The Federal Treasurer Josh Frydenberg delivered the Australian Budget 2021-22 on 11 May 2021. This budget aims to create jobs, develop infrastructure, guarantee services and provide confidence to Australian businesses.
We are delighted to bring highlights of the budget that will impact the business and individual taxpayers today.
Executive summary of the Federal Budget 2021-22
- The deficit due to the impact of COVID-19 is expected to be $161 Billion
- This is expected to reduce to $106.60 Billion in FY2021-22 and further improving to $57 Billion in FY2024-25
- Job Keeper scheme helped in adding nearly 1 Million jobs since May 2020
- Unemployment rate to fall below 5% in FY2021-22 and is expected to fall further to 4.75% by FY2022-23
- GDP is forecasted to grow by 1.25% in FY2020-21 and is expected to rise to 4.25% & 2.50% in FY2021-22 & 2022-23 respectively
- The Government has committed $291 Billion (approximately 14.70% of GDP) in direct economic support for Individuals, Households & Businesses
- A further $15.20 Billion earmarked for infrastructure commitments
Personal Taxation
- Low & Middle Income Tax Offset extended up to FY2021-22. This offset provides a tax reduction up to $1080
- No changes to the personal tax rates
- The threshold limit of $250 on Self – Education Expenses to be removed
- The Government will replace the existing tax residency tests of Individuals with a primary ‘bright line’ test under which a person physically present in Australia for 183 days or more will be an Australian Tax Resident for that income year
- The Government will provide a full tax exemption for the pay & allowances to Australian Defense Force (ADF) Personnel deployed in ‘Operation Paladin’ from 1st July 2020
Business Taxation
- Temporary Full Expensing extended up to 30th June 2023. This allows eligible businesses with aggregated annual turnover less than $5 billion to immediately write off the assets purchased from 6th October 2020 and is first used/ready for use by 30th June 2023
- Loss carry back extended to include FY2022-23. This allows eligible companies (aggregated annual turnover less than $5 Billion) to carry back tax losses and adjust it against previously taxed income and claim the tax offset
- The Government is to introduce ‘Patent Box’ tax regime where the income derived from Medical & Biotech Patents will be taxed at a concessional rate of 17%. This will come into effect on or after 1st July 2022
- As part of ‘Digital Economy Strategy’, a 30% ‘Digital Games Tax Offset’ introduced which will come into effect from 1st July 2022. This is applicable to eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure
- Taxpayers allowed to self-assess the effective life of certain intangible assets rather than following the rates prescribed in the ITAA 1997
- The Government to provide full tax exemption on Grants made to primary producers (Max. $75,000) and small businesses (Max. $50,000) affected by storms and floods.
- This applied for the period from 19th February 2021 to 31st March 2021
- New Zealand to maintain ‘Primary Taxing Right’ over members of its sporting teams in respect of Australian Income Tax arising from exceeding the 183-day test because of sporting competitions in Australia due to COVID-19
Superannuation Measures
Work test revoked for voluntary superannuation contributions
Expected effective date effect: 01/07/2022
Individuals aged 67 to 74 years will be able to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test.
Current Scenario:
The ‘work test’ requires individuals aged 67 to 74 years to work at least 40 hours over a 30-day period in a financial year to be able to make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse.
Expanded access to ‘downsizer’ contributions from sale of family home
Expected effective date: 01/07/2022
The eligibility age to access downsizer contributions will decrease from 65 years of age to 60.
Current Scenario:
Enable those over the age of 65 to contribute $300,000 from the proceeds of selling their home to their superannuation fund.
SMSF residency tests relaxed
Expected effective date: 01/07/2021
The residency rules for Self-Managed Superannuation Funds (SMSFs) and small APRA regulated funds (SAFs) will be relaxed by extending the central control and management test safe Harbour from two to five years for SMSFs and removing the active member test for both fund types.
Current Scenario:
The central management and control of the fund can be taken as ordinarily in Australia even if it is temporarily outside Australia for periods of no more than two years
SMSF legacy product conversions
Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. This includes market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Current Scenario:
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps.
Early release of super scheme for victims of domestic violence not proceeding
The Government is not proceeding with the measure to extend early release of superannuation to victims of family and domestic violence.
