This year the Wolters Kluwer CCH team have provided a summary of the 21-22 Federal Budget Announcements for in-house counsel. Access the full Wolters Kluwer Economic Report and Tax & Superannuation reports here.
Tomorrow, Wolters Kluwer will also co-host a webinar with MinterEllison, sharing the challenges the Australian economy faces as it emerges from the COVID-19 pandemic in the short to medium term. Register here.
The highlights from last night’s announcement are below:
Extension to temporary full expensing
Temporary full expensing of eligible assets will be extended by 12 months to 30 June 2023.
Eligible businesses with aggregated turnover or income less than $5 billion will be able to deduct the full cost of eligible depreciating assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023. All other aspects of the temporary full expensing rules first introduced in the 2020–21 Budget will remain unchanged.
The temporary full expensing rules supersede the normal small business depreciation rules or depreciation under Div 40. Entities calculating depreciation under Div 40 can opt out on an asset-by-asset basis.
Normal depreciation arrangements will apply from 1 July 2023.
Source: Budget Paper No 2, p 29; Budget Fact Sheet “Tax incentives to support the recovery”, p 2.
Extension to temporary loss carry back offset
The temporary loss carry back offset will be extended by one year to apply for 2022–23 income year losses.
Eligible corporate tax entities with aggregated turnover less than $5 billion will be able to carry back losses from the 2022–23 income year to offset previously taxed profits made in or after the 2018–19 income year. The loss that can be carried back is limited by the amount of earlier taxed profits and cannot generate a franking account deficit.
Eligible companies can elect to carry back losses under this measure for any or all of the 2019–20 to 2022–23 income years.
Source: Budget Paper No 2, p 30, Budget Fact Sheet “Tax incentives to support the recovery”, p 2.
Extended powers for AAT to pause or modify ATO debt recovery
Small businesses will be able to apply to the AAT to pause or modify ATO debt recovery actions for debts being disputed in the AAT.
The Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) will be allowed to pause or modify any ATO debt recovery actions, such as garnishee notices and the recovery of general interest charges or related penalties, until the underlying dispute is resolved by the AAT. The AAT will be required to ensure applications are in relation to genuine disputes and to consider the potential effect of an application on the integrity of the tax system.
The measure will apply to small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year that have filed an application in relation to tax matters before the Small Business Taxation Division of the AAT.
These new powers for the AAT will be available in respect of proceedings commenced on or after the date of assent of the legislation.
Source: Budget Paper No 2, p 19; Treasurer, Minister for Employment, Workforce, Skills, Small and Family Business and Assistant Treasurer's press release “Making it easier for small business to pause debt recovery action”, 8 May 2021.
Removing the $450 per month superannuation guarantee threshold
The employer exemption from superannuation guarantee payments for individuals earning less than $450 in salary or wages in a calendar month will be removed.
The measure will take effect from the 1 July following legislation receiving assent. The government expects to have removed this exemption category before 1 July 2022.
Source: Budget Paper No 2, p 26.
Tax-deferred employee share schemes — ceasing employment no longer a taxing point
The cessation of employment taxing point will be removed for tax-deferred employee share schemes (ESS) that are available for all companies. The change will apply to ESS interests issued from the first income year after assent of the amending legislation.
Under existing rules for a tax-deferred ESS, where certain criteria are met employees may defer tax until a later tax year (known as the deferred taxing point). By removing the cessation of employment taxing point, the deferred taxing point will be the earliest of:
- 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, and
- the maximum period of deferral of 15 years.
The following regulatory changes will also be made for ESS where employers do not charge or lend to employees under the ESS:
- disclosure requirements will be removed and the offer will be exempted from licensing, anti-hawking and advertising prohibitions, and
- for shares in an unlisted company, the maximum value of shares that can be issued to an employee with the simplified disclosure requirements and above exemptions will be increased from $5,000 to $30,000 per employee per year (no such value cap exists for listed companies).
The regulatory changes will apply 3 months after assent of the amending legislation.
Source: Budget Paper No 2, p 16; Budget Fact Sheet “Tax incentives to support the recovery — Supporting households, driving business investment, and creating jobs”.
