Today the Reserve Bank of Australia (RBA) increased interest rates by 25 basis points. The RBA also warned that it would do whatever it takes to bring down inflation and warned homeowners to expect more pain after their ninth interest rate hike since May. This means that those on variable rates are feeling the extra pinch nearly every month, and those fortunate enough to fix their rates will start to feel the pain soon when their fixed rate expires.
With this in mind, I wanted to run through a few things you could be doing to minimize the financial pain that can come with rising interest rates.
Step number one. Banks don’t give you loyalty bonuses for sticking around. It’s usually the opposite. They’re always trying to attract new business with better interest rates and cash-back offers but don’t offer these to existing clients. Therefore if you stick with your bank without reviewing, you will pay the loyalty tax.
The first thing you can do is contact your bank and see what they will offer you. They may be able to reduce your interest rate a little bit. However, when you only talk to one bank, you are ruling yourself out of several other potentially lower interest rates or cash-back offers. This is why I think it’s always prudent to have a good broker on your side.
A good broker will be able to assess all the different lenders in the marketplace and get back to you with what they think is the best offer for you. They’ll be able to help you with the paperwork, and usually, they are paid a commission via the lender, so there are no direct out-of-pocket costs to you. In times like these, where interest rates are constantly moving, having an excellent strategic broker on your side can save you thousands.
Along with these extra loan repayments, we have high inflation. Things are costing more. It’s always prudent to budget and keep your budget updated, but even more during these times. Areas such as insurance are an excellent place to start. Again, there are brokers for general insurance such as home and contents and car. It can be helpful to find a good broker who has access to many different options and can help you find the best one for very little work from your end.
Personal insurance has also seen massive price increases over the past couple of years. Life, Total and Permanent Disablement, Trauma and Income Protection are all insurances you should review. You may no longer need the same amount of coverage if your situation has changed; therefore, you could be paying extra for insurance coverage you do not need. A good financial advisor should be able to help you with this as it’s crucial to only cancel these insurances after fully understanding the consequences.
It is also a good idea to do a full review of your expenses during times like these. A lot of little savings here and there can add up. Are multiple members of your household paying for Spotify each instead of having a family account? Can you piggyback off another family member or friend’s streaming service? These are just little examples of common expense areas that people become lazy with, and these smaller or micro expenses that are automatically directly debited from our accounts can add up.
As times change and your circumstances change, so too should your financial plan. One of the main parts you should review is where you allocate your surplus cash flow. For example, if you set up your strategy over a year ago when interest rates were lower, you may have assigned your surplus cash flow to things such as investments or superannuation. Not saying you shouldn’t keep doing these things, but you should be looking at whether or not some more of that surplus could go towards paying down some of your loans or building your offset account to provide a little relief.
If you have any questions, feel free to message me at zac@pekada.com.au.
Here are some links to content we’ve come across this month that we thought you may find interesting and useful resources.
We hope you find them helpful.
The links:
We love suggestions.
If you come across something interesting, please share with us by email at connect@pekada.com.au.
Last night the Treasurer, Jim Chalmers, released the Government’s October 2022-23 Budget.
The Budget featured a range of proposed measures including superannuation, tax, Social Security and Aged Care changes.
Our summary of the key changes which may impact your financial planning are outlined below. As always if you have any questions please email me or book a chat.
Downsizer contributions allow eligible individuals to contribute up to $300,000 to superannuation upon selling an eligible main residence. From 1 July 2018 until 30 June 2022, the minimum qualifying age to be eligible to make a downsizer contribution was age 65. From 1 July 2022, the minimum qualifying age was reduced to age 60.
On 3 August 2022, the Government introduced Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 into Parliament, which if legislated, will ensure that the minimum qualifying age for downsizer contributions will be reduced to age 55.
Notes:
Currently, Superannuation Guarantee (SG) is 10.5%. It is legislated to increase by 0.5% at the start of each financial year from here on in until it reaches 12% on 1 July 2025.
There is no change to the legislated increase of SG.
There was no announcement concerning extending the halving of the SIS minimums beyond the 2022-23 financial year in relation to eligible income streams such as account-based pensions and market linked pensions.
