The WA Government has announced grants of $2,000 to help small businesses impacted by the recent Perth and Peel lockdown. The grants are intended to offset some of the direct costs of the lockdown and business closure, such as loss of perishable goods or cancellations.

Businesses in the hospitality, health, beauty, events and tourism industries are invited to express their interest. More information on eligibility requirements will be made available soon.

Budget 2021/22

What’s in it for you?

The 2021/22 Federal Budget is being referred to as a balancing act between a better than anticipated deficit ($106 bn), an impending election, and the need to invest in the long term.

Key initiatives include:

extending the temporary full expensing and loss carry back provisions offering immediate deductions for business investment in capital assets;
the introduction of a ‘patent box’ offering tax concessions on income derived from medical and biotech patents;
tax and investment incentives for the digital economy;
extending the low and middle income tax offset;
child care subsidy increases for families with multiple children;
$17.7 billion over five years to help reform aged care;
$2.3 billion on mental health infrastructure and programs; and
new and extended home ownership programs for first home buyers and single parents.

The $1.2 billion digital economy strategy aims to incentivise business to boldly develop Australia’s digital future. The program is broad – from upskilling the workforce, the expansion of consumer digital rights, the development of SME digitisation and Government service delivery, through to cybersecurity.

Beyond ‘digital’, co-funding and seed capital is available to those developing new technologies that reduce emissions and grow new export markets and jobs in the renewable energy sector.

Given the number of initiatives announced on Tuesday evening, we have pulled out the topics that are most likely to be of interest to you in the short term and will come back with more information on everything else in subsequent newsletters.

As always, if you have any questions or concerns regarding anything you read here, we are always only a phone call or email away.

For You and Your Family

Low and Middle Tax Offset extended

As widely predicted, the Low and Middle Income Tax Offset (LMITO) will be extended for another year. The LMITO provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 and will be retained for the 2021-22 year.

Medicare Levy low income threshold increased

The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 1st of July 2020 to take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.

For each dependent child or student, the family income thresholds increase by a further $3,597 instead of the previous amount of $3,533.

$250 self-education expense reduction removed

Currently, individuals claiming a deduction for self-education expenses sometimes need to reduce the deductible amount by up to $250. The rules in this area are complex as they only apply to self-education expenses that fall within a specific category and certain non-deductible expenses can be offset against the $250 reduction. This reduction will be removed, which should make it easier for individuals to calculate their self-education deductions. This change will take place in the first income year after the date the enabling legislation receives Royal Assent.

Child care subsidy increase for families with multiple children under 5 years old in child care

From the 1st of July 2022, the Government will:

increase child care subsidies available to families with more than one child aged five and under in child care; and
remove the $10,560 cap on the Child Care Subsidy.

For those families with more than one child in child care, the level of subsidy received will increase by 30% to a maximum subsidy of 95% of fees paid for their second and subsequent children (tapered by income and hours of care).

Under the current system, the maximum child care subsidy payable is 85% of child care fees and it applies at the same rate per child, regardless of how many children a family may have in care.

Why the change? In October 2020, analysis by the Grattan Institute revealed that mothers lose 80%, 90% and even 100% of their take-home pay from working a fourth or fifth day after the additional childcare costs, claw back of the childcare subsidy, and tax and benefit changes are factored in. Unsurprisingly, few people find the option of working for free – or close to it – particularly attractive.

Underwriting home ownership

The Government will guarantee 10,000 single parents with dependants to enable them to access a home loan with a deposit as low as 2% under the Family Home Guarantee. Similar to the first home loan deposit scheme, the program will guarantee the additional 18% normally required for a deposit without lenders mortgage insurance.

The Family Home Guarantee is aimed at single parents with dependants, regardless of whether that single parent is a first home buyer or previous owner-occupier. Applicants must be Australian citizens, at least 18 years of age and have an annual taxable income of no more than $125,000.

5% deposit home loans for first home buyers building new homes

The First Home Loan Deposit Scheme will be extended by another 10,000 places from the 1st of July 2021 to the 30th of June 2022. Eligible first home buyers can build a new home with a deposit of as little as 5% (lender’s criteria apply). The Government guarantees a participating lender up to 15% of the value of the property purchased that is financed by an eligible first home buyer’s home loan. Twenty seven participating lenders offer places under the scheme, whereby first home buyers can build or purchase a new home – including newly-constructed dwellings, off-the-plan dwellings, house and land packages, land and a separate contract to build a new home – and can be used in conjunction with other schemes and concessions for first home buyers. Conditions and time frames apply.

First home saver scheme cap increase

The first home super saver (FHSS) scheme allows you to save money for your first home inside your super fund, enabling you to save faster by accessing the concessional tax treatment of superannuation. You can make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into your super fund and then apply to release those funds.

Currently under the scheme, participants can release up to $15,000 of the voluntary contributions (and earnings) they have made in a financial year up to a total of $30,000 across all years. The Government has subsequently announced that the current maximum releasable amount of $30,000 will increase to $50,000 from the start of the first financial year after the enabling legislation receives Royal Assent (which is expected to be the 1st of July 2022).

The voluntary contributions made to superannuation are assessed under the applicable contribution caps; there is no separate cap for these amounts. Amounts withdrawn will be taxed at marginal rates less a 30% offset. Non-concessional contributions made to the FHSS are not taxed.

