Overview

This year’s budget was heavily focussed on ensuring Australia’s post-COVID economic recovery   continues. A better than expected jobs market and record prices for the country’s key commodities meant the budget outlook was much stronger than perhaps was expected a matter of months ago. The 2021-2022 budget aims to return much of the unexpected windfall back into the economy with spending in the areas of aged care, childcare as well as the consumer and infrastructure sectors.

It was a relatively simple budget in terms of changes to tax and superannuation legislation, with no changes that we could label as a negative when compared to current legislation. Many of the changes increase flexibility within the superannuation system, provide an opportunity to boost superannuation benefits, and leave individuals in a better net position from a tax perspective.

Superannuation Reforms

Extending Access to the Downsizer Contribution

Currently, individuals over the age of 65 that meet a number of other eligibility requirements are able to make a $300,000 contribution to superannuation with the proceeds of the sale of their home with that contribution counting towards the standard contribution limits.

It is proposed that from 1 July 2022 this measure will be available to those over the age of 60.

Removal of the Work Test

For individuals over the age of 67 to be eligible to make voluntary superannuation contributions they must meet a work test, which involves being gainfully employed for 40 hours in a 30 day period in the financial year in which they wish to make the voluntary contribution. It is proposed that from 1 July 2022 this work test will be removed with regard to making non concessional (including bring forward amounts) and salary sacrifice contributions. The work test will still apply to those looking to make personal concessional contributions. This measure will allow older individuals to continue boosting their superannuation balances from personally held assets, and will also provide additional opportunities to eliminate the taxable component of their superannuation balances via a recontribution strategy.

Removal of Lower Threshold on Superannuation Guarantee

Superannuation Guarantee is only payable by an employer when the employee’s earnings excess $450 per month. It is proposed this lower threshold will be removed from 1 July 2022.

Increase to Superannuation Guarantee Rate

It was confirmed that from 1 July 2021 the rate of 9.5% for Superannuation Guarantee will increase to 10%, and then by 0.5% every year thereafter until it reaches 12% in 2025. Individuals may need to periodically update their salary sacrifice amounts to avoid exceeding their concessional cap.

First Home Saver Superannuation Scheme

There is currently a limit of $30,000 on voluntary contributions that can be released under the First Home Saver Super Scheme. It is proposed that from 1 July 2022 this will be increased to $50,000.

Self Managed Superannuation Funds

Legacy Product Conversions

Many older Self Managed Superannuation Funds have legacy retirement products such as marketlinked, life expectancy and lifetime pensions or annuity products that have become expensive to manage and often do not deliver the tax or social security benefits they once did under old legislation. These products have been difficult and/or costly to exit. The proposal is to introduce a two-year period to allow SMSF to exit these products. However, it is still unclear exactly what the repercussions of exiting these products will be.

Relaxing Residency Requirements

It is proposed the from 1 July 2022 the rules surrounding self-managed superannuation funds and residency will be relaxed to provide more flexibility for SMSF members that work overseas for a period of time. The active member test will be removed, which will allow a non-resident to contribute to their SMSF, and the safe-harbour rules around the Central Management and Control test will include a 5 year timeframe instead of 2 years when determining what is reasonable as a “temporary” absence from Australia.

Other Proposals

Improving the Pension Loans Scheme (PLS)

The PLS is available to Centrelink recipients who wish to enhance their income levels by way of effectively “borrowing” from Centrelink and using their home as security. The loan amounts can be received fortnightly as long as the total payment does not exceed 150% of the maximum Age Pension rate. From 1 July 2022 it is proposed that this scheme be improved by introducing a No Negative Equity Guarantee and providing access to two lump sum advances in any 12 months up to 50% of the maximum annual rate of Age Pension.

Maintaining the Low and Middle Income Tax Offset

The low and middle income tax offset will be retained for the 2022 financial year. This offset has a maximum of $1,080 and is received on lodgement of the tax return for eligible individuals.

It is important to note that many of the proposals do not take effect until 1 July 2022, however, maximising the benefits provided by a number of these changes may take careful planning in the lead up to this date of effect.

If you believe you may be able to take advantage of any of these measures we recommend you contact us discuss in detail.

Read our recent posts here.

More details of this federal budget can be found here.