On Tuesday night, the Federal Government handed down its 2021 Federal Budget – a big spending Budget that aims to accelerate Australia’s recovery from the global pandemic.
We have prepared a 2021 Budget summary to help you understand what the proposals mean – and how they might affect you personally.
It’s of course important to remember that these are only proposals at this stage, and each proposal will only become law once it’s passed by Parliament.
Superannuation
Removal of the work test for people aged 67-74
Date of effect: 1 July of year after Royal Assent is granted
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.
Calibre comment: 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. It will also allow advisers to implement strategies, such as the re-contribution strategy, that are not normally available to retired clients in this age group.
Reducing the eligibility age for downsizer contributions to Age 60
Date of effect: 1 July of year after Royal Assent is granted
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.
Calibre comment: 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.
Alternatively, where a client wants to contribute a much smaller amount, it will be important to consider what type of contribution they should make in order to maximise their ability to make contributions in future.
First Home Super Saver Scheme changes
Date of effect: 1 July of year after Royal Assent is granted
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.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
Removing the $450 per month minimum super guarantee threshold
Date of effect: 1 July of year after Royal Assent is granted
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.
Calibre comment: 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.
Exiting legacy income stream products
Date of effect: 1 July of year after Royal Assent is granted
The Government will provide a two year window to exit certain legacy retirement products. All underlying capital and any associated reserve supporting the income stream must also be part of the amount paid upon exiting. The person may:
- rollover the superannuation interest to an accumulation account
- commence a new superannuation income stream, such as an account based pension, or
- cash out of the super system.
An exemption will apply to exclude the amount received from the reserve from the individual’s CC cap but it will be included in the assessable income of the superannuation fund and taxed at up to 15%.
If the amount is used to commence another retirement phase income stream, this will be assessed against the individual’s transfer balance cap.
Calibre comment: It will be important for members to consider the effect of commutations and commencement of new income streams on their transfer balance account. Often the debit on the commutation of a complying income stream is well below the actual capital that is released. Members and trustees will need advice in this complex area.
This is particularly good news for trustees of SMSFs that hold these products where balances have been depleted to the point of making the expenses to administer the fund unviable.
Relaxing residency requirements for SMSFs
Date of effect: 1 July of year after Royal Assent is granted
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Calibre comment: Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF without jeopardising the fund’s complying status.
Taxation
Low and middle income tax offset extended
Date of effect: From 1 July 2021
LMITO, which was due to cease on 30 June 2021, will be extended until 30 June 2022. LMITO applies to individuals with taxable income up to $126,000 in the year.
The amount of offset that applies varies depending on taxable income and is summarised below.
| Taxable income | Offset |
| $37,000 or less | $255 |
| $37,001 to $48,000 | $255 plus 7.5 cents for each dollar above $37,000 (maximum of $1,080) |
| $48,001 to $90,000 | $1,080 |
| $90,001 to $126,000 | $1,080 less 3 cents for each dollar above $90,000 |
Calibre comment: 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.
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.
Tax residency rules modified
Date of effect: 1 July of year after Royal Assent is granted
The rules to determine whether a person is a tax resident will be simplified. A person will be considered an Australian tax resident if they are physically in Australia for at least 183 days in a financial year. This test will be the primary test. People who do not meet this test may still be considered a resident under a series of secondary tests, and tax residency will remain subject to tie breaker rules in double tax treaties.
Increasing the Medicare Levy low-income thresholds
Date of effect: 1 July 2020
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2020-21 income year.
The following table compares the level of taxable income below which no Medicare Levy is payable.
| Income category | 2019-20 | 2020-21 |
| Taxpayers entitled to seniors and pensioners tax offset (SAPTO) | ||
| Individual | $36,056 | $36,705 |
| Married or sole parent | $50,191 | $51,094 |
| For each dependent child or student, add: | $3,533 | $3,597 |
| All other taxpayers | ||
| Individual | $22,801 | $23,226 |
| Couple/sole parent (family income) | $38,474 | $39,167 |
Medicare Levy surcharge and private health insurance thresholds unchanged
Date of effect: 1 July 2021
The income thresholds at which the Medicare levy surcharge is applied and at which private health insurance rebates decrease will continue unchanged for another two years. These thresholds would otherwise have indexed to higher amounts.
The thresholds will remain at:
| Single income for surcharge purposes | Families income for surcharge purposes | Medicare levy surcharge rate |
| < $90,001 | < $180,001 | 0% |
| $90,001 to $105,000 | $180,001 – $210,000 | 1% |
| $105,001 to $140,000 | $210,001 – $280,000 | 1.25% |
| ≥ $140,001 | ≥ $280,001 | 1.5% |
Extension of small business measures
Date of effect: 1 July 2022
The Government will extend the temporary full expensing of capital investments and loss carry-back provisions.
Eligible businesses with annual turnover of less than $5 billion will be able to fully expense the cost of depreciable assets for a further 12 months. Assets must be first used or installed before 30 June 2023, instead of 30 June 2022 as currently legislated.
