Purpose of the Bill

The Treasury Laws Amendment (2021 Measures No. 3) Bill 2021 (the Bill) gives legislative effect to five separate and unrelated Budget measures which are designed ‘to provide relief and support to Australians in need’.[1]

Structure of the Bill and of the Bills Digest

The Bill has five Schedules:

• Schedule 1 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to implement annual increases to the Medicare Levy low‑income thresholds and Medicare Levy surcharge low-income threshold in line with changes to the Consumer Price Index (CPI).
• Schedule 2 amends the objects of the National Housing Finance and Investment Corporation Act 2018 (the NHFIC Act) to include a reference to assisting earlier access to the housing market by single parents with dependents.
• Schedule 3 amends the Income Tax Assessment Act 1997 (ITAA 1997), the Social Security Act 1991 (SS Act), and the Veterans’ Entitlements Act 1986 (VEA) to provide an income tax exemption for annual and lump sum payments made to thalidomide survivors and to ensure these payments are not taken into account in income tests for income support payments.
• Schedule 4 amends the ITAA 1997 to provide an income tax exemption for disaster recovery grant payments made to primary producers and small businesses affected by the storms and flooding in New South Wales in 2021.
• Schedule 5 amends the ITAA 1997 to list six new organisations as deductible gift recipients and extend the period in which two organisations can receive deductible gift recipient status.

As each of the measures set out in the various Schedules to the Bill are independent of each other, the relevant background and analysis of provisions are set out under each Schedule number.

Committee consideration

Senate Selection of Bills Committee

At its meeting of 13 May 2021, the Senate Selection of Bills Committee noted that it had deferred consideration of the Bill until its next meeting.[2]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Bill had not been considered by the Scrutiny of Bills Committee.[3]

Policy position of non-government parties/independents

The Shadow Minister for Housing and Homelessness, Jason Clare, noted that while the ALP would not oppose the Bill, there were concerns about how the Family Home Guarantee scheme (in Schedule 2) would operate.[4] He argued that the limit placed on the number of people who can access the scheme, as well as the property price caps on how much can be borrowed under the scheme, would limit the number of people who would be assisted.[5]

The Member for Indi, Dr Helen Haines, moved an amendment with respect to the Family Home Guarantee Scheme, that the House:

1. notes:
1. the housing availability crisis is reaching new heights across Australia, including North East Victoria where residential vacancy rates are at their lowest level since records began;
2. the Family Home Guarantee will not address the underlying need for affordable and diverse housing supply, including social housing;
3. that in some regions, a single parent earning the maximum allowable income under the Family Home Guarantee would have to commit close to half their monthly income to be able to service a loan based on median property prices; and
4. the Family Home Guarantee will only support 10,000 single parents over four years, while there are currently one million single parent families across Australia; and
2. calls on the Government to take a leadership role in urgently addressing the housing supply crisis by working proactively with local and state governments to unlock creative solutions, including incentives for private developers to build more affordable low-cost housing stock at scale.[6]

The Bill passed the House of Representatives on 27 May 2021 without amendments.[7]

The position of other parties and independents is not known at this stage.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.[8]

The Government considers that the Bill is compatible with human rights for the following reasons:

• Schedules 1, 2, 4 and 5 are compatible as they do not raise any human rights issues
• Schedule 3 is compatible as it supports a person’s right to social security.[9]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Committee had not commented on the Bill.[10]

Schedule 1 – Medicare levy and Medicare levy surcharge low income thresholds

Background

The Medicare levy is an additional tax paid by Australian residents[11] to fund Australia’s universal health insurance scheme (known as Medicare).[12] The Medicare levy is an additional two per cent tax on a person’s taxable income (in addition to their income tax) which is calculated by the Australian Taxation Office (ATO) following the lodgement of their income tax return.[13] Depending on a person’s taxable income, a reduction or exemption from paying the Medicare levy may apply. 

