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Personal tax outcomes and implications from Federal Budget 2021/22
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David Hall
Share 13 May 2021
On Tuesday 11 May, the Federal Government released the 2021/22 Federal Budget and, as expected, there were very few changes regarding tax measures for individuals, with most of the focus on creating jobs and stimulating the economy.
Some of the changes announced were:
The low and middle income tax offset (LMITO) will be continued for another year.
Individual tax residency rules will be simplified.
The $250 self-education threshold will be removed.
Employee share scheme rules will be varied.
New Zealand (NZ) to retain tax rights for Australian based NZ sportspersons and associated staff.
Safe harbour for self-managed superfunds (SMSF) with overseas trustees/members extended from two to five years.
Tax rates and rebates
Personal income tax rates remain unchanged with the Treasurer highlighting the tax cuts provided to date and the previously legislated rate cuts scheduled for 2024.
The low and middle income tax offset, introduced last year, will continue for the 2021/22 year.
Taxable income | LMITO |
Less than $37,000 | $255 |
Between $37,000 and $48,000 | Increase 7.5 cents per $1, capped at $1,080 |
Between $48,000 and $90,000 | $1,080 |
Between $90,000 and $126,000 | Reducing from maximum at 3 cents per $1 |
Above $126,000 | $0 |
Tax rates changes already enacted
| | Thresholds for tax years ended 30 June 2021 to 30 June 2024 | Thresholds from 1 July 2024 | | ------------ | ----------------------------------------------------------- | --------------------------- | | Rate (%) | Income range ($) | Income range ($) | | Tax free | 0 - 18,200 | 0 - 18,200 | | 19 | 18,201 - 45,000 | 18,201 - 45,000 | | 30 | N/A | 45,001 - 200,000 | | 32.5 | 45,001 - 120,000 | N/A | | 37 | 120,001 - 180,000 | N/A | | 45 | > 180,000 | > 200,000 |
$250 self-education threshold
The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. The first $250 of a prescribed course of education expense is currently not deductible, however, taxpayers are entitled to claim expenses that would not normally be deductible such as child care, capital expenditure, travel and car expenses against the first $250 providing they keep records to support.
Removing the $250 exclusion will reduce compliance costs for individuals claiming self education expense deductions. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Individual tax residency
The Government has announced it will replace the complex individual tax residency rules with the introduction of 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.
Persons who are physically present for a shorter period will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria, which are yet to be released. The measures may adopt the Board of Taxation’s recommendations which include a four-factor test:
Right to reside.
Accommodation.
Family.
Economic connections.
Employee share schemes
The Government has announced it will remove the cessation of employment as a taxing point for the employee share schemes. Currently, employees who have been issued shares or options at a discount are generally taxed on the discount as income, but the timing is deferred. One of the possible taxing points is when they cease the employment. This taxing point will be removed.
New Zealand to retain taxing rights (Income tax and Fringe Benefits Tax (FBT))
The Government will legislate to ensure that New Zealand will continue to have primary taxing rights over members of their sporting teams and support staff. This is recognition that, due to COVID-19, sports persons were located in Australia and exceeded the 183-day test and, in the absence of the
law change, Australia would be entitled to the primary tax on their income. This measure will apply for the 2020/21 and 2021/22 years.
SMSFs with members or trustees overseas
Under the current rules, SMSFs remain an Australian superannuation fund, where the members and/or trustees of the SMSF are overseas temporarily for a period not exceeding two years.
The Government will extend this safe harbour test to five years to allow an individual who is overseas to continue to actively control their SMSF without the need to appoint a legal personal representative as trustee under an enduring power of attorney.
The Government also announced they will remove the active member test when determining whether an Australian superannuation fund is a complying fund. Under the current rules at least 50% of the total market value of an SMSF is required to be held on behalf of active members who are Australian residents. This measure will also allow members to continue to make contributions whilst they are temporary overseas.
See our full Federal Budget Analysis
Our team of experts has been busy developing insights and analysis that breaks down what the Budget means for Australian businesses and individuals.
Check out the full coverage of the Federal Budget 2021/22, which will continue to develop throughout the week as new insights and video content are published.
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