On Tuesday 11 May, the government handed down its Budget for the 2021–22.
Here are some of the key Budget announcements that may affect you. Note that each of these proposals will only become law if it is passed by Parliament.
Taxation
Personal income tax cuts – retaining the low & middle income tax offset for the 2021-22 income year
Effective 1 July 2021
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.
What this could mean for you
It is important to note that the LMITO is a non-refundable tax offset. An individual who is eligible for LMITO is not required to complete a section in their tax return. The ATO will work out the LMITO once the tax return is lodged.
For more information about the proposed changes to tax thresholds and offsets, speak to your accountant.
Superannuation
Repealing the work test for non-concessional contributions and salary sacrifice contribution for people aged 67 to 74
Expected to be 1 July 2022
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.
What this could mean for you
Removing the work test 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.
Reducing the eligibility age for downsizer contributions to 60
Expected to be 1 July 2022
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.
What this could mean for you
Reducing the eligibility age to 60 could allow an eligible couple in the 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. Important to note that the amount that can be contributed as a non-concessional contribution will still be subject to the Total Superannuation Balance cap which will be $1.7m from 1 July 2021.
Complying pension and annuity conversions
Effective first financial year following Royal Assent
The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account-based pension, take a lump sum benefit or retain the balance in the accumulation account.
The income streams affected by this measure include:
- Market-linked income streams (otherwise known as Term Allocated Pensions),
- Complying life expectancy income streams and
- Complying lifetime income streams
Aged care
Increased funding for Home Care
Effective 1 July 2021
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 age care system.
Increased funding for residential aged care
Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures, including:
- Increased funding 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 age care costs are directly related to the care provided
- 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
- 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
What this could mean for you
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 in Refundable Accommodation Deposits as a mechanism to raise capital.
Supporting you through the changes
Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your financial plans for the future.
If you have any concerns, or would like to discuss your financial strategy, please don’t hesitate to get in touch with us on (08) 8312 0000 to arrange an appointment with your Pinnacle Advisor.