The Government has handed down its 2021/22 Federal Budget with tax measures mainly aimed at supporting recovery, rather than implementing substantial changes. Individuals will obtain the benefit of the extended LMITO, while the temporary full expensing and loss carry back measures have been extended for businesses. There have been some key changes to superannuation announced, which will assist retirees in contributing more funds to superannuation.
The Government is retaining the low and middle income tax offset (‘LMITO’) for the 2022 year. The LMITO provides an offset of between $255 and $1,080 for taxpayers with income up to $126,000. The maximum offset of $1,080 is available for individuals with income between $48,000 and $90,000.
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2020-21 income year. These increases take into account the movement in CPI.
There is no change to tax rates under the Personal Income Tax Plan.
The Government is removing the exclusion for the first $250 of self-education expenses for prescribed courses. Currently the first $250 is excluded, but can then be offset by certain non-deductible expenses. This change will simplify these rules.
Both the temporary full expensing rules and the temporary loss carry-back rules have been extended to 30 June 2023 (originally due to cease on 30 June 2022).
All other elements of the temporary full expensing rules remain unchanged. Disappointingly, the Government has not taken the opportunity to allow businesses with a small business pool to choose whether or not to write off the balance at year-end. As such, small businesses still need to write off the entire closing pool balance, which can create negative impacts for these businesses.
The extension of the temporary loss carry-back allows eligible companies to carry-back 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 tax refund will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns. There have been no other changes to these rules.
An income tax exemption will be provided for qualifying grants made to primary producers and small businesses affected by the storms and floods.
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, which relate to rainfall events between 19 February and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.
The Government is amending the Employee Share Scheme (‘ESS’) rules to remove the cessation of employment as a deferred taxing point. This removes a cash flow difficulty that occurred, where the employee was subject to tax but may not have been able to sell the shares to fund it.
Where the taxing point of the ESS is deferred, the tax will now be deferred until the earliest of the remaining taxing points, being:
– 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.
– A maximum period of 15 years.
This change applies to ESS interests issued on or after 1 July follow Royal Assent of the legislation.
There will also be changes to disclosure requirements of ESSs, aimed at reducing red tape.
As previously announced, the Government has announced measures in regard to intangible assets.
From 1 July 2023 (after the expiration of the temporary expensing rules), taxpayers will be able to choose between the legislated effective life of intangible assets or a self-assessed effective life. This will apply to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.
From 1 July 2022 the patent box will tax income derived from Australian medical and biotech patents at a 17% effective concessional corporate tax rate. Only granted patents, which are applied for after the Budget announcement, will be eligible. This measure is aimed at encouraging businesses to undertake their R&D in Australia and to keep patents here.
The Government will follow the OECD’s guidelines on patent boxes to ensure they meet internationally accepted standards. The Government will also consult 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.
The Digital Games Tax Offset (‘DGTO’) will provide a 30% refundable tax offset for qualifying Australian digital games expenditure ongoing from 1 July 2022. The DGTO will be available in the year when the qualifying expenditure has ceased on a game. The maximum DGTO a developer will be able to claim in each year is $20 million.
Eligibility criteria will require that the game must not have gambling elements and that a minimum of $500,000 qualifying expenditure has been spent on the game. Further details of the eligibility criteria and the definition of qualifying Australian games expenditure will be determined through industry consultation.
Funding will be provided to the ATO to build an online system to enhance the transparency of income tax exemptions claimed by NFPs. Currently non-charitable NFPs self-assess their eligibility.
From 1 July 2023, income tax exempt NFPs with an active ABN will be require to submit online annual self-review forms to the ATO with the information they use to self-assess their eligibility.
In line with the Board of Taxation’s 2019 Report, the Government will replace the individual tax residency rules to provide greater simplicity and uncertainty.
The primary test will be a simple ‘bright line’ test, where a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. These changes will apply from 1 July following Royal Asset.
This is a welcome change, given the uncertainty surrounding the current residency tests.
In the 2020-21 Budget, the Government announced amendments to clarify the corporate residency test. The Government has now announced it will consult on broadening this amendment to trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency amendment.
Small business entities with an aggregated turnover of less than $10 million will be able to apply to the Small Business Taxation Division of the AAT to have ATO debt recovery actions paused until their underlying case is decided by the AAT. These actions include recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest.
These new powers will be available to small business entities in respect of proceedings commenced before the AAT on or after the date of Royal Assent of the legislation.
The ATO is introducing a new early engagement service for investors into Australia, to assist with the Australian tax laws and processes, This will be integrated with the tax aspects of the Foreign Investment Review Board approval process (if required).
From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when:
– making non-concessional superannuation contributions; or
– receiving salary sacrificed contributions from their employer.
These individuals will also be able to access the non-concessional bring forward arrangements, but access to concessional personal deductible contributions will still be subject to the work test. The transfer balance and annual concessional and non-concessional caps will also continue to apply.
This follows the change which took effect from 1 July 2020, which meant that individuals less than 67 years of age do not have to meet the work test with respect to any contributions, and can access the bring forward arrangements.
The PLS will be expanded to allow access to up to 2 lump sums in any 12-month period (up to a total of 50% of the maximum annual Age Pension). A ‘No Negative Equity’ guarantee will also be provided to ensure that the borrower will not owe more than the market value of their property.
From 1 July 2022, the minimum age for the downsizer contribution will be lowered from 65 to 60.
The downsizer contribution allows individuals to make a post-tax contribution of up to $300,000 per person (or $600,000 per couple) when they sell their family home. Downsizer contributions can be made after the sale of a person’s principal place of residence, held for a minimum of 10 years, and:
– Do not count towards the concessional and non-concessional contributions caps.
– Can be made by individuals with balances over the transfer balance cap
The maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme will be increased from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.
The increase will apply from the start of the first financial year after Royal Assent of the legislation, which is expected to be 1 July 2022.
The current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer is to be removed. This means that all employers will need to make superannuation guarantee contributions for their employees (which also includes certain contractors) unless they work 30 hours or less per week and are:
– under 18; or
– a private or domestic work.
The residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds will be relaxed by:
– extending the central control and management test safe harbour from 2 to 5 years for SMSFs; and
– removing the active member test for both fund types (which requires the member to be an Australian resident).
This will mean that a fund will not become non-complying merely as a result of it’s members temporarily becoming non-residents, and will allow them to continue to contribute to their superannuation fund.
The measure will have effect from the start of the first financial year after Royal Assent of the legislation, which is expected to be 1 July 2022.
For further information on any of these updates, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.