The 2021 Federal Budget was announced on Tuesday night.

Our team have analysed the detail to identify what issues may impact our clients. The following is a summary of the key issues.

Over the next month and as the legislation is adopted, we will provide further detail.

Individuals

Self-Education Expense Deductions

The first $250 of expenses relating to prescribed course education is currently not deductible. This is due to change in an effort to reduce compliance costs for individuals claiming self-education expenses. The change will come into effect following the date of assent of the relevant legislation.

Tax Residency Rules

The Government has announced a new framework for determining individual tax residency following a recommendation by the Board of Taxation. The new ‘bright line test’ is simply that a person who is physically present in Australia for 183 days or more in an income year, will be an Australian tax resident.

The new framework will apply from the first financial year after legislation receives Royal Assent.

Maximum Releasable Amount Under First Home Super Saver Scheme (FHSSS) Increased

The FHSSS scheme allows first home buyers to access some of their superannuation to put towards a deposit for their new home. Currently the maximum amount of contributions that can be released from superannuation is $30,000 and the proposal is to increase it to $50,000.

This increase will apply from the start of the first financial year after Royal Assent, expected to occur by 1 July 2022.

Business

Extension to The Temporary Full Expensing Measures i.e. ‘instant asset write off’

The budget announcement included a 12-month extension to the temporary full expensing measures until 30 June 2023. This allows eligible businesses with aggregated turnover or income less than $5 billion are entitled to a deduction for eligible depreciating assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

Extension to The Temporary Loss Carry-Back

The temporary loss carry-back offset will be extended by one year, allowing eligible companies with aggregated turnover of $5 billion or less to offset tax losses in the 2022-23 income year against profits made in or after the 2018–19 income year.

Expanding the Boosting Apprenticeship Commencements (BAC) Wage Subsidy

The BAC wage subsidy will be expanded by:

  • uncapping the number of eligible places  (currently capped at 100,000 places); and
  • increasing the duration of the subsidy to 12 months from the date an apprentice or trainee commences with their employer.

The subsidy will now be available from 5 October 2020 to 31 March 2022 and eligible businesses of any size will be reimbursed up to 50% of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.

Increasing Wage Subsidies Available Through jobactive, Transition to Work and ParentsNext

As part of the 2021–22 Federal Budget, the Government announced it was increasing current wage subsidies available through jobactive, Transition to Work and ParentsNext to all businesses to $10,000 from 1 July 2021. This includes subsidies for young people, parents and the long-term unemployed.

2021 Storms and Floods – Tax Treatment of Qualifying Grants

The Government has announced that income tax exemption will be provided for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021 will be non-assessable non-exempt income for tax purposes.

These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.

Superannuation

SG still to increase from 9.5% to 10%

The super guarantee rate will still change from 9.5% to 10% on 1 July 2021, and then gradually increase to 12% by 2025.

Removing the SG threshold

Under the current rules, employees earning less than $450 a month are not required to be paid the superannuation guarantee by their employer.

The Government is proposing to remove the $450 per month minimum income threshold which determines whether employees have to be paid the superannuation guarantee by their employer.

This measure will take effect from the first financial year after the proposed legislation receives Royal Assent. The government expects to have removed this exemption category before 1 July 2022.

Repealing the Work Test

Currently individuals aged 67-74 years are restricted from making certain contributions unless they are working at least 40 hours in a 30-day consecutive period. From 1 July 2022, this work test will be removed. The measure will allow individuals to make non-concessional superannuation contributions and receive salary sacrifice contributions, even if they are not working.

Individuals in this age bracket wishing to make personal tax-deductible contributions will still have to satisfy the work test.

Extending the Bring Forward Age to 74

From 1 July 2022, under the bring forward rule, eligible individuals are able to make up to 3 years’ worth of non-concessional contributions to superannuation in a single year without having to pay extra tax (subject to amount of funds in superannuation).

The Government proposes to allow anyone (no work test required) to use the bring forward rules right up until 74 if they meet the usual eligibility criteria.

Lowering the Eligible Age for Downsizer Contributions

Introduced to allow anyone who meets the eligibility criteria to make a “downsizer” contribution – a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home, provided that the home has been held for at least 10 years.

From 1 July 2022, the Government is proposing to reduce the eligibility age for making a downsizer contribution from 65 to 60 years of age.

Introducing a No Negative Equity Guarantee for Pension Loans Scheme (PLS)

From 1 July 2022, the Government plans to introduce a ‘No Negative Equity Guarantee’ for PLS loans to bring them in line with private sector reverse mortgages. This new measure will:

  • allow participants in the scheme to access up to 2 lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of the age pension
  • borrowers will not have to repay more than the market value of their property.

Relaxing Residency Requirements for Self-Managed Superannuation Funds (SMSFs)

The Government has announced that it will ease the residency tests for SMSFs by:

    • Abolishing the active member test from 1 July 2022
    • extending the central management and control test safe harbour from 2 to 5 years from 1 July 2022.

The Government announced in the budget that it expects the enactment of legislation to be prior to 1 July 2022.

If you would like to find out further information regarding any of these issues, please do not hesitate to give our office a call.

– Ian Hogbin & James Davis

Posted 13.05.2021

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.

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