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Treasurer Josh Frydenberg delivered his third federal budget on 11 May with the main aims of stimulating the economy post COVID-19, accompanied by big spending on social programs and infrastructure projects.

In 2021/22, the budget deficit is forecast to be $106.6 billion, gross national debt $963 billion and the unemployment rate at 5%.

The taxation and superannuation measures we have identified below are largely dependent on the passing of independent legislation and would take effect from the start of the first financial year after Royal Assent is received.  The Government expects this to have occurred prior to 1 July 2022.


Retaining the low and middle income tax offset for the 2021-22 income year

The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners.

The LMITO provides a reduction in tax of up to $1,080. Taxpayers with a taxable income of:

  • $37,000 or less will benefit by up to $255 in reduced tax
  • between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080
  • between $48,000 and $90,000 are eligible for the maximum offset of $1,080
  • between $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar.

Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.

Reducing compliance costs for individuals claiming self-education expense deductions

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

Employee Share Schemes — removing cessation of employment as a taxing point and reducing red tape

The Government will remove the cessation of employment taxing point for the tax- deferred Employee Share Schemes (ESS) that are available for all companies.

Currently, under a tax deferred ESS, where certain criteria are met employees may defer tax until a later tax year (the deferred taxing point).

The deferred taxing point is the earliest of the following circumstances:

  • cessation of employment
  • 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 share and no restriction on disposal
  • the maximum period of deferral of 15 years.

    This change will result in tax being deferred until the earliest of the remaining taxing points.

    Modernising the individual tax residency rules

    Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers. 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.

    Temporary full expensing extension

    The Government will extend this 2020-21 Budget measure for 12 months until 30 June 2023 to further support business investment and the creation of more jobs.

    Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm on 6 October 2020 and first used or installed ready for use by 30 June 2023.

    All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply.


    Reducing the eligibility age for downsizer contributions

    The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age.

    The downsizer contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional contribution caps.

    Repealing the work test for voluntary superannuation contributions

    The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test (subject to existing contribution caps).

    Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.

    Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30-day period in the relevant financial year.

    Removing the $450 per month threshold for superannuation guarantee eligibility

    The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.

    This measure will improve equity in the superannuation system by expanding the superannuation guarantee coverage for cohorts with lower incomes. The Retirement Income Review estimated that around 300,000 individuals (the majority - 63 per cent - are women) would receive additional superannuation guarantee payments each month.


    Women’s Economic Security Package

    The Government will provide $1.8 billion over five years to improve women's workforce participation and economic security. Funding includes:

    • assistance to families by reducing out of pocket costs and supporting parental choice through increasing the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and subsequent children aged five years and under in care, up to a maximum CCS rate of 95 per cent for these children, commencing on 11 July 2022
    • removing the CCS annual cap of $10,560 per child per year commencing on 1 July 2022.

    Women’s Safety

    The Government will provide $998.1 million over four years from 2021-22 for initiatives to reduce, and support the victims of, Family, Domestic and Sexual Violence (FDSV) against women and children.

    Funding includes:

    • implementation and enhancement of a range of programs and initiatives that directly support women and children who have been subjected to FDSV
    • support of programs aimed at the prevention of FDSV, to support education on consent and respectful relationships and to improve training outcomes for those who may encounter FDSV
    • further supporting services that assist vulnerable women and children to engage with the legal system, increase access to Children's Contact Services and support the development of improvements in the legal system in dealing with FDSV.


      Aged Care — Government response to the Royal Commission into Aged Care Quality and Safety

      The Government will fund a $17.7 billion whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety (the Royal Commission) to improve safety and quality and the availability of aged care services.

      This funding provides for:

    • releasing 80,000 additional home care packages over two years from 2021-22. This will bring the total number of home care packages to 275,598 by June 2023
    • providing greater access to respite care services and payments to support carers
    • supporting senior Australians to access information about aged care, navigate the aged care system and connect to services through the introduction of dedicated face-to-face services
    • improving access to primary care and other health services in residential aged care, and additional investment in digital and face-to-face assistance to make it easier to navigate the aged care system
    • introducing a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers
    • increasing the amount of front-line care (care minutes) delivered to 240,000 aged care residents and 67,000 who access respite services, by 1 October 2023. This will be mandated at 200 minutes per day, including 40 minutes with a registered nurse
    • supporting aged care providers to deliver better care and services through a new Government-funded Basic Daily Fee supplement of $10 per resident per day.


      Supporting Australians

      The Government will provide $119.9 million over four years from 2021-22 to increase Australia’s consular capability and provide additional support to vulnerable Australian citizens overseas whose return to Australia has been impacted by COVID-19 travel restrictions.


      The Government will provide $845.3 million over two years from 2020-21 to support the Government's emergency response to COVID-19. Funding includes the expansion of quarantine services in the Northern Territory. The cost of this measure will be partially recovered from people who quarantine at this facility.

      Vaccine purchases and rollout

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

      Funding includes:

    • supporting the COVID-19 Vaccination Program, including for surge workforce, general practitioners and community pharmacies to administer vaccines
    • support for COVID-19 vaccine distribution, vaccine consumables, logistics and storage.

      The Government has also entered into advance purchase agreements for an additional 30 million doses of the Pfizer BioNTech vaccine and has provisioned to purchase additional vaccine doses, including mRNA vaccines.

      The Government will provide funding to develop an onshore mRNA vaccine manufacturing capability in Australia.

      Funding includes:

    • continuing negotiations with existing manufacturers and approaching the Australian market to establish an onshore end-to-end mRNA vaccine manufacturing capability in Australia to develop COVID-19 vaccines and other potential products, such as flu vaccines
    • approaching the Australian market for a long-term sovereign mRNA manufacturing capability to establish end-to-end onshore capability.

    Not for profits

    Enhancing the transparency of income tax exemptions

    The Government will provide funding to 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.


    Just in case you were wondering about how the Government will support agricultural shows…The Government has committed to providing $4.3 million in 2021-22 to support agricultural showmen and women for the operational costs associated with their participation at agricultural shows.

    To find out more about any of the measures outlined above and how they might impact you, please contact your client relationship or trust manager directly. If your not already a client of Equity Trustees Contact Us

    This article was written by Chris Holloway, Senior Manager of our Taxation Services team.