Federal Budget 2021: Relief on tax as they roll out the vax

11 May 2021

Treasurer Josh Frydenberg has delivered his third Federal Budget, which aims to chart the course for further economic recovery.

Mark Molesworth, Tax Partner at BDO in Australia said the Government had focused on providing ‘relief on tax as they roll out the vax’.

"The economy is unexpectedly in better shape with stronger employment figures, consumer confidence and commodity prices combining to put us in a good position, especially in comparison to other countries," Mark said.

"Tonight’s key tax announcements were: tax relief for low and middle income earners and small and medium businesses; a focus on women and on attracting global talent to Australia to help us capitalise on the enviable position we’ve found ourselves in.

"However, the story of the night is the new spending. The Government has clearly decided to go hard in priming the economy and prioritising spending in what it sees as key areas such as aged care, family and domestic violence prevention and childcare."

Key Announcements

Small and Medium Businesses:

  • The Government is supporting business investment by extending temporary full expensing for an additional year. Businesses with turnover less than $5 billion and companies with income less than $5 billion will be able to claim an immediate deduction for the capital costs associated with the purchase of depreciable assets to 30 June 2023.
  • They are also supporting business by extending temporary loss carry-back for an additional year. Companies with turnover less than $5 billion will be able to write off COVID-19-induced losses against previous taxed profits to the 2022-23 income year.

Tax Cuts for Low and Middle Income Earners:

  • The Low and Middle Income Tax Offset (LMITO) has been extended until the end of next financial year (2021-22) - with a one-off tax offset worth $1,080 to those earning from $48,000 to $90,000.

Attracting Global Talent:

  • Tax will no longer be payable on employee share schemes when an employee leaves the business.
  • Changes to the tax treatment of foreign investors and financial service providers.
  • A new ‘bright line’ primary test to allow a person to be deemed an Australian tax resident if physically present in Australia for a minimum of 183 days in a year.

A Focus on Family:

  • A boost to childcare with a $1.7 billion scheme to remove childcare subsidy cap for higher income earners and increase subsidies from 65% to 95%, for families with 2 or more children.

Superannuation:

  • Continuation of the near term superannuation guarantee increases – which will rise to 10 per cent on 1 July.
  • Removal of the $450 per month threshold on Super and enforcing superannuation payments on paid parental leave, to help women maximise their retirement savings.

Encouraging Innovation in Medical and Biotechnology:

  • A new patent box regime, starting on 1 July 2022, to give tax breaks to income made from Australian medical and biotechnology inventions. Income earned from Australian-developed and registered patents will be taxed at a concessional tax rate of 17 per cent from July next year, almost half the 30 per cent corporate tax rate.

Cheer for Brewers:

  • Small brewers and distillers (around 1,000) will receive full excise refunds with a cap of $350,000, from 1 July. The refund is up from 60 per cent, to 100 per cent, and more than triples the cap to $350,000, up from $100,000, in line with the Wine Equalisation Tax (WET) Producer Rebate.