2021 Federal Budget Summary
A technical summary of the changes that matter for Australian financial advisers.
The following 'adviser-only' paper provides a summary of information announced in the 2021 Federal Budget that may be of interest to financial advisers and their clients. Please note that many of these announcements are yet to be legislated, and care should be taken before implementing a financial strategy based on Budget announcements alone.
Watch Netwealth's Head of Technical Services, Keat Chew, as he analyses the 2021 budget announcement and explains the potential impact to your clients and key action points for your business.
The Government plans to replace the current individual tax residency rules with a simple primary 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.
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
From 1 July 2020, 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.
For single seniors and pensioners, the threshold 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 instead of the previous amount of $3,533.
The Low and Middle Income Tax Offset (LMITO) will be retained for the 2021-22 income year.
The LMITO provides a reduction in tax of up to $1,080.
Taxpayers with a taxable income of $37,000 or less will benefit by up to $255 in reduced tax.
Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080.
For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar.
The LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.
The cessation of employment taxing point will be removed for the tax deferred Employee Share Schemes (ESS) that are available for all companies.
Currently, under a tax deferred ESS, where certain criteria are met employees may defer tax until a later tax year (the deferred taxing point).
The deferred taxing point is the earliest of:
This change will result in tax being deferred until the earliest of the remaining taxing points.
The current exclusion making the first $250 of deductions for prescribed courses of education not deductible, will be removed from the first income year after the date of Royal Assent of the enabling legislation.
The maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) will increase from $30,000 to $50,000.
Eligible 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. This will apply from the start of the first financial year after Royal Assent of the enabling legislation, expected by 1 July 2022.
There will also be four technical changes:
These measures will apply retrospectively from 1 July 2018.
The eligibility age to make downsizer contributions will be reduced from 65 to 60 years of age.
All other requirements remain unchanged.
The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, expected to be prior to 1 July 2022.
Individuals aged 67 to 74 years (inclusive) will be able to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
These individuals will also be able to access the non-concessional bring forward arrangement subject to meeting the eligibility criteria.
Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The measure will have effect from the start of the first financial year after the date of Royal Assent of the enabling legislation expected to have occurred prior to 1 July 2022.
The government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
This measure is to have effect from the start of the first financial year after the date of Royal Assent of the enabling legislation, expected to have occurred prior to 1 July 2022.
Members will be provided with a temporary 2 year option to transition from legacy retirement products such as market linked (TAPS), life expectancy and lifetime pensions and annuity products to more flexible and contemporary retirement products such as account based pensions.
Participation in this option is not compulsory. Retirees with these products who choose to will be able to completely exit these products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there it can be used to commence a new retirement product, pay a lump sum benefit, or retain the funds in that account.
Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. It will however be taxed at 15% in the fund as an assessable contribution of the fund.
The existing social security treatment that applies to the legacy product will not transition over but exiting the product will not cause a Social Security debt to arise. Existing rules for income streams will continue to apply so transfer balance cap rules apply to the new income stream.
The existing transfer balance cap valuation methods for the legacy product, including on commencement and commutation, continue to apply.
The following products are covered under the proposed new rules i.e. can be commuted - market-linked (TAPS), life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds.
The following products are excluded from the proposed new rules i.e. cannot be commuted - flexi-pension products offered by any provider, and lifetime products offered by large APRA-regulated defined benefit schemes or public sector defined benefit schemes.
The measure will have effect from the first financial year after the date of Royal Assent of the enabling legislation.
The central control and management test safe harbour period will be extended from two to five years for SMSFs, and the active member test will be removed for both fund types to allow SMSF and SAF members to continue to contribute to their fund whilst overseas.
Effective from the start of the first financial year after the date of Royal Assent of the enabling legislation, which is expected to have occurred prior to 1 July 2022.
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Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
The Government will extend the ability for eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.
Companies with aggregated turnover of less than $5 billion are eligible. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
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This information has been prepared by Netwealth. Whilst reasonable care has been taken in the preparation of this presentation using sources believed to be reliable and accurate, to the maximum extent permitted by law, Netwealth and its related parties, employees and directors and not responsible for, and will not accept liability in connection with any loss or damage suffered by any person arising from reliance on this information.
Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) is a provider of superannuation and investment products and services, and information contained within this booklet about Netwealth’s services is of a general nature which does not take into account your or your clients' individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product.
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