Recovery 2021-22 Federal Budget
Tuesday 11th May 2021
Last year there were enough stimulus measures to last a generation (pun intended) and we’re back to another Budget release.
Blink at the deficit we all knew was coming and most of us whom reaped the rewards of the “over”-stimulations one way or another. Click here for the nitty gritties, we especially related to the deficit averaging $40,000 per Australian. We are proud of the Coalition’s leadership during this god-awful pandemic which could have been a lot worse for Australia. We will pay the deficit back in one fashion or another when Australia (and the travel industry) is strong enough to do so (our bet is on the increasing of GST). No use crying over spilt milk (the icky red numbers on a Balance Sheet) or worrying about winners and losers, just keep being your best you and contributing to society.
Overall attention is being paid where it belongs: health, aged care, domestic violence support, mental health and child care. The funding for the roll-out of vaccines includes administering vaccines, managing distribution and logistics, recording and monitoring data, communications and supporting each state and territory. The government might not be flagging the opening of international borders until 2022 at earliest but it wants us to be able to continue travelling, free from lockdowns, within the country in the meantime. Again, click here for the nitty gritties. We have to have faith in where Australia is at and where we’re heading.
Read on for our summary on what is changing in the sector we work in, tax and business!
- TAXPAYERS -
Affecting everyone and business owners as well, all Australians alike.
Tax Rate Changes/Cuts
The Stage 2 tax cuts and larger brackets as announced in the 2020-21 Budget are still in place. Refresher here.
The Stage 3 tax cuts are still set for 2024-25 where 95% of taxpayers will average a 30% tax rate rather than the unfair jumps. This extension of the brackets will eliminate the creep! Refresher here or click here to use a calculator to find out how much you’ll save and download the fact sheet!
LMITO (or the free $1,080 extra on your tax refund*)
The Low and Middle Income Tax Offset (LMITO) has been extended for another year until 30/06/2022 so two more years of tax returns with higher tax refunds (or lower tax bills) is up for grabs at tax time this year and next.
*Up to $1,080 per individual, depending on your taxable. Table below:
Superannuation Threshold Scrapped
Good news! No more $450 per month threshold before an employer needs to pay superannuation for their employees. $1 earned will be $ contributed in super for every employee. This is great for retirement for those on low hours or who work multiple jobs. Will be easier for the employer in the long run too, one less payroll rule to worry about.
The rate of superannuation on gross wages/salaries (OTE) is currently 9.5% and set to increase to 10% from July 2021 on its way to 12%. Read more on that exciting uptake here.
First Home Super Saver Scheme (FHSSS)
From July 2022 first home buyers will be able to release up to $50,000 (currently $30K) in eligible super contributions and its earnings to boost their deposit.
We’re all for extra super contributions but wary of withdrawals, you need to be prepared and planned for this one. Research this yourself (more info here). The housing market is in crisis/competition and enough has been taken from people’s super accounts. Think about your retirement first and seek advice!
- BUSINESSES -
Business owners need a good bookkeeper and accountant so grab a free health check with us here.
Instant Asset Writeoff
The instant asset writeoff threshold is limitless under the Temporary Full Expensing for small and medium sized business and set to stay that way for another 12 months until June 2023.
Keep on buying assets if your business can afford them but seek our advice first. You may be buying assets you don’t really need and which won’t be that tax effective for you in the bigger plan don’t waste cashflow while trying to utilise this. Your money may be better placed elsewhere!
For example, if you buy an asset for $70,000 and are a company then you’ll receive a tax deduction equal to $18,200 (26% company tax rate) which means you still need to fund the net cash outlay of $51,800 in order to acquire this asset.
Company Tax Rates Decreasing
Company tax rates are currently 26% for 2020-21. Used to be 30% then became the recently enjoyed 27.5% from 2017-18 to 2019-20.
Now 26% is set to cut again to 25% after July 2021. That’s whoppingly low.
If you know anyone who’s business turns over more than $50M, their team is stuck at 30%, plain and simple.
Loss Carry-Back Provision
Who else wanted to time travel? Let’s turn the clock back with this very interesting tax planning edge: the (Temporary) Loss Carry-Back Provision. This fruit means any losses incurred up to June 2023 can be offset against previous profits going back to the 2018-19 FY.
The Loss-Carry Back Provision means if your company was profitable before Covid, i.e. paid tax. Then began to turn bottom line losses after Covid then you can go back in time and grab that tax you paid back then and even the score.
“What does this actually mean though? Well, for example:
In FY2019 your company made a profit of say $100,000 and you paid company tax of $27,500 (27.5% rate in FY2019).
Then in FY2021, Covid hit your business hard or you invested in equipment as stimulated by the Government and turned a loss of say -$65,000 (funded by the QRIDA loan - whatever).
Options! You can either carry this loss forward to utilise against future profits as per the traditional method but maybe your business isn’t doing so well anymore and you need help now. So you can go back and crack open FY2019 and pull forward a tax offset of $16,900 (26%, tax rate in the year of the loss, on $65K of the available $100K profit we mentioned earlier). Your FY2021 is now $0 net profit, no loss to carry forward anymore.
Now when I say tax offset for this example, I mean refundable money back, $16,900 into your company bank account when your company return is prepared.
Bam! Your accountant is brilliant!”
The amount of the offset you can utilise from prior years is limited by the company’s income tax liabilities and its franking account, i.e. the profitable income tax needs to have been paid nor exhausted dividends taken.
This measure is to put previously paid tax back into the pockets of businesses and support their continued growth. Companies only it seems, sorry sole traders and trading trusts.
ATO’s details here: Loss carry back tax offset | Australian Taxation Office (ato.gov.au)
Another fun read, ABC’s Federal budget 2021: Winners and Losers - ABC News
More Info and Support
As always we are here to support and guide you through this, please contact us if you wish to discuss any of these measures further.
For support:
https://www.ato.gov.au/Media-centre/Media-releases/Support-measures-to-assist-those-affected-by-COVID-19/
All taxpayers affected by the Coronavirus outbreak can contact the ATO for assistance on the support line 1800 806 218.