The Government has decided not to go down the austerity path, which will be a relief for many taxpayers and businesses.
Rather, the Government has decided to put its foot on the accelerator with the hope that the growth in the economy over a long period of time will help to pay down the debt that has been central to the Government’s response to COVID-19.
On personal taxation, in an expected announcement, the Government confirmed that it will extend the low and middle income tax offset (LMITO) beyond 2020-21 so that taxpayers will continue to receive the tax offset (between $255 and $1,080) in the 2021-22 income year.
In summary, the major tax-related measures announced in the Budget included:
- Personal tax rates - no changes were made to personal tax rates, 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 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 7:30pm AEDT on 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 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
The key superannuation and related measures announced in the Budget include:
- Superannuation contributions work test - to 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 - to 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 - to be removed from 1 July 2022.
- Downsizer contributions - eligibility age to be lowered from 65 to 60.
- First Home Super Scheme - to 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.
- 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.
- 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.
- To spend $13.2 billion over four 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.
The Government believes the 2021-22 Budget will consolidate the gains made since the last Budget in October 2020 and put the economy on course for the unemployment rate to fall below 5%. To reach these targets the Government has committed $291 billion (or 14.7% of GDP) in direct economic support for individuals, households and businesses since the onset of COVID-19. Some of the measures mentioned above are fleshed out in the following pages.