2021 Federal Budget

Budget overview

Last night, the Federal Government handed down its budget for the 2021-22 financial year. At last year’s budget, the Treasurer noted a cash deficit (i.e. government spending in excess of revenue for the year) of $213.7 billion. This year, it was predicted to be around the same level as a consequence of the COVID pandemic. Positively, the Treasurer was able to share that the projected deficit for this year will reduce to around $161 billion. This is some $52.7 billion better than earlier anticipated.

Although this is good news, the deficit has to be funded by our country continuing to take on debt, which this year will be around $700 billion and is anticipated to peak in 2023-24 at approximately $970 billion. That will take some time to pay back and although there are almost as many opinions on this point as there are dollars owing, the consensus is that there was the requirement to stimulate the economy to prevent a very deep recession. The Treasurer last night commented that in economic terms, the Global Financial Crisis pales into insignificance when compared to the COVID pandemic.

With a federal election on the horizon, the budget was typically low-key in that there were no major reforms announced. There were a number of measures designed to improve the financial position of a wide range of Australians, from personal income tax and superannuation improvements, to social security, a massive aged care package and relief for small and medium businesses. We have summarised below the points we feel will be of greatest interest to you, our clients. If you have any questions about any of the measures announced in last night’s budget, including any we have not mentioned in this brief, give us a call or send an email to mail@gilkisongroup.com.

Personal income tax

The Government will retain the low and middle income tax offset (LAMITO) for the 2021-22 financial year, which provides a continuation of the targeted tax relief for low and middle income earners. This offset basically reduces income tax at the levels outlined below:

Taxable Income ($) LAMITO Amount
0 – 37,000 $255
37,000 – 48,000 $255 up to $1,080 depending on income
48,000 – 90,000 $1080
90,000 – 126,000 Scaling down from $1,080 to $0 depending on income

The continuation of this offset, along with the low income tax offset (LITO), maintains the effective tax free threshold for individuals at $23,226.

There is no change to the tax offsets for older Australians, the seniors and pensioners tax offset (SAPTO) in this year’s budget.


Work test for voluntary superannuation contributions

From July 2022, there will no longer be a requirement to meet the work test in order to make voluntary superannuation contributions from age 67 to 74 (inclusive). This includes non-concessional contributions (aftertax contributions) and salary sacrifice contributions (pre-tax contributions paid via an employer).

Interestingly, the measure does not extend to those who are looking to make personal contributions where you would like to claim a personal tax deduction. The work test (working 40 hours in a 30 day period) will still be required for these contributions.

We believe this is a fantastic amendment and allows those who are not working and have funds outside of superannuation (in a taxable environment) to improve their tax position by taking advantage of the tax effectiveness of superannuation.

Downsizer contributions

The Downsizer provision allows individuals who are selling their home to make a one-off contribution of up to $300,000 (or up to $600,000 total for a couple) to superannuation. The contribution is added to superannuation tax free and is not counted in an individual’s non-concessional contribution cap.

This measure is currently available for those aged 65 or older, who have owned their home for 10 years or more.

It is intended (in part) to incentivise older Australians to downsize their home, thereby freeing up housing stock for younger generations.

Last night, the Government extended the eligibility age in order to make a downsizer contribution available to those aged 60 or older. This will take effect on 1 July 2022.

Once again, we think this is a very positive change that will allow older Australians an extended opportunity to utilise the tax benefits of superannuation.

First Home Super Saver Scheme

Whilst there are a number of relatively minor alterations to the existing First Home Super Saver Scheme, the major change is the increase of the maximum releasable amount to $50,000 (up from $30,000).

The First Home Super Saver Scheme essentially allows those who have not yet owned a home to make voluntary contributions to superannuation (up to $15,000 per annum) and withdraw the funds for use as a deposit for their home purchase. That way, the individual can effectively save for the deposit using pre-tax income.

We believe this change presents an opportunity for parents who want to help their kids into their first home.

Rather than simply gifting a lump sum for the home purchase, a parent could assist their child (or children) to meet ongoing living expenses whilst the child salary sacrifices additional funds to their superannuation. This could save thousands of dollars in tax and provide a higher deposit relative to saving using after tax income.

Aged care

Response to the Royal Commission into Aged Care Quality and Safety

The Government will provide $17.7 billion over 5 years as a whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety to improve safety and quality and the availability of aged care services. The funding includes:

  • improvements in governance and regional access, including funding to develop a new aged care Act to replace both the Aged Care Act 1997 and the Aged Care Quality and Safety Commission Act 2018;
  • a range of measures to support home care, including funding to develop a new home care program and to release 80,000 additional home care packages over two years from 2021-22;
  • a range of measures to improve residential aged care quality and safety, including a new star rating system
  • to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers;
  • reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and,
  • a range of measures to grow and upskill the aged care workforce.

