On 8.12.2021, the Federal Government unveiled the most significant reforms to Australia’s payment systems in more than 25 years. The reforms will ensure that Australia can capitalise on the significant opportunities created by new payment and crypto technologies.
These reforms will build on the Digital Economy Strategy, which delivers on the Government’s vision of Australia as a leading digital economy by 2030.
The reforms will modernise the rules governing how Australians transact every day, including through new forms of payment like Digital Wallets and Buy Now Pay Later. The reforms also aim to give Australian’s confidence that businesses they engage with to buy, sell, or hold digital assets like crypto are subject to appropriate oversight and licencing arrangements.
As part of these reforms, the Government will also investigate the feasibility of a Central Bank Digital Currency and seek to address the complex issue of de-banking.
The reforms aim to improve regulatory certainty for businesses, better protect consumers and investors and support competition by making it easier for innovative new entrants.
Three major reviews have formed the Government’s proposals into Australia’s current regulatory framework; the Review of the Australian Payments System, the Senate Committee Australia as a Technology and Financial Centre Final Report, and the Parliamentary Joint Committee Corporations and Financial Services report: Mobile Payment and Digital Wallet Financial Services.
These reviews found that Australia’s payment system framework needs to be modernised to help drive innovation and spur competition. Without reform, Australian consumers and businesses would increasingly transact in largely unregulated environments, with any rules determined by foreign governments and large multinationals.
The Government is responding to all 41 recommendations across the three reviews, focusing on centralising oversight of the payments system, including enhanced powers for the Treasurer to set payment policy and fundamental reform to strengthen business and consumer protections.
The reforms will progress in two phases, with the most urgent and immediately implementable reforms to be consulted on in the first half of 2022 and the remainder by the end of 2022.
The Federal Government’s comprehensive and forward-looking reform agenda aims to cement Australia’s place as a world-class financial and technology centre.
As we enter a new year, we provide an update on current and future tax rates, offsets, along with information on PAYG Withholding and Instalments.
On 11 May 2021, as part of the 2021–22 federal Budget, the Australian Government announced it would extend the low and middle income tax offset (LMITO) for the 2021–22 income year.
- increases the low-income tax offset (LITO) from $445 to $700 and adjusts the phase-out rules
- increases the top threshold of the 19% personal income tax bracket from $37,000 to $45,000
- increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
These changes result in the following tax rates for the 2020–21 income year for individuals who are Australian residents.
|Resident tax rates for 2021–22|
|Taxable income||Tax on this income|
|$0 to $18,200||Nil|
|$18,201 to $45,000||19 cents for each $1 over $18,200|
|$45,001 to $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 to $180,000||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45 cents for each $1 over $180,000|
Note: Changes also apply to thresholds for foreign resident individual taxpayers and working holidaymakers. The new tax rates are shown in the tables below.
|Foreign resident tax rates for 2021-22|
|Taxable income||Tax on this income|
|$0 to $120,000||32.5 cents for each $1|
|$120,001 to $180,000||$39,000 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$61,200 plus 45 cents for each $1 over $180,000|
|Working holidaymaker tax rates 2021-22|
|Taxable income||Tax on this income|
|$0 to $45,000||15%|
|$45,001 to $120,000||$6,750 plus 32.5 cents for each $1 over $45,000|
|$120,001 to $180,000||$31,125 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$53,325 plus 45 cents for each $1 over $180,000|
Low income tax offset (LITO)
The LITO maximum amount has increased from $455 to $700 per year for the 2020–21 income year and future years. LITO’s phase-out rules have also changed and are set out below.
|Low income tax offset phase out rules|
|$37,500 or less||$700|
|Between $37,501 and $45,000||$700 minus 5 cents for every dollar above $37,500|
|Between $45,001 and $66,667||$325 minus 1.5 cents for every dollar above $45,000|
As a non-refundable offset, any unused low income tax offset cannot be refunded. The low income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If not all the offset is used to reduce the tax payable, there is no refund of any unused portion.
Low and Middle Income Tax Offset (LMITO)
Under the previous legislation, the low and middle income tax offset (LMITO) was to be repealed when the relevant threshold changes came into effect, and the LITO was increased.
LMITO will continue to be available for the 2020–21 income year then removed for the 2021–22 income year and later years.
There are no changes to the amount of LMITO or the eligibility thresholds, and as such, LMITO is applied as outlined in the following table:
|Low and middle income tax offset|
|$37,000 or less||$255|
|Between $37,001 and $48,000||$255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080|
|Between $48,001 and $90,000||$1,080|
|Between $90,001 and $126,000||$1,080 minus 3 cents for every dollar of the amount above $90,000|
As a non-refundable offset, any unused low and middle income tax offset cannot be refunded. The low and middle income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If not all the offset is not used to reduce the tax payable, there is no refund of any unused portion.
Updated tax withholding schedules are now available at ato.gov.au/taxtables.
These schedules enable employers to withhold the correct amount of tax. This, in turn, will allow the tax cuts to be reflected in people’s take-home pay.
The changes to thresholds have not been included when calculating PAYG instalments shown on the September quarter activity statements. The changes will be reflected in the December activity statements. In most cases, this will result in a wash-up of any overpayments that occurred for earlier periods.
Variations to your PAYG instalments
The ATO will not apply penalties or charge interest for excessive variations if:
- you chose to vary your PAYG instalments for the 2021–22 income year to reflect the tax changes
- you have made your best attempt to estimate your end of year tax liability.
General interest charges may apply to outstanding PAYG instalment balances. Regularly review your tax position throughout the year and vary your PAYG instalments as your situation changes.
Tax rates from 2024–25 income year
The effective date of the final stage of the personal income tax plan remains unchanged.
From the 2024–25 income year, the 32.5% marginal tax rate will reduce to 30%. For a resident individual, the tax rate on their taxable income will be as follows.
|2024–25 income year|
|Taxable income||Tax rate on this income|
|$18,200 to $45,000||19%|
|$45,001 to $200,000||30%|
|$200,001 and over||45%|
On 3.11.2021, an English backpacker who worked as a waitress in Sydney has won her battle over the so-called backpacker tax in the High Court.
British national Catherine Addy argued a tax imposed on her as a backpacker discriminated against her on the basis of her nationality when she was made to pay tax at a different rate to Australian residents.
Under an agreement between Britain and Australia, backpackers paid a flat rate. Foreign nationals in Australia on 417 and 462 visas are subject to a 15 per cent tax on income and are not eligible for the tax-free threshold.
The tax was introduced in 2017 and applies to 417 and 462 visas holders, which allows travellers between 18 and 31 to travel to Australia for a working holiday.
Ms Addy worked as a waitress in two Sydney hotels earning $26,576 between January 2017 and May 2017, when she left Australia.
Ms Addy challenged the decision to tax her a flat rate of 15 per cent under the backpacker tax, instead of as a resident of Australia, who would have access to the tax-free threshold.
Ms Addy argued this was contrary to the international “double tax” agreement Australia has with Britain and a number of other nations.
That agreement prohibits discrimination on the basis of nationality by stating foreign nationals should not be taxed in a more “burdensome” way than locals in a similar position.
The High Court agreed, saying:
“In the present case, the application of the ordinary taxation laws – the basis of the charge and the method of assessment in relation to the taxable income of Australian nationals and nationals of the United Kingdom in the same circumstances – was the same, but the tax rate was not,” the unanimous judgement said.
“The tax rate was more onerous for Ms Addy, a national of the United Kingdom, than it was for an Australian national in the same circumstances – doing the same work, earning the same income, under the same ordinary taxation laws.”
The ruling effectively clears the way for thousands of other foreign workers who were similarly taxed to request a review.
In noting the decision, the ATO maintains this decision is only relevant where the working holidaymaker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany, or Israel.
Working holidaymakers who may potentially be affected by this decision are encouraged to check the ATO website for updated guidance prior to lodging or amending a return or lodging an objection.
Employers should continue to follow rates in the published withholding tables for working holidaymakers until the ATO provides further guidance.
The taxpayer’s individual circumstances determine a working holidaymaker’s residency status for tax purposes. Most working holidaymakers will be non-residents consistent with their purpose of being in Australia to have a holiday and working to support that holiday.
In a major boost to superannuation transparency, Australians will have access to information about how superannuation funds invest their money following the finalisation of new regulations dealing with portfolio holdings disclosure by superannuation funds.
Under the requirements, superannuation funds must disclose information about their investments’ identity, value, and weightings. Members will be able to clearly see how much of their retirement savings are being invested by superannuation funds across a range of asset classes and derivatives.
This information will make it easier for members to compare products and identify the most suitable fund for them.
Reviews of the superannuation system have found that superannuation portfolio disclosure is unduly opaque and does not meet global best practice. Also, disclosing portfolio holdings would provide greater transparency and allow members to understand where their superannuation is invested.
Under the regulations, superannuation funds will be required to first report their holdings by 31 March 2022, with portfolio holdings disclosure to occur every six months after that. The Government will closely monitor these disclosures and consider further refinements where necessary.
While undertaking consultation on this measure, it has become apparent that some superannuation funds have large exposures to derivatives.
Given that Australia’s superannuation funds have become a systemically important part of our financial system, it is timely to ensure policymakers and regulators have a sound understanding of the extent and nature of the use of derivatives and any implications for the operation of our financial system that could arise from these exposures.
Therefore, the Treasurer has asked the Council of Financial Regulators (CFR) to prepare a report on this matter, drawing upon the information-gathering powers of the Australian Prudential Regulation Authority and the input of relevant experts from across the CFR, including the Reserve Bank of Australia.
Due to the continued extenuating circumstances of COVID-19 and lockdowns since 1 July, the 80 cents per hour temporary shortcut method to calculate working from home deductions has been extended to 30 June 2022. The existing fixed-rate method (52 cents per hour) and the actual cost method are still available options for taxpayers to use.
The Commissioner has released Taxation Determination TD 2021/8. This Determination provides an update of amounts that the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers in named industries.
