Federal Budget 2021

Talking Points Reduction of the corporate income tax rate from 26% to 25% from 1 July 2021; Unlimited instant asset write-off and loss carry back concession extended until 30 June 2023; Tax relief for a number of industries, including life sciences and digital gaming; Increase in the superannuation guarantee for employees from 9.5% to 10% from 1 July 2021; Favourable increases to the low and middle income tax brackets from 1 July 2021; Simplification of tax residency rules for individuals; Childcare subsidies to increase for families with two or more children; $1.9bn for the rollout of COVID-19 vaccines, and a further $1.5bn for COVID-19 healthcare services – total spending on vaccine and healthcare rollout is now over $20bn; and $2.3bn for the National Mental Health and Suicide Prevention Plan.

The Federal Budget 2021

The past 15 months have provided numerous challenges as we navigate uncertain terrain towards economic recovery.

In another highly anticipated Federal Budget from Josh Frydenberg and the Liberal Government, we see evidence of an improvement in deficit pressure amid speculation this budget could be the last before a federal election.

A sobering $106bn deficit was announced for the coming year, with budget deficits projected for the next decade – although this was $53bn better than projected last year off the back of better than expected economic performance.

See our summary of key announcements for small to medium businesses across various industries, and individual income earners.

Small to Medium Business Support

• Both the business instant asset write-off and loss carry back concessions have been extended to 30 June 2023 and are available to businesses with turnover of less than $5 billion.
• The business instant asset write-off concession allows businesses to invest in capital assets and claim an immediate tax deduction with no dollar limit (as opposed to depreciating over numerous years). Note that this does not apply to the extent the depreciation is being claimed for R&D Tax Incentive purposes.
• The loss carry back concessions allow businesses to offset current year tax losses against prior year profits as far back as the 2019 financial year, thereby allowing you to cash out the previously paid tax.
• The Administrative Appeals Tribunal (AAT) will be granted new powers to pause or modify ATO debt recovery actions.
• The Small and Medium Enterprises Guarantee Scheme will be upgraded to become the SME Recovery Loan Scheme for those recipients of the JobKeeper Extension 2 subsidy or were affected by the floods in eligible Local Government Areas in March 2021, whereby:
  • the government guarantee will increase to 80%;
  • the maximum loan size will increase to $5 million; and
  • the maximum loan term will increase to 10 years.
• The Government will proceed with reducing the base company tax rate from 26% to 25% from 1 July 2021. Broadly, a base rate company is one with aggregated turnover of less than $50 million.

Industry-Specific Tax Concessions

• Within the medical and biotech industry, any income earned from registered patents will be taxed at a concessional rate of 17% from 1 July 2022.
• Introduction of a Digital Games Tax Offset to eligible game developers, in the form of a 30 per cent refundable tax offset for qualifying expenditure. It remains to be seen how this will interact with the R&D Tax Incentive, already utilised by a number of companies in this space.
• Eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60 per cent of the excise they pay, up to an annual cap of $100,000. There are around 600 brewers and 400 distillers across Australia, with around two thirds operating in rural and regional areas.

Superannuation & Employee Share Schemes

• Employee Share Schemes (ESS) give employees the benefit of buying shares in the company they work for at a discounted price, or the chance to buy shares in the company in the future. Presently, current employees are eligible for tax concessions on shares owned through an ESS. However, once an employee leaves a workplace, those concessions are no longer applied to their shares. As part of the government’s $500 million overhaul, former employees will not be required to pay tax on shares after they leave a business. Also for unlisted companies, the cap on the value of shares sold or lent to employees will increase to $30,000, up from $5,000.
• Low income workers earning less than $450 per month will attract superannuation.
• The Government will continue with the superannuation guarantee percentage increase from 9.5% to 10% from 1 July 2021.
• An increase in concessional (deductible) superannuation contributions from $25,000 to $27,500 from 1 July 2021.
• An increase in non-concessional superannuation contributions from $100,000 to $110,000 from 1 July 2021.
• Increase to First Home Super Saver Scheme (FHSSS) from 1 July 2022, increasing the maximum releasable amount from $30,000 to $50,000 from superannuation to promote home ownership.

Support for Individual Taxpayers

• The low and middle income tax offset was set to expire from 1 July 2021, however this has now been extended out to 30 June 2022.
• This offset has been extended despite the favourable increase in personal tax thresholds from 1 July 2021 per the previous budget announcement, specifically:
  • Tax free threshold remains unchanged at $18,200;
  • The 19% tax threshold has increased from $37,000 to $45,000; and
  • The 32.5% tax threshold has increased from $87,000 to $120,000.

• For families with two or more children, the childcare subsidy will increase from 65% to 95%. In addition, the annual cap of $10,560 will be removed from 1 July 2022.
• Removal of the exclusion of the first $250 of deductions for prescribed courses of education. 

Modernisation of Tax Residency Rules

• Introduction of a simple primary ‘bright line’ residency test, which deems a person to be an Australian tax resident if that person is physically present in Australia for 183 days or more in any income year. This may cause issues for those individuals that have determined themselves to be foreign tax residents, when they were spending more than 183 days a year in Australia.
• Introduction of secondary tests (for those who do not meet the primary test) that depend on a combination of physical presence and measurable, objective criteria.
• Amendments announced to clarify the corporate residency test to address uncertainty for foreign incorporated entities (pending industry views and consultation).
• The Government announced it will consult on broadening this amendment to trusts and corporate limited partnerships.

Measures Designed to Attract Global Business and Talent

• Establishment of a new Global Talent visa and Temporary Activity visa to attract highly skiled individuals to relocate to Australia.
• Establishment of an early engagement process to provide investors with “up front” confidence about how our tax laws will apply to investments made in Australia. This should provide clarity for foreign individuals/companies investing in Australian companies and purchasing Australian property.

At CharterNet, we will continue to keep you updated as things develop. Always feel free to get in touch if we can help clarify anything.