Federal Budget for the 2021-2022 income year
On 11 May 2021, Treasurer Josh Frydenberg delivered the Federal Budget for the 2021-2022 income year.
The 2021-22 Federal Budget deficit is $161 billion falling to $57 billion in 2024-25 with net debt predicted to peak at $980.6 billion (40.9% GDP) by June 2025. The full Budget papers are available at https://budget.gov.au/index.htm
The tax, superannuation and social security highlights are set out below:
Individuals
Low and Middle Income Tax Offset extended another year until 2021-22
The Government announced that it will retain the Low and Middle Income Tax Offset (LMITO) in the 2021-22 financial year.
| Low and Middle Income Tax Offset | |
| Taxable Income | Tax offset |
| Up to $37,000 | $255 |
| $37,000 – $48,000 | $255 plus 7.5c for each $1 over $37,000, up to a maximum of $1,080 |
| $48,001 – $90,000 | $1,080 |
| $90,001 – $126,000 | $1,080 less 3c for each $1 over $90,000 |
| $126,001 + | Nil |
Increasing the Medicare levy low-income thresholds
The income thresholds at which Medicare levy is payable for singles, families and pensioners will be increased for the 2020-21 financial year as follows:
- Singles will be increased from $22,801 to $23,226.
- The family threshold will be increased from $38,474 to $39,167
- For single seniors and pensioners, the threshold 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 instead of the previous amount of $3,533.
Modernising the individual tax residency rules
The current rules to determine whether an individual is a tax resident will be replaced. The primary test to determine tax residency will be based on whether an individual is physically present in Australia for 183 days or more in any income year.
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.
Business
Temporary full expensing extension
Temporary full expensing will be extended by a further 12 months to 30 June 2023.
It 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.
Temporary loss-carry back extension
Temporary loss carry-back provisions will be extended by a further 12 months to 30 June 2023. This will allow eligible corporate entities with less than $5 billion turnover to carry back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year.
Cessation of employment will be removed as tax point for Employee Share Schemes
The Government will remove the cessation of employment as a taxing point for tax-deferred employee share schemes. There are also other changes that are designed to cut “red tape” for certain employers.
Cessation of employment change
Currently, under a tax-deferred ESS, where certain criteria are met employees may defer tax until a later tax year (the deferred taxing point). In such cases, the deferred taxing point is the earliest of:
- Cessation of employment
- In the case of shares, when there is no risk of forfeiture and no restrictions on disposal
- 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
- The maximum period of deferral of 15 years
The change announced in the Budget will result in tax being deferred until the earliest of the remaining taxing points.
Concessional corporate tax rate for medical and biotech patents income
The Government will introduce a so-called “patent box” tax regime which will tax corporate income derived from patents at a concessional effective corporate tax rate of 17 percent. The patent box will apply to income derived from Australian medical and biotechnology patents.
This measure is estimated to decrease the underlying cash balance by $206.4 million over the forward estimates period.
30 percent digital games tax offset from 1 July 2022
The Treasurer said tax incentives will be provided to stimulate investment in digital technologies, including a 30 percent Digital Games Tax Offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure.
Games with gambling elements, or that cannot obtain a classification rating, will not be eligible.
The Digital Games Tax Offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia.
Superannuation
Repealing the work test and extending the bring forward provisions
From 1 July 2022, the work test will no longer be required to be met by individuals aged 67 to 74 for voluntary contributions like non-concessional contributions and salary sacrifice contributions. However, individuals aged 67 to74 still need to meet the work test requirements in order to make any personal deductible contributions.
Currently, these individuals (aged 67 to 74) would need to meet a work test or be eligible for a work test exemption before they can make voluntary contributions to super. Contributions can be accepted up until the 28th day after the end of the month on which they turn 75. The work test is satisfied if an individual was gainfully employed for at least 40 hours over a consecutive 30-day period during the financial year.
