How to set up your Director ID

Directors are now required to register for a unique identification number that they will keep for life.

What is a director ID?

A director ID is a 15 digit identification number that, once issued, will remain with that director for life regardless of whether they stop being a director, change companies, change their name, or move overseas.

The introduction of the Director Identification Number (DIN) is part of the Government’s Modernisation of Business Registers (MBR) Program creating greater transparency, and preventing the potential for fraud and phoenix company activity. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies. In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).

For those concerned about their privacy, the director ID will not be searchable by the public and will not be disclosed without the consent of the Director.

Who needs a director ID?

All directors of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation will need a director ID. This includes directors of a corporate trustee of self-managed super funds (SMSF).

You do not need a director ID if you are running a business as a sole trader or partnership, or you are a director in your job title but have not been appointed as a director under the Corporations Act or Corporations (Aboriginal and Torres Strait Islander) Act (CATSI).

The company secretary or officeholder should keep a register of the IDs of their directors in a secure place – director IDs are governed by the same privacy rules that apply to Tax File Numbers (TFNs) and should not be disclosed unless required.

Timeframes for registration

For Corporation Act directors:

Date you become a director	Date you must apply
On or before 31 October 2021	By 30 November 2022
Between 1 November 2021 and 4 April 2022	Within 28 days of appointment
From 5 April 2022	Before appointment

For CATSI directors:

Date you become a director	Date you must apply
On or before 31 October 2022	By 30 November 2023
From 1 November 2022	Before appointment

If the company intends to appoint new directors, it will be important to ensure that they are aware of the requirements and timeframes to establish their director ID if they do not already have one.

How to set up a director ID

If you are an Australian resident director, you will need to complete a number of steps and have a number of identification documents available and ready (for non-resident directors see Foreign directors and the director ID system below).

1 Verify your identify

If you establish your director ID online, and you have not already set up myGovID, you will need to download the app onto your phone or device and create an account.

The myGovID does not create your director ID –  the app’s only purpose is to validate your identity, and once validated, issue a code that can be used to identify you on government online services without going through the same verification process.

myGovID uses your phone/device’s camera to scan your forms of ID such as your passport, driver’s license and/ or VISA (check the documentation requirements here), to validate who you say you are. Be careful when you are scanning your documentation as the system does not always read the scan correctly.

2 Apply for your director ID through Australian Business Registry Services

Once you have set up your myGovID, you need to apply to the Australian Business Registry Services (ABRS) for your director ID. Use the email you used to create your myGovID to start the process.

In addition to your myGovID, you will need to have on hand documentation that matches the information held by the ATO. If you have a myGov account linked to the ATO, you can find the details on your profile. You will need:

• Your tax file number
• The residential address held on file by the ATO; and
• Two documents that verify your identify such as:
  • Your bank account details held by the ATO (on your myGov ATO account, see ‘my profile/financial institution details’).
  • Dividend statement investment reference number
  • Notice of assessment (NOA) – date of issue and the reference number (on your myGov ATO account, see Tax/lodgements/income tax/history).
  • The gross amount from your PAYG payment summary
  • Superannuation details including your super fund’s ABN and your member account number

The final stage requests your personal contact details (not the company’s).

Once complete, your director ID will be issued immediately on screen. This information should be provided to your company secretary or office holder.

If any of your details change, for example a change of residential address or phone number, you will need to update your details through the ABR. You will also need to notify your company within seven days (14 days for CATSI Act directors) and the company will then need to notify the Australian Securities and Investments Commission (ASIC) within 28 days.

Applying by phone or using paper forms

You can choose to verify your identify and apply for your director ID by phone (13 62 50) or on paper. You will need to have your identification documents available. If you are applying using the paper form, your identify documentation will need to be certified by an authorised certifier such as a Barrister, Justice of the Peace etc.

Foreign directors and the director ID system

Foreign directors of Australian companies have the same requirements and deadlines as Australian resident directors, however, the verification process is only accessible in paper form.

One primary and two secondary forms of identification are required to accompany the application that have been certified by a notary publics or by staff at the nearest Australian embassy, high commission or consulate, including consulates headed by Austrade honorary consuls. Primary forms of identification include a birth certificate or passport, and secondary include driver’s licence, foreign government identifier, or national photo identification card.

In the presence of the applicant, the authorised certifier must certify that each copy is a true and correct copy of the original document by sighting the original document, stamping, signing and annotating the copy of the identity document to state, ‘I have sighted the original document and certify this to be a true and correct copy of the original document sighted’. initialling each page listing their name, date of certification, phone number and position.

The form and the accompanying documents will need to be sent by mail to Australian Business Registry Services using the details provided.

Directors in name only

It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred. The director penalty regime has also tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST, and superannuation guarantee charge liabilities if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home.

Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison.

Ignorance is not a legal defence. Don’t sign anything unless you understand the consequences.

Note: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

Federal Budget 2021-22

The information contained herein is provided on the understanding that it neither represents nor is intended to be advice or that the authors or distributor is engaged in rendering legal or professional advice. Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.

The material contained in the Budget 2021-22 Update should be used as a guide in conjunction with professional expertise and judgement.  All responsibility for applications of the Budget 2021-22 Update and for the direct or indirect consequences of decisions based on the Budget 2021-22 Update rests with the user. Knowledge Shop Pty Ltd, Hayes Knight, its directors and authors or any other person involved in the preparation and distribution of this guide, expressly disclaim all and any contractual, tortious or other form of liability to any person in respect of the Budget 2021-22 Update and any consequences arising from its use by any person in reliance upon the whole or any part of the contents of this guide.

Copyright © Knowledge Shop Pty Ltd. 12 May 2021

All rights reserved. No part of the Budget 2021-22 Budget should be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by information storage or retrieval system, other than specified without written permission from Knowledge Shop Pty Ltd.

For You & Your Family

Low and middle income tax offset extended

Date of effect

From 1 July 2021 to 30 June 2022

As widely predicted, the Low and Middle Income Tax Offset (LMITO) will be extended for another year. The LMITO provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 and will be retained for the 2021-22 year.

Taxable income	Offset
$37,000 or less	$255
Between $37,001 and $48,000	$255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080
Between $48,001 and $90,000	$1,080
Between $90,001 and $126,000	$1,080 minus 3 cents for every dollar of the amount above $90,000

The tax offset is triggered when a taxpayer lodges their tax return.

Medicare levy low income threshold

Date of effect

1 July 2020

The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2020 to take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.

	2019-20	2020-21
Singles	$22,801	$23,226
Family threshold	$38,474	$39,167
Single seniors and pensioners	$36,056	$36,705
Family threshold for seniors and pensioners	$50,191	$51,094

For each dependent child or student, the family income thresholds increase by a further $3,597 instead of the previous amount of $3,533.

$250 self-education expense reduction removed

Date of effect

First income year after the date of Royal Assent of the enabling legislation

Currently, individuals claiming a deduction for self-education expenses sometimes need to reduce the deductible amount by up to $250. The rules in this area are complex as they only apply to self-education expenses that fall within a specific category and certain non-deductible expenses can be offset against the $250 reduction. This reduction will be removed, which should make it easier for individuals to calculate their self-education deductions.

Child care subsidy increase for families with multiple children under 5 in child care

Previously announced

Date of effect

1 July 2022

From 1 July 2022 the Government will:

• Increase child care subsidies available to families with more than one child aged five and under in child care, and
• Remove the $10,560 cap on the Child Care Subsidy.

For those families with more than one child in child care, the level of subsidy received will increase by 30% to a maximum subsidy of 95% of fees paid for their second and subsequent children (tapered by income and hours of care).

Under the current system, the maximum child care subsidy payable is 85% of child care fees and it applies at the same rate per child, regardless of how many children a family may have in care.

Why? In October 2020, analysis by the Grattan Institute revealed that mothers lose 80%, 90% and even 100% of their take-home pay from working a fourth or fifth day after the additional childcare costs, clawback of the childcare subsidy, and tax and benefit changes are factored in.

“Unsurprisingly, not many find the option of working for free or close to it particularly attractive. The “1.5 earner” model has become the norm in Australia. And our rates of part-time work for women are third-highest in the OECD.

Childcare costs are the biggest contributor to these “workforce disincentives“. The maximum subsidy is not high enough for low-income families, and the steep taper and annual cap limit incentives to work beyond three days, across the income spectrum,” the report said.

4   Media release – Making child care more affordable and boosting workforce participation

Underwriting home ownership

Previously announced

The Government has announced new and expanded programs to assist Australians to buy a home.

2% deposit home loans for single parents

Date of effect

1 July 2021

The Government will guarantee 10,000 single parents with dependants to enable them to access a home loan with a deposit as low as 2% under the Family Home Guarantee. Similar to the first home loan deposit scheme, the program will guarantee the additional 18% normally required for a deposit without lenders mortgage insurance.

The Family Home Guarantee is aimed at single parents with dependants, regardless of whether that single parent is a first home buyer or previous owner-occupier. Applicants must be Australian citizens, at least 18 years of age and have an annual taxable income of no more than $125,000.

4   Media release – Update from the Australian Government: Family Home Guarantee

4   Media release – Improving opportunities for home ownership

5% deposit home loans for first home buyers building new homes

Date of effect

1 July 2021 to 30 June 2022

The First Home Loan Deposit Scheme will be extended by another 10,000 places from 1 July 2021 to 30 June 2022. Eligible first home buyers can build a new home with a deposit of as little as 5% (lenders criteria apply). The Government guarantees a participating lender up to 15% of the value of the property purchased that is financed by an eligible first home buyer’s home loan. Twenty seven participating lenders offer places under the scheme.

Under the scheme, first home buyers can build or purchase a new home, including newly-constructed dwellings, off-the-plan dwellings, house and land packages, land and a separate contract to build a new home, and can be used in conjunction with other schemes and concessions for first home buyers. Conditions and timeframes apply.

4   Media release – Update from the Australian Government: Family Home Guarantee

4   Media release – Improving opportunities for home ownership

4   FHLDS eligibility

First home saver scheme cap increase

Date of effect

Start of the first financial year after Royal Assent of the enabling legislation Expected to be 1 July 2022

The first home super saver (FHSS) scheme allows you to save money for your first home inside your super fund, enabling you to save faster by accessing the concessional tax treatment of superannuation. You can make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into your super fund and then apply to release those funds.

Currently under the scheme, participants can release up to $15,000 of the voluntary contributions (and earnings) they have made in a financial year up to a total of $30,000 across all years.

The Government has announced that the current maximum releasable amount of $30,000 will increase to $50,000.

