FEDERAL BUDGET 2021 - an overview

This Federal budget was not very eventful but there were a few key changes announced. We have summarised the tax changes below:

LOW & MIDDLE INCOME EARNER TAX OFFSETS EXTENDED ANOTHER 12 MONTHS

When: Extended to 2022 financial year

What: As expected, the Government has announced that the low middle income tax offset (LMITO) will be extended for the 2021-22 income year. This will provide significant tax relief to individual taxpayers. In particular, low and middle income earners will receive tax relief of

up to $1,080.

The benefit will depend on a taxpayer’s taxable income. For taxpayers with a taxable income of:

• $37,000 or less – they will benefit by up to $255;

• $37,000 and $48,000 – the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080;

• $48,000 and $90,000 – they will be eligible for the maximum offset of $1,080.

• $90,000 to $126,000 – the offset phases out at a rate of 3 cents per dollar.

MEDICATE LEVY THRESHOLD INCREASE

When: From 1 July 2020

What: Increase to the Medicare levy low-income thresholds for singles, families and seniors and pensioners.

Under this measure, low-income taxpayers will generally continue to be exempt from paying the Medicare levy.

The thresholds will be increased:

• for singles – from $22,801 to $23,226;

• for families - from $38,474 to $39,167;

• for single seniors and pensioners - from $36,056 to $36,705; and

• for family seniors and pensioners - from $50,191 to $51,094.

For each dependent child or student, the family income thresholds increase by a further $3,597 (previously, $3,533).

IMMEDIATE WRITE OFF EXTENDED ANOTHER 12 MONTHS

When: Now for assets purchased & used by 30 June 2023

What: Businesses with an aggregated annual turnover of less than $5 billion will be able to claim an immediate deduction for the full (uncapped) cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:

• The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).

• The asset is a new depreciable asset or is the cost of an improvement to an existing

eligible asset, unless the taxpayer qualifies as a small or medium sized business (i.e., for

these purposes, a business with an aggregated annual turnover of less than $50 million),

in which case the asset can be second-hand.

Before you go out and buy a Ferrari - this excludes motor vehicles that are still limited to the depreciable car limit of $59,136 (2021).

FIRST HOME BUYERS

When: 1 July 2021 to 30 June 2022

What: Family Home Guarantee helping 10,000 single parents to purchase a home with a 2% deposit.

Applicants must be Australian citizens at least 18 years of age and have an annual taxable income of no more than $125,000.

And extension of the existing First Home Loan Deposit Scheme for an additional 10,000 eligible participants. This scheme guarantees up to 15% of the property purchase price for eligible first home buyers seeking to build or purchase a newly built home.

Plus another 10,000 first home buyers build a new home with a 5% deposit.

Increasing the amount that can be released under the First Home Super Saver Scheme from $30,000 to $50,000.

LOSS CARRY BACK

When: Extended to 30 June 2023

What: Losses incurred during the 2020 to 2023 years can be carried back to offset profits as far back as the 2019 year as a refundable tax offset.

CHANGES TO MINIMUM SUPER PAYMENTS

When: from 1 July 2022

What: Removal of the minimum threshold of $450 ordinary earnings before superannuation is payable. This ensures casual and part time workers are not penalised with less superannuation savings.

CHILDCARE

When: From 1 July 2022

What: Increase in the childcare subsidy to a maximum of 95 per cent for the second and subsequent children in care. It will also abolish the $10,560 annual subsidy cap for high-income earners.

SUPER CONTRIBUTIONS LIMIT FOR OVER 60's

When: from 1 July 2022

What: People aged 60 and over will be able to use some of the proceeds from the sale of the family home to increase their superannuation (maximum post-tax contributions of up $300,000 per person). Previously limited to people 65 & over.

SUPERANNUATION - REMOVAL OF THE WORK TEST

When: From 1 July 2022

What: Individuals aged 67 to 74 will no longer be required to meet the work test in order to make superannuation contributions. The work test required the person to be gainfully employed - they would be taken to be gainfully employed if they worked at least 40 hours in a period of not more than 30 consecutive days in the financial year in which the contributions are made. This work test has often proven to be an impediment to healthy Australians in their late 60s who were underfunded.

SELF EDUCATION DEDUCTIONS - REMOVAL of $250 ADJUSTMENT

When: From 1 July 2022

What: The exclusion for the first $250 of deductions for self-education expenses will be removed from the first income year after Royal Assent.

CHANGES TO RESIDENCY RULES

When: From 1 July 2022

What: Replacement of the individual tax residency rules with new primary and secondary tests to determine residency.

- a primary ‘bright line’ test — under which a person who is physically present in Australia for 183 days or more in an income year will be an Australian resident for tax purposes;

- secondary tests depending on a combination of physical presence and measurable, objective criteria — for individuals who do not meet the primary test.

*Please note that some of these measures still need to be passed through Parliament before they are introduced.*

If you have any questions please call us on 02 9030 0269.

Natalie Lennon

Founder & Director

Two Sides Accounting

02 9030 0269

www.twosides.com.au

@twosidesHQ

natalie@twosides.com.au

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