The Medicare levy surcharge (MLS) is levied on Australian residents[14] who:

• do not have an appropriate level of private patient hospital cover for themselves, their spouse and dependent children
• earn above a certain income.[15]

The ATO uses a special definition of income to calculate whether the MLS applies and at what rate it should be levied.[16]

Key issues and provisions

Changes to the Medicare levy low income threshold

Current situation

Subsection 7(1) of the Medicare Levy Act 1986 provides that no Medicare levy is payable where a person’s taxable income does not exceed the threshold amount.[17]

Subsection 7(2) provides an upper limit to the Medicare levy payable, where a person’s taxable income exceeds the threshold amount but does not exceed the phase-in limit. The upper limit of the Medicare levy payable is 10 per cent of the taxable income that exceeds the threshold amount.[18]

Section 8 of the Medicare Levy Act sets out the calculation of the threshold amount for a person who has a spouse or dependants.[19] The Medicare Levy Act does not set a phase-in limit for families, because the limit changes with the number of dependants. Instead, subsection 8(2) limits the levy payable by people with families to 10 per cent of the family income that exceeds their family income threshold.[20]

Proposed amendments

Items 4-9 of Schedule 1 amend the Medicare Levy Act to increase the low-income thresholds in line with the CPI for:

• individuals (including individuals eligible for the Seniors and Pensioners Tax Offset (SAPTO)) and
• families (including families eligible for the SAPTO).

The proposed increases ensure that these people ‘do not have a Medicare levy liability if they are not liable for income tax’.[21] The changes to the relevant thresholds are set out at column 2 of Table 1 below.

Items 2-3 of Schedule 1 amend the Medicare Levy Act to increase the phase-in limit for individuals (including individual eligible for the SAPTO). The changes to the phase-in limits are set out at column 3 of Table 1 below (the higher amount of the taxable income range).

Table 1: 2020-21 Medicare levy low-income threshold amounts and phasing-in ranges

Source: Explanatory Memorandum, Treasury Laws Amendment (2021 Measures No. 3) Bill 2021, p. 11.

Consequential amendments to Medicare levy surcharge provisions

Current references to the Medicare levy surcharge low-income threshold amount for individual taxpayers will be replaced with the new threshold amount.

• Item 1 of Schedule 1 amends the Medicare levy surcharge provisions in the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999
• Items 10-13 of Schedule 1 amend certain Medicare levy surcharge provisions in the Medicare Levy Act.

Financial implications and regulatory impact

This measure is estimated to have a cost to Government revenue of $250.0 million over the forward estimates period (out to 2024–25).[22]

The Explanatory Memorandum notes that the proposed amendments in Schedule 1 ‘will not have any ongoing compliance cost impact or additional impact on regulatory burden’.[23]

Commencement

Schedule 1 of the Bill commences on the day after the Act receives Royal Assent. Item 14 of Schedule 1 provides that the amendments contained in Schedule 1 will apply retrospectively from the start of the 2020-21 year of income.

Schedule 2 – Family Home Guarantee

Overview

The number of single parent households has increased over recent decades. Single parents with dependants may struggle to save enough for a deposit while paying rent.[24]

As part of the 2021-22 Budget, the Government announced the Family Home Guarantee scheme (the FHG scheme) to provide a pathway to home ownership for single parents with dependants who have the ability to service a loan.[25] The FHG scheme will allow eligible single parents to build or purchase a home with a minimum deposit of two per cent of the purchase price. The National Housing Finance and Investment Corporation (NHFIC) will guarantee up to 18% of the property price to a participating lender, provided the borrower:

• has a minimum two per cent deposit
• meets the credit and serviceability criteria of the lender and
• is eligible for the scheme.[26]

It is the Government’s intention that the FHG scheme can only be accessed by single parents who:

• are Australian citizens
• have at least one dependant
• have a taxable income that does not exceed $125,000 for the previous financial year
• do not already own a home or have an interest in land in Australia
• are building a new home or purchasing an existing home with the intention of living in the property (an exception will apply to active Australian Defence Force members participating in the scheme who cannot meet this requirement due to their duties)[27] and
• will have only their name listed on the loan and the certificate of title.[28]

Amount that can be borrowed

As with the First Home Loan Deposit Scheme, a buyer participating in the FHG scheme will be limited in how much they can borrow depending on the location of the property being built/purchased.[29] Table 2 below sets out the property price caps for capital cities and regional centres.