The voluntary contributions made to superannuation are assessed under the applicable contribution caps; there is no separate cap for these amounts.

Amounts withdrawn will be taxed at marginal rates less a 30% offset. Non-concessional contributions made to the FHSS are not taxed.

To be eligible for the scheme, you must be 18 years of age or over, never owned property in Australia, and have not previously applied to release superannuation amounts under the scheme. Eligibility is assessed on an individual basis. This means that couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property.

4   Media release – Improving opportunities for home ownership

JobTrainer extended

The Government has committed an additional $500 million to extend the JobTrainer Fund by a further 163,000 places and extend the program until 31 December 2022.  JobTrainer is matched by state and territory governments and provides job seekers, school leavers and young people access to free or low-fee training places in areas of skills shortages.

Full tax exemption for ADF personnel – operation Paladin

Date of effect

1 July 2020

The Government will provide a full income tax exemption for the pay and allowances of Australian Defence Force (ADF) personnel deployed to Operation Paladin. Operation Paladin is Australia’s contribution to the United Nations Truce Supervision Organisation, with ADF personnel deployed in Israel, Jordan, Syria, Lebanon and Egypt.

Your superannuation

Work test repealed for voluntary superannuation contributions

Date of effect

The first financial year after Royal Assent of the enabling legislation Expected to be 1 July 2022

Individuals aged 67 to 74 years will be able to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test. The contributions are subject to existing contribution caps and include contributions under the bring-forward rule.

Currently, the ‘work test’ requires individuals aged 67 to 74 years to work at least 40 hours over a 30 day period in a financial year to be able to make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse.

Personal concessional contributions will remain subject to the ‘work test’ for those aged between 67-74.

Expanded access to ‘downsizer’ contributions from sale of family home

Date of effect

The first financial year after Royal Assent of the enabling legislation Expected to be 1 July 2022

The eligibility age to access downsizer contributions will decrease from 65 years of age to 60.

Currently, downsizer contributions enable those over the age of 65 to contribute $300,000 from the proceeds of selling their home to their superannuation fund. These contributions are excluded from the existing age test, work test and the $1.7 million transfer balance threshold (but will not be exempt from your transfer balance cap).

Both members of a couple can take advantage of the concession for the same home. That is, if a couple have joint ownership of a property and meet the other criteria, both people can contribute up to $300,000 ($600,000 per couple).

Downsizer contributions apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

SMSF residency tests relaxed

Date of effect

The first financial year after Royal Assent of the enabling legislation Expected to be 1 July 2022

The residency rules for Self Managed Superannuation Funds (SMSFs) and small APRA regulated funds (SAFs) will be relaxed by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.

This change will enable SMSF and SAF members to contribute to their super while temporarily overseas, (as members of large APRA-regulated funds can do).

An SMSF must be considered an Australian Superannuation Fund in order to be a complying superannuation fund and receive tax concessions. If a super fund fails to meet the definition of an Australian Superannuation Fund then it is likely to become a non-complying, if this occurs the fund’s assets and income are taxed at the highest marginal tax rate.

This measure will enable SMSF and SAF members to keep and continue to contribute to their fund while predominantly undertaking overseas work and education opportunities.

SMSF legacy product conversions

Date of effect

The first financial year after Royal Assent of the enabling legislation

Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. This 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 caps.

The measure will permit full access to all of the product’s underlying capital, including any reserves, and allow individuals to potentially shift to more contemporary retirement products.

This will be a voluntary measure and not a mandated requirement for those individuals who hold these legacy accounts.

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution.

Early release of super scheme for victims of domestic violence not proceeding

The Government is not proceeding with the measure to extend early release of superannuation to victims of family and domestic violence.

Technical changes to First Home Super Saver Scheme

Technical changes will be made to the First Home Super Saver Scheme to reduce errors and streamline applications. These include:

• Increasing the discretion of the Commissioner of Taxation to amend and revoke FHSSS applications
• Allowing individuals to withdraw or amend their applications prior to receiving an FHSSS amount, and allow those who withdraw to re-apply for FHSSS releases in the future
• Allowing the Commissioner of Taxation to return any released FHSSS money to superannuation funds, provided that the money has not yet been released to the individual
• Clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps.

Business & employers

Temporary full expensing extension

Date of effect

Assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023

Businesses with an aggregated turnover of less than $5 billion will be able to continue to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use. Introduced in the 2020-21 Budget, this measure will enable an asset’s cost to continue to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. The extension means that the rules can apply to assets that are first used or installed ready for use by 30 June 2023.

Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.

The car limit will continue to place a cap on the deductions that can be claimed for luxury cars.

From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million will revert back to $1,000.

Second-hand assets

For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.

Small business pooling

Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the full balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they voluntarily leave the system will presumably continue to be suspended.

Opt-out rules

Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.

Temporary loss-carry back extension

Date of effect

Losses from the 2019-20, 2020-21, 2021-22 or 2022-23 income years

Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21, 2021-22 and 2022-23 income years to offset previously taxed profits in the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.

The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.

Before the measure was introduced in the 2020-21 Budget, companies were required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses can still carry losses forward as normal.

This measure will interact with the Government’s announcement to extend full expensing of investments in depreciating assets for another year. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.

Residency tests rewrite

Date of effect

The first income year after the date of Royal Assent of the enabling legislation.

Determining whether an individual is a resident of Australia for tax purposes can be complex. The current residency tests for tax purposes can create uncertainty and are often subject to legal action.

The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test – 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.

The modernisation of the residency framework is based on the Board of Taxation’s 2019 report Reforming individual tax residency rules – a model for modernisation.

Employee share scheme simplification

Date of effect

ESS interests issued from the first income year after Royal Assent of the enabling legislation

Employee share schemes provide an opportunity for employers to offer employees a stake in the growth of the company by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount.

The Government has moved to simplify employee share schemes and make them more attractive by removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, when an employee receives shares or options that are subject to deferred taxation the taxing point is triggered when they cease employment with the company, even if they could still lose the shares or options in future or have not yet exercised the options they have received.

This will mean that under a tax-deferred ESS, where certain criteria are met, employees may continue to defer the taxing point even if they are no longer employed by the company. In broad terms, following this change the deferred taxing point will be the earliest of:

• in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
• in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting shares and no restriction on disposal
• the maximum period of deferral of 15 years.

Regulatory changes will also be made to reduce red tape where employers do not charge or lend

to the employees to whom they offer ESS. Where employers do charge or lend, streamlining requirements will apply for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.

4   Fact sheet – Tax incentives to support the recovery

$450 per month threshold for super guarantee eligibility removed

Date of effect

The first financial year after Royal Assent of the enabling legislation Expected to be 1 July 2022

Currently, employees need to earn $450 per month to be eligible to be paid the superannuation guarantee. This threshold will be removed so all employees will be paid super guarantee regardless of their income earned.

The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month once the threshold is removed.

Medical and biotech ‘patent box’ tax regime

Date of effect

1 July 2022

Income derived from Australian medical and biotechnology patents will be taxed at a concessional effective corporate tax rate of 17% from 1 July 2022 under a new $206m ‘patent box’ tax regime.

Only granted patents, which were applied for after the Budget announcement, will be eligible and development will need to be domestic. That is, the patent box rewards companies to keep their IP within Australia. The preferential tax rate applies to income due to the patent and not from manufacturing, branding or other attributes.

The patent box concept is new to Australia but exists in twenty or so other countries including the UK and France. The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards, and will consult with the industry on the design.

If effective, this same concept may also be applied to the clean energy sector.

4   Fact sheet – Tax incentives to support the recovery

Tax & investment incentives for the digital economy

Previously announced

As part of its Digital Economy Strategy package, the Government has committed to new and expanded funding to invest in the growth of digital industries and the adoption of digital technologies by small business.

Investment and tax incentives

The Government has committed to a series of tax incentives to support digital technologies:

Digital games tax offset

A 30% refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. The Digital Games Tax Offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia. Industry consultation will commence in mid 2021 to establish the eligibility criteria and definition of qualifying expenditure.

Self-assessment of the effective life of certain intangible assets

The income tax laws will be amended to allow taxpayers to self-assess the effective life of certain intangible assets, rather than being required to use the effective life currently prescribed by statute. The measure applies to assets acquired from 1 July 2023 (after the temporary full expensing regime has concluded) including patents, registered designs, copyrights and in-house software for tax purposes. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life to the statutory life.

Review of venture capital tax incentives

The effectiveness of the existing range of tax incentives designed to attract foreign investment and encourage venture capitalists to invest in early-stage Australian companies will be reviewed to ensure they are producing the intended results. This is code for the Government doesn’t think the money invested is achieving a genuine result and changes are likely to be recommended.

4   Australia’s digital economy – investment incentives fact sheet

4   Media release – A modern digital economy to secure Australia’s future

Emerging aviation technologies

The Government has committed $35.7m to support emerging aviation technologies, the bulk of which is committed to the Emerging Aviation Technology Partnerships (EATP) program. Partnering with industry, the program is focussed on:

• growing manufacturing jobs in electric aviation
• connecting regional communities
• digital farming
• boosting regional supply chains
• improving health outcomes for remote Indigenous communities.

and is expected to include electric engines, drones and electric vertical take-off and landing aircraft.

Applications for EATP partners will be sought from local and international industry through a competitive application process in late 2021.

Artificial intelligence development

A package of measures to oversee and develop Australia’s use and integration of artificial intelligence (AI) including:

National AI centre

A new national AI centre to create the foundation for Australia’s AI and digital ecosystem within the CSIRO’s Data61. The centre will support projects that lift AI capability, provide a “front door” or SMEs looking for talent, and provide a central coordination for strategically aligned AI projects. Four Digital Capability Centres will be appointed through a competitive process focussing on specific applications of AI, such as robotics or AI assisted manufacturing. These Centres will provide SMEs with connections to AI equipment, tools and research, access to advice and training to help SMEs confidently adopt AI technologies, and links with the required AI expertise to identify business needs and connect them to leading researchers.

AI grant funding

Two grant funding programs (one national and one specifically for regional initiatives) for business to pilot AI projects that address key national challenges. Grantees will retain the intellectual property of their solution.

4   Media release – A modern digital economy to secure Australia’s future

4   Artificial intelligence

Expansion of small business digital support services

The Government has committed to:

• A further $12.7m for the Digital Solutions  – Australian Small Business Advisory Services Program that provides small businesses with access to digital solutions advisers to work with them to expand their use of digital technology. The Digital Solutions Program will pilot a program for the not-for-profit sector.
• $15.3 m has been dedicated to drive electronic invoicing through the business community by working with payment providers, supply chain pilots, and education campaigns (E-invoicing will be mandatory for Government by July 2022). No direct incentives for adoption.