To be eligible for the scheme, you must be 18 years of age or over, never owned property in Australia, and have not previously applied to release superannuation amounts under the scheme. Eligibility is assessed on an individual basis. This means that couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property.

JobTrainer extended

The Government has committed an additional $500 million to extend the JobTrainer Fund by a further 163,000 places and extend the program until the 31st of December 2022. JobTrainer is matched by state and territory governments and provides job seekers, school leavers and young people access to free or low-fee training places in areas of skills shortages.

Full tax exemption for ADF personnel – Operation Paladin

Backdated to the 1st of July 2020, the Government will provide a full income tax exemption for the pay and allowances of Australian Defence Force (ADF) personnel deployed to Operation Paladin. Operation Paladin is Australia’s contribution to the United Nations Truce Supervision Organisation, with ADF personnel deployed in Israel, Jordan, Syria, Lebanon and Egypt.

Residency tests re-write

Determining whether an individual is a resident of Australia for tax purposes can be complex. The current residency tests for tax purposes can create uncertainty and are often subject to legal action.

The Government will be replacing 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 modernisation of the residency framework is based on the Board of Taxation’s 2019 report Reforming individual tax residency rules – a model for modernisation.

Your Superannuation

Superannuation Guarantee set to rise

As planned, superannuation guarantee payments will increase from the 1st of July 2021, from 9.5% to 10%. A further increase of 0.5% is scheduled for the 1st of July 2022, however, we will wait until next year’s Federal Budget before confirming that as a lot can change in the meantime.

Work test repealed for voluntary superannuation contributions

Expected to apply from the 1st of July 2022 (the first financial year following Royal Assent of enabling legislation), individuals aged 67 to 74 years will be able to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test. The contributions are subject to existing contribution caps and include contributions under the bring-forward rule.

Currently, the ‘work test’ requires individuals aged 67 to 74 years to work at least 40 hours over a 30 day period in a financial year to be able to make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse.

Personal concessional contributions will remain subject to the ‘work test’ for those aged between 67-74.

Expanded access to ‘downsizer’ contributions from sale of family home

Again, expected to apply from the 1st of July 2022, the eligibility age to access downsizer contributions will decrease from 65 years of age to 60.

Currently, downsizer contributions enable those over the age of 65 to contribute $300,000 from the proceeds of selling their home to their superannuation fund. These contributions are excluded from the existing age test, work test and the $1.7 million transfer balance threshold (but will not be exempt from your transfer balance cap).

Both members of a couple can take advantage of the concession for the same home. That is, if a couple have joint ownership of a property and meet the other criteria, both people can contribute up to $300,000 ($600,000 per couple).

Downsizer contributions apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

$450 per month threshold for super guarantee eligibility removed

Currently, employees need to earn $450 per month per employer to be eligible to be paid the superannuation guarantee. This threshold will be removed likely from the 1st of July 2022 so that all employees will be paid super guarantee regardless of their income earned.

The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month once the threshold is removed which will greatly benefit low-income earners and those working casual and part-time jobs.

Business and Employers

Temporary full expensing extension

Businesses with an aggregated turnover of less than $5 billion will be able to continue to fully expense the cost of new depreciable assets* and the cost of improvements to existing eligible assets in the first year of use. Introduced in the 2020-21 Budget, this measure will enable an asset’s cost to continue to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. The extension means that the rules can apply to assets that are first used or installed ready for use by 30 June 2023.

Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.

The car limit will continue to place a cap on the deductions that can be claimed for luxury cars.

From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million will revert back to $1,000.

* Assets acquired from 7:30pm AEDT on the 6th of October 2020 and first used or installed ready for use by the 30th of June 2023.

Second-hand assets

For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.

Small business pooling

Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the full balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they voluntarily leave the system will presumably continue to be suspended.

Opt-out rules

Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.

Temporary loss carry back extension

Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019 through to the 2023 financial years to offset previously taxed profits in the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Under this measure, tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.

The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.

Before the measure was introduced in the 2020-21 Budget, companies were required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses can still carry losses forward as normal.

This measure will interact with the Government’s announcement to extend full expensing of investments in depreciating assets for another year. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.

Employee Share Scheme simplification

Employee share schemes provide an opportunity for employers to offer employees a stake in the growth of the company by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount.

The Government has moved to simplify employee share schemes and make them more attractive by removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, when an employee receives shares or options that are subject to deferred taxation, the taxing point is triggered when they cease employment with the company, even if they could still lose the shares or options in future or have not yet exercised the options they have received.

Under a tax-deferred ESS, where certain criteria are met, employees may continue to defer the taxing point even if they are no longer employed by the company. In broad terms, following this change 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/s and there is no risk of forfeiting the resulting shares and no restriction on disposal;
the maximum period of deferral of 15 years.

Regulatory changes will also be made to reduce red tape where employers do not charge or lend to the employees to whom they offer ESS. Where employers do charge or lend, streamlining requirements will apply for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.

Tax Planning Reminder

With the Federal Budget officially out of the way, now is the time to get tax planning! The 30th of June is a little under seven weeks away and some strategies have a lead time to implement. We encourage you to get the ball rolling. Please call us on (08) 9221 1400 or email admin@up-to-date.com.au for more information.