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2021: End of year wrap

For an unforeseen second year of further outbreaks, the COVID-19 pandemic has challenged and disrupted us. As the working year draws to a close, this article reflects on what has been achieved from a tax policy and administrative perspective and what remains outstanding as we head into an election year.

Insights Robyn Jacobson, The Tax Institute 22 December 2021
— 9 minute read

Commonly, though incorrectly, credited with the words “Life is what happens to you when you’re busy making other plans”, the great John Lennon made the words famous in his 1980 song Beautiful Boy.

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We thought there was light at the end of the 2020 tunnel; it turned out to be the light of an oncoming train in the form of the highly contagious and serious Delta variant of the COVID-19 virus. The health directives in response to the spread of Delta particularly in NSW and Victoria led to extended lockdowns, the economic impact of which will be felt for years to come. While the Commonwealth and state governments continue to provide financial assistance, affected businesses nationally are assessing and mopping up the damage done from extended closures as they reopen and turn their attention to 2022.

Now that more than 90 per cent of the Australian population aged 16 and over have now been fully vaccinated, and over 93 per cent have had their first dose, let us collectively hope that the beam we now see as 2021 closes is indeed the light at the end of this long and tiring tunnel.

The global spread of COVID-19 has, according to the World Health Organization at the time of writing, infected nearly 272 million people. This time last year, I reported in this column that nearly 66 million people globally had been infected. In this same period, Australia has jumped from fewer than 30,000 cases to nearly 239,000 cases since the start of the pandemic.

Economic response to the pandemic and how the professional bodies helped you and your clients

The total Commonwealth pandemic support to date is $337 billion (16.3 per cent of GDP), with direct economic and health support of $25 billion committed during the Delta outbreak. This includes more than $7.3 billion in business support payments and $12.6 billion in payments to individuals through the Commonwealth COVID‑19 Disaster Payment.

This financial support is, of course, distinct from that provided by the state and territory governments, the most significant of which was the NSW government’s commitment to the JobSaver program. The design, implementation and tapering of the program benefitted from weekly engagement meetings between the NSW government and the professional bodies working group, represented by The Tax Institute, Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants. Having been extensively involved throughout 2020 with the Commonwealth’s JobKeeper program, the bodies were well-placed to advise and assist the NSW government for the duration of the lockdowns. Issues of concerns were able to be escalated and resolved; this led to more effective guidance for those businesses drawing on the financial support.

What does MYEFO tell us about the state of the budget?

The effectiveness of the Commonwealth’s economic response has most recently been measurable with the release of the Mid‑Year Economic and Fiscal Outlook 2021–22 (MYEFO) on 16 December 2021. The MYEFO provides a mid-year assessment of how the Federal Budget 2021–22 is tracking since it was released on 11 May 2021. The Treasurer, the Honourable Josh Frydenberg MP, announced that Australia has performed more strongly than any major advanced economy throughout the pandemic, and the federal government is committed to securing Australia’s strong recovery from the greatest economic shock since the Great Depression.

The underlying cash balance for 2021–22 is expected to be a deficit of $99.2 billion (4.5 per cent of GDP), a $7.4 billion improvement since the Federal Budget 2021–22. The improvement in the forecast budget balance for 2021–22 has flowed through to an improved debt outlook, which is projected to be lower in every year of the forward estimates than what was expected in May. The gross debt for 2021–22 is forecast to be $919 billion instead of $963 billion and $1.017 trillion instead of $1.058 trillion for 2022–23.

What happened this year in tax?