4   Media release – A modern digital economy to secure Australia’s future

4   SME Digitalisation

Investments in new technologies to reduce emissions

Previously announced

Date of effect

From 2021-22

The Government will provide $1.6 billion over ten years from 2021-22 (including $761.9 million over four years from 2021-22) to incentivise private investment in technologies identified in the Government’s Technology Investment Roadmap and Low Emissions Technology Statements. Funding includes:

• Creation of a technology co-investment facility that supports the development of regional hydrogen hubs, carbon capture, use and storage technologies, very low cost soil carbon measurement and new agricultural feed technologies, a high-integrity carbon offset scheme in the Indo-Pacific region, and support the implementation of the Technology Investment Roadmap and Low Emissions Technology Statements
• Establish the below baseline crediting mechanism recommended by the King Review and help realise abatement opportunities in large industrial facilities
• Support for Australian businesses and supply chains to reduce their energy costs and improve productivity through the uptake of more energy efficient industrial equipment and business practices
• Early stage seed capital financing function within the Australian Renewable Energy Agency (ARENA).

4   Media Release – Jobs Boost From New Emissions Reduction Projects

4   Media Release – Cutting Emissions And Creating Jobs With International Partnerships

Tax residency rules for trusts and limited partnerships

In the 2020-21 Budget, the Government announced that the corporate tax residency rules would be amended to address the uncertainty that currently exists when trying to determine the residency status of a company that has been incorporated overseas.

These amendments have not yet been made, but the Government has announced that it will also consult on broadening the scope of the amendments to trusts and corporate limited partnerships as part of the consultation process dealing with the company residency rules.

Junior Minerals exploration tax incentive extended 

The Junior Minerals Exploration Incentive program provides a tax incentive for investment in junior minerals exploration companies raising capital to fund greenfields exploration activity.

Eligible companies are able to create exploration credits by giving up a portion of their tax losses relating to exploration expenditure, which can then be distributed to new investors as a refundable tax offset or a franking credit.

The program has been extended for four years from 1 July 2021 to 30 June 2025.

The Government will also make minor legislative amendments to allow unused exploration credits to be redistributed a year earlier than under current settings.

Tax relief for brewers and distillers – annual cap increased to $350k

Previously announced

Date of effect

1 July 2021

From 1 July 2021, eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.

The tax relief will align the benefit available under the Excise Refund Scheme for brewers and distillers with the Wine Equalisation Tax (WET) Producer Rebate.

4   Media release – Tax relief for small brewers and distillers to support jobs

Tax exemption for storm and flood grants for SMEs and primary producers

Date of effect

Grants relating to storm and flood events between 19 February and 31 March 2021

Qualifying grants made to primary producers and small businesses affected by the storms and floods will be non-assessable non-exempt income for tax purposes.

Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.

Student visa holders working in key sectors

Student visa holders will temporarily be able to work more than 40 hours per fortnight in key sectors:

• – student visa holders will be able to work more than 40 hours per fortnight, as long as they are employed in the tourism or hospitality sectors.
• – From 5 January 2021, work limitation conditions placed on student visa holders were temporarily lifted to allow these visa holders to work more than 40 hours per fortnight if they are employed in the agriculture sector. The Government has removed the requirement for applicants for the Temporary Activity visa (subclass 408) to demonstrate their attempts to depart Australia if they intend to undertake agricultural work. The period in which a temporary visa holder can apply for the Temporary Activity visa has also been extended from 28 days prior to visa expiry to 90 days prior to visa expiry.

Support for tertiary and international education providers

Date of effect

From 2021-22

The Government is implementing a series of measures to assist tertiary and international education providers to help mitigate some of the impact of COVID-19. Funding includes:

• $26.1 million over four years from 2021-22 to assist non-university higher education providers to attract more domestic students through offering 5,000 additional short course places in 2021
• $9.4 million in 2021-22 to provide grants of up to $150,000 to eligible higher education and English language providers to support innovative online and offshore education delivery models
• extending existing FEE-HELP loan fee exemption by six months to 31 December 2021

A range of Government fees and regulatory charges have also been either revised or postponed.

Extending supports for the arts sector

Previously announced

The Government will provide $222.9 million over two years from 2020-21 to continue to support the arts sector through the impacts of COVID-19.

Funding includes:

• Expansion of the Restart Investment to Sustain and Expand Fund to provide financial support to support events or productions
• Extension of the Temporary Interruption Fund for 2021-22
• A program of support for independent cinemas

Producer Tax Offset rate holds at 40% for 2020-21

The Producer Tax Offset rate will stay at 40% for feature films with a theatrical release. The 2020-21 Budget had intended to reduce the rate to 30%.

Heavy road vehicle charge increase

Date of effect

1 July 2021

The Heavy Vehicle Road User Charge will increase from 25.8 cents per litre to 26.4 cents per litre from 1 July 2021.

New avenue for small business to ‘pause’ ATO debt recovery

Previously announced

Date of effect

Date of Royal Assent of the enabling legislation

Small businesses with an aggregated turnover of less than $10 million per year will be able to apply to the  Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action until their underlying case is decided.

Currently, small business can only pause ATO debt recovery action in the courts. This new avenue will enable a small business to pause ATO debt recovery until their case has been heard by the AAT.

4   Media release – Making it easier for small business to pause debt recovery action

Early engagement process for foreign businesses

Date of effect

1 July 2021

The ATO will introduce a new early engagement service specifically aimed at foreign businesses that are looking to invest in Australia. The service aims to provide confidence to foreign investors on how the Australian tax laws will apply and will be tailored to specific investors. It is envisaged that the ATO’s service will accommodation specific project timeframes and provide access to expedited private rulings.

Automotive R&D tariff concession extended

Date of effect

1 April 2021

The automotive research and development tariff concession will be extended for a further four years until 30 June 2025. Companies registered under the Automotive Transformation Scheme Act 2009 as at 31 December 2020 will continue to be able to claim a tariff concession of up to 5% on the value of imports used for automotive research and development in Australia.

183-day test modified for NZ sportspeople and support staff

Date of effect

2020-21 and 2021-22 income and FBT years

COVID-19 has meant that a number of New Zealand sportspeople and teams have been based in Australia for an extended period of time. Under the 183 day test in the double tax agreement between Australia and New Zealand, these sportspeople and support staff could be exposed to tax in Australia. The Government will ensure New Zealand maintains its primary taxing right in relation to sporting teams and support staff who are located in Australia for league competitions because of COVID-19.

Further insolvency reforms

The Government has announced that it will further streamline insolvency laws:

• – Review how trusts (a common vehicle for SME businesses) are treated under insolvency laws.
• – introduced in 2017, the safe harbour trading provisions provided breathing space for distressed businesses to trade out of debt. These rules will be reviewed to determine if they remain fit for purpose.
• – introduction of a moratorium on creditor enforcement while schemes are being negotiated.
• – the threshold at which creditors can issue a statutory demand on a company will increase from $2,000 to $4,000.

4   Media release – Further insolvency reforms to support business dynamism

Additional international information exchange countries

From 1 January 2022, the list of jurisdictions that have an effective information sharing agreement with Australia will be updated to include Armenia, Cabo Verde, Kenya, Mongolia, Montenegro and Oman.

Residents of listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15% on certain distributions, instead of the default rate of 30%.

Education, skills & training

Apprenticeship scheme uncapped

Boosting Apprenticeship Commencements provides a 50% wage subsidy to employers and Group Training Organisations to take on new apprentices and trainees. The measure will  uncap the number of eligible places and increase the duration of the 50% wage subsidy to 12 months from the date an apprentice or trainee commences with their employer.

From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages of up to

$7,000 per quarter for 12 months.

4   Media release – Thousands Of New Apprentice And Trainee Jobs

4   Boosting Apprenticeship Commencements

Digital skills training

Previously announced

As part of its Digital Economy Strategy package, the Government has committed to $100m in funding to support digital skills development including:

• – working with industry, the Government will trial 4 to 6 month cadetships for digital careers comprising formal training with on-the-job learning.
• – Additional funding for education providers that improve the quality or availability of cyber security professionals in Australia.
• – a competitive national scholarship program cofounded with universities and industry:
• the Next Generation Artificial Intelligence Graduates Program to attract and train up to 234 home-grown, job-ready AI specialists through competitive national scholarships
• the Next Generation Emerging Technology Graduates Program to attract and train up to an additional 234 home-grown, job-ready specialists in other emerging technologies, such as robotics, cyber security, quantum computing, blockchain and data through competitive national scholarships.

4   Media release – A modern digital economy to secure Australia’s future

Government & regulators

New compliance requirements for NFP income tax exemptions

Date of effect

1 July 2023

The Government will invest $1.9m for the ATO to build an online system to enhance the transparency of income tax exemptions claimed by not-for-profit entities (NFPs).

Currently non-charitable NFPs can self-assess their eligibility for income tax exemptions, without an obligation to report to the ATO. From 1 July 2023, the ATO will require income tax exempt NFPs with an active Australian Business Number (ABN) to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption. This measure will ensure that only eligible NFPs are accessing income tax exemptions.

Government, the digital economy and digital security

Previously announced

As part of its Digital Economy Strategy package, the Government has committed to invest in the frameworks and infrastructure to strength the security of data, manage consumer rights, and enhance the Government’s interaction.

• – over $50m has been committed to strengthen the rollout of 5G and 6G mobile networks, develop a National Data Security Action Plan, improve the resilience of Government infrastructure using Cyber Hubs, and $16.4m to improve mobile connectivity in bushfire peri-urban prone areas.
• – the Government will overhaul myGov – now the primary access point for Government services, and My Health Record – adding support for COVID-19 testing and vaccinations, connecting Residential Aged Care Facilities and connecting specialists in private practice and delivering improved telehealth, emerging virtual healthcare initiatives and digitised support across all stages of healthcare.
• – $113m to delivering Australia’s first data strategy to bring data management and regulation up to speed with technology, expansion of data rights to energy industry (launched in banking in 2021), and the development of a 3D Australian ‘digital atlas’.

4   Media release – A modern digital economy to secure Australia’s future

4   Cyber security, safety and trust

4   Enhancing Government service delivery

4   Data and the digital economy

$850m to protect and develop farming

Previously released

A package of measures is aimed at protecting and enhancing the farming sector, much of it focussed on biosecurity and stewardship. Specific initiatives relate to African Swine Fever and the Khapra Beetle, but much of the package is in the development of biosecurity diagnostic tools and analytics across multiple contact points – cargo, international mail, air travellers, container cargo.

