On 11 May 2021, the Government handed down the 2021-22 Federal Budget. Whilst this marked a return to the traditional timing of the budgetary processes, the content of the 2021-22 Budget continues to remind us that our economy and way of life has still not returned to full normality post the events of COVID-19.
Continuing to provide for a safer environment and incentives to increase spending by taxpayers to stimulate the economy remained a consistent measure and is in line with the October 2020 Federal Budget. Whilst many measures had been announced prior to the formal delivery of the 2021-22 Federal Budget, there were a number of additional measures released that have the potential to impact on the wealth plans of a number of Australians. Many of these announcements could be regarded as a soft start to an election campaign by the Government, with expected commencement dates of 1 July 2022 – which is later than when the next Federal election will be held.
For many, the headline announcements may have centred on the extension of the low and middle-income tax offset (worth up to $1,080) for another 12 months through to 30 June 2022. Or the absence of any announcement of a change to the rate of super guarantee payments. However, there were also a number of other superannuation announcements that could have a significant (and positive) impact on the wealth plans of many Australians.
Beyond wealth, the Budget did also have a focus on health issues for Australians, with measures announced to improve access to mental health services which, for a number of people, has had a heightened focus since the onset of COVID-19. Additionally, a number of measures were focused on women, with some aimed at addressing the retirement savings gap between males and females.
Below is an overview of some of the measures announced in this year’s Federal Budget. There may be others that impact on your personal situation. Your financial advisor can help outline what these measures may mean for you, what opportunities they open up to you now, or in the future.
It is always important to remember that at this point, the Budget night announcements are only statements of intended change and are not yet law.
Personal tax changes
After the significant changes to personal taxation announced in the October 2020 Federal Budget, which largely took effect from 1 July 2020, it was no surprise to see no significant announcements on personal tax cuts in this year’s Budget. The Government remains committed to its next stage of personal income tax reform that will take effect from 1 July 2024.
In the 2020/21 Federal Budget, the Government announced an extension of the low and middle-income tax offset (LIMTO) for 12 months through to 30 June 2021. In this year’s 2021/22 Federal Budget, the Government has further extended the availability of this tax offset for an additional 12 months. Providing a maximum benefit (or tax saving) of $1,080 per person for those on taxable incomes between $48,000 and $90,000 and some benefit either side, before cutting out at a taxable income of $126,000 or above, the benefit of LIMTO is only gained when you lodge your income tax return for the financial year.
The Government also announced changes to the taxation of certain employee share schemes. Under certain arrangements, the taxation of an employee share scheme can be deferred to a point in time after the initial grant of the relevant shares, with a range of events noted that caused the tax to be assessed. The Government is proposing to remove one of those taxing events, being the cessation of employment, to remove any advantages that may have been obtained from terminating employment early. This has the benefit for employers of being able to offer these remuneration incentives and retain key staff for longer periods of time.
Business taxation
In last year’s Budget, the Government announced that businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022. This has now been extended a further 12 months to eligible capital assets first used or installed by 30 June 2023.
In addition, another measure announced last year, allowing companies with an aggregated turnover of less than $5 billion to apply tax losses against taxed profits in prior years will be extended a further 12 months. Under this arrangement, eligible companies will be able to carry back tax losses from the 2019-20, 2020-21, 2021-22 and now 2022-23 income years to offset previously taxed profits from the 2018-19 or later income years.
Superannuation
Perhaps one of the most significant announcements around superannuation was a ‘non-announcement’. The Government made no comment on making changes to the rate of super guarantee that you can earn as an employee, meaning it will increase by 0.5% to a rate of 10.0% from 1 July 2021. It is currently legislated to then increase at 0.5% per annum until it reaches a rate of 12.0% from 1 July 2025.
Taking it further, the Government did announce that they will legislate to remove the current $450 of wages per month that must be earned before an employer is obligated to make super guarantee payments for an employee. Expected to take effect from 1 July 2022, this measure will allow more Australians to start to accumulate superannuation savings earlier. This is also one of a raft of reforms the Government announced targeting women.