Digital games tax offset to be introduced to promote growth of gaming industry
A digital games tax offset will be introduced to promote the growth of the digital games industry in Australia. This will be a refundable tax offset for a minimum investment of $500,000 from 1 July 2022 in “qualifying Australian games expenditure”.
The criteria and definition of qualifying expenditure will be determined following industry consultation. However, games with gambling elements will be excluded.
Source: Budget Paper No 2, pp 72–73; Budget Fact Sheet “Tax incentives to support the recovery — Supporting households, driving business investment, and creating jobs”.
Self-assessment of intangible depreciating assets to be allowed
Taxpayers who purchase patents, registered designs, copyrights or in-house software will be given the opportunity to self-assess their effective life for decline in value. The measure comes into effect for specified intangible assets acquired after 1 July 2023.
These assets are currently set to statutory effective life calculations. Where the taxpayer cannot reasonably estimate an effective useful life, or otherwise chooses not to self-assess, they may continue to use the statutory depreciation rates.
Source: Budget Paper No 2, p 14.
Concessional taxation of corporate income derived from certain patents
Corporate income derived from Australian medical and biotechnology patents in income years starting on or after 1 July 2022 will be taxed at a concessional effective tax rate of 17%. The mechanism by which this “patent box” concession will be delivered is subject to consultation with industry. The government intends to extend consultation in relation to the patent box with a view to determining its appropriateness for supporting the clean energy sector.
Currently, income the subject of the proposed patent box concession is undifferentiated in the income of a corporate taxpayer and accordingly subject to the rate applicable to the taxpayer, namely 25% for businesses with aggregated turnover of less than $50 million, otherwise 30%.
The patent box measure builds on the JobMaker Research and Development Tax Incentive announced in the 2020–21 Budget, by offering a competitive tax rate for profits generated from Australian owned and developed patents.
Source: Budget Paper No 2, p 23.
2021 storms and floods — income tax exemption for qualifying grants
An income tax exemption will be provided for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021.
These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.
Source: Budget Paper No 2, p 12.
Corporate collective investment vehicle framework revised start date
The corporate collective investment vehicles (CCIV) component of the Ten Year Enterprise Tax Plan — implementing a new suite of collective investment vehicles measure announced in the 2016–17 Budget will be finalised with a revised commencement date of 1 July 2022. The measure proposed introducing a tax and regulatory framework for CCIVs.
Source: Budget Paper No 2, p 13.
Taxation of financial arrangements — hedging and foreign exchange deregulation
Technical amendments will be made to the taxation of financial arrangements (TOFA) rules which will include facilitating access to hedging rules on a portfolio hedging basis.
The amendments aim to reduce compliance costs and correct unintended outcomes, so that taxpayers are not subject to taxation on unrealised foreign exchange gains and losses unless this is elected.
These changes will apply for relevant transactions entered into on or after 1 July 2022.
Source: Budget Paper No 2, p 29.
Junior minerals exploration incentive extended 4 more years
The junior minerals exploration incentive (JMEI) which was due to end in 2020–21 will be extended 4 more years, from 1 July 2021 to 30 June 2025.
The JMEI is a tax credit arrangement that allows junior mineral exploration companies to pass future tax deductions (losses) to Australian resident investors for greenfields mineral exploration in Australia. Minor legislative amendments will also be made to allow unused exploration credits to be redistributed a year earlier than under current settings.
Source: Budget Paper No 2, p 141; Treasurer and Minister for Resources, Water and Northern Australia's media release “Junior miners get $100 million funding boost”, 5 May 2021.
Temporary levy on offshore petroleum production
A temporary levy will be imposed on offshore petroleum production to recover costs of decommissioning the Laminaria-Corallina oil fields and associated infrastructure. The levy will terminate on 30 June in the year in which all associated decommissioning costs have been recovered. The government will consult with industry on the proposed levy.
Source: Budget Paper No 2, p 14.
