What’s New in 2020-21?
Recent History of Tax Scale Adjustments
The 2018 Budget announced a number of adjustments to the personal tax rates taking effect in the tax years from 1 July 2018 through to 1 July 2024.
The new rates lifted the 32.5% rate ceiling from $87,000 to $90,000 in the 4 years from 1 July 2018 to 30 June 2022, with further adjustments scheduled from 1 July 2022 and 2024.
Subsequently announced in Budget 2020 (on 6 October 2020) the 1 July 2022 scale adjustments were brought forward to apply from 1 July 2020 (2020-21 year), and the LMITO (Low and Middle Income Tax Offset) was retained for the 2020-21 year in addition to the Low Income Tax Offset brought forward at the higher value of $700. The previously legislated adjustments to apply from 1 July 2024 remain unchanged.
The tax bracket changes announced in Budget 2020 (reflected in the table above) were:
- the 19% rate ceiling lifted from $37,000 to $45,000
- the 32.5% tax bracket ceiling lifted from $90,000 to $120,000
For a taxpayer with taxable income of exactly $120,000, the saving is $2,430. For a taxpayer with taxable income of $45,000, the tax saving is $1,080.
The nominal tax free threshold of $18,200 is effectively raised to $23,227 for low income earners after inclusion of the Low Income Tax Offset and the Low & Medium Income Tax Offset.
The Budget 2021 (11 May 2021) made no further changes to the 2020-21 tax scale, but retained the Low and Middle Income Tax Offset for an additional year from 1 July 2021.
Foreign residents’ capital gains tax
The 2017 budget measure to deny access of foreign tax residents to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017 excluded properties held prior to this date until 30 June 2020.
Temporary residents who are Australian tax residents are not affected by the change.
As the legislation became law on 12 December 2019, affected taxpayers will, if necessary, need to lodge or seek amendments for relevant tax returns back to 2016-17. The ATO has advised that late interest and other penalties will be reduced, provided the taxpayer seeks to comply “within a reasonable timeframe”.
There are limited exclusions from the rules for certain life events occurring within 6 years of becoming a foreign resident.
Super rules for older Australians
Loosening of super contributions rules for older Australians, having effect from the 2020-21 financial year, include:
- From July 1, 2020 Australians aged 65 and 66 are able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test. This aligns the Work Test with the eligibility age for the Age Pension. [Note that under a Budget 2021 proposal, the work test is also to be removed on non-concessional or salary sacrifice super contributions by persons aged 67 to 74.]
- The age limit for spouse super contributions increased from 69 to 74 years.
- The age limit for access to the bring-forward arrangements is extended to those aged 65 and 66.
The Coronavirus response comprised a number of measures announced and legislated beginning from March 2020. A number of measures extend into the 2020-21 year and beyond.
New or amended business measures applying from 2020-21 include (not exhaustive):
- Loss carry-back provisions allow tax losses from the 2019–20, 2020–21 or 2021–22 years to offset previously taxed profits from 2018–19 or later [Also a Budget 2021 proposal to extend this to 2023]
- Div 7A benchmark interest rate for 2020–21 is 4.52%
- Small business entities and medium business entities can fully expense depreciating assets acquired from 7.30 pm AEDT on 6 October 2020 until 30 June 2022 [Also a Budget 2021 proposal to extend this to 2023]
- The instant asset write off threshold for small businesses was initially increased to $150,000 until 31 December 2020, with first use/ installation date extended to 30 June 2021.
- This has since been enlarged and extendedfrom 7:30pm (AEDT) on 6 October 2020 until 30 June 2023. Businesses with turnover up to $5 billion can deduct 100% of eligible depreciable assets of any value (including improvements to existing assets) in the year of installation.
Medical expenses no longer claimable: The availability of a tax offset for medical expenses has been progressively wound down over recent years. From 1 July 2019 no more claims can be made.
Redundancy and early retirement tax concessions: In the 2018-19 MYEFO, the Government announced that from 1 July 2019 it would extend the concessional tax treatment of genuine redundancy and early retirement scheme payments to certain taxpayers under Age Pension qualifying age.
The purpose of the measures is to align access to the redundancy and early retirement tax concessions with the Age Pension qualifying age rather than the age-based limit of 65 years.
Salary Sacrifice Integrity: Legislation has been passed from the 1st January 2020 to ensure that an individual’s salary sacrifice contributions cannot be used in the calculation of an employer’s minimum superannuation guarantee obligations (currently 9.5% of Ordinary Time Earnings).
The meaning of Ordinary Time Earnings for super guarantee purposes has also been expanded to include amounts which would be Ordinary Time Earnings, had they not been salary sacrificed into qualifying superannuation.
Expansion of taxable payment reporting systems: From the 1st July 2019, the taxable payments reporting system has been extended to include security providers and investigation services, road freight transport and computer system design and related services.
Cash in hand wages not tax deductible: From the 1st July 2019, legislation has been approved to limit employers claiming tax deductions for certain payments for personal services such as wages, for which the PAYG witholding tax obligations have not been complied with.
Bushfire Relief Payments Tax Exempt: Legislation has been passed to exempt Bushfires Disaster Relief Payments from tax.
First home supersaver scheme: A 2017 budget measure introduced a scheme to encourage first home savings through superannuation contributions. Salary sacrifice for first home-owner savers super contributions made from 1 July 2017 can be withdrawn from 1 July 2018 for a first home deposit.
Super rules for older Australians: From the 1st July 2020, the Treasurer has announced a softening of super contributions rules for older Australians:
- From July 1, 2020 Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test. This will align the Work Test with the eligibility age for the Age Pension.
- The age limit for spouse contributions will be increased from 69 to 74 years.
- The age limit for access to the bring-forward arrangements be extended to those aged 65 and 66.
Home downsizing super contributions for 65 year olds: Downsizing contribution scheme for those aged 65 years and over introduced as part of the First Home Supersaver scheme legislation applies to home sale contracts exchanged from 1 July 2018.
The Government earlier this year (2019) announced that from 29 January 2019 the small business (turnover up to $10 million) instant asset deduction limit is to be increased from $20,000 to $25,000 and availability extended until 30 June 2020.
Announced in the 2019 Budget – from 7:30 PM (AEDT) on 2 April 2019 (Budget night) until 30 June 2020:
- The small business (turnover up to $10 million) write-off limit is increased from $25,000 to $30,000, applied on a per asset basis.
- Medium sized businesses (turnover from $10 million to $50 million) will now also have access to the instant asset write off in respect of assets acquired from Budget night to 30 June 2020.
- (As before) the small business pooling (simplified depreciation) rules and suspension of the lockout rules continue until 30 June 2020.
Foreign residents’ capital gains tax
The 2017 budget measure to deny access to foreign and temporary tax residents to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017 excludes properties held prior to this date until 30 June 2019.
GST on low value imported physical goods
The Government has passed legislation to reduce the current tax-free threshold on online sales of imported physical goods from $1,000 to zero. This measure will start on 1 July 2018.
Taxable Payments Reporting for Cleaners and Couriers
The government intends to extend the Taxable Payments Reporting System (on a basis similar to that which currently exists for the building and construction industry) for payments made by businesses making payments to cleaners and couriers.
The arrangements start on 1 July 2018 with the first annual report due by 28 August 2019. Entities subject to the reporting requirements would be those which:
- make payments to cleaners and couriers; and
- have an ABN
Inadvertent super cap breaches
Eligible individuals are to able to choose to nominate their wages from certain employers to not be subject to the superannuation guarantee from 1 July 2018.
At least one SG employer will need to be retained.
Individuals with more than one employer who expect their income for SG purposes will exceed $263,157 for the financial year will be able to apply for an exemption certificate to release some of their employers from their SG obligations.
Government super contribution for lower income earners: Under legislation passed in September 2014 the Low Income Superannuation Contribution (“LISC”) benefit ceases on 30 June 2017. Determination of eligible LISC claims will cease on 30 June 2019. The 2016 Budget however contained a similar new measure to commence on 1 July 2017 for which legislation has now been passed.
Spouse super tax offset: The full rebate spouse income threshold has been increased from $10,800 to $37,000 to apply from 1 July 2017, with a shading out on incomes between $37,000 and $40,000. The maximum rebate (calculated at the rate of 18% of maximum rebatable contributions) remains at $540.
The Low Income Tax Offset full amount in 2017-18 is $445 reducing by 1.5 cents in the dollar, for every dollar of taxable income over $37,000, such that it cuts out at an income of $66,667. The effect is that no tax is payable up to an income of $20,542.
Superannuation Caps and Pensions Rules – From 1 July 2017
Modified super contribution cap and retirement rules introduced, starting from 1 July 2017. The changes include:
- The annual concessional contributions cap is fixed at $25,000, non-concessional $100,000 subject to $1.6 million limit on total super balance
- changes to the bring-forward rules, including transitional measures
- transfer balance cap: a limit of $1.6 million on the total superannuation which an individual can move to the tax-free retirement phase
- transition to retirement pensions excluded from the tax-free retirement phase tax-free treatment
Superannuation death benefits – ‘anti-detriment‘ deduction removed from 1 July 2017
First home supersaver scheme: Salary sacrifice for first home-owner savers – super contributions made from 1 July 2017 may be withdrawn from 1 July 2018 for a first home deposit.
Home downsizing super contributions for 65 year olds: Downsizing contribution scheme for those aged 65 years and over introduced as part of the First home supersaver scheme legislation applies to home sale contracts exchanged from 1 July 2018.
Residential rental property owners are to be hit with deduction limitations and a foreign owner’s fee under measures proposed in the 2017 Budget:
- Deductions for travel expenses related to a residential rental property not allowed from 1 July 2017
- Depreciation of plant and equipment claims will be restricted to the owner who actually purchased the asset. This will apply prospectively to assets purchased after 7.30pm on 9 May 2017.
- Foreign owners of residential real estate from 9 May 2017 will be hit with an annual vacancy fee where the property is not occupied or genuinely available on the rental market for at least 6 months in 12.
Personal super contributions
The requirement that an individual must earn less than 10% of their income from employment to be able to claim a deduction for personal superannuation contributions has been removed from 1 July 2017.
Higher income earners’ additional tax on super contributions (Div 293 tax): the threshold at which high-income earners pay Division 293 tax on their concessional taxed contribution to superannuation is $250,000 from 1 July 2017 (down from $300,000).
HECS-HELP repayments by overseas graduates
Repayment obligations commence 1 July 2017 From 1 January 2016, for taxpayers who have moved overseas for more than six months.
- Medical expenses – the tax offset is being phased out – from 2015–16 until 2018–19, claims for this offset are restricted to net eligible expenses for disability aids, attendant care or aged care. Net expenses are your total eligible medical expenses minus benefits from Medicare, National Disability Insurance Scheme (NDIS) and private health insurers which you or someone else, received or are entitled to receive. This offset is income tested. If you are eligible for the offset, the percentage of net medical expenses you can claim is determined by your adjusted taxable income (ATI) and family status.
- Non-Residents Capital Gains Tax:
- Amendments will be made to the principal asset test to ensure that property is taxable if disposed of by a foreign resident with effect from 7.30pm (AEST) on 14 May 2014, and transactions within a tax consolidated group will be ignored.
- Withholding tax: From 1 July 2016 a 10% non-final withholding tax will apply to the disposal by foreign residents of certain taxable Australian property. The purchaser will be required to send 10% of the sale proceeds to the Tax Office. This measure will not apply to residential property under $2.5 million or to Australian residents.
- Thin capitalisation and other rules governing interest deductibility by multinational entities are being tightened with effect from 1 July 2014
- Super contribution caps – concessional caps remain the same as previous year at $30,000 – the concessional cap is $35,000 for anyone aged 49 years or more immediately before (i.e. on 30 June) the beginning of the previous financial year. The Non-concessional CGT cap has been indexed as per existing law. (Note however, a number of very significant changes apply from 1 July 2017.)The tax laws limit the amount of money you can voluntarily contribute to your super account on a concessional basis. This is achieved by setting the superannuation contribution limits (“caps”) which operate to ration the tax benefits available each year. There is also a limit to the tax concessions you can receive on each year’s contributions, and from 1 July 2017 there is also a cap (dollar limit) on the value of the superannuation balance which can support concessionally taxed income streams. Concessions on higher income earners’ contributions are reduced through the application of an additional (“Division 93”) contributions tax.Super funds over the limits are subject to additional tax. Excess concessional contributions are counted towards the non-concessional cap. To avoid penalty rates of tax, from 1 July 2013 excess concessional contributions can be withdrawn, and taxed at the individual’s marginal rate plus interest. Legislation was passed in March 2015 to treat excess non-concessional contributions on a similar basis. The potentially higher tax means that in most instances members will want to keep super contributions, and their total funds, within the specified caps.
- From 1 July 2017, the Government will improve the integrity of the superannuation system by including the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap.
- The Government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.The measure will apply to sales of a principal residence owned for the past 10 years or more, and both members of a couple will be able to take advantage of this measure for the same home.
- Changes to concessional (pre-tax) contributions rules from 1 July 2017 a number substantial changes to the superannuation rules relating to contributions caps come into effect:
- the 10% ‘maximum earnings’ condition for personal super contributions deductions is removed
- the concessional superannuation contributions cap is reduced to $25,000, indexed to AWOTE (applicable to all age groups)
- Backpacker Tax – From 1 January 2017, temporary working holiday makers will be taxed at a the rate of 15% for incomes up to $37,000. Over $37,000 the normal non-resident tax rates (starting at 32.5%) apply. The Employer registration deadline was extended to 31 January 2017, and employers will need to issue separate payment summaries (group certificates) for periods before and commencing 1 January 2017. In the same bundle of measures, the application charge for working holiday maker visas will also be reduced by $50 to $390, however from 1 July 2017 the rate of tax on the Departing Australia Superannuation Payment (DASP) goes up to 65%. The departure tax (Passenger Movement Charge) is also up by $5.
- HECS-HELP repayments to graduates living overseas: Australian graduates living overseas will be brought into the HECS-HELP repayment arrangements based on income (above the HELP/TLS income thresholds) in the 2016-17 tax year.
- HECS-HELP Benefit incentives for graduates in the fields of early childhood education, maths, science, education and nursing will no longer be available after 2016-17. A maximum of 2 years is allowed to lodge applications, with no late applications being accepted.
- Voluntary and upfront HECS-HELP payments bonuses will no longer be available after 1 January 2017.
- Capital Gains Withholding/clearance on disposal of properties by foreign residents – Foreign resident capital gains tax withholding requirements apply to foreign resident vendors of taxable Australian property under contracts entered into from 1 July 2016. The system also provides for a clearance certificate process to enable tax-resident vendors to avoid the withholding, or for variation of the rate. The obligation is placed on purchasers to collect and remit the tax. Other features of the scheme:
- The requirements apply where the contract price is $2 million or more
- The withholding tax rate is 10% – to be withheld at settlement.
- The tax is non-final – which enables the vendor to claim the credit when lodging an Australian tax return.
- Main residence exemption (non-residents) – Under a 2017 Budget proposal, foreign and temporary tax residents will be denied access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017. Existing properties held prior to this date will be grandfathered until 30 June 2019
- From 1 July 2017 a limit is proposed on the amount of super which can be transferred in to the tax-free retirement phase of a super fund. This “transfer balance cap” has been set at $1.6 million (to be indexed to CPI in $100,000 increments). The measure is essentially retrospective; Super fund members will have until 30 June 2017 to conform. How will it work? See Budget Paper No. 2 and Budget Fact Sheet.
- From 1 July 2017 a new low income superannuation tax offset (LISTO) for adjusted incomes up to $37,000, to reduce the tax on concessional super contributions up to a cap of $500. The offset will be non-refundable. Whilst full details are yet to be published, it might be expected that the offset will operate in similar terms to the “LISC” which ceased on 30 June 2017. The LISC provided a rebate to the super fund account of the low income member at the rate of 15% of eligible contributions, thus matching the tax on contributions, and up to a ceiling of $500.
- From 1 July 2017 the low income threshold of the receiving spouse of the low income spouse offset will be increased from $10,800 to $37,000.
- From 1 July 2017 the concessional superannuation contributions cap will be reduced to $25,000 (currently $30,000 or $35,000 if over 49).
- From 1 July 2017 unused concessional contributions cap amounts (accrued from that date) can be used in a catch-up contribution for up to 5 years. (This is only available for those with a super balance of less than $500,000).
- From 1 July 2017 the Div 293 (30% tax rate) contributions tax to apply to earnings over $250,000 (currently $300,000).
- Commencing 3 May 2016 7.30pm (AEST), there will be a lifetime cap of $500,000 for all non-concessional contributions since 1 July 2007. This will replace the current limit of $180,000 (which is up to $540,000 under the bring-forward rule).
- From 1 July 2017 the anti-detriment provision in respect of death benefits from super (which currently allow a member’s lifetime contributions tax payments to be paid into an estate) will be removed.
- From 1 July 2017 people aged 65-74 will no longer need to satisfy a work test for super contributions.
- From 1 July 2017 anyone up to the of age 75 can claim a deduction for personal superannuation contributions. This abandons the 10% rule and obviate the need for salary-sacrifice arrangements to enable before-tax super contributions.
- From 1 July 2017 the tax exemption on earnings of assets supporting Transition to Retirement Income Streams will no longer be available.