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Federal Budget 2021 

 

The new federal budget was released on 11 May 2021. Here are some highlights.

 

Changes affecting individual taxpayers:

  

Extending the Low and middle income tax offset

The Government will extend the Low and middle income tax offset until 30 June 2022. Under current legislation, it would be removed from 1 July 2021.

 

The calculation of the offset benefit depends on the taxable income. Taxpayers with taxable income less than $126,000 will be eligible to receive this tax offset. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible to the maximum offset of $1,080.

 

Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low income thresholds as follows:

 

• The single threshold will be increased from $22,801 to $23,226.

• The family threshold will be increased from $38,474 to $39,167.

• The single threshold for seniors and pensioners will be increased from $36,056 to $36,705.

• The family threshold for seniors and pensioners will be increased from $50,191 to $51,094.

 

For each dependent child or student, the family income thresholds will increase by a further $3,597 instead of $3,533.

 

Simplifying the individual tax residency rules

The primary test will be a simple bright line test where a person who is physically present in Australia for 183 days or more in any financial 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. These include the right to reside in Australia, Australian accommodation, Australian family and Australian economic connections.

 

Reducing the compliance costs for self-education deductions

The Government will remove the exclusion for the first $250 of deductions for prescribed courses of education. Currently, the first $250 of expenses relating to prescribed course education is not deductible.  

Removing the cessation of employment as a taxing point for Employee Share Schemes

The Government will remove the cessation of employment taxing point for tax deferred Employee Share Schemes. Currently, under Employee Share Schemes, employees may defer tax until the earliest of:

 

• Cessation of employment

• In relation to shares, when there is no risk of forfeiture and no restrictions on disposal

• In relation to options, when the employee exercises the option and there is no risk of forfeiture and no restrictions on disposal

• Maximum period of 15 years  

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Changes affecting businesses:

 

Extending the temporary full expensing immediate deductions

The Government has announced that it will extend the full expensing immediate deductions until 30 June 2023.

 

Businesses with an aggregated turnover of less than $5 billion will allow to claim immediate deduction for the full cost of eligible depreciable assets of any value purchased after 6 October 2020 and first used or installed ready for use by 30 June 2023.

 

Extending the temporary loss carry-back extension

The extension will allow companies with an aggregated turnover of less than $5 billion to carry back and use tax losses from the 2020 to 2023 financial years to offset tax paid on profits from the 2019 financial onwards.

 

Accordingly, tax losses for the financial years 2020, 2021, 2022 or 2023 can either be carried forward and deducted against income derived in later income years; or carried back against taxed profits of the financial year 2019 onwards to produce a refundable tax credit.

 

Removing the $450 per month threshold for Superannuation Guarantee

The Government will remove the current $450 per month minimum salary/wages threshold, under which employees do not have to be paid superannuation contributions by their employers.

 

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

 

Self-assessing the effective life of intangible depreciating assets

The Government will allow taxpayers to self-assess the effective lives of eligible intangible depreciating assets such as patents, registered designs, copyrights and in-house software. This will apply to assets acquired from 1 July 2023 onwards after the temporary full expensing deduction measure is finished. Currently, the effective lives for intangible depreciating assets are set by the legislation.

 

 

Changes affecting superannuation:

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Removing the work test for 67 and 74 years making superannuation contributions

The Government will allow individual aged 67 to 74 years to make or receive non-concessional contributions including bring-forward and salary sacrifice contributions without meeting the work test, subject to the contribution caps.

 

Individuals aged 67 to 74 years will still need to meet the work test to make personal deductible concessional contributions.

 

Currently, individuals aged 67 to 74 years can only make voluntary contributions both concessional and non-concessional to their superannuation fund or receive contributions from their spouse if they satisfy the work test. In general, to satisfy the work test, an individual must be working for at least 40 hours over a period of not more 30 consecutive days.

 

Reducing the age limit for downsizer contributions

The Government will reduce the age limit from which downsizer contributions can be made from 65 to 60 years of age.

 

The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to

their superannuation fund, of up to $300,000 per person, after the disposal of an eligible

dwelling, when certain conditions are satisfied. Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution, for the contribution to qualify as a downsizer contribution.

 

Relaxing the residency requirements for Self-managed Superannuation Funds

The Government will relax residency requirements for SMSFs and small APRA regulated funds by extending the central control and management test from two years to five years for SMSFs and removing the active member test for both types of funds.

 

These will allow SMSF members and small APRA fund members to make contributions to their superannuation funds while they are in overseas temporarily.

 

Increasing the maximum releasable amount to $50,000

The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver (FHSS) from $30,000 to $50,000 to assist first home buyers. An eligible individual can apply to have a maximum of $15,000 of their voluntary contributions from any one financial year from 1 July 2017 included in the eligible contributions to be released under FHSS.

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Vincent Wan

CPA, Registered Tax Agent

May 2021