MAP - May 2021 Update

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The Federal Treasurer Josh Frydenberg has handed down the 2021-22 Federal Budget.  It is a budget designed to boost Australia's business and economic recovery.  The proposed changes include continuing tax relief for low income earners, extension of tax incentives for small business to invest, and more assistance for first home buyers.

Read on for a wrap of some of the main announcements in relation to superannuation, personal & business taxation.

As mentioned, the announcements made in the Budget are just that.  They are not as yet legislation, and therefore could change.  As always, the devil is in the detail, so if you have any specific questions in relation to the Budget announcements, please contact us.

The Government's Personal Income Tax Plan provides targeted relief for low and middle income earners.

1. Extending the low and middle income tax offset (LMITO). Proposed effective date: 1 July 2021.

  • The low and middle income tax offset (LMITO) has again been extended to the 30 June 2022, providing a reduction in tax for singles up to $1,080 and couples up to $2,160
  • The benefit for singles with a taxable income up to $37,000 is $255.
  • Between $37,000 and $48,000, the offset increases to a maximum of $1,080.
  • The maximum LMITO of $1,080 applies for incomes between $48,000 and $90,000
  • The LMITO gradually phases out for those with a taxable income between $90,000 and $126,000, at which it reduces to nil.

2. Increasing the medicare levy for low-income earners
The Government will also increase the medicare levy low-income thresholds for singles, families, seniors and pensioners from 1 July 2020.  This is to account for recent movements in CPI.  Proposed effective date: from 2021 financial year.

  • Singles - $22,801 to $23,226
  • Families - $38,484 to $39,167
  • Seniors and pensioners - $36,056 to $36,705
  • Family threshold for seniors and pensioners - $50,191 to $51,094

3. Self-education expense deductions

The Government will remove the the exclusion for the first $250 deduction for prescribed courses of education.  This measure is aimed to reduce the compliance costs for individuals claiming self-education expenses.  Proposed effective date: from the first income year after legislation receives Royal Assent.

The Government has announced an extension to various concessions for eligible businesses.  As Australia recovers from the economic impacts of COVID-19, it will be critical for businesses to be able to invest in capital assets to aid in the recovery.

1. Temporary full expensing extension

  • The proposed measure extends the immediate deduction for a further 12 months for assets that have been first used or installed ready for use by 30 June 2023.
  • As announced as part of the previous budget, provides eligible businesses with an immediate deduction for the full cost of depreciating assets.
  • Under the current law, aggregated turnover threshold is $5 billion and applies for assets purchased after 7.30pm on 6 October 2020, and first used or installed ready for use by 30 June 2022.

2. Loss carry back tax-offset 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 years is called a 'loss carry-back'.
  • Under the current law, 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 can elect to apply this measure to receive the tax refund in the loss making year.  If no election is made the losses will continue to carry forward as normal.

The budget announcements relating to superannuation is aimed at benefiting Australians approaching, or already in retirement.

1. Repealing the work test for super contributions. Proposed effective date: 1 July 2022

  • Individuals aged 67-74 years will be able to make non-concessional or salary sacrificed superannuation contributions without meeting a work test.  
  • Currently people in this age bracket are restricted from making certain contributions unless they are working at least 40 hours in a 30-day consecutive period.
  • Please note, the work test will still apply for individuals aged 67-74 who want to make personal deductible super contributions.

2. Extending access to downsizer contributions. Proposed effective date: 1 July 2022

  • The Government is proposing to lower the age Australians can make tax-free contributions to their super from the proceeds of selling their homes from 65 to 60.
  • The other eligibility rules remain unchanged, incluing the 10-year ownership period, and the $300,000 (per individual) contribution cap into super.

3.  Abolishing the $450 per month income threshold for Superannuation Guarantee (SG).  Proposed effective date: 1 July 2022

  • The Government is proposing to remove the $450 per month minimum income threshold which determines whether employees have to be paid the SG by their employer.
  • The SG rate is currently 9.5%, but will increase on 1 July 2021 to 10%. It will then increase gradually to 12% by 2025.
  • Once this proposed measure commences, employers will need to ensure that their payroll system is up to date.
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