In the words of the Treasurer, Josh Frydenberg, this year’s Federal Budget is meant to ‘Secure the recovery and set Australians up for the future’. And, with changes to how older Australians can contribute to their super, and a strong focus on aged care following findings from the recent Royal Commission, there is plenty in this year’s Budget that may affect you. We have put together this report to make sure you do not miss any of the essential information.
It is worth noting that these proposed measures are not law yet – and could change.
- From 1 July 2022, the work test will no longer be required to be met by individuals aged 67 to 74 for voluntary contributions into their super.
- From 1 July 2022, the Government proposed to extend the ability to make downsizer contributions to those age 60 and over. Currently only those age 65 and over at the time of making the contribution are eligible.
- The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. The Government expect this measure will take effect from 1 July 2022.
- The Government will improve the Pension Loan Scheme (that can help you boost your retirement income by unlocking capital in your real estate assets) by introducing a ‘No Negative Equity Guarantee’ for the loans and allowing people to access a capped advance lump sum payment.
- In response to the Royal Commission into Aged Care Safety and Quality, the Government announced a $17.7 billion five pillar aged care reform plan. The Government will provide additional funding for:
– home services, including an additional 80,000 home care packages;
– residential aged care and sustainability, including a new Basic Daily Fee supplement of $10 per resident per day;
– residential aged care quality and safety, including improving access to primary care for senior Australians;
– the aged care workforce, including upskilling the existing workforce and provide training for thousands of new aged care workers; and
– regional aged care services including establishing new governance and advisory structures.
Repealing the work test and extending the bring forward provisions
From 1 July 2022, the work test will no longer be required to be met by individuals aged 67 to 74 for voluntary contributions like non-concessional contributions and salary sacrifice contributions. However, individuals aged 67 to 74 still need to meet the work test requirements to make any personal deductible contributions.
Currently, these individuals (aged 67 to 74) would need to meet a work test or be eligible for a work test exemption before they can make voluntary contributions to their super.
Individuals aged 65 to 74 will also be able to use the bring forward provisions subject to the available caps and meeting the total super balance criteria. Currently, only those under age 65 on 1 July of a financial year can trigger the bring forward provision in that financial year. The measure that was originally announced in the 2019-20 Federal Budget to extend this age from 65 to 67 effective 1 July 2020 has not yet been legislated.
Downsizer contributions extended to those who are age 60 and over
From 1 July 2022, the Government proposed to extend the ability to make downsizer contributions to those age 60 and over. Currently only those age 65 and over at the time of making the contribution are eligible.
All other requirements remain unchanged, including the requirement that the home was owned by the person or their spouse for at least 10 years. The sale proceeds are either fully or partially exempt under the main residence exemption and the downsizer contribution made within 90 days of receiving the sale proceeds.
The new rules will allow more individuals to contribute more of their sale proceeds to super – under both the $300,000 downsizer limit (or $600,000 for a couple) and the $330,000 bring forward non-concessional contributions cap.
Observation: It should be remembered that downsizer contributions do not count toward an individual’s non-concessional contribution (NCC) cap. Individuals under age 65 may also be able to trigger a 3-year bring-forward NCC cap subject to their Total Superannuation Balance. This could potentially result in super contributions of up to $630,000 being made by an individual when combining their NCC cap and a downsizer contribution (where eligible to do so).
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. The Government expect this measure will have effect from 1 July 2022.
The Government states that this measure will improve equity in the superannuation system by expanding the superannuation guarantee coverage for cohorts with lower incomes. The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month, 63 per cent of whom are women.
Legacy retirement product conversions
Retirees in receipt of legacy retirement products such as certain market-linked, life expectancy and lifetime pensions will be given the option to exit these products over a two-year period.
The Government advise that individuals seek independent financial advice in respect to deciding whether to take up the option to exit their legacy product.
Relaxing residency requirements for SMSFs
Proposed effective date: 1 July 2022.
The Government is proposing to relax the residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by:
Extending the central management and control test safe harbour from two to five years for SMSFs, and
Removing the active member test for both SMSFs and SAFs.
Observation: These measures would provide SMSF and SAF members with greater flexibility to retain, and continue to contribute to, their existing fund while being temporarily overseas.
Early release of super for victims of family/domestic violence
The Government has indicated that it will not proceed with the proposal to extend early release of superannuation to victims of family and domestic violence.
Improving the Pension Loan Scheme
Currently the Pension Loan Scheme (PLS) allows a fortnightly loan of up to 150% of the maximum rate of Age Pension to help boost a person’s retirement income by unlocking capital in their real estate assets.
From 1 July 2022, borrowers under the PLS, or their estate, will not owe more than the market value of their property.
Eligible people will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of Age Pension (currently $12,385 for singles and $18,670 for couples).
Increasing the Child Care Subsidy (CCS)
Proposed effective date: 1 July 2022.
The CCS is a percentage-based subsidy based on family income that assists with the cost of childcare.
The Government proposes to provide a higher level of CCS to families with more than one child under age 6 in childcare. The level of subsidy will increase by an extra 30% to a maximum subsidy of 95% for the second and subsequent children.
For example, currently a family may receive a 50% subsidy on childcare costs for each child if family income is between $174,390 and $253,680. Under the proposal, the family would receive a CCS of 50% of costs for their first child and 80% for their 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 childcare and remove the disincentives for parents, particularly those of larger families, to return to the workforce or to increase their work hours.
