Australia’s Federal Budget 2021-22 – What’s new and what’s in it for you?

The Australian Government’s 2021-22 Federal Budget is based on numerous assumptions: a vaccinated Australian population, state borders remaining open, mitigation of COVID-19 outbreaks and a restrained, calculated reopening of Australia’s international border.

Treasurer Josh Frydenberg stated in Parliament last night, “Mr Speaker, this pandemic is not over”. The Government’s priority is to keep Australia and its inhabitants safe from COVID-19, thus the Treasurer began early with the announcement of an injection of $1.9 billion for the vaccine rollout and $1.5 billion for COVID-19-related health costs.

Generally, the Budget extends many existing schemes and policies, expanding some with additional funds to create further stimulus and maintain momentum of Australia’s economic recovery. Job recovery support, training support and tax relief are key areas of focus for the Government and these, along with Australia’s financial status and this Budge’s incentives for Australians, are explained.

Australia’s Economy

Australia’s Treasurer, Josh Frydenberg, has revealed a lower-than-expected deficit of $161 billion in 2020-21, revised down by $52.7 billion. He announced a deficit fall to $57 billion by 2024-25. Australia’s deficit remains a ‘structural’ one for the foreseeable future.

Australia’s gross debt is expected to be 40.2% of GDP ($829 billion) this year and then stabilise at around 51% of GDP in the medium term, whilst Australia’s net debt will increase to 30% of GDP ($617.5 billion) this year and then peak at nearly 41% of GDP in 2024-25.

Although debt levels are high, the Treasurer spoke of the economy rebounding effectively from the depths of last year’s pandemic-related ‘recession’.

Unemployment remains above 5 per cent this year but is lower than the previously predicted 8 per cent or more. By 2022-23 unemployment is anticipated to be at a rate of 4.75 per cent.

International Borders

The Government will begin a measured approach to reopening Australia’s international border by mid-2022 with limited and gradual inbound and outbound flows.

TAXATION – BUSINESS

Extension – Capital Asset Investment Deductions & Carry-back Company Losses

The Treasurer announced the extension of two business tax incentives to help businesses that invest in their future. These two schemes will lift productivity and employment, leading to a boost in GDP, over the short to medium term and together they will deliver an additional $20.7 billion in tax relief over the next three to four years.

Under the Capital Asset Investment Deductions Scheme, businesses with less than $5 billion in turnover who invest in their future, may fully expense new depreciable assets – uncapped purchase cost – and the cost of improvements to existing eligible assets in the first year of use – acquisition of eligible capital assets from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2023.

The full expensing of capital asset investment will generate tax losses for some companies. Therefore, for eligible companies with less than $5 billion in turnover, losses may be applied against taxed profits in a previous year, thereby generating a refundable tax offset in the year in which a loss is made. The Carry-back Company Losses Scheme has been extended for another year to include losses up until 30 June 2023.

NEW – Tax Incentives for Innovation

To encourage investment in Australian medical and biotech technologies, on 1 July 2022 the Government will introduce a ‘patent box’ – to keep patents in Australia – that will reduce taxes – to a 17% concessional rate – on income from innovative research undertaken in Australia. This incentive complements the previously announced (Budget 2020-21) Research and Development Tax Incentive (due to be reviewed by the end of 2021).

To encourage Australia’s digital games industry and foster its growth, the Government will introduce a 30 per cent refundable tax offset – capped at $20 million a year – to digital game developers for eligible Australian games expenditure.

TAXATION – INDIVIDUALS

Extension – LMITO

The Treasurer announced an injection of $7.8 billion to continue the tax cuts for 10.2 million low- to middle-income earners. This extension of the LMITO (Low and Middle Income Tax Offset) will mean a tax reduction of up to a maximum of $1,080 for individuals with a taxable income of between $48,000 and $90,000 during the 2021-22 financial year. Couples will receive a tax reduction of up to a maximum of $2,160.

