What the 2021-22 Federal Budget means for you
Written by Shereen Churchill (Financial Adviser)
The 2021-22 Federal Budget was delivered last night, 11 May 2021. The dominant themes from this years’ Budget include continuing to provide for a safer environment, incentives to increase spending by taxpayers to stimulate the economy, a focus on the health issues facings Australians and a focus on addressing the retirement savings gap between men and women.
From a pure financial planning and wealth perspective, the positive news from this year’s Budget is that the changes are minimal and largely positive in nature. Many of the announcements could be regarded as a soft start to an election campaign by the Government, with expected commencement dates of 1 July 2022 – which is later than when the next Federal election will be held.
As is always the case, these measures will need to pass through the legislative process before they become law and may change during that process.
To help you understand the key announcements made by the Treasurer, ITL Financial Planning have put together a written summary of the key areas specific to self-funded retirees, professional families, and successful business owners.
For our self-funded retirees, the major announcements were in relation to continued tax relief in the lower and middle income bands, broadening the eligibility to the Downsizer Contribution, broadening eligibility to make Non concessional Contributions without satisying a work test and, a five year plan to ensure senior Australians will have access to high quality and safe aged care services.
Downsizer Contribution & Work Test Commencement Ages
These measures, which are expected to commence from 1 July 2022, include:
- Reducing the qualifying age at which a downsizer contribution of up to $300,000 can be made to super, when selling a principal place of residence, from 65 to 60;
- Deferring the commencement of the work test that needs to be satisfied to make a non concessional contribution to super from age 67 to 75. This will mean that up to the age of 75, you can make an after tax contribution of $110,000 (based on current thresholds that apply from 1 July 2021) each year (or $330,000 if you exercise the bring forward rules) without needing to meet a work test in that year. However there are still limitations on how much you can have saved in the super system and still be allowed to make these contributions. Furthermore, individuals aged 67 to 74 years will still have to meet the work test to make personal concessional contributions.
The proposed tax relief as well as some other enhancements to the super system which will also benefit many self-funded retirees, are outlined under the “professional families” heading. Furthermore, you may be interested to read and inform your children about the Housing Assistance and Childcare announcements, which are also outlined under the “professional families” heading.
For our professional families, the biggest proposals were in relation to tax relief in the lower and middle income bands, enhancements to the super system as well as additional support for Child Care and First Home Owners. Whilst the latter two proposals may not be beneficial to many of you, you may be interested to talk to your children about them.
The Government remains committed to its next stage of personal income tax reform that will take effect from 1 July 2024. Importantly, the already legislated tax cuts will see 95 per cent of taxpayers face a marginal tax rate of no more than 30 cents in the dollar from 1 July 2024. Albeit, should there be a change in Government, it’s likely the tax cuts will be overturned.
The Government has further extended the availability of the low and middle income tax offset (LIMTO) for an additional 12 months (as it did last year). Providing a maximum benefit (or tax saving) of $1,080 per person for those on taxable incomes between $48,000 and $90,000 and some benefit either side, before cutting out at a taxable income of $126,000 or above. The benefit of LIMTO is only gained when you lodge your income tax return for the financial year.
The Government also announced changes to the taxation of certain employee share schemes. Refer to the details outlined under the “Successful Business Owners” heading.
Super System Enhancements
The Government inferred (by way of no announcement) that the rate of super guarantee will increase by 0.5% to a rate of 10.0% from 1 July 2021. It is currently legislated to increase at 0.5% per annum until it reaches a rate of 12.0% from 1 July 2025.
The Government did announce that they will legislate to remove the current $450 of wages per month that must be earned before an employer is obligated to make super guarantee payments for an employee. Expected to take effect from 1 July 2022, this is also one of a raft of reforms the Government announced targeting women.
For a number of years, the Government has offered a First Home Super Saver Scheme – allowing prospective first homeowners the ability to access up to $30,000 of their accumulated super savings to be applied towards the purchase of a first home. Whilst there are a range of conditions that will still need to be met to qualify, the amount that can be accessed will be lifted to $50,000.
Furthermore, the Government announced the following measures to help Australians secure ownership of their first home:
- Establishing the Family Home Guarantee with 10,000 places from 2021-22 to support single parents with dependants to enter, or re-enter, the housing market with a deposit of as little as 2.0%, and
- Extending the First Home Loan Deposit Scheme to provide an additional 10,000 New Home Guarantees in 2021-22 to allow eligible first home buyers to build a new home or purchase a newly constructed home sooner with a deposit of as little as 5.0%.
The Government announced it will:
- Increase the childcare subsidies available to families with more than one child aged five and under in childcare from 11 July 2022. This will be facilitated by increasing the potential subsidy percentage for the second or third child by 30%, but capped at 95%. Families must earn less than $353,680 to receive the additional subsidy. This is expected to benefit around 250,000 families.
- Remove the $10,560 cap on the Childcare Subsidy from 1 July 2022. This cap is currently applicable to families who earn annual adjusted taxable income of more than $189,390. This is expected to benefit about 18,000 families.
The proposed changes to the Downsizer Contribution and the Work Test Commencement age, which will also benefit many professional families, are outlined under the “self-funded retirees” heading.
Successful Business Owners
For our successful business owners, the biggest proposals were in relation to the extension of both the temporary loss carry-back provisions for business with turnover less than $5 billion and the temporary full expensing of eligible capital assets.The Government also announced changes to the taxation of certain employee share schemes.
Temporary loss carry-back provisions for business with turnover less than $5 billion
To support business cash flow, eligible companies will be able to carry back tax losses 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. Companies with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in the previous years noted, generating a refundable tax offset in the year in which the loss is made.
Temporary full expensing of eligible capital assets
Business with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2023 (an extension of 12 months).
Employee Share Schemes
Under certain arrangements, the taxation of an employee share scheme can be deferred to a point in time after the initial grant of the relevant shares, with a range of events noted that caused the tax to be assessed. The Government is proposing to remove one of those taxing events, being cessation of employment, to remove any advantages that may have been obtained from terminating employment early. This has the benefit for employers of being able to offer these remuneration incentives and retain key staff for longer periods of time.
The other major announcements were in relation to tax relief in the lower and middle income bands, enhancements to the super system as well as additional support for Child Care and First Home Owners. Whilst the latter two proposals may not be beneficial to many of you, you may be interested to talk to your children about them. These are all outlined under the “professional families” heading.
Overall, the changes are positive for self-funded retirees, professional families and successful businesses. Many of the measures will not take effect until 1 July 2022 and as indicated earlier, most will require the passage of relevant legislation through Parliament.
This information has been prepared and issued by ITL Financial Planning and is current as at 12 May 2021. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information in this document regarding taxation and legislative change is based on policy announcements which are yet to be passed as legislation and may be subject to future change. This information contains material provided directly by third parties (mainly BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac). It is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. ITL Financial Planning does not accept responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not consider your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ, and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.