We have summarized the most relevant sections of the Federal Budget and compiled them into this article to assist you. Continue reading below to find out how the 21/22 Budget may impact you.
Low & Middle Income Tax Offset (LMITO) The LMITO will be continued in the 2022 Financial Year, instead of being discontinued on the original end date of 1 July 2021. The LMITO will be available in addition to the Low Income Tax Offset (LITO) and will provide tax relief to those who fall within the following income brackets:
Individual Tax Residency Rules
The current rules surrounding tax residency for individuals are tedious and difficult to apply, which results in high compliance costs for the individual and their employers.
Individuals who have been physically present in Australia for 183+ days within any financial year will become an Australian Resident for tax purposes. This will be referred to as the primary test and will be followed as a 'bright line' rule.
If individuals do not meet the primary test, there will be various secondary tests with a range of measurable criteria.
Self-Education Expense Deductions
Individuals who are currently studying a course related to the industry they are working in, will now be able to claim the first $250 of the education expense.
Currently, the first $250 of an education expense is not tax-deductible, removing this exclusion will assist to reduce compliance costs for students who are claiming self-education expenses deductions.
Temporary Full Asset Expensing Extension
Businesses with an aggregated turnover of less than $5 billion can immediately write off the business portion of new, eligible assets purchased during the qualifying period. For small businesses with a turnover of less than $50 million, this also applies to the business portion of second-hand assets.
Qualifying period of purchase: an asset must have been purchased, installed and ready to use for a taxable purpose (i.e. to produce assessable business income) between 7:30 pm AEDT on Wed 6 October 2020 until 30 June 2022.
Qualifying period of deduction: deductible in either 2020-21 and/or 2021-22 income tax returns (based on purchase/installation date of the eligible asset).
In addition, immediate tax deductions may also be claimed for the business portion of improvement costs to eligible existing assets purchased and installed prior to 7:30 pm AEDT on 6 October 2020.
Temporary Loss Carry-Back Extension
Companies with an aggregated turnover of less than $5 billion which generates a net loss in the tax year are able to apply those losses to previously profitable tax years. This generates a refundable tax offset for the company which can be applied to future tax payable balances.
This initiative has been extended to be applicable up to and including the 2022-23 tax year, and losses can be applied retrospectively up to the 2018-19 tax year.
Tax Exemption for Storm and Flood Grants
Businesses and organisations that received a Category D grant to assist with the impact of the storms and floods in Australia between 19 February 2021 - 31 March 2021, will be entitled to an income tax exemption.
For more information on the Disaster Recovery Funding Arrangements, please click here
Removing the Work Test for Voluntary Super Contributions
From 1 July 2022, individuals aged between 67 - 74 years will be able to make and receive personal contributions (non-deductible) to their self-managed super fund without meeting the work test.
For individuals who wish to make deductible contributions to their super fund, the work test will still be applicable.
Reducing the Age Limit for Downsizer Contributions
Currently, individuals over the age of 65 are able to make a one-off, after-tax contribution to their super fund of up to $300,000 following the sale of a property where conditions are met.
From 1 July 2022, the government will be reducing the eligible age from 65 to 60, providing individuals an opportunity to maximise their super fund at an earlier age.
Removing the $450 per Month Threshold for Employer Super Contributions
For employees earning under $450 per month, employers are currently not required to pay any super contributions.
The government will be removing this threshold, therefore employers will be required to pay super contributions for their staff who earn less than $450 per month.
This will encourage wage equality, as the majority of people who earn less than $450 per month are women.
Relaxing the Residency Requirements for Self-Managed Superannuation Funds (SMSFs)
Residency requirements for SMSF trustees will be relaxed from two to five years, allowing trustees to reside outside of Australia whilst contributing to their super. This will allow stranded trustees time to return to Australia, whilst also providing opportunities for trustees to undertake work and education overseas whilst actively depositing into their SMSF.
Active member testing will also be abolished.
First Home Super Saver (FHSS) Scheme Maximum Amount Raised to $50,000 First home buyers will have up to $50,000 in voluntary contributions which they are allowed to deduct from their super fund to put towards a house deposit. Currently, the limit is $30,000 however the government will be raising the maximum withdrawal amount to $50,000.
Single Parent Family Home Guarantee
Eligible single parents will now have the option to purchase a property with a 2% deposit. For a dwelling with a listed price of $400,000, a 2% deposit would be approximately $8,000.
Eligibility requirements include:
Income test: Maximum annual income for the FHG is $125,000 (the same as the First Home Loan Deposit Scheme) in the preceding financial year. Child support payments are excluded from this income cap.
Prior Ownership Test: The single parent can’t currently own property but can previously have owned property. This scheme is not limited to first home buyers.
Deposit Requirement: The single parent must have a minimum 2 percent deposit. That means you must have savings of 2 percent of the price of the home to be bought. The government will guarantee up to 18 percent of the property purchase price, allowing the applicant to get a loan without paying LMI.
Owner Occupier test: The single parent is the only person listed on the title and the loan and must live in the home.
Type of Housing: You can purchase a new or existing dwelling worth up to the price caps
For more information on the Single Parent Family Home Guarantee, please click here
Please note: the measures outlined above are in accordance with the 2021 Federal Budget and will only become law after receiving Royal Assent.
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