Federal Budget 2021
Welcome to the Big Picture Wealth 2021 Budget Special. As always, I encourage you to contact me if you have any questions.
2021 Budget handed down, and there are some significant changes.
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’. 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’s plenty in this year’s Budget that may affect you. It’s worth noting that these proposed measures aren’t 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.
Superannuation changes in detail
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 in order 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.
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 Term Allocated or 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. This could be a benefit to many who wish to access lump sums or reduce investment costs.
Other notable changes
The so-called “Low and Middle Income Tax Offset” will remain in place for another year. It was supposed to finish on June 30 but it will be extended by another 12 months. This will mean up to $1,080 back for those earning up to $90,000 pa
An extra $1.9 billion will be spent on our vaccine strategy over the next five years, with the government also confirming it’s set aside a pool of money to invest in mRNA vaccine production in Australia.
Family Home Guarantees for eligible single parents with dependants to build a new home or purchase an existing home with a deposit of as little as two per cent.
An extra $1.7 billion over the next three years into the child care industry, as well as an increase of $354 million for women’s health.
Courtesy of Challenger Federal Budget Report 2021-22