2021 Federal Budget

Tuesday night’s Federal Budget was the Treasurer’s second “pandemic” budget and focuses on a range of key spending measures intended to drive Australia’s economic recovery. The budget contained a variety of measures across superannuation, taxation, business, social security and aged care that will affect many of our clients and their financial plans. Please note that these proposals are not yet legislated, and as always, the team at AGS Financial Group are well placed to advise you on your strategic options as these proposals progress.

Key elements of the budget include:


Removing the work test
The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions. Expected commencement date 1 July 2022.

Downsizer contributions
The Government will reduce the eligibility age to make a downsizer contribution from 65 to 60 from 1 July 2022. The scheme allows a one-off, post tax contribution of $300,000 per person from selling a house with contributions not counted towards the non-concessional cap.

Super Guarantee threshold
The Government will remove the $450 per month minimum income threshold under which employees do not have to be paid the superannuation guarantee from 1 July 2022. The measure is expected to boost the superannuation savings of lower income Australians, 63 per cent of whom are women, however will also lead to a reduction in take home pay under most circumstances.

Legacy retirement Product Conversions
The Government will allow individuals to exit a range of legacy retirement products for a period of two years (expected to commence from 1 July 2022). This will include market-linked, life-expectancy and lifetime products in SMSF. This measure will allow people to shift into a more contemporary retirement product.

It should be noted that social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution.

SMSF Residency requirements
The Government will relax residency requirements for SMSF and small APRA-regulated funds from 1 July 2022 by extending the central control and management test safe harbour from two to five years, and removing the active member test. This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds.

First Home Saver Super Scheme
The Government will increase the maximum amount of voluntary concessional and non-concessional contributions releasable from FHSSS accounts from $30,000 to $50,000 from 1 July 2022. This means all 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.

Personal Taxation

Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was due to be removed at the end of the current financial year. However, the Government has announced it will retain LMITO for the 2021-22 income year. This deferral will save individuals earning between $48,000 pa and $90,000 pa from paying $1,080 in additional tax.

Employee Share Schemes – removing cessation of employment as a deferred taxing point
Effective 1 July following Royal Assent, the Government will remove the cessation of employment taxing point for the tax-deferred Employee Share Schemes (ESS) that are available to all companies. The removal of cessation of employment as a deferred taxing point will result in tax being deferred until the earliest of the remaining taxing points. This change will apply to ESS interests issued on or after 1 July following Royal Assent of the enabling legislation.

Increasing the Medicare Levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2020-21 income year.

Freezing Medicare Levy surcharge thresholds for 2 years
The Government will continue with the current policy settings for the income thresholds for the Medicare Levy Surcharge (MLS) and Private Health Insurance Rebate for a further two years from 1 July 2021.

Simplifying self-education tax deductions
Effective from the income year after Royal Assent. Currently, tax deductions for Category-A self-education expenses (such as tuition fees and textbooks) must generally be reduced by $250. The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.

Modernising the individual tax residency rules
The Government has announced that it will replace the individual tax residency rules with a new, modernised framework.

The primary test will be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers.

This measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

Social Security, Aged Care and Housing Affordability

Pension Loan Scheme
The Government has announced that they will be increasing the flexibility of the Pension Loans Scheme (PLS) by allowing 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 aged pension. Based on current Age Pension rates, the total PLS is around $12,385 per year for singles, while couples combined could receive around $18,670.

Four-year Newly Arrived Resident’s Waiting Period (NARWP)
Effective 1 January 2022
The Government has announced it will apply a consistent four-year Newly Arrived Resident’s Waiting Period across most welfare payments from 1 January 2022. This differs from current rules, where clients who have recently arrived as a resident in Australia may have to wait 1, 2 or 4 years before qualifying for a payment or concession card under the Newly Arrived Resident’s Waiting Period.

Increase in child care subsidy
Effective 1 July 2022
The Government announced it will:

  • increase 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% for these children, commencing on 11 July 2022, and
  • remove the CCS annual cap of $10,560 per child per year commencing on 1 July 2022.

This will provide greater choice to parents who want to work an extra day or two a week. Removing the annual cap helps support the choices of parents to work the hours they want to work and, in particular, reduces barriers that secondary income earners face when seeking to work more. The current hourly fee caps will continue to apply.

Aged care
In response to the Royal Commission into Aged Care Quality and Safety, the Government is investing $17.7 billion over five years into improving the aged care system. This includes increased funding for Home Care packages, funding for residential aged care, implementation of a new funding model – the Australian National Aged Care Classification system, and increased funding to drive systemic improvements to residential aged care quality and safety.

Home ownership – First Home Loan Deposit Scheme (New Homes) and Family Home Guarantee
An additional 10,000 places will be available under the First Home Loan Deposit Scheme (New Homes) to help eligible first home owners who have at least a 5% deposit with the purchase of a new home.

Home Ownership – Family Home Guarantee
A total of 10,000 guarantees will be available to enable eligible single parents the opportunity to purchase a new or existing home with a minimum deposit of 2%. The guarantees will be available until 30 June 2025.

Small & Medium Business

The Digital Economy Strategy
The Government will provide $1.2 billion over six years from 2021-22 for the Digital Economy Strategy to invest in settings, infrastructure and incentives to grow Australia’s digital economy to ensure businesses across all sectors are able to lift productivity and be globally competitive.

The Digital Economy Strategy will also allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in- house software. Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.

Temporary full expensing of capital assets
The Government will extend the 2020-21 Budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023, to further support business investment and the creation of more jobs.

Extending temporary loss carry-back
Ordinarily, companies are required to carry losses forward to offset profits in future years. The Government has announced that it will extend the temporary loss carry-back measure a further 12 months to allow companies with aggregated annual turnover of less than $5 billion to carry back tax losses from 2019-20, 2020-21, 2021-22 or 2022-23 income years to offset previously taxed profits in the 2018-19 or later income years.

Contact us for Advice and Assistance

Naturally, as these measures become law, we are on hand to assist you with understanding and responding to the changes. As always, please contact us should you require any advice or assistance with your plans.

Published : 11 May 2021

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