Budget 2021 - Personal Finance Analysis

This year’s Federal Budget covers a range of measures including superannuation, tax and support for home buyers. I have summarised the main Personal Financial matters below and made some commentary.

Note: These changes are proposals only and may or may not be made law.

More flexibility around super

  • Repeal of the work test: Currently, Australians aged 67 – 74 must satisfy a work test (or the work test exemption) to be eligible to make super contributions. The work test will no longer apply when making non-concessional super contributions or salary sacrificed contributions. People in this age group will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.

  • This can really help transitioning into retirement or if you have non-super assets you want to sell and get the money into a lower tax environment, but the timing is wrong.

  • This can also help in you 're-contributing your Super', reducing the taxation on any death benefit paid to any adult kids.

  • Downsizer contributions age reduced: The age at which people are eligible to make a downsizer contribution will reduce from 65 to 60. This will allow an after-tax contribution of up to $300,000 per person when they sell their family home.

  • This can be really useful from a timing perspective if your main asset is the family home and part of your strategy is to downsize to unlock equity for a more comfortable life.

  • Removal of the minimum income threshold for super guarantee: The Budget removes the current $450 per month minimum income threshold under which employees do not have Superannuation Guarantee (SG) paid by their employer. The Government says that around 300,000 individuals will receive additional SG payments, 63% of whom are women.

  • This will help to continue to build your super if you are on lower hours, or returning from maternity leave or a career break and only working a small amount.

  • Access to lump sums under Pension Loan Scheme (PLS): The PLS is a voluntary, reverse mortgage type loan provided by the Government. It is designed to assist older Australians to boost their retirement income by unlocking the equity in their Australian property. Through the PLS, people can receive regular fortnightly payments with the payments accruing as a debt secured against their property. A new option is to receive up to two lump sums of up to 50% of the Age Pension in a 12-month period. The maximum lump sum amount will depend on whether the individual is single or a member of a couple.

  • This shows a positive trend to allow retirees a backup plan if they run out of super prematurely but still have their family home.

  • Legacy retirement product conversions: Consumers will be provided with a temporary option to transition from some legacy retirement products including more flexible retirement products. Currently, individuals are locked into certain products that restrict access to capital and flexibility of drawdowns. Products covered include market-linked and life-expectancy retirement products commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs), and lifetime products from SMSFs. A two-year period will be provided for these retirement products and expected to commence from 1 July 2022. Individuals would need to consider social security consequences and any income tax cost.

  • This is a very niche and specific measure, but for those it can help can be enormously impactful.

Home ownership proposals

  • First Home Super Saver Scheme (FHSSS): The FHSSS, which was introduced in the 2017/18 Budget, allows people to save money for their first home inside their super. The Government will increase the maximum amount of voluntary contributions that can be released under the FHSSS from $30,000 to $50,000.

  • The exact mechanics of this increase we are yet to see. If this is something you wish to know more about please get in touch.

  • Family Home Guarantee for single parents: The Government has introduced the Family Home Guarantee as a way of providing a pathway to home ownership to support single parents with dependants. This is regardless of whether they are a first home buyer or a previous owner-occupier. From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.

  • This may be an option although as we know with the last New Home Guaranteed Program, the places were snapped up the day of it being released.

  • The problem I see with this measure is a 2% deposit means a 98% loan, and on a median house in Melbourne that would be repayments of around $47k a year. I could see this benefiting a small group of single parents, but it looks more politically driven to me.

  • New Home Guarantee: The Government is providing a further 10,000 places under the New Home Guarantee in 2021/22. This is specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit of as little as 5%.

  • As above, last time the places were snapped up the day of it being released.

  • I also question whether providing 10,000 people lower deposit loans really helps solve housing issues, or is a more of a political play.

Personal tax relief

  • Extension of tax offset: The Low and Middle-Income Tax Offset (LMITO), worth up to $1,080, has been extended for an additional 12 months to cover the 2021/22 financial year. LMITO will be received once individuals lodge their tax return for the 2021/22 financial year.

  • The government want us to get out there and spend our way to recovery.

Aged care

Response to the Royal Commission into Aged Care Quality and Safety: The Government announced an additional $17.7 billion over five years for aged care. Some of the proposals include:

  • 80,000 additional Home Care Packages over the next two years - introducing a new star rating to allow Aged Care recipients and their families to compare Aged Care providers on performance, quality and safety

  • implementing a new funding model

  • increasing the Government’s Basic Daily Fee supplement by $10 per day per resident, and

  • from early 2022, informal carers and older Australians will benefit from increased funding to improve access to respite care and support through the Government’s Carer Gateway.

  • I will provide a more detailed response to these proposals once we know more, however on face value more funding for Aged Care is always welcome!

  • If you or someone you know over 65 years of Age is finding things a little harder around the house, make sure they go to myagedcare.gov.au and register to get an assessment. They may be eligible for a Home Care Package. Even the lowest tier helps with lawns, washing or other more manual home duties.

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