Federal Budget 2021 – Super, Tax and Aged Care Announcements
Last night the Federal Government handed down its Budget for the 2021-22 financial year. Compared with last year’s record deficit of $213.7 billion, the underlying cash deficit is projected to decrease to $161 billion as the economy continues on the path to recovery from Coronavirus.
Some of the key Budget announcements that may be of particular interest to you include:
▪ the removal of the work test for non-concessional and salary sacrifice contributions
▪ a reduction in the minimum age requirement for downsizer contributions
▪ an increase in the amount of super savings available to first home buyers
▪ additional investment into aged care following a Royal Commission into the quality and safety of the system.
It’s important to note that the legislated increases to superannuation guarantee were not amended in the Budget. Therefore, rate of superannuation guarantee will increase to 10% from 1 July 2021, as previously legislated.
In addition, the Government did not announce an extension of the halving of the account based pension minimums. As a result, the standard minimum drawdown requirements will apply from 1 July 2021.
Also, keep in mind that the announcements made in the Budget remain proposals at this stage. All of the proposals mentioned must be passed by Parliament before they become law.
The below table shows the announcements most relevant to people approaching or who are in retirement:
| BUDGET ANNOUNCEMENTS | DATE | WHAT THIS COULD MEAN FOR YOU |
|---|---|---|
| Superannuation | ||
| Repealing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74 The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test. | Expected to be 1 July 2022 | Removing the work test for people aged 67-74 to make non-concessional contributions will provide more flexibility for retirees under 75 to top up their super without needing to work 40 hours within 30 consecutive days in a year prior to making a contribution. The removal of the work test allows salary sacrifice contributions to be made on behalf of people in this age group. In its announcement, the Government confirmed that people aged 67-74 making non-concessional contributions will still be subject to existing contribution caps. Therefore, an individual who was under age 67 at the start of the year and has since turned 67 will be able to make a non-concessional contribution of up to $110,000 without first needing to satisfy the work test (or up to $330,000 under a proposal to extend the bring-forward rule to people under age 67 that is yet to be legislated). |
| Reducing the eligibility age for downsizer contributions to 60 The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age. The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap. | Expected to be 1 July 2022 | Reducing the eligibility age for downsizer contributions to age 60 could allow an eligible couple in their early sixties to sell their home and contribute up to $1.26m to super in a year by each making a $300,000 downsizer contribution and $330,000 non-concessional contribution. |
| First Home Super Saver Scheme – increasing the maximum releasable amount to $50,000 The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000 to purchase their first home. | Expected to be 1 July 2022 | Under the existing FHSSS rules, an eligible person can only apply to have a maximum of $15,000 of their voluntary (non-super guarantee) contributions from any one financial year included in the amount that may be released. Therefore, a member would need to make voluntary contributions of up to $15,000 over two financial years to take maximum advantage of the scheme. However, the Government has not announced that it intends to increase the $15,000 annual voluntary contribution limit. Therefore, a member would need to contribute over four plus years to take maximum advantage of the scheme under this proposal. |
| Removing the $450 per month minimum superannuation guarantee threshold The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold. Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month. | Expected to be 1 July 2022 | Taking into account that two out of every three part-time workers are female, the SG threshold disproportionately impacts women who do a small amount of paid work, or who work multiple jobs each paying less than $450 per month. Younger workers combining part-time employment with full-time university study are also in the same situation. Abolishing the $450 per month threshold could therefore help younger workers over age 18 to start accumulating superannuation earlier as well as help address the gap in super savings between women and men. |
| Income Tax | ||
| Personal income tax cuts – 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. The LMITO provides a reduction in tax of up to $1,080. This announcement means that personal income tax will stay the same in 2021-22 income year compared with the current year. | Effective 1 July 2021 | This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax. |
| Aged Care | ||
| Increased funding for Home Care To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages: • 40,000 released in 2021-22 • 40,000 released in 2022-23 Additional respite care services will be provided to assist carers and enhanced support services will be provided to assist senior Australians to navigate the aged care system. | Effective 1 July 2021 | In response to the Royal Commission into Aged Care Quality and Safety, the Government is investing $17.7 billion over five years into improving the aged care system. |
| Increased funding for residential aged care To improve and simplify residential aged care services, the Government is implementing a range of measures, including: • Increased funding for aged care providers to deliver better care and services, including food through a new Government-funded Basic Daily Fee Supplement of $10 per resident per day • Assigning residential aged care places directly to senior Australians and supporting providers to adjust to a more competitive market • Expansion of the Independent Hospital Pricing Authority to help ensure aged care costs are directly related to the care provided • Implementation of a new funding model – the Australian National Aged Care Classification system • Increased funding to drive systemic improvements to residential aged care quality and safety including increased funding for the Aged Care Quality and Safety Commission • A new star rating system to highlight the quality of aged care services and funding to expand independent advocacy to support greater choice and quality safeguards • Upskilling of the existing aged care workforce, financial support for Registered Nurses and funding to train new aged care workers, including subsidised places through JobTrainer • Creation of a single assessment workforce to undertake all assessments to simplify the assessment experience for senior Australians who enter or progress within the aged care system • Supporting senior Australians to access information about aged care through the introduction of dedicated face-to-face services • An increase in front line care (care minutes) delivered to residents of aged care and respite services, mandated at 200 minutes per day, including 40 minutes with a Registered Nurse, by 2023 • Funding to improve the governance of the aged care system including the drafting of a new Aged Care Act by mid-2023 | Effective over 3 phases: 2021, 2022-23, 2024-25 | The proposed reforms to the aged care system are in response to the 148 recommendations of the Royal Commission into Aged Care Quality and Safety. A number of recommendations impacting aged care funding were not accepted, such as the proposed 1% increase in Medicare Levy. The Government also did not accept changes to the basic daily care fee and means tested fees. The proposal to phase out Refundable Accommodation Deposits is subject to further consideration with the Government considering options to reduce the current dependence on Refundable Accommodation Deposits as a mechanism to raise capital. |
| Social Security | ||
| Increasing the flexibility of the Pension Loans Scheme The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances. | Effective 1 July 2022 | No Negative Equity Guarantee A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value. Lump sum advances Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined. Note, the total amount eligible people are able to receive under the pension loans scheme, including any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples. |