Measures include:

• $400.1 million to strengthen biosecurity;
• $32.1 million to extend opportunities to reward farmers for the stewardship of their land;
• $29.8 million to grow the agricultural workforce;
• $15.0 million to improve trade and market access; and
• $129.8 million to deliver a National Soils Strategy.

4   Media release – Budget securing Australia’s recovery with better deal for farmers

4   Media Release – Biosecurity for a safe Australia and thriving farming sector

Gas fired recovery

The Government has committed to $58.6 million to support key gas infrastructure projects and unlock new gas supply.

COVID-19 vaccine response

The Government will provide $1.9 billion over five years from 2020-21 to distribute and administer COVID-19 vaccines to residents of Australia.

Women’s safety

The Government has committed $998.1 million over four years for initiatives to reduce, and support the victims of Family, Domestic and Sexual Violence (FDSV) against women and children. Initiatives include a new National Partnership with the states and territories to expand the funding of frontline FDSV support

Services, $5,000 grants for women fleeing domestic violence, programs to support refugee and migrant women, programs to support Aboriginal and Torres Strait Islander women and children who have experienced or are experiencing family violence, along with a range of prevention campaigns.

Funding has also been provided for vulnerable women and children accessing the legal system and family support services.

Response to aged care

As previously announced, the Government has committed a $17.7 billion whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety to improve safety and quality and the availability of aged care services. This includes:

• $6.5 billion will be spent over four years to release 80,000 additional home care packages over two years from 2021-22 – bringing the total number to 275,598 by June 2023.
• Just under $700 million to improve access and infrastructure
• $783 million to provide greater access to respite care services and payments to support carers
• $272.5 million for dedicated face to face support services to navigate the aged care system
• $365.7 million to support health care within aged care facilities
• $200 million for a new rating system of aged care providers
• $3.9 billion to increase front line care
• $3.2 billion to support aged care providers through a new Government-funded Basic Daily Fee supplement of $10 per resident per day, while continuing the 30% increase in the homelessness and viability supplements
• $216.7 million to upskill the workforce and enhance nurse leadership and clinical skills through additional nursing scholarships and places in the Aged Care Transition to Practice Program

Mental health and suicide prevention

The $2 billion National Mental Health and Suicide Prevention Plan funds a range of initiatives including the enhancement and expansion of digital mental health services, universal aftercare for those who have made a suicide attempt, and a network of Head of Health adult mental health centres and satellites to provide coordinated multi-disciplinary care.

Royal Commission into defence and veteran suicide

The Government has committed to $174.2 million over two years from 2021-22 for a Royal Commission into Defence and Veteran Suicide.

National Recovery and Resilience Agency established

A new national agency, the National Recovery and Resilience Agency will be created to support local communities during the relief and recovery phases following major disasters, and provide advice on policies and programs to mitigate the impact of future major disaster events. $600m will be invested in a new program of disaster preparation and mitigation, managed by the new agency.

4   Media Release – Helping Communities Rebuild And Recover From Natural Disasters

Other

Roads & building projects

‘Shovel ready’ projects are high on the Government’s agenda.

New South Wales

Key projects to be funded include:

• Roads
• $2.03 billion for the Great Western Highway Upgrade – Katoomba to Lithgow – Construction of East and West Sections
• $400 million for the Princes Highway Corridor – Jervis Bay Road to Sussex Inlet Road – Stage 1
• $240 million for the Mount Ousley Interchange
• $100 million for the Princes Highway Corridor – Jervis Bay Road Intersection
• $87.5 million for M5 Motorway – Moorebank Avenue-Hume Highway Intersection Upgrade
• $52.8 million for Manns Road – Intersection Upgrades at Narara Creek Road and Stockyard Place; and
• $48 million for Pacific Highway – Harrington Road Intersection Upgrade, Coopernook.
• Infrastructure
• $66 million – Newcastle airport upgrade to widen the runway to accommodate longer range domestic and international passenger services. The upgrade is expected to complete in 2023. More.

Victoria

Key projects to be funded include:

• $2 billion for initial investment in a new Melbourne Intermodal Terminal;
• An additional $307 million for the Pakenham Roads Upgrade;
• An additional $203.4 million for the Monash Roads Upgrade;
• An additional $20 million for the Green Triangle and $15 million for the Melbourne to Mildura Roads of Strategic Importance corridors;
• An additional $56.8 million for the Hall Road Upgrade;
• An additional $30.4 million for the Western Port Highway Upgrade;
• $17.5 million for the Dairy Supply Chain Road Upgrades; and
• $10 million for the Mallacoota-Genoa Road Upgrade.

Queensland

Key projects to be funded include:

• $400 million for the Inland Freight Route (Mungindi to Charters Towers) Upgrades
• An additional $400 million for Bruce Highway Upgrades
• $240 million for the Cairns Western Arterial Road Duplication
• $178.1 million for the Gold Coast Rail Line Capacity Improvement (Kuraby to Beenleigh) – Preconstruction
• $160 million for the Mooloolah River Interchange Upgrade (Packages 1 and 2)
• An additional $126.6 million for Gold Coast Light Rail – Stage 3
• $35.3 million for the Maryborough-Hervey Bay Road and Pialba-Burrum Heads Road Intersection Upgrade; and
• $10 million for the Caboolture – Bribie Island Road (Hickey Road-King John Creek) Upgrade.

Northern Territory

New projects to be funded include:

• $300k Development Study for a Proposed Tennant Creek Multimodal Facility and Rail Terminal
• $150m Northern Territory National Network Highway Upgrades (Phase 2)
• $173.6m Northern Territory Gas Industry Roads Upgrades

South Australia

Key projects to be funded include:

• $2.6 billion allocation of funding for the North-South Corridor – Darlington to Anzac Highway;
• $161.6 million for the Truro Bypass;
• $148 million for the Augusta Highway Duplication Stage 2;
• An additional $64 million for the Strzelecki Track Upgrade – Sealing;
• An additional $60 million for the Gawler Rail Line Electrification;
• $48 million for the Heysen Tunnel Refit and Upgrade – Stage 2
• An additional $27.6 million for the Overpass at Port Wakefield and Township Duplication;
• $32 million for the Kangaroo Island Road Safety and Bushfire Resilience Package, and
• $22.5 million for the Marion Road and Sir Donald Bradman Drive Intersection Upgrade

Tasmania

Key projects to be funded include:

• $80 million for the Tasmanian Roads Package – Bass Highway Safety and Freight Efficiency Upgrades Package – Future Priorities;
• $48 million for the Algona Road Grade Separated Interchange and Duplication of the Kingston Bypass;
• $44 million for the Rokeby Road – South Arm Road Upgrades;
• $37.8 million for the Midland Highway Upgrade – Campbell Town North (Campbell Town to Epping Forest);
• $36.4 million for the Midland Highway Upgrade – Oatlands (Jericho to South of York Plains);
• $35.7 million for the Midland Highway Upgrade – Ross (Mona Vale Road to Campbell Town);
• An additional $24 million for the Port of Burnie Shiploader Upgrade; and
• $13.2 million for the Huon Link Road.

Western Australia

Key projects to be funded include:

• $347.5 million for METRONET: Hamilton Street-Wharf Street Grade Separations and Elevation of Associated Stations, including Queens Park Station and Cannington Station and an enhanced METRONET Byford Rail Extension project, with new grade separated rail crossing at Armadale Road and an elevated station at Armadale
• $200 million for the Great Eastern Highway Upgrades – Coates Gully, Walgoolan to Southern Cross and Ghooli to Benari
• $160 million for the WA Agricultural Supply Chain Improvements – Package 1
• $112.5 million for the Reid Highway – Altone Road and Daviot Road-Drumpellier Drive – Grade-separated intersections
• $85 million for the Perth Airport Precinct – Northern Access
• $64 million for the Toodyay Road Upgrade – Dryandra to Toodyay
• $55 million for the Mandurah Estuary Bridge Duplication, and
• $31.5 million towards the METRONET High Capacity Signalling project

ACT

New projects to be funded include:

• $2.5m Beltana Road Improvements
• $132.5m Canberra Light Rail – Stage 2A
• $26.5m William Hovell Drive Duplication

Key budget assumptions

A population-wide vaccination program is likely to be in place by the end of 2021.

• During 2021, localised outbreaks of COVID-19 are assumed to occur but are effectively contained.
• General social distancing restrictions and hygiene practices will continue until medical advice recommends removing them.
• No extended or sustained state border restrictions in place over the forecast period.
• A gradual return of temporary and permanent migrants from mid-2022. Small phased programs for international students will commence in late 2021 and gradually increase from 2022. The rate of international arrivals will continue to be constrained by state and territory quarantine caps over 2021 and the first half of 2022, with the exception of passengers from Safe Travel Zones.
• Inbound and outbound international travel is expected to remain low through to mid-2022, after which a gradual recovery in international tourism is assumed to occur.

The information contained herein is provided on the understanding that it neither represents nor is intended to be advice or that the authors or distributor is engaged in rendering legal or professional advice. Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.

The material contained in the Budget 2021-22 Update should be used as a guide in conjunction with professional expertise and judgement.  All responsibility for applications of the Budget 2021-22 Update and for the direct or indirect consequences of decisions based on the Budget 2021-22 Update rests with the user. Knowledge Shop Pty Ltd, Hayes Knight, its directors and authors or any other person involved in the preparation and distribution of this guide, expressly disclaim all and any contractual, tortious or other form of liability to any person in respect of the Budget 2021-22 Update and any consequences arising from its use by any person in reliance upon the whole or any part of the contents of this guide.

Copyright © Knowledge Shop Pty Ltd. 12 May 2021

All rights reserved. No part of the Budget 2021-22 Budget should be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by information storage or retrieval system, other than specified without written permission from Knowledge Shop Pty Ltd.

Budget 2019-20: The pre-election announcements that are now law

The Federal Budget announced a series of measures, some of which were legislated before the election was called.

Extension and increase to the instant asset write-off

The popular instant asset write-off for small business has been extended and increased. The new laws:

• increase the threshold below which small business entities can access an immediate deduction for depreciating assets and certain related expenditure (instant asset write-off) from $25,000 to $30,000; and
• enables businesses with aggregated turnover of $10 million or more but less than $50 million to access instant asset write-off for depreciating assets and certain related expenditure costing less than $30,000.

