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Federal Budget 2021: What it means for you

The Federal Treasurer, Josh Frydenberg MP, delivered his third Federal Budget on Tuesday 11 May 2021. The Budget papers include a number of measures that may impact you, especially in the superannuation area. It is important to note that the policies outlined in this update are yet to be passed as legislation and therefore may be subject to change.

Alex O’Brien, Senior Financial Adviser, provides the summary below.

Highlights
Superannuation

  • Removing the work-test for people aged 67-74 in respect to salary sacrifice and nonconcessional super contributions (NCCs)
  • Expanding eligibility to utilise the NCC bring-forward rule to people aged 67-74
  • Reducing the eligibility age for downsizer contributions from 65 to 60
  • Ability to commute certain legacy income stream products including term allocated pensions (TAPs)
  • Relaxing residency requirements for SMSFs

Taxation

  • Extension of the low- and middle-income tax offset (LMITO) for an additional 12 months
  • Tax relief for businesses, including extension of the instant asset write-off provisions

Social Security and Aged Care

  • Improving the Pension Loan Scheme (PLS)
  • Measures in response to the Royal Commission into aged care quality and safety

Other Measures

  • Increasing the Child Care Subsidy (CCS)
  • Home ownership assistance
Superannuation
Repeal of the work test and changes to the bring forward rule

Currently, Australians aged 67 – 74 must satisfy a work test (or the work test exemption) to be eligible to make super contributions. From 1 July 2022, the work test will no longer apply when making nonconcessional super contributions or salary sacrificed contributions. People in this age group will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.

Extending access to downsizer contributions

Currently, downsizer contributions to super can only be made by individuals aged 65 or older. From 1 July 2022 onwards, the Government is proposing to lower this age from 65 to age 60. All other eligibility criteria for downsizer contributions remains unchanged.

Legacy retirement product conversions

Consumers will be provided with a temporary option to transition from some legacy retirement products to more flexible retirement products. Products covered include term allocated pensions (TAPs) from any provider, including self-managed superannuation funds (SMSFs) that were first commenced prior to 20 September 2007 but exclude lifetime products in a large APRA-regulated fund or public sector defined benefit scheme.

It will not be compulsory for individuals to move out of legacy retirement products. The existing social security treatment that applies to the legacy product will not transition over to the new product commenced with commuted funds. A two-year period will be provided to convert these retirement products and is expected to commence from 1 July 2022.

Relaxing residency requirements for SMSFs

Effective 1 July 2022, the Government is proposing to relax the residency requirements for selfmanaged superannuation funds (SMSFs) by:

  • Extending the central management and control test safe harbour from two to five yearsand;
  • Removing the active member test

These measures would provide SMSF members with greater flexibility to retain and continue to contribute to, their existing fund while being temporarily overseas.

Taxation
Low- and middle-income tax offset

Approximately ten million Australians will avoid a drop in income of up to $1,080 next financial year, with the low-and-middle-income tax offset extended for another 12 months at a cost of $7.8 billion. Anyone earning between $37,000 and $126,000 a year will receive some benefit, with people earning between $48,001 and $90,000 to receive the full offset of $1,080.

Extending the temporary full expensing of capital assets measure

Temporary full expensing will be extended for 12 months until 30 June 2023 to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm on 6 October 2020 and first used or installed ready for use by 30 June 2023.

All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply

Social Security and Aged Care
Pension Loan Scheme (PLS) changes

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.

A new option is to receive up to two lump sums of up to 50% of the Age Pension in a 12-month period. The maximum lump sum amount will depend on whether the individual is single or a member of a couple.

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. The funding includes:

  • The release of 80,000 new home care packages over two years from 2021-22.
  • 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.
  • 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 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.
  • A range of measures to grow and upskill the aged care workforce.
Other measures
Child care subsidy (CCS)

Starting from 1 July 2022, the Government will provide $1.7 billion over 5 years (and $671.2 million per year ongoing) to:

  • Increase the child care subsidies available to families with more than one child aged five and under in child care.
  • For those families with more than one child in child care, the level of subsidy received will increase by 30% to a maximum subsidy of 95% of fees paid for their second and subsequent children.
  • Removal of the $10,560 cap on the Child Care Subsidy.

Home ownership proposals

To assist with housing affordability, the Government has proposed the following changes:

  • The First Home Saver Scheme (FHSSS) was introduced in the 2017/18 Budget, to allow people to save money for their first home inside their super. From 1 July 2022, the Government will increase the maximum amount of voluntary contributions that can be released under the FHSSS from $30,000 to $50,000.
  • The introduction of a Family Home Guarantee scheme as a way of providing a pathway to home ownership to support single parents with dependants. This is regardless of whether they are a first home buyer or a previous owner-occupier. From 1 July 2021, 10,000 guarantees will be made available over 4 years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.
  • Extension of the First Home Loan Deposit Scheme (FHLDS), providing a further 10,000 places under the New Home Guarantee in 2021/22. This is specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit of as little as 5%.
If you have any questions about any of the Federal Budget measures and how they might impact you, please do not hesitate to call the office and ask to speak with your financial adviser.

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