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Federal Budget highlights *yawn*

Quick Federal Budget Summary for 2021-2022

The 2021-22 Federal Budget has a number of highlights relevant to many of our clients, friends, and supporters explored further below.

It’s important to note that at this point in time, these proposed measures are not yet law and may be subject to change prior to 1 July 2022.

Increasing the Medicare levy for low-income thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

  • The threshold for singles will be increased from $22,801 to $23,226
  • The family threshold will be increased from $38,474 to $39,167
  • The threshold for single seniors and pensioners will be increased from $36,056 to $36,705
  • The family threshold for seniors and pensioners will be increased from $50,191 to $51,094

For each dependent child or student, the family income thresholds increase by a further $3,597, up from the previous amount of $3,533.

Modernising the Individual Tax Residency Rules

The Government has announced that it will replace the individual tax residency rules with a new, modernised framework.

  • The primary test will be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.

Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

Reducing compliance costs for individuals claiming self-education expense deductions

The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education.

  • Currently, the first $250 of a prescribed course of education expense is not tax deductible.

Removing this $250 exclusion is expected to reduce compliance costs for individuals claiming self-education expense deductions.

Debt recovery for Small Business

The Government has announced that it will allow small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (the ‘Tribunal’) to pause or modify ATO debt recovery actions, such as garnishee notices and the recovery of general interest charge or related penalties, where the debt is being disputed in the Tribunal.

  • Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system, which can be costly and time-consuming.

It is expected that applying to the Tribunal instead of the courts will save small businesses at least several thousands of dollars in court and legal fees and as much as 60 days of waiting for a decision.

Tax treatment of qualifying storm and floor grants

The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021.

  • These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.
  • The grants will be made non-assessable non-exempt income for tax purposes.

Superannuation Related Changes:
Removing the work test for voluntary contributions to super

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps.

  • Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

Reducing the age limit for Downsizers Contributions

The Government will reduce the age limit from which downsizer contributions can be made by eligible individuals, from 65 to 60 years of age.

  • The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to their superannuation fund, of up to $300,000 per person, following the disposal of an eligible dwelling, where certain conditions are satisfied.

Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution, for the contribution to qualify as a downsizer contribution.

Removing the $450 per month threshold for Superannuation Guarantee (SG) Eligibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

Relaxing the residency requirements for Self Managed Super Funds (SMSF) 

The Government will relax residency requirements for SMSFs and small APRA-regulated funds by:

  • extending the central control and management test safe harbour from two years to five years for SMSFs; and
  • removing the active member test for both types of fund

This measure will allow SMSF members and small APRA fund members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA regulated funds.

Changes to the first home super saver (FHSS) Scheme

The Government has announced that it will make the following changes to the FHSS scheme.

Increasing the maximum releasable amount of $50,000

The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the FHSS scheme from $30,000 to $50,000, to assist first home buyers in raising a deposit more quickly.

  • Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.

Under the current FHSS scheme, an eligible individual can apply to have a maximum of $15,000 of their voluntary contributions from any one income year included in their eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years, together with an amount of earnings that relate to those contributions.

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