Notable tax policy and administrative developments this year include, but are not limited to:

  • Loss carry back: This refundable tax offset became available for companies to claim in their 2021 tax returns, based on converting their 2019–20 or 2020–21 loss to a tax paid equivalent and applying this against their tax paid on profits for 2018–19, 2019–20 or 2020–21. The measure continues for 2021–22 and is proposed to be extended for 12 months to also include 2022–23.
  • NANE income status for certain COVID-19 support payments: Various Commonwealth legislative instruments were registered that treat some Commonwealth and state and territory government payments as non-assessable non-exempt (NANE) income. Be sure to check the status of payments at this Australian Taxation Office (ATO) webpage as not all government support payments are tax-free. The general rule of thumb is that payments should be treated as taxable unless they are specifically exempted. Do not assume these are tax-free.
  • SMSF maximum membership: The maximum number of members in SMSFs and small Australian Prudential Regulation Authority (APRA) funds was increased from four to six on 1 July 2021.
  • SuperStream: Since 1 October 2021, it has been mandatory for self-managed superannuation funds (SMSF) to use SuperStream for rollovers (SuperStream Rollover v3) for transfers to or from an SMSF, and optional for digital release authorities. This extends SuperStream beyond reporting contributions and APRA funds. While electronic service addresses (ESAs) are currently available from commercial SMSF messaging providers, Australia Post is not expected to come online as an ESA provider before February 2022.
  • Stapled superannuation funds: On 1 November 2021, it became mandatory for employers to check if their new employees have an existing “stapled” superannuation account that will follow them when they change jobs. Employers must now pay SG contributions into new employees’ existing stapled superannuation accounts advised by the ATO unless the employee nominates a different account.
  • Director ID: The introduction of the director identification number (director ID) regime from November 2021 requires all directors to confirm their identity by applying for a director ID. Different transitional rules apply depending on when you become or become a director, so be sure to check by when you or your clients need to apply for the 15-digit unique identifier. Steep penalties can apply if a director fails to obtain one when required to do so.

What’s in the pipeline?

The following key measures are progressing as bills before Parliament but are not yet law:

  • $250 education expenses threshold: This measure will repeal the $250 non-deductible threshold for work-related self-education expenses.
  • $450 superannuation guarantee (SG) threshold: The $450 per month income threshold, below which employers do not have to pay SG, will be repealed. The measure will likely take effect from 1 July 2022.
  • Work test: The work test will no longer apply to individuals aged between 67 to 75 years who make non-concessional and salary sacrifice contributions. The measure will take effect from 1 July 2022.
  • Temporary full expensing: Eligible businesses can currently fully expense eligible depreciating assets that are first held and used or installed ready for use by 30 June 2022. The measure will be extended by 12 months until 30 June 2023.

The following key measures have been announced but are yet to be introduced as bills into Parliament:

  • Corporate tax residency: Proposed changes to these rules, adopting the key recommendation of the Board of Taxation, were announced on 6 October 2020 as part of the federal budget 2020–21.
  • Individual tax residency: Proposed changes to these rules, adopting the key recommendations of the Board of Taxation, were announced on 11 May 2021 as part of the federal budget 2021–22. The measures will introduce a 183-day bright line test and a secondary (four-factor) test).
  • Digital games tax offset (DGTO): This measure was announced on 11 May 2021 as part of the federal budget 2021–22. The measure will introduce a 30 per cent refundable DGTO for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. The government announced in the MYEFO that the DGTO will be expanded from 1 July 2022 to include qualifying expenditure on eligible games following their public release.
  • SMSF residency rules: Relaxed residency requirements will allow SMSF and small APRA-regulated fund members to continue to contribute to their superannuation fund while temporarily overseas.

What’s around the corner?

Let’s take a glimpse at what 2022 holds for the profession. The key issues that will feature on the landscape in the early part of 2022 include the following:

