On Tuesday 11th May 2021, the Treasurer handed down the Federal Budget which sees a continuation of the Government’s focus to support the economy through a COVID-19 induced downturn.
This Budget sees a high level of spending continue – the 2021 budget deficit is $161b and net Government debt is forecast to reach $980b by 2025. What can be noticed with this Budget is a change of focus away from spending on direct COVID-19 support for businesses (e.g. JobKeeper) to more community and social spending (e.g. spending on aged care and mental health).
We have summarised below our key budget takeaways for businesses and households.
Small and Medium Businesses:
Instant Asset Write-Off Extension
The Instant Asset Write-Off, which currently allows eligible businesses to deduct the full cost of eligible depreciable assets of any value, has been extended to 30 June 2023. This was due to expire at 30 June 2022.
This is an important change for businesses and may impact future asset purchasing decisions.
Loss Carry Back Tax Offset Extension
The Loss Carry Back Tax Offset allows 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. This provision first introduced in 2020 was originally due to expire on 30 June 2022.
This extension may provide some cash flow relief for businesses who are slow to recover. It also provides tax planning opportunities.
Small Business Safeguards when Dealing with the ATO
The Government will extend the power of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action, in relation to disputed debts that are being reviewed by the Small Business Taxation Division (SBTD).
Presently, the ATO can issue Garnishee Notices and take other actions even if a tax debt is being disputed. This change will provide some extra protection for businesses.
Retaining the Low and Middle Income Tax Offset for 2021-22
The Government will retain the Low and Middle Income Tax Offset (LMITO) for the 2021-22 income year. This will provide additional tax relief when lodging the 2022 tax return. This rebate is already in place for the 2021 tax return.
The amount of the benefit will vary depending on income levels. Individuals with income of up to $37,000 will receive a $255 benefit, those on income between $37,000 and $48,000 will receive between $255 and $1,080, those with income between $48,000 and $90,000 will receive $1,080 whilst those with income over $126,000 will not receive any benefit from this offset.
Abolishing the Work Test
A rule requiring those aged at least 67, but under 75, to have to be gainfully employed for at least 40 hours over less than 31 continuous days in order to make super contributions will be abolished. Without the requirement to satisfy the Work Test, those aged under 75 will be able to:
- Make personal, non-concessional contributions including – if eligible – use the three year, bring forward rule.
- Make salary sacrifice contributions.
Currently, those aged over 67 are not able to make any contributions to superannuation unless they work at least 40 hours within one continuous 31 day period during the year. We expect this change will allow older Australians additional opportunities to contribute into superannuation.
This change is expected to apply from 1 July 2022.
Abolishing the $450 limit for Super Guarantee Payments
The Government has proposed to remove the current $450 per month minimum income threshold, under which employees do not have to be paid the Superannuation Guarantee by their employer. This will result in all employees, regardless of the amount of hours worked, being paid Superannuation Guarantee.
This is expected to apply from 1 July 2022.
Employers should keep this change in mind when setting casual rates and processing payroll from 1 July 2022.
Increasing eligibility for Downsizer Contributions
The Government will reduce the eligibility age to make Downsizer Contributions into Superannuation from 65 to 60 years of age. The Downsizer Contribution allows people to make a one-off, post-tax contribution to their Superannuation Fund of up to $300,000 per person 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.
The increase in eligibility by reducing the age requirement from 65 to 60 is expected to take effect from 1 July 2022.
We encourage anyone thinking of taking advantage of this concession to seek professional advice. This is a complex area and any actions may have impacts on succession planning, tax planning and access to the Aged Pension.
The Budget Papers provide for $240m for the Cairns Western Arterial Road Duplication. This spending commitment was announced before Budget night. Based on projected expenses in the Budget Papers, we expect this work will commence during the 2023 financial year.
An extra $400m has also been allocated to the Bruce Highway although no projects have been identified as yet.
Cyclone and Related Flooding Reinsurance Pool
The Government will establish a reinsurance pool to cover cyclone and related flood damage in Northern Australia to commence from 1 July 2022. The reinsurance pool will be backed by a $10b Government guarantee. This program was also announced before Budget night.
Whilst the Government is hopeful that this will lower insurance premiums for businesses and households in North Queensland, there is some uncertainty as to the actual impact.
The Budget has provided for an additional $850m in funding over the forward estimates to support the National Farmers Federation’s (NFF) ambition of having a $100b industry by 2030.
A raft of programs are supported in the Budget to achieve this, including programs focused on biosecurity, soil management, waste management, training, trade and export.
The agricultural sector should also benefit from the extension of the Instant Asset Write-Off and changes made for temporary visa workers.
Other measures that may be of interest to businesses and households include:
- Capping tax on income derived from medical and biotechnology patents at 17%. Presently this income would be taxed at ordinary company tax rates.
- An expansion of the Job Trainer Fund with an extra $500m injected to provide an additional 163,000 low fee and free training places.
- An extra $1.7b investment in child care to increase the Child Care Subsidy by 30% for the second child and subsequent children aged five years and under up to a maximum of 95%.
- Changes were announced to extend the stay and provide extra flexibility for workers on temporary Visas.
If you would like further information about any of the Budget announcements, please do not hesitate to contact the Halpin Partners Team on (07) 4052 0800.