2021 Budget Summary
Personal Income Tax Cuts
The Government continues its Personal Income Tax Plan with the announcement of a number of measures targeted towards low and middle-income earners. This will provide immediate relief to individuals and support economic recovery by boosting consumer spending.
Retaining the Low and Middle Income Tax Offset
The coalition has again extended the low and middle income tax offset (LMITO) for a further year to the 2021-22 income year. The LMITO provides a reduction in tax of up to $1,080 for those earning less than $90,000 and will be received on assessment after individuals lodge their tax return.
Increasing the Medicare Levy Low-Income Thresholds
In addition, the Government will also increase the Medicare Levy low-income thresholds. This will apply to singles, families, and seniors and pensioners from 1 July 2020 to account for recent movements in CPI. The thresholds will increase as follows:
Singles - $22,801 to $23,226
Families - $36,056 to $36,705
Seniors and pensioners - $36,056 to $36,705
Family threshold for seniors and pensioners - $50,191 to $51,094
Self-education expense deductions
The Government will also remove the exclusion for the first $250 deduction for prescribed courses of education. The first $250 of expenses relating to prescribed course education is currently not deductible. The measure aims to reduce compliance costs for individuals claiming self-education expenses.
Depreciation: Temporary Full Expensing
The Government has announced a 12 month extension to the temporary full expensing measures until 30 June 2023. These measures initially announced as part of the previous budget, provide eligible businesses with an immediate deduction for the full cost of depreciating assets.
Under the current law, eligible businesses with aggregated turnover of less than $5 billion are entitled to an immediate deduction for the cost of depreciating assets purchased after 7:30pm AEDT on 6 October 2020, and first used or installed ready for use by 30 June 2022.
Extension of the Loss Carry Back Rules For Companies
The Government has announced an extension to the temporary loss carry-back rules announced in the 2020 Federal Budget. This extension will allow eligible companies to carry back and use tax losses from the 2022-23 income year to offset tax paid on profits from the 2019 and subsequent income years. This refund of tax paid in previous income years when a loss is incurred in a later year is described as a ‘loss carry-back’.
Currently, companies with an aggregated turnover of less than $5 billion may only carry-back losses incurred in the 2020-2022 income years to the 2019 income year onwards. Companies that do not elect to use the loss carry-back rules will continue to carry forward losses as normal. The extension of the loss carry-back provisions will provide further support to companies for an additional year.
Extension of Powers for the Administrative Appeals Tribunal in Relation to Small Business Taxation Decisions
The Administrative Appeals Tribunal (AAT) will be given the power to pause or modify ATO debt recovery action in relation to disputed debts under review by the AAT’s Small Business Taxation Division (SBTD). The measure applies to tax debts disputed by small businesses with annual turnover of less than $10 million.
Self-Assessed Effective Lives for Intangible Assets
Currently, the effective lives for intangible depreciating assets such as patents, registered designs, copyrights and in-house software are prescribed in the tax legislation. Unlike tangible depreciating assets, taxpayers do not currently have the option of self-assessing the effective life of intangibles and thereby increasing their depreciation deductions.
This measure allows taxpayers to self-assess the effective lives of eligible intangibles giving businesses a greater ability to align the tax treatment with the actual economic benefits provided from the asset. The new rules will apply from 1 July 2023 (after the temporary full expensing measures cease).
Easing of Restrictions Around Superannuation
From 1 July 2022 Australians will no longer need to meet the work test to be eligible to make non-concessional superannuation contributions and receive salary sacrifice contributions.
Individuals aged 67-74 years will still have to meet the work test to make personal deductible contributions.
From 1 July 2022, Australians over 60 years of age will be eligible to make downsizer contributions. Previously the downsizer contribution was limited to Australians over age 65.
Superannuation Guarantee Eligibility Threshold Removed
The Government is proposing to remove the $450 per month minimum income threshold which determines whether employees have to be paid the superannuation guarantee by their employer. This will begin from the first financial year after the proposed legislation receives Royal Assent.
Superannuation Guarantee Increase
The superannuation guarantee is currently 9.5%, but will increase on 1 July 2021 to 10%.
First Home Super Saver Scheme (FHSSS) Changes Aimed To Increase Uptake
The Government has continued its commitment to reducing pressure on housing affordability for aspiring first home owners through the First Home Super Saver Scheme (FHSSS). In the latest change to the scheme, the maximum releasable amount of voluntary concessional and non-concessional contributions has been increased from $30,000 to $50,000.
Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per annum will apply towards the total amount able to be released. This increase will apply from the start of the first financial year after Royal Assent, expected to occur by 1 July 2022. The increased cap will ensure the FHSSS continues to help first home buyers raising a deposit more quickly, primarily through the special tax treatment of super and associated investment earnings.
Key NSW Upgrades
The Great Western Highway will receive a $2 billion upgrade and the Newcastle Airport will be upgraded to International standards.
The Federal Government deficit is set to peak at $161 billion this financial year. Total direct stimulus to the Australian economy since Covid is now expected to be $350 billion. New South Wales share of the GST pool will be $21.9 billion, up from $17.5 billion in last years budget.
Contact your Adviser at Luka Group to discuss any issues affecting you 02 6883 2200.