Budget 2021 - Individuals and Families
Posted 12 May 21
Personal Tax Cuts
We were already in ‘Stage 2’ of the tax cuts originally announced in the 2019 Federal Budget, which included the Low and Middle Income Tax Offset (LMITO) providing a tax saving of up to $1,080 per individual earning below $126,000. That temporary offset was set to cease on 30 June 2021, but has now been extended for another year and will remain for Financial Year 2022.
Individual Tax Residency
In good news for those who work overseas or enjoy travelling for extended periods of time (that is, when we can do so again), the tax residency rules have been simplified. Distilled to a primary test, if you have been physically present in Australia for greater than 183 days, you are an Australian resident for tax purposes. This ‘bright line’ test will be supplemented by four secondary tests in more complicated circumstances.
This year’s Budget confirmed that there will be no change to the originally planned and widely debated incremental increase in the Superannuation Guarantee rate. From 1 July 2021, employers will be required to pay 10% of an employee’s salary or wage to their nominated superannuation fund, up from the current 9.5% rate. This incremental increase is set to continue until reaching a rate of 12% in 2025.
Downsizer Superannuation Contributions
The ‘Downsizer’ Superannuation Contribution was a housing affordability measure introduced in 2018 to encourage retirees to downsize their home and free up housing stock. This special type of contribution is currently only available to individuals aged 65 years or older, however the qualifying age will be lowered to 60 years. All other eligibility criteria remain the same, principally that the property sold must be your principal place of residence, owned for at least ten years. The change will take effect from the start of the first financial year after being legislated, which the Government expects will be prior to 1 July 2022, and therefore likely to apply from Financial Year 2023.
Superannuation Contributions for Retirees
To provide retirees with greater flexibility to save for retirement within superannuation, the ‘work test’ (being gainfully employed for at least 40 hours within a consecutive 30-day window) has been abolished for those aged under 75 years – in most circumstances. While there is no longer the requirement to prove gainful employment for the purpose of non-concessional contributions, the work test must be satisfied for those aged between 65 and 74 years (inclusive) wishing to make personal concessional (tax-deductible) contributions, as shown below.
Like the changes to the Downsizer Contribution, the relaxation of the work test will not take effect until the financial year after it is legislated.
First Homeowner Super Saver Scheme
The Government has doubled down on the First Homeowner Super Saver Scheme, extending the maximum contribution amount that can be released from superannuation for a property purchase from $30,000 to $50,000. Particularly beneficial for couples, this can provide a substantial $100,000 plus earnings to put towards their first home. Interest in the scheme is growing, with parents wishing to assist their children with property using it as a means to contribute funding in a tax-effective way, and the expansion of the limit will surely see greater participation.
Residency Requirements for SMSFs and Small APRA Funds (SAFs)
Residency requirements for those operating their own superannuation fund will be relaxed from 1 July 2022, with the central control and management test ‘grace period’ extending from two years to five and the removal of the active member test which prevented members from making contributions to self-directed funds whilst overseas. These changes will allow members in smaller funds to receive similar treatment and contribution opportunities as larger fund members.
Record funding has been committed to Aged Care to assist in implementing recommendations from the Royal Commission into Aged Care Quality and Safety. The funding will be spent across several areas with the primary objective being to improve the quality, safety and availability of aged care services. Of particular note, funding will support:
- specific and individualised training to upskill age care workers,
- 80,000 additional home care packages over the next two years,
- greater access to respite services and financial support for carers,
- a new star rating system to help potential residents and their families assess the quality and safety performance of residential care providers, and
- a new Refundable Accommodation Deposit (RAD) Support Loan Program.
A relatively quiet Budget when it came to the Age Pension with the only substantial change related to improving the under-utilised Pension Loans Scheme – a reverse mortgage type product issued by the Government. From 1 July 2022, pension-qualifying retirees will be able to access limited lump sum or regular pension withdrawals using the equity in their home with a No Negative Equity Guarantee provided by the Government. With the risk that the total principal and interest owed exceeded the value of the property now eliminated, the Government hopes to improve the uptake of the scheme.
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This article is one part of our 2021 Budget series. To read more of our Budget commentary, click the links below:
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