Fuel tax credits — heavy vehicle road user charge increased
The heavy vehicle road user charge will be increased from 25.8 cents per litre to 26.4 cents per litre from 1 July 2021. The charge is applied to reduce the fuel tax credit rate per litre available for vehicles with a GVM greater than 4.5 tonnes.
The increase was agreed by Commonwealth and State and Territory Transport Ministers to contribute to the construction and maintenance of roads.
Source: Budget Paper No 2, p 150.
Apprenticeship wage subsidy expanded
The Boosting Apprenticeship Commencements wage subsidy will be expanded to support businesses and Group Training Organisations that take on new apprentices and trainees.
This measure will uncap the number of eligible places (currently capped at 100,000 places). The duration of the 50% wage subsidy will be increased 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 businesses of any size can claim the wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee's wages of up to $7,000 per quarter for 12 months.
Source: Budget Paper No 2, p 88.
Accessing income tax exemptions by not-for-profits
From 1 July 2023 non-charitable not-for-profits (NFPs) with active ABNs will be required to submit the information used to self-assess their eligibility for income tax exemptions in an online self-review form. This will be an annual requirement.
Currently non-charitable NFPs self-assess their eligibility for income tax exemptions, but there is no obligation to report to the ATO.
The ATO will be provided with $1.9 million capital funding to build an online system to support the measure.
Source: Budget Paper No 2, p 22.
Additions to deductible gift recipients list
The following organisations have been approved as specifically listed deductible gift recipients (DGRs) as follows:
- Australian Associated Press Ltd from 1 July 2021 to 30 June 2026
- Virtual War Memorial Limited from 1 July 2021 to 30 June 2026
- Scripture Union Queensland from 1 July 2021 to 30 June 2023
In addition, the following organisations have been approved for extension of their DGR status as follows:
- Cambridge Australia Scholarships Limited from 1 July 2021 to 30 June 2026
- Foundation 1901 Limited from 1 September 2021 to 31 August 2026
East African Fund Limited is currently operating as the School of St Jude Limited which is a public benevolent institution endorsed by the ATO as a DGR under a general DGR category. At the request of the organisation, it will be removed as a specifically listed DGR.
Gifts from $2 made to DGRs are tax deductible.
Source: Budget Paper No 2, p 25.
Changes to offshore banking unit regime
Concessional tax treatment for offshore banking units (OBUs) will be removed.
The concessional 10% effective tax rate applying to income derived from eligible offshore banking activities will be removed. Existing OBUs will have access to the concessional tax rate until the end of the 2022–23 income year. The withholding tax exemption for interest and gold fees paid by OBUs on certain offshore borrowings will be removed from 1 January 2024. The OBU regime will also be closed to new entrants from 26 October 2018.
These changes to the OBU regime have been introduced by the Treasury Laws Amendment (2021 Measures No 2) Bill 2021.
The government will consult on alternative measures to support the industry and ensure activity remains in Australia.
Source: Budget Paper No 2, p 20–21; Treasurer's press release “Amending Australia’s Offshore Banking Unit Regime”, 12 March 2021.
Maximum releasable amount under first home super saver scheme increased to $50,000
The maximum amount of contributions that can be released from superannuation under the first home super saver scheme (FHSSS) will be increased from $30,000 to $50,000.
The FHSSS applies to voluntary contributions made into superannuation on or after 1 July 2017. Voluntary contributions made from that date will count towards the total amount able to be released.
Source: Budget Paper No 2, p 17.
Central management and control safe harbour test extended for SMSFs
Currently, an SMSF will remain an Australian superannuation fund where the members/trustees of the SMSF are overseas temporarily for a period not exceeding 2 years. The government has announced a proposal to extend this safe harbour test to 5 years.
This extension will allow an individual who is overseas to continue active control of their SMSF, as opposed to appointing a legal personal representative as the trustee of the SMSF under an enduring power of attorney.
Also, the government intends to remove the active member test when determining whether an Australian superannuation fund is a complying fund. Currently, at least 50% of the total market value of an SMSF or small APRA fund is required to be held on behalf of active members who are Australian residents.
