Budget 2021-22 follows on from the last Budget’s theme of getting Australia through the pandemic and promoting economic growth and employment. The Australian economy has progressed toward recovery more successfully than others, with a dramatic budget improvement since the October 2020 forecasts.
Contributing to this position has been a stronger than expected recovery in employment, and a boost in revenue from our recovering trading partners. In many respects this is a pre-election Budget, and the Government is proposing to continue providing a significant amount of support. In Treasurer Josh Frydenberg’s words, this Budget is meant to ‘Secure the recovery, and set Australians up for the future.'
This support translates into new spending on aged care, childcare and building the digital economy, together with tax relief for businesses and low-income earners. The Budget also proposes changes to how older Australians can contribute to superannuation. It’s important to keep in mind the Budget announcements remain proposals at this stage and must be passed by Parliament before they become law and may be subject to change.
How do the budget announcements impact you?
Below is our summary of the relevant changes, and as always, please speak to your FMD adviser if you have any questions about your personal circumstances.
Personal Income Tax
Retaining the Low and Middle Income Tax Offset for the 2021-22 income year.
The Low and Middle Income Tax Offset (LMITO) was due to be removed at the end of the current financial year. However, the Government has announced it will retain LMITO for the 2021-22 income year. This provides a reduction in tax of up to $1,080 for individuals.
Increasing the Medicare Levy low-income thresholds
The Medicare levy low-income thresholds for singles, families, seniors and pensioners is set 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
From 1 July 2021, 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.
From a financial advice perspective this is a very positive Budget, that for the first time in several years supports getting more money into super.
Compulsory employer contributions will increase from 9.5% to 10% from 1 July 2021 and look to be on track to rise to 12% by 2026. This direction likely confirms that this will not be an issue at any future election.
The Government also announced the removal of the minimum income threshold where employers must pay super guarantee contributions, which was previously $450 per month. This is aimed at improving women’s super balances and benefits all lower income earners.
From 1 July 2021, the concessional contribution cap will increase from $25,000 to $27,500 and the non-concessional contribution cap will increase from $100,000 to $110,000 (with ‘bring-forward’ contributions increasing to $330,000).
Work Test and Bring forward
From 1 July 2022, the work test will be abolished for individuals aged between 67 to 74 for non-concessional contributions and salary sacrifice super contributions. They will also be able to access the non-concessional bring-forward contribution rules up to age 74. These are important opportunities for those with lump sums outside of super, but with a 2022 start date there is some time to plan for this. Note: Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The existing downsizer contribution allows for a super contribution of $300,000 per person after selling the family home. However, from 1 July 2022, the age restriction decreases from age 65 to age 60. While conditions apply, this is another boost to super and has the added benefit of encouraging more housing stock to come to market.
Supporting Home Ownership
First Home Super Saver Scheme (FHSSS)
While technically a superannuation issue, the Government will increase the maximum amount that can be withdrawn under the FHSSS from $30,000 plus notional earnings to $50,000 plus notional earnings, from 1 July 2022. A cap on contributions under this scheme still remains at $15,000 per annum. We see some significant benefits in this for those wishing to support family members enter the housing market.
HomeBuilder provides eligible owner-occupiers (including first home buyers) with a grant of $15,000 to $25,000 to build a new home or substantially renovate an existing home. The budget proposes a 12-month extension of the construction commencement period for existing applicants.
First Home Loan Deposit Scheme
An additional 10,000 places are proposed in the First Home Loan Deposit Scheme. It helps first homeowners build or purchase a new home with a deposit as low as 5% to access loans without having to pay lenders mortgage insurance. Eligibility is limited.
Family Home Guarantee
This is a new program announced by the Government. From 1 July 2021. 10,000 guarantees will be made available over four financial years. It provides eligible single parents with dependants to build a new home or purchase an existing home with a deposit of 2%. This extends to previous homeowners too.
An extra $15.2 billion infrastructure spend has been announced for road, rail and community infrastructure projects. This is in addition to the Government’s already announced $110 billion over 10 years building program, to stimulate and support employment.
Digital economic strategy
The Government will spend $1.2 billion to implement their digital economic strategy. Of specific interest is speeding up the implementation of the Consumer Data Right in banking and expanding it more rapidly across the rest of the economy. Consumer Data Right gives the right for a consumer to share their data between service providers of their choosing. For example, a consumer may choose to share their banking data with a prospective bank to get a better offer.
Temporary Full Expensing Extension
Temporary full expensing will be extended for 12 months until 30 June 2023 to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 6 October 2020 and first used or installed ready for use by 30 June 2023. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply.
Temporary Loss Carry-back Extension
Temporary loss carry-back is to be extended to allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return. Loss carry-back provides eligible companies earlier access to the tax value of losses generated by fully expensing deductions. Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry-back.
Pension Loan Scheme (PLS)
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, the Government will implement two changes to the scheme – a No Negative Equity Guarantee, and lump sum advances.
• No Negative Equity Guarantee: Borrowers under the PLS, or their estate, will not owe more than the market value of their property.
• Lump sum advances: 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.
Newly Arrived Resident’s Waiting Period (NARWP)
The Government has announced it will apply a consistent four-year Newly Arrived Resident's Waiting Period across most welfare payments from 1 January 2022.
This differs from current rules, where people who have recently arrived as a resident in Australia may have to wait 1, 2 or 4 years before qualifying for a payment or concession card under the Newly Arrived Resident’s Waiting Period.
In response to the recent Royal Commission into Aged Care Safety and Quality, the Government has announced a nearly $18 billion, multi-faceted, aged care reform plan.
Increased funding for Home Care
To support senior Australians in remaining at home, the Government will fund an additional 80,000 home care packages, alongside improved services and support to help senior Australians access the home care system.
To improve and simplify residential aged care services, alongside ensuring their future sustainability, the Government has announced they will be funding substantial measures. These include:
• Increased funding for aged care providers – including a new Basic Daily Fee Supplement of $10 per day (per resident),
• A new star rating system to determine provider quality,
• Increased front-line/care minutes for residents - including extra time with registered nurses,
• Additional resources to build capacity in aged care facilities, for the care of senior Australians with Dementia, and
• Funding for additional aged care employees, and the upskilling of the existing workforce via subsidised training.
There are numerous other reforms proposed – especially in providing additional regional care assistance and will be introduced by the Government as a new Aged Care Act in mid-2023. The new Act will replace the Acts currently in place.Interestingly, the Government did not accept numerous recommendations from the Aged Care Commission, including the proposed 1% increase in the Medicare levy and changes to the basic daily care fee and means-tested fees. The Government will continue to consider the viability of the Refundable Accommodation Deposit (RAD) in raising capital.
Increase in the Childcare Subsidy (CCS)
Continuing the theme of getting people back to work, the Government has increased childcare support to families with more than one child under six years of age in care. The subsidy will increase by 30% up to a maximum rate of 95% for the second (or more) children. The annual subsidy cap will also be removed. This will provide parents who want to work extra days with more flexibility and choice. This is due to commence from 1 July 2022.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.