12 May 2021
Following the COVID-19 pandemic, Australia is taking steps to create more jobs, rebuild the economy and set the country up for the future.
As an important step in this ‘bounce back’ journey, the Treasurer, Josh Frydenberg delivered his Budget speech on 11 May 2021 focusing on measures to:
- Help rebuild the economy and secure Australia’s recovery.
- Help create more jobs.
- Make childcare more affordable.
- Invest in aged care and mental health programs.
There was also a women’s budget statement discussing important issues such as women’s safety, women’s economic security, women’s health and wellbeing and the impact of COVID-19 on women.
However, there was a deafening silence on tax reform and most tax changes proposed by the Budget were an extension or improvement of existing measures in place.
Set out below are the main tax changes we have identified in the 2021/22 Budget.
The extension of the Full Expensing of Depreciating Assets (FEDA) and the temporary loss carry-back by another 12 months up to 30 June 2023.
The FEDA extension means that businesses with a turnover of less than $5 billion can deduct the full cost of depreciable assets of any value, which were acquired after 6 October 2020 and used or installed ready for use by 30 June 2023.
It is hoped that by extending FEDA to 30 June 2023, businesses will spend more money and buy more assets to stimulate the economy.
The temporary loss carry-back extension means that companies with a turnover of less than $5 billion can carry back their tax losses from the 2023 income tax year to offset against previously taxed profits as far back as the 2019 income tax year. However, the tax refund is limited to the lesser of the amount of tax paid previously and the availability of franking credits.
Changes to the depreciation of intangible depreciating assets from 1 July 2023
Currently, the tax effective lives of intangible depreciating assets such as patents, registered designs, copyrights and in-house software are set by statute.
From 1 July 2023 it is proposed that taxpayers would be able to self-assess the tax effective lives of such assets to adopt a more appropriate useful life, which should encourage investment and hiring in research and development.
New patent box regime for innovation
From 1 July 2022, the Government proposes for income derived from Australian medical and biotech patents to be taxed at the 17 percent concessional corporate tax rate instead of the 30 percent or 25 percent corporate tax rate (the tax rate for smaller companies from 1 July 2022) that other income will be taxed at.
Only Australian owned and developed patents applied for after 12 May 2021 will qualify for the concessional taxation treatment, and the Government hopes this new regime will stimulate more Australian innovation.
Changes to the taxation of employee share schemes under the deferral option (removing the cessation of employment as a taxing point)
This proposed change means that employee share schemes that are not taxed upfront, such as whenshares are granted, will be taxed at the earlier of 15 years or when there is no risk of forfeiture and no restrictions on disposal of the shares or options.
This proposal will apply to shares or options issued in the year following Royal Assent and is designed to attract and retain talent.
Changes to the individual and corporate tax residency rules
An Australian resident taxpayer is taxable on the taxpayer’s world-wide income while a non-resident taxpayer is only taxable on Australian sourced income.
Because residency is such an important concept and the current rules of determining tax residency can be very complicated and difficult to apply, the Government proposes to overhaul the individual residency test by making the 183-day test the primary test.
There is also currently consultation underway about when companies that are not incorporated in Australia will have a “sufficient economic connection” with Australia and therefore be an Australian tax resident.
Small businesses, individuals and superannuation
This year’s Budget contained some welcome proposals for small business entities (businesses with a turnover of less than $10 million), who can now pause the ATO’s debt recovery actions until the underlying dispute has been decided by the small business taxation division (SBTD) of the Administrative Appeals Tribunal (AAT).
The low and middle-income tax offset has also been extended by another year to assist individuals in low and middle-income tax brackets.
On the superannuation front, there are proposals to increase the maximum amount that can be released under the First Home Saver Scheme from $30,000 to $50,000 and to reduce the eligibility age for downsizer contributions from 65 to 60, making it easier for each spouse to contribute up to $300,000 to their superfund.
It is also expected from 1 July 2022, individuals aged 67 to 74 years (inclusive) will no longer need to satisfy the work test to make non-concessional (including contributions under the bring-forward rule) or salary sacrifice superannuation contributions. However, people who still want to make deductible concessional contributions will have to satisfy the work test, which is to work at least 40 hours over a 30-day period in the relevant financial year.
See our full Federal Budget Analysis
Our team of experts has been busy developing insights and analysis that breaks down what the Budget means for Australian businesses and individuals.
Check out the full coverage of the Federal Budget 2021/22, which will continue to develop throughout the week as new insights and video content are published.