On Tuesday, our Federal Treasurer delivered his second ‘pandemic’ budget. Thankfully, the papers contain good news. With a strong focus on promoting economic growth and employment, there are a four key areas that may impact your current financial life and future retirement goals.

Personal Income Tax:

Proposed changes include an extension to the low and middle income earner tax offset (LMITO).

o   LMITO will be received once individuals lodge their tax return for the 2021/22 financial year.

o   Personal income tax rates remain unchanged from those announced in the 2020-21 Budget

Retaining LAMITO for the 2021/22 income year will provide a reduction in tax of up to $1,080 for low and middle income earners

 

Superannuation Contributions:

Proposed changes include a repeal of the work test and a reduction in the downsizer contribution minimum age.

Repealing the work test for voluntary superannuation contributions.

o   Currently, Australians aged 67 – 74 must satisfy a work test (or the work test exemption) to be eligible to make super contributions. This 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.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

 

Reducing the eligibility age for downsizer contributions

o   As of July 1st, 2022, the eligibility age to make a downsizer contribution will reduce from 65 to 60 years of age. This contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person (or $600,000 per couple) from the proceeds of the sale of their home.

o   Both members of a couple can contribute in respect of the same home.

o   Contributions do not count towards non-concessional contribution caps.

This allows older Australians to consider downsizing to a home that better suits their needs while also increasing the availability of larger homes for young families.

 

Home ownership proposals

o   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.

o   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%.

 

Pension Loan Scheme:

Proposed changes will add flexibility to the Pension Loan Scheme, a voluntary, reverse mortgage type loan provided by the Government. Through the PLS, people receive regular fortnightly payments that accrue as a debt secured against their property.

o   A new option is to receive up to two lump sums of up to 50% of the Age Pension in a 12-month period.

o   The maximum lump sum amount will depend on whether the individual is single or part of a couple.

• A No Negative Equity Guarantee will be introduced so borrowers will not have to repay more than the market value of their property.

• Based on current Age Pension rates, the total PLS is around $12,385 per year for singles, while couples combined could receive around $18,670.

Changes to this scheme will assist older Australians to unlock equity in their Australian property to boost their retirement income.

For deeper insight into how the recent Federal Budget may affect you, please contact TruWealth on 03 8648 6534 or email contact@truwealthadvice.com.au