In response to an uptick in adviser questions following the release of the Federal Budget, BT’s technical team have provided explanation for five of their most common queries.
According to the financial services firm, there was healthy adviser interest in some of the proposed measures, including: the tax offset for low to middle income taxpayers, social security measures such as the $250 one-off cost of living payment, and extension of minimum pension drawdowns.
Tim Howard, technical consultant at BT, said, “Some in the wealth management and advice industries may have expected more proposed measures that would impact clients from this Budget; however, at the same time, the limited changes to areas related to advice will no doubt provide welcome certainty”.
Tax relief for clients with incomes below $126,000
Unpacking the proposed increase to the low- and middle-income tax offset (LMITO), effective from 1 July 2021, BT said it would increase by $420, with the initial LMITO benefit increasing from $255 to $675 and the maximum LMITO benefit increasing from $1,080 to $1,500.
All other features of the current LMITO would remain unchanged.
Supporting retirees with the extension of minimum pension drawdowns
The Government announced a proposed extension of the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The reduction would allow retirees to avoid selling assets to satisfy the minimum drawdown requirements. This measure would also apply to clients who are in pension phase within self-managed superannuation funds.
No changes to the increase of Superannuation Guarantee
BT said the superannuation guarantee (SG) was set to continue to increase as planned.
The SG is currently legislated to increase progressively from 10% to 12% by 1 July, 2025. The rate of SG would increase on 1 July, 2022 by 0.50% to 10.5%. The rate would increase by 0.5% each year until it reached 12% on 1 July, 2025.
Social security measures
From April 2022, eligible income support recipients and concession cardholders would receive a $250 cost of living payment; an individual could only receive one payment even if they qualifed in multiple ways. The payments would be exempt from taxation and not count as income for social security purposes.
Meanwhile, parents in the paid workforce might benefit from the proposal to enhance Paid Parental Leave. Parental