Federal Budget Breakdown – Financial Advisory | Canny Group
As the COVID economic landscape continues to take shape, the Australian Federal Treasurer, Josh Frydenberg has handed down the 2021-22 Federal Budget and we have made it easier than ever for you to get your head around what has been announced and to take note of what is going on and what to look forward to!
Among the proposed changes, Treasurer Josh Frydenberg has announced continuing tax relief for lower-income earners, help for our older-aged Australians to save for their retirement and more assistance for first home buyers just to name a few. We take you through what these announcements mean and how they might affect you and your household expenses, including your financial future.
Remember, however, at the moment these are just proposals and could change as legislation passes through parliament, but we have also included the individual proposed dates for when the new proposals are looking at coming into play!
SUPER CHANGES TO SUPERANNUATION
1. Repealing the Work Test for Superannuation Contributions
Proposed Effective Date: 1 July 2022
People between the ages of 67 to 74 years old will be able to make non-concessional or salary sacrificed superannuation contributions without meeting a work test, subject to existing caps. This will simplify superannuation rules and also increase flexibility for the older population of Australians to save for their retirement.
Currently, people that are aged between 67 to 74 years can only make voluntary contributions to their superannuation if they have worked at least 40 hours over 30 consecutive days in the financial year unless they meet an exemption. The work test will still need to be met for those who wish to claim a tax deduction for personal contributions to superannuation.
2. Extending Access to Downsizer Contributions
Proposed Effective Date: 1 July 2022
The Australian Government is proposing to lower the age that Australians can make tax-free contributions to their superannuation from the proceeds of selling their homes from the ages of 65 to 60 years old.
Other eligibility rules for downsizer contributions will remain unchanged.
3. Giving Retirees the Opportunities to Exit Legacy Retirement Products
Proposed Effective Date: 1 July after it is passed as law
The Australian Government will provide a temporary, two-year opportunity for people to transition from certain legacy retirement products to newer, more flexible products if they choose to do so.
Retirees will be able to transfer their capital back into a superannuation account and then start a new retirement product, take a lump sum benefit or retain the funds in that account.
4. Abolish the $450 per month Income Threshold for Superannuation Guarantee (SG)
Proposed Effective Date: 1 July 2022
The minimum income threshold of $450 per month will be removed so that all eligible employees will receive the superannuation guarantee (SG) contributions. The superannuation guarantee rate is increasing from 10% from 1 July 2021 and then will gradually increase to 12% by the year 2025.
Personal Taxation
1. Extending the Low and Middle-Income Tax Offset (LMITO)
Proposed Effective Date: 1 July 2022
The Low and Middle-Income Tax Offset (LMITO) was due to end on 30 June 2021, however, will now be retained for one more year in 2021-22. it is worth up to $1,080 for individuals and $2,160 for couples.
- The benefits for those earning up to $27,000 is $255
- Between $27,000 and $48,000m the offset increases at the rate of 7.5 cents per $1 above $37,000 to a maximum of $1,080
- Those individuals earning between $48,000 and $90,000 are eligible for a maximum Low and Middle Income Tax Offset benefit of $1,080
- For those individuals that earn an income above $90,000, the offset phases out a rate of 3 cents per $1 and is not available when taxable income exceeds $126,000
Personal tax rates, thresholds and offsets for 2021-22
| Marginal Tax Rate (MTR) (i) (%) | Thresholds – Income Range 2021-22 | Thresholds – Income Range from 2022-23 to 2023-24 ($) | Thresholds – MTR (%) + Income Range from 1 July 2024 ($) | |
| 0% | $0 – 18,200 | $0 – 18,200 | 0% | $0 – 18,200 |
| 19% | $18,201 – $45,000 | $18,201 – $45,000 | 19% | $18,201 – 45,000 |
| 32.5% | $45,001 – 120,000 | $45,001 – 120,000 | 30% | $45,001 – 200,000 |
| 37% | $120,001 – $180,000 | $120,001 – $180,000 | – | |
| 45% | > $180,000 | > $180,000 | 45% | > $200,000 |
| LMITO | Up to $1,080 | – | – | |
| LITO | Up to $700 | Up to $700 | Up to $700 | |
(i) Excluding 2 per cent Medicare Levy.