Beyond the superannuation guarantee, there were also a number of other changes announced that increase the ability for Australians to further enhance their retirement savings via their superannuation savings. These measures, which are expected to commence from 1 July 2022, include:
- Reducing the qualifying age at which a downsizer contribution of up to $300,000 can be made to super, when selling a principal place of residence, from 65 to 60;
- Deferring the commencement of the work test that needs to be satisfied to make a contribution to super from age 67 to age 75. This will mean that up to the age of 75, you can make an after-tax contribution of $110,000 (based on current thresholds that apply from 1 July 2021) each year without needing to meet a work test in that year. There are still however limitations on how much you can have saved in the super system and still be allowed to make these contributions.
For a number of years, the Government has offered a First Home Super Saver Scheme – allowing prospective first homeowners the ability to access up to $30,000 of their accumulated super savings to be applied towards the purchase of a first home. Whilst there is a range of conditions that will still need to be met to qualify, the amount that can be accessed will be lifted to $50,000.
Finally, the Government has also announced there will be a two-year window to allow retirees who are stuck in older superannuation retirement products (such as lifetime income streams) to elect to exit those income streams and invest their retirement savings in a more contemporary product, such as an account-based pension. These older (or legacy) products offered potential tax and social security benefits, and any previous benefits enjoyed will not need to be repaid. However, any new products commenced will be assessed under the rules that apply at the time that new product is opened. Whilst that may be a worse taxation treatment or could potentially lead to a reduction in age pension entitlements, this may be offset by the ability to now access capital that was previously locked away.
Housing assistance
In addition to the First Home Super Saver Scheme changes mentioned earlier, the Government has announced additional measures to help Australians secure ownership of their first home.
These include:
- Establishing the Family Home Guarantee with 10,000 places from 2021-22 to support single parents with dependants to enter, or re-enter, the housing market with a deposit of as little as 2.0%, and
- extending the First Home Loan Deposit Scheme to provide an additional 10,000 New Home Guarantees in 2021-22 to allow eligible first home buyers to build a new home or purchase a newly constructed home sooner with a deposit of as little as 5.0%.
Social security
Whilst many social security recipients have enjoyed an increase in the base rate of their income support payments of $50 per fortnight since 1 April 2021, the Government has announced greater flexibility around the pensions loan scheme (PLS) for age pension recipients.
Currently, the PLS allows recipients to receive (or borrow) an additional regular fortnightly loan amount with any ordinary Age Pension entitlement calculated under the means test. Under the enhanced flexibility announced:
- A ‘No Negative Equity Guarantee’ will apply, which will ensure that borrowers under the PLS, or their estate will not have to repay more than the market value of their property. This will align the Government scheme with that of private-sector reverse mortgages.
- Participants will be allowed to access up to two lump-sum advances in any 12 month period, with the two instalments capped at a total value of 50% of the maximum annual rate of Age Pension.
Super measures
A key feature of the 2021-22 Federal Budget are the opportunities giving older Australians, including self-funded retirees, greater flexibility around contributions to superannuation and accessing the equity in their home if they choose to by:
Repealing the work test for individuals aged 67 to 74
Under current rules, voluntary contributions to super from the age of 67 require you to be working in the financial year you choose to contribute. The ‘work test’, as it’s known, limits voluntary contributions to those who either chose to, or, are able to continue to work in their late 60’s. Recognising that retirees aged 70 today, potentially only had 20 years or more of compulsory superannuation guarantee during their working lives, the Government have announced they will amend the work test rules to assist retirees who may not have had the full benefit of compulsory superannuation throughout their working lives. From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions. Personal deductible contributions will still be subject to meeting the work test, and all other existing contribution caps continue to apply.
Extending access to downsizer contribution for Individuals aged 60 and over
Since 1 July 2018, eligible individuals have been able to make additional contributions to superannuation under a once-off opportunity when they sell their principal place of residence, which has been held for a minimum of 10 years. The ‘downsizer contribution’ allows eligible individuals aged 65 or older to contribute up to $300,000 to superannuation. To improve the flexibility for Australians to add to their superannuation savings, and encourage people to downsize sooner, and increase the supply of family homes, the Government has announced the eligibility age for a downsizer contribution will be revised to age 60 from 1 July 2022.