In recent Federal Budgets, there have been a number of announcements relating to superannuation. The Government took the opportunity in the to provide clarity on the progress of specific unlegislated proposals.
In the 2018-19 Federal Budget, the previous Government had proposed that from 1 July 2019, the annual audit requirement will be changed to a three-yearly requirement for SMSFs with a history of good record-keeping and compliance. This measure was proposed at the time to reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
The Government has confirmed that this measure will not go ahead.
In the 2021-22 Federal Budget, the previous Government had proposed to allow the relaxation of residency requirements for SMSFs and Small APRA Funds (SAFs) by extending the central management and control test safe harbour rule from two to five years for SMSFs and removing the active member test for both SMSFs and SAFs. It was expected for this measure to take effect from 1 July 2022.
The Government has reaffirmed its support for this measure with the effective date to be delayed to the income year commencing on or after the date of Royal Assent of the enabling legislation.
Despite the ongoing debate about deferring or cancelling the stage 3 tax cuts, the measure will go ahead in accordance with the legislated timetable from 1 July 2024. The stage 3 tax cuts that were introduced as part of the previous Government’s personal income tax reform, will remove the 37% income band and increase the higher threshold in the 45% income band from $180,000 to $200,000. The applicable rate on the 32.5% income band will also reduce to 30%.
Source: Colonial First State
The Government will improve the integrity of the tax system by aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs.
Note:
This measure will apply from the announcement on Budget night (7:30 pm AEDT, 25 October 2022).
The Government will cut taxes on electric cars so that they will be affordable for more Australians.
From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 in 2022‑23).
Note:
The Government recommitted to freezing the current deeming rates until 30 June 2024. The deeming thresholds will continue to be indexed on 1 July each year.
Principal home sale proceeds all at lower rate for exemption period. This rate would also not impact deeming threshold for other financial assets.
The current deeming rates and thresholds are as follows:
The Government recommitted to increasing the income thresholds for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles, from $98,054 to $144,000 for couples and from $122,568 to $180,000 for couples separated by illness, respite care, or prison.
Notes:
The Government recommitted to extending the exemption period for proceeds from selling the principal home to purchase or build another home. Specifically:
Notes:
The Government is providing an immediate one-off increase to an eligible pensioner’s Work Bonus income bank of $4,000 during 2022-23. This will increase the maximum unused income bank to $11,800 from $7,800 and allow pensioners to work more hours without affecting their pension.
These changes will not affect the existing application of the $300 fortnightly Work Bonus. Instead, the changes will provide an immediate $4,000 increase to the income bank of all eligible pensioners. This will allow eligible pensioners to have an extra $4,000 of income from work immediately disregarded from the income test rather than having to accumulate a balance over time.
Notes:
The Government will provide funding to decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme (PBS) from $42.50 to $30.00 from 1 January 2023. The existing Medicare Safety Net provisions and all prescriptions that currently count towards a patient’s Safety Net will continue to do so.
Changes are also being made to ensure Closing the Gap patients will not need to pay any more to reach their Safety Net. A script with a Commonwealth price at or above the co-payment amount will have the script count toward the PBS Safety Net at a fixed value of $42.50, rather than at the reduced $30.00 co-payment. This will remain until the general patient co-payment is more than $42.50 in the future through indexation.
The Government will provide $4.7 billion over 4 years from 2022–23 (and $1.7 billion per year ongoing) to deliver cheaper child care, easing the cost of living for families and reducing barriers to greater workforce participation. This includes $4.6 billion over 4 years from 2022–23 to:
The Government will introduce reforms from 1 July 2023 to make the Paid Parental Leave Scheme flexible for families so that either parent is able to claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
Treasurer Josh Frydenberg handed down the 2022-23 Federal Budget and as expected in an election year, delivered a big spending Budget with the focus on cost of living support and defence.
We have been busy detailing and summarising what we feel are the key measures announced from a financial planning perspective. For our ongoing service package clients, your adviser will be in contact to provide guidance on changes which impact your strategy.
The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions.
Given ongoing volatility, this change will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements.
The Government will increase the low and middle income tax offset (LMITO) for the 2021-22 income year. LMITO is targeted at low- and middle-income earners that are most susceptible to cost of living pressures.