The Low Income Tax Offset (LITO) is also available and will be reduced at a rate of:
- 5 cents per $1 for incomes earned between $37,500 and $45,000 and
- 1.5 cents per $1 for incomes earned between $45,000 and $66,667
2. Increasing Medicare Levy Low-Income Thresholds
Proposed Effective Date: from 2020-21 Financial Year
Thresholds will be increased from 1 July 2020 so that low-income taxpayers will generally continue to be exempt from paying the Medicare Levy. The threshold for:
- Singles will increase from $22,801 to $23,266
- Families will increase from $38,474 to $39,167
- Single Seniors and Pensioners will increase from $36,056 to $36,705
- Families (Seniors and Pensioners) will increase from %50,191 to $51,094
For each dependent child or student, the family threshold increased by a further $3,597.
Housing Affordability
1. Extending The First Home Super Saver Scheme (FHSSS)
Proposed Effective Date: 1 July 2022
The cap on withdrawals of voluntary contributions will increase from $30,000 to $50,000. The First Home Super Saver Scheme (FHSSS) is aimed at boosting the deposit savings of first home buyers by allowing them to use the tax advantaged superannuation system.
The First Home Super Saver Scheme allows first home buyers to withdraw voluntary contributions (both concessional and non-concessional) plus an amount of notional earnings towards their first home purchase. The total amount released from superannuation cannot include more than $15,000 in voluntary contributions from any one financial year, up to a total of $50,000 across all years plus associated earnings.
2. Extending the First Home Loan Deposit Scheme (FHLDS)
Proposed Effective Date: 1 July 2022
An extra 10,000 new places in the First Home Loan Deposit Scheme will be made available in 2021-22 to first home buyers who buy a newly constructed home or build a new home. The First Home Loan Deposit Scheme allows the first home buyers/builders to borrow more than the standard 80% of the property’s value with only 5% deposit and without paying the lender’s mortgage insurance.
3. Helping Australians Build and Buy Their Homes
- HomeBuilder Program – the Australian Government will give people more time to take advantage of the grants by extending the construction commencement requirements from 6 months to 18 months
- Family Home Guarantee Scheme – the Australian Government will allow up to 10,000 eligible single parents with dependents to enter or re-enter the housing marketing with a deposit of as little as 2% from 2021-22
Families, Social Security + Aged Care Oh My!
1. Increasing the Child Care Subsidy (CCS)
Proposed Effective Date: 1 July 2022
The Australian Government proposes to provide a higher level of Child Care Subsidy to families with more than one child under the age of six years old in child care to ease the cost of child care and remove the disincentives for parents to return to the workforce or increase their working hours.
The level of subsidy will increase by an extra 30% to a maximum of 95% for second and subsequent children.
Currently, a family may receive a 50% subsidy on child care costs for each child if their family income is between $174,390 and $253,680. Under the proposal, the family would receive a Child Care Subsidy of 50% of costs for their first child and 80% for their second and subsequent children.
The annual cap of $10,560 for families earning between $189,390 and $353,660 will also be removed.
2. Improving the Pension Loan Schemes (PLS)
Proposed Effective Date: 1 July 2022
The Australian Government is increasing the flexibility and attractiveness of the Pension Loan Schemes (PLS) by:
- Introducing a No Negative Equity Guarantee so borrowers will never own more than the value of their equity in the property the loan is secured against
- Providing access to two lump sum advances in any 12 months up to 50% of the maximum annual rate of the Aged Pension
The Pension Loan Schemes enables senior Australians to receive fortnightly loan payments to supplement their retirement income by using their homes as security, provided the combined Aged Pension payment and loan amount does not exceed 150% of the maximum pension payment rate.
Based on the current Aged Pension rates, a single person could receive lump-sum payments of up to $12,385 per year and couples about $18,670.
3. Supporting Changes to Aged Care
Proposed Effective Date: Immediate and Ongoing
The Australian Government will deliver $17.7 billion to aged care over five years with a focus on home care as well as 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 improved daily living conditions in residential care by contributing $10 per day for each resident on top of the basic daily fee.
Women
The Australian Government has earmarked $3.4 billion to improve women’s safety, economic security, health and wellbeing. As well as child care, superannuation and tax changes, this includes funding to help with family domestic violence, family law, workplace sexual harassment and female leadership development.
Get in touch today if you would like to find out more and receive personalised advice on anything that we have mentioned above as well, stay tuned as in the following months we will be going into more detail on each one of these announcements and how this can impact and have an effect on you and your household.