Good to Great: How to Scale With an Outsourced CFO

The 2021-22 Budget has been released and the following is a summary of key items that are relevant to Altus clients. While there was a large focus on Aged Care following the Royal Commission, there were a number of items targeting small business and individuals. Not upfront cash splashes, but extensions of programs to drive spending, retirement saving and innovation; and a focus on positioning Australia as an innovation hub attractive to overseas talent.

Of interest to a number of clients may be what was missing. No increases to super contribution thresholds, no updates on proposed Division 7A changes (not a bad thing for some it is still delayed) and no targeted support to industries affected by extended border closures (event/exhibition industry, international executive services, etc).

A number of the superannuation and innovation items are forward dated to start 1 July 2022 or 2023 and as always, now we wait for legislation and Royal Assent for the proposals to kick in.

We’ve summarized key items under the following headings:

• Superannuation
• Small Business
• Innovation and the Digital Economy
• International and Expats

 

Superannuation

First Home Super Saver Scheme — increasing the maximum releasable amount to $50,000

What is it?

There will be an increase in the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. The increase in maximum releasable amount will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022. 

What does it mean?

For youth in Sydney, in particular, looking to buy their first home, this can be a way to accelerate saving for a deposit. The increase to $50,000 is more in line with 10% of a deposit on a Sydney unit and may be an alternative to supplement the bank of Mum and Dad.

Flexible Super — reducing the eligibility age for downsizer contributions

What is it?

The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. 

What does it mean?

Individuals can downsize sooner to relocate and boost super balances for retirement planning and saving.

Flexible Super — repealing the work test for voluntary superannuation contributions

What is it?

Individuals aged 67 to 74 years (inclusive) will be allowed 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. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

What does it mean?

A relaxing of restrictions for older Australians to make contributions into superannuation for more tax-effective investment earnings for retirement.

 

Small Business

Increased powers for the Administrative Appeals Tribunal in relation to small business taxation decisions

What is it?

The Government will extend the power of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action in relation to disputed debts that are being reviewed by the Small Business Taxation Division (SBTD) of the AAT. This measure will take effect from the date of Royal Assent of the enabling legislation.

What does it mean?

Small business entities that file an application in relation to tax matters before the SBTD of the AAT on or after the commencement date will be able to apply for a pause or modification of the Commissioner’s debt recovery actions, until the underlying dispute has been decided by the AAT. This measure will provide an avenue for small businesses to ensure they are not required to start paying a disputed debt until the matter has been determined by the AAT.

Removing the $450 per month threshold for superannuation guarantee eligibility

What is it?

Removal of the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

What does it mean?

Casual or other workers who would earn under $450 will now receive superannuation. More certainty on superannuation payments and obligations and reduction of inadvertent underpayment of superannuation for employers.

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

What is it?

Retention of the low and middle-income tax offset (LMITO) for the 2021-22 income year, providing a reduction in tax of up to $1,080. 

What does it mean?

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. Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080. For taxable incomes of $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.

Temporary full expensing extension

What is it?

An extension of the temporary ability to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

What does it mean?

Immediate deductions of capital assets acquired by businesses. Where significant acquisitions are made, tax instalments should be varied to get a more immediate cash impact to the business. Further, the reduction in tax payable would affect franking accounts so forward planning should be made for the impact on tax on dividends for Division 7A minimum repayments or cash draws for personal expenditure.

Temporary loss carry-back extension

What is it?

An extension of the temporary loss carry-back allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return. 

What does it mean?

The loss carry-back regime provides eligible companies earlier access to the tax value of losses by refunding previous tax paid. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Building Skills for the Future — Boosting Apprenticeship Commencements wage subsidy — expansion

What is it?

An additional $2.7 billion over four years from 2020-21 will be provided to expand the Boosting Apprenticeship Commencements wage subsidy to further support businesses and Group Training Organisations to take on new apprentices and trainees. 

What does it mean?

From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee's wages of up to $7,000 per quarter for 12 months.

SME Recovery Loan Scheme

What is it?

The Government will provide participating lenders with a guarantee for 80 per cent of secured or unsecured loans of up to $5 million for a term of up to 10 years and with interest rates capped at 7.5 per cent, with some flexibility around variable rate loans. 

To be eligible, SMEs, including self-employed individuals and non-profit organisations, will have a turnover of up to $250 million and have been either: 

• recipients of the JobKeeper Payment between 4 January 2021 and 28 March 2021. 
• located or operating in a local government area that has been disaster declared as a result of the March 2021 New South Wales floods and were negatively economically impacted. 

What does it mean?

Loans can be used by SMEs for a broad range of business purposes, including to support investment and refinancing existing loans. Lenders will be able to offer borrowers a repayment pause of up to two years.

Innovation and the Digital

Economy

Patent Box — tax concession for Australian medical and biotechnology innovations

What is it?

A patent box tax regime to further encourage innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17 per cent, with the concession applying from income years starting on or after 1 July 2022.

The patent box will apply to income derived from Australian medical and biotechnology patents. The patent box tax regime may be extended to the clean energy sector. 

What does it mean?

Australia currently taxes profits generated by patents at the headline corporate rate (30 per cent for large businesses and 25 per cent for small to medium enterprises from 1 July 2021). The patent box will offer a competitive tax rate for profits generated from Australian owned and developed patents. 

This would remove the need for businesses to look to transfer patent rights offshore (ie Singapore, Hong Kong, etc) for reduced taxation on these assets to fund international growth.

Digital Economy Strategy — self-assessing the effective life of intangible depreciating assets

What is it?

Self-assessment of the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in- house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.

What does it mean?

For assets such as copyrights with a prescribed life that may be longer than the useful life, businesses can depreciate the asset over a shorter time frame to align with the period income will be earned from the asset.

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

What is it?

Removal of the cessation of employment taxing point for the tax- deferred Employee Share Schemes (ESS) that are available for all companies. This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.

What does it mean?

Where an employee with an ESS interest leaves their employer, this will no longer trigger tax. This is beneficial for employees with ESS interests that have not been issue under the start-up concessions.

Digital Economy Strategy

What is it?

The Government will provide $1.2 billion over six years from 2021-22 (including $127.7 million in capital funding over two years from 2021-22) for the Digital Economy Strategy, to support Australia to be a leading digital economy and society by 2030. 

What does it mean?

The Digital Economy Strategy includes support for the following priorities:

Enhancing our Artificial Intelligence (AI) capability:

• $53.8 million over four years from 2021-22 to create a National AI Centre and four AI and Digital Capability Centres to drive and support small and medium enterprises (SMEs) to adopt and use transformative artificial intelligence technologies. 
• $33.7 million over four years from 2021-22 to provide grants to businesses to work with the Government to develop AI based solutions to solve national challenges.

Investment incentives: 

• $18.8 million over four years from 2021-22 for a Digital Games Tax Offset to provide a 30 per cent refundable tax offset for qualifying Australian digital games expenditure ongoing from 1 July 2022, with the criteria and definition of qualifying expenditure to be determined through industry consultation.

 

International and Expats

Modernising the individual tax residency rules

What is it?

Replacement of 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. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation. 

What does it mean?

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 new framework is intended to be easier to understand and apply in practice, deliver greater certainty, and lower compliance costs for globally mobile individuals and their employers.

Self-managed Superannuation Funds — relaxing residency requirements

What is it?

Relaxation of residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.

The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. 

What does it mean?

This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds. This will provide SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities.