It’s been touted a Cash Splash Budget with something for everyone and I’m sure you have already received your share of Budget analysis emails. While I might be at risk of adding to your already bulging inbox, there are a few gems amongst the rubble (pun intended) that provide some interesting reading for mining and resources business owners, executives and professionals.
Among them an unexpected dual opportunity for business owners with surplus cash who may be wanting to help their adult children get into the property market.
What we already knew
It looks like the reduction of the company tax rate from 26% to 25% from 1 July 2021 will go ahead as there was no indication in the Budget to the contrary. Similarly, there was nothing to suggest the increase to 10% for the Super Guarantee will not go ahead from 1 July either. Both items have already been legislated and business owners should factor these changes into their financial forecasts.
Employee Share Schemes (ESS)
Under current ESS rules, there is additional complexity and uncertainty for staff commonly referred to as “good leavers” (being exiting employees who are allowed to keep their ESS entitlements even after their employment ceases). This is because, where ESS interests are being assessed under the deferred taxation method, a taxing point occurs when an employee ceases employment with the ESS provider. Under current rules, all of the taxes on the ESS interests the employee has been allowed to retain post-employment are crystallised at the time their employment ceases.
These rules can be particularly onerous where there is some uncertainty as to the value of the ESS interests at the time employment ceases (e.g. where there is a company performance condition). Currently, employees are required to amend prior year tax returns to include ESS income amounts once they become known. This may occur years after they cease employment and may result in substantial unplanned tax costs.
In comparison, for continuing employees under the current rules, the deferred taxing point would typically occur when the risk of forfeiture lifts (i.e. for ESS shares) or when the underlying option is converted into shares (i.e. for ESS options). These events would normally occur at a time when the taxpayer is more easily able to convert their ESS interests into cash in order to fund their tax liability.
The Budget proposes the removal of the taxing point at the time of ceasing employment, which we believe will provide a greater level of certainty along with reducing complexity for participants in ESS schemes. It also effectively evens the playing field for employees who remain with the company, and those who depart as good leavers.
For mining and resources personnel the opportunity to take up an overseas secondment is something many aspire to obtain. However, for those with self managed superannuation funds (SMSFs), extraordinarily high taxes may apply to secondees due to a penalty tax regime that applies to SMSFs that are deemed to have become non-residents of Australia. This area is complex, but in our experience, the recommended course of action is usually to close down the SMSF prior to departure. This additional complexity and cost often takes the shine off the opportunity.
This Budget is starting the process of doing something about it. Significantly less tax exposure will put SMSFs back on the list of tax effective strategies for executives who have been given the opportunity to second temporarily overseas.
Tax Residency Rules
The Budget also acknowledges the need for modernising Australia’s complex and largely out-dated tax residency laws. This will involve the introduction of a new primary rule, that will consider an individual as an Australian tax resident if they are physically present in Australia for 183 days or more, in any income year. Secondary rules will still apply to those with more complex affairs.
This announcement is largely welcomed as a first step in simplifying an extremely complex area of law that affects all people with some level of connection with Australia.
Removal of the ‘work test’ for non-concessional contributions to super
It is expected the Work Test for older Australians 67 to 74 years of age will be scrapped from 1 July, 2022. This will allow them to continue making salary sacrifice and non-concessional (after-tax) contributions to super so they may continue to build their retirement savings. This change reflects the fact that many Australians are saving towards their retirement later into their lives.
For working Australians in that age group, the Work Test still applies to making concessional contributions. The Work Test broadly requires a taxpayer to have worked 40 hours in a 30 day period prior to making the contribution to superannuation.
For business owners…
There are not a lot of surprises for the mining and resources business sector, but still the extension of stimulus measures is very welcome.
First Home Super Saver Scheme
This is a very interesting and unexpected dual opportunity. For business owners with surplus cash, you may have an increased opportunity to help your adult children into the housing market by contributing to your adult children’s super fund balances through the First Home Super Saver Scheme. Properly arranged, we believe this should allow business owners to reduce their effective tax rates by participating in the scheme.
For your adult children, the First Home Super Saver Scheme will allow them to withdraw up to $50,000 from their super account (an increase from $30,000) to put toward purchasing their own home. In the meantime, earnings on the savings will be assessed at the concessional superannuation fund rate of 15%, as compared to higher tax rates that apply outside of super.
Immediate Asset Write-Off
The instant asset write-off has been extended to 30 June 2023 for new assets of any value. It is a valuable measure that promotes investment in capital expenditure that can be brought forward to enhance cashflow and other business outcomes. For businesses with an aggregated turnover of less than $50 million, it also applies to second hand assets.
2021 is the first year that businesses with aggregated turnover of less than $5 billion can take advantage of the loss carry-back measure. The extension announced in the budget allows losses incurred for years up to 2022-23 to be carried back to 2018-19.
The upgraded measure will uncap the number of eligible places and provide a subsidy of 50% of the wages paid to an apprentice or trainee for 12 months from their date of commencement. There is also provision for 5,000 additional places and in-training support for women commencing in non-traditional trade occupations.
Other than that…
As an accountant and tax professional, it is disappointing that there was no indication of our tax compliance system being overhauled any time soon. While it is not broken per se, it is overly complex and this complexity makes compliance expensive. In these times of e-commerce, we are still working with tax laws from the early 20th century and case law that pre-date that. It is my firm belief that a commitment by Government to wide-ranging tax reform is fundamental to Australia’s tax regime becoming fairer, less complex and internationally more competitive.
For further information and specialised advice relating to tax and business matters often unique to the mining and resources sector, please contact Craig Barry on +61 (0) 7 3007 2000 or mail email@example.com.
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