Federal Budget – Highlights & Key Measures

Last night, the Treasurer handed down the Federal Government’s Budget for 2021-22. In this newsletter, we’ve provided a summary of the key measures that are most likely to impact our clients.

Please note, that while some announcements involve the extension of existing polices, many of the changes will not be effective until 1 July 2022.

The Budget announcements will be incorporated into our year-end tax planning that will be completed during the month of June.

If you have any questions about how the Budget may impact you, please ask your Client Manager at Otto & Partners.

Business Tax

Extending Instant Asset Write-off
Effective 6 October 2020

Businesses with annual turnover less than $50 million will be able to deduct the full cost of depreciable assets acquired and first used or installed by 30 June 2023 (extended from 30 June 2022 previously).

Full expensing in the year of first use will apply to both new and second-hand depreciable assets.

Removing the $450 per month minimum superannuation guarantee threshold
From 1 July 2022, the Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.
Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.

10% superannuation guarantee to commence 1 July 2021
The legislated increases to superannuation guarantee were not amended in the Budget. Therefore, the rate of superannuation guarantee payable on employee wages will increase to 10% from 1 July 2021, as previously legislated.

Loss carry-back extended
The Government has announced that it will extend the temporary loss carry-back measure for a further 12 months to allow companies to carry back tax losses from 2019-20, 2020-21, 2021-22 or 2022-23 income years to offset previously taxed profits in the 2018-19 or later income years.
Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

Superannuation

50% Reduction in minimum pensions to cease 30 June 2021
The Government did not announce an extension of the halving of the account based pension minimums. As a result, the standard minimum drawdown requirements will apply from 1 July 2021.

Removing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74
From 1 July 2022, individuals aged 67 to 74 will be allowed to make non-concessional (i.e. after-tax) or salary sacrifice superannuation contributions without meeting the work test. These contributions are subject to existing contribution caps.

However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test.

Reducing the age for downsizer contributions to 60
From 1 July 2022, the Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years.

Complying pension and annuity conversions
The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.

The income streams affected by this measure include:

  • market-linked income streams (otherwise known as Term Allocated Pensions),
  • complying life expectancy income streams and
  • complying lifetime income streams,that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).

Personal Tax

No change to personal income tax rates
The Government did not announce any changes to personal tax rates that are shown in the table below:

Taxable Income Tax Rate on this income including Medicare Levy
0 – $18,200 0%
$18,201 – $45,000 21%
$45,001 – $120,000 34.5%
$120,001 – $180,000 39%
$180,001 and over 47%
 
Low & Middle Income Tax Offset retained for 2021-22
The Government announced in the Budget that the low-and-middle-income tax offset (LMITO) will continue to apply for the 2021-22 income year.Otherwise, the LMITO was legislated to only apply until the end of the 2020-21 income year.
The settings of the LMITO remain unchanged from 2020-21 and are shown in the table below:

Taxable Income Low and middle income tax offset
Less than $37,000 $255
$37,001 – $48,000 Increasing by 7.5c per $1, capped at $1,080
$48,001 – $90,000 Maximum $1,080
$90,001 – $126,000 Reducing from maximum at 3 cents
per $1
$126,001 + $0
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