The LMITO for the 2021-22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021-22 income year. This proposal will increase the LMITO by $420 for the 2021-22 income year.
The Government is investing $346.1 million over five years, from 2021-22 to introduce Enhanced Paid Parental Leave (PPL), which is fairer and provides full flexibility for eligible working families. These changes will increase families’ choice to decide how best to manage work and care. Eligibility for the scheme is also being expanded.
The Government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for 3 years from 2022-23 and then 35,000 a year ongoing to support homebuyers to purchase a home with a lower deposit. The guarantees will be allocated to provide:
Global oil prices have risen significantly since the Russian invasion of Ukraine. The Government will help reduce the burden of higher fuel prices at home by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for 6 months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50 per cent for 6 months. The Government is responding in a temporary, targeted and responsible way to reduce cost of living pressures experienced by Australian households and small businesses.
The measure will commence from 12.01am on 30 March 2022 and will remain in place for 6 months, ending at 11.59pm on 28 September 2022. Under the measure, existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates. At the conclusion of the 6 month period the excise and excise-equivalent customs duty rates will then revert to previous rates, including indexation that would have occurred on those rates during the 6 month period.
The rate of excise and excise-equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre. This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude given GST will be levied on the lower excise rate.
The Australian Competition and Consumer Commission will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on to Australians.
The Government will digitalise trust and beneficiary income reporting and processing by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.
The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.
The Government is introducing a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.
Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.
The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.
An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
The Government will provide $1.5 billion in 2021-22 to provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to eligible recipients of the following payments and to concession card holders:
The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under 2 or more of the categories outlined above. The payment will only be available to Australian residents.
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2022-23 Federal Budget, please feel free to book a chat with your adviser.
Until next time.
—Pete
A Bill implementing the Government’s key 2021-22 Federal Budget super changes recently passed parliament and received Royal Assent.
Outlined below is a brief explanation of some of the key changes and how you could benefit.
Whether you’re thinking about retirement, have already retired, or even looking to purchase your first home, there is likely to be value in reviewing your circumstances and understanding how these super changes could benefit you.
If you are unsure or want to chat about how these superannuation changes impact you, please make time to chat with your adviser.
Individuals aged 67-74 will have increased opportunity to contribute to super with the following changes:
Currently, the work test requires you to undertake work for at least 40 hours in a consecutive 30 day period in the financial year a super contribution is made. Alternatively, you may be eligible to apply the work test exemption.
This requirement is removed from 1 July 2022 for individuals aged 67-74 if making personal after-tax contributions and salary sacrifice contributions. The removal of the work test may make it easier for you to make contributions.
It is important to note that the work test (or work test exemption) still applies if you make a personal contribution and wish to claim a tax deduction.
Other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps. See ato.gov.au for more details.
Caps apply to limit the total contributions that you can make to super. The current annual non-concessional contributions (NCC) cap is $110,000. NCCs include:
If you meet certain requirements, you may be eligible to ‘bring-forward’ NCCs from future financial years to make even larger contributions. This is known as the ‘bring-forward rule’. If you’re eligible, you may be able to contribute up to $330,000 either in a single financial year, or over a three year period.
Currently, you need to be less than 67 on 1 July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits.
The following table summaries the maximum NCCs that can be contributed in 2022/23 based on your total super balance as at 30 June 2022:
NOTE: Contribution caps apply to both concessional and non-concessional contributions. Care should be taken to avoid breaching your cap as additional tax and penalties may apply. For further information visit ato.gov.au or get in touch with us.
Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, final way to boost super for those who don’t meet other eligibility rules to contribute, or where the NCC cap has been earmarked for other purposes.
From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings.
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
Downsizer contributions won’t count towards your concessional or non-concessional contribution caps.
You’ll need to make the contribution within 90 days of settlement of your sale, and you need to complete the required forms to notify your fund that you’re making a downsizer contribution, no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.
Aside from super being a concessionally taxed investment, there are a number of other ways a downsizer contribution could benefit you.
Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment.
Other eligibility rules and requirements apply. Before you contribute it is important to seek advice and if you are unsure then please get in touch with us.
