Expert insights for QuickBooks’ ProAdvisors
For accountants, there was lots of detail announced around measures that they will spend substantial time working through for their clients this year and beyond.
To assist them in unpacking these measures, Intuit QuickBooks’ ProAdvisor community were fortunate to hear The Tax Institute’s Senior Advocate Robyn Jacobson’s analysis of some of the major tax and superannuation measures announced at this year’s Federal Budget.
Here’s a summary of her insights.
- Personal income tax cuts unpacked
As Robyn outlined, the Budget papers confirmed the Stage three personal income tax cuts will proceed as originally planned and will start on 1 July 2024.
“The tax rate above a taxable income of $45,000 will drop from 32.5 percent to 30 percent, with a rate of 45 percent applying above $200,000. This effectively eliminates the 37 percent tax bracket,” she explained.
The Budget also affirmed the low and middle income tax offset (LMITO) will be extended for a further 12 months to 2021–22. The LMITO was originally legislated for four years and was due to end with the introduction of the Stage two cuts on 1 July 2022. The amount of the LMITO has already been incorporated into Stage two of the broader Personal Income Tax Plan. Accordingly, the bringing forward of the Stage two cuts by two years, from 1 July 2020, means that the extension of the LMITO into 2020–21 and now 2021–22 is an unexpected bonus for taxpayers, although its removal after 30 June 2022 will be noticed by taxpayers.
This represents an offset of between $255 and $1,080 for eligible taxpayers. There’s no need for taxpayers or their accountants to take any action to take advantage of the LMITO as the Australian Taxation Office (ATO) will administer and apply it for taxpayers who are entitled to it. However, taxpayers won’t notice any difference in their take-home pay as the LMITO is delivered by way of a tax offset on lodgment not a reduction of PAYG withholding. The benefit of the proposed extension of the LMITO to 2021–22 will not be received until after 1 July 2022 when eligible individuals lodge their 2022 income tax return.
“Last year, the Stage two tax cuts were brought forward by two years. This means the LMITO was then reduced to two years, then it was extended in last year’s Budget to the 2020–21 income year, now it is proposed to end on 30 June 2022,” she explained.
- Removal of the work test for voluntary superannuation contributions
The Federal Treasurer, Josh Frydenberg, also announced the removal of the work test for people aged between 67 and 74 for voluntary non-concessional contributions and salary sacrifice concessional contributions. Since 1 July 2020, people in this age group have had to meet the work test to make voluntary contributions to superannuation. (Prior to 1 July 2020, those aged 65 to 74 had to satisfy the work test to make voluntary contributions.) Under the work test, taxpayers have to be employed for at least 40 hours across a 30-day period in the financial year in which the contributions are made to be able to contribute to their superannuation fund.
“The work test will continue to apply to those aged 67 to 74 making personal deductible contributions to their superannuation fund. This is likely to affect non-employees earning investment income who cannot access salary sacrifice arrangements,” Robyn explained. This measure is expected to take effect from 1 July 2022.
- Removal of the superannuation guarantee $450 monthly income threshold
A key Budget measure is the proposed removal of the superannuation guarantee $450 monthly income threshold. This measure is expected to start on 1 July 2022.
Robyn says, as a result of this change, around 300,000 lower income earners – 63 per cent of whom are female – will receive additional SG payments each month.
Administrating smaller superannuation payments is much easier nowadays thanks to EFT, SuperStream and Single Touch Payroll.
“While this may mean higher costs for some employers, it is an equitable measure that ensures lower income earners will receive employer superannuation support. While employers will be entitled to deductions for these payments, many of the employees who will benefit from this measure will be eligible for the low income superannuation tax offset in their fund. This means the SG contributions will be effectively tax-free in many of those employees’ superannuation funds” says Robyn.
A reminder that the rate of the superannuation guarantee charge will increase from 9.5 per cent to 10 per cent on 1 July 2021.
- Understanding temporary full expensing
Robyn provided a very detailed explanation of how the temporary full expensing measure works. Under this measure, businesses can immediately deduct the cost of new, depreciating assets, as long as their annual aggregated turnover is less than $5 billion.
Large businesses whose aggregated turnover is more than $5 billion may still be able to access this measure under the alternative income test. Assets expensed under this measure must be first used or installed ready for use between 6 October 2020 and 30 June 2022. The Budget measure proposes to extend this by 12 months to 30 June 2023.
“Full expensing of second-hand assets is limited to entities with an aggregated turnover of less than $50 million,” says Robyn.
Special rules continue to apply to limit the depreciation on luxury cars, in the form of a cost limit of $59,136 for the current financial year. The temporary full expensing provision also excludes buildings and some other assets.
“Also, the requirement to write off the general small business low pool value is not a choice – you must fully expense the pool balance on 30 June 2021. When you calculate the low pool value, don’t forget to disregard depreciation for the year,” Robyn recommends, also cautioning accountants and bookkeepers to pay close attention to the acquisition/first held dates versus first used/installed ready for use dates when applying the instant asset write off and temporary full expensing measures for clients.