Australian Federal Budget 2021 – Australian Expat Summary

On 11 May 2021, the Government handed down the 2021-22 Federal Budget, which marked a return to the traditional timing of Budget announcements post Covid. The budget which Treasurer Josh Frydenberg has declared will secure the recovery and set Australians up for the future, contains a number of announcements aimed at fast-tracking Australia’s economic recovery post-Covid. We take a look at the key announcements that will impact Australian Expats.  

Simplification of the tax residency test

What initially seemed a positive announcement, the proposed simplification of the tax residency test may have some unforeseen consequences for Australian Expats and those looking to move overseas for employment. The proposal, which is not yet law, will replace the current individual tax residency rules with a new, modernised framework. The change which the Government says is designed to be easier to understand and apply, will consist of a simplified structure of:

Primary Test – a person who is physically present in Australia for 183 days or more in any financial year will be an Australian Tax Resident.

Secondary Tests – the residency status of a person who does not meet the primary test, will have their residency status based on a combination of physical presence and measurable, objective criteria.

The 2019 report by the Board of Taxation, may offer some insights into what the secondary tests will involve with a number of recommendations for commencing and ceasing Australian tax residency provided by the board. Central to the proposal is a count of how many days you have spent in Australia, together with a factor test. The four factors include an individual’s right to reside permanently in Australia, Australian accommodation, Australian family, and Australian economic interests. The proposed changes raise a number of questions, key to this will be how the proposal will work with Double Tax Agreements between Australia and various countries. We look forward to further clarification and guidance from the Government before the proposal becomes law.  


There were a number of announcements in the budget that relate to Superannuation with the changes aimed at bringing more flexibility for Australian’s retirement savings, with a focus on women and older Australians. Some of the key announcements include:

Downsizer Contribution age reduced: From 1 July 2022, the minimum age to make downsizer contributions will be lowered from 65 to 60. Downsizer super contributions allow you to contribute a maximum of $300,000 (for each eligible member of a couple) to super up to the total proceeds from the sale of your home.

Work Test to be removed: From 1 July 2022, if you’re aged 67 to 74 you will not be required to meet the work test to make non-concessional contributions and salary sacrifice contributions to super. It will still be required to make personal deductible contributions to super.

Self-Managed Super Funds — relaxing residency requirements: The residency rules for SMSFs will be relaxed so that you can be a non-resident for up to five years before affecting the SMSF residency rules. The ‘active member test’ will also be removed for SMSFs.

Removal of $450 monthly income threshold: The $450 minimum monthly income threshold will be removed, meaning all workers, regardless of how much they earn, will be entitled to receive employer super payments.

Although not a new announcement in this Budget, the Government has also maintained the legislated increase to the superannuation guarantee, which will increase by 0.5% to 10% on 1 July 2021. Superannuation caps will also increase from 1 July 2021 as follows:

Cap From 1 July 2021
Concessional Contribution Cap $27,500 p.a.
Non-Concessional Contribution Cap $110,000 or $330,000 over 3 years
Transfer Balance Cap $1,700,000
Superannuation Guarantee 10% p.a.


Personal Income Tax

Personal income tax rates remain unchanged from those announced in the 2020-21 Budget, which brought forward the second stage of the Government’s Personal Income Tax Plan by two years to 1 July 2020. Stage three of the Plan is unchanged and scheduled to commence in 2024-25.

Current Tax Rate
$0 – $18,200 Tax Free
$18,201 – $37,000 19%
$37,001 – $90,000 32.5%
$90,001 – $180,000 37%
> 180,000 45%
Early Stage 2 (From 1 July 2020) Tax Rate
$0 – $18,200 Tax Free
$18,201 – $45,000 19%
$45,001 – $120,000 32.5%
$120,001 – $180,000 37%
> $180,000 45%
Stage 3 (From 1 July 2024) Tax Rate
$0 – $18,200 Tax Free
$18,201 – $45,000 19%
$45,001 – $200,000 30%
> $200,000 45%

Low and Middle Income Tax Offset: The Government will extend the Low and Middle Income Tax Offset by one year, making it available for the 2021-22 financial year. This measure provides a reduction in tax of up to $1,080 to low and middle income earners.


Wrapping Up

While there is further clarity needed on the proposed changes to the tax residency test, overall the budget included a number of positive announcements aimed at promoting economic growth and employment as well as a significantly improved deficit position from forecasts delivered in October. Unfortunately for us Australians living overseas one negative takeaway from the Budget is the Government’s expectation that Australian borders are not expected to open until the 2nd half of 2022. The announcements in the budget are still proposals and need to pass through Senate and receive Royal Assent before becoming law. Please get in touch with your Financial Adviser if you would like to know more about any of the budget announcements and how the changes may impact you.   Contact us to start a conversation today.  


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