The 2021/22 budget was handed down by federal government last night. As was the case with the delayed (COVID) 2020/21 budget, the focus is expansionary to pump money into the economy.
Below is an overview of the key issues that we expect will most impact financial plans and strategy in the future. This isn't a complete list of all the initiatives that were announced so if you require further detail on the information below or on any other matters from the budget announcement then please contact our office and we'll be very happy to provide that detail.
The key initiatives are:
Low and Middle Income Tax Offset (LMITO):
This offset was introduced for the current tax year and will be carried over to the 2022 financial year as well (ie: to 30 June 2022).
The much anticipated budget was handed down by federal government last night.
As expected the focus is expansionary to pump money into the economy. Below is a brief overview of the key issues that we expect will most impact individuals. Many other initiatives were announced that are targeted specifically at businesses, which we won't detail here but if you would like more information on any business related matters then please contact our office and we'll be very happy to provide that detail.
The Federal Government yesterday announced that the JobKeeper and JobSeeker payments will be extended beyond the previously announced end-dates in September 2020.
This is a positive development, although the level of the benefit available and some of the terms applicable to the schemes has changed.
This is the link to the government announcement (https://treasury.gov.au/coronavirus?utm_source=ExactTarget&utm_medium=Email&utm_term=6106632&utm_campaign=&utm_content=), which also contains further detail and links to further resources.
After-tax contributions to superannuation can now be made up to age 67 and the legislation was partially implemented on 1 July 2020.
The change in legislation pertains to after-tax contributions to superannuation – these are amounts that can be contributed to superannuation tax-free from accumulated savings, sale of assets etc. It doesn’t include employer contributions, salary sacrifice or tax deductible contributions, all of which are taxed when they reach your superannuation fund.
Prior to 30 June 2020 the rules that pertained to after-tax contributions were:
Those aged 64 and under could make after-tax contributions of up to $100,000 pa or up to $300,000 over 3 consecutive financial years. The latter refers to a ‘pull forward’ rule allowing the contributor to make a contribution of more than $100,000 in a financial year but then limiting the contributions that they can make over the next 2 financial years to an aggregate amount of no more than $300,000 over 3 consecutive years. For example, if the contributor used the pull forward rule to contribute $250,000 to superannuation in one financial year then they’d be limited to a maximum of $50,000 in additional after-tax contributions over the next 2 financial years.
Those aged 65-74 could make post-tax contributions of up to $100,000 pa but only if they met the work test. The work test requires the contributor to have been gainfully employed for a minimum of 40 hours in any consecutive 30 day period in the year in which the contribution is made. Those in this age bracket were limited to after-tax contributions of $100,000 pa (ie: they can’t use the pull forward rule).
What changes apply from 1 July 2020?
Hence, from 1 July 2020 the rules pertaining to after-tax contributions are:
Age Group Maximum annual contribution
Potential pull-forward contributions
Those aged 66 and under $100,000
Maximum $300,000 over 3 consecutive years*
Those aged 67-74 $100,000 if meeting the work testNot available
Those aged 75 and olderNilNot available
* Assuming that the legislation to permit those aged 65 and 66 to utilise the pull forward rule passes parliament.
What impact does this have on your financial plan?
The change in regulations provides further flexibility over coming years to ensure individuals have the maximum possible funds within a tax-free environment at retirement. The main advantage will be the extension to the period of time that everyone will be able to get funds into superannuation even if they are not working past age 65.
For more information book a complimentary initial appointment with our team.
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You may have seen that the previously announced JobKeeper proposal was passed by parliament yesterday.
This is critical as it's possible that many people whose employment/income has been impact by the crisis will benefit more from JobKeeper than from other available stimulus measures.
However, unfortunately there remains confusion about how the available support works and what individuals should be applying for. Part of this is because the JobKeeper scheme is named similarly to the JobSeeker scheme, but they refer to different things and apply in different circumstances.
Below are some Q&As that I hope will assist those needing information, but please contact our office if you need more detail or guidance. We're also very happy to speak will family members or friends who may require help - we may not be able to give them specific advice, but we can talk with them generally about the assistance available and where they should start.
We'll focus on JobKeeper and JobSeeker here but summaries of all stimulus initiatives are attached for reference.
What's the difference between JobKeeper and JobSeeker?
Both are designed to assist individuals whose income has reduced or has been totally eliminated. However, JobKeeper is a temporary payment made to eligible employers to pass onto their eligible employees, whereas JobSeeker is a benefit directed to the individual.
JobKeeper is a temporary stimulus package specifically in response to the coronavirus crisis. It's a benefit paid to employers if their business income has declined by a certain amount (please refer below) with the requirement that the payment be passed onto their eligible employees (also more information below).
