Federal Budget 20-21

Personal tax and incomes

This Budget contains a number of measures impacting individuals, including substantial changes to the individual tax residency rules, the continuation of the Low and Middle Income Tax Offset, employee share scheme rule changes as well as increased access to child care subsidies.

Individual tax residency rules

The individual tax residency rules will be modernised, 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. Where the primary test is not met, secondary tests will apply based on a combination of physical presence and measurable, objective criteria. The new framework will be based on recommendations made by the Board of Taxation in its 2019 report Reforming individual tax residency rules – a model for modernisation and will come into effect from the first income year after the date of enactment.

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, will be retained for the 2021-2022 income year.

The commencement date for the ‘Stage Three’ personal income tax cuts (which predominantly impacts 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 will be altered to remove ‘cessation of employment’ as a taxing point. This will apply to new ESS interests granted from the first income tax year after the date the legislation is enacted. 

There is also a reduction of red tape for ESS. Where employers charge or lend to employees receiving an ESS interest up to the $30,000 per employee per year, the regulatory requirements for unlisted companies will be streamlined. For those employers that do not charge or lend, the regulatory requirements will be removed.

Child care subsidies

From 1 July 2022, the Government will increase the Child Care Subsidy by 30 percent for those families with more than one child in child care, resulting in a maximum subsidy of 95 percent of fees paid for their second and subsequent children. The Child Care Subsidy cap of $10,560 per child per year will also be removed.

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