With a background of a faster economic recovery than had been expected and with record high iron ore prices, Josh Frydenberg presented his 2021/22 budget with not a sign of austerity in sight.

Government spending aimed at continuing to drive the economic recovery and reducing the unemployment rate to below 5% seemed to be a central strategy.

However, like our last year’s update we wanted to just specifically focus on the business taxation announcements and changes to superannuation that we felt would most likely impact our clients.

Business Taxation Announcements

Temporary full expensing extension (Instant asset write off)

Last years budget introduced the ability of businesses with aggregate turnover of up to $5 billion to access a new temporary full expensing of eligible depreciating assets until 30 June 2022. 

In pleasing news, it was announced that the ability for businesses to claim a full tax deduction for eligible depreciable assets under the temporary full expensing provisions has now been extended so that these assets can be fully deducted provided they are installed ready for use by 30 June 2023. 

The ability to fully write off new & second-hand depreciating assets continues to have no cap, therefore, is available regardless of how much the eligible depreciable asset costs.

This is a particularly attractive tax incentive for business and the investment in machinery and equipment has been very strong according to Treasury figures.

Extending the loss carry-back rules

The ability for eligible corporate tax entities to be able to carry back tax losses against taxed profits in a previous year, generating a refundable tax offset was introduced in last year’s budget.  Pleasingly this has now also been extended until 30 June 2023.

Corporate entities with an aggregated annual turnover of less than $5 billion can elect to carry back losses made in the 2019-20, 2020-21, 2021-2022 and now 2022-23 income years to offset previously taxed profits in 2018-2019 or later years.

The tax refund will only be available upon lodgement of their 2020-21, 2021-22, and now additionally 2022-23 tax returns.

As indicated last year this measure may enhance the prospect of companies taking accelerated benefit from say full expensing of purchased eligible depreciating assets in the 2021, 2022, or now also the 2023 year. 

This may not only reduce the tax payable position of the 2021, 2022 and 2023 years but, if the full expensing of eligible depreciating asset creates a loss in those years, that loss can be carried back to, say, a tax paying 2019, 2020, 2021, or 2022 year; thereby gaining accelerated access to the cash benefit of the loss.

Retaining the Low & Middle Income Tax Offset (LMITO) for the 2022 income year 

Under current legislation, the LMITO was due to be removed from 1 July 2021. However, the Government has announced that it will retain the LMITO for one more year so that it will be now be also available for the 2022 income year.

The LMITO will provide partial sliding scale tax offsets for taxpayers on incomes:

• from $37,001 to $48,000

• and $90,001 to $126,000 

and the full $1,080 non-refundable tax offset available for taxpayers on incomes between $48,001 to $90,000. 

To discuss how these budget announcements may impact you and your business, contact your Johnsons MME advisor, contactus@jmme.com.au. 

Superannuation Changes

Repealing the work test for voluntary contributions

From 1 July 2022, under the budget announcement individuals aged 67 to 74 (inclusive) will be able to make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contribution caps and existing total superannuation balance limits. 

Individuals in the above age bracket, will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria. The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). 

Importantly personal concessional (tax deductible) contributions will still require an individual to meet the work test.

Reducing the eligibility age for downsizer contributions

The downsizer contributions rules have been in place since 1 July 2018.

The eligibility age to make downsizer contributions into superannuation is proposed to be reduced from 65 to 60 years of age from 1 July 2022. 

All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000, per person, from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps. 

Relaxing residency requirements for SMSFs

SMSFs and small APRA funds will have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years. The active member test will also be removed, allowing members who are temporarily absent to continue to contribute to their SMSF. 

Removing the $450 per month threshold for superannuation guarantee (SG) eligibility.

Currently, employers are not required to make superannuation contributions under the SG legislation for employees who are in receipt of salary and wages of less than $450 in any calendar month. 

The Government has announced that this $450 threshold will be removed with effect, most likely from 1 July 2022. 

This will mean that, when bought into law, superannuation support will be required to be provided to all employees regardless of the level of their income in any one month.

Legacy retirement product conversions

Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap. 

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions. 

This measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation.