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Key summary of the Federal Budget 2022-23 and what it means for you

On Tuesday the 29 March 2022, the Treasurer delivered a budget that focuses on key spending measures to drive Australia’s economic recovery in a post-pandemic, natural disaster and conflicted international environment. Considering the timing of this budget, the Government's message centred around job creation, temporary stimulus to low- and middle-income Australians, as well as infrastructure and regional recovery spending measures.

Superannuation was largely untouched in this budget; however, some changes announced in the 2021-22 budget have been legislated to commence 1 July 2022. We’ve summarised highlights of this budget and key changes to take effect from 1 July 2022.

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 10% to 10.5% from 1 July 2022.

Superannuation & Retirement

From 1 July 2022, the government has announced a 12-month extension of the temporary 50% reduction in superannuation minimum drawdown rates for account-based pensions and similar products to cover the 2022-23 income year. This will apply to:

  • Account-based pensions and annuities

  • Transition-to-retirement pensions

  • Term allocated pensions and annuities (also known as market-linked income streams).

Halving the minimum drawdown rates will enable retirees to retain more money in assets to benefit from growth opportunities. It also means that retirees do not have to sell down poor performing assets to meet minimum drawdowns in the event their portfolios have been impacted due to market volatility.

Removal of the work test

It was announced in the 2021-22 budget that the Government intends to amend the work test or the work test exemption provisions to allow individuals aged 67 to 74 to make or receive non-concessional superannuation contributions (including under the bring forward rule). This has now been legislated and takes effect from 1 July 2022. Individuals in this age bracket must meet the work test or the work test exemption if they intend to claim voluntary contributions as a tax deduction

Removing the work test for individuals aged 67 to 74 will allow retires to accumulate more money in superannuation (subject to normal total super balance and transfer balance caps). This will ensure that retirees can continue to maximise their retirement wealth in a tax efficient manner. Individuals with adult children as beneficiaries can implement strategies to reduce the impact of taxes payable by their beneficiaries.

Reducing the eligible age for downsizer contributions

The government announced its intentions to reduce the eligible age for the downsizer contribution from 65 to 60. This is now legislated and effective from 1 July 2022, individuals aged 60 years and over can make a downsizer contribution of up to $300,000 into superannuation over and above all superannuation caps.

Individual tax

One-off cost of living tax offset

For 2021-22 income year only, the government will provide a one-off $420 cost of living tax offset via an increase to the existing low- and middle-income tax offset (LMITO) for 2021-22. Combined with the existing LMITO, eligible low- and middle-income earners will receive a tax offset of up to $1,500 for the 2021-22 income year.

Based on our understanding of the announcement, the existing and proposed LMITO are non-refundable tax offsets, meaning it can only reduce an individual’s tax liability to $0 and can’t reduce Medicare Levy.

Social security

The government will provide a once-off Cost-of-Living Payment of $250 in April 2022 to eligible recipients of the following payments and to concession card holders:

  • Age Pension

  • Disability Support Pension

  • Parenting Payment

  • Carer Payment

  • Carer Allowance (if not in receipt of a primary income support payment)

  • Jobseeker Payment

  • Youth Allowance

  • Austudy and Abstudy Living Allowance

  • Double Orphan Pension

  • Special Benefit CFS

  • Farm Household Allowance

  • Pensioner Concession Card (PCC) holders

  • Commonwealth Seniors Health Card holders

  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders

The payments are exempt from taxation and won’t count as income support for the purposes of any income support payment.

Temporary reduction in fuel excise

From 12.01am on 30 March to 11.59pm on 28 September 2022, the government has announced that it will reduce the fuel excise (and excise-equivalent customs duty rate) that applies to petrol and diesel by 50% for six months. The excise (and excise-equivalent customs duty rate) that applies to all other fuel and petroleum-based products (including LPG and Biodiesel), except aviation fuels, will also be reduced by 50% for six months

The government says this will result in a reduction in excise on petrol and diesel from 44.2 cents per litre to 22.1 cents per litre, which result in total savings (including GST savings) per tank of fuel of:

  • $9.72 for a small hatchback with a 40-litre petrol tank

  • $14.59 for a mid-sized SUV with a 60-litre petrol tank

  • $19.25 for a large 4WD with an 80-litre petrol tank.

Our view is that while the reduction in fuel excise applies from 12.01 on 30 March 2022, it will take several weeks for the full reduction to flow through because the excise will have already been charged on existing fuel stocks.

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

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