Improving the Pension Loans Scheme
The Government has announced an increase in the flexibility and attractiveness of the Pension Loans Scheme (PLS) for eligible senior Australians. From 1 July 2021, the following enhancements will be made:
- No Negative Equity Guarantee – borrowers under the PLS, or their estate, will not find themselves in a position of owing more than the market value of their property.
- Immediate access to lump sums – eligible individuals will be able to receive a maximum lump sum advance payment equal to 50% of the maximum Age Pension (currently $12,385 for singles, and $18,670 for couples combined).
The PLS is a voluntary, reverse mortgage type loan agreement to assist older Australians boost their retirement income by unlocking equity in their real estate assets. Full-rate Age Pensioners can receive an annual income boost worth 50% of the annual full age pension (which, from 1 July 2021, can be taken as a lump sum). Part-rate Age Pensioners will also be able to access a lump sum worth 50% of a full Age Pension. Self-funded retirees of Age Pension age, who do not receive an Age Pension can also receive an income boost over a year worth 1.5 times the full rate of Age Pension payment. Following the increase in flexibility from 1 July 2021, 50% of this payment can be taken as a lump sum, with the remainder as a regular income payment.
Legacy Superannuation product conversions
In line with the intention of simplifying the retirement system, the Government will provide certain individuals with temporary options to transition out of legacy retirement income products and into more flexible, contemporary retirement products. A two-year period will open, and provide for the conversion of market-linked, life-expectancy and lifetime pension and annuity products, available on a voluntary basis. Such products will be able to be exited by fully commuting and then transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase.
From here, a more conventional account-based income stream can commence, subject to the individual’s available transfer balance cap space. Importantly, existing social security concessions that may apply to the eligible legacy product will be lost upon conversion. However, exiting the legacy product will not cause a re-assessment of the former social security treatment of the product.
This measure is expected to commence from 1 July 2022.
Bridging the gap
How the 2021-22 Federal Budget supports women
Women’s Economic Security Package
The Government have announced several measures in the Budget to support women’s economic security. The Childcare Subsidy percentage for families with multiple children aged 5 and under in childcare has been announced to commence from 11 July 2022. This measure, if passed, will see an increase in the subsidy percentage by 30% for the second and subsequent child/ren, but this will be capped at no more than 95%.
Other measures encourage gender equity across typically male-dominated industries by offering scholarships to encourage women into science, technology, engineering and mathematics (STEM) careers as well as supporting women into leadership positions through the Women’s Leadership and Development program.
Workforce participation was another common theme in the Federal Budget. Many of the announcements seek to remove the barriers that exist for women accessing non-traditional roles and re-entering the workforce after career breaks. The Government have announced their support for these projects to facilitate more career opportunities and supported career pathways for women.
Unfortunately, women experience far more significant drops in household disposable income than men after separation or divorce. To help support women’s economic security, the Government proposes to streamline this process by providing lawyers to assist with mediation to distribute property of less than $500,000 between parties and after separation following a relationship breakdown. The Government have suggested this proposal will help women achieve financial security and control, recover financially from separation, and move on with their lives.
Women’s safety
The Government have announced several initiatives to reduce the instances of, and support the victims of Family, Domestic and Sexual Violence (FDSV) against women and children. Various funding initiatives have been announced by the Treasurer for women and children who have been subjected to FDSV, support programs on consent and respectful relationships and support to assist vulnerable women and children to engage with the legal system.
Improving retirement outcomes
The Budget announced a number of measures to improve the retirement outcomes for women. On average, women will retire with lower superannuation balances and lower retirement incomes. Currently, the superannuation guarantee is payable once the $450 per month threshold is reached. As highlighted by the retirement income review, 63% of people impacted by the $450 per month threshold are women. The Government have announced they intend to remove this threshold from 1 July 2022 improving the coverage of superannuation for those impacted.
Perhaps one of the most significant announcements around superannuation for women was a ‘non-announcement’. The Government made no comment on making changes to the rate of super guarantee that you can earn as an employee, meaning it will increase by 0.5% to a rate of 10.0% from 1 July 2021. It is currently legislated to then increase at 0.5% per annum until it reaches a rate of 12.0% from 1 July 2025.
