May 14, 2021
The federal treasurer, Mr Josh Frydenberg, handed down the 2021-22 federal budget (“Budget”) in Parliament on 11 May 2021. This Budget sees the federal government (“Government”) providing direct economic support for individuals, households and businesses in an effort to encourage economic recovery. DAA highlights some noteworthy points from the Budget here.
Removal of Superannuation Work Test between 67-75
An important superannuation announcement is that Australians aged between 67 and 74 will soon be able to make or receive non-concessional contributions and salary sacrifice contributions (subject to contribution caps) without having to meet the work test.
Currently, the work test requires individuals in that age bracket to work at least 40 hours over a 30-day period during an income year in order to make relevant super contributions. This measure is likely to take effect from 1 July 2022.
Note that the work test still applies for personal deductible contributions for people aged between 67 and 74.
Super Guarantee Contribution (“SGC”)
Amongst other superannuation changes, the SGC $450 per month eligibility threshold is set to be removed from 1 July 2022. This means from the next income year, employers will generally be required to make SGCs on behalf of their low-income employees who were previously exempted under the $450 threshold.
In addition, we note that the Budget was silent on the change to the next SGC rate increase, which suggests the proposed timeline will move head, increasing the current SGC rate from 9.5% to 10% in the next income year (starting 1 July 2021) and by an additional 0.5% per year thereafter until it reaches 12% in the 2025-26 income year.
Self-Assessment of the Effective Life of Intangible Depreciating Assets
The Government will allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, copyrights, registered designs and in-house software, acquired after 1 July 2023.
This change will allow taxpayers to bring forward deductions if they self-assess a shorter effective life than the statutory life and should encourage a better alignment of tax outcomes with the underlying economic benefits provided by the intangible asset. The taxpayers will still have the option to continue applying the existing statutory effective life should they decide to.
Temporary Full Expensing Extended to 30 June 2023
The previous federal budget introduced amendments to allow businesses with aggregated turnover less than A$5 billion to access a new temporary full expensing of eligible depreciating assets. Under the new Budget, the Government will extend this temporary full expensing measure for another year to continue boosting the economy.
To be eligible for the instant write-off, assets must be acquired after 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
Loss Carry-Back Extended by One Year
The temporary loss carry-back measure announced in the previous federal budget has also been extended under the new Budget.
Broadly, companies with aggregated turnover less than A$5 billion are now allowed to utilise tax losses from the 2022-23 income year to offset tax paid previously as far back as the 2018-19 income year when they lodge their tax return for the 2022-23 income year.
Changes to Individual Tax Residency Test
The current tax residency tests for individuals will be replaced with a primary “bright line” test where a person is deemed as an Australian tax resident if they are physically present in the country for 183 days or more. This change may, to a certain extent, reduce the uncertainty and compliance costs of the application of existing individual tax residency rules.
The new measures will come into effect from the first income year following the Royal Assent of the enabling legislation.
If you have any questions regarding how the new federal budget may affect you or your business, please feel free to get in touch.