Eligible companies will be able to carry back losses for the 2022/23 tax year and apply them against profits in any year from 1 July 2018.
Home Ownership
First Home Loan Deposit Scheme (New Homes) and Family Home Guarantee
Date of effect: 1 July 2021
An additional 10,000 places will be available under the First Home Loan Deposit Scheme (New Homes) (FHLDS New Homes) to help eligible first home owners who have at least a 5% deposit with the purchase of a new home.
A new Family Home Guarantee program (FHG) will also be available to eligible single parents with dependents, who have at least a 2% deposit. FHLDS (New Homes)
The FHLDS (New Homes) provides a government loan guarantee of up to 15% to eligible new first home buyers with at least a 5% deposit, which helps avoid the often significant expense of lender’s mortgage insurance (LMI).
Eligibility rules apply and include:
- applicants must be Australian citizens aged at least 18
- annual taxable income must be $125,000 or less
- the loan term must be 30 years or less
- property price caps apply and vary based on location.
Eligible new homes
An eligible new home for this purpose includes:
- a newly constructed home that has never been lived in
- an off the plan purchase
- a home and land package, and
- vacant land with a separate construction contract.
Family Home Guarantee
A total of 10,000 guarantees will be available to enable eligible single parents the opportunity to purchase a new or existing home with a minimum deposit of 2%. The guarantees will be available until 30 June 2025.
There is no requirement that the person be a first home buyer.
Eligibility rules apply and include:
- applicants must be Australian citizens aged at least 18, and
- annual taxable income must be $125,000 or less.
Social Security and Aged Care
Pensions Loans Scheme
Date of effect: 1 July 2021
Changes will be made to the Pension Loans Scheme (PLS) to enable payments to be received as lump sum instalments.
Currently, the PLS provides a loan in the form of fortnightly instalments. The payment options will be expanded to allow participants to access up to 50% of the maximum annual rate of Age Pension via up to two lump sum payments in any 12 month period. This amount will vary depending on whether the person is single or a member of a couple.
Changes will also be made to ensure borrowers won’t have to repay more than the market value of their property through the introduction of a No Negative Equity Guarantee.
The Government will also seek to increase awareness of the scheme as well as ease of access via digital service delivery.
Calibre comment: Payments received from the PLS are not assessed as income for social security and are not subject to tax.
Child Care Subsidy
Date of effect: 1 July 2021
Changes will be made to the Child Care Subsidy (CCS) to provide more support to high income earners, and families with multiple children in care.
Changes proposed to the current scheme include:
- Removing the subsidy cap of $10,560 for couples earning $189,390 or more in a year, and
- For families with multiple children under five in child care, the subsidy may increase by up to 30% for the second and subsequent children, up to a maximum of 95% where the parent(s) meets the relevant activity and income tests. The maximum subsidy will be lower for parent(s) that do not meet the full activity test or where their income is above the minimum threshold.
The CCS reduces the cost of child care for eligible parents and guardians. The subsidy is determined through a combination of an activity test, an income test and hourly rate cap.
Calibre comment: The increase in Child Care Subsidy will benefit eligible families with two children under five in childcare.
The removal of the annual cap will also help eligible families with a combined income of more than $189,390, by removing the subsidy cap that restricts them to a maximum of $10,560 child care subsidy per child per financial year.
Home Care Packages
Date of effect: 1 July 2021
The Government will increase the support for older and vulnerable Australians looking to remain in their homes to receive ongoing care through:
- releasing 80,000 additional Home Care packages over two years from 2021/22
- funding training for 13,000 new Home Care workers over two years from 2021/22 and
- designing a plan for a new Home Care program to better meet the needs of senior Australians
Aged Care
Date of effect: 1 July 2021
The Government has responded to the Royal Commission into Aged Care Quality and Safety through outlining proposals focussed on improving access to care, information, support and training. The proposals do not include any change to the method for determining fees and costs. Some of the proposals include:
- introducing a new Government funded Basic Daily Fee Supplement of $10 per resident per day payable to Aged Care providers
- implementing a new Refundable Accommodation Deposit Support Loan Program
- introducing a new star rating to allow Aged Care recipients and their families to compare Aged Care
- providers on performance, quality and safety, and
- developing a new Aged Care Act over four years.
Calibre comment: 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.
The Government also released their response to the Royal Commission on 11 May 2021.
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.
Supporting you through the changes
If legislated, these significant changes may impact your financial strategy and therefore could warrant further discussion with your financial adviser. As a valued client of Calibre Private Wealth Advisers, we look forward to discussing with you the impacts, opportunities and action which may be required in your individual circumstances to maximise the probability of achieving what is most important to you.
Important information
This 2021 Federal Budget Summary was prepared by Calibre Private Wealth Advisers and is current as at 13th May 2021. Any advice in this Federal Budget Summary has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.