Table 2: Property price thresholds for the FHG Scheme

Source: Australian Government, Family Home Guarantee, fact sheet, NHFIC, May 2021.

Scope of the FHG scheme

Currently, the Government has budgeted for 10,000 guarantees to be made available under the FHG scheme.[30] At a recent Senate Estimates hearing, the Minister for Superannuation, Financial Services and the Digital Economy and the Minister for Women’s Economic Security, Senator Jane Hume, indicated that ‘if [the FHG] doesn't work or if the uptake isn't correct, then it will be adjusted accordingly’.[31]

Key issues and provisions

Effectiveness of the scheme settings

The Department of Treasury has estimated that there are currently 124,000 single parent families that would be eligible to participate in the FHG scheme.[32] However, there is an argument that the FHG scheme will not allow eligible single parents to buy a house in Sydney or Melbourne because:[33]

1.  very few single parents have sufficient savings to meet even a two per cent deposit and

Only 5 per cent of private renters, and 7 per cent of single parents, have enough savings to enter the housing market, even with the promised mortgage insurance guarantee. Of these, more than 85 per cent would then be paying more in servicing costs than they currently pay in rent, even at today's historically low interest rates. They might not regard this as an improvement in affordability.[34]

2.  the maximum serviceable loan is estimated to be $375,000:

… figures from the Melbourne Institute[35] show a solo parent with one child under 15 has just $54,000 a year left after tax, or $57,000 if they have two children. Mortgage Choice estimate this would service a maximum $375,000 mortgage.

At the state level this gives them access to a house in 340 Queensland postcodes, 161 in NSW, 152 in Western Australia, 147 in South Australia, 131 in Victoria and just 65 in Tasmania. There are no suburbs with a median house price at or below $375,000 in Sydney or Melbourne.[36]

Schedule 2 might not be necessary

Subsection 12(1) of the National Housing Finance and Investment Corporation Act 2018 (NHFIC Act) provides that the Assistant Treasurer and Minister for Housing (the Minister) may, by legislative instrument, give the Board of the NHFIC directions about the performance of the NHFIC’s functions, and must give at least one such direction. The Minister has issued the National Housing Finance and Investment Corporation Investment Mandate Direction 2018 (the Investment Mandate).[37] Section 13 of the NHFIC Act permits the Investment Mandate to include decision-making criteria for issuing guarantees.

When issuing a direction, subsection 12(2) requires that the Minister must have regard to the objects of the NHFIC Act (set out at section 3) and any other matters the Minister considers relevant.

Item 1 of Schedule 2 amends section 3 of the NHFIC Act to expand the objects of the Act to include ‘assisting earlier access to the housing market by single parents with dependants’.

The purpose of this amendment ‘is to enable the establishment of the Family Home Guarantee’ scheme by allowing the Minister to issue a direction to NHFIC for guarantees to be issued to eligible single parents.[38] However, it is not entirely clear that this amendment is required.

One of the objects of the NHFIC Act is for the NHFIC to provide ‘finance, grants or investments that complement, leverage or support Commonwealth, State or Territory activities relating to housing’. Paragraph 8(1)(ca) of the NHFIC Act provides that one of the functions of the NHFIC is to issue guarantees to improve housing outcomes. Subsection 48A(1) of the NHFIC Act is a special appropriation which permits the NHFIC to draw money from the Consolidated Revenue Fund to pay out guarantee liabilities (where the guarantee is authorised by the Investment Mandate). It is possible that the FHG scheme is authorised by the existing legislation. However, the amendment will certainly place the ability of the Government to authorise the FHG scheme under the NHFIC Act beyond doubt.

Stakeholder comments

The overall response to the FHG scheme has been somewhat muted.

