2021 Budget Summary
Personal income tax rate cuts
Effective: 1 July 2020
The government has brought forward its planned personal income tax cuts by two years and will result in the following changes to the income tax rates:
- Increase the top threshold of the 19% tax bracket from $37,000 to $45,000
- Increase the top threshold of the 32.5% tax bracket from $90,000 to $120,000
Additionally, the government has increased the low-income tax offset from $445 to $700.
The government has announced that it will also retain the low-and-middle income tax offset, which provides a reduction in income tax payable of up to $1,080 for taxpayers with a taxable income of up to $126,000.
The government’s plan to simply and flatten the personal income tax system remains scheduled for 2025 as follows:
|Tax rate||Current||From 1 July 2020||From 1 July 2024|
|0%||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – $37,000||$18,201 – $45,000||$18,201 – $45,000|
|30%||$45,001 – $200,000|
|32.5%||$37,001 – $90,000||$45,001 – $120,000|
|37%||$90,001 – $180,000||$120,001 – $180,000||–|
|LITO||Up to $445||Up to $700||Up to $700|
Economic support to government payment recipients
Effective: November 2020 and early 2021
Two additional economic support payments of $250 each will be made to eligible recipients of the following payments and health care card holders:
- Age Pension
- Disability Support Pension
- Carer Payment
- Family Tax Benefit, including Double Orphan Pension
- Carer Allowance (not in receipt of a primary income support payment)
- Pensioner Concession Card holders (not in receipt of a primary income support payment)
- Commonwealth Seniors Health Card holders
- Eligible Veterans’ Affairs payment recipients and concession card holders
The payments are exempt from taxation and will not count as income support for the purposes of any income support payment.
CGT and granny flat arrangements
Effective: 1 July 2021, subject to the passage of legislation
At present, if an individual enters into a formal written granny flat arrangement with a relative, such as an elderly parent, there is a risk of capital gains tax (CGT) applying.
The government measure provides a targeted CGT exemption for granny flats where CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement if:
- Providing accommodation for older Australians or people with disabilities and
- The arrangement is between family relatives or other personal ties.
This measure does not apply to commercial rental arrangements.
10,000 additional places in the First Home Loan Deposit Scheme
Effective: 6 October 2020
The government has announced that from 6 October 2020 to 30 June 2021, an additional 10,000 places will be available for first home buyers under the First Home Loan Deposit Scheme to support the purchase of a new home or a newly built home. The scheme enables first home buyers to purchase a home with a deposit of as little as 5% without mortgage insurance.
There are currently 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme.
Business & employers
Immediate deductions for investment in capital assets
Effective: Acquisition of eligible capital assets from 7:30 PM AEDT on 6 October 2020 and first used or installed by 30 June 202, subject to the passage of legislation
Businesses with an aggregated turnover of less than $5 billion will be able to claim an immediate deduction for the full (uncapped) cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use.
Businesses with an aggregated turnover of less than $50 million will also be able to claim an immediate deduction for the cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing enhanced instant asset write-off.
Small business pooling
The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.
Ability for companies to carry-back losses
Effective: losses from the 2020, 2021 or 2022 income years
Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2020, 2021 and 2022 income years to offset previously taxed profits in the 2019, 2020 and 2021 income years.
Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.
The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
Currently, companies are required to carry losses forward to offset profits in future years. Under the proposed amendments, companies that do not elect to carry back losses can still carry losses forward as normal.
This measure will interact with the Government’s announcement to allow full expensing of investments in capital assets. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.
Access to tax concessions extended to businesses up to $50 million
Effective: Three phases – 1 July 2020, 1 April 2021 and 1 July 2021
Announced pre Budget, a range of generous tax concessions normally only available to small and medium businesses, will be available to businesses with an aggregated turnover of up to $50 million.
The expanded concessions will be rolled out in three phases:
|From 1 July 2020||Immediate deduction for certain start-up expenses
Eligible new businesses can immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice as well as amounts paid to Government agencies to set up the business entity.
Immediate deduction for prepaid expenditure
Eligible businesses can choose to claim an immediate deduction for prepaid expenses where the payment is for a period of service which is 12 months or less and ends in the next income year.
|From 1 April 2021||FBT cark parking exemption
Eligible employers will be exempt from FBT on certain car parking benefits provided to employees.
FBT exemption on portable electronic devices
Eligible employers will be able to provide more than one portable electronic device that is mainly for work use to an employee in a single FBT year and apply an FBT exemption (e.g., phones and laptops).
|From 1 July 2021||Simplified trading stock
Eligible businesses can choose not to conduct a stocktake if there is a difference of less than $5,000 between the opening value of trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year.