The Government have also announced an extension of the minimum age requirement for the downsizer contribution from 65 to 60 from 1 July 2022. Downsizer contributions allow people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home, outside the usual contribution caps.
Changes have also been announced to the work test for superannuation contributions. Currently, voluntary contributions to super from the age of 67 requires you to be working in the financial year you choose to contribute. The ‘work test’, as it’s known, limits voluntary contributions to those who either chose to or are able to continue to work in their late 60’s. From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making or receiving, non-concessional superannuation contributions (including non-concessional bring-forwards) or salary sacrificed contributions. Importantly, personal deductible contributions will still be subject to meeting the work test, and all other existing contribution caps continue to apply.
While many of the measures announced in the 2021-22 Federal Budget aim to create jobs, many measures support womens’ personal safety, economic prosperity and seek to bridge the gender pay and superannuation gap. It is important however to remember that what was announced in the Budget is just that, announcements.
Child Care Subsidy enhancements
From 1 July 2022, eligible Australian families are set to benefit from reduced out-of-pocket childcare expenses as the Government plans to increase the rate of the subsidy for families with multiple young children and remove the annual cap.
Increased subsidy for families with multiple children
Currently, eligible families can receive the Childcare Subsidy to assist them with the costs of childcare by reducing their out-of-pocket expenses, help individuals participate or increase their participation in the workforce, as well as support the early learning and development of children.
The rate of the subsidy can depend on several factors including the cost of the care and whether it is more expensive than a cap on fees, the hours of activity of the parent(s), and the family’s income. The subsidy received is worked out the same way for each child, no matter the number of children the family have in care. This means the childcare costs double if there is a second child in care.
As part of this measure, the Government will increase the Childcare Subsidy percentage for families with multiple children aged 5 and under in childcare from 11 July 2022.
There will be an increase in the subsidy percentage by 30% for the second and subsequent children, but this will be capped at no more than 95%.
The rate of Childcare Subsidy a family can receive is based on their ‘family income’ as illustrated in the table below.
| Child Care Subsidy percentage* | ||
| Current family income thresholds | Current percentage for 2021/22 From 11 July 2022 for first child aged 5 and under | From 11 July 2022 for each additional child aged 5 and under (proposed) |
| Up to $69,390 | 85% | 95% |
| $69,390 – $129,390 | 85% minus 1% every $3,000 of income > $69,390 | 95% |
| $129,390 – $174,390 | 65% minus 1% every $3,000 of income > $129,390 | 95% minus 1% every $3,000 of income > $129,390 |
| $174,390 – $253,680 | 50% | 80% |
| $253,680 – $343,680 | 50% minus 1% for every $3,000 of income > $253,680 | 80% minus 1% for every $3,000 of income > $253,680 |
| $343,680 – $353,680 | 20% | 50% |
| $353,680+ | 0% | 0% |
* All income thresholds are based on 2020/21 thresholds and are indexed on 1 July.
Example
Rita is a single mother who has two children Sam (2) and Elise (3) in centre-based daycare for 4 days a week, for 10 hours a day at a cost of $10.40 per child per hour. Rita earns $40,000 for the year working 4 days a week.
Currently, her out-of-pocket cost of child care is $124.60 per week for both of her children.
Under the proposed changes from 11 July 2022, her out-of-pocket costs will reduce to $83.20 per week, a saving of $41.60 per week.
Removal of annual cap
Currently, there is a cap on the amount of Childcare Subsidy a family can receive if their annual family income is more than $189,390 (2020/21). The cap means that no more than $10,560 can be received as a subsidy for each child where a family earns more than this limit.
Although the subsidy percentage worked out by applying the table on the previous page may be higher, the cap means that out-of-pocket expenses for the family would be higher than if there was no cap.
As part of this measure, the Government will remove this cap from 1 July 2022.
Example
Ronald and Megan are a couple with two children Naomi (6) and Luke (1) in centre-based daycare for 4 days a week, for 10 hours a day at a cost of $11.15 per child per hour.
Ronald earns $80,000 for the year and Megan earns $140,000. Currently, their out-of-pocket cost of child care is $486.09 per week for both their children.
Under the proposed changes from 1 July 2022, their out-of-pocket costs will reduce to $446.12 per week, a saving of $39.97 per week.
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