Last night the Morrison Government delivered a big spending budget aimed squarely at keeping Australia's economy in motion. Whilst there are claims of the Coalition changing their fiscal ideology and setting up for the next election, the budget does target significant parts of our economy especially Aged Care, NDIS, Childcare, women (safety, economic security, health & wellbeing) and infrastructure. The budget has been broadly welcomed and approved even though we will have record National debt of $1 Trillion and any budget "repair" has been kicked down the road.
Some of the key assumptions in the budget are important to understand, especially the timing of the full rollout of the COVID vaccination (by end of 2021) and the opening of international borders (mid 2022). That has implications for migration, unemployment and the recovery of key sectors of the economy – education, tourism, travel and skilled workers.
Whilst the unemployment rate is in decline, we are seeing increased staff shortages across a broad range of clients and industries. Although the Government is not forecasting significant wages growth, I believe there will be pressure on wages in attracting and retaining employees.
There were fewer measures directly aimed at business and individuals, but the change in corporate tax rate, set in prior budgets will come through as planned. The corporate tax rate for small business and base rate entities (aggregated turnover less than $50m) drops to 25% from 1 July 2021.
This is a key planning point as it also impacts the amount of franking credits on dividends paid by those companies and ultimately the top-up tax paid by the individual. The timing and quantum of dividend payments for 2020/21 and 2021/22 should be on every business owner's agenda.
Amongst some new business measures introduced in the budget:
- Allowing for self-assessment of effective life of certain intangible depreciating assets (e.g. in-house software, patents) effective from 1 July 2023
- Corporate income from Australian medical and biotechnology patents will be taxed at 17% from 1 July 2022. We are awaiting clarification on whether that will only apply to patents granted after budget night or after 1 July 2022.
The good news is the Government did extend the dates for a number of measures introduced over the last couple of years. This includes:
- Temporary full expensing of eligible assets will be extended for 12 months to 30 June 2023, providing business with the certainty and confidence to invest in equipment.
- Temporary loss carry back rules will be extended for 12 months to 30 June 2023
For individuals, the tax rates were reset in last year's budget held in October 2020. The good news is the Low and Middle Income Tax Offset (LMITO) will be extended to 30 June 2022 which will give taxpayers earning less than $126,000 an extra $1,080, although that phases out by that upper income level.
There were some positive tweaks to our tax system that will be of benefit to different groups:
- Changes to the taxation of Employee Share Schemes
- Removal of the $250 threshold for claiming of self-education expenses.
- Individual tax residency rules to be simplified.
- This has been flagged for some time now and could be a key issue in attracting talent from overseas.
- Removal of superannuation guarantee exemption for employees earning less than $450 in a month. This measure is planned to come in from 1 July 2022, at which time the SGC rate will be 10.5%.
- This may be a significant cost for businesses with a highly casualised workforce and should be assessed well in advance to consider the implications.
- From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making or receiving non-concessional superannuation contributions or salary sacrificed contributions. The work test will still apply to concessional contributions.
- From 1 July 2022, the eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age.
- Up to $300,000 per person can be contributed separately to other contribution caps and can still be made even if you have a total super balance greater than $1.6M.
- The downsizer contribution will count towards your transfer balance cap, which applies when you move into pension phase.
As always, there is much more devil in the detail. Please read our 2021/22 Federal Budget Overview for more in-depth information on budget measures.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Shaun Madders, Director
Spry Roughley Services Pty Limited
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