Assets will need to be used or installed ready for use from Budget night until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for the $20,000 or $25,000 threshold. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify.

The instant asset write-off only applies to certain depreciable assets.  There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify.

For assets costing $30,000 or more

For small businesses (aggregated turnover under $10m), assets costing $30,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (i.e., these are added back), is less than $30,000 at the end of the income year, then the remaining pool balance can be written off as well.

The ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out) will continue to be suspended until 30 June 2020.

Pooling is not available for medium sized businesses which means that the normal depreciation rules based on the effective life of the asset will apply to assets that don’t qualify for an immediate deduction.

The amendments apply from 7.30 pm legal time in the Australian Capital Territory on 2 April 2019 until 30 June 2020

One-off energy assistance payments

A one-off energy assistance payment of $75 for singles and $62.50 for each eligible member of a couple, will be made to predominantly pension and social welfare recipients who were residing in Australia on 2 April 2019.  The payments are expected to be completed by 30 June 2019.

Medicare levy and surcharge income threshold increase

The Medicare levy low income thresholds for singles, families, and seniors and pensioners will increase from the 2018-19 income year, meaning more people will be excluded from paying the levy.

North QLD flood recovery

Grants are treated as non-assessable non-exempt income if they:

• are Category C or D measure disaster recovery grants paid to small businesses, primary producers or non-profit organisations; and
• relate to flooding that commenced in Australia in the period between 25 January 2019 and 28 February 2019 (inclusive).

As a result, Category C and D measure grants to small businesses, primary producers and non-profit organisations affected by floods in North Queensland in late January 2019 and that continued into February 2019 are non-assessable non-exempt income.

And, grants to primary producers are non-assessable non-exempt income if the grants are for repairing or replacing farm infrastructure, restocking or replanting, and they are provided for the purposes of an agreement between the Commonwealth and a State or Territory to assist primary producers affected by the flooding.

As a result, such grants to primary producers in North Queensland affected by floods in late January 2019 that continued into February 2019 are non-assessable non-exempt income.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

A Labor Government on Tax & Super

Tax on investment property

In general, taxpayers are able to deduct from their assessible income any expenses they incur generating or producing that income. An investment is negatively geared when the cost of owning the asset is more than the return. Negative gearing is not limited to property but can apply to other assets such as shares. In 2016-17, Australians claimed $47.5 billion in rental deductions against gross rental income of around $44.1 billion.

A number of capital gains tax (CGT) exemptions potentially apply to investment property. For Australian resident individuals, a 50% CGT discount applies to net capital gains made on investments held for longer than 12 months.

In addition, a taxpayer’s main residence is exempt from CGT. As part of this exemption, a taxpayer can be absent from their main residence for up to 6 years and still claim the property as their main residence (assuming they do not treat any other property as their main residence). So, the property can be used as an investment property for 6 years but then sold as the taxpayer’s main residence.

Labor’s plan seeks to:

• Limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered. The ALP states that the grandfathering element of the policy applies to property and assets purchased prior to the start date of the policy. “This means, for example, that if you own a property prior to 1 January 2020, you are able to negatively gear it after that date. The changes to the CGT discount will not apply to superannuation funds or to the 50 per cent active asset reduction concession that applies to small businesses.”
• Halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the CGT discount for assets held longer than 12 months from 50% to 25%. Once again, all investments made prior to the 1 January 2020 will be fully grandfathered.

There is no policy statement from the ALP on the main residence exemption.  The Morison Government had introduced legislation to remove access to the main residence CGT exemption for non-resident taxpayers, but this Bill stalled in the Senate. Chris Bowen told the Australian Financial Review that it will be up to the ALP to work through outstanding tax measures and “iron out any unintended consequences” including the impact on expats and retrospectivity.

More information

• ALP Positive plan to help housing affordability

 

Dividend imputation and the impact on self-funded retirees

One of the more controversial measures announced by the ALP is the reforms to the dividend imputation credit system to remove refundable franking credits from shares. The measure, as announced, would apply to individuals and superannuation funds, and exclude Australian Government pension and allowance recipients, and tax-exempt bodies such as charities and universities. SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes. The policy is intended to apply from 1 July 2019.

How does the system currently work?

A dividend is a shareholder’s share of a company’s earnings (profits). When a dividend is paid from an Australian company’s after-tax profits, these are known as franked dividends and include a franking credit (imputation credit), which represents the amount of tax already paid by the company on the underlying profits that are being paid out in the form of a dividend.

An Australian resident shareholder pays tax on dividends they receive (as dividends are treated as income). If the dividend received is a franked dividend, the shareholder includes the franking credits in their income (i.e., a gross-up occurs) but they can then use the franking credit attached to the dividend to reduce their tax liability. If the credit exceeds their tax liability for the year then they receive a cash refund for the excess amount.

For example, an SMSF owns shares in a company. The company pays the SMSF a fully franked dividend of $7,000. The dividend statement says there is a franking credit of $3,000. The $3,000 represents the tax the company has already paid on its profits. This means the profit, before company tax was subtracted, would have been $10,000 ($7,000 + $3,000). The SMSF must declare $10,000 worth of income, and will receive the $3,000 as an offset.

The dividend imputation system was introduced in 1987 by the Hawke/Keating Government to remove the investment bias against shares which taxed interest income once but dividend income twice (once at the company level on profits and the second time at the taxpayer level on income). In 2001, the Howard Government amended the rules to enable franking credits to be paid as a cash refund where the taxpayer paid less tax than the company tax rate. In the absence of refundability, the taxpayer pays tax up to the company tax rate and any surplus franking credit is wasted.

The sensitivity of the issue

The sensitivity of this issue is how the dividend imputation system interacts with the way superannuation is taxed. Currently, income an SMSF earns from assets held to support retirement phase income streams (i.e., a pension), such as dividends from shares, is tax-free. That is, a self-funded retiree in some circumstances pays no tax on the income they earn from dividends. If they pay no tax, then any franking credits are paid as a cash refund.

If the ALP policy comes to fruition, these self-funded retirees lose this cash payment unless they are also Australian Government pension and allowance recipients. The policy effectively unwinds the Howard reforms and returns the imputation system to its original Hawke/Keating design.

Who will be impacted by the change?

Based on information from Treasury, 85% of the value of franking credit refunds go to individuals with a taxable income below $87,000. That is, 97% of taxpayers receiving refunds have a taxable income below $87,000. And, more than half of those receiving a franking credit refund have a taxable income below the tax-free threshold of $18,200. Around 40% of SMSFs receive a franking credit refund.

Around 1.1 million individuals received a franking credit refund in 2014-15 with more than half of these over the age of 65. And, more than two thirds of refunds to SMSFs are to those whose fund balance per member is greater than $1 million. However, this figure is likely to be diminished by the 1 July 2017 reforms that imposed a $1.6m cap on retirement phase superannuation accounts and tax earnings on accumulation accounts.

The Parliamentary Budget Office has also outlined what behavioural changes they expect to see in the market as a result of making franking credits non-refundable. These include:

• Individuals – shifting from shares to alternative investment arrangements (including to investments within superannuation), and couples shifting the ownership of shares from the lower income earner to the higher income earner such that the higher income earner can utilise the franking credits as a non‐refundable tax offset.
• Superannuation funds – rolling assets from a fund with negative net tax to a fund with positive net tax, changing funds’ asset portfolio allocations, or changing the membership structure of the fund, in order to maximise the utilisation of franking credits.
• Companies – changing the amount of dividends distributed (and profits withheld) or the level of dividend franking due to the decrease in the value of franking credits for some shareholders.

The most significant behavioural change is expected to be from SMSF trustees: “The assumed behavioural response for SMSFs in 2019‐20 is equivalent to these funds, in aggregate, moving around a quarter of the value of their listed Australian shares into APRA‐regulated funds that are in a net tax‐paying position.” 

The alternative, of course, is for SMSFs to change their composition of Australian shares to reduce their holding. The Parliamentary Budget Office also notes that one potential outcome is that SMSFs will increase the number of taxpaying members. “For instance, a couple with an SMSF in the pension phase could invite two additional working‐aged children into their fund, allowing them to use their excess franking credits to offset the contributions and earnings tax payable on the assets owned by their children.”

More information

• ALP – Ending cash refunds for excess imputation
• Treasury – FOI 2292 Refundability of franking credits

Minimum 30% tax on discretionary trust distributions

There are around more than 690,500 discretionary trusts, also known as family trusts, in Australia. Discretionary trusts are popular as the trustee has the discretion on how to pay the income or capital of the trust to the beneficiaries – beneficiaries do not have an interest in the trust. Income can be apportioned by the trust to the beneficiaries on a discretionary basis, for example, to beneficiaries on a lower income tax bracket. As a result, discretionary trusts are often used to protect assets within family groups, manage succession, and to distribute income tax effectively within that group.

From 1 July 1979, laws were introduced to ensure that distributions to minors were taxed at the top marginal tax rate to prevent trusts distributing funds to children at minimum tax rates.

The proposed reforms

The ALP reforms address the ability for distributions to be channelled to beneficiaries in low income tax brackets. Instead, a new standard minimum rate of tax for discretionary trust distributions to mature beneficiaries (aged over 18) of 30% will apply.

More information

• ALP – Discretionary Trusts Reform

Capping deductions for managing tax affairs

The ALP intends to cap the tax deduction available for the cost of managing tax affairs to $3,000. While clients can spend more than this, the portion above $3,000 will not be tax deductible.

No further details are available at present.

Tightening of superannuation framework

Mr Shorten told a media conference in April that the ALP had “no plans to increase taxes on superannuation.” However, ALP policy does make changes in a series of areas. These include:

• Non-concessional contributions – the non-concessional contributions cap, the amount you can contribute to super from your after-tax income, is $100,000, will be reduced to $75,000.
• Division 293 tax – High income earners pay an additional 15% tax on their concessional taxed contributions to superannuation. Currently, the threshold at which this tax applies is $250,000. The ALP intends to reduce this threshold to $200,000.
• Remove the ability to catch up superannuation concessional contributions – Individuals with a total superannuation balance of less than $500,000 just before the start of the financial year are able to make additional concessional contributions in that financial year by using their unused concessional contribution cap amounts carried forward from the previous five years. This measure can only be applied to unused cap amounts from the 2018-19 year. The ALP intends to remove the ability to unused cap amounts.
• Remove measures expanding tax deductibility for super contributions – Under the super reform measures, the ‘substantially self-employed test’ (‘10% test’) was removed. This enabled taxpayers, regardless of their work status (but otherwise eligible to contribute) to claim a tax deduction on their personal super contributions. The ALP intend to unwind these reforms.