Individuals aged 65 to 74 will also be able to use the bring forward provisions subject to the available caps and meeting the total super balance criteria. Currently, only those under age 65 on 1 July of a financial year can trigger the bring forward provision in that financial year. The measure that was originally announced in the 2019-20 Federal Budget to extend this age from 65 to 67 effective 1 July 2020 has not been legislated
Downsizer contributions extended to those who are age 60 and over
From 1 July 2022, the government proposes to extend the ability to make downsizer contributions to those age 60 and over.
Currently only those age 65 and over at the time of making the contribution are eligible. All other requirements remain unchanged including the requirement that the home was owned by the person or their spouse for at least 10 years, the sale proceeds are either fully or partially exempt under the main residence exemption and the downsizer contribution made within 90 days of receiving the sale proceeds.
The new rules will allow more individuals to contribute more of their sale proceeds to super – under both the $300,000 downsizer limit (or $600,000 for a couple) and the $330,000 bring forward NCC cap.
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
The Government expects this measure will have effect from 1 July 2022.
No change to legislated Super Guarantee increase and removal of the $450 per month threshold for eligibility
The Government will not change the legislated increase in the Super Guarantee (SG) in this year’s Budget. SG will increase to 10% from 1 July 2021 and then gradually increase to 12%.
| Superannuation Guarantee | |
| Period | SG rate (%) |
| 1 July 2021 – 30 June 2022 | 10.00 |
| 1 July 2022 – 30 June 2023 | 10.50 |
| 1 July 2023 – 30 June 2024 | 11.00 |
| 1 July 2024 – 30 June 2025 | 11.50 |
| 1 July 2025 – 30 June 2026 and onwards | 12.00 |
2 year amnesty for commuting legacy pensions
Retirees in receipt of legacy retirement products such as market-linked, life-expectancy and lifetime pensions will be given the option to exit these products over a two-year period commencing from the beginning of the first financial year after Royal Assent. Individuals will have the option to fully commute the underlying capital and reserves into the accumulation phase of superannuation.
Relaxing the residency requirements for SMSFs and SAFs
The Government will relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by extending the central management and control test safe harbour rule from two to five years for SMSFs, and removing the active member test for both SMSFs and SAFs. The Government expects this measure will have effect from 1 July 2022.
This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring consistent treatment with members of large APRA-regulated funds. This will provide members the flexibility to keep and continue to contribute to their fund while undertaking overseas work and education opportunities
First Home Super Saver Scheme (FHSSS): 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 FHSSS from $30,000 to $50,000.
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.
Subject to passage of legislation, it is expected that this measure will be effective from 1 July 2022. The Government will further make four technical changes to the legislation underpinning the FHSSS to improve its operation as well as the experience of first home buyers using the scheme.
Social Security
Improving the Pension Loan Scheme
The Pension Loan Scheme (PLS) allows a fortnightly loan of up to 150% of the maximum rate of Age Pension to help boost a person’s retirement income by unlocking capital in their real estate assets. It can be available for self-funded retirees who are Age Pension age but do not receive a social security pension. Interest is compounded fortnightly at 4.50% p.a., and any debt under the scheme is paid back when the property is sold or the person dies.
Proposal
From 1 July 2022, the Government will introduce a No Negative Equity Guarantee for PLS loans and allow people access to a capped advance lump sum payment.
No negative equity guarantee
Borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages.
Immediate access to lump sums under the PLS
Eligible people will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of Age Pension (currently $12,385 for singles and $18,670 for couples).
The total amount of pension plus loan available will still be capped at 150% of the maximum rate of Age Pension. This means any advances taken will reduce the maximum fortnightly loan amount a person can take over the rest of the year.
Apply a consistent four-year newly arrived resident’s waiting period across payments
The Newly Arrived Resident’s Waiting Period currently applies to Carer Payment, JobSeeker Payment, Carer Allowance, Commonwealth Seniors Health Card (CSHC) and Low Income Health Care Card (LIHCC), amongst other benefits and payments.
From 1 January 2022, the Government will increase the Newly Arrived Resident’s Waiting Period (NAWRP) for most welfare payments to four years.
The above information is from:
- Accurium Federal Budget Report 2021-22
- Federal Budget 2021: Free Spending Budget For Unprecedented Times