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2021 Federal Budgets Proposed Changes

2021 federal budget proposed changes
Retirement Planning Successful retirement planning requires your investments to last your entire life after-work, which requires a long term and well thought out structure for you to achieve this.

The 2021 Federal Budgets proposed changes could have big implications and benefits for your financial plan, depending on your current situation and investments. 

Moving away from their budget tightening policy that led them to office at the last election, the Federal Government is spending big, to try and help the economy rebuild from the global recession and to support Australia’s recovery. 

We have considered the proposals in context of our clients and their families that we support and provide this summary as an update on what is most relevant to your financial plan. 

While still just proposals, they are targeted at a broad range of Australian’s, such as families with young children, retirees, and first-home buyers. 

They are also trying to make services and financial programs easier for people to access and extend them. This includes increasing the childcare subsidy for families, extending both the access to the downsizer contribution for retirees and the first home super saver scheme for those looking to break into the property market. 

As financial planners focused on helping clients self-fund their own retirement income needs and further down the line, make a successful transition to Aged Care, we view these proposals as favourable and broadly an opportunity in how we can help our clients.

Proposed Changes to Superannuation

There have been some big changes proposed to superannuation that give a lot more flexibility and control for Australians in how well they retire. We are excited by these changes and see a lot of application in how we will recommend they are taken advantage of.

Repealing the work test for non-concessional and salary sacrificed contributions

  • Current rule: anyone over the age of 67 is required to meet the work test to voluntarily contribute to super, whether that be concessional or non-concessional.
  • Proposal: Push back the work test requirement to those aged 75, so individuals aged 67 to 74 (inclusive) can voluntarily contribute to super without meeting the work test.

Proposed effective date: 01/07/2022.

Extending access to downsizer contribution

  • Current rule: Currently those aged 65 or older are eligible to utilise the downsizer contribution, i.e. make a once-off contribution to Super of up to $300,000 from proceeds of selling their primary residence.
  • Proposal: Reduce the age requirement from 65 to age 60.

Proposed effective date: 01/07/2022. 

Superannuation Guarantee (SG) abolishing the $450 p.m. income threshold

  • Current Rule: To be eligible for Superannuation Guarantee (SG) you need to earn at least $450 p.m. from your employer.
  • Proposal: Abolish the $450 p.m. threshold, meaning employees of all income levels will receive SG contributions.

Proposed effective date: 01/07/2022.

Proposed Changes to Taxation

Each of these proposed changes are considered positive and will keep more money in your pocket, rather than the tax man.

Extending the low-and-middle income tax offset (LMITO)

  • Current Rule: LMITO was set to cease as of the end of the current financial year.
  • Proposal: Extend LMITO for one more year, until the financial year ending 2023.

Proposed effective date: 01/07/2021.  

Increasing the Medicare levy low-income thresholds

Proposal: The thresholds for:

  • Singles will be increased from $22,801 to $23,226;
  • Families, will be increased from $38,474 to $39,167;
  • Single seniors and pensioners, will be increased from $36,056 to $36,705; and
  • Families (Seniors and Pensioners) will be increased from $50,191 to $51,094.
  • For each dependent child or student, the family income threshold will increase by a further $3,597.

Proposed effective date: From FY20/21 onwards.

2021 federal budget proposed changes to taxation

Amending the definition of Australian tax residency for individuals

  • Current Rules: Australian Tax residency determined by various tests including residency, domicile & 183 day test.
  • Proposal: All tests to be replaced with a simple test whereby a person who is physically present in Australia for 183 days or more in any income year will be an Australian Tax resident.  Individuals who do not satisfy this test will be subject to a secondary test that depend on a combination of physical presence and measurable, objective criteria.

Proposed effective date: 1st July following the passage of legislation.

Housing Affordability

The proposed housing initiatives are directed to first home buyers and are being criticised by many as simply putting petrol on an already firing property market. There is merit to this concern, however, for first home buyers that are intending to buy in the short to medium term, the proposals will no doubt be welcomed and will assist in providing the initial leg up, towards accumulating a deposit.

How sustainable these sorts of measures are for future generations is another matter and cause for concern for many.

Extending the First Home Super Saver Scheme (FHSSS)

  • Current rules:  Allowable withdrawals set at a maximum of $30,000 + notional earnings per person. 
  • Proposal: Increase the maximum allowable withdrawal from $30,000 + notional earnings per person to $50,000 + notional earnings per person. The contribution amount will be held at $15,000 p.a.

