The 2021-22 Federal Budget Highlights
On 11th May 2021, The Treasurer, delivered the 2021-22 Federal Budget. This Budget is the next stage of the Government’s economic plan to secure Australia’s recovery from the COVID-19 crisis. Although Australia is not yet out of the pandemic, we are much better place than other countries to meet the economic challenges that lie ahead.
So, what does this mean for tax payers? Below is a list of polices that effect all tax related measures:
Personal Tax Rates
No changes were made to personal tax rates. The Stage 3 personal income tax cuts remain unchanged and will commence in 2024-25 as already legislated. Low Middle Income Tax Offset (LMITO) LMITO is retained for 2021-22 and provides a reduction in tax of up to $1,080 for singles earning under $126,000.
Temporary Full Expensing Extended
The Government will extend the 2020-21 temporary full expensing measures for 12 months until 30th June 2023. Businesses with aggregated annual turnover or total income up to $5 billion can deduct the full cost of eligible depreciable assets of any value. Assets must have been acquired from 7:30pm AEDT on 6th October 2020 and first used or installed ready for use by 30th June 2023.
Individual Residency Test Reformed
The Government will replace the existing tests for the tax residency of individuals with a primary “bright line” test under which a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.
Employee Share Schemes
As part of the government’s $500 million overhaul, former employees will not be required to pay tax on shares after they leave a business.
ATO Debt Recovery
The Administrative Appeal tribunal (AAT) will be given the power to pause or modify ATO debt recovery action in relation to disputed debts of small businesses.
The non-deductibility of the first $250 of self-education expenses for prescribed courses of education will be removed.
What does the 2021-22 Federal Budget look like for SMSF’s? All measures are outlined below:
Repealing the work test for voluntary contributions
Individuals aged 67 to 74 (inclusive) will be able to make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contribution caps and existing total superannuation balance limits.
Reducing the eligibility age for downsizer contributions
The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. All other eligibility criteria remains unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000, per person, from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps.
Relaxing residency requirements for SMSFs
SMSFs and small APRA funds will have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years. The active member test will also be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
Legacy retirement product conversions
Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions.
This measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation.
Have questions about the 2021-22 Federal Budget?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, then please no not hesitate contact us.