This year’s Federal Budget was squarely aimed at spending to stimulate economic recovery as we emerge from Covid-19, and there were no major new tax measures. In fact, arguably the most important of the tax measures were just a deferral of the end of programs already in place. We’ve summarised the items we think will be of most interest to our clients below.
Low and Middle Income Tax Offset (LMITO)
The LMITO of up to $1,080 was implemented last year and was due to be removed at the end of the current financial year, but will now be retained until the end of the 2021-22 financial year. The benefit depends on each individual’s taxable income, with the maximum of $1,080 for those earning between $48,000 and $90,000.
Employee Share Schemes (ESS)
ESS’s have become more popular in recent years. One of the benefits that an ESS can provide to an employee is a deferral of tax on the discount that they receive when equity is granted to them until certain criteria is met. One of those criteria is “cessation of employment”. In other words, if an employee leaves a job and at the time of leaving, they hold an ESS interest in their employer, they would be subject to tax on the discount at that time. This often means that tax is payable before the employee is able to convert their ESS interest to cash. The Budget announcement proposes to remove “cessation of employment” as a trigger for taxation under the ESS rules. This change is proposed to commence from 1 July following Royal Assent of the enabling legislation (which will likely be from 1 July 2022).
Temporary Full Expensing
Measures introduced in October 2020 and discussed in our newsletter at the time to allow businesses with aggregated annual turnover of less than $5 billion to fully expense eligible assets regardless of their cost were due to expire at the end of the 2022 financial year. This measure has been extended, and now applies to assets that are first used and installed by 30 June 2023.
Loss Carry Back
The loss carry back rules were also announced in October 2020 and have been previously discussed here. The scheme has now been extended to allow losses incurred by companies up until 30 June 2023 to be carried back to profits in the 2019, 2020 and 2021 financial years.
SME Recovery Loan Scheme
While not a tax measure, the SME Recovery Loan Scheme may be of interest to businesses that need some support in qualify for finance. Essentially, under the scheme, the Government will guarantee 80% of a bank loan of up to $5 million to a business with turnover of up to $250 million who either received JobKeeper from 4 January 2021 or were impacted by the NSW floods during March 2021. Other requirements include a maximum interest rate of 7.5%, and a maximum term of 10 years.
Self-assessment of effective lives for Intangibles
It is proposed that from 1 July 2023, businesses will be able to self-assess the effective life of eligible intangible depreciating assets, such as patents, registered designs, copyrights, and in-house software, rather than being required to use the statutory effective life.
Tax Residency of Trusts and Corporate Limited Partnerships
In the October 2020 Budget, an amendment was proposed to the corporate residency test, which would treat a company that is incorporated offshore as an Australian resident for tax purposes if it has a “significant economic connection to Australia”. This requires that:
- Core commercial activities are undertaken in Australia; and
- Central management and control in Australia.
The Government has now announced that it will consult on broadening these amendments to extend to trusts and corporate limited partnerships.
New individual residency test
In our international newsletter of September 2018, we discussed a Board of Taxation review of the tax residency rules for individuals. The Government has now announced that it will adopt the Board’s recommendations.
Once implemented, it is expected that the new simplified individual residence test will comprise:
- A bright line test (183+ days presence); and,
- A secondary test, taking into account factors such as the individuals rights to permanently reside, Australian accommodation, Australian family and Australian economic connections.
Introduction of ATO early engagement service
The Government has announced that the Australian Taxation Office (ATO) will introduce a new early engagement service to encourage and support new foreign business investments into Australia. The aim of the service is to provide foreign investors some assurance and support in relation to Australian tax law and obligations.
It is intended that the service will integrate with tax aspects of the FIRB approval process so that information is not required to be provided more than once. It is also intended that the early engagement service will incorporate expedited private binding rulings and advance pricing agreements.
The ATO anticipate the service being available to eligible investors from 1 July 2021.
If you have any queries in relation to the budget measures mentioned above, please contact your client manager.
Correct as of 26 May 2021
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