The First Home Super Saver Scheme (FHSSS) allows you to make voluntary contributions of up to $15,000 per year within your concessional and NCC caps and you can later withdraw an amount of those voluntary contributions plus earnings (calculated at a set rate by the ATO on the amount you withdraw.
The maximum amount of voluntary contributions that you can withdraw increases from $30,000 to $50,000 from 1 July 2022. This boosts the amount that can be accessed from super and directed to buying your first home.
As the scheme allows the withdrawal of voluntary contributions, consideration must be given to not only whether using super is the right approach for you but the type of contribution you will make. For example, salary sacrifice amounts (if an employee), personal deductible contributions or non-concessional (after-tax) contributions).
There is a range of criteria to withdraw your super under this scheme as well as ensuring the funds are used to purchase your first home which is outlined on the ATO website.
Superannuation Guarantee (SG) requires employer to pay a minimum level of super support for eligible employees. One criteria for an employee to be eligible is based on that employee’s monthly earnings being at least $450 per month. However, this threshold is abolished from 1 July 2022.
allowing all eligible employees to receive SG paid into their super fund.
This measure primarily assists low-income earners to have employer contributions paid to super boosting their retirement savings. SG contributions count towards your concessional contribution cap and should be taken into consideration when determining any other contributions made.
Business owners should review their processes to ensure that SG is paid for all eligible employees. Penalties may apply if SG is unpaid or paid late.
When you think about wellbeing, you often think about your physical health. Are you exercising enough, eating well and keeping healthy habits? But, in reality, it is so much more than that.
Your wellbeing is a conscious and deliberate process of making choices that help us to live our best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
According to research, a person’s wellbeing can be measured against eight dimensions of wellness: physical, spiritual, social, emotional, intellectual, occupations, environmental and financial.
Each dimension means something different to everyone. Understanding what it means to you can help you uncover what you value in life, where your strengths are and what you might need to work on.
Physical
The Physical Wellness Dimension involves things that keep us active and healthy. Our physical wellbeing is so important to our mental health, longevity and ensuring we live our best lives. This doesn’t mean we must all be athletes. But it does mean building good physical health habits, having a healthy diet, exercising regularly, and having the appropriate health care for our needs. The more we are in tune with our bodies and what they need, the less likely we will be to become reliant on the healthcare system or even our families and loved ones.
Intellectual
The Intellectual Wellness Dimension involves things that keep our brains active and our intellect expanding. It’s about mastering new skills, learning new things or helping to educate others. Having the time and resources to keep your mind active and supporting your loved ones can help you live a long life.
Spiritual
The Spiritual Wellness Dimension is a broad concept that represents one’s personal beliefs and values and involves having meaning, purpose, and a sense of balance and peace. It includes being able to volunteer your time to support causes that mean something to you and help others to live a more purposeful life.
Emotional
The Emotional Wellness Dimension involves the ability to express feelings, adjust to emotional challenges, cope with life’s stressors, and enjoy life. It includes building and nurturing relationships to strengthen our support networks and ensure we have the resources to spend time and money on those we love and the things we enjoy in life.
Financial
The Financial Wellness Dimensions addresses your financial wellbeing. It covers your income, debt, savings and investments as well as your financial literacy. It also means having the resources to support and protect those you love. To live your best life, you need to be confident in your current financial situation or your future financial prospects.
Occupational
The Occupational Wellness Dimension involves aligning your work to what you value in life. Ensuring that you pursue work that has meaning and purpose and reflects your values, interests and beliefs. Living your best life means work shouldn’t feel like work.
Social
The Social Wellness Dimension involves having healthy relationships with friends, family and the community. Living your best life means living a life where you participate with others you care about and have the time to do so.
Environmental
The Environmental Wellness Dimension involves living in an environment that promotes positive wellbeing. Such as preserving areas where we can live, learn and work, providing pleasant, stimulating environments that support our wellbeing and offer the natural places and spaces to promote learning, contemplation and relaxation. We need to create the right environments to help us live our best lives now and into the future, for both ourselves and our loved ones.
Our financial advice process will help you to uncover which areas of wellbeing are most important to you and how close you are to living a life aligned with those areas of wellbeing.