Beneficial scheme with drawbacks

Ray White Group managing director, Dan White, believes that the targeted nature of schemes such as the FHG scheme means that instead of causing a flood in demand, it will just allow single parents to bid competitively for houses.[39]

Real Estate Institute NSW Chief Executive, Tim McKibbin, argued that the real issue with housing affordability is supply and until this is addressed housing affordability in Australia will continue to be an issue.[40]

AMP Capital Chief Economist, Shane Oliver, commented that schemes such as the FHG do provide a benefit to those struggling with housing affordability, such as single parents who are often women. However, they risk further inflating house prices, and lead to those who do end up purchasing a home under the schemes taking on a higher level of debt.[41]

CoreLogic analysis has suggested that FHG scheme would see single parents, most of them women, pay almost $25,000 in additional interest over the life of the loan on an entry-level property due to the low initial payment.[42]

Financial implications and regulatory impact

As there will only be a cost to Government if a buyer defaults on their mortgage, it is not anticipated that guarantees will be called in until at least the 2023–24 financial year.[43]

The Explanatory Memorandum sets out the Government’s expectations on how much the FHG scheme might cost:

Estimated default claim costs are around $0.3 million over the two financial years from 2023-24 or around $7 million over the life of the program where up to 10,000 guarantees are expected to be issued.[44]

The Government predicts that participation in the FHG scheme will involve minor compliance costs for lenders and mortgage brokers of around $0.4 million per year.[45]

Commencement

Schedule 2 of the Bill commences on the later of 1 July 2021 or the day after Royal Assent.

Schedule 3 – Payments to Thalidomide survivors

Background

Thalidomide was the active ingredient in a sleep-inducing and sedative drug that was distributed for sale in Australia between 1 August 1960 and 29 November 1961 and used for treating symptoms of pregnancy.[46] However, it was later identified that the ingestion of thalidomide while pregnant resulted in children being born with severe birth defects.[47]

On 21 August 2018, the Australian Labor Party moved a motion in the Senate seeking to have the Senate Community Affairs References Committee inquire into the support that has been provided to thalidomide survivors in Australia.[48] The motion was agreed, and following the inquiry, the committee released its final report on 22 March 2019.[49]

The Committee concluded that the existing government support provided to thalidomide survivors was inadequate. It recommended that the Government provide additional financial assistance and support. This included a lump sum payment to thalidomide survivors of up to $500,000, an annual payment to assist in purchasing services, and an 'Extraordinary Assistance Fund' to allow survivors to adapt their homes, environment and vehicles.[50] In its response to the Committee report, the Government supported these recommendations.[51]

As part of the 2020–21 Budget, the Government announced it would provide $44.9 million over four years from 2020–21 (and $3.9 million per year ongoing) to support Australia’s Thalidomide survivors (the Australian Thalidomide Survivors Support Program).[52]

The Australian Thalidomide Survivors Support Program provides Thalidomide survivors with:

• a one-off, tax and income exempt payment of between $75,000 and $500,000 in 2020–21 (lump sum payment)
• ongoing annual tax and income exempt payments, starting in 2021–22 (annual payment)
• access to the Health Care Assistance Fund to assist in covering out-of-pocket health care costs
• access to the Extraordinary Assistance Fund to assist in covering the costs of goods and services to assist with activities of daily living.[53]

The Financial Framework (Supplementary Powers) Amendment (Health Measures No. 5) Regulations 2020 amended the Financial Framework (Supplementary Powers) Regulations 1997 to provide the legislative authority for these payments.

Key issues and provisions

Income tax treatment

Division 50 of Part 2-15 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for a list of entities whose ordinary income and statutory income are exempt from income tax. Currently item 5.6 of section 51-30 provides that payments made from the Thalidomide Australia Fixed Trust (which was established to administer compensation payments to certain Australian and New Zealand thalidomide survivors) are exempt from income tax.[54]

The Explanatory Memorandum notes that lump sum payments provided under the Australian Thalidomide Survivors Support Program are unlikely to be ordinary income for taxation purposes. However, the annual payments provided under the Program are likely to be assessable income unless they are specifically designated as exempt.[55]

Item 2 of Schedule 3 amends section 51-30 of the ITAA 1997 to insert proposed item 5.5 which provides that any payments made under the Australian Thalidomide Survivors Support Program are exempt from income tax. This includes both lump sum and annual payments. Item 1 of Schedule 3 makes consequential amendments to the guides and checklists in the ITAA 1997 with respect to proposed item 5.5.

