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2021-22 Federal Budget

2021-22 Federal Budget

Written by: 
Evan Lowenstein

On Tuesday, 11 May 2021, Treasurer Josh Frydenberg handed down the 2021-22 Federal Budget, his third Budget.

Mr Frydenberg said the Australian economy has rebounded at its fastest pace on record over the latter half of 2020. Nevertheless, the impact of COVID-19 will see the deficit reach $161bn in 2020-21, improving to $106.6bn in 2021-22, before further improving to $57bn in 2024-25.

This budget is a big spending one, specifically money being directed to mental health, aged care and the NDIS.

Specifically the tax measures of most interest to our clients are the following:


Housing

  • Government to help another 10,000 first-home buyers build a new home with a 5% deposit.
  • Some 10,000 single parents to purchase a home with a 2% deposit.
  • Increasing the amount that can be released under the First Home Super Saver Scheme to $50,000 from $30,000.
  • To allow those aged over 60 to contribute up to $300,000 to their superannuation fund if they downsize their home, freeing up more housing stock for younger families.

 

Taxation Measures

 

Tax Offsets

The government announced in the budget that the low and middle income tax offset (LMITO) will continue to apply for the 2021-22 income year. Otherwise, the LMITO was legislated to only apply until the end of the 2020-21 income year, with the result that low-to-middle income earners would have seen their tax refunds in 2022 cut by between $255 and $1,080 (for incomes up to $90,000 but phasing out up to $126,000).

Tax rates

As far as the tax cuts go, the government have already brought forward the tax cuts in the last budget in October 2020 so there were no specific measures this time around.

Self Education Expenses

The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. The first $250 of a prescribed course of education expense is currently not deductible.

Residency rules

The government will replace the existing tests for the tax residency of individuals with a primary "bright line" test under which a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.

Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

I am not too sure where the 'bright line' expression comes from but I look forward to how this complicated issue is simplified, as promised by the Government.

 

For Businesses

 

Instant Asset write-off

The government will extend the temporary full expensing measure that allowed eligible businesses to write off the cost of previously depreciating assets until 30 June 2023. It was otherwise due to finish on 30 June 2022.

Other than the extended date, all other elements of temporary full expensing will remain unchanged.

Carry Back Losses

In addition the measure that was announced last year and involved companies  being able to carry back losses has been extended for another year.

Under the temporary, COVID-19 driven restoration of the loss carry back provisions announced in the 2020-21 Budget, an eligible company (aggregated annual turnover of up to $5 billion) could carry back a tax loss for the 2019-20, 2020-21 or 2021-22 income years to offset tax paid in the 2018-19 or later income years.


Superannuation

There were also some good changes made to superannuation rules.

Work Test Changes

The superannuation contributions work test exemption will be repealed for voluntary non-concessional and salary sacrificed contributions for those aged 67 to 74 from 1 July 2022.

As a result, individuals under age 75 will be allowed to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice contributions from 1 July 2022 without meeting the work test, subject to existing contribution caps. However, individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.

Previously, individuals aged 67 to 74 years (ie under 75) can only make voluntary contributions (both concessional and non-concessional), or receive contributions from their spouse, if they work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the "work test").

SGC Changes

However in a move that may disappoint some employers, the Superannuation Guarantee $450 per month eligibility threshold will be removed from 1 July 2022. As a result, employers will be required to make quarterly Super Guarantee contributions on behalf of such low-income employees earning less than $450 per month.

Previously there was a threshold amount of $450 to be earned a month before an employer had to make contributions on behalf of an employee.

Downsizers

The minimum eligibility age to make downsizer contributions into superannuation will be lowered to age 60 (down from age 65) from 1 July 2022.

The proposed reduction in the eligibility age will mean that individuals aged 60 or over can make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their home.  Either the individual or their spouse must have owned the home for 10 years.

 

Focus on the Arts

I am sorely tempted to do a cut and paste of the article I wrote after last year’s budget and even the year before which saw very little emphasis on any government boost to arts funding beyond normal increases for CPI.

In this year’s budget there were some increases in the Australia Council’s allocation to the RISE fund and below the funding is broken down to include:

  • an additional $125.6 million over two years from 2020-21 to expand the Restart Investment to Sustain and Expand (RISE) Fund to provide financial support to support events or productions
  • $50.8 million in 2021-22 to extend the Temporary Interruption Fund to further support the local film and television sector to secure funding to commence productions
  • $20 million over two years from 2020-21 to establish the Supporting Cinemas’ Retention Endurance and Enhancement of Neighbourhoods program to support independent cinemas
  • $11.4 million in 2021-22 to support tourism in regional areas by providing further funding for the Regional Arts Fund, Festivals Australia program and the Indigenous Visual Arts Industry Support program and providing financial support for community museums, galleries and historical societies through the Australian Museums and Galleries Association (AMaGA).
  • $10 million in 2020-21 to music charity Support Act to provide further relief for artists and arts workers
  • $5 million over two years from 2020-21 to support national performing arts touring through the Playing Australia program.

The Australia Council, the main supplier of grants to individuals and arts organisations, received no increase in funding and will be flat lined until 2025.

So again, quite a disappointing response from the government that continues to relegate the arts to a minor position at the national table.

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