Our advisers will then work with you to set goals and shape strategies to make sure you are on the right path to living your best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
[Updated 19 December 2023]
The first home saver scheme (FHSS) has now been accessible for over 5 years, but still is an under-utilised tool in assisting you to save for your – or your kids – first home. Below is a recap on this scheme, and why it may want to be considered as part of either your own savings plan, or if you are a parent looking to assist your children with their first home purchase.
If you’re aged 18 or over and are an eligible first home buyer, you can withdraw voluntary super contributions made since 1 July 2017 to put towards the purchase of your first home.
Under the current rules, these voluntary contributions are up to $15k per financial year, with a total maximum of $50,000. This applies to each individual buying the home, so if buying with a spouse, friend or sibling, you have access to your own FHSS, meaning you could access up to $100,000.
Although you need to be 18 to withdraw the funds, contributions can happen prior to this age.
Super contributions that can be withdrawn are:
Important note: Your compulsory super contributions and spouse contributions cannot be withdrawn as part of the FHSS.
As superannuation is usually a more favourable tax environment compared to an individual tax payers own marginal tax rate, the intention is that a first home buyer will be able to grow a deposit quicker and also reduce the tax they pay (and therefore save the difference).
Investment earnings are deemed using a the shortfall interest charge formula from the ATO, which is the 90 day bank bill rate plus 3%. This is generally more than you can earning from the average bank account interest. As a guide, the annual rate for October–December 2023 is 7.15%.
When money is withdrawn from the FHSS, amounts that were contributed as tax deductible contributions are taxed at your marginal rate less a 30% tax offset, as will associated earnings. After tax contributions will attract no tax.
You must request a determination from the ATO via your MyGov account prior to signing a contract to buy your first home. This will then tell you how much you can withdraw under the scheme. You can then make a withdrawal request. You can make multiple determination requests.
Based on above, the ATO advises requesting the release as soon as you start to seriously look for a home – eg. when you apply for a home loan pre-approval.
It varies, but as per the ATO website, it usually takes between 15 and 20 business days to send the funds to you.
You’ll need to purchase a home or sign a construction contract within 12 months of receiving the funds. After you sign a contract you must notify the ATO within 28 days.
The FHSS maximum release amount is the sum of your eligible contributions, taking into account the yearly and total limits, and associated earnings. This amount includes:
The FHSS maximum release amount takes into account the $15,000 limit from any one year and $50,000 total limit to the total contributions across all years when calculating the eligible contributions, before adding the associated earnings.
You will need to purchase within 12 months of requesting the withdrawal. If you withdraw and then do not purchase a home, you must put back into super as a after tax contribution to avoid penalties.
You must move into your home as soon as possible after purchase or construction is complete, and you
must intend to live in the property for at least 6 months of the first 12 month period where the property can be occupied.
Further information can be found directly on the ATO site.
As always, the above information is general in nature only and does not consider your personal circumstances. If you want to know how to apply this to your own personal situation, please book with one of our advisers here.
After the economic turmoil of 2020, the 2021-22 Federal Budget focused on measures to promote economic growth and recovery with big spending and very few surprises.
The biggest winners aged care, women, health, and childcare. Perhaps laying the foundations for an Election announcement?
There were also some wins for superannuation, although the rate of superannuation guarantee or changes to minimum pension requirements didn’t see any proposed changes. As a result, superannuation guarantee will increase to 10%, and minimum pension drawdown requirements will revert to their standard levels from 1 July 2021.
On a positive note it was good to see the data confirming the economy is recovering rapidly, but the Treasurer did temper the excitement on this, noting that we cannot take the gains we have made for granted. Probably a fair point, as a fair chunk of the heavy lifting has come as a result of tax receipts off the back of an iron ore spot price that is 4 times higher than forecast. The deficit is still significant, however it is hard to argue that something of this magnitude isn’t required.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Expected to be 1 July 2022
The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test. This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government stated it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1
July 2022.
Expected to be 1 July 2022
The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.
Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Effective first financial year following Royal Assent The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.
The income streams affected by this measure include:
that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Under the measure, any commuted reserves will not be counted towards an individual’s concessional contributions cap but they will be taxed as an assessable contribution of the fund. When commuted, any social security treatment the product carries such as 100% or 50% asset test exemption and/or grandfathering for income test purposes will cease.
