Josh Frydenberg announced the 2021 Federal Budget last night, which focused on the unemployed, housing, mental health and aged care.
In total the budget committed $9.46 billion over 5 years. The following is a summary of the budget announcements most relevant to growing businesses:
Business tax concessions
The Budget extends by one year two business tax concessions announced in the 2020-21 Budget — temporary full expensing and temporary loss carry-back. Together, temporary full expensing and temporary loss carry-back provide an incentive for businesses to bring forward investment to access the tax benefits before they expire. Combined, the extension of the temporary full expensing and temporary loss carry-back measures is estimated to deliver a further $20.7 billion in tax relief to businesses over the forward estimates.
Temporary full expensing
Temporary full expensing will now be available until 30 June 2023. Temporary full expensing allows eligible businesses with aggregated annual turnover or total income of up to $5 billion to deduct the full cost of eligible depreciable assets. Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income and a track-record of investment, which will continue to be available to businesses.
Temporary loss carry-back
Temporary loss carry-back will also be extended by one year. This will allow eligible companies to carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year. Companies with aggregated annual turnover of up to $5 billion can apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years.
The Government is encouraging investment in, and the retention of, Australian medical and biotech technologies by introducing a ‘patent box’. Over twenty countries currently have patent boxes, including the UK and France. From 1 July 2022 the patent box will tax income derived from Australian medical and biotech patents at a 17 per cent effective concessional corporate tax rate. Normally corporate income is taxed at 30 per cent or 25 per cent for small and medium companies.
Only granted patents, which were applied for after the Budget announcement, will be eligible. The patent box encourages businesses to undertake their R&D in Australia and keep patents here.
The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards. The Government will consult closely with industry on the design of the patent box and to determine whether a patent box is also an effective way of supporting the clean energy sector.
Superannuation – minimum entitlements
This budget proposes to remove the $450 per month minimum income threshold for the superannuation guarantee.
Superannuation – Extending access to downsizer contributions
From 1 July 2022, the minimum age for the downsizer contribution will be lowered from 65 to 60. This will allow Australians nearing retirement to make a one-off post-tax contribution of up to $300,000 per person (or $600,000 per couple) when they sell their family home.
Superannuation – Repealing the work test
The Government will amend the work test rules to allow retirees to increase their voluntary contributions to superannuation. From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions. These individuals will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.
The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply. Access to concessional personal deductible contributions for individuals aged 67 to 74 will still be subject to meeting the work test.
Key things that haven’t been touched in the budget and are still going ahead:
- Planned increases to the Super guarantee amounts – moving up to 10% from 9.5% on 1 July 2021
- Indexation of contribution caps from 1 July 2021
- Concessional cap to increase to $27,500
- Non-concessional cap to increase to $110,000
- 50% COVID reduction of pension minimums to cease and pension minimums to return to normal limits from 1 July 2021.
Employee Share Schemes
The Government is removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS) that are available for all companies. By removing the cessation of employment taxing point, the measure 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 Government is also:
- removing disclosure requirements, and exempting the offer from licensing, anti-hawking and advertising prohibitions for ESS, where employers do not charge or lend to the employees to whom they offer ESS
- 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 (leaving unchanged the absence of such a value cap for listed companies), where employers do charge or lend for issuing employees shares in an unlisted company.
Personal income tax cuts
The Government will deliver an additional $7.8 billion in tax cuts by retaining the low and middle income tax offset (LMITO) in 2021-22. The Low and Middle Income Tax Offset was first introduced by the government in 2018 as part of the bigger seven-year, Personal Income Tax Plan. The offset was stage one of the plan and was originally intended to end last year. However, the government decided to keep it going during the pandemic and has now extended it for another year.
The Government said around 10.2 million individuals will benefit from retaining the offset in 2021-22, which is worth up to $1,080 for individuals or $2,160 for dual income couples. With the additional year of the LMITO, the Government’s Personal Income Tax Plan will deliver total tax cuts of up to $7,020 for individuals and up to $14,040 for couples, in total over the period 2018-19 to 2021-22.
It was brought in as an addition to the already-in-place low income tax offset (LITO), which is designed to help out earners with an annual salary below $37,000. The low and middle income tax offset extends this to earners with a taxable annual salary between $37,000 and $126,000.
Childcare subsidies are currently capped at $10,560, beyond which households with an income of more than $189,390 pay the full rate in childcare fees. Under the proposed changes, caps on childcare subsidies for higher-income earners would be removed and costs slashed for families with two or more children in care. Subsidies for families with two or more children will increase significantly, to a maximum 95 per cent. The subsidy boost will only apply to the second or subsequent child in care, with 30 per cent more applying to those children.
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