Halkin Business Partners – Federal Budget Update

Treasurer Josh Frydenberg presented the much-anticipated budget which focused on recovery and rebuilding. Continuing to move Australia forward in a proactive manner remains high on the agenda.

In the lead up to the election cycle, the budget extends some of the business support measures designed to stimulate growth in the wake of the COVID-19 induced recession of 2020, the first to hit Australia in 30 years.

As predicted, major changes to tax policy have not been considered as the government focuses on providing policy stability, although it is unclear how it will address the difficult task ahead or lay the foundation for a discussion on possible tax reform options.

We have directed our attention to the following key updates:

·         Personal income tax and subsidies

·         Business tax incentives

·         Private wealth and superannuation

Personal income tax changes

Retaining the Low and Middle Income Tax Offset (‘LMITO’)

The Government has announced that it will retain the LMITO for one more income year, so that it will still be available for the 2022 income year.

The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers and is available in addition to the Low Income Tax Offset (‘LITO’). The LMITO is proposed to apply as follows for the 2022 income year.

 

Proposed LMITO

$37,000 or less

Up to $255

$37,001 to $48,000

$255 + 7.5% of excess over $37,000

$48,001 to $90,000

$1,080

$90,001 to $126,000

$1,080 – 3% of excess over $90,000

$126,001 +

Nil


Increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

         The threshold for singles will be increased from $22,801 to $23,226;

         The family threshold will be increased from $38,474 to $39,167;

         The threshold for single seniors and pensioners will be increased from $36,056 to $36,705;

         The family threshold for seniors and pensioners will be increased from $50,191 to $51,094.

For each dependent child or student, the family income thresholds increase by a further $3,597, up from the previous amount of $3,533.

Modernizing the individual tax residency rules

The Government has announced that it will replace the individual tax residency rules with a new, modernised framework.

The primary test will be a simple ‘bright line’ test – 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. Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers.

Child care subsidies

In a boost for working families, From 1 July 2022 the Government will increase the Child Care Subsidy by 30 percent for those families with more than one child in child care, resulting in a maximum subsidy of 95 percent of fees paid for their second and subsequent children. The Child Care Subsidy cap of $10,560 for families earning $189,390 or more will also be removed.

 

Employee Share Schemes – removing ‘cessation of employment’ as a taxing point and reducing red tape

The Government will remove the ‘cessation of employment’ taxing point for tax-deferred Employee Share Schemes (‘ESS’) that are available for all companies. Currently, under a tax-deferred ESS, where certain criteria are met, employees may defer tax until a later tax year (‘the deferred taxing point’). The deferred taxing point is the earliest of:

(a)    cessation of employment;

(b)    in the case of shares, when there is no risk of forfeiture and no restrictions on disposal;

(c)     in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal; and

(d)    the maximum period of deferral of 15 years.

This change will remove the ‘cessation of employment’ taxing point (i.e., point (a) above) and result in tax being deferred until the earliest of the remaining taxing points (i.e., points (b) to (d) above).

In addition to this change, the Government will also reduce red tape for ESS:

         where employers do not charge or lend to the employees to whom they offer ESS – by removing regulatory requirements for ESS; and

         where employers do charge or lend – by streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year 

Business taxpayer changes

Temporary full expensing (extension)
In the previous Federal Budget, the Government announced amendments to allow businesses with an aggregated turnover of less than $5 billion access to a new temporary full expensing of eligible depreciating assets until 30 June 2022.

In a measure designed to encourage business investment and the rebuilding of business, the Government has announced that temporary full expensing will be extended by 12 months. This will allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, 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, which will continue to be available to businesses.

Contact your Halkin Consultant to discuss what this opportunity means for your business.

Temporary loss carry-back (extension)
In the prior year (2020/21) Federal Budget, the Government announced amendments to introduce a temporary loss carry-back measure. Broadly, this initial measure allowed ‘corporate tax entities’ with an aggregated turnover of less than $5 billion to carry back tax losses made in the 2020, 2021 and/or 2022 income years to claim a refund of tax paid (by way of a tax offset) in relation to the 2019, 2020 and/or 2021 income years.

In the 2021/22 Federal Budget, the Government has announced that the loss carry-back measure will be extended to allow eligible companies (i.e., with aggregated turnover of less than $5 billion) to also carry back (utilise) tax losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income year.

Consistent with the current law, the tax refund available under this measure is limited by requiring that the amount carried back is not more than the earlier taxed profits and does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Debt recovery for small business
The Government has announced that it will allow small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (the ‘Tribunal’) to pause or modify ATO debt recovery actions, such as garnishee notices and the recovery of general interest charges or related penalties, where the debt is being disputed in the Tribunal.

Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system, which can be costly and time consuming. It is expected that applying to the Tribunal instead of the courts will save small businesses several thousands of dollars in court and legal fees and as much as 60 days of waiting for a decision.

SME Recovery Loans

As confirmation of the Government’s announcement on 11 March 2021, the SME Recovery Loan Scheme will follow on from the previous Coronavirus SME Guarantee Scheme, however it will be broadened and extended, in an attempt to improve take up of these Government-guaranteed loans.

 Phase 1 of the Coronavirus SME Guarantee Scheme only permitted loans of up to $250,000 over a 3-year term, with the Government guaranteeing half of the loan. Phase 2 extended the maximum loan amount to $1 million over a 10-year term.

 

The SME Recovery Loan Scheme goes beyond Phase 2 by extending the maximum loan amount to $5 million although the maximum term remains at 10 years. Under the SME Recovery Loan Scheme, a maximum interest rate of 7.5% applies. Furthermore, the Government will guarantee 80% of the loan.