Income support treatment

Under the Social Security Act 1991 (SS Act) and the Veterans’ Entitlements Act 1986 (VEA), an income test is used to determine a person’s eligibility for income support payments and the rate of payment that is payable. The Explanatory Memorandum notes that both lump sum and annual payments provided under the Australian Thalidomide Survivors Support Program are likely to be included in assessing a person’s income under the SS Act and the VEA unless they are specifically designated as exempt.[56]

Item 4 of Schedule 3 inserts proposed paragraph 8(8)(vd) into the SS Act which provides that payments made under the Australian Thalidomide Survivors Support Program are not considered income for the purposes of the SS Act.

Item 5 of Schedule 3 inserts proposed paragraph 5H(8)(xc) into the VEA which provides that payments made under the Australian Thalidomide Survivors Support Program are not considered income for the purposes of the VEA.

Financial implications and regulatory impact

This measure is estimated to have no cost to Government over the forward estimates period and no compliance costs.[57]

Commencement

Part 1 of Schedule 3 of the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day of Royal Assent. Item 3 of Schedule 3 provides that amendments contained in Part 1 of Schedule 3 (to the ITAA 1997) will apply to income tax assessments for the 2021–22 income year and future years.

Part 2 of Schedule 3 commences the day after Royal Assent. Item 6 of Schedule 3 provides that the amendments contained in Part 2 of Schedule 3 (to the SS Act and the VEA) will apply to payments made on or after the day after Royal Assent.

Schedule 4 – Recovery grants for 2021 floods and storms

Background

Between 19 February 2021 and 31 March 2021, extreme rainfall led to widespread flooding and storm surges across the eastern seaboard of Australia, affecting a number of regions across NSW.

On 27 March 2021, Prime Minister Scott Morrison, NSW Premier Gladys Berejiklian, Minister for Drought and Emergency Management David Littleproud, and NSW Deputy Premier John Barilaro, announced the activation of Category C and D assistance through the joint Commonwealth-State Disaster Recovery Funding Arrangements 2018 (DRFA).[58] The Federal and NSW Governments also agreed to provide recovery grants to small businesses of up to $50,000 and grants to primary producers of up to $75,000 where direct damage has occurred, on a cost shared basis.[59]

As part of the 2021–22 Budget, the Government announced that it will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the 2021 flooding and storms.[60] Qualifying grants are Category D grants provided under DRFA, including small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.[61]

Category D grants under the DRFA are provided in circumstances which the Federal Government considers to be exceptional and must be requested by the states, with agreement from the Prime Minister.[62]

Key issues and provisions

Item 2 of Schedule 4 inserts proposed section 59-99 into the ITAA 1997. Proposed section 59-99 provides that recovery grants:

• paid to a small business or primary producer as part of a Category D measure for the purposes of the DRFA and
• that relate to the 2021 floods or storms
• are non-assessable non-exempt income[63] under the ITAA 1997.

No tax is paid on non-assessable non-exempt income. It is not assessed as income and does not affect tax losses.[64]

Item 1 of Schedule 4 amends section 11-55 of the ITAA 1997 to include the 2021 flood and storm recovery grants in proposed section 59-99 in the list of non-assessable non-exempt income provisions.

Financial implications and regulatory impact

This measure is estimated to have no cost to Government over the forward estimates period (out to 2024–25).[65]

The Explanatory Memorandum notes that this measure is unlikely to have more than a minor regulatory impact.[66]

Commencement

Schedule 4 of the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day of Royal Assent. Item 3 of Schedule 4 provides that amendments contained in Schedule 4 will apply retrospectively from the start of the 2020–21 year of income.

Schedule 5 – New deductible gift recipients

Background

Deductible Gift Recipients (DGRs) are organisations which can receive donations that are tax deductible. People who make a donation to a DGR can claim the donation as a deduction when filing their tax return. A DGR can also receive funds from certain philanthropic bodies. There is, therefore, a significant benefit to an organisation being listed as a DGR.

