Federal Budget 2021

The budget position has improved dramatically from the forecasts delivered in October 2020. The deficit for 2020-21 is now expected to be $161 billion, down from $213.7 billion. This reduction is largely due to a much stronger rebound in employment. Revenue is also receiving a boost from strong economic recoveries from our trade partners and higher than expected resource prices.

Recent remarks from the Treasurer Josh Frydenberg, have made it clear that there are still downside risks to the economy, and he expects the Government to continue providing a significant amount of support.

The unemployment rate is expected to fall below 5% by late 2022 and reach 4.75% by 2023. Having said that, the Government is still conscious of the impact of COVID-19 and is investing $1.9b on a vaccination strategy and $1.5b to extend the range of COVID-19 health responses.

To ensure the continued economic growth and secure the recovery of the economy, the Government seems to have adopted a “steady as she goes” strategy including:

• Retaining its low- and middle-income tax offset in 2021-22 which is worth up to $1,080 for individuals and $2,160 for dual income couples.
• Extending ‘The Temporary Full Expensing’ of eligible business assets for 12 months to 30 June 2023.
• Extending the ‘Temporary Loss Carry Back’ rules to allow eligible companies to carry back losses from 2023 to offset previously taxed profits as far back as the 2019 year. Unfortunately, this measure has not been extended to businesses operating in entities other than companies.

The extension of these tax concessions for another 12 months will be welcomed by individuals and businesses.

Some of the more interesting changes are in the superannuation area. The Government proposes to remove the $450 per month threshold on making superannuation guarantee contributions. This will impact 300,000 low-income individuals. The other changes include:

• Allowing eligible individuals from the age of 60 (down from 65) to contribute $300,000 from the proceeds of selling their home into superannuation.
• Allowing the release of up to $50,000 of voluntary superannuation contributions to be used for your first home purchase.

The idea of these superannuation measures is to encourage downsizers to sell and increase the supply of houses and at the same time allow first homeowners to enter the market.

As the economy is heading in the right direction, it appears the Government is reluctant to introduce any significant changes to the tax system. The spend on infrastructure, health, education and training should ensure the Governments deficit and employment targets are met.

The tax initiatives will be welcomed by the business community, especially those who don’t like change. Will it lead us up the road to recovery, time will tell.

If you would like to understand more about how the below measures could affect you, please feel free to contact either Rodney DeGabriele, Tony Vikram or our office directly.

SUPERANNUATION THRESHOLDS FROM 1 JULY 2021 TO 30 JUNE 2022

DOWNSIZER CONTRIBUTIONS

The Government will reduce the eligibility age to make a downsizer contribution from 65 to 60 from 1 July 2022. The scheme allows a one-off, post tax contribution of $300,000 per person from selling a house with contributions not counted towards the non-concessional cap.

REMOVING THE WORK TEST

The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non- concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible  contributions.

SMSF RESIDENCY REQUIREMENTS

The Government will relax residency requirements for SMSF and small APRA-regulated funds from 1 July 2022 by extending the central control and management test safe harbour from two to five years and removing the active member test. This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds.

COVID PACKAGE

The Government announced it was extending the 2020/21 COVID-19 Package for small business for a further year with additional funding of $20.7 billion. The following two measures in particular will be extended:

Temporary Full Expensing Extension

The Government will extend the 2020-21 budget measure for an additional 12 months until 30 June 2023 which allows all businesses with aggregate turnover or total income of less than $5 billion to fully expense depreciable assets in the current tax year.

Temporary Loss Carry-back Extension

The Government will also extend the 2020-21 budget measure which allows companies to claim back tax paid in prior financial years back to 2018-19 where a tax loss occurs until the end of the 2022-23 financial year.

Reference – RSM, Federal Budget 2021-22; FPA, Budget Wrap-Up 2021-22.