The 2022 Federal Budget was recently detailed and below we’ve identified key things that might impact your decisions or financial plans moving forward. You can discuss these further with your financial adviser.
SUPERANNUATION:
The Government is proposing to lower the age at which you can make downsizer contributions to your super from selling your home from 60 to 55.
Downsizer contributions provide an opportunity for eligible individuals to contribute up to $300,000 to superannuation upon the sale of an eligible main residence. From 1 July 2018 until 30 June 2022, the minimum qualifying age was 65. From 1 July 2022, the minimum qualifying age was reduced to age 60. Reducing this to age to 55 will see greater opportunities for more Australians to utilise this strategy and add to their retirement savings.
TAX:
‘Stage three’ tax cuts unchanged
Stage 3 tax cuts were introduced as part of the previous government’s personal income tax reform, which 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%. Therefore, all income earned between $45,000 and $200,000 will pay the same 30% tax rate. Less tax is always a benefit, we will see how this plays out moving forward.
SOCIAL SECURITY:
The Government will freeze social security deeming rates at their current levels until 30 June 2024 to provide some certainty on how investment income is assessed in an environment of rising interest rates.
This will ensure older Australians are not negatively impacted by increasing deeming rates until 30 June 2024. This is a win for the time being.
FAMILIES:
The Government is proposing to give families access to more leave and greater flexibility by:
– combining Parental Leave Pay and Dad and Partner Pay into a single 20-week payment
– introducing a family income limit of $350,000
– enabling either parent to claim the payment
– allowing eligible birth parents and non-birth parents to receive the payment
– allowing parents to take leave at the same time while claiming the payment.
The proposed changes to family payments are a bit of a double edged sword. While it enables clients to be flexible with how they map out their finances when planning/expanding their family (i.e. the birth mother isn’t forced to take the financial holiday from the family unit if she is the higher income earner), the downside is the family income cap placed on the leave entitlements.
Currently the maternity leave is available for a birth mother earning under $156,000 per annum the previous financial year, whereas the $350,000 household cap will certainly mean some higher income professionals will not receive any family benefits as this cap will be exceeded by many.
WHAT WE WERE HOPING FOR:
In the 2021-22 Federal Budget, the previous government had proposed a two-year amnesty on allowing retirees in receipt of some legacy retirement products (such as Term Allocated Pensions) the option to exit these products over a two-year period. We were disappointed to see no further updates on this proposal.
Note: Many of these proposals could change as legislation passes through parliament. Legislation passed by the Australian Parliament does not become law until it is formally accepted by the Governor-General. The process is referred to as Royal Assent.