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.

TAXATION

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.

  SUPERANNUATION

  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.

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