The 2021 Federal Budget: What the Proposed Changes Mean for You

On Tuesday the 11^th of May, the Treasurer released the Federal Government’s new 2021 budget. It comes only 6 months after the last budget proposal and looks at aiding in the economic recovery of Australia after a tough year of the pandemic.

As this is a budget, none of these changes are law yet and we will need to see if the opposition opposes any changes before the proposal in confirmed, however, we’ve broken down the key aspects of the new budget that we think will most likely be of interest to our clients.

Proposed Personal Changes:

1. The government wants to maintain the Low and Middle Income Tax Offset (LMITO). This is up to a $1,080 offset that cuts off completely after $126,000.
   

   Proposed LMITO for 2022
   $37,000 or less	Up to $255
   $37,001 to $48,000	$255 + 7.5% of excess over $37,000
   $48,001 to $90,000	$1,080
   $90,001 to $126,000	$1,080 – 3% of excess over $90,000
   $126,001 +	Nil

2. Simplifying the Employee Share Scheme’s as well as making it easier to offer to employees for retention. One of the major changes here is the cessation of employment taxing event. Previously, once you ceased working for an employer, you would be taxed on your ESS – this will be removed as a taxing point meaning that the remaining taxing points will stay.
3. Childcare subsidies are proposed to improve from 1^st July 2022, increasing the subsidy substantially for families with more than one child under 5 and removing the $10,560 cap.
4. The government wants to expend the First Home Super Scheme to $50,000 allowing people to contribute more to the system and withdraw up to $50,000 for their first home.
5. Removing the work test for voluntary contributions to superannuation from the ages 67-74 has also been proposed. Those aged over 67 will now no longer be required to satisfy the work test to make a voluntary contribution to super as long as their balance is under the Transfer Balance Cap which is currently $1.6M and indexing to $1.7M next financial year.
6. Downsizer contributions into superannuation will also be allowed from the age of 60 down from the age of 65. This contribution allows a person to contribute up to $300,000 into superannuation from downsizing their home.

Proposed Business Changes:

1. Extension of Temporary Full Expensing (claiming 100% write off for equipment) is now being proposed to be extended to the 2023 financial year.
2. Extension of Temporary loss carry-back. This is the use of losses to claim a tax refund in a company. It only applies to tax paid from the 2019 financial years onward and is limited to what is available in the company franking balance; this is being proposed to be extended to the 2023 financial year.
3. Removal of the $450 per month threshold for superannuation guarantee liability. This means that there will be no minimum on paying superannuation anymore. If someone makes $100 per month you will still need to pay superannuation for them.
4. Debt recovery for small business from the Australian Taxation Office (ATO) is being improved, allowing small business with turnover of less than $10 million per year to have the Administrative Appeals Tribunal to pause or modify ATO debt recovery actions. Previously this had to be applied through court. This should make it quicker, easy and cheaper for small business to be able to get intervention from the legal system.
5. For self-managed super funds (SMSF), the government proposes to extend the residency requirements changing the control test to allow people to be overseas for up to a period of 5 years up from the previous 2 years.
6. There was no mention of not going ahead with the increase in superannuation guarantee for next financial year. As a result, the superannuation guarantee will increase from the current 9.5% to 10% from the 1^st of July.

There is a range of other measures that have been announced in the latest budget ranging from a patent box for medical and biotech patents, improvements in aged care, tax offsets for building digital games and a range of other more administrative measures.

You can visit the Federal Budget website to find out more about proposed changes that may affect you, or contact our team at PCR Accounting & Advisory on 03 9847 7516 if you have any queries.