Need-to-know Federal budget changes as Australia climbs toward economic recovery.

Personal Income Tax Cuts

To assist families in recovering from COVID-19 the Government is introducing measures targeted toward low and middle-income earners. This will provide immediate relief to individuals and support a healthier economy by boosting consumer spending.

The low and middle income tax offset has been extended for a further year to the 2021-22 income year providing a $1,080 tax reduction for those earning less than $90,000. This will be received on assessment after individuals lodge their tax return.

Additionally, from July 1 2020 the Medicare Levy low-income thresholds have been increased. Applying to singles, families, and seniors and pensioners to account for recent changes in CPI. Singles will increase from $22,801 to $23,226. Families from $36,056 to $36,705. Seniors and pensioners from $36,056 to $36,705. The Family threshold for seniors and pensioners will increase from $50,191 to $51,094.

The Government is also removing the exclusion for the first $250 deduction for prescribed courses of education which is currently not deductible. This aims to reduce compliance costs for individuals claiming self-education expenses.

Tax Offset and Digital Economy Strategy

The Government has introduced a $1.2 billion Digital Economy strategy. COVID-19 resulted in an acceleration of digital industries and due to this a 30% Digital Games Tax Offset has been introduced to put Australia on the map for digital talent.

Temporary Full Expensing Extension for Asset Purchases

The Government has announced a 12-month extension to the temporary full expensing measures until 30 June 2023 (for those with an aggregated turnover of less than $5 billion). This provides eligible businesses a cash-flow opportunity. Businesses can now deduct the full cost of eligible depreciating assets rather than having to claim depreciation deductions over several years.

Extension of the Loss Carry Back rules for companies

An extension has been made to the loss years that an eligible company (aggregated annual turnover of up to $5 billion) can carry back. Current tax loss carry back (2019/20, 2020/21, 2021/22) will be extended to include the 2022/23 income year. This provides eligible businesses greater ability to offset their losses against prior year tax paid. These changes may lead to a refundable tax offset.

Patent Box Regime

The missing link incentivizing Australian developed technology to be retained in Australia. This patent box regime will be introduced as a tax concession for Australian medical and biotechnological innovations. From 1 July 2022 a tax concession will apply to corporate income derived directly from Australian owned and generated patents as a corporate tax rate of 17%. This is a decrease in the current corporate tax rate of 13% for large business and 8% for small to medium enterprises.

Extension of powers for the Administrating Appeals Tribunal in relation to small business taxation decisions

The Administrative Appeals Tribunal will be given the power to pause or modify ATO debt recovery action in relation to disputed debts (by small businesses with an annual turnover of less than $10 million) under review by the AAT’s Small Business Taxation Division (SBTD). Taxpayers who file an application before the SBTD will now be able to apply for a pause or modification of ATO debt recovery actions until the nature of the underlying dispute has been decided.

Self-assessed effective lives for intangible assets

From 1 July 2023 (after the temporary full expensing measures cease) taxpayers will be allowed to self-assess the effective lives of eligible intangibles allowing businesses to better align the tax treatment with the true economic benefits provided from the asset. This welcome amendment supports industries who face technological advances which replace products before the legislated effective lives.

Alignment of the excise refund scheme for brewers and distillers

From 1 July 2021, Brewers and distillers will be eligible to receive full remission of any excise paid up to a cap of $350,000 per financial year. There will be no requirement for the excise duty to be paid when the excise return is lodged. This will help small distillers and brewers to invest, grow and support around 15,000 currently unemployed Australians in the sector.

Modernization of the individual tax residency rules

The Government is making changes to tax-residency in line with the 2019 Board of Taxation reform recommendations. A person who is physically present in Australia for 183 days or more in an income year, will be an Australian tax resident. Those who do not meet this primary requirement will be subject to secondary tests of physical presence and measurable objective criteria.

Employee Share Schemes – ‘Cessation of employment’ no longer a taxing point

Employee Share Schemes (ESS) allow employers to issue options or shares or shares to employees, usually at a discount with the aim of attracting and motivating employees.

‘Cessation of employment’ has been removed as a taxing point under the deferred taxation rules. This change will only apply to ESS interests issued to employees in the income years commencing after the amending legislation is passed.

Currently, an employee may defer tax until a later taxing point being the earliest of: Cessation of employment, when there is no real risk of forfeiture and no restrictions on disposal (in relation to shares) and when the employee exercises the option and there is no real risk of forfeiture and no restrictions on disposal (relating to options).

Superannuation Guarantee Eligibility

There is a proposal to remove the $450 per month minimum income threshold which determines whether employees have to be paid the superannuation guarantee by their employer beginning from the first financial year after the proposed legislation receives Royal Assent. The superannuation guarantee is currently 9.5% but will increase on 1 July 2021 to 10%. This threshold prevents the administrative burden of facilitating the superannuation guarantee for employers with employees in casual employment arrangements. An estimated 300,000 individuals would be currently eligible to receive these additional payments (Retirement Income Review). This is a win for gender equity in the superannuation system as 63% of people eligible for these payments are women.