2021 Budget: ‘Securing Australia’s Recovery’ proposed measures

The Federal Budget is a series of papers. These Budget papers provide us with important information on the current and forecast economic and fiscal position of Australia (including expenditure and revenue), as well as the Government’s policy priorities (and accompanying proposed policy measures to achieve them).

Traditionally, the Budget is delivered in May each year—last year being a recent exception when it was delivered on 6 October 2020 due to COVID-19. This year, Treasurer Josh Frydenberg delivered the 2021-22 Budget on 11 May 2020.

Below, we touch on the Government’s policy priorities and the economic and fiscal position, followed by coverage of several key proposed policy measures that may be relevant to you.

Budget overview

Policy priorities

The Government’s policy priorities announced—and the accompanying proposed policy measures to help achieve these policy priorities—focus on securing Australia’s recovery from the COVID-19 pandemic by:

• creating jobs,
• guaranteeing the essential services, and
• building a more secure and resilient Australia.

In addition, there is also a focus on improving women’s safety and economic security.

Please see below for further information on the related proposed policy measures.

Economic and fiscal position

Major economic parameters overview

*Real GDP and Nominal GDP are percentage change on preceding year. The consumer price index, employment, and the wage price index are through-the-year growth to the June quarter. The unemployment rate is the rate for the June quarter.

Source: ABS Australian National Accounts: National Income, Expenditure and Product; Labour Force, Australia; Wage Price Index, Australia; Consumer Price Index, Australia and Treasury.

Budget aggregates overview

*Excludes expected net Future Fund earnings before 2020-21.

^Net debt is the sum of interest-bearing liabilities (which include Australian Government Securities (AGS) on issue measured at market value) minus the sum of selected financial assets (cash and deposits, advances paid and investments, loans and placements).

^#Gross debt measures the face value of AGS on issue.

Policy measures: Individual taxation

Employee Share Schemes (ESS)

The Government will remove the ‘cessation of employment’ taxing point for the tax-deferred ESSs that are available for all companies—resulting in tax being deferred until the earliest of the remaining taxing points:

• In the case of shares, when there is no risk of forfeiture and no restrictions on disposal.
• In the case of options, when the employee exercises the option, and there is no risk of forfeiting the resulting share, and no restriction on disposal.
• The maximum period of deferral of 15 years.

The measure will apply to ESS interests issued from the first financial year after the date of Royal Assent of the enabling legislation.

Low and middle-income tax offset (LMITO)

The Government will retain the LMITO for the 2021-22 financial year—an additional financial year. For context, the LMITO provides a reduction in tax of up to $1,080:

• taxable income ≤$37,000, offset of $255,
• taxable income from $37,001 to $48,000, offset of $255 plus 7.5 cents per dollar above $37,000,
• taxable income from $48,001 to $90,000, offset of $1,080, and
• taxable income from $90,001 to $126,000, offset of $1,080 minus 3 cents per dollar above $90,000.

Medicare levy

In line with Budgets for previous financial years, the Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2020. The Medicare levy low-income thresholds will be increased from:

• $22,801 to $23,226 for singles,
• $38,474 to $39,167 for families*,
• $36,056 to $36,705 for single seniors and pensioners, and
• $50,191 to $51,094 for family seniors and pensioners.

*For each dependent child or student, the family income thresholds increase by a further $3,597 (previously $3,533).

Tax residency rules

The Government will replace the individual tax residency rules with a new framework. The primary test will be a simple ‘bright line’ test—a person physically present in Australia for 183 days or more in any financial year, will be an Australian tax resident. Individuals who don’t meet this test will be subject to secondary tests. The measure will apply from the first financial year after the date of Royal Assent of the enabling legislation.

Work-related self-education expenses

The Government will remove the exclusion of the first $250 of deductions of prescribed courses of education. For context, the first $250 of a prescribed course of education expense is currently not deductible. The measure will apply from the first financial year after the date of Royal Assent of the enabling legislation.

Policy measures: Company taxation

Intangible assets

The Government will allow taxpayers to self-assess the effective life of certain depreciating intangible assets* for tax purposes, rather than being required to use the effective life currently prescribed by statute.

*Patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.

Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life than the current statutory life. The measure will apply to eligible assets acquired, following the completion of temporary full expensing (see below), which has been extended until 30 June 2023.

Patent box

The Government will introduce a patent box tax regime to further encourage innovation in Australia by taxing corporate income derived from Australian medical and biotechnology patents at a concessional effective corporate tax rate of 17 per cent (reduced from 30 per cent, or 25 per cent for small and medium companies), with the concession applying from income years starting on or after 1 July 2022.

Temporary full expensing

The Government will extend temporary full expensing for 12 months until 30 June 2023. Temporary full expensing will be extended to allow eligible businesses with an aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

Temporary loss carry-back

The Government will extend temporary loss carry-back by one financial year. The extension will allow eligible companies with an aggregated turnover of less than $5 billion, to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.

Policy measures: Housing

Family Home Guarantee

The Government will establish the Family Home Guarantee with 10,000 places from 2021-22 to support single parents with dependants to enter, or re-enter, the housing market with a 2 per cent deposit (the Government guaranteeing the remaining 18 per cent), regardless of whether that single parent is a first-home buyer or previous owner-occupier. The measure will commence on 1 July 2021, subject to the passage of legislation.

First Home Loan Deposit Scheme (FHLDS)

The Government will extend the FHLDS to provide an additional 10,000 New Home Guarantees in 2021-22 to allow eligible first home buyers to build a new home or purchase a newly constructed home with a 5 per cent deposit (the Government guaranteeing the remaining 15 per cent).

HomeBuilder grant program

The Government will extend the HomeBuilder grant program construction commencement period from six months to 18 months for all existing applicants.