JobSeeker has been around for a long time - in past lives it's been known as Newstart and the Dole. Usually there are means tests applied such that if the applicant's income or assets (including the income or assets of their partner) are above a certain level then their entitlement will be reduced or eliminated. Those receiving JobSeeker must also meet certain 'mutual obligations' requiring them to complete activities to seek employment.
Who qualifies for a JobKeeper benefit and how much can they receive?
Qualification for the JobKeeper benefit is dependent upon the revenue of the business in which you were employed on 1 March 2020.
A business is eligible for JobKeeper benefits if:
In most cases the measure of the decline in revenue is in comparison with the same month or quarter of 2019.
Those businesses that qualify are required to register (https://www.ato.gov.au/general/gen/JobKeeper-payment/) and if approved by the ATO will receive $1,500 per fortnight for every eligible employee for a period of 6 months from 30 March 2020.
Eligible employees are those aged at least 16 and employed full time, part time or on a casual basis (but casuals must have been employed for a minimum of 12 months as at 1 March 2020). It doesn't matter if the eligible employee is still employed as normal, is working on reduced hours or has been stood down. However, any employee made redundant since 1 March 2020 will only qualify if subsequently re-employed.
The JobKeeper benefit is paid to the employer and must be passed onto each eligible employee in full.
Eligible employees whose income is currently higher than $1,500 per fortnight won't likely receive more, however the benefit will subsidise part of their employment cost thus reducing the financial pressure on their employer.
Those employees whose income is currently less than $1,500 per fortnight (or nil) will receive the full $1,500 per fortnight benefit.
Eligible employees who work for multiple employers can only receive the JobKeeper benefit from one (usually the employer from whom they claim the tax free threshold in their wages). Payments will be made in early May but backdated to 30 March 2020.
Who qualifies for a JobSeeker benefit and how much can they receive?
JobSeeker benefits depend upon individual circumstances, however in response to the crisis the government is temporarily waiving the usual asset test requirement, has loosened the income test requirement and won't impose the 'mutual obligation' requirement for new applicants for the time being.
Generally speaking those who are single and whose income is impacted by the crisis will qualify for a JobSeeker benefit if their current income is less than $28,249 pa, though it could be up to $55,243.50 pa if caring for dependents.
Those who are a member of a couple will qualify if their current income is less than $25,831 pa (depending on their partner's income) or if they have no current income and their partner's current income is less than $79,788.80 pa.
The amount of the JobSeeker entitlement also depends upon individual circumstances, but is up to $565.70 per fortnight for a single person without dependents and up to $790.10 per fortnight for those with dependents.
However, another facet of the current stimulus measures is a $550 per fortnight supplement to the JobSeeker benefit, so for the next 6 months the benefits increase to between $1,115.70 per fortnight and $1,340.10 per fortnight respectively.
What about tax and superannuation?
Both JobKeeper and JobSeeker payments are taxable income and will need to be declared in your tax return for the financial year in which the benefit is received. Your employer should deduct tax from the JobKeeper benefit if required, but tax isn't usually deducted from JobSeeker benefits (although you can apply to Centrelink to change this). If in doubt please speak with us or with your accountant to ensure that you don't end up with an unexpected tax liability.
Neither JobKeeper nor JobSeeker benefits attract superannuation contributions, however you may wish to make superannuation contributions from any JobKeeper benefit that you receive - please speak with your employer to organise this.
Should you apply for JobKeeper or should you apply for JobSeeker?
The JobKeeper benefit ($1,500/fortnight) is higher than the maximum JobSeeker benefit. Hence, if your employer qualifies for the JobKeeper benefit then my recommendation is to approach them to ensure that they register and to stay in touch with them to follow up the payments.
However, if your employer doesn't qualify or if you're unsure then I recommend lodging an application for the JobSeeker benefit with Centrelink. This can be done via MyGov ( go to www.my.gov.au if you don't already have an account) and linking to Centrelink. If you haven't already done this then I recommend doing so ASAP as there's a backlog of applicants and unfortunately the process is detailed. Please contact us if you're having trouble and we'll talk through it.
Can you receive JobKeeper and JobSeeker?
No. As JobKeeper benefits are treated as taxable income, they count in the income test for the JobSeeker entitlement and will preclude an individual from receiving both.
However, as above, if you're unsure whether your employer is going to receive the JobKeeper benefit on your behalf, then I encourage you to apply for JobSeeker as a backup. If you subsequently receive a JobKeeper benefit then you'll need to disclose that to Centrelink and you won't receive JobSeeker, but you'll be no worse off and will have the peace of mind of knowing that you've at least registered for a benefit.
What if you don't think that you qualify for either JobKeeper or JobSeeker?
Please contact our office and we'll discuss your circumstances. There are other stimulus measures that may be appropriate or at the very least we can talk through strategies to manage your cash flow through the forthcoming period.
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