Breakdown of the key tax changes announced on Tuesday 1 May 2021 by the Federal Government are outlined below:
Low and Middle Income Tax Offset (LMITO)
This will be extended to 30 June 2022. The LMITO provides a reduction in tax of up to $1,080 for individuals with a taxable income of less than $126,000.
Medicare Levy Low Income Threshold
The ATO has announced an increase to the low income threshold for singles, families, seniors and pensioners in line with recent movements in CPI. Where an individual’s taxable income is below this threshold then the individual ought to be exempt from paying the 2% Medicare Levy.
The deductibility rules are complex for individuals wishing to claim a tax deduction for Self-Education Expenses. To simply this process the ATO has removed the $250 reduction rule which ought to make the process to identify what amounts are tax deductible easier.
Work Test for Superannuation Contributions
The ATO has removed the Work Test e.g. 40 hours’ work over a 30 day period for individuals aged 67 to 74 who wish to make a non-concessional contribution. The Work Test however remains in place for individuals aged 67 to 74 who wish to make a concessional contribution.
Instant Asset Write Off
This will be extended to 30 June 2023. Businesses with an aggregated turnover of less than $5 billion will be able to claim 100% tax deduction of the cost of purchasing new assets and costs to improve existing assets regardless of the cost of the asset (Note – the car limit will continue to apply for luxury cars which for the 2020/21 FY is $59,136).
Second hand assets will also apply to this measure however only for those businesses with an aggregated turnover of less than $50 million.
For those businesses with an aggregated turnover of less than $10 million that depreciate their assets in a Pool they can write off the entire Pool balance at the end of the financial year.
Carry Back Losses
This will be extended to 30 June 2023. This measure applies to companies with an aggregated turnover of less than $5 billion and will enable companies to carry back losses generated in financials years 2020 – 2023 to offset previously taxed profits in the 2019 – 2022 financial years.
The measure begins from 1 July 2020 and eligible companies will be required to make the election to carry back losses in the 2021 company tax return.
The ATO has announced its intention to remove the Superannuation Guarantee threshold for an employee earning less than $450 in a month to ensure all employees are paid Superannuation Guarantee by their employer regardless of how much they earn.
The expected date of effect is 1 July 2022.
Storm & Flood Grants
Taxpayers who received a Grant under the Disaster Recovery Funding Arrangements 2018 in relation to Storm & Floods during the period 19 February 2021 and 31 March 2021 will be classified as non-assessable non-exempt income and therefore the amount will not be subject to tax.
ATO Debt Recovery
Small Businesses with an aggregated turnover of less than $10 million per year will be able to apply to the Small Business Taxation Division of the AAT to pause of modify ATO debt recovery action until their underlying case is decided.
Currently, small business can only pause ATO debt recovery action in the courts. This new avenue will enable a small business to pause ATO debt recovery until their case has been heard by the AAT.
Income Tax Exemptions (NPO’s)
Currently Non-Profit Organisations can self-assess their eligibility for Income Tax Exemptions without an obligation to report to the ATO.
From 1 July 2023, the ATO will require NPO’s with an active ABN to submit online annual self-review forms to ensure only eligible NPO’s are receiving the exemption.