Treasurer Josh Frydenberg has now delivered his second Pandemic budget in 6 months and his third budget under the Morrison Government. The Covid-19 pandemic is the most significant economic shock since the Great Depression and has required a BIG Spend approach to keep Australia moving. Financial initiatives are provided in tax cuts, accelerated depreciation, infrastructure spending and initiatives for R&D. We are fortunate that our economy is recovering from the virus-induced “recession” at a much faster rate than expected. Our deficit is expected to come in at $161 billion, which is $52 billion less than expected due to our strong recovery in jobs and business conditions. Consumer sentiment is positive and is reported as being at its highest in 11 years. As the treasurer said last night … Team Australia at its best! Whilst our debt seems massive at 40% of GDP, the economists feel that we can handle this, and we are much better placed than the USA where debt is over 100% of GDP. The Morrison Government has tackled the crisis with support to business and the community and now laid a path for further economic development. Once again the Government has kept its hands out of your superannuation pocket, which is good news for building wealth in super, whilst giving a little bit back in personal and business tax concessions. Let’s see how this budget impacts you:
Individuals
Personal Tax
The low and middle-income tax offset (LMITO), worth up to $1,080 has been extended to 30 June 2022. Individuals earning between $48,000 and $90,000 will receive the maximum benefit of $1,080, which then reduces and cuts out once your income reaches $126,000. The LMITO is received when you lodge your tax returns for FY21 & FY22
The Medicare levy low-income threshold for singles, families, seniors and pensioners for FY21 will increase as follows:
Singles – increased from $22,801 to $23,226
Family – increased from $38,474 to $39,167
Single seniors and pensioners – increased from $36,056 to $36,705
Family seniors and pensioners – increased from $$50,191 to $51,094
For each dependent child or student, the threshold increases to $3,597
The non-deductibility for self-education expenses of the first $250 will be removed from the first financial year commencing after Royal Assent
An individual will be treated as an Australian tax resident if they are physically present in Australia for 183 days or more in any income year. This will apply from the first income year after Royal Assent.
Business Taxation
Instant Asset Write-Off
The instant asset write-off concession will continue to be available to businesses with an aggregated annual turnover of <$5B, enabling them to deduct the full cost of new eligible depreciating assets acquired from 7.30 pm on 6 October 2020 and first used or installed ready for use by 30 June 2023
Small and medium sized businesses (turnover <$50M) can also continue to deduct the full cost of second hand assets up to 30 June 2023
Note that the deduction for motor vehicles remains at $59,136.
Small Business Asset Pooling
Small business entities (with aggregated annual turnover of <$10M), using the simplified depreciation rules, can continue to deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
Effective lives of Eligible Intangible Depreciating Assets
Taxpayers will be able to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in house software for assets acquired from 1 July 2023, beginning after the full expensing regime has concluded.
Company Loss Carry-Back
The Government will extend for a further 12 months the loss carry-back provisions that will allow companies with aggregated turnover of <$5B who have paid tax in the past, but who are now in a tax loss position, to carry their tax loss back to the past years to obtain a tax refund.
This means that losses in FY20, FY21, FY22 & FY23 income years can be carried back to offset against taxable incomes from FY19 and subsequent years
Companies can elect to claim the tax refund when they lodge their FY21, FY22 & FY23 tax returns
The loss carried back must not be more than their earlier taxed profits
The tax refund created by the carry-back cannot generate a franking account deficit. This means if the company has paid franked dividends that have used up the franking account balance the loss carry-back provisions cannot be utilised.
Note that companies do not have to adopt these carryback loss provisions and can still carry forward losses as usual.
Apprenticeship Scheme Extended
The Government will uncap the number of places and increase the duration of the wages subsidy to 12 months from employment commencement. Until 31 March 2022, any business can claim back up to 50% of an apprentice’s wages, capped at $7,000/quarter for 12 months.
Superannuation
The following changes to superannuation contributions apply from the first income year after Royal Assent:
The current $450 per month minimum income threshold under which employers do not have to pay Superannuation Guarantee contributions for employees will be removed, meaning casuals and low income earners will now start to receive super
The age for downsizer contributions of $300,000 for eligible individuals will be reduced from 65 to 60 years of age
Individuals aged 67 to 74 years will be allowed to make non-concessionalsuper contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps
Individuals aged 67 to 74 year will still have to meet the work test to make personal concessional contributions
There were no further changes announced in relation to superannuation contribution limits, noting the increased contributions already allowable from 1 July 2021. As no announcement has been made in relation to minimum pension payments, it is assumed that minimum payments will revert back to pre Covid reduction levels on 1 July 2021.
General
Possible start date for new proposals after Royal Assent will be 1 July 2022.
The Government has announced the introduction of a “patent box” tax regime that will provide tax concessions for medical and biotechnology innovations. Corporate income derived from patents will be taxed at 17%, commencing 1 July 2022. This concession may be extended to the clean energy sector
The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by storm and floods. The qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018 in relation to storms and floods that occurred due to rainfall between 19 February 2021 to 31 March 2021
The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver scheme from $30,000 to $50,000, applicable to voluntary contributions from July 2017, to a maximum of $15,000 per year
The Government will remove the “cessation of employment” taxing point for tax deferred Employee Share schemes in respect of shares issued from the first income year after Royal Assent
The Government will provide support for regions through community infrastructure programs and regional connectivity
The Government will provide additional funding to improve affordability of childcare for low and middle income earners for families with more than one child aged under 5. They will also abolish the child care subsidy cap of $10,560 for high income earners
The JobTrainer Fund will provide $506M over two years from 1 July 2021 to provide 163,000 training places in industries of critical importance
The HomeBuilder Grant will be reopened, with $774M of funding provided over two years, and construction commencement extended from 6 to 18 months
And most importantly the Government will increase support to eligible brewers and distillers to align the excise refund scheme such that they will receive a remission of any excise they pay each year.
Conclusion
This budget continues to focus on recovery, increasing employment and growth of the economy. It is heavily reliant on tax measures to provide incentives coupled with significant regional infrastructure spending.
The Government have kept their hands out of our pockets and provided incentives to get on with the job. After all, Australian small business is good at doing that! It is now up to us to deliver, and we believe that small business can do that.
We welcome this budget and look forward to seeing the benefits of the budget initiatives flow through the economy, noting that the above needs to be passed by Parliament before taking effect. For more information on how this budget affects you and your business, please contact Jeni, Terry or your Sullivan Dewing client manager. Have a fabulous day!
Jeni & Terry