2021-22 Budget – Securing Australia’s recovery

14th May 2021

The Federal Government handed down the 2021-22 Budget on 11 May.

Image of Parliament House, Canberra

Following on from an uncertain year, the Budget focused on balancing the need for support as the economy recovers from the impact of COVID-19, while progressively reducing the budget deficit.

There was a clear focus on creating more jobs, as well as spending in these areas:

– health and aged care

– women’s economic security measures, including child care

– infrastructure

– housing construction

-targeted support for aviation, tourism, the arts and international education providers

– investment in skills and training.

Here’s some more information on the measures that could affect you.

Superannuation and retirement

There were a number of carefully targeted changes to simplify the system, and improve flexibility in contributing to superannuation.

Work test abolished

From 1 July 2022, individuals aged 67 to 74 no longer need to meet the work test to to make superannuation contributions.

Extension of the Downsizer Scheme

The minimum age for the scheme will be lowered from 1 July 2022 from 65 to 60. This means that anyone over 60 can sell the house they have lived in for at least the last 10 years and contribute up to $300,000 to their superannuation fund within 90 days of settlement of the sale. This will be the case even if:

– the concessional and the non-concessional caps have already been reached

– the transfer balance cap of $1.7 million (from 1 July 2021) has already been reached

– a new home isn’t purchased, or a new more substantial home is purchased.

Keep in mind, the contribution may count for the purposes of determining what future contributions can be made. The family home also doesn’t count towards the Age Pension assets test, however proceeds from the sale contributed to superannuation will count.

Abolishing the $450 minimum threshold

The $450 per month minimum income threshold for super guarantee contributions will be abolished from 1 July 2022.

Relaxing super residency rules

The residency requirements for self-managed superannuation funds (SMSF) will be relaxed. Currently, the fund must be an Australian fund to accept contributions from members. This will only be the case if:

– the fund is established in Australia or any asset of the fund is situated in Australia

– the central management and control of the fund is ordinarily in Australia

– a certain level of active membership exists.

Tax incentives to support the recovery

Temporary full expensing

Temporary full expensing will now be available until 30 June 2023.

This means eligible businesses with aggregated annual turnover or total income of up to $5 billion can deduct the full cost of eligible depreciable assets. Assets must be:

– acquired from 7:30pm AEDT on 6 October 2020

– first used or installed ready for use by 30 June 2023.

This will benefit business with longer term projects, where depreciable assets have been acquired at different stages of the project, or those were there have been supply chain issues.

Full expensing the cost in the year of first use applies to new depreciable assets. The cost of improvements applies to existing eligible assets.

For small and medium-sized businesses, full expensing also applies to second-hand assets.

Temporary loss carry-back

Temporary loss carry-back will also be extended by one year.

This means eligible companies can carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year.

Losses incurred up until 30 June 2023 can be carried back as far to the year ended 30 June 2019 . This applies to companies with aggregated annual turnover of up to $5 billion.

While there is no limit on the losses that can be carried back, there are two limitations:

– losses can only be carried back to the extent they offset previously taxed profits

– a franking account deficit can’t be generated.

Employee Share Scheme (ESS) change

The cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS) will be removed.

This will result in tax being deferred until the earliest of the remaining taxing points:

– 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 restrictions on disposal

– the maximum period of deferral of 15 years.

The change to the cessation of employment taxing point will apply to ESS interests issued on or after 1 July following Royal Assent.

There will also be regulatory improvements to the ESS regime. This includes

– removing disclosure requirements

– increasing the value of shares that can be issued to an employee with simplified disclosure requirements, and exemptions from licensing, anti-hawking and advertising requirements, from $5,000 to $30,000 per employee per year.

SME Recovery Loans

The Australian Government is continuing to provide support to SMEs through the SME Recovery Loan Scheme. The scheme builds on the SME Guarantee Scheme, however it will be broadened and extended and in attempt to improve take up of these Government-guaranteed loans.

The SME Recovery Loan Scheme increases lenders’ ability to provide cheaper credit, allowing SMEs to access additional funding or refinance existing loans at a lower interest rate. This funding will sustain SMEs through the pandemic and enable them to recover and invest for the future.

