The Federal Budget 2021-2022 is big on spending and small on major structural change to tax however there are a number of tax measures within the Budget to be aware of. These measures have been introduced by the Coalition Government in an attempt to support businesses and individuals with tax relief and encourage economic growth as Australia looks to move out of the COVID-19 induced recession.
We summarise the main Federal Budget 2021-2022 tax measures below.
TAX RELIEF FOR INDIVIDUALS - PERSONAL TAX MEASURES
Personal income tax rates
There are no changes to the personal income tax rates for the 2021-22 income year. Stage 3 of the Government’s Personal Income Tax Plan remains unchanged and is due to commence from 1 July 2024. The current rates and thresholds for Australian tax resident individuals are as follows:
|
Personal income tax rate |
|||
|
Rate |
Tax payable |
2021-22 (announced in 2020-21 Budget) |
2024-25 (Previously announced) |
|
0% |
Nil |
$0 - $18,200 |
$0 - $18,200 |
|
19% |
Nil |
$18,201 - $45,000 |
$18,201 - $45,000 |
|
30% |
N/A |
N/A |
$45,001 - $200,000 |
|
32.5% |
5,092 |
$45,001 - $120,000 |
N/A |
|
37% |
29,467 |
$120,001 - $180,000 |
N/A |
|
45% |
41,557 |
$180,001+ |
$200,001+ |
Low and middle income tax offset
|
Low and middle income tax offset |
|
|
$37,000 or less |
Taxpayers with a taxable income of $37,000 or less will benefit by up to $255 in reduced tax. |
|
Between $37,001 and $48,000 |
Between taxable incomes of $37,000 and $48,000, the value of the offset will be $255 plus an increase at a rate of 7.5 cents per dollar above $37,000 to the maximum offset of $1,080. |
|
Between $48,001 and $90,000 |
Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for an offset of $1,080. |
|
Between $90,001 and $126,000 |
For taxable incomes of $90,000 to $126,000, the offset amount of $1,080 phases out at a rate of 3 cents per dollar above $90,000 |
HELPING AUSTRALIAN BUSINESSES ATTRACT STAFF AND BUSINESS GLOBALLY
Individual tax residency rules
Based on the Board of Taxation’s recommendations the Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a ‘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. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Employee share schemes
The Government has announced that ‘cessation of employment’ as a deferred taxing point for employee share schemes (ESS) will be removed. The proposed change to the deferred taxing point will only apply for ESS interests issued in the first income year after the amendments receive Royal Assent. The Government further announced a reduction in red tape to streamline reporting ESS.
We will prepare a detailed article on this announcement in the coming days.
Collective investment vehicles
The Government will finalise the corporate collective investment vehicles component of the measure by implementing a new suite of collective investment vehicles announced in the 2016-17 Budget. The revised commencement date is 1 July 2022. The corporate collective investment vehicle is an investment vehicle with a corporate structure that provides flow through tax treatment where certain requirements are satisfied.
Venture capital tax incentives review
The Government will undertake a review of the venture capital tax concession programs. The concessions include the Venture Capital Limited Partnerships (VCLPs); the Early Stage Venture Capital Limited Partnerships (ESVCLPs); the Australian Venture Capital Fund of Funds (AFOFs); and Investments made directly by foreign residents registered under Pt 3 of the Venture Capital Act 2002.
DIGITAL ECONOMY – TAX INCENTIVES TO ENCOURAGE INNOVATION
Intangible depreciating assets – Faster Tax Write-Offs
The Government will allow taxpayers to self-assess the effective life of intangible depreciating assets such as patents, registered designs, copyrights and in-house software bringing their status in line with tangible assets. The measure will apply from 1 July 2023 after the temporary full expensing regime has concluded.
Digital games tax offset
The Government will introduce a 30 percent refundable tax offset for eligible businesses that spend at least $500,000 on qualifying Australian games expenditure. The definition of qualifying expenditure and other relevant criteria has yet to be revealed however the Government has noted that games that involve gambling elements will not qualify. Further details are expected subsequent to industry consultation in mid 2021.
Patent Box Regime to encourage Medical and Biotech Innovation in Australia
A ‘Patent Box Tax Regime’ has been announced which will provide a concessional tax rate of 17% to any income derived from a company’s Australian medical and biotechnology patents. The concessional rate is significantly lower than the current corporate rates (30%/25%) and is aimed at encouraging innovation in Australia. Industry consultation is expected on building the exact conditions of the measures and it is intended they will apply from income years starting on or after 1 July 2022.
We will prepare a detailed article on these announcements in the coming days.
SUPPORTING BUSINESS GROWTH
Full expensing of depreciating assets extended
The previously announced temporary full expensing measure is to be extended to 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.
Temporary company loss carry-back rules extended
Companies with an aggregated turnover of less than $5 billion are entitled to carry back tax losses from the 2022-23 income year and apply this against prior year income tax liabilities (as far back as the 2018-19 income year) to claim a refundable income tax offset. The tax offset is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry‑back 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.
TAX ADMINISTRATION MEASURES
Increased powers of the Administrative Appeals Tribunal
The AAT will have the power to pause or modify ATO debt recovery action in relation to disputed debts that are being reviewed by the Small Business Taxation Division of the AAT.
Not for profits – enhancing the transparency of income tax exemptions
The Government will provide $1.9 million capital funding in 2022-23 to the ATO to build an online system to enhance the transparency of income tax exemptions claimed by not-for-profit entities (NFPs). From 1 July 2023, the ATO will require income tax exempt NFPs with an active ABN to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption.
SUPERANNUATION
The 2021 Budget contained a number of exciting (and some unexpected) announcements regarding changes to superannuation. Our superannuation team has provided a summary which can be accessed here.
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For further information on any of the above changes or to discuss how they affect your business, please contact:
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au
Laura Spencer
Senior Associate
M 0436 436 718 | T +61 3 9611 0110
E: lspencer@sladen.com.au
Edward Hennebry
Senior Associate
T +61 3 9611 0113
E: ehennebry@sladen.com.au
