End of financial year considerations
Investing | 5 MINUTE READ
This year’s pre-election Budget announced by Australian Federal Treasurer Josh Frydenberg on Tuesday 11 May 2021 focused on maintaining the momentum of Australia’s economic recovery. Importantly, it also focused on increasing flexibility for older Australians wanting to save for their retirement, giving retirees, including self-funded retirees more flexibility and control over their money.
Admittedly, the Budget is mostly about improvements to existing programmes, however, for retirees or Australians thinking of retiring soon, the good news is the measures introduced in the 2021/22 Budget provide opportunities to save more.
Here we explore and summarise the key changes across superannuation, taxation and aged care:
From 1 July 2022, all Australians aged 67 to 74 will be able to top-up their super by making non-concessional or salary sacrifice contributions without meeting the work test (subject to their own contribution caps).
Currently, Australians aged 67 - 74 wishing to contribute are required to work at least 40 hours over a 30-day period in the relevant financial year, unless they meet an exemption. The work test will still need to be met for those who wish to claim a tax deduction for personal contributions to super.
‘Downsizers’ will be able to make tax-free contributions to boost their super when they sell their family home from the age of 60 years, rather than the currently required age of 65. The downsizer contribution allows eligible Australian couples to make a one-off contribution of up to $300,000 each ($600,000 for a couple) of the proceeds into their super.
The $300,000 downsizer limit (or $600,000 for a couple) when combined with the $330,000 ‘bring forward’ non-concessional contributions cap (increasing from $300,000 from 1 July 2021) allows up to $630,000 in annual contributions for a single person and $1,260,000 for a couple, subject to their overall contributions caps and any existing bring-forward arrangements.
If selling up isn’t your preference, the PLS can boost your retirement income, by receiving fortnightly loan payments borrowed against the value of your property, with the balance of the loan paid when the property is sold.
Importantly from 1 July 2022, the Government will introduce a no negative equity guarantee and a new lump sum advance where previously only fortnightly payments were available.
The no negative equity guarantee will mean borrowers under the PLS, or their estate, will not owe more than the market value of their property in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages.
The access to lump sum advances equivalent to 50% of a full annual Age Pension are available for those on either a part or full Age Pension, and for self-funded retirees a loan amount up to 1.5 times the full-rate annual Age Pension.
Based on current rates, this means for eligible Age Pension recipients, singles could receive lump sum payments of up to $12,385 per year, and couples about $18,670, and for self-funded retirees a maximum loan amount of $37,155 per year for singles and around $56,011 per year for couples.
The government will provide a temporary, two-year opportunity for retirees to transition from certain legacy retirement products to newer, more flexible products if they choose. Retirees will be able to transfer their capital back into a super account and then start a new retirement product, take a lump sum benefit or retain the funds in that account.
Pre-retirees will be happy to know the $450 per month minimum income threshold for the SG will be removed, meaning employers will have to pay the superannuation guarantee for eligible employees earning less than the standing monthly threshold. From 1 July 2022, employees whose pay was previously below the SG threshold will be eligible to receive 10.5% per annum superannuation contributions from their employer on top of their existing pay.
The tweaks continue with the increase in Medicare low-income thresholds from 1 July 2020 so low-income taxpayers will generally continue to be exempt from paying the Medicare levy. The threshold for single seniors and pensioners will increase from $36,056 to $36,705 and families (seniors and pensioners) will increase from $50,191 to $51,094.
Following the Royal Commission into aged care, the sector was unsurprisingly a major focus in this Budget. The government is assigning an additional $17.7 billion to aged care over five years with a focus on home care as well as the sustainability, quality, and safety of residential care.
Key initiatives announced were 80,000 new home care packages to be introduced from 2021-22 and an additional $10 a day for each resident will go towards improving daily living conditions in residential care.
The 2021/22 Federal Budget impacts every Australian, particularly those who are homeowners and are looking to retire or to improve their retirement income. While introduced in this year’s budget, the majority of the measures are expected to be effective from 1 July 2022, pending legislation. Of course, you should always check eligibility conditions for each of the measures and the impact on tax and social security assessment before making changes. Seek specialist tax, superannuation and social security advice before acting. For more detailed information on the Budget and how it affects you, please visit Budget 2021-22.
Note: Changes to superannuation are expected to have effect 1 July 2022. Proposed taxation changes are effective now.