Australian Federal Budget 2021 - Australian Expat Summary

There was little doubt that this year’s Australian Federal Budget would focus on securing Australia’s economic recovery as we enter a post-Covid world. The Budget was very much focused on creating jobs domestically, increasing business confidence, and simplifying some of the measures when it comes to tax residency, which is great news for Australian expats.

This week, I take a deep dive into the key announcements in the Australian Budget and explore how they might impact you going forward. I have also outlined below some of the areas that were sadly not addressed in this year’s Budget.

The positive takeaways from the Budget

·      Individuals - Tax Offset Extension: The Low and Middle Income Tax Offset (LMITO) has been extended for an additional 12 months, which will cover the 2021/22 financial year. This provides up to $1,080 for those who meet the criteria.

·      Individuals - First Homer Super Saver Scheme Boost: The First Home Super Saver Scheme allows people who are seeking to buy their first home to contribute up to $30,000 in voluntary contributions to their super fund, which can be withdrawn to fund the deposit on their property. This is set to increase to $50,000.

·      Individuals - Single Parents Family Home Guarantee: In order to help single parents, the Treasury have announced that the Government will provide 10,000 guarantees, which will be available over 4 years, allowing single parents to purchase a property with a deposit as low as 2% regardless of if they’re a first home buyer or not.

·      Individuals – Simplification of the Tax Residency Test: The current Australian tax residency tests are currently a complex web and can be costly for many Australian expats across the globe. These tests will be simplified with a primary test for any person who is physically present in Australia for more than 183 days of the financial year. If this primary test doesn’t apply, then secondary tests will apply, which will be based on physical presence and other measurable criteria.

·      Superannuation – Downsizer Contributions Age Reduced: Currently, those who are aged 65 and above are able to contribute excess proceeds of up to $300,000 to their superannuation if they’re downsizing their home. This age will be reduced to 60 providing greater flexibility for those planning their retirement.

·      Superannuation – Work Test to be Repealed: Currently, those aged between 65 – 74 years must satisfy the work test to be eligible to make superannuation contributions. This will be repealed for both concessional and non-concessional contributions, allowing older Australians to boost their superannuation balances.

·      Superannuation – Minimum Income Threshold for Super Removed: Currently, a minimum income of $450 per month is required for the Superannuation Guarantee (SG) payments to be paid by their employer, however, this will be removed. While some may view this as unfair by reducing their take-home pay, it will ensure an enforced retirement saving mechanism for a greater number of Australians.

·      Business – Full Asset Expensing Extended: Announced in the previous Budget was the ability for businesses to fully expense the cost of any eligible asset that they purchase for the business. This has been extended for a further 12 months until 30 June 2023, which gives businesses greater time to plan ahead.

·      Business – Loss Carry Back Extension: Australian companies with turnover of less than $5 billion will be allowed to carry back tax losses for a further 12 months, which will include 2019/20, 2020/21, 2021/22 and 2022/23 financial years.

·      Business – Tax Cuts: The corporate tax rate for Australian SMEs will be reduced from 27.5% to 25% from 1 July 2021.

·      Business – Tax Residency Test Simplification: The corporate tax residency test is currently quite complex, and stipulates that if a company is incorporated offshore, then they would be considered an Australian tax residency in the event that it carries on business in Australia, and has either central management and control in the country or voting power is controlled by Australian resident shareholders. This is proposed to be amended to being treated as an Australian tax resident only if it has a ‘significant economic connection to Australia’, meaning that the core commercial activities and central management and control are both within Australia.

The negative takeaways from the Budget

·      Individuals – No quarantine improvements: Unfortunately, while we were optimistically hopeful that there would be an allocation of funding to improving Australia’s quarantine measures to bring people home, this was not the case, and looks unlikely at this stage to see any meaningful improvements.

·      Individual – Paid parental leave continues to attract no superannuation: While we were hopeful that we would see a change here, paid parental leave continues to be the only form of leave to attract no superannuation payments. This highlights the importance, particularly for women, to plan for their superannuation and retirement accordingly.

·      Business – Tourism sector receives little support: In the last Budget, there was a small amount of support, however, there is no meaningful increase this year despite the slow vaccine rollout delaying the re-opening of borders.

·      Business – Education sector to remain soft: One of Australia’s key exports is education tourism, with a significant number of our universities heavily reliant on international students from China, India, and Singapore. There has been no meaningful support announced here, which is particularly worrisome given borders look unlikely to open in the near term.

What was missing in the Budget?

·      Individuals – No new plans to allow stranded Australians to return: It is estimated that there are approximately 40,000 Australians trying to get back home to Australia and are unable to do so. This is due to a myriad of reasons including flight cancellations, caps on entrants into each State, and a lack of quarantine capacity in Australia. There has been no additional funding announced here.

·      Individual – Deficit to be repaid at some point: As we’ve outlined, this year’s Australian Federal Budget has been a cash-splash, which will result in the Budget hitting $161 billion this year, which will eventually need to be repaid. This could mean higher tax rates and/or inflation in the future.

·      Business – Little new funding for renewables: There has been no new direct spending announced for investment in renewable and zero-emission energy projects.

Where to next for the Australian economy

Treasury has highlighted that they expect to see economic growth continue to increase, particularly thanks to the substantial stimulus measures throughout 2020, which has ensured a strong real estate market, as well as keeping unemployment figures under control. While unemployment remains reasonably robust and there are certainly some industries that are facing great difficulties trying to find staff, Treasury does not expect any meaningful inflation from rising wage pressures in the near term. As a result, we don’t see interest rates rising in the short to medium term.

The key negative measure for Australian expats was the expectation that borders would not open for Australia until the latter half of 2022 at the absolute earliest. This has been constantly pushed back due to a number of factors, not least of which has been the woeful handling of the vaccine rollout domestically, in addition to a complete lack of desire to spend any money on improving our quarantine practices.

We do not see the announcements significantly shifting our investment thesis for the medium term, but we will continue to monitor the announcements, particularly as they pertain to corporate Australia.

If you have any questions at all about the Budget, please do feel free to reach out to me.

To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3

Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.

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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.