The SME Recovery Loan Scheme builds on the SME Guarantee Scheme. It includes an increased government guarantee of 80 per cent, a higher maximum loan size of $5 million and maximum loan term of 10 years with interest rates capped at around 7.5 per cent. Borrowers may also be offered repayment holidays of up to 24 months on appropriate products.

The Scheme is available to SMEs with a turnover of up to $250 million that were either:

– recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021

– affected by the floods in eligible Local Government Areas in March 2021.

Stimulating innovation in Australian businesses

The Government will allow businesses to self‑assess the economic life of certain intangible assets (such as patents) for tax depreciation purposes. This will encourage investment and hiring in innovative activity.

Pausing debt recovery action for small business

It will be simpler, faster and cheaper for small businesses to pause or modify Australian Taxation Office (ATO) debt recovery actions in relation to cases under review by the Administrative Appeal Tribunal (AAT).

Small businesses (with an aggregated turnover of less than $10 million) will be able apply to the Small Business Tax Division (SBTD) of the AAT to pause or modify ATO debt recovery actions where the debt is being disputed within the AAT.

This includes recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest. These changes will apply for proceedings commenced on or after the date of Royal Assent of the legislation. We anticipate bipartisan support of this measure.

Introduction of ATO early engagement service

The ATO will introduce a new early engagement service to encourage and support new foreign business investments into Australia.

This will provide assurance to foreign investors about the operation of Australian tax laws and support in relation to federal tax obligations. The service will be bespoke to the needs of each eligible investor, and flexible to accommodate external time constraints such as commercial project timeframes and foreign investment review board (FIRB) approvals. It’s intended to integrate with the tax aspects of the FIRB approval process, so information is not required to be provided more than once.

Importantly, where binding advice is sought, the early engagement service will incorporate access to expedited private binding rulings and advance pricing agreements.

The ATO will consult with business and other stakeholders to develop the early engagement service during May and June 2021 with a view to the service being available for eligible investors from 1 July 2021.

Corporate tax digital economy

The Government will invest of $1.2 billion over six years from 2021–22 into Australia’s digital future. The Digital Economy Strategy focuses on investment in the settings, infrastructure, and incentives to ensure businesses across all sectors in Australia’s digital economy are able to continue to increase innovation, productivity and be globally competitive.

Digital games tax offset

 The Government will introduce a Digital Games Tax Offset, a 30% refundable tax offset, for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure.

There will be consultation with industry in mid-2021 to inform the criteria and provide clarity on the definition of qualifying expenditure to support the development of digital games. Games with gambling elements or that cannot obtain a classification rating will be ineligible.

This will stimulate investment in digital technologies in sectors including the defence innovation, medical technology, education technology, emergency planning, construction, agricultural technology, modern manufacturing and beyond.

Self-assessment of effective lives for intangibles

Income tax law will change to allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software, rather than being required to use the effective life as currently prescribed by statute.

Taxpayers are eligible to bring deductions forward if they self-assess the assets as having a shorter effective life to the statutory effective life. This will apply to assets acquired from 1 July 2023, following the completion of the temporary full expensing regime. Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.

myGov overhaul and digital ID system

There will be a $124.1 million investment to further develop Australia’s artificial intelligence capabilities, in turn allowing small and medium sized businesses with medium-high digital capability to increase their adoption of AI.

There’s also a $200 million investment to overhaul myGov, simplify the system and make it easier for users, and $302 million to enhance the My Health Record and the digital identity system.

JobTrainer Fund extension

The JobTrainer Fund will get $506.3 million over two years from 2021-22, subject to matched funding by State and Territory governments.

This will deliver a further 163,000 low fee and free training places including 33,800 training places for existing and new aged care workers to upskill and 10,000 places for digital skills courses.

The extended JobTrainer Fund will continue to support job seekers, school leavers and young people helping them access valuable upskilling and reskilling opportunities.

Employed cohorts that are continuing to be affected by COVID-19 will be able to access the fund, however details haven’t been provided yet.

To find out more

For more information, contact us to make an appointment to speak to our team, or read the Budget documents on the Treasury website.

Here’s an overview of the rest of the 2021-22 Budget.