However, the Government has confirmed there will be no re-assessment of the social security treatment the product received prior to the commutation. Therefore, the member would not be required to pay back any overpaid entitlements.
The Government has also confirmed the existing transfer balance cap rules will continue to apply. Therefore, on commutation the member will receive a debit in their transfer balance account based on the debit value method that applies.
Income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (eg some older corporate funds) or public sector defined benefit scheme (eg CSS, PSS).
Expected date 1 July 2022
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.
If you would like to discuss how this may impact your retirement planning, then please book a chat.
Effective 1 July 2020
The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners. The LMITO provides a reduction in tax of up to $1,080. The table below shows the amount of offset an individual client is entitled to depending on their taxable income:
This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax.
Effective 1 July following Royal Assent
The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test — 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 meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Effective from the income year after Royal Assent Currently, tax deductions for Category-A self-education expenses must generally be reduced by $250.
The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.
Category-A expenses include tuition fees, textbooks, stationary, student union fees, student services and amenities fees, public transport fares, car expenses worked out using the ‘logbook’ method (other than the decline in value of a car), running expenses for a room set aside specifically for study.
Effective 1 July 2022
The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances.
No Negative Equity Guarantee
A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value.
Lump sum advances
Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined. Note, the total amount eligible people are able to receive under the pension loans scheme, including
any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.
Effective 1 July 2022
The Government announced it will:
The current hourly fee caps will continue to apply.
Effective 1 July 2021
To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages:
Additional respite care services will be provided to assist carers and enhanced support services will
be provided to assist senior Australians to navigate the aged care system
Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures To improve residential aged care quality and safety, including a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers.
Reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
a range of measures to grow and upskill the aged care workforce.
For our ongoing service package clients, your financial adviser will be in touch with any specific actions or impacts to your situation.
If after reading this you want to chat, get some clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please contact us so that we can discuss your particular requirements in more detail.
This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding. After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.
Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:
What this could mean for you
Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.
What this could mean for you
Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.
By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.
For people who don’t yet have a super account, their employer will be able to open an account for them in their default
super fund.
What this could mean for you
Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.
The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.
Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you
YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:
What this could mean for you
Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.
This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you
You may be eligible for the two payments of $250 if you’re currently receiving:
Health services
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.
The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.
Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.
What this could mean for you
New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:
Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.
While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.
What this could mean for you
For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.
If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
To use a basketball analogy, a good financial advisor should often run point guard for your personal finances. This means that they are the main playmaker, they decide the plan of attack moving forward. A good point guard is essential in having a championship calibre team, but it’s also important that the other positions are filled with experts in their fields such as accountants, lawyers and mortgage brokers. Today we’re going to focus on the latter and discuss why I think it is important that people should see a mortgage broker.
A good mortgage broker will be able to offer you advice far greater than just finding you the best rate. Getting a loan can be confusing, especially if it’s your first time. Offset accounts, fixed vs variable, redraws… the list can go on in terms of different terminology. A good broker will be able to help you navigate through these different features and find out what is important for you. Often, I feel that getting the structure and features of your loan right can be more important than the rate alone.
They have access to a range of different lenders and rates, they may even have access to rates that you are unable to get due to the size of their business. You as a consumer have access to these lenders as well but you likely don’t have the software to go and compare these as quickly as a mortgage broker does and it will often leave you spending a lot of time comparing different lenders when you could have a broker do it for you far more efficiently.
A majority of the time the mortgage brokers are actually paid by the lender for finding them business and do not charge an extra fee on top to you. Commissions are often a dirty word for people, especially following on from the royal commission but now most lenders pay a very similar commission and no decent mortgage broker would or should ever focus on the commission alone, rather looking at what loan and solution is best for you.
Similarly to a financial plan, you should be reviewing your loans on a consistent basis. Situations change, interest rates change, and products change so you need to be making sure you are reviewing these to ensure you have the best solution possible for you. Having a good mortgage broker should mean that they are proactively reaching out to you. It also means you will have an expert to call if you ever have any questions rather than having to sit on hold to a bank or other lender to get an answer.
If you would like to get in contact with a mortgage broker, please shoot me a message and I would be happy to do an introduction to one of our trusted business partners.