Division 30 of the ITAA 1997 sets out two categories of DGRs:

• DGRs which fall within the eligibility criteria for one of the 51 general categories listed in the ITAA 1997 [67] and
• DGRs which do not meet the eligibility criteria for any of the DGR categories and are listed by name in the ITAA 1997.[68]

Schedule 5 of the Bill amends Division 30 of the ITAA 1997 to specifically list six new organisations as DGRs and extend the period in which two organisations have DGR status.

Key issues and provisions

Items 1, 3 and 5 of Schedule 5 amend the relevant tables in Subdivision 30-B of the ITAA 1997 to provide that the following organisations have DGR status:[69]

• Alliance for Journalists’ Freedom Ltd (ABN 59 622 234 799), a charity that promotes media freedom and the right of journalists to report the news in freedom and in safety.[70] It was conceived by lawyer Chris Flynn, journalist Peter Greste, and strategic communication consultant Peter Wilkinson following Greste’s incarceration in Egypt[71]
• Andy Thomas Space Foundation Limited (ABN 41 642 332 321), a charity that promotes space education, space awareness and space-related activities in Australia.[72] The founding patron is astronaut Dr Andrew Thomas AO and Dr Megan Clark AC, the head of the Australian Space Agency, is a co-patron[73]
• Youthsafe (ABN 91 068 371 022), a charity that provides innovative, evidence-based solutions and initiatives to address youth safety. Youthsafe partners with government, schools, business and community organisations to prevent unintentional injury of young Australians.[74] Youthsafe focuses on the four settings in which young people are most likely to be injured: on the road, at work, while playing sport, and when out socialising with friends[75]
• RAS Foundation Limited (ABN 99 637 243 853), the charitable arm of the Royal Agricultural Society of NSW, which was created in 2007 to enhance educational opportunities and help build strong, vibrant rural and regional communities in NSW.[76] The Royal Agricultural Society of NSW organises events, and competitions, acts as a guardian for the state’s agricultural heritage, celebrates Australia’s achievements in agriculture and works to promote the viability of rural communities by ensuring that Australia remains a thriving and innovative agricultural producer[77]
• The Judith Neilson Institute for Journalism and Ideas (ABN 97 518 065 568), a charity that supports quality journalism and storytelling around the world through grants, education initiatives and events. Its patron is Judith Neilson, an Australian philanthropist who established the institute to ‘to improve the quality of journalism that informs public debate’[78]
• The Great Synagogue Foundation (ABN 45 147 003 449), a charity that maintains and preserves the heritage-listed Great Synagogue in Sydney. The Great Synagogue houses both a museum and library and holds copies of records of births, deaths and marriages from the early days of the Colony of NSW.[79]

Item 2 of Schedule 5 amends the entry in the ‘Research—Specific’ tables in Subdivision 30-B of Division 30 of the ITAA 1997 to alter the special conditions applying to The Centre for Entrepreneurial Research and Innovation Limited (ABN 46 606 007 952); a charity that works with universities and research institutes to promote entrepreneurialism, in addition to commercialising research and innovative ideas. The founder is Charlie Bass, who originally founded the Centre as a way of building a ‘lasting, diversified Western Australian economy’.[80] Gifts must be made after 1 January 2017. The existing special condition that gifts be made after 1 January 2017 and before 31 December 2021 is repealed.[81]

Item 4 of Schedule 5 amends the entry in the ‘Cultural organisations—Specific’ table in Subdivision 30-B of the ITAA 1997 to alter the special conditions applying to Sydney Chevra Kadisha (ABN 65 000 029 541); a charity that provides and attends to all funeral arrangements and services in accordance with Jewish law.[82] Gifts must be made after 31 December 2017 and before 1 July 2022. The existing special condition that gifts be made after 31 December 2017 and before 1 January 2021 is repealed.[83]

Items 6-11 of Schedule 5 make consequential amendments to update the index to Division 30 of the ITAA 1997.

Financial implications and regulatory impact

The Explanatory Memorandum notes that the amendments in the Bill form part of a broader 2020-21 Budget measure, which is estimated to decrease receipts by $4.1 million over the then forward estimates period to 2023-24.[84]

Commencement

Schedule 5 of the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day of Royal Assent.