2021/22 Federal Budget Summary - Personal Income Tax Changes

The Government will maintain changes to reduce personal income tax. This measure is designed to continue to stimulate the economy by increasing the disposable income available to individuals.

Income Tax Offsets

The Treasurer confirmed that the Low and Middle Income Tax Offset (LMITO) will be retained for the 2021/22 income tax year. It provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. The LMITO will increase at a rate of 7.5 cents for every dollar of taxable income between $37,000 and $48,000, and taxpayers with taxable incomes between $48,000 and $90,000 will receive the full $1,080. For taxpayers with a taxable income over $90,000, the LMITO will phase out at a rate of 3 cents for every additional dollar of taxable income. It will phase out completely at a taxable income of $126,000.

The Low Income Tax Offset (LITO) will also continue to apply for the 2021/22 income tax year. For taxpayers with taxable incomes of less than $37,000, the offset is $700. The offset then reduces at a rate of 5 cents for each dollar of taxable income to $45,000 and at a rate of 1.5 cents for each subsequent dollar of taxable income, completely phasing out for taxable incomes above $66,668.

Personal Tax Rates

There have been no changes to the personal income tax rates for the 2021/22 income year. Stage 3 of the Government’s personal income tax plan remains unchanged and should commence from1 July 2024.The table below summarises the resident personal tax rate and thresholds (excluding the 2% Medicare levy).

Tax Rate
Tax Payable
(Per 20/21 Budget)
2024/25 Previously Announced

$ 0
$0- $18,200
$0 - $18,200

$ 0
$18,201 - $45,000
$18,201 - $45,000

Not Applicable
Not Applicable
$45001 - $200,000

$45,001 - $120,000
Not Applicable

$120,001 - $180,000
Not Applicable


Medicare Levy Low-Income Thresholds

For the 2020/21 income year, the Medicare levy low income threshold for singles will be increased to $23,226 (up from $22,801). For couples with no children, the family income threshold will be increased to $39,167 (up from $38,474). For each dependent child or student, the family income threshold will increase by $3,597 (up from $3,533).

For single seniors and pensioners eligible for the seniors and pensioners tax offset, the Medicare levy low income threshold will be increased to $36,705 (up from $36,056). The family threshold for seniors and pensioners will be increased to $51,094 (up from $50,191).

Simplifying Deductions for Self-Education Expenses

Currently, individuals undertaking a prescribed course of education are only entitled to deduct the excess of the expenses incurred over $250. This exclusion of the first $250 of eligible self-education expenses is to be removed. This measure will take effect from the first income year after the date the amending legislation receives Royal Assent.

Simplifying the Australian Residency Rules

 The existing tests for the tax residency of individuals will be replaced by a primary "bright line" test. Any person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.

Simplifying Employee Share Schemes

Leaving an employer will no longer be a taxing point for employee share scheme entitlements. This means that tax deferral for the employee share scheme entitlements will continue until forfeiture conditions have passed and shares held are able to be freely sold, subject to the maximum 15-year tax deferral period. Currently, forfeiture conditions and sales restrictions are often lifted at the time employments ends. The value of shares that a company can issue to an employee under simplified disclosure requirement will also increase from $5,000 to $30,000 per year.

This article forms part of our Business Accelerator Magazine. Download the latest edition HERE or browse other articles from this edition below:

In case you missed it - also make sure you check our Tax Planning Strategies Guide for 2021

See also information regarding Victorian Small Business Snap Lockdown Grants

The information contained in this document is for general information purposes only and should not be used as a substitute for consultation with professional advisors. The information contained in this newsletter is not intended to address the circumstances of any particular individual or entity and is not to be relied upon by individuals or any other entity in making financial or investment decisions. Individuals and other entities should seek appropriate professional advice tailored to their circumstances in making financial decisions. Although the firm has taken care in creating this newsletter, no guarantee is given as to its accuracy, currency or correctness. The firm is under no obligation to update any information included in this document. To the extent permissible by law, the firm and its associated entities shall not be held liable for any for any errors, omissions, defects or misrepresentations in the information contained in this document, or any loss or damage, however caused, suffered or incurred by persons who rely on information in this document for any purpose.