Taxation – Personal
Extending the Low- and Middle-Income Tax Offset (LMITO)
Proposed effective date: 1 July 2021.
The Low- and Middle-Income Tax Offset (LMITO), which was due to end on 30 June 2021 will now be retained for one more year in 2021-22.
It is worth up to $1,080 for individuals or $2,160 for dual income couples. Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.
Increasing the Medicare Levy low-income thresholds
Proposed effective date: From 2020-21 financial year.
The Medicare levy low-income thresholds for singles, families, and seniors and pensioners is to be increased effective from 1 July 2020 so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.
The threshold for:
- Singles, will be increased from $22,801 to $23,226,
- Families, will be increased from $38,474 to $39,167,
- Single seniors and pensioners, will be increased from $36,056 to $36,705, and
- Families (seniors and pensioners) will be increased from $50,191 to $51,094.
For each dependent child or student, the family income thresholds increase by a further $3,597.
Amending the definition of Australian tax residency for individuals
Proposed effective date: 1 July following passage of legislation.
The existing rules that are used to determine whether an individual is an Australian tax resident are to be replaced with a simple test whereby a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.
Individuals who do not meet this test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
Extending the First Home Super Saver Scheme (FHSSS)
Proposed effective date: 1 July 2022.
The Government has announced that the cap on withdrawals of voluntary contributions from the FHSSS will be increased to a maximum of $50,000 plus notional earnings per eligible person. Withdrawals are currently capped at a maximum of $30,000 plus notional earnings per person.
The FHSSS is a scheme aimed at boosting the deposit savings of first home buyers by allowing them to use the tax advantaged superannuation system, in addition to traditional non-super vehicles such as bank savings accounts.
The FHSSS 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 withdrawal cap of $15,000 voluntary contributions per financial year remains.
Some other technical amendments in relation to amending instructions for withdrawn amounts will also be made.
Extending the First Home Loan Deposit Scheme (FHLDS)
Proposed effective date: 1 July 2021.
The Government has announced that an additional 10,000 places will be made available in the FHLDS (New Homes). The new places will be available in the 2021-22 year. The extension of the FHLDS will apply to first home buyers who buy a newly constructed home or who build a new home.
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.
Application for a place in the scheme is made by participating lenders on behalf of the borrowers when the borrowers make their loan application.
Other housing related proposals
HomeBuilder program – the Government will extend the construction commencement requirement under this existing program from the existing 6 to 18 months.
Family Home Guarantee scheme – the Government will establish a program like the FHLDS above to allow eligible single parents with dependants to enter or re-enter the housing market with a deposit as little as 2%. The scheme will have 10,000 places and be available from 2021-22.
Government response to the Royal Commission into Aged Care Quality and Safety
In response to the Royal Commission into Aged Care Safety and Quality, the Government announced a $17.7 billion five pillar aged care reform plan.
Pillar 1 – Home care – at home support and care based on assessed needs.
The Government will provide additional funding for home services, including:
- an additional 80,000 home care packages – 40,000 released in 2021-22 and 40,000 in 2022-23, which will make a total of 275,598 home care packages by June 2023;
- designing and planning a new home care program to better meet the needs of senior Australians.
Pillar 2 – Residential aged care services and sustainability – improving service suitability that ensures individual care needs and preferences are met.
The Government will provide additional funding for residential aged care and sustainability, including:
- increasing the amount of front-line care (care minutes) delivered to residents of aged care and respite services; and
- supporting aged care providers to deliver better care and services.
Pillar 3 – Residential aged care quality and safety – improving access to and quality of residential aged care.
The Government will provide additional funding for residential aged care quality and safety, including:
- improving access to primary care for senior Australians;
- ensuring the Aged Care Quality and Safety Commission is well equipped to safeguard the quality, safety and integrity of aged care services and can effectively address failures in care and to extend support to manage and prevent outbreaks of COVID-19;
- additional resources to build capacity within residential aged care for the care of senior Australians living with dementia;
- introducing 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; and
- expanding independent advocacy to support greater choice and quality safeguards for senior Australians.
Pillar 4 – Workforce – growing a bigger, more skilled, caring and values-based workforce.
The Government will provide additional funding for the aged care workforce, including:
- upskilling the existing workforce and provide training for thousands of new aged care workers.
Pillar 5 – Governance and regional access – new legislation and stronger governance
The Government will provide additional funding for regional aged care services, including:
- establishing new governance and advisory structures, including a National Aged Care Advisory Council, and Council of Elders, and to work towards establishment of an office of the Inspector-General of Aged Care;
- improving access to quality aged care services for consumers in regional, rural, and remote areas, including those with Indigenous backgrounds and special needs groups; and
- establishing regional offices as a first phase of a nation-wide rollout to improve advice to Government on issues impacting the delivery of aged care in regional and rural areas.
The Government will draft a new aged care Act to enshrine the government’s reforms in legislation by mid-2023. The new Act will replace both the Aged Care Act 1997 and the Aged Care Quality and Safety Commission Act 2018.
Couple of others, if you need more details on these issues, let us know;
- Extensions to temporary full expensing, loss carry-back, and JobTrainer
- Expansion of the wage subsidy
- SME Recovery Loan Scheme.
Not-for-profits and philanthropy
- Enhancing the transparency of income tax exemptions.