The new safe harbour test will be in effect on the 1 July following assent of the enabling legislation. The government has announced in the budget that it expects the enactment of legislation to be prior to 1 July 2022.
Source: Budget Paper No 2, p 28.
SMSF legacy pensions to be allowed conversion
A 2-year window will be created in which a member of an SMSF with a market-linked, life expectancy or lifetime pension can convert their pension into an account-based pension.
When reasonable benefits limits were abolished on 1 July 2007, these types of existing pensions could not be commuted into a new account-based pension except in very limited circumstances.
On conversion, a pensioner may have amounts allocated to their account-based pension from a reserve account. In this instance, the commuted reserve will be taxed in the fund as an assessable contribution. The assessable contribution will not count towards the individual's concessional contributions cap and will not trigger excess contributions.
The government has announced that there will be no grandfathering of social security treatments on conversion of a legacy pension account. Importantly, it will not be compulsory for individuals to convert these products.
The 2-year window will commence from the first financial year following assent of the enabling legislation. However, the conversion will not be available for pensioners with a flexi-pension product, or a lifetime defined benefit product with an APRA-regulated or public sector fund.
Source: Budget Paper No 2, p 27; Budget Fact Sheet “Superannuation — More flexibility for older Australians”.
Transfer of superannuation to KiwiSaver accounts
The ATO will be given an additional $11 million over 4 years from 2021–22 to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian superannuation funds).
From 11 December 2021 the ATO may, if directed by a person for whom unclaimed money is held, pay amounts directly to a KiwiSaver scheme provider. Prior to this date, retirement savings can only be transferred between Australian complying superannuation funds (other than SMSFs) and New Zealand KiwiSaver schemes.
Source: Budget Paper No 2, p 193.
Increased funding for aged care
A total of $17.7 billion in funding will be provided for aged care initiatives in response to the Royal Commission on Aged Care Quality and Safety.
Key measures include:
Home care measures:
- $6.5 billion over 4 years to release 80,000 additional home care packages over 2 years from 2021–22. This will bring the total number of home care packages to 275,598 by June 2023
- $798.3 million to provide greater access to respite care services and payments to support carers
- $272.5 million over 4 years to support senior Australians to access information about aged care, navigate the aged care system and connect to services through the introduction of dedicated face-to-face services
- $28.5 million in 2021–22 to ensure the continued operation of My Aged Care.
Residential care measures:
- $365.7 million to improve access to primary care and other health services in residential aged care, and additional investment in digital and face-to-face assistance to make it easier to navigate the aged care system
- $200.1 million to introduce a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers
- $3.9 billion over 4 years from 2021–22 to increase the amount of front line care (care minutes) delivered to 240,000 aged care residents and 67,000 who access respite services, by 1 October 2023. This will be mandated at 200 minutes per day, including 40 minutes with a registered nurse
- $3.2 billion to support aged care providers to deliver better care and services through a new government-funded basic daily fee supplement of $10 per resident per day, while continuing the 30% increase in the homelessness and viability supplements
- $189.3 million over 4 years from 2020–21 to implement the new funding model, the Australian National Aged Care Classification (AN-ACC)
- $49.1 million for the current independent hospital pricing authority to help ensure that aged care funding is directly related to the cost of care.
There will also be funding allocated to increase the aged care workforce and improve access to aged care services for individuals in regional and remote areas.
Source: Budget Paper No 2, pp 99–103.
Excise relief for small distillers and brewers
From 1 July 2021, eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.
This will align the benefit available under the excise refund scheme for brewers and distillers with the wine equalisation tax producer rebate.
Source: Budget Paper No 2, p 12; Treasurer and Assistant Treasurer's media release “Tax relief for small brewers and distillers to support jobs”, 1 May 2021.
Import duties — automotive R&D tariff concession extended
The automotive research and development tariff concession will be extended for a further four years until 30 June 2025, effective from 1 April 2021.
Companies that are registered under the Automotive Transformation Scheme Act 2009 as at 31 December 2020 will continue to be able to claim a tariff concession of up to 5% on the value of imports used for automotive R&D in Australia.
Source: Budget Paper No 2, p 9.