  • Single Touch Payroll Phase 2: STP Phase 2 broadens the amounts that employers are required to report under the STP rules, including greater detail of salary and wage payments, and child support deductions and garnishee amounts made by employers. It becomes mandatory from 1 January 2022 if your solution is ready. If your solution is ready and you can start Phase 2 reporting before 1 March 2022, you’ll be considered to be reporting on time and you won’t need to apply for more time. Deferrals are automatically available to clients of digital service providers who obtain deferrals. However, if you need more time to transition, you can apply for your own deferral.
  • Division 7A: In early 2022, the ATO is expected to release a package of guidance on Division 7A of Part III of the Income Assessment Act 1936 (ITAA 1936) (about loans from private companies to shareholders and their associates). The guidance is expected to update the current guidance on unpaid present entitlements (UPEs) including TR 2010/3, PS LA 2010/4 and PCG 2017/13. The ATO guidance is separate from the pending legislative reforms to Division 7A announced by Treasury in 2016, which are proposed to apply from the first income year commencing on or after Royal Assent of enabling legislation.
  • Section 100A: In early 2022, the ATO is also expected to release their long-awaited guidance on section 100A of the ITAA 1936 (about trust reimbursement agreements). The guidance – which will take the form of a new tax ruling and a practical compliance guideline – will set out the ATO’s understanding of the operation of section 100A, transitional rules and when the exception in section 100A for ordinary family and commercial dealings applies.
  • Allocation of professional practice profits: Although the ATO’s long-awaited final position on the allocation of professional firm profits was released on 16 December 2021 in the form of PCG 2021/4 (PCG), the date of effect of the PCG has sensibly been deferred to 1 July 2022. This affords professional practices additional time to digest the guidance and ensure they understand their risk profile. It’s important to note that the PCG will apply to all professional firms; not only accountants and lawyers. It will also affect those providing services in the architectural, engineering, financial services, medical, management consulting and other similar professions. A PCG is not an interpretation of the law by the ATO. It is a document that sets out how the ATO will apply its compliance resources to arrangements they consider to be high risk. The PCG does not replace, alter or affect the operation of the law in any way. It provides taxpayers with a risk rating based on the various features of their arrangement.

Inspector-General of Taxation and Taxation Ombudsman (IGTO) reviews

The IGTO is currently investigating:

  • the ATO’s administration and management of objections;
  • the exercise of the ATO’s General Powers of Administration (GPA); and
  • the exercise of the commissioner’s remedial power.

Tax reform, the 2022–23 budget and the election

In July 2021, The Tax Institute released its ambitious endeavour, a 287-page paper to prompt discussion for the future of Australia’s tax and transfer system, The Case for Change.

The Tax Institute continues to prosecute The Case for Change and undertake further stakeholder engagement. This paper has positioned The Tax Institute as the thought leader when it comes to tax, and that ongoing thought leadership activity will continue throughout 2022.

The media often frames changes and reforms in terms of winners and losers. We need to desist from doing this and start approaching tax reform sensibly and constructively. We need to ready the community for change and encourage governments to have the political courage to bring about change. Our government should be approaching tax reform holistically in an apolitical manner, rather than continuing to make bandaids fixes and kneejerk reactions that are politically motivated.

It would be refreshing yet surprising if the Commonwealth government commits to tax reform leading up to the 2022 federal election. However, both major parties have a golden opportunity to create and sell their vision to the electorate as part of their 2022 campaigning.

The federal budget 2022–23, scheduled for Tuesday, 29 March 2022, will presumably contain a few electoral sweeteners but little that resembles structural reform of the tax system.

Final comment

The year 2022 will no doubt be another busy year in tax but, hopefully, one that allows more time and space to breathe than the past two years.

In this column last year, I acknowledged the Herculean effort of the profession as it rallied and rose to the occasion throughout 2020 to support clients and the Australian community in unprecedented ways. What surpasses Herculean in describing the profession’s efforts in 2021? The profession is weary, fatigued and, frankly, exhausted.

So lower your laptop lids, change your Zoom and Teams status to offline, and venture out to enjoy some warm summer days with your family and friends again. Recharge, relax and reward your hard efforts this year with some time out.

I wish all our members, the profession and the readers of this column a safe and relaxing festive season. This column will return in the new year.

Robyn Jacobson is the senior advocate at The Tax Institute. 

2021: End of year wrap
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Emma Ryan

Emma Ryan

Emma Ryan is the deputy head of content at Momentum Media and editor of the company's legal publication, Lawyers Weekly.

Emma has worked for Momentum Media since 2015 and has been responsible for breaking some of the biggest stories in corporate Australia. In addition, she has produced exclusive multimedia and event content related to the company's respective brands and audiences.

A journalist by training, Emma has spent her career connecting with key industry stakeholders across a variety of platforms, including online, podcast and radio. She graduated from Charles Sturt University with a Bachelor of Communications (Journalism).

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