Taxable Income Amount	LMITO
$37,000 or less	$255
> $37,000 but < $48,000	$255 plus 7.5% of the amount > $37,000
> $48,000 but < $90,000	$1,080
> $90,000 but < $126,000	$1,080 minus 3% of the amount > $90,000

This table shows Current Tax Thresholds for Individuals in Australia:

Tax Thresholds
Tax Rate	Current	From 1 July 2020
0%	$0 - $18,200	$0 - $18,200
19%	$18,201 - $37,000	$18,201 - $45,000
32.5%	$37,001 - $90,000	$45,001 - $120,000
37%	$90,001 - $180,000	$120,001 - $180,000
45%	>$180,000	>$180,000
LITO	Up to $445	Up to $700

INCENTIVES FOR SENIORS

Superannuation

From 1 July 2021 Australians over the age of 60 years – previously 65 years – will be able to make a one-off, post-tax contribution to their superannuation fund. This contribution may be up to $300,000 for one person or up to $600,000 for a couple and may be made only upon the sale of their home.

The purpose of this new policy is to encourage older Australians to “consider downsizing… freeing up the stock of larger homes for younger families” (Treasurer Josh Frydenberg).

Pension Loan Scheme

For those retirees not wanting to sell their home and downsize but who do want to improve their retirement income, the Pension Loan Scheme has been changed in this Budget to enable lump-sum cash payments from superannuation funds to eligible retirees.

By borrowing against their homes, retirees can receive a cash lump sum up to $12,385 for singles and up to $18,670 for couples with the loan payable upon the eventual sale of their homes.

The Government intends to encourage uptake of this scheme by spending $21.2 million, partly on targeted communication.

UNDERWRITING HOME OWNERSHIP

Extensions – Home Ownership Schemes

A temporary extension and expansion of the First Home Loan Deposit Scheme will see an additional 10,000 New Home Guarantees in 2021-22, available from 1 July 2021 and enabling eligible buyers to purchase a home for a minimum of 5% deposit without mortgage insurance.

The First Home Super Saver Scheme has also been expanded to enable eligible first home buyers to access up to $50,000 – an increase from $30,000 – of their tax-free superannuation contributions to boost their deposits.

NEW – Home Ownership Scheme

The Australian Government’s new Family Home Guarantee Scheme will provide financial assistance in the form of a deposit guarantee to a select 10,000 new home buyers over four years – specifically, eligible single parents with dependent children – of 18% of the purchase price of a home, leaving the home buyer to purchase a home with a 2% deposit.

JOBS AND TRAINING

Extension – JobTrainer and Boosting Apprenticeship Commencements

To help the economy prosper post-COVID-19, JobTrainer, the Government’s investment in skills of young people and job seekers, providing 450,000 free and low-fee training places (in fields of skills shortages such as digital and aged care), has been extended until 31 December 2022. It has also been expanded by an additional $500 million commitment from the Federal Government – to be matched by state and territory governments, thus supporting hundreds of thousands of eligible people to enter the workforce.

An additional $2.7 billion will be allocated by the Government to extend the Boosting Apprenticeship Commencements program and support 170,000 apprenticeships and traineeships who commence by 31 March 2022. This commitment by the Government will see the continuation of a 50% wage subsidy available to eligible businesses that take on a new or recommencing Australian apprentice or trainee. This wage subsidy is capped at a maximum of $7,000 per quarter.

This year the Government has announced it will deliver policy to see services for 5,000 women to enter non-traditional apprenticeship.

FAMILIES

Childcare

To give parents, especially women, the opportunity to start a job or to undertake more work, a $1.7 billion investment in childcare will procure an average of $2,200 a year for families who have more than one child in childcare. Benefiting low- to middle-income families, this incentive is expected to deliver higher workforce involvement by parents.

For more info, visit Federal Budget 2021-22.

How can YML help?

We hope that this guide helps you to navigate the 2021-22 Federal Budget. Please talk to our Accountants today if you would like to engage YML Chartered Accountants to manage your ‘road to recovery’. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.