 

However, unlike Phase 1 and Phase 2, loans under the SME Recovery Loan Scheme are only

available to businesses with turnovers of up to $250 million who either received JobKeeper from 4 January 2021 or businesses which were impacted by the NSW floods during March 2021.

 

Contact your Halkin Consultant to discuss how this measure can be used enhance your business.

 

 Apprenticeship wage subsidy

The Boosting Apprenticeship Commencements wage subsidy is being expanded. The number of eligible places will be uncapped and the duration the 50 percent wage subsidy applies to, is increasing to 12 months from the date an apprentice or trainee commences with their employer. Businesses of any size can claim this subsidy for new apprentices or trainees that commence from 5 October 2020 to 31 March 2022, with the subsidy capped at $7,000 per quarter per apprentice or trainee.

 

 Digital economy strategy (including self-assessing the effective life of intangible depreciating assets)

The Government will provide $1.2 billion over six years from 2022 for the Digital Economy Strategy, to support Australia to be a leading digital economy and society by 2030. From an income tax, investment incentive perspective, the Digital Economy Strategy includes the following:

(a)    The Government will allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.

The tax effective lives of such assets are currently set by statute. Allowing taxpayers to self-assess the tax effective life of an asset will allow for a better alignment of tax outcomes with the underlying economic benefits provided by the asset. It will also align the tax treatment of these assets with that of most tangible assets.

(b)    The Government will provide $18.8 million over four years from 2022 for a Digital Games Tax Offset to provide a 30% refundable tax offset for qualifying Australian digital games expenditure ongoing from 1 July 2022, with the criteria and definition of qualifying expenditure to be determined through industry consultation.

(c)     The Government will provide $200 million over two years from the 2022 income year to develop and transition government services to a new, enhanced myGov platform, providing a central place for Australians to find information and services online.

Superannuation related changes

 Removing the $450 per month threshold for Superannuation Guarantee

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

The removal of the minimum threshold will mean that changes will be needed to be made to payroll systems for employers. The measure is expected to commence 1 July 2022.

Contact your Halkin CRM to ensure that your payroll solutions are ready for the required amendments.

 Repealing the work test for voluntary contributions

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional 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 years (inclusive) will still have to meet the work test to make personal deductible contributions.

Currently, individuals aged 67 to 74 years (inclusive) can only make voluntary contributions (both concessional and non-concessional) to their superannuation fund, or receive contributions from their spouse, if they satisfy the work test (subject to a limited work test exemption). Generally, to satisfy the work test, an individual must be working for at least 40 hours over a period of not more than 30 consecutive days in the income year the relevant contribution is made.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

Reducing the age limit for downsizer contributions
The Government will reduce the age limit from which downsizer contributions can be made by eligible individuals, from 65 to 60 years of age.

The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to their superannuation fund, of up to $300,000 per person, following the disposal of an eligible dwelling, where certain conditions are satisfied. Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution, for the contribution to qualify as a downsizer contribution.

Changes to the First Home Super Saver (‘FHSS’) scheme

The Government has announced that it will make the following changes to the FHSS scheme;

(a)    Increasing the maximum releasable amount to $50,000 – The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the FHSS scheme from $30,000 to $50,000, to assist first home buyers in raising a deposit more quickly.

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 measure is expected to commence 1 July 2022.

Under the current FHSS scheme, an eligible individual can apply to have a maximum of $15,000 of their voluntary contributions from any one income year included in their eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years, together with an amount of earnings that relate to those contributions.

(b)    Changes to improve the operation of the FHSS scheme – The Government will make four technical changes to the legislation underpinning the FHSS scheme to improve its operation as well as the experience of first home buyers using the scheme. These four changes will apply retrospectively from 1 July 2018, and will assist FHSS scheme applicants who make errors on their FHSS scheme release applications by:

         increasing the discretion of the Commissioner of Taxation to amend and revoke FHSS scheme applications;

         allowing individuals to withdraw or amend their applications before receiving a FHSS scheme amount, and allow those who withdraw to re-apply for FHSS scheme releases in the future;

         allowing the Commissioner of Taxation to return any released FHSS scheme money to superannuation funds, provided that the money has not yet been released to the individual; and

         clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as a fund’s non-assessable non-exempt income and does not count towards the individual’s contribution caps.

Halkin Business Partners’ assistance

With the community at large feeling the economic brunt of the Coronavirus outbreak, we are well placed to assist you in navigating your business through these unprecedented times.

Given the current business climate, we are at a crucial time which requires careful and considerate economic resource planning. Our consultants have the expertise to manage business resources in various economic conditions and can assist with cash flow and budgetary forecasting requirements as needed.

We also have the infrastructure and experience to deliver a financial solution from an outsourced/remote capacity.

Please do not hesitate to contact us should you require assistance on any of the following:

·         Further guidance on the budget package;

·         ATO liaison & information;

·         Cash flow assistance, forecasting and resource planning;

·         Business administrative assistance (including lodgements);

·         Outsourced financial accounting & business administration;

·         Technology solutions (system implementation & integration);

·         HR assistance;

·         Recommend financial planners to assist with a superannuation contribution strategy.

Following on our previous updates, in order to assist you with up-to-date information and general advice, we have set up a dedicated “HBP Stimulus Package” team to respond to queries in relation to the Government stimulus package. Please feel free to send your query to StimulusPackage@halkinbp.com.au and a consultant will respond.