PAYG instalments based on GDP adjustment amount
Eligible businesses can pay an ATO calculated PAYG instalment amount based on the last reported income (i.e., as reported in the most recent tax return) adjusted by a GDP adjustment factor. This removes the need to calculate the PAYG instalment each period based on a percentage of instalment income.
Settle excise duty and excise-equivalent customs duty monthly
On eligible goods, this concession enables eligible businesses to apply to defer settlement of their excise duty and excise equivalent customs duty from a weekly to a monthly reporting cycle.
Two-year amendment period
Eligible businesses will have a two-year amendment period apply to income tax assessments, excluding entities that have significant
international tax dealings or particularly complex affairs.
Simplified accounting methods
The Commissioner of Taxation’s power to create a simplified accounting method determination for GST purposes will be expanded to apply to eligible businesses below the $50 million aggregated annual turnover threshold.
The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.
FBT exemption for retraining and reskilling workers
Effective: 2 October 2020
Currently, if an employer provides a benefit to an employee that is not directly related to their current job, FBT applies. The Government will provide a Fringe Benefits Tax (FBT) exemption for employer-provided retraining and reskilling, for employees who are redeployed to a different role in the business.
The exemption does not apply to retraining acquired through salary packaging or training provided through Commonwealth supported places at universities. The exemption also does not extend to repayments towards Commonwealth student loans.
Interestingly, the Government has advised that they will also consult on potential changes to the law to allow a worker to deduct expenses they personally incur to undertake training directed at future employment and skills (current rules that limit deductions to training related to current employment, may act as a disincentive for workers to retrain and reskill).
JobMaker Hiring Credit
Effective: From 7 October 2020 for 12 months
The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.
Eligible employers will receive:
- $200 per week if they hire an eligible employee aged 16 to 29 years old; or
- $100 per week if they hire an eligible employee aged 30 to 35 years old
The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.
Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.
To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.
100,000 new apprenticeships
Effective: 5 October 2020
From 5 October 2020 a business (or Group Training Organisation) that takes on a new Australian apprentice will be eligible for a 50% wage subsidy, regardless of geographic location, occupation, industry or business size. The scheme will be available until the 100,000 cap has been reached.
Under the subsidy, employers will be eligible for up to 50% of the wages of a new or recommencing apprentice or trainee for the period up to 30 September 2021. The maximum subsidy is $7,000 per quarter.
The subsidy is paid in arrears and is available for wages paid from 5 October 2020 to 30 September 2021.
Eligible businesses are those that:
- Hire an Australian apprentice between 5 October 2020 and 30 September 2021; and
- The Australian apprentice or trainee is undertaking a Certificate II or higher qualification, and has a training contract that is formally approved by the state training authority.
Superannuation accounts ‘stapled’ to an individual
Effective: 1 July 2021
This reform will ensure individuals continue to use their existing superannuation fund when they change jobs. The fund will be “stapled” to the individual to prevent the duplication of superannuation fund accounts when changing employers.
From 1 July 2021:
- If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.
- Employers will obtain information about the employee’s existing superannuation fund from the ATO.
- The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay superannuation contributions into the employee’s account.
- If an employee does not have an existing superannuation account and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into their nominated default superannuation fund.
Accountability of underperforming funds
Effective: 1 July 2021 for MySuper products
Effective: 1 July 2022 (non-MySuper products)
MySuper funds act as a default account for people who do not choose their own super fund when they start a new job.
From July 2021, the Australian Prudential Regulation Authority (APRA) will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test shows they are no longer underperforming.
If a fund is deemed to be underperforming in the first of these annual tests, it will need to inform its members of its underperformance by 1 October 2021. Underperforming funds will be listed as underperforming on the YourSuper comparison tool until their performance improves.
Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022.
Please contact our office if you would like to discuss any of the budget measures and how they might impact on you or your business.
Effective: July 2021 for MySuper products
A new interactive tool administered by the Australian Taxation Office called YourSuper will enable a comparison of simple super (MySuper) products ranked by fees and investment returns. The tool will also provide links to other MySuper products and shows current super accounts if the individual has more than one.
Effective: 1 July 2021
The obligations on superannuation trustees will be strengthened to ensure their actions are consistent with members’ retirement savings being maximised.
From 1 July 2021:
- Superannuation trustees will be required to comply with a new duty to act in the best financial interest of members.
- Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
- Trustees will need to provide members with key information regarding how they manage and spend their money in advance of annual members’ meetings.