Proposed effective date: 01/07/2022.

Extending the First Home Loan Deposit Scheme (FHLDS)

  • Current rules: The FHLDS allows first home buyers/builders to borrow more than the standard 80% of the property’s value with only a 5% deposit, with the balance (15%) being underwritten by the government. The FHLDS allows eligible first home buyers to borrow more without paying the premium for LMI. 
  • Proposal: The government to release an additional 10,000 places for the FHLDS.

Proposed effective date: 01/07/2021.

Families, Social Security & Aged Care Subsidy

In a bid to support more families and in particular, mothers getting back into the workforce, the government’s proposals are targeted towards supporting higher income earners and families with multiple children in care.

The proposed Pension Loan Scheme enhancements are designed to make pensioners feel more secure in tapping into home equity to subsidise their income and could be of benefit to some pensioners. Particularly those without financial dependents.

For those in need of or already in Aged Care, there is a raft of spending and policy improvements that are being proposed that respond to the Royal Commission into Aged Care. Many people have come out already and are sceptical that they do not go far enough but will be a welcome improvement for many. 

Increasing the Child Care Subsidy (CCS)

  • Current Rules: The CCS is a percentage-based subsidy based on family income that assists with the cost of childcare.
  • Proposal: To provide a higher level of CCS to families with more than one child under age 6 in childcare. The level of subsidy will increase by an extra 30% to a maximum subsidy of 95% for the second and subsequent children. The annual CCS cap of $10,560 for families earnings between $189,390 and $353,660 will also be removed.

Proposed effective date: 01/07/2022.

Improving the Pension Loan Scheme (PLS)

  • Current Rule: The PLS allows senior Australians to voluntarily receive fortnightly loan payments from Centrelink to supplement their retirement income, i.e. allows them to borrow against their homes.
  • Proposal: The government will introduce a “No negative equity guarantee” for PLS loans to ensure that borrowers (or their estate) will never owe more than the value of their equity in the property the loan is secured against. The Government will also provide the option to access up to two lump sum loan advances in any 12 months period. The total of these can be up to 50% of the maximum annual rate of Age Pension.

Proposed effective date: 01/07/2022.

Increasing Aged Care Support & Home Care Packages

  • Home Care Package Proposal: The government will increase the support for older Australians that are vulnerable wanting to remain in their homes, by releasing 80,000 additional home care packages from 2021/22. This is an effective increase of 40%. Funding training for 13,000 new Home Care workers over the same two years and designing a plan for the Home Care to better meet the needs of older Australians. 
  • Aged Care Proposals: Responding to Royal Commission into Aged Care recommendations, the government is proposing to increase its budget for Aged Care spending. Some of the proposals include introducing a new government funded Basic Daily Fee Supplement of $10 per resident per day. Introducing a new refundable accommodation deposit, loan support, introducing a new star rating system to allow families to compare Aged Care homes and developing a new Aged Care Act in parliament over the next four years. 

Proposed effective date: 01/07/2022.

Yield Financial Planning Is Here To Help

It is important to note that the 2021 Federal Budget Proposed Changes are exactly that. Proposed changes that the government is intending to bring in. 

With that said, some of these proposals already have bipartisan support, and those planned to take effect this year should become legislated prior to the end of the financial year. 

At Yield, we aim to keep our client’s aware and adaptable to these proposals and how it relates to their financial plans. This ensures we put you in the most optimised position possible.  

Having a financial advisor across these changes, telling you how they relate to your financial plan can ensure that you get the most out of your finances, by managing change to your benefit, helping you now and in the long term. 

Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
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About Yield - Financial Planner Melbourne

Who we serve – We help time poor professionals and business owners who intuitively know they should be doing more to improve their financial position and are seeking an expert to guide them on financial planning strategies. Our clients want personalised financial planning advice and to feel empowered and confident that they can achieve a secure transition to retirement.

What we do – We gain a deep understanding of your current financial position and preferences, what you value and want to achieve. We then help you develop a highly personalised financial plan, to show you how to make your money work harder for you. Ongoing we regularly monitor and measure progress against your plan projections, to show you how you’re tracking and help you manage change to your advantage.

How we do it – We apply our proven expertise in investment markets (Shares & Property), Tax and Debt structuring, Retirement Planning, Risk management and Estate planning, to help you reorganise the way you use your money to achieve your desired outcomes.

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