2021/22 Federal Budget - Personal Income tax changes

The federal government had handed down possibly the second most anticipated budget in history, outlining its plans to help the economy recover post-COVID. Find out what personal income tax changes are coming below. 

Retaining the Low and Middle Income Tax Offset (‘LMITO’) for the 2022 income year

The Government has announced that it will retain the LMITO for one more income year, so that it will still be available for the 2022 income year. Under current legislation, the LMITO was due to be removed from 1 July 2021.

The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers and is available in addition to the Low Income Tax Offset (‘LITO’).

The LMITO is proposed to apply as follows for the 2022 income year.

Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners for the 2021 income year, as follows:

• The threshold for singles will be increased from $22,801 to $23,226.
• The family threshold will be increased from $38,474 to $39,167.
• The threshold for single seniors and pensioners will be increased from $36,056 to $36,705.
• The family threshold for seniors and pensioners will be increased from $50,191 to $51,094.
• For each dependent child or student, the family income thresholds increase by a further $3,597, up from the previous amount of $3,533.

Reducing compliance costs for individuals claiming self-education expense deductions

The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education.

Currently, the first $250 of a prescribed course of education expense is not tax deductible. Removing this $250 exclusion is expected to reduce compliance costs for individuals claiming selfeducation expense deductions.

This measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

Employee Share Schemes – removing ‘cessation of employment’ as a taxing point and reducing red tape

Employee share schemes (ESS) give employees the benefit of buying shares in the company they work for at a discounted price, or the chance to buy shares in the company in the future.

Presently, current employees are eligible for tax concessions on shares owned through an ESS. However, once an employee leaves a workplace, those concessions are no longer applied to their shares.

As part of the government’s $500 million overhaul, former employees will not be required to pay tax on shares after they leave a business.

And, for unlisted companies, the cap on the value of shares sold or lent to employees will increase to $30,000, up from $5,000.

In addition to this change, the Government will also reduce red tape for ESS:

• Where employers do not charge or lend to the employees to whom they offer ESS – by removing regulatory requirements for ESS; and
• Where employers do charge or lend – by streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.

This measure aims to help Australian companies to engage and retain the talent they need to compete on a global stage, consistent with recommendations from the Global Business and Talent Attraction.

The Money Edge | Bundaberg