On 11 May 2021, the Federal Budget for the 2021-22 financial year was handed down. A second ‘pandemic budget’, it contained many announcements significant in supporting you as a business owner and an individual. In this article, we examine the Federal Budget 2021-22 measures.
2021-22 Budget Measures for Businesses
As a brief, the key Federal Budget 2021-22 changes for businesses are as follows:
- Extension of the loss carry back for companies;
- Temporary full expensing extension, and;
- Extension of powers of the Administrative Appeals Tribunal in relation to small business taxation decisions.
Here they are in more depth…
Loss Carry Back Extension for Companies
The Federal Government has announced in their Budget that temporary loss carry back measures will be extended for another year. Losses incurred up until 30 June 2023 can be carried back as far as the year ended 30 June 2019.
Temporary Full Expensing Extension
The Federal Budget also announced an extension to the temporary full expensing measures for Small to Medium Enterprises (SMEs) with less than $5 billion turnovers. The extension by 12 months will benefit businesses with longer term projects that have depreciable assets acquired at different stages of the project and those cases where there have been supply chain issues.
Extension of powers of the Administrative Appeals Tribunal
As part of the 2021–22 Federal Budget, the Government also announced it will make it easier for small businesses to pause debt recovery action.
The changes will allow the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery actions, such as garnishee notices and the recovery of general interest charge or related penalties until the underlying dispute is resolved by the AAT.
Small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year will be eligible to use this streamlined approach, which, while not yet law, will be of great aid once ratified in legislation.
2021-22 Budget Measures for Individuals
As a brief, the key Federal Budget 2021-22 changes for individuals are as follows:
- Personal income tax cuts and lower thresholds;
- Modernisation of individual tax residency rules;
- Self- Education expenses changes;
- Employee Share Schemes taxing point change, and;
- Significant superannuation changes.
Let’s delve into them now!
Personal Income Tax Cuts and Lowered Thresholds
The Government in its budget, has announced an increase to the Medicare levy low-income thresholds for singles, families, seniors and pensioners for the 2021-22 financial year. The thresholds for singles will increase from $22,801 to $23,226 and the family threshold from $38,474 to $39,167. The threshold for single seniors and pensioners will also be increased from $36,056 to $36,705, alongside the family threshold for seniors and pensioners which will rise from $50,191 to $51,094. These changes will take effect July 1 2021.
Modernisation of the Individual Tax Residency Rules
The Federal Budget also revealed the replacement of the individual tax residency rules with a brand new, modernised version. As of Royal Assent after 1 July 2021, the primary test will be the simple ‘bright line’ test. This means that 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 this new primary test will be subject to secondary tests that are dependent on a combination of physical presence criteria and other points. As we at The Quinn Group can testify, Australia’s current tax residency rules are difficult to apply in practice.
Self-education Expense Deductions
Currently, the first $250 of a prescribed course of education expense is not tax deductible, however the 2021-22 Federal Budget has changed this. It was announced that the Government will remove the $250 exclusion, thereby reducing compliance costs for individuals claiming self-education expense deductions. This budget change will take effect from the first income year after the date of Royal Assent of the enabling legislation.
Employee Share Schemes
The Government also announced in the 2021-22 Federal Budget changes that it will remove the ‘cessation of employment’ taxing point for tax-deferred Employee Share Schemes (‘ESS’) that are available for all companies. This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.
The Government also has some significant changes to superannuation. The Government has announced that it will remove the current $450 per month minimum income threshold, under which employees do not have to be paid Superannuation Guarantee contributions by their employer. This means superannuation will have to be paid to you as an employee no matter your earnings per month. The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
The Federal Budget 2021-22 Measures
While many of these measures don’t come into effect until 1 July 2021, it is vital that you start taking action to understand the changes imposed by the Federal budget and how they apply to you, your business and your wellbeing. It is always important to seek the help of professionals to ensure you are gaining the maximum benefit from these 2021-22 budget measures, many of which require action or an application to reap the rewards. The team of accounting and legal professionals at The Quinn Group, are at the ready to assist with navigating these changes.
If you would like help with respect to understanding and implementing these budget measures for you or your business, please contact our team of experienced accountants and lawyers by submitting an online enquiry form, calling us on 1300 QUINNS or +61 2 9223 9166 to arrange a teleconference or appointment.