Other tax and business policies

• Deductions claimed by multi-nationals
  • “close a loophole that allows companies to deduct bad debt from related party financing arrangements.”
  • Make firms undertaking business in tax havens disclose that to shareholders and make significant tenderers disclose their country of tax domicile.
  • Automatically deny deductions from companies for travel to and from tax havens.
  • Prevent country shopping by requiring all individual Australian taxpayers to notify and declare to the ATO if they have residency or citizenship of any other jurisdiction and the name of that jurisdiction.
  • Incentivise and protect whistleblowers – Provide protection for whistleblowers who report on entities evading tax to the ATO and, where whistleblowers’ information results in more tax being paid, allow them to collect a share of the tax penalty (a reward of up to $250,000).
  • Introduce a publicly accessible registry of the beneficial ownership of Australian listed companies and trusts, allowing the public to find out who really owns our firms.
  • Introduce mandatory shareholder reporting of tax haven exposure, requiring companies to disclose to shareholders as a ‘Material Tax Risk’ if the company is doing business in a tax haven.
  • Require the ATO’s annual report to provide information on the number and size of tax settlements.
• Reverse tax cuts for higher income brackets – Removes tax reduction for those above $126,000.
• End the Medicare Freeze – bringing forward the scheduled end to the indexation freeze on Medicare to 1 July 2019. The freeze is currently in place until 1 July 2020.
• Restore penalty rates and introduce a living wage – legislate to reverse penalty rate decision of the Fair Work Commission within first 100 days and move the minimum wage to a living wage (following consultation and recommendations from the Fair Work Commission.) The first living wage case to take place as part of the Annual Wage Review with wage increases phased in from 1 July. Plus, ensure labour hire companies provide workers with the same pay and conditions as those employed directly.

Cap private health insurance premiums – cap premiums at 2% for the first two years of an ALP

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

Single Touch Payroll: what you need to know

Single Touch Payroll (STP) – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – comes into effect from 1 July 2018.

For employers

Employers with 20 or more employees at 1 April 2018 must use standard business reporting-enabled software from 1 July 2018. The head count for ‘20 employees’ includes full-time, part-time, casuals (who worked any time during March), employees based overseas, or on paid or unpaid leave. Directors and independent contractors are excluded from the count. For businesses that are part of a wholly owned group, the total number of employees across the group is used (i.e., if the total number of employees employed by all member companies of the wholly-owned group is 20 or more, all group members must use STP).

 

STP is currently voluntary for businesses with less than 20 employees although proposed reforms seek to extend the reporting system to all employers by 1 July 2019, regardless of the number of employees.

What must be reported

STP requires PAYG withholding and superannuation contribution details to be reported to the ATO as payments are made to employees or superannuation funds.

 

When it comes to PAYG withholding, employers will report details of salary and wages paid to employees as well as the PAYG withholding amount at the time the payment is made to the employee. Employers have the option of paying the PAYG withholding liability at the same time, although this is not compulsory.

 

Payments that must be reported include:

• Salary & wages
• Director remuneration
• Return to work payments to individuals
• Employment termination payments (ETPs) – not compulsory if the employee has died
• Unused leave payments
• Parental leave pay
• Payments to office holders
• Payments to religious practitioners
• Superannuation contributions (at the time the payment is made to the fund).

 

The Government intends to extend STP to salary sacrificed amounts in the near future although these reforms are not legislated.

An end to payment summaries?

While not compulsory, employers can choose to include reportable employer superannuation contributions and reportable fringe benefit amounts. These payments are reported either at the time the payment is made or through an update event. If these payments are included, the employer will not need to provide payment summaries as employees are able to access their live data through myGov.

 

If your business does not report through STP or does not finalise its reporting, payment summaries are still required.

New employees

If your business utilises STP, when a new employee joins they have the option to electronically complete a pre-filled Tax file number declaration and Superannuation standard choice form online instead of completing the form for you to lodge with the ATO.

Exemptions

Some exemptions exist for STP for rural employers that do not have access to a reliable internet connection, and employers that employed a group of people during the year for a short period of time, such as seasonal workers.

For employees

While the Government and ATO are promoting STP as a way to improve the efficiency of payroll processes and meeting reporting obligations (i.e., cutting down on duplication of work etc.,), there is also a clear benefit to the ATO and Government in implementing this system. One advantage is that the ATO will have early warning of businesses that are finding it difficult or simply failing to meet their PAYG withholding and superannuation guarantee obligations. This should have a flow on benefit to employees who might otherwise miss out on benefits to which they are entitled.

 

If you are registered with myGov and your employer reports using STP, you will be able to see your year-to-date tax and super information online.

 

Should you use the new super measures when you buy/sell your home?

From 1 July 2018, new laws come into effect allowing first home buyers to use their super to help buy a home, and at the other end of the spectrum, downsizers to contribute proceeds from the sale of their home to super without many of the normal restrictions.

The pros and cons of using your super to save for your first home

The First Home Super Saver Scheme (FHSS) enables first-home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earnings benefits of superannuation.

 

Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after-tax contributions) of $15,000 a year within existing caps, up to a total of $30,000. You have been able to make contributions since 1 July 2017 (although the legislation did not pass Parliament until 7 December 2017), but withdrawals cannot be made until 1 July 2018. Note that mandated employer contributions cannot be withdrawn under this scheme, it is only additional voluntary contributions made from 1 July 2017 that can be withdrawn.

 

If you have a Self-Managed Superannuation Fund (SMSF), you will need to ensure that the trust deed allows for withdrawals under the FHSS to be made. The SMSF must also identify these contributions and report these to the ATO.

 

When you are ready to buy a house, you can withdraw the contributions along with any deemed earnings (90-day Bank Accepted Bill rate with an uplift factor of 3%), to help fund a deposit on your first home. To extract the money from super, home savers apply to the Commissioner of Taxation for a first home super saver determination. The Commissioner then determines the maximum amount that can be released from the fund. When the amount is released from super, it is taxed at your marginal tax rate less a 30% offset (non-concessional contributions are not taxed).

 

The upside of the FHSS is the tax benefit. For example, if you earn $70,000 a year and make salary sacrifice contributions of $10,000 per year, after 3 years of saving, approximately $25,892 will be available for a deposit under the scheme – $6,210 more than if the saving had occurred in a standard deposit account (you can estimate the impact of the scheme on you using the estimator).

 

Another upside is that the scheme applies to individuals. So, if you are a couple, you both could utilise the scheme for a deposit on the same home – effectively increasing your cap to a maximum of $60,000.

 

If you don’t end up entering into a contract to purchase or construct a home within 12 months of withdrawing the deposit from superannuation, you can recontribute the amount to super, or pay an additional tax to unwind the concessional tax treatment that applied on the release of the money.

 

Home savers also need to move into the property as soon as practicable and occupy it for at least 6 of the first 12 months that it is practicable to do so.

 

The home saver scheme can only be used once by you.

 

The cons of this scheme are mostly administrative. On the investment side of things, using the above example, $6,210 over three years is an upside but may not be a huge upside compared to other investment returns given the administrative requirements of the scheme. But, for many, it may be the best offer available.

Who can use the first home saver scheme?

You must:

• Be 18 years of age or older (to make a withdrawal under the scheme – you can contribute before the age of 18);
• Never had held taxable Australian real property (this includes residential, investment, and commercial property assets)

The pros and cons of contributing proceeds from the sale of your home to super

From 1 July 2018, if you are over 65, have held your home for 10 years or more and are looking to sell, you might be able to contribute some of the proceeds of the sale of your home to superannuation.

 

The benefit of this measure is that you can contribute a lump sum of up to $300,000 per person to superannuation without being restricted by the existing work test requirements, non-concessional contribution caps or total superannuation balance rules. It’s a way of building your superannuation quickly and taking advantage of superannuation’s concessional tax rates. The $1.6 million transfer balance cap will continue to apply so your pension interests cannot exceed this amount. And, the Age Pension means test will continue to apply. If you are considering using this initiative, it will be important to get advice to ensure that you are eligible to use this measure and the contribution does not adversely affect your overall financial position.

 

The downsizer initiative applies to the sale of any dwelling in Australia – other than a caravan, houseboat or mobile home – that you or your spouse have held continuously for at least 10 years. Over those 10 years, the dwelling had to have been your main residence for at least part of the time. As long as you qualify for at least a partial main residence exemption under the CGT rules (or you would qualify for the exemption if a capital gain arose) you may be able to access the downsizer concession. This means that you do not actually need to have lived in the property for the full 10-year period.

 

The rules also take into account changes of ownership between two spouses over the 10-year period prior to the sale. This could assist in situations where a spouse who owned the property has died and their interest is inherited by their surviving spouse. The surviving spouse can count the ownership period of their deceased spouse in determining whether the 10-year ownership period test is satisfied. This rule could also assist in situations where assets have been transferred as a result of marriage or de facto relationship breakdown.

 

In general, the maximum downsizer contribution is $300,000 per contributor (so, $600,000 for a couple). The contribution needs to be made within 90 days after your home changes ownership (generally, the date of settlement) but you can apply to the Tax Commissioner to extend this period. And, the initiative only applies once – you cannot use it again for future properties.

 

If you have a SMSF, contributions made under this scheme need to be reported to the ATO. You should also check the trust deed rules around the acceptance of contributions for members over the age of 65.

 

The eligibility requirements include:

• The contribution from the sale is made to a complying superannuation fund
• The contribution is equal to or less than the capital proceeds from the disposal of a main residence
• The member or their spouse had an eligible interest in the main residence before the sale
• The member, their spouse, their former spouse, or trustee of the deceased estate held an interest in the house during the prior 10 years
• No prior downsizer contribution has been made

 

Tax Deductions: the danger zones

A recent Parliamentary Inquiry into Tax Deductions created some fairly sensational headlines about what and how deductions are being claimed – $22 billion worth to be exact. 

 

In Australia, tax deductions are available for expenses incurred in producing assessable income. These are generally work-related deductions or investment related deductions. And, unlike some other countries, these expenses can be offset against taxable income including wages (other countries only allow deductions relating to capital income against capital gains).

 

In a recent speech, the Tax Commissioner Chris Jordan highlighted that in 2014-15, more than $22 billion was claimed for work-related expenses. “While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant – in the vicinity of, or even higher than the large market tax gap of $2.5 billion – and that’s just for this category of deductions, work-related expenses.”

