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income tax 2021 changes

Income Tax Changes for 2021

There are significant income tax rate changes for the coming year (2021) aim to support businesses through these tough times. The major changes as follows provide significant planning opportunities for Perth Businesses:


Individuals

Taxable IncomeTax on this IncomePlanning Prospects
$0 – $18,200NilNo Change
$18,201 – $45,00019 cents for each $1 over $18,200The top threshold of the 19% personal income tax bracket increased from $37,000 to $45,000
$45,001 – $120,000$5,092 plus 32.5 cents for each $1 over $45,000The top threshold of the 32.5%, and bottom threshold of the 37% personal income tax brackets increased from $90,000 to $120,000
$120,001 – $180,000$29,467 plus 37 cents for each $1 over $120,000
$180,000 and over$51,667 plus 45 cents for each $1 over $180,000No Change

With the tax rate changes, at a taxable income of $55,250, your Average tax rate would be 15%, after taking into account income tax and the offsets.
We used 15% as a benchmark comparison, as this is the rate that earnings in a super fund are taxed.

The low-income tax offset (LITO) is also increasing from $445 to $700. This commences once you pay your first dollar of tax at $18,200, and begins to phase out gradually at $37,500, with no offset received at $66,667.

Companies

  1. Tax Rate

The corporate tax rate will be dropped from 27.5% à 26% in 2021 for Base rate Entities
It will then drop to 25% in 2022

A base rate entity company is one deriving its income from business trading verse passive income from Rent, Capital Gains or Interest

Non Base Rate Entities will continue to be capped at the flat 30% rate.

  1. Loss Carry Back Offset

Eligible companies can claim a refundable tax offset in their 2021 and 2022 returns.
This is for companies which made a loss in 2020, 2021  or 2022 and were liable to pay tax in 2018, 2019 or 2020.

This measure will allow significant tax losses to be carried back to generate cash refunds for eligible businesses.

Most companies with losses in 2020, 2021 or 2022 will be eligible to claim this, although see here for the full eligibility criteria.

The ATO is yet to release further detail on how claiming the losses work.

  1. Division 7A Changes – Still mooted but to be legislated June 2021.

This tax division deals with loans owed by Company owners to their respective companies.

The cost of having loans will increase due to interest rate changes and the application of the interest 12 months earlier than currently is the case.

YEAR-END TAX PLANNING

All of the above mean careful Year-End Tax Planning is absolutely essential for the end of this year and in these uncertain times.

Contact Connolly & Associates accountants today to assist in the preparation & lodgement of your 2021 Tax return. Along with reviewing & providing advice on planning your finances for the new financial year.

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