Key changes to tax, super & government funding that commenced on 1 July 2021

Some key changes in taxation and superannuation arrangements come into effect this new financial year following announcements made in the 2021/22 Federal budget.

This article contains key highlights and developments that will impact on Australian small to medium business, NFP and individual taxpayers.

Tax for small to medium businesses

Company tax reduced

FY22 company tax for base rate entities will be reduced to 25% (currently 26%).

Extension of temporary full expensing

Temporary full expensing will be extended by 12 months 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 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.

Extension of temporary loss carry-back

The loss carry-back measure will be extended to allow eligible companies (aggregated turnover of less than $5 billion) to also carry back (utilise) tax losses from FY2023 to offset previously taxed profits as far back as FY2019 when they lodge their tax return for FY2023. The tax refund available under this measure is limited by current law requirements. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Self-assessing the effective life of intangible depreciating assets

As part of the government’s digital economy strategy, the Government will allow taxpayers to self-assess the tax-effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software acquired from 1 July 2023.

Super rate changes

One previously announced major change is the rise in super guarantee, from 9.5% to 10% commencing 1 July 2020. The minimum super rate will increase progressively to 12% by July 2025, see the ATO website for details.

Tax for NFPs

Tax exempt status reduced

From 1 July 2023, non-charitable not-for-profits (NFPs) with an active Australian Business Number, including peak bodies and sporting clubs, will be required to provide information to the ATO on how they have self-assessed their eligibility for income tax exemptions.

Aged Care home care packages increase and CHSP extension

80,000 new home care packages – 12,00 for Level 4, the rest for levels 1–3 will be released over the next two years, bringing the total number available to 275,000 by June 2023. To prepare for these future reforms, Commonwealth Home Support Programme (CHSP) grant agreements will be extended for one year from 1 July 2022 to 30 June 2023, with most CHSP providers transitioning to payment in arrears.

NDIS – watch this space

An extra $13.2 billion will be provided to the NDIS scheme over four years. The government has flagged future reform, as NDIS spending may soon dwarf federal spending on Medicare.

Tax for individuals

Individual tax rates

Individuals will be taxed at the following rates:

Up to $100k = 25%

From $120k = 26.6%

From $180k = 30.7%

From $300k = 36.4%.

Low and Middle Income Tax Offset stays for FY22

Consistent with current arrangements, the Low and Middle Income Tax Offset (LMITO) will be applied when individuals lodge their tax return for 2021.

Modernising the individual tax residency rules

A person who is physically present in Australia for 183 days or more in any income year will be classed as 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.

Self-education expenses

The exclusion of the first $250 of deductions for prescribed courses of education has been removed.

First Home Saver Scheme increased

The First Home Saver Scheme will be increased to $50k.

Depreciation expenses

Full expensing has a 30 June 2023 end date and lives of eligible intangible depreciating assets can be self-assessed.

Temporary loss carry-back

Taxpayers can carry back tax losses made in the 2020, 2021, 2022 and/or 2023 income years to claim a refund of tax paid (by way of a tax offset) in relation to as early as 2019.

Super changes

The $450 per month threshold for SG eligibility has been removed – from 1 July 2022. The work test will remove up to 74 years of age for non-concessional and salary sacrifice amounts. Individuals will temporarily be able to exit specific legacy retirement products and ability and convert to a more contemporary product.

As noted above, this financial year employees will receive a minimum super guarantee contribution rate of 10%.

Hopscotch Accounting will be working with our clients to provide advice and implement changes that come into place from 1 July. If you would like to speak with us about any of the issues raised in this article, please get in touch.

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