Overall, we believe this a really positive step to improve the quality, affordability and availability of aged care services into the future. It is particularly positive that the government has recognised the unsustainability of solely building more Aged Care facilities and has focussed their attention on ensuring elderly Australians have appropriate care options to stay in their own home. Hopefully, some of the additional funding finds its way to increase wages for those on the front line providing care.

Social security

Pension Loan Scheme

Many retirees are asset-rich and income-poor, particularly with recent increases in house values. The Pension Loan Scheme is an equity release loan offered by the Government, which can help retirees turn equity in their home into a regular income stream. This income could be used to meet living expenses or pay for services such as home care. The current scheme allows part-pensioners and some self-funded retirees to borrow regular fortnightly payments up to 150% of the maximum Age Pension entitlement (less the pension amounts they receive).

For example, a single person who receives a part-age pension of $400 per fortnight could borrow up to $1,029 per fortnight ($26,755 per year) to bring their payments up to 150% of the maximum single age pension. The scheme is proposed to be extended, so that from 1 July 2022, retirees will have the option of accessing up to two lump sum advances (within any 12-month period). These lump sum advances will be capped at 50% of the maximum annual rate of age pension and count towards the 150% overall cap. Based on current rates, this would allow a single person to receive lump sum payments up to $12,380 per year and $18,670 combined for a couple.

The Government also introduced a ‘no negative equity guarantee’ to ensure the loan balance repayable cannot exceed the market value of the secured property.

Though it is very positive that the government recognise and address a genuine gap with this policy, in most instances for our clients, this scheme has not been required. It can be useful where cash savings later in life are down to a very low level, which is often the case for people who have been in retirement phase for a long time.

Unemployed Australians

The Government will increase support for people eligible for working age payments (i.e. unemployment benefits) by increasing the base rate of working-age payments by $50 per fortnight from 1 April 2021. They will also increase the income-free area of certain working-age payments to $150 per fortnight. This will allow people to earn more money without negatively impacting their government entitlements, thereby encouraging a return to work.

Business owners

Temporary full expensing extension

The Government will extend the 2020-21 Budget measure to allow temporary full expensing (i.e. full tax deductibility, rather than depreciation) to support investment and jobs for 12 months until 30 June 2023. The measure is intended to support business investment and create jobs for businesses with an aggregated annual turnover or total income of less than $5 billion.

The 12-month extension will provide eligible businesses with additional time to access the incentive. This will encourage businesses to make further investments, including in projects requiring longer planning times, and continue to support economic recovery in 2022-23. All other elements of temporary full expensing will remain unchanged. From 1 July 2023, normal depreciation arrangements will apply.

Temporary loss carry-back extension

In addition to the above, the Government will further support Australia’s economic recovery and business investment by extending the temporary loss carry-back. The extension will allow eligible companies 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.

Loss carry-back encourages businesses to invest, utilising the 2021-22 Budget measure titled Temporary full expensing extension by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions.

This is a great way of encouraging small business people to invest in equipment or hiring further staff. Simply put, if you suffer a loss as a consequence of spending now on items for the future of your business, you can effectively offset that against tax you have paid on profits in prior years.

If you are in business and think this is an opportunity for you, speak to us and your tax professional for detailed guidance.

Boosting Apprenticeship Commencements wage subsidy

The Government will provide 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.

From 5 October 2020 to 31 March 2022, businesses of any size can claim the Boosting Apprenticeship Commencements wage subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50 per cent of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.

The Government will also provide 5,000 additional gateway service places and in-training support services to encourage and support more women commencing in non-traditional trade occupations.

SME Recovery Loan Scheme

The Government will support the economic recovery of, and provide continued assistance to, firms that received JobKeeper or are eligible flood-affected businesses through the SME Recovery Loan Scheme.

The Government will provide participating lenders with a guarantee for 80 per cent of secured or unsecured loans of up to $5 million for a term of up to 10 years and with interest rates capped at 7.5 per cent, with some flexibility around variable rate loans. Loans can be used by the SME for a broad range of business purposes, including to support investment and refinancing existing loans. Lenders will be able to offer borrowers a repayment pause of up to two years.

To be eligible, SMEs, including self-employed individuals and non-profit organisations, will have a turnover of up to $250 million and have been either:

  • recipients of the JobKeeper Payment between 4 January 2021 and 28 March 2021;
  • located or operating in a local government area that has been disaster declared as a result of the March 2021 New South Wales floods and were negatively economically impacted.

If your business has been through a distressed period, this measure could be of value and is worth exploring further.

Final comments

With the Iron Ore price at around US$215/tonne, it is highly likely the government’s projection for the end of current financial year position will be improved. Around the world, central banks and governments have used a significant amount of the scope available in both monetary and fiscal policy. Consequently, the biggest threat in the short and medium term is some form of ‘shock’ when the capacity to respond has already been utilised.

The most likely ‘shock’ to financial markets is rising inflation around the world, which we are already seeing emerge. As always, we believe taking a long term view and remaining measured with all significant financial decisions will serve you well.

Finally, we are here to help. Let us know if you have any questions or concerns relating to both the budget, or any other financial matter.