The 2021 Federal Budget has outlined several measures designed to get Aussies into jobs and keep more money in their pocket.
Notably, there are some changes to your taxes and your superannuation you should be aware about. Here's what you need to know, and the "government spin" you need to keep an eye out for.
For your individual taxes...
The key personal tax change was the extension of the Low and Middle Income Tax Offset (LMITO) for another year, to 30 June 2022. This is very welcome.
This measure ensures that 10.2 million low and middle income Australians will not see a tax hike of up to $1,080 next year.
The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080.
Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.
However, let’s call this what it is and ignore the government spin; this isn’t a tax cut, it's simply the deferral of a tax rise. The LMITO already exists and, has done for many years, so extending it for one year (rather than allowing it to fall away, as was the government’s original intention) should not be seen as a tax cut.
Nobody should be counting the extra dollars in next year’s pay packets because there aren’t any; the tax burden for low and middle income individuals next year is exactly the same as it was this year. So, a cautious welcome but let’s not sell it as a tax cut.
Additionally, the LMITO is delivered in one lump sum through your tax return so you’re going to have to wait until your 2022 tax return is lodged – sometime after 1 July 2022 – to see the benefit.
Personal tax rates remained unchanged
The “stage three” tax cuts, which would see the 32.5 per cent marginal tax rate cut to 30 per cent to make one big tax bracket between $45,000 and $200,000 (the 37 per cent tax bracket will be entirely abolished), from 1 July 2024, were predicted by some to be advanced to start on 1 July 2022 but it didn’t happen.
Should it have? The major beneficiaries of the tax cut would have been the wealthy and given that the need this time was to prod a slumbering economy, it’s hard to see how they would have helped.
After all, if you’re earning $180,000, you don’t really need the money, meaning that the tax cuts would to a large extent have gone straight into people’s savings accounts, rather than being spent straight away.
For your business taxes...
Instant asset write-off extended
Headlining the business tax measure are the extension of temporary full expensing and loss carry back measures by one year, to 30 June 2023.
However, not every business wants to write off its fixed asset purchases up front. For many small, unincorporated businesses there is simply nothing to celebrate here.
For a start, the loss carry-back scheme relates only to companies – sole traders, trusts and partnerships don’t count.
or those businesses that want to retain some taxable profits – perhaps because the owners want to take advantage of the tax-free threshold – the inability to exit the temporary full expensing scheme is a missed opportunity.
Big business can opt out (the legislation was amended last December specifically to allow this) but small business can’t. It was an obvious mistake – and the government didn’t do anything to fix it in this Budget..
For your superannuation...
It was with the superannuation measures that the government really hit the target.
The abolition of the $450 monthly earning threshold below which employers don’t have to make superannuation contributions will make a big difference to those on the lowest wages, including temps and casuals. Now that every employee, no matter what your income, is entitled to super, this should make a notable difference to the retirement saving of millions of low paid Australians, including women who make up a large proportion of that workforce.
The decision not to back away from the already legislated increase in employer super contributions from 9.5% to 10% on 1 July 2022 will also feed into bigger super balances at retirement and better standards of living for all retirees.