Policy measures: Superannuation

Superannuation Guarantee

The Government will remove the current $450 per month minimum income threshold, over which employees have to be paid the Superannuation Guarantee by their employer. The measure will apply from the start of the first financial year after Royal Assent of the enabling legislation—the Government expects this to occur before 1 July 2022.

Downsizing measure

The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age. The measure will apply from the start of the first financial year after Royal Assent of the enabling legislation—the Government expects this to occur before 1 July 2022.

First Home Super Saver Scheme (FHSSS)

The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the FHSSS from $30,000 to $50,000. The measure will apply from the start of the first financial year after Royal Assent of the enabling legislation—the Government expects this to occur before 1 July 2022.

Please note: Voluntary contributions made from 1 July 2017, up to the existing limit of $15,000 per year, will count towards the total amount able to be released.

The Government will also make four technical changes to the legislation behind the FHSSS, to assist applicants who make errors on their FHSSS release applications. One of these technical changes will allow individuals to withdraw or amend their applications prior to them receiving an FHSSS amount, and allow those who withdraw to re-apply for FHSSS releases in the future. These technical changes will apply retrospectively from 1 July 2018.

Legacy retirement products

The Government will allow, for a two-year period, individuals to exit a specified range of legacy retirement products*, together with any associated reserves and fully access the underlying capital by commuting it to superannuation. They will then have the option to withdraw it, roll it to more flexible and contemporary retirement products and/or retain it within superannuation.

*Market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

Please note: Social security and taxation treatment won’t be grandfathered for any new products commenced with commuted funds. The commuted reserves won’t be counted towards an individual’s concessional contributions cap and won’t trigger excess contributions. They will, however, be taxed as an assessable contribution of the fund (with a 15 per cent tax rate).

The measure will apply from the first financial year after the date of Royal Assent of the enabling legislation.

Residency requirements

The Government will relax residency requirements for self-managed superannuation funds (SMFSs) and small APRA-regulated funds (SAFs) by extending the ‘central control and management test’ safe harbour from two to five years for SMSFs, and removing the ‘active member’ test for both fund types. The measure will apply from the start of the first financial year after Royal Assent of the enabling legislation—the Government expects this to occur before 1 July 2022.

Superannuation assets and family law proceedings

The Government will shortly introduce enabling legislation to deliver the Improving the Visibility of Superannuation Assets in Family Law Proceedings measure. For context, the Government is building an electronic information-sharing mechanism between the Australian Taxation Office (ATO) and the Family Law Courts to allow superannuation assets to be readily identified during family law proceedings.

Victims of family and domestic violence

The Government won’t proceed with a measure to extend early release of superannuation to victims of family and domestic violence.

Work test

The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contributions caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions. The measure will apply from the start of the first financial year after Royal Assent of the enabling legislation—the Government expects this to occur before 1 July 2022.

Policy measures: Social security

Child care

The Government will reduce child care out-of-pocket costs and support parental choice by:

• increasing the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and subsequent children aged five years and under in care, up to a maximum CCS rate of 95 per cent for these children, commencing on 11 July 2022; and
• removing the CCS annual cap of $10,560 per child per year, commencing on 1 July 2022.

 Pension Loans Scheme (PLS)

The Government will allow PLS participants to access up to two lump sum advances in any 12-month period, up to a total value of 50 per cent of the maximum annual rate of the Age Pension. And, introduce a No Negative Equity Guarantee so borrowers under the PLS, or their estate, won’t have to repay more than the market value of their property. The measure will apply from 1 July 2022.

Policy measures: Aged care

The Government will:

• release 80,000 additional Home Care Packages over two years from 2021-22.
• improve access to quality aged care services for consumers in regional, rural and remote areas, including those with Indigenous backgrounds and special needs groups.
• increase the amount of front line care (care minutes) delivered to 240,000 aged care residents and 67,000 who access respite services, by 1 October 2023. This will be mandated at 200 minutes per day, including 40 minutes with a registered nurse.
• provide support for aged care providers to deliver better care and services through a new Government-funded Basic Daily Fee supplement increase of $10 per resident per day from 1 July 2021, while continuing the 30 per cent increase in the homelessness and viability supplements.
• support structural reforms, including a new Aged Care Act to replace the Aged Care Act 1997 and the Aged Care Quality and Safety Commission Act 2018, as well as the implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program to replace the current bed license and the Aged Care Approvals Round Process from 1 July 2024.

 Other policy measures

The Government will provide:

• $2.0 billion over four years from 2021-22 for the National Mental Health and Suicide Prevention Plan, including initiatives to be progressed with states and territories for a new national agreement on mental health and suicide prevention.
• $1.9 billion over five years from 2020-21 to distribute and administer COVID-19 vaccines to residents of Australia. The Government has also entered into advance purchase agreements for an additional 30 million doses of the Pfizer BioNTech vaccine and has provisioned to purchase additional vaccine doses, including mRNA vaccines.
• An additional $506.3 million* over two years from 2021-22 to expand the JobTrainer Fund by a further 163,000 places and extend the program until 31 December 2022. And, an additional $2.7 billion over four years from 2020-21 to expand the Boosting Apprenticeship Commencements wage subsidy to further support businesses and Group Training Organisations to take on new apprentices and trainees.

*Subject to matched funding by state and territory governments.

• $164.8 million over three years in financial assistance and support to women affected by family and domestic violence. This includes a two-year trial that will run until 30 June 2023 to provide immediate financial assistance to support women leaving a violent relationship and help them rebuild their lives. The package will enable eligible women to access up to $5,000 in financial assistance—this will include a maximum cash payment of $1,500 and the remaining amount in goods.

Moving forward

Many proposed policy measures were announced in this year’s Budget. We provided coverage on several proposed policy measures that may be relevant to you.

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