Technical changes to First Home Super Saver Scheme
- Increasing the discretion of the Commissioner of Taxation to amend and revoke FHSSS applications
- Allowing individuals to withdraw or amend their applications prior to receiving an FHSSS amount, and allow those who withdraw to re-apply for FHSSS releases in the future
- Allowing the Commissioner of Taxation to return any released FHSSS money to superannuation funds, provided that the money has not yet been released to the individual
- Clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps
Financial Sector Reforms
Unlocking business growth- Advisory service
Attracting global businesses will promote increased employment opportunities for Australian workers. The Government will make it easier for businesses to offer employee share schemes (ESS). The changes in this Budget to the taxation and regulatory settings will give certainty for foreign investors by
- Establishing an early engagement service that will provide investors with fast track tax advice on transactions
- Implementing the Corporate Collective Investment Vehicle regime
- Establishing a more efficient licensing regime for foreign financial services providers
Comprehensive aged care reforms
$7.8 billion to reform residential care to support a better and more sustainable system.
- From 1 October 2022, older Australians will have access to better and safer care through a new funding model, the Australian National Aged Care Classification (AN-ACC). This will better align funding with patients’ care needs and allow providers to focus on delivering quality and safe care
- From 1 July 2022, residents and their families will have access to better information, with providers required to report care staffing minutes
- From 1 October 2023, residents will have access to increased personal and nursing care, with residential care facilities required to provide an average of 200 care minutes per day
- From 1 July 2024, older Australians will have more choice and control as residential care places will be made available where they are needed
Simplifying navigation and better access to quality aged care
- The Government is making the aged care system simpler to navigate. Older Australians and their families will have better access to services and information through a regional trial of face-to-face advice on aged care
- The Government is providing a $630.2 million boost to support access to quality aged care for Aboriginal and Torres Strait Islander peoples and special needs groups, as well as people living in regional, rural and remote communities
- An additional $21.1 million will be provided to establish new arrangements for more effective system oversight
Supporting older Australians – Retirement Planning
The Government is supporting older Australians by providing more choices to contribute to superannuation, enabling them to increase their living standards in retirement and reducing red tape.
Repealing the work test:
Building on previous reforms that provided older Australians greater flexibility to boost their retirement savings, the Government will repeal the work test for non-concessional and salary sacrificed superannuation contributions, allowing Australians aged 67 to 74 more flexibility to contribute to their superannuation. These reforms will also reduce complexity in planning for retirement.
Downsizer superannuation contribution:
The Government is reducing the minimum age of the downsizer superannuation contribution so those who want to downsize can do so sooner. From 1 July 2022, the minimum age will be lowered from 65 to 60. This will allow Australians nearing retirement to make a post-tax contribution of up to $300,000 per person when they sell their family home, and help to free up larger homes for younger families.
Enhancing the Pension Loans Scheme:
The Government will also increase the flexibility of the Pension Loans Scheme (PLS). Participants will be able to access lump sum advances of up to a total value of 50 per cent of the maximum annual rate of Age Pension. A single person would be able to receive lump sum payments of up to $12,385 per year, while couples combined could receive up to $18,670. Introduction of a No Negative Equity Guarantee means participants will not have to pay more than the market value of their property as repayment of their PLS debt.
Mortgage Processing Updates
Following are the new updates from Australian Federal Budget 2021-22 towards the Mortgage industry:
New Home Guarantee
Recognising the importance of the residential construction sector in driving jobs and economic growth, the Government is providing a further 10,000 places under the New Home Guarantee in 2021-22, specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit of as little as 5 percent.
Family Home Guarantee
The Government is providing a pathway to home ownership to support single parents with dependants, regardless of whether they are a first home buyer or a previous owner-occupier. From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with dependants to build a new home or purchase an existing home with a deposit of as little as two per cent, subject to an individual’s ability to service a loan.
First Home Super Saver Scheme
The Government is helping first home buyers achieve their dream of home ownership sooner under the First Home Super Saver Scheme. From 1 July 2022, the Government will increase the maximum number of voluntary contributions that can be released under the First Home Super Saver Scheme from $30,000 to $50,000.
Benefits provided to women
The Government is providing a pathway to home ownership by establishing the Family Home Guarantee to support single parents with dependants (who are predominantly women) to enter or re-enter the housing market.
