2021 FEDERAL BUDGET SUMMARY
Who would have thought that in 2020 toilet paper became just as sought after as truffles! The world baked banana bread in unison, parents became instant teachers and some of us became hairdressers. A trip to the garden centre became a “day out”, working from home in tracksuits became the new norm and designer face masks were born!
Even the 2020-21 Federal Budget was pushed out until October and it was all about jobs - spend money now to get business hiring and worry about the cost later…This one has been coined as the “pandemic budget” and will contain measures to boost job skills, infrastructure, tax, energy, digital technology and deregulation. Treasurer Josh Frydenberg said…“The Budget will lay out the next phase of Australia’s economic recovery plan, to grow our economy so we can deliver the jobs and guarantee the essential services Australians rely on and keep Australians safe”. Let’s hope so.
This year, the budget has continued its growth agenda to further support businesses, boost investment and create jobs.
Here’s a re-cap of what was announced:
From 1 July 2021:
- Current Super Guarantee rate will rise to 10%, hitting 12% by 2026.
- For Flexi Pension and Transition to Retirement (TTR) accounts, the temporary 50% minimum drawdown rates end, and the normal drawdown rates will be reinstated for payments received annually between 1 July and 30 June each financial year.
1 July 2021 changes (already legislated)
- Concessional caps to $27,500pa (plus unused cap amounts if eligible).
- Non-concessional caps for under age 65 to $110,00pa or $330,000 over 3 years (bring forward (BF) for under age 67 not yet legislated).
- Total super balance cap increases to $1.7m.
From 1 July 2022:
- The work test for people aged 67–74 will be abolished.
- People aged 60 or over will be able to make downsizer contributions to their super.
- Removal of the current $450 per month minimum income threshold, under which employers do not have to pay the superannuation guarantee for employees.
- The maximum amount of voluntary contributions that can be released from superannuation under the First Home Super Saver (FHSS) scheme will increase from $30,000 to $50,000.
- The Government will relax residency requirements for SMSFs by extending the central management and ‘control test safe harbour’ timeframe from two years to five years whilst removing the ‘active member test’.
After Royal Assent, individuals will be allowed to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. The two-year period will be the two full financial years after the legislation is passed.
Please note: The proposal to increase the eligibility age for the bring-forward rule from under age 65 to under age 67, effective 1 July 2020 remains stalled in Parliament.
- A Family advice opportunity exists to further maximise family retirement savings for low income earners. Part-time workers who did not previously receive superannuation guarantee contributions are also automatically eligible for the Low-Income Superannuation Tax Offset if they earn less than $37,000 per year. Dependent on cashflow and goals, other superannuation strategies such as superannuation co-contribution, spouse tax offset and spouse contributions splitting could be considered.
- Removal of the work test to under age 75 for non-concessional contributions allows for top up to superannuation, providing estate planning opportunities for those wishing to leave super assets to non-dependants.
- You may also wish to consider the recontribution strategy to maximise tax free amounts.
- Review of products with older income streams, subject to greater detail in legislation. There will be a balance between client goals, needs and estate planning as there is the interaction of commutation, Transfer Balance Cap limits, Centrelink position and estate planning. Under the older rules, these income streams could be 50% or 100% assets test exempt, or the deductible amount may create a more favourable income test position.
SOCIAL SECURITY & AGED CARE
From 1 July 2022
- Families with two or more children aged five and under will receive a subsidy for their second and subsequent children up to a maximum of 95 per cent of fees paid.
- Removal of the $10,560 cap on the Child Care Subsidy.
- Pension Loan Scheme (PLS) – immediate access to one or two lump sum advances within a year of up to 50% of the maximum annual rate of Age Pension.
- Aged care boost - 80,000 new home care packages over two years. A new in-home support care program, streamlining of assessments and new star rating.
- Increased funding for residential aged care over three phases from 2021-2025.
- Increased cash flow opportunities for reducing debt, savings (super and non-super) through a reduction in out of pocket expenses for childcare.
- Potential to re-consider work arrangements within the family unit.
- The PLS may provide flexibility to those that require access to funds that would be difficult to obtain otherwise with a no negative equity guarantee and where a reverse mortgage may not be as suitable. Note the current interest rate is 4.50%.
An increased level in the quality of care can only be a good thing for older Australians.
Taxation – Individual
- The low and middle income tax offset (LMITO) is proposed to be extended for the 2021/22 financial year.
- Increase the Medicare levy thresholds for singles, families, seniors, and pensioners from 1 July 2020.
- Continued freezing of Medicare levy surcharge thresholds.
- The Government is proposing to remove ceasing employment as a taxing point for tax- deferred employee share schemes (ESS).
- The Government is proposing to simplify the individual tax residency rules, replacing the existing ‘resides’ test with a ‘183-day’ test.
- The Government has proposed to simplify self-education expense deductions by removing the exclusion for the first $250 from being a deduction.
Taxation – Business
- The ability for businesses with aggregated annual turnover or total income of up to $5 billion to be able to expense depreciable assets has been extended to 30 June 2023.
- The temporary loss carry-back has been extended by one year.
- No changes to the LMITO and further support for small and medium businesses can be a timely reminder for clients to review their cash flow positions and identify strategic opportunities such as investment (super and non-super) and/or debt restructuring.
If you would like to discuss any of the above in further detail, please don’t hesitate to call or send an email through to our office (03) 9598 8002 or email@example.com
All the best.
The team at Vista