The 2021 Federal Budget provides some significant changes to superannuation and some opportunities for business, if you are in a strong enough position to take advantage of what is on offer.
Here are the key points:
Superannuation Changes
Removing the work test for voluntary contributions
The work test, which required an individual to work for 40 hours in 30 consecutive days to be able to contribute to super, will be removed. This means that anyone under the age of 75 will be able to make salary sacrifice and non-concessional contributions irrespective of their employment situation.
Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.
It is expected to commence from 1 July 2022.
Removing the work test requirement when making non-concessional or salary sacrifice contributions will simplify the superannuation contribution rules and make it easier for older Australians to save for their retirement through superannuation.
Reducing the eligibility age for downsizer contributions
Downsizer contribution age eligibility will be reduced from those over 65 to those over 60.
It is expected to commence from 1 July 2022.
The downsizer contribution allows eligible individuals to make a one-off, post-tax contribution of up to $300,000 per person following the disposal of a principal place of residence, to their superannuation fund. These contributions are not counted towards the non-concessional cap.
Relaxing residency requirements for SMSFs
The residency requirements for SMSFs and small APRA-regulated funds will be relaxed by:
- extending the central control and management test safe harbour from 2 years to 5 years; and
- removing the active member test.
It is expected to commence from 1 July 2022.
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.
Removing the $450 per month Super Guarantee (SG) Threshold
The current $450 per month minimum income threshold will be removed, under which employees do not have to be paid SG contributions.
SG payments to employees earning less than $450 per month are expected to commence from 1 July 2022.
Ability to convert legacy pension products
Individuals will have the temporary option to exit and convert from a specified range of legacy retirement products (include market-linked, life-expectancy and lifetime products in SMSF) into more flexible and contemporary retirement products, during the 2 year period.
The products covered need to have been first commenced before 20 September 2007 from any provider (including an SMSF), but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
It is expected to commence from 1 July 2022.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds, and the commuted reserves will be taxed as an assessable contribution.
Business
Temporary full expensing extension
Temporary full expensing will be extended by 12 months to allow eligible businesses with aggregated annual turnover, or total income, of less than $5 billion to fully expense depreciable assets in the current tax year. The asset needs to be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
Temporary loss carry-back extension
The loss carry-back measure will be extended to allow eligible companies, that is, with aggregated turnover of less than $5 billion, to carry back tax losses from the 2022-2023 income year to offset previously taxed profits as far back as the 2018-2019 income year when they lodge their tax return for the 2022-2023 income year.
Individuals
Low and Middle Income Tax Offset (‘LMITO’)
The LMITO will be retained for one more income year, so that it will still be available for the 2022 income year. The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers
The LMITO is proposed to apply as follows for the 2022 income year.
| $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 |
Medicare Levy
The Medicare levy low-income thresholds will be increased in line with CPI movements. From 1 July 2020 the following rates will apply:
| Old threshold | New threshold | |
| Singles | $22,801 | $23,226 |
| Family | $38,474 | $39,167 |
| Single Seniors & Pensioners | $36,056 | $36,705 |
| Family Seniors & Pensioners | $50,191 | $51,094 |
| Dependent Child or Student | $3,533 | $3,597 |
Change to individual tax residency rules
The individual tax residency rules will be replaced with an updated framework.
The primary test will be a simple test, that is, if a person 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.
This new framework aims to be easier to understand and apply in practice, deliver greater certainty, and lower compliance costs for globally mobile individuals and their employers.
More information at: budget.gov.au
If you have any questions in relation to the 2021 Budget and how it will affect you and your business, please do not hesitate to contact us on 03 9886 0800 or via email.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Add to the end: Copyright 2021. Please do not reproduce without the expressed written consent of the author.