The Federal Government has handed down its second pandemic budget, committing billions to creating jobs and bolstering essential services as Australia recovers from the effects of COVID-19.
According to the Budget Papers, Australia has achieved a stronger-than-expected recovery from COVID-19. Economic output is expected to have reached pre-pandemic levels in March 2021, nine months earlier than forecast in the previous Budget. GDP growth will be 1.25 per cent in 2020-21, and is forecast to reach 4.25 per cent in 2021-22 before falling to 2.5 per cent as the economy transitions from the initial reopening phase of the recovery.
While Australia’s economic outlook has strengthened, the Government notes that the global and domestic impact of COVID-19 still presents an ongoing threat to the Australian economy.
The year’s Budget promises “to continue to provide significant fiscal support until the economic recovery is secured” and includes significant measures described below:
- income tax cuts;
- business tax breaks;
- superannuation changes; and
- other measures.
Net debt will increase to $617.5 billion or 30 per cent of GDP this year and is expected to peak at 40.9 per cent of GDP in 2025.
PERSONAL TAX MEASURES
- Simplified individual tax residency rules will be introduced, involving:
- a primary ‘bright line’ test, under which a person who is physically present in Australia for 183 days or more in an income year will be an Australian resident for tax purposes; and
- secondary tests, which will apply to individuals who do not meet the primary test, and will assess a combination of physical presence and measurable, objective criteria.
- The first $250 of self-education expenses will no longer be excluded from being claimed as a tax deduction.
- The Low and Middle Income Tax Offset — capped at $1,080 — will be retained for the 2021–22 income year.
- The temporary loss carry-back measure will be extended by an additional year. This allows companies with aggregated turnover of up to $5 billion to offset 2022-23 losses against previously taxed profits from as far back as 2018–19.
- Employee share scheme (ESS) legislation will be simplified to help businesses attract and retain global talent. The proposed changes will reduce red tape and remove the cessation of employment taxing point for tax-deferred Employee Share Schemes.
- A new patent box regime will be introduced to encourage innovation in Australia by taxing corporate income derived from Australian medical and biotechnology patents at a concessional effective corporate tax rate of 17 percent.
- Venture capital tax concession programs will be reviewed, to ensure they are fit-for-purpose in attracting foreign investment and encouraging venture capitalists to invest in early-stage Australian companies.
- An expanded SME Recovery Loan Scheme will encourage banks to lend to eligible SMEs. Under this scheme:
- The Government will guarantee 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.
- SMEs turning over up to $250 million may be eligible if they either received the JobKeeper Payment for the March 2021 quarter; or were located or operating in areas affected by the March 2021 NSW floods.
- The Administrative Appeals Tribunal (AAT) will have new powers to pause or modify ATO debt recovery action for disputed debts so small businesses do not need to start paying until disputes are resolved. ATO debt recovery actions that may be affected include:
- recovery of the underlying debt;
- application of garnishee notices;
- recovery of related penalties and interest.
- The temporary full expensing of depreciating assets measure will be extended for 12 months until 30 June 2023. This means that businesses with aggregated annual turnover or total income of up to $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 by 30 June 2023.
- Depreciating intangible assets such as patents and in-house software will be simplified under a new measure that allows taxpayers to self-assess the effective life of these assets, rather than being required to use the effective life currently prescribed by statute.
- Amendments to the corporate residency test may be broadened to include trusts and corporate limited partnerships, pending a new Government consultation. Under the previously announced amendments, a company that is incorporated offshore will be an Australian tax resident if it has a ‘significant economic connection to Australia’.
- A new ‘Digital Games Tax Offset’ will provide a 30 per cent refundable offset to eligible businesses that spend a minimum of $500,000 on qualifying games expenditure.
- The proposed offset will support the development of digital games in Australia, which will help the sector attract digital talent from around the world, creating transferable digital capabilities that Australia could apply to a range of other sectors.
- The Government will consult with industry to develop the criteria and definition of ‘qualifying games expenditure’.
- Residency tests for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) will be simplified 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.
This will allow members of SMSFs and SAFs to continue to contribute to their superannuation fund whilst temporarily overseas, putting them on equal footing with members of large APRA-regulated funds.
- The superannuation guarantee will be broadened by removing the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. As a result, around 300,000 individuals are expected to receive additional superannuation guarantee payments each month.
- ‘Work test’ rules will no longer apply to individuals aged 67 to 74 years (inclusive) when making or receiving non-concessional (including under the bring-forward rule) or salary sacrificed superannuation contributions.
- The downsizer contribution scheme has been expanded, with individuals aged 60 and above now eligible. The minimum age for this scheme was previously 65.
- The First Home Super Saver Scheme (FHSS) will now allow first homebuyers to withdraw $50,000 of their voluntary superannuation. The previous withdrawal limit was $30,000.
- This measure is intended help first home buyers raise a deposit more quickly.
- It is proposed to commence from the start of the first financial year after Royal Assent of the enabling legislation.
The Government will also make technical changes to the legislation underpinning the FHSS Scheme to assist applicants who make errors on their release applications. This will apply retrospectively from 1 July 2018.
OTHER INTERESTING BUDGET MEASURES
- The Boosting Apprenticeship Commencements wage subsidy will be expanded, with the Government committing to uncapping the number of eligible places and increasing the duration of the subsidy to 12 months from the date an apprentice or trainee commences with their employer. Under this measure:
- From 5 October 2020 to 31 March 2022, eligible businesses of any size 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.
- An additional 5,000 gateway service places and in-training support services will be provided to encourage and support more women commencing in non-traditional trade occupations.
- Management of income tax exemptions for not-for-profit entities will be strengthened by:
- providing $1.9 million in capital funding to the ATO in the 2022–23 income year to build an online system to enhance the transparency of income tax exemptions claimed by NFPs; and
- requiring income tax exempt NFPs with an active ABN to submit an online annual self-review form reporting information they would ordinarily use to self-assess their eligibility for exemption.
- Child care will receive an additional $1.7 billion in Government funding, to encourage greater workforce participation and to reduce child care costs for approximately 250,000 families. The Government proposes to amend the child care subsidy as follows:
- From 11 July 2022, families will be subsidised for up to 95 per cent of child care costs of their second and subsequent children — up from a maximum of 85 per cent currently.
- From 1 July 2022, the Government will remove the $10,560 cap on the child care subsidy for families earning between $189,391 and $353,679.
- The housing market will receive $782.1 million over four years from 2021–22. The Government hopes to increase home ownership, support jobs in the residential construction sector and enhance housing data through various initiatives:
- The HomeBuilder construction commencement requirement will be extended from six months to 18 months.
- A Family Home Guarantee which will allow up to 10,000 single-parent families to purchase a property with a deposit of as little as two per cent.
- The First Home Loan Deposit Scheme will be extended to provide an additional 10,000 New Home Guarantees to allow eligible first home buyers to build or purchase a newly built home.
- The Women’s Budget Statement commits $3.4 billion towards women’s safety; women’s economic security; and women’s health and wellbeing. It includes the following key initiatives (some of which have been described above):
- various measures to address workplace sexual harassment and gender equality;
- a $1.7 billion investment in child care affordability;
- removal of the $450 per month superannuation guarantee threshold;
- investment in women’s education, training and employment; and
- funding for various aspects of women’s health.
For further information on any of these budget changes and how they may impact your business or you please contact us for a chat.