 

He went on to say that in this same period around 6.3 million people made claims for clothing expenses totalling almost $1.8 billion. “That would mean that almost half of the individual taxpayer population was required to wear a uniform or protective clothing or had some special requirements for things like sunglasses and hats.” Clearly, that’s unlikely.

 

While the ATO is doing random audits of taxpayers making claims for work related expenses, the primary problem for the Commissioner is, as he says, that the individual amounts over-claimed are relatively small. The administrative cost of a crackdown is likely to be more than what would be gained. The likely ‘solution’ then is to change what taxpayers can claim.

 

If you want to see the likely ‘hit list’ of deductions with a potentially short future, then Treasury’s submission to the Inquiry is a starting point:

Investment expenses

Investment related expenses can include management fees for an investment, account-keeping fees, insurance, land tax, depreciation, maintenance expenses, and interest on borrowings used to purchase an income-producing asset.  While expenses can be claimed for a wide array of income producing assets, property is where most of the activity is centred.

 

$41.7 billion in rental expenses were claimed in 2012-13 against $36.5 billion of rental income. Two thirds of taxpayers with rental income in this same period made a loss (totalling net rental losses of $12 billion). Negative gearing is popular. As an investment strategy, negative gearing makes sense if the expected capital gain when the property is sold exceeds the rental losses over the life of the investment. However, there is little doubt that the ability to reduce personal income tax using investment property losses is an attractive and viable strategy for high income earners.

 

The Grattan Institute’s submission to the Inquiry flags two potential scenarios. First is quarantining losses against investment income only. That is, you would lose the ability to offset investment losses against salary and wages and instead could only offset these against capital profits or gains. Or, an alternative strategy is that taxes on gains and losses could be aligned so that if you were entitled to a 50% reduction on a capital gain, you would only be entitled to an equivalent deduction for expenses.

 

When it comes to convincing voters that cutting back on deductions is a good thing, investment related deductions are generally targeted as they are not as transparent and are generally attributed to more affluent members of the community (although this is not an accurate picture as many self-funded retirees and Mum & Dad property investors will tell you).

 

With the next election just around the corner, it’s unlikely we will see a major overhaul in the very near future. The path of least resistance is to reduce the discount on capital gains available to individuals, trusts, and superannuation funds. It’s more likely however that the regulators will continue to whittle away deductions rather than making wholesale changes – as we have already seen with the recent changes impacting residential investment property – while relying on the ATO to reign in excessive claims.

Work related expenses

At $19.7 billion, work-related expenses accounted for nearly two thirds of total deductions claimed by individuals in 2012-13. The most common claims were for car expenses ($8 billion or around 40%), followed by $7 billion in ‘other expenses’ comprising home office costs and tools, equipment and other assets. Work related travel expenses counted for $2 billion, uniforms $1.6 billion, and $1.1 billion for work related self-education expenses. Unsurprisingly, if you follow the money you can see that the pattern of expense claims closely follow the ATO’s compliance focus and activities.

 

By comparison, New Zealand does not allow work related deductions (but they have a top personal tax rate of 33%). In other countries, the range of deductions that can be claimed is much narrower. In the UK for example, only certain occupations can claim work related expenses and then generally this is at a flat rate. Taxpayers have the ability to claim outside of the flat rate but only after passing stringent tests. The tests require that the item must be ‘wholly, exclusively and necessarily in the performance of an employee’s duties’ and be an expense typical for the industry. That is, the item is only deductible if it is likely to be incurred by every holder of that form of employment (it is not enough that one employee, or a subset of employees, happens to incur the expense).

 

It would be a bold and confident Government that removed the ability for many taxpayers to claim a tax refund. As with investment expenses, it is more likely that deductions will be slowly whittled away.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

Budget 2016-17

Below is some of the key budget changes affecting individuals and small business.

Personal tax cuts for middle income earners
Date of effect 1 July 2016

The 32.5% personal income tax threshold will increase from $80,000 to $87,000 from 1 July 2016. The new tax rates from 1 July 2016 would be as follows:

These tax rates exclude the Medicare Levy and the 2% debt tax on high-income earners over $180,000 which will come to an end on 30 June 2017.

Reducing the company tax rate to 25%
Date of effect Progressively from 2016-17

The company tax rate will be reduced to 25% over 10 years. The reduction will initially target companies with a turnover less than $10 million, then gradually increase access:

Franking credits will still be calculated with reference to the amount of tax paid by the company paying the dividends.

Small business entity threshold jumps to $10m
Date of effect 1 July 2016

In a significant win for business, the small business entity turnover threshold will increase from $2 million to $10 million from 1 July 2016. The reform will give a greater number of businesses access to a range of tax concessions such:

• The lower small business corporate tax rate (27.5%);
• Simplified depreciation rules including an immediate write-off for assets costing less than $20,000 that are acquired by 30 June 2017 and depreciation pooling provisions;
• Simplified trading stock rules;
• A different method of calculating PAYG instalments;
• The option of accounting for GST on a cash basis;
• FBT exemptions (this would start from 1 April 2017); and
• A trial system of using a simpler business activity statement.

The current $2 million turnover threshold will be retained for access to the small business CGT concessions and access to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.

Lifetime cap on non-concessional contributions
Date of effect 7.30 pm (AEST) on 3 May 2016
Applies to all non-concessional contributions made on or after 1 July 2007

A lifetime $500,000 non-concessional contributions cap will be introduced from Budget night.

The current system of annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65), will be replaced with this new lifetime cap.

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7.30 pm (AEST) on 3 May 2016. Contributions made before commencement will not result in an excess. However, excess contributions made after commencement will need to be removed or will be subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings.

After-tax contributions made into defined benefit accounts and constitutionally protected funds will be included in an individual’s lifetime non-concessional cap. If a member of a defined benefit fund exceeds their lifetime cap, ongoing contributions to the defined benefit account can continue but the member will be required to remove, on an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold. The amount that could be removed from any accumulation accounts will be limited to the amount of non-concessional contributions made into those accounts since 1 July 2007. Contributions made to a defined benefit account will not be required to be removed.

The lifetime cap is available up to age 74.

 

Concessional contributions cap reduced
Date of effect 1 July 2017

The current concessional contributions cap will reduce to $25,000 from 1 July 2017.

From 1 July 2017, the Government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds. Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation funds. For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing grandfathering arrangements will continue.

Tax Exemption on Transition to Retirement Income Stream Earnings removed
Date of effect 1 July 2017

The tax exemption on the earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017. The rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.

30% tax on super for high income earners
Date of effect 1 July 2017

At present, individuals with combined income and superannuation contributions of more than $300,000 pay an additional contributions tax of 15% on concessional contributions. From 1 July 2017, this income threshold will reduce to $250,000.

The lower Division 293 income threshold will also apply to members of defined benefit schemes and constitutionally protected funds currently covered by the tax. Existing exemptions (such as State higher level office holders and Commonwealth judges) for Division 293 tax will be maintained.

Tax free super balances capped at $1.6m
Date of effect 1 July 2017

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free. Transfers in excess of this $1.6 million cap (including earnings on these excess transferred amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).

Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.

The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment.

Commensurate treatment for members of defined benefit schemes will be achieved through changes to the tax arrangements for pension amounts over $100,000 from 1 July 2017.

Tax deductions on super contributions expanded
Date of effect 1 July 2017

All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017. This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self employed, employees whose employers don’t offer salary sacrifice arrangements, etc.

This is a sensible move which means that it will no longer be necessary for individuals to pass a 10% test in order to be able to claim a deduction for personal superannuation contributions. Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities. The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

 

 

Notes

Please note there were many other tax changes announced on budget night. If you would like to discuss your individual circumstances in more detail please contact me.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

 

 

Xero Certified

This certifies that “Steven Millar” has completed and passed the Xero Certified Program

 

Capital gains & property: The top questions and answers

The thought of the Australian Tax Office (ATO) sharing up to 50% of any gain you make on an investment decision is enough to strike fear into the hearts of most people.  Given Australia’s love affair with property, it is little wonder that we are often asked about the impact of capital gains tax (CGT) on property.  This month, we explore the most frequently asked questions.

In general, CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 when the CGT rules first came into effect.

Most questions about CGT on property are based on the main residence exemption that exempts your home (your main residence) from any CGT exposure when you sell the property.

I jointly own an investment rental property with my elderly mother.  Neither of us has ever lived in the property.  We’ve recently updated our wills.  The lawyer says that if Mum’s will gifts her half of the property to me then this ‘gift’ will not attract capital gains tax.  Is this correct?

Kind of.  Tax law tends to work on the basis that if looks like a duck and walks like a duck then it’s a duck, not whatever your legal document calls it.  Exposure to capital gains tax is a matter of fact and substance.

If you inherit your mother’s share of the property, there would generally be no tax liability until you sell the property.  What is important here is how the CGT is calculated when you ultimately sell.

When the rental property transfers to you from your mother’s estate, the tax rules determine how CGT is calculated when you eventually sell. Basically, if the property was bought on or after 20 September 1985 then when you sell the property your taxable profit will be based on the original purchase price.  That is, you will end up being taxed on the increase in value of the property since it was acquired, including the portion that accrued while your mother was still alive.

In general, if you jointly own an investment property, your individual exposure to CGT will depend on how the property is owned.  If the property is held as tenants in common then any CGT exposure is in line with your ownership interest.  For example, in your case, it is 50% owned by your mother and 50% by you but different people can own different ownership interests.  If the property is owned as joint tenants then any CGT exposure is equally shared by the owners.

I bought a house in 2000, and lived in it until 2003.  I was posted overseas with my job between 2003 and 2011.  During that time my brother lived in the house rent free – he just paid for utilities.  In 2011 to 2012, I rented the house out (no one I knew).  I moved back into the property in 2012 and have just sold the house.  Do I have to pay capital gains tax on the property?

The capital gains tax rules are more understanding about how people live their lives than other laws and in some circumstances allow you to continue to treat your home as your main residence even if you are not actually living in it.

While you are away overseas, if you leave the property vacant or let a friend or relative live in the property rent-free, assuming you do not claim any other property as your main residence, then you can continue to treat the property as your main residence for CGT purposes indefinitely.

If you rent the property out while you are away, the tax laws allow you to still claim the property as your main residence as long as the period you rent it for is not more than a total of 6 years.  This 6 year period can actually be reset by moving back into the property again.

Effectively, you can move out and move back in as many times as you like and still claim the property as your main residence as long as it is your only main residence during that time and if you are renting it out, you do not rent it out for more than a total of 6 years across the period you are claiming the property as your main residence.