Schedule for the value of goods taken from trading stock
The Schedule for the value of goods taken from trading stock for private use in the 2021-22 income year is:
|TYPE OF BUSINESS||AMOUNT (EXCLUDING GST) FOR ADULT/CHILD OVER 16 YEARS||AMOUNT (EXCLUDING GST) FOR CHILD 4 to 16 YEARS OLD|
|Takeaway food shop||$3,790||$1,895|
|Mixed business (includes milk bar, general store, and convenience store)||$4,590||$2,295|
Individuals can now re-contribute amounts they withdrew under the program without them counting towards their non-concessional contributions cap. These contributions can be made between 1 July 2021 and 30 June 2030.
COVID-19 re-contribution amounts are not a new type of contribution. They are a personal contribution that the ATO will exclude from an individual’s non-concessional contribution cap.
Individuals can make COVID-19 re-contribution amounts to any fund of their choice where the fund rules allow.
Individuals can use the approved form to make a COVID-19 re-contribution. You can choose to design your own Notice of re-contribution of COVID-19 early release amounts approved form for your members, as outlined in the CRT Alert 008/2021.
Further details are available on the ATO’s webpage.
Commissioner of Taxation vs Virgin Australia Regional Airlines Pty Limited [2021 FCAFC 209]
The Full Federal Court has upheld the Commissioner’s appeal in relation to the existence of taxable car parking fringe benefits in situations where the taxpayer provided car parking spaces to aircrew employees at their “Home Base” airport.
The key elements of the definition of car parking fringe benefits in section 39A FBT Act that were relevant were:
- did the employee have a primary place of employment on the day that the employer provided the benefit?
- If so, where was the primary place of employment on that day?
- Was the car parked in the vicinity of that primary place of employment?
Subsection 136(1) of the FBT Act defines the “primary place of employment” to include:
“business premises of the employer…where those premises are”
(c) the sole or primary place of employment of the employee: or (d) otherwise the sole or primary place from which the employee performs duties of their employment”.
The FBT Act states that business premises can include an aeroplane.
Paragraph 39A(1)(g) of the FBT Act provides that a car parking fringe benefit can only arise on a day where the employee has used the car to travel between the place of residence and the primary place of employment.
Therefore, days in the middle of the employee’s Tour of Duty would not give rise to car parking fringe benefits.
This decision has implications for entities that have employees travel on work.
If you receive money (or assets) from overseas, it’s important to understand your tax obligations.
There are a number of payments made from overseas that may need to be included in your assessable income, such as distributions from foreign trusts and, in some cases, overseas pensions. It is possible you may not identify the amount (or asset) you’ve received as a trust distribution but see it as a gift or loan from a family member.
Questions you need to ask and understand include:
- Who paid the money or transferred the asset? For example, is the amount (or asset) from a foreign trust directly or has it been received indirectly from a foreign trust through another entity or person.
- Are you a beneficiary of the foreign trust?
- What the money represents. For example, is it payment for services, a gift, a distribution, or a loan?
Any amount (or value of an asset) received by an Australian beneficiary from a foreign trust, either directly or indirectly, may need to be included as assessable income in the income year that it is received.
If you are not sure of the source or precise nature of the receipt, you are welcome to discuss it with us.
This is now an area of ATO focus. Of course, genuine gifts or inheritances are not assessable. The ATO is now taking note of large overseas transfers, and further on down the line, you may be asked to provide documentary evidence of the source of the payments made to you.
It is possible the ATO holds more information on you than you may think.
The Reported transactions service in ATO online platforms allows you and your tax agent to view third party data that they hold on taxable payments, government grants and business transactions received through payment systems.
Accessing reported transactions
These records give you transparency about the data that has been provided to the ATO about your business transactions and can help you meet your tax obligations.
While most businesses do the right thing, some are deliberately not reporting or under-reporting business income to the ATO. This contributes to the shadow economy. It is estimated that small businesses operating in the shadow economy cost the community more than $6.7 billion in unpaid tax every year.
After the ATO receives and processes the information, the data is available to view. You and your tax agent will be able to view and filter on the current year plus the previous three years of data and download it in either CSV or HTML format.
You can access the Reported Transactions service through our ATO Online platforms, such as Online services for business. If you are a sole trader, you have a choice of using Online services for individuals or Online services for business. The ATO is also making the data available for tax agents of small businesses through Online services for tax agents (OFSA).
This information may help you meet your tax obligations. However, it would be best to cross-check the information against your business records to ensure it is complete and correct.
ATO information may be incomplete because:
- an organisation has not supplied data yet
- ATO processing has not been completed
- the ATO has received data that could not be matched to you with high confidence
- the data did not pass all validation processing checks
- the transaction date is the date the payer made the payment. If you report on an accrual basis, you’ll need to consider when the work was done rather than when the payment was received.
If you or your tax agent need to dispute the data, you can send the ATO a message with the details by accessing the ‘contact us’ link on the ATO page.
Reported transaction payment types
It is important to understand the different payment types available in the Reported Transactions service and the description of data fields in your data download report.
The main categories the ATO holds information are:
- Taxable payments
- Government grants and payments
- Business transaction through payment systems
This is all part of ATO data matching, and more detailed information is on the ATO website.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.