On Tuesday the 11 May 2021, the Treasurer handed down the Federal Budget for the 2021-22 financial year, focussing on job creation and measures to stimulate the economy. We have compiled some of the key announcements we think are likely to impact you. These proposals are yet to be legislated and will only come into effect after they have been legislated.
Important observations to note
It is important to note that the government did not announce any amendments to the increases in the legislated superannuation guarantee. Thus, the rate of superannuation guarantee will increase from 9.5% to 10% from 1 July 2021.
The government did not make any announcements on extending the reduced minimum pension payments from account-based pensions. As a result, all account-based pension minimum payments will revert to the original legislated minimums from 1 July 2021.
Partial removal of the work test
The Government has announced that it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice contributions without having to meet the work test. Individuals in this same age bracket will have to meet the work test to make a personal deductible contribution
The Government expects this proposal to take effect from the start of the first financial year after this is legislated and receives Royal Assent. This is expected to occur prior to June 30 2022, giving rise to this opportunity from 1 July 2022.
How does this impact you?
Removing the work test for people aged 67 – 74 will allow retirees to accumulate more funds in superannuation, subject to current transfer balance cap rules, which could be very tax efficient. Retirees with older children as beneficiaries within superannuation can take steps to change the taxable and non-taxable components of their superannuation fund through different contribution strategies. This will minimise any tax payable to non-tax dependents upon death.
Reducing the eligible age for downsizer contributions
The eligible age for a downsizer contribution is currently at age 65. The Government has announced their intentions to reduce this minimum age to age 60. The downsizer contribution allows each member to contribute up to $300,000 from the proceeds of selling their owner-occupier home they have held for at least 10 years.
The Government expects this proposal to take effect from the start of the first financial year after it is legislated and receives Royal Assent. This is expected to occur prior to June 30, 2022, giving rise to this opportunity from 1 July 2022.
How does this impact you?
Reducing the minimum age to 60 could allow eligible individuals who sell their home sooner than age 65 to maximise their retirement savings by utilising this contribution opportunity earlier than age 65. This will ensure superannuation assets can be invested for longer to fund a retirement income when required.
Removal of the minimum superannuation guarantee threshold
The Government will remove the $450 per month minimum income threshold for compulsory superannuation contributions from 1 July 2022.
How does this impact you?
For workers earning less than the minimum requirement, either part time or casual employment, they will be able to receive superannuation contributions from 1 July 2022. This will support low-income earners to boost up their retirement savings. It will also assist students in casual employment to start to accumulate to superannuation early which will in turn assist in growing their retirement wealth.
Supporting you through the changes
This is a summary of some of the key areas that may be relevant to you. This document is general in nature. We have not assessed, neither have we taken your personal circumstances into consideration. If you have any concerns, or would like to discuss your financial strategy, it is more important than ever to get in touch. Feel free to arrange an appointment by contacting us on 02 9121 4545 or advice@wealthpeak.com.au