During the rental period you can also claim deductions against the rent, even though the property might still be exempt from CGT during this period.

I bought a property in 2008 and expected to move in straight away, but there were tenants still in the property and their lease still had 8 months to go.  I waited for the lease to expire and then moved in. I have lived there ever since and plan to sell later this year. Can you just confirm that I would still qualify for a full CGT exemption on the sale as the property has significantly increased in value?

This is a very common situation but is probably overlooked much of the time.  Unfortunately, you would not qualify for a full exemption in this case.

The main residence rules allow you to treat a property as if it has been your main residence since settlement date as long as you actually move into the property as soon as practicable after settlement.  This is intended to cover situations where there is some delay in moving into the property due to illness or some other “reasonable cause”.  The ATO’s view is that this rule cannot apply if you are waiting for existing tenants to vacate the property.

This means that you would only qualify for a partial exemption under the main residence rules.  We will need to calculate your gross capital gain and then apportion it to reflect the period of time when it was actually your main residence (i.e., from when you actually moved in). As long as you are a resident of Australia and have owned the property for more than 12 months we can also apply the 50% CGT discount to reduce the leftover capital gain.

It will be important in this case to gather as much evidence as possible of non-deductible costs that you have paid in relation to the property such as stamp duty, legal fees, commission paid to real estate agents, interest, rates, insurance, etc.  This will help to reduce the gross capital gain that is subject to tax.

 

__________________________________________

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

 

Why using the 20k Budget tax deduction might be the wrong decision

So, your business has a turnover under $2 million and you want to know how to use the $20,000 immediate tax deduction that’s been all over the news?

Before you start spending, there are a few things you need to know.

Does your business make a profit?

Deductions are only useful to offset against tax.  If your business makes a loss then a tax deduction is of limited benefit because you’re not paying any tax.  Losses can often be carried forward into future years but you lose the benefit of the immediate deduction.

Small businesses with a turnover of $2m or below make up 97.5% of all Australian businesses.  The latest Australian Taxation Office (ATO) statistics show that well under half of these businesses paid net tax.  That means that the $20,000 instant asset write-off is useful to less than half of the Australian small businesses targeted.

So, if your business makes a loss and you start spending to take advantage of the immediate deduction, all you are likely to do is to increase the size of your losses with no corresponding offset.

Immediate deduction not yet law

The $20,000 instant asset write-off is not yet law.  The ATO only has the capacity to assess on current law not announcements.  Don’t forget that many of last year’s Budget measures have not been enacted.  While we think it is highly unlikely that the other political Parties will block this measure, there is always a small risk that things will change.  So don’t spend more than your business can afford.

Cashflow first!

Cashflow is more important than an immediate deduction.  Assuming your business qualifies for the deduction, the most important consideration is your cashflow.  If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then go ahead and spend the money.  The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases.

But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.

Let’s take the example of a small bakery.  The bakery is in a company structure and has a taxable income for 2014/2015 of $49,545.  The owner purchases a new $13,750 oven on 2 June 2015 and installs it straight away.  The cost of the oven is claimed in the bakery’s 2014/2015 tax return resulting in a tax deduction of $13,750.  So, for the $13,750 spent on the oven, $4,125 is returned as a reduction of the company’s tax liability (i.e., 30% company tax rate in the 2015 income year).  For the bakery, they need the cashflow to support the $13,750 purchase until the businesses tax return is lodged after the end of the financial year.  With the $4,125 reduction of the company’s tax liability, the business has fully funded the remaining $9,625.

From 1 July 2015, the bakery would also receive the small business company tax cut of 1.5%. If the business also had taxable income of $49,545 in the 2016 income year, the tax cut would provide a reduction of $743.

It’s important not to rely on the advice of the person you are purchasing from.  There is a lot of misinformation out there in the market right now and it’s important to know how the concessions apply to you.

Is your business eligible

To use the instant asset write-off, your business needs to be eligible.  The first test is that you have to be a business – not just holding assets for investment purposes.

The second is the aggregated turnover of your business needs to be below $2m.  Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

• You control or are controlled by that entity; or
• Both you and that entity are controlled by the same third entity.

What has changed?

In general, a deduction is available for purchases your business makes.  What has changed for small businesses under $2m turnover is the speed at which they can claim a deduction.  Before the Budget announcement, small business could immediately deduct business assets costing less than $1,000.  On Budget night, the Treasurer announced that the threshold for the immediate deduction will increase to $20,000 at 7.30pm, 12 May 2015 for small businesses with an aggregated turnover less than $2 million.  The increased threshold is intended to apply until 30 June 2017.

For small business, assets above $20,000 can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

If your business is registered for GST, the cost of the asset needs to be less $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price.  If your business is not registered for GST, it is the GST inclusive amount.

How do I make the most of the immediate deduction?

There are a few tricks to applying the instant asset-write off:

Second hand goods are ok

It does not matter if the asset you are buying for your business is new or second hand.  So, you could still claim the deduction on say, second hand machinery you have bought.

What is not included

There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules.  These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.

Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income.  For example, four big screen televisions are unlikely to be deductible for a plumbing business.

Assets must be ready to use

If you use the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use).  This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.

Business and personal use

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage.  So, if you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 can be claimed.

What will change on 1 July 2015

For Business

• Small business tax cut – 1.5% for companies and 5% tax discount for unincorporated small businesses under $2m (capped at $1,000)*
• Employee share scheme rule changes to make the schemes more attractive particularly to start-ups (covered in our April update)*
• ‘Fly in fly out’ and ‘drive in drive out’ (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’*
• Start-ups able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.*
• The way work related deductions for car expenses are calculated will change. The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed. The ‘cents per kilometre method’ will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars.

Superannuation

• The terminally ill will be able to access super earlier*
• Employers with 20 employees or more must use SuperStream for employee contributions.

Individuals

• Changes to family tax benefits – income test changes, add on child payment removed, and changes to large family supplement.

__________________________________________

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

Landlords Beware: Key issues for property investors

Are you relying on negative gearing?

There has been a lot of negative conversation about negative gearing lately.  But, if you are currently negative gearing your investment property, should you be concerned?

Negative gearing is when you claim more in deductions than you earn for an income producing asset that you have purchased using debt.  It is not limited to property, you can for example negatively gear shares, but property is the dominant negatively geared asset claimed by Australians.

The latest Taxation Statistics show that we claimed $22.5 bn in rental interest deductions in 2012-13 against gross rental income of $36.6 bn.  While these statistics are not as bad as previous years because of the low cost of borrowing ($1.6 bn less than 2011-12), it’s more than the total Defence budget in 2013-14 at $22.1 bn.

The use of these property deductions does not vary widely across income ranges – that is, it’s not just those on the highest income bracket using negative gearing.  The highest proportional losses were experienced by those with incomes (net of the rental loss) between $55,001 and $80,000, where deductions exceeded rental income by more than 28%.  Negative gearing makes owning an investment property accessible to those who potentially would not invest for the long term gain in property value alone.

The Reserve Bank has stated that the ‘hot’ property market, particularly in Sydney, is because “Investor demand continues to drive housing and mortgage markets, with low interest rates and strong competition among lenders translating into robust growth in investor lending.”  In NSW, lending to investors now accounts for almost half of the value of all housing loan approvals.  Demand drives price.

The tax policy experts we canvassed generally held the view that negative gearing distorts the market and – in combination with the CGT discount – provides considerable and unnecessary tax advantages to those who least need them.  To quote one, “[Negative gearing] is a uniquely Australian phenomenon (no other country is so generous) and I would abolish it (and the CGT discount) immediately (and not be so generous as to grandfather existing owners). The suggestion that its (temporary) abolition in the early 1990s led to an increase in rent was based on spurious and incomplete evidence.  More relevant research has subsequently debunked the suggestion that the spike that happened in Sydney house prices had little to do with the abolition and a lot more to do with other, unrelated market forces.”

At present, the Government and property investors want to keep negative gearing.  It’s a lonely policy position. The Government Tax White Paper is due out later this year and may provide a better indication of any potential risk for investment property owners.  But, negative gearing is not something to bank on as a long term strategy.  It’s just a question of which Government will have the support to remove it.

Friends, family and holiday homes

If you have a rental property in a known holiday location, chances are the ATO is looking closely at what you are claiming.  If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent.

If you, your relatives or friends use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available.  It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.

A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.

Repairs or maintenance?

Deductions claimed for repairs and maintenance is an area that the Tax Office is looking very closely at so it’s important to understand the rules.  An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

• Replacement of an entire structure (for example, a complete fence, a new hot water system, oven, etc.)
• Improvements and extensions

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.

Travel expenses to see your property

If you fly to inspect your rental property, stay overnight, and return home the following day, all of the airfares and accommodation expenses would generally be allowed as a deduction. Where travel is combined with a holiday, your travel expenses need to be apportioned. If the main purpose of the trip is to have a holiday and the inspection is incidental, a deduction for travel is not allowed. In these circumstances you can only claim a deduction for the direct costs involved in inspecting the property such as the cost of taking a taxi to see the property and a proportion of your accommodation expenses.

If you drive a car to and from your rental property to collect rent or for inspections, you can claim your car expenses.   Just keep in mind that you need to be able to prove that you needed to visit the property.

Redrawing on your loan

The interest component of your investment property loan is generally deductible.  Take care if you have made redraws on your investment loan for personal purposes.  A portion of the loan may be non-deductible.

Borrowing costs

You are able to claim a deduction for borrowing costs over 5 years such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance.  If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest become deductible.

Tax scams catching out the unwary

Every tax time is an opportunity for scammers to target the unwary. This time around, the scammers are phoning and claiming to be from the prosecutions department of the ATO.  They then state that they believe you have committed fraud and the Sheriff’s Office has been called.  You can of course make this all go away by transferring cash using the details they provide or by giving your details to them.  All of it is fake. There are a number of variations to this fake arrest warrant scam. In some cases a message is left on an answering machine obliging the person to call back.

Understandably for those with outstanding tax debt, these calls can cause concern. If you receive a call like this, you should feel free to hang up.  We can contact the ATO on your behalf to verify there are no known issues.

Or, if you would like to report the scammers, take as many details as possible without giving any information away (phone numbers, supposed section of the ATO, name of the person calling, etc.,) and pass them onto us.  Once again we’ll verify with the ATO and report any known details about the scam for further investigation.

If you are contacted by email by the ATO or a group purporting to represent the ATO, you can forward these emails directly to the ATO at ReportEmailFraud@ato.gov.au.

__________________________________________

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.