Speaker at Business Conference with Public Presentations. Audience at the conference hall. Entrepreneurship club.

Federal Budget 2021-22: What you need to know

Andrew Grima Morris Maroon ||

In this article, our expert lawyers cover what you need to know and the implications of the 2021-22 Federal Budget which was released earlier this week.

Housing

The federal budget is very supportive of the housing sector and is trying to address the issue of housing affordability but will also be of assistance to the housing industry as a whole and those that service the sector.

For example, the expanded new home guarantee scheme will enable eligible single parents to acquire a home with a 2% deposit. The expansion of the home builder scheme for another 12 months will assist with the cost of building new homes and home renovations. The ability of first home buyers to tap into more of their voluntary superannuation contributions will also be of assistance.

Also, if the budget projections on economic growth and unemployment are correct, then these economic conditions will also be a driver of the housing market and housing investment.

This outlook is happening without the usual driver of immigration or international students on the housing sector – which are not set to return as drivers for the economy until at least 2022.

If the above rings true, the housing sector is set to travel in the right directions for some time to come.

House ownership – Family Home Guarantee for single parents with dependants.

The Family Home Guarantee was introduced to support single parents with dependants with the opportunity to be a homeowner.

The Family Home Guarantee will provide 10,000 eligible single parents with dependants to purchase a property with a minimum 2% deposit. This is subject to the applicant’s ability to service a loan.

New Home Guarantee 

For first home buyers, the Government is providing a further 10,000 places in 2021-22 for buyers seeking to build a new home or purchase a newly built home with a deposit as little as 5%.

First Home Super Save Scheme (FHSSS) 

From 1 July 2022, the Government will increase the maximum amount of voluntary contributions that can be released under FHSSS from $30,000 to $50,000.

Any withdrawals under this scheme will be taxed at the individual’s marginal tax rate, less 30% tax offset.

Taxation – Residency Individuals

Under current rules, an individual’s residency is determined using concepts such as ‘the domicile test’ and an individual’s ‘permanent place of abode’.

The Government has proposed to revise the rules by employing recommendations from the Board of Taxation in its 2019 report Reforming Individual Tax Residency Rules – A Model for Consideration by having two tests:

  • Primary test (‘bright line’ test): An individual will be a resident for Australian tax purposes if he/she is physically present in Australia for 183 days or more in an income year; and
  • Secondary test: Looks at a combination of physical presence and measurable objective criteria.

This secondary test will definitely be an area of interest in the coming months until we receive further clarification.

Changes are expected to apply from 1 July 2022 following Royal Assent.

Employee Share Scheme (ESS) – Removing cessation of employment as taxing point.

The Government has proposed to remove the ‘cessation of employment’ taxing point. Instead, the taxing point will be deferred until the earlier of the following taxing points:

  • Shares – when there is no risk of forfeiture and no restriction on disposal.
  • Options – when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal.
  • At the end of the 15-year period from when the employee first acquired the interest.

This proposal will strongly benefit employees by removing possible scenarios such as receiving a large tax assessment at the end of their employment, and/or not having sufficient cash flow to pay for this liability.

This change will apply to ESS interests issued on or after 1 July 2022, following Royal Assent.

Regulatory improvements

The Government has also proposed several regulatory improvements to the ESS regime. This includes:

  • Where employers do not charge or lend to employees to whom they offer ESS; removing disclosure requirements, and exempting the offer from licensing, anti-hawking and advertising prohibitions; and
  • Where employers do charge or lend for issuing employee shares in an unlisted company, by increasing the value of shares that can be issued to an employee with simplified disclosure requirements, and exemptions from licensing, anti-hawking and advertising requirements, from $5,000 to $30,000 per employee per year.

These regulatory changes will apply three months after Royal Assent of the enabling legislation. Further details around these regulatory improvements to come in the following months.

Income tax offset

The low and middle-income tax offset (LMITO) has been extended for 2021-22.

