Australia: Individual income tax measures in federal budget 2021
The 2021 federal budget contains a number of measures that would affect individual taxpayers.
2021 federal budget contains a number of measures that would affect individual taxpayers
The 2021 federal budget contains a number of measures that would affect individual taxpayers—including substantial changes to the individual tax residency rules, the continuation of the low and middle-income tax offset, employee share scheme rule changes, and increased access to child care subsidies.
Individual tax residency rules
The individual tax residency rules would be revised, with the introduction of a new primary test that deems individuals as Australian tax residents if they are physically present in Australia for at least 183 days during the tax year. When the primary test is not met, secondary tests would apply, based on a combination of physical presence and measurable, objective criteria.
The new framework would be based on recommendations made by the Board of Taxation in its 2019 report “Reforming individual tax residency rules - a model for modernization” and would be effective from the first income year after the date of enactment.
Individual (personal) income tax offsets and cuts
The low and middle income tax offset of up to $1,080* (originally scheduled to cease in 2020-21) would be retained for the 2021-2022 income year.
The commencement date for the “Stage Three” individual income tax cuts (which predominantly would affect middle-to-high income earners) has not been changed in this budget and remains as 1 July 2024.
Employee share schemes
Employee share scheme (ESS) rules would be altered to remove “cessation of employment” as a taxing point. This would apply to new ESS interests granted from the first income tax year after the date the legislation is enacted.
There also would be a reduction of red tape for ESS. When employers charge or lend to employees receiving an ESS interest of up to $30,000 per employee per year, the regulatory requirements for unlisted companies would be streamlined.
For those employers that do not charge or lend, the regulatory requirements would be removed.
Child care subsidies
From 1 July 2022, the child care subsidy would be increased for families with more than one child in child care, resulting in a maximum subsidy of 95% of fees paid for their second and subsequent children.
The income-tested child care subsidy cap of $10,560 per child per year would also be removed.
These individual income tax measures could have the following implications for businesses:
- Changes to individual tax residency rules would provide more clarity for employers of globally mobile employees.
- ESS changes are intended to make it easier for businesses to offer ownership interests to attract and retain talent and remove the current poor outcomes that can arise due to taxation on termination of employment.
- Retaining the low and middle-income tax offset would provide additional support for those with a taxable income of less than $126,000.
- Child care subsidy changes would help remove some structural disincentives for parents wanting to work more.
Further analysis of the 2021 federal budget is available on the KPMG Australia website.
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