forward the Stage 2 tax rates to 1 July 2020. The Stage 3 personal income tax cuts remain unchanged and will commence in 2024-25 as already legislated.
- LMITO retained for 2021-22
The Government will retain the Low and Middle Income Tax Offset (LMITO) for the 2021-22 income year. The LMITO provides a reduction in tax of up to $1,080.
- Temporary full expensing extended
The Government will extend the 2020-21 temporary full expensing measures for 12 months until 30 June 2023. This will 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 6 October 2020 and first used or installed ready for use by 30 June 2023.
- Loss carry-back extended
The loss years in respect of which an eligible company (aggregated annual turnover of up to $5 billion) can currently carry back a tax loss (2019-20, 2020-21 and 2021-22) will be extended to include the 2022-23 income year.
- Individual residency test reformed
The Government will replace the existing tests for the tax residency of individuals with a primary "bright line” test under which a person who is physically present in Australia for 183 days or more in any income 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 Administrative Appeals Tribunal (AAT) will be given the power to pause or modify ATO debt recovery action in relation to disputed debts of small businesses.
- Self-education expenses
$250 threshold to be removed.
Superannuation and related measures summarised:
- Superannuation contributions work test
Will be repealed from 1 July 2022 for voluntary non-concessional and salary sacrificed contributions for those under age 75. However, the work test will still apply for personal deductible contributions by those aged 67-74.
- SMSF residency rules
Will be relaxed by extending the central management and control test safe harbour from two to five years, and removing the active member test for both SMSFs and small APRA funds.
- Conversions of legacy income streams
Individuals will be permitted to exit certain legacy retirement income stream products (excluding flexi-pensions or lifetime products in APRA-funds or public sector schemes), together with any associated reserves, for a two year period. Any commuted reserves will not be counted towards an individual’s concessional contribution cap. Instead, they will be taxed as an assessable contribution for the fund.
- Super Guarantee $450 per month threshold
The threshold will be removed from 1 July 2022.
- Downsizer contributions
Eligibility age to be lowered from 65 to 60.
- First Home Super Scheme
Will be extended for withdrawals up to $50,000, plus some technical changes for tax and administration errors in applications.
- Victims of domestic violence
The Government will not proceed with its previous proposal to extend the early release of super to victims of family and domestic violence.
- Pension Loans Scheme
Will be expanded to allow access up to two 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.
The Budget did not contain any change to the legislated Super Guarantee rate increase from 9.5% to 10% for 2021-22.
IF you would like to read the National Tax and Accountants Association( NTAA )Federal Budget summary to provide further detail andy navigate the accounting and tax details for personal and business that will impact you. Read more here.