Low and middle income tax offset (LMITO)

Taxable income

Offset

$0 – $37,000

$255

$37,001 – $48,000

$255 plus 7.5c for every dollar above $37,000

$48,001 – $90,000

$1,080

$90,001 – $126,000

$1,080 minus 3c for every dollar above $90,000

For 2021-22, individuals will be eligible to receive low income tax offset (LITO) in addition to LMITO.

Low income tax offset (LITO)

Taxable income

Offset

$0 – $37,500

$700

$37,001 – $45,000

$700 minus 5c for every dollar above $37,500

$45,001 – $66,667

$325 minus 1.5c for every dollar above $45,000

Individuals will receive their LITO and/or LMITO when they lodge their 2022 tax return.

Instant asset write-off (IAWO)

The Government has extended the IAWO (known as temporary full expensing) until 30 June 2023.

IAWO was first introduced in the 2020-21 Budget which allow entities to claim a full deduction on eligible depreciating asset if:

  • The asset was first used or installed ready to use before 30 June 2022; and
  • The entity has an aggregated turnover of $5 billion or less.

The IAWO is also available to businesses that operate in a trust. However, extra caution should be taken as it may have other consequences such as the utilisation of franking credits.

If you are looking to acquire any capital assets for your business before 30 June 2022, we welcome a conversation to discuss how you can best utilise these benefits.

Temporary loss carry-back – 12-month extension

The Government has also extended temporary loss carry-back to include 2022-23 income year losses to offset previously taxed profits as far back as the 2018-19 income year.

Temporary loss carry-back was first introduced in the 2020-21 Budget which allows companies with an aggregated turnover of less than $5 billion to carry back tax losses from the 2019 income year.

Whilst the application of temporary loss carry-back will result in an immediate refund, companies can choose to not carry, or perhaps only carry a portion of the tax loss, depending on each company’s individual circumstance. Some notable impacts that may arise from utilising the temporary loss carry-back may include its ability to pay franked dividends in the future.

If you are a base rate entity, you should also consider the impact of different tax rates across 2019 to 2022 income year.

We recommend companies act cautiously when using the temporary loss carry-back. Please contact us for a discussion if you have any questions.

Superannuation – Removing the work test

Previously, Australians between the age of 67 and 74 needed to satisfy the work test (or otherwise satisfy the work test exemption) to be eligible to make super contributions.

A work test requires the individual to work a minimum of 40-hours over 30 consecutive days in an income year to be eligible.

The Government has abolished this test for non-concessional contributions which will enable greater flexibility for those individuals aged 67 to 74 to contribute to their superfund. This will take effect from 1 July 2022.

Downsizer superannuation contribution

The Government has announced that from 1 July 2022, the minimum age eligible to make a downsizer contribution will be reduced from 65 to 60 years of age.

This change will allow individuals over the age of 60 to make a one-off non-concessional contribution to their superannuation up to $300,000 (or $600,000 per couple) using proceeds from the sale of their family home.

The family home must be the individual’s principle place of residence, held for a minimum of ten years.

Social Security and Aged Care – Changes to Pension Loans Scheme

From 1 July 2022, the Government will introduce a No Negative Equity Guarantee (NNEG) for Pension Loans Scheme (PLS) that will allow people access to a capped advance payment in the form of a lump sum.

  • NNEG

The No Negative Equity Guarantee ensures borrowers under the PLS (or their estate) will not owe more than the market value of their property. This is applicable when, in the rare circumstances, the borrower has accrued PLS debt which exceeds their property value.

  • Access to lump sums under PLS

Eligible individuals under PLS will be able to access the capped advance payment, being up to two lump-sum payments equal to 50% of the maximum Age Pension in any 12-month period.

If you have any questions about any of the above, please do not hesitate to get in touch with a member of Coleman Greig’s Taxation Team or a member of Coleman Greig’s Commercial Property Team, who would be more than happy to assist you today.

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