The Federal Treasurer, the Hon. Josh Frydenberg MP, has delivered a second “pandemic” budget that focuses on key spending measures to drive Australia’s economic recovery.
The budget position has improved dramatically from the forecasts delivered in October 2020. The deficit for 2020-21 is now expected to be $161 billion, down from $213.7 billion. This reduction is largely due to a much stronger rebound in employment than was expected at the height of the shutdowns last year. Revenue has also received a boost from strong economic recoveries in our major trading partners and higher than expected resource prices, including iron ore.
This budget’s focus is firmly on getting Australia through the pandemic and promoting economic growth and employment. Recent remarks from the Treasurer have made clear that there are still downside risks to the economy and he expects the Government to continue providing a significant amount of support. The budget does this through new spending on priorities like aged care, childcare, and building the digital economy, as well as tax relief for businesses and low income earners.
The Treasurer has indicated that fiscal consolidation - a reduction in spending - won’t be a focus until unemployment is at an acceptable rate, and the Government’s target is now under 5 per cent. Treasury’s forecasts suggest this may be achievable, with a spurt of 4.25 per cent growth in real GDP next financial year and an unemployment rate reaching 4.75 per cent by mid-2023.
Of note to financial advice, there have been some minor modifications to superannuation contribution rules with the removal of the work test for salary sacrifice and non-concessional contributions, and reduction in the age limit for making downsizer contributions. Most notably the Government has not pursued a change to the superannuation guarantee, with the scheduled increase to 10 per cent going ahead and no introduction of the retirement income covenant through the budget process. The only other notable change is some added flexibility to the pension loan scheme and a significant funding boost to the aged care sector following the recent Royal Commission recommendations.
I summarise the key points relating to financial advice:
More Flexibility Around Superannuation
- Repeal of the work test: Currently, Australians aged 67 – 74 must satisfy a work test (or the work test exemption) to be eligible to make super contributions. The work test will no longer apply when making non-concessional 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.
- Downsizer contributions age reduced: The age at which people are eligible to make a downsizer contribution will reduce from 65 to 60. This will allow an after-tax contribution of up to $300,000 per person when you sell your family home.
- Removal of minimum income threshold for super guarantee: The Budget removes the current $450 per month minimum income threshold under which employees do not have Superannuation Guarantee (SG) paid by their employer.
- Legacy retirement product conversions: Consumers will be provided with a temporary option to transition from some legacy retirement products to more flexible retirement products. Currently, individuals are locked into certain products that restrict access to capital and flexibility of drawdowns. Products covered include market-linked and life-expectancy retirement products commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs), and lifetime products from SMSFs. A two-year period will be provided for these retirement products and expected to commence from 1 July 2022. Individuals social security consequences and any income tax cost would need to be considered before moving.
Home Ownership Proposals
- First Home Super Saver Scheme (FHSSS): The FHSSS, which was introduced in the 2017/18 Budget, allows people to save money for their first home inside their super account. The Government will increase the maximum amount of voluntary contributions that can be released under the FHSSS from $30,000 to $50,000.
- Family Home Guarantee for single parents: The Government has introduced the Family Home Guarantee 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 four years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.
- New Home Guarantee: The Government is 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.
Personal Income Tax Relief
Extension of tax offset: The Low and Middle-Income Tax Offset (LMITO), worth up to $1,080, has been extended for an additional 12 months to cover the 2021/22 financial year. LMITO will be received once individuals lodge their tax return for the 2021/22 financial year.
Business Tax Incentives Extended
- Temporary full expensing: The temporary investment tax incentive announced in last year’s Budget has been extended for a further 12 months until 30 June 2023 giving businesses additional time to utilise the incentive, including for projects requiring longer planning times. Businesses with a turnover up to $5 billion will be able to deduct the full cost of any eligible asset they purchase for their business, including the cost of improvements to existing assets, until 30 June 2023.
- Temporary loss carry-back provision: Companies will now be permitted to carry back tax losses for an extra 12 months from the 2019/20, 2020/21, 2021/22, and now 2022/23 income years to offset previously taxed profits in 2018/19 or later income years. This applies to businesses with an aggregated turnover of less than $5 billion.
- Access to lump sums under 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. 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 you are single or a member of a couple. Based on current Age Pension rates, the total PLS is around $12,385 per year for singles, while couples combined could receive around $18,670.
- No Negative Equity Guarantee: The Government will also introduce a no negative equity Guarantee meaning that the government will not claim back more than the sale price of the house used to guarantee the payment when it is sold.
In response to the Royal Commission into Aged Care Quality and Safety, the Government announced an additional $17.7 billion over five years for aged care. Some of the proposals include:
- $6.5 billion for 80,000 additional Home Care Packages over the next two years
- $798.3 million to provide greater access to respite care services and payments to support carers
- $7.8 billion for a new funding model for residential aged care, with a $10 per person per day supplement of the Basic Daily Fee
- $183.3 million over four years from 2020-21 to implement the new funding model, the Australian National Aged Care Classification (AN-ACC)
- $117.3 million to support structural reform including the implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program.
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These changes are proposals only and may or may not be made law. Once these proposals become legislated, we can help you make adjustments to your plan and place you in the best position for the future.
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Important Information: Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice from WARR HUNT prior to acting on this information. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is often not indicative of future results.
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