We are better placed than nearly any other country to meet the economic challenges that lie ahead.
Tuesday night’s budget laid down a raft of economic measures designed to maintain and build momentum for the Australian economy, as we move into pandemic recovery mode.
Below we summarise key proposals impacting individuals and families, in particular, around super, personal tax and home ownership.
Bear in mind that these are proposals only at this stage and require passage of legislation before they are implemented. We recommend that you don’t act on any of these proposals until the Government provides greater detail in draft legislation.
Repealing the ‘work test’ for voluntary contributions
Currently, Australians aged 67 – 74 can only make voluntary contributions (both before and after tax), or receive contributions from their spouse, if they meet the ‘work test’. Under the work test, the individual must have worked at least 40 hours over a 30 consecutive day period in the relevant financial year.
From 1 July 2022 the Government will allow individuals aged 67 – 74 (inclusive) to make or receive non-concessional super contributions or salary sacrificed contributions without meeting the work test. People in this age group will also be able to access the bring-forward arrangement, subject to meeting the eligibility criteria. Contribution caps continue to apply.
The work test (or recent retiree work test exemption) will still have to be met by individuals aged 67 to 74 years wanting to make personal deductible contributions.
Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.
Extending access to downsizer contributions
From 1 July 2022, the age at which people are eligible to make a downsizer contribution will reduce from 65 to 60. All other eligibility criteria for downsizer contributions remain unchanged.
This will allow an after-tax contribution of up to $300,000 per person when they sell their family home. Downsizer contributions do not count towards an individual’s non-concessional contribution cap.
The implications of accessing the downsizer contribution earlier need to be considered carefully – as it could reduce, or even eliminate, any means-tested social security or DVA income support payments that you may have previously been eligible to receive.
Superannuation Guarantee (SG) – Abolishing the income threshold
Planned to take effect from 1 July 2022, the current $450 per month minimum income threshold before SG contributions become payable will be removed. This means employees at all income levels – regardless of pay rate or hours worked – will receive SG contributions.
Superannuation Guarantee (SG) – Legislated increases unchanged
The SG rate is currently legislated to increase from 9.5% to 10% from 1 July 2021 and incrementally to 12% in following years. This remains unchanged.
Relaxing residency requirements for SMSFs
The Government is proposing to relax the residency requirements for SMSFs to give greater flexibility for members to retain, and continue to contribute to, their existing SMSF while being overseas temporarily. The proposed date of effect is 1 July 2022.
Legacy retirement product conversions
The Government will provide a temporary, two-year opportunity for individuals to transition from existing legacy retirement products to newer, more flexible products.
Legacy products include market-linked term allocated pensions (TAPs), life-expectancy and lifetime pension and annuity products commenced with any provider (including SMSFs), but exclude flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these legacy products can only be converted into another like product. Limits apply to the allocation of any associated reserves to avoid counting towards an individual’s contribution caps.
Retirees will be able to exit these legacy products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there, they can decide to either commence a new retirement product, take a lump sum benefit, or retain the funds in that account.
It will not be compulsory for individuals to move out of legacy retirement products.
Individuals contemplating transitioning will need to consider social security and tax implications.
Personal tax relief
Extension of tax offset
The Low and Middle-Income Tax Offset (LMITO) has been extended for one more year in 2021-22. It’s worth up to $1,080 for individuals or $2,160 for dual income couples.
LMITO will be received once individuals lodge their tax return for the 2021-22 financial year.
Families, Social Security and Aged Care
Improving the Pension Loan Scheme (PLS)
The PLS is a voluntary, reverse mortgage type loan provided by the Government. It is designed to assist older Australians to boost their retirement income by unlocking equity in their Australian property. Through the PLS, people can receive regular fortnightly payments with the payments accruing as a debt secured against their property.
From 1 July 2022, a new option is to receive up to two lump sums of up to 50% of the Age Pension in a 12-month period. Based on current age pension rates, a single person could receive lump sum payments of up to approximately $12,385 per year, and couples combined could receive about $18,670.
Supporting changes to aged care
In response to the recent Aged Care Royal Commission, the Government will deliver a $17.7 billion package of support to the Aged Care sector. Funding will be allocated over five years with a focus on home care as well as the sustainability, quality and safety of residential care.
Two immediate impacts will be the release of 80,000 new home care packages over two years from 2021-22 and a commitment by the Government to improve daily living conditions in residential care by contributing $10 per day for each resident on top of the basic daily fee. The implementation of a new star rating will enable aged care recipients and their families to compare aged care providers on performance, quality and safety.
There has been no mention of changes to means testing or the out-of-pocket costs paid by clients for residential or home care. A new Aged Care Act is proposed for 2023 which could provide more clarity in this area.
Increasing the Child Care Subsidy (CCS)
The CCS is a percentage-based subsidy based on family income that assists with the cost of child care. The Government proposes to provide a higher level of CCS to families with more than one child under age 6 in child care. The level of subsidy will increase by an extra 30% to a maximum subsidy of 95% for the second and subsequent children.
The annual CCS cap of $10,560 for families earning between $189,390 and $353,660 will also be removed.
These measures will help ease the cost of child care and remove the disincentives for parents, particularly those of larger families, to return to the workforce or to increase their work hours.
Home ownership proposals
First Home Super Saver Scheme (FHSSS)
The FHSSS, which was introduced in the 2017-18 Budget, aims to boost deposit savings of first home buyers by allowing them to use the tax advantaged super system, in addition to tradition non-super vehicles such as bank savings accounts.
The scheme allows first home buyers to withdraw voluntary contributions plus an amount of notional earnings towards their first home purchase. The Government will increase the maximum amount of voluntary contributions that can be released under the FHSSS from $30,000 to $50,000. The withdrawal cap of $15,000 voluntary contributions per financial year remains.
First home loan deposit scheme (FHLDS)
The Government is providing a further 10,000 places under the FHLDS (New Homes) in 2021-22.
The FHLDS allows first home buyers/builders to borrow more than the standard 80% of the property’s value with only a 5% deposit, with the balance (15%) being underwritten by a government agency in the event of loan default and shortfall. The FHLDS allows eligible first home buyers to borrow more without paying the premium for Lender’s Mortgage Insurance which would otherwise apply in such situations.
Family Home Guarantee for single parents
The Government will establish a program similar to the FHLDS to allow eligible single parents with dependants to enter or re-enter the housing market with a deposit as little as 2%. From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.
This content is intended only to provide a summary and general overview of the subject matter covered. It is not intended to be comprehensive nor does it constitute advice. We attempt to ensure that the content is accurate and current but we do not warrant the content nor its currency. You should seek professional advice before acting or relying on any of the content.