The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered his third Federal Budget on 11 May 2021.
The Budget papers include a number of measures that may impact you, especially in the superannuation area.
On the personal taxation front, the proposed changes include an extension to the low and middle income earner tax offset and modernising the tax residency rules.
For businesses, there are proposed extensions to full expensing and loss carry back rules, as well as a number of employment boosting initiatives.
The superannuation changes include a repeal of the work test, a reduction in the downsizer contribution minimum age, and changes to the self managed superannuation funds (SMSF) residency rules.
There are also changes to not-for-profits, philanthropy, child care, and social security.
This summary provides coverage of the key issues of most interest to you.
- Retaining LAMITO
- Modernising the individual tax residency rules.
- Extensions to temporary full expensing, loss carry-back, and JobTrainer
- Expansion of the wage subsidy
- SME Recovery Loan Scheme.
- Repealing the work test for voluntary superannuation contributions
- Reducing the eligibility age for downsizer contributions
- Relaxing residency requirements for SMSFs.
- Enhancing the transparency of income tax exemptions.
- Child care subsidy
- Other measures.
- Increasing the flexibility of the Pension Loans Scheme.
- Whole-of-government response to Royal Commission into Aged Care Quality and Safety.
Personal income tax
Retaining LAMITO in the 2021-22 income year
The Government will retain the low and middle income tax offset (LAMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners.
Modernising the individual tax residency rules
The Government 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. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Temporary full expensing extension
The Government will extend the 2020-21 Budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023 to further support business investment and the creation of more jobs.
Temporary full expensing will 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 loss carry-back extension
The Government will further support Australia’s economic recovery and business investment by extending the 2020-21 Budget measure titled JobMaker Plan — temporary loss carry-back to support cash flow. The extension will allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return. Loss carry-back encourages businesses to invest, utilising the 2021-22 Budget measure titled Temporary full expensing extension by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions.
Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry-back. The tax refund 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.
Addressing Workforce Shortages in Key Areas — JobTrainer Fund — extension
The Government will provide $506.3 million over two years from 2021-22 to extend the JobTrainer Fund. This includes an additional $500.0 million in funding for the National Partnership Agreement on the JobTrainer Fund, to be matched by contributions from the states and territories, to deliver around 163,000 additional low fee and free training places in areas of skills need, including 33,800 additional training places to support aged care skills needs and 10,000 places for digital skills courses. Eligibility for the Fund will be expanded to include selected employed cohorts that are continuing to be affected by COVID-19. This measure also includes $6.3 million for a campaign to encourage take-up of training opportunities.
Building Skills for the Future — Boosting Apprenticeship Commencements wage subsidy — expansion
The Government will provide an additional $2.7 billion over four years from 2020-21 to expand the Boosting Apprenticeship Commencements wage subsidy to further support businesses and Group Training Organisations to take on new apprentices and trainees. This measure will uncap the number of eligible places and increase the duration of the 50 per cent wage subsidy to 12 months from the date an apprentice or trainee commences with their employer. From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee's wages of up to $7,000 per quarter for 12 months.
SME Recovery Loan Scheme
The Government will support the economic recovery of, and provide continued assistance to, firms that received JobKeeper or are eligible flood-affected businesses through the SME Recovery Loan Scheme.
The Government will provide participating lenders with a guarantee for 80 per cent of secured or unsecured loans of up to $5 million for a term of up to 10 years and with interest rates capped at 7.5 per cent, with some flexibility around variable rate loans. Loans can be used by the SME for a broad range of business purposes, including to support investment and refinancing existing loans. Lenders will be able to offer borrowers a repayment pause of up to two years.
To be eligible, SMEs, including self-employed individuals and non-profit organisations, will have a turnover of up to $250 million and have been either:
- recipients of the JobKeeper Payment between 4 January 2021 and 28 March 2021
- located or operating in a local government area that has been disaster declared as a result of the March 2021 New South Wales floods and were negatively economically impacted.
Repealing the work test for voluntary superannuation contributions
The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30-day period in the relevant financial year.
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 eligibility age for downsizer contributions
The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
The downsizer contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional contribution caps.
This measure will allow more older Australians to consider downsizing to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.
Relaxing residency requirements for SMSFs
The Government will relax residency requirements for SMSFs and small APRA-regulated funds (SAFs) 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. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds. This will provide SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities.
Not for profits and philanthropy
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).
Currently non-charitable NFPs can self-assess their eligibility for income tax exemptions, without an obligation to report to the ATO. From 1 July 2023, the ATO will require income tax exempt NFPs with an active Australian Business Number (ABN) to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption. This measure will ensure that only eligible NFPs are accessing income tax exemptions.
Child care and pre-schools
Child care subsidy
Starting on 1 July 2022 the Government will provide $1.7 billion over 5 years (and $671.2 million per year ongoing) to:
- Increase the child care subsidies available to families with more than one child aged five and under in child care, benefitting around 250,000 families
- for those families with more than one child in child care, the level of subsidy received will increase by 30 percent to a maximum subsidy of 95 per cent of fees paid for their second and subsequent children.
- remove the $10,560 cap on the Child Care Subsidy, benefitting around 18,000 families.
For more information, see the Government’s media release of 2 May 2021.
The Government will also provide:
- $1.6 billion over four years from 2021-22 (and $589.0 million per year ongoing) for preschool funding. This funding will be delivered through a new agreement with states and territories linked to reforms to lift preschool attendance and school readiness
- $9.2 million to establish a new, family-focussed child care website, to make it easier for families to get accurate information about local services, quality, fees, and vacancies
- $7.7 million to pilot new monitoring, data sharing and compliance efforts to prevent and detect fraud within the child care system.
Increasing the Flexibility of the Pension Loans Scheme
The Government will provide $21.2 million over four years from 2021-22 to improve the uptake of the Pension Loans Scheme by:
- allowing participants to access up to two lump sum advances in any 12-month period, up to a total value of 50 per cent of the maximum annual rate of the Age Pension
- introducing a No Negative Equity Guarantee so borrowers will not have to repay more than the market value of their property
- raising awareness of the Pension Loans Scheme through improved public messaging and branding.
Whole-of-government response to Royal Commission into Aged Care Quality and Safety
The Government will provide $17.7 billion over 5 years as a whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety to improve safety and quality and the availability of aged care services. The funding includes:
- improvements in governance and regional access, including funding to develop a new aged care Act to replace both the Aged Care Act 1997 and the Aged Care Quality and Safety Commission Act 2018
- a range of measures to support home care, including funding to develop a new home care program and to release 80,000 additional home care packages over two years from 2021-22
- a range of measures to improve residential aged care quality and safety, including 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
- reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
- a range of measures to grow and upskill the aged care workforce.