As much as last year’s Budget was “unprecedented”, this year’s 2021-22 Federal Budget is “predictable” being aimed at “securing Australia’s recovery”. The leaking of measures over the weeks leading up to the budget gave form to the predictability and took the suspense out of the Budget – it could make you wonder why the Government have a Budget night anymore.
Instead of keeping the budget in surplus and bearing down on debt, aggressively reducing unemployment, and increasing spending in the public and the private sectors have become the “new normal” goals.
There were several key Personal taxation highlights in the 2021-22 Federal Budget, and I consider these below.
Income tax cuts
Nothing new but no reversals of previously announced cuts either.
Low- and middle-income tax offset
Targeted tax relief to low and middle-income earners is to be continued by retaining the LMITO for a further year during the 2021-22 income year.
This tax offset will reduce tax payable by up to $1,080 for individuals or $2,160 for dual income couples.
Several superannuation measures were announced in the Budget:
First home super savings scheme – increase in the maximum amount available to be released.
The maximum releasable amount of voluntary concessional and non-concessional contributions made under the first home super saver scheme will rise from the existing level of $30,000 to $50,000. This change is expected to be in force by 1 July 2022.
Reducing the eligibility age for downsizer contributions.
Currently, the eligibility age to make downsizer contributions into superannuation is 65 years. This age will be reduced to 60 years. It is expected that this change will occur at the start of the first financial year after Royal Assent of the enabling legislation which the Government expects to have occurred prior to 1 July 2022.
More flexible super – removing the work test.
If you are aged 67 to 74, you can currently only make voluntary contributions (whether concessional or non-concessional) to your superannuation if you are working at least 40 hours over a 30-day period in the relevant financial year.
From 1st July 2022, the Government intends to amend the law to allow individuals in this age bracket to make or receive non-concessional or salary sacrifice superannuation contributions without meeting this work test.
And finally, the big one…………. Individual tax residency rules
Following court judgements and the subsequent report from the Board of Taxation, in a bid to simplify Australia’s tax residency rules, the Government has announced a new framework to determine the tax residency of an individual, which will replace the existing residency tests (that is, the resides test, domicile test, 183-day test and Commonwealth superannuation test).
In the Budget, the Government stated only that the “new framework is based on recommendations of a 2019 Board of Taxation report Reforming Individual Tax Residency Rules —a model for modernisation.” This means that there is a lack of certainty about the exact proposals until the legislation is published, debated, and passed.
The Board of Taxation report has recommended that a new residency test be implemented following the process below:
1. 183 Days test – did you spend more than 183 days in Australia in the income year?
2. Were you a Government Official deployed overseas on foreign service?
If you answer yes to either of these questions you are Australian Tax Resident, if not you move on.
3. If you were resident in the previous income year you need to consider the ceasing residency test, otherwise you need to consider the commencing residency test.
If you spent less than 45 days in Australia in the income year you are non-resident, otherwise you need to apply the Factor Test.
The Factor Test
There are 4 factors:
- Right to reside permanently in Australia
- Australian Accommodation
- Australian Family
- Australian Economic Interests
If you satisfy 2 or more factors you are resident in Australia.
This is a more complex test which considers firstly your reason for leaving, if it is to take up overseas employment:
- for at least 2 years and
- you will have accommodation available in the place of employment for the entire employment period and
- you will spend less than 45 days in Australia in the income year and
- were resident in Australia for the 3 prior income years
You will be non-resident from the date of departure.
Otherwise, the test will depend on whether you are a long term or short-term resident of Australia.
Whilst we still await the final details, the new residency test is welcomed as it will deliver greater certainty in determining the tax residency of an individual when compared to Australia’s current tax residency rules, which have become increasingly difficult to apply in practice.
This measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Australian expats need to keep a close eye on the developments surrounding the changes to individual tax residency rules. AAM will continue to monitor this and provide you with information as the situation develops. If you would like to discuss how the proposed changes may affect you, and what steps you may need to consider, contact your AAM Wealth Manager or email [email protected].
This is an op ed piece by Ian Black
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