Personal Income Tax
Retaining the Low & Middle Income Tax Offset (‘LMITO’) for the 2022 Income Year
The LMITO was expected to be ceased by 30 June 2021, however the Government has announced that they will retain the LMITO for an extra income year, allowing the LMITO to carry over to the 2022 income year.
The LMITO is expected to apply as follows for the 2022 income year:
$37,000 or less
Up to $255
$37,001 to $48,000
$255 + 7.5% of excess over $37,000
$48,001 to $90,000
$90,001 to $126,000
$1,080 – 3% of excess over $90,000
Increasing the Medicare Levy Low-Income Thresholds
Consistent with prior years, the Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year as follows:
- Singles: Increased to $23,226 from $22,801
- Families: Increased to $39,167 from $38,474
- Single seniors and pensioners: Increased to $36,705 from $36,056
- Family seniors and pensioners: Increased to $51,094 from $50,191
- For each dependent child or student, the family income thresholds increase by a further $3,597 (increased from $3,533).
Modernising the individual tax residency rules
The Government has announced that they will replace the individual residency rules with a new, modernised framework. Historically the residency tests have been quite ambiguous and hard to apply. The new rules include:
- The Primary Test: A person who is physically present in Australia for 183 days or more in any income year will become an Australian tax resident.
- Secondary Tests: Individuals who do not met the primary test will be subject to the Secondary Tests that depend on a combination of physical presence and measurable, objective criteria.
It is expected these new residency rules will allow for a clear application of the residency rules going forward. These new rules will apply in the first income year after receiving Royal Assent.
Self-Education Expense Deductions
The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. This is expected to reduce compliance costs for individuals claiming self-education expense deductions.
Employee Share Schemes – removing ‘cessation of employment’ as a taxing point and reducing red tape
The Government will remove the ‘cessation of employment’ taxing point for tax-deferred Employee Share Schemes (‘ESS’) that are available for all companies. This measure aims to help Australian companies to engage and retain the talent they need to compete on a global stage, consistent with recommendations from the Global Business and Talent Attraction.
Business Income Tax
Temporary Full Expenses Extension
The Government has announced that temporary full expensing will be extended by 12 months, allowing 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 7:30pm AEDT on 6 October 2020 and first used or installed ready for us by 30 June 2023. This measure was anticipated to cease by 30 June 2022.
Temporary loss carry-back extension
Similar to the temporary full expensing measure, the temporary loss carry-back extension was anticipated to cease by 30 June 2022. The Government has announced this measure will be extended by 12 months, allowing companies with an aggregated turnover of less than $5 billion to also carry back and utilise losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income tax year.
Tax Treatment Of Qualifying Storm And Flood Grants
The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia. Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. Some of these grants include the small business recovery grants of up to $50,000 and primary producer grants of up to $75,000. These grants will be made into non-assessable non-exempt income for tax purposes.
Excise Refund Scheme for Brewers & Distillers
The Government has announced they will increase the support available to brewers and distillers with a change in the excise refund scheme. From 1 July 2021 it is expected that eligible brewers and distillers will be able to receive a full remission (up from 60%) of any excise they pay, up to a cap of $350,000 (increased from $100,000) per financial year.
Removing The Work Test For Voluntary Contributions
Individuals aged 67-74 years (inclusive) will now be able to make or receive non-concessional contributions (including accessing the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps. The Government intends for this to be in effect in the first income year after receiving Royal Assent. Removing the requirement of meeting the work test enables older Australian to continue to save for their retirement through superannuation.
Reducing the Age Limit for Downsizer Contributions
A measure introduced in prior budgets, the Downsizer Contributions will see the age limit reduced to 60 years of age (down from 65) to enable more Australians to gain access to this one-off, after-tax contribution to their superfund. There are eligibility requirements in addition to your age to access this measure (as per previous announcements). This measure will have effect from the start of the first income year after receiving Royal Assent. The Government expects this to have occurred prior to 1 July 2022.
Removing the $450 per month threshold for Superannuation Guarantee
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.
The measure will have effect from the start of the first income year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
Relaxing Residency requirements for Self-Managed Superannuation Funds (‘SMSFs’)
Residency rules are expected to relax with the Government:
- Extending the central control and management test safe harbor from two to five years for SMSFs; and
- Removing the active member test for both types of funds
Expected to have effect from the first income year after Royal Assent (expected to be prior to 1 July 2022), this measure aims to allow SMSF members and small APRA fund members to continue to contribute to their superannuation fund whilst temporarily overseas ensuring parity with members of large APRA regulated funds.
Changes to the First Home Super Saver (‘FHSS’) Scheme
Expected to have effect from the first income year after Royal Assent (expected to be prior to 1 July 2022), this measure will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the FHSS scheme from $30,000 to $50,000. This measure continues to aim to assist first home buyers in raising a deposit more quickly.
In summary, there aren’t too many unexpected surprises from the 2021-22 Federal Budget from a tax point-of-view. It is probably one of the least tax-heavy budgets that we have seen over the recent years, with a large portion of this year’s budget focusing more on the ‘big picture’ aspects of Australia which is covered by Tim O’Brien here.
As always, some of the measures noted above do not come into effect until they have received Royal Assent (i.e. made their way through Parliament), so it is best to speak to your adviser on how the timing of these measures may impact you and your tax circumstances. Please feel free to talk with our team at BLG Business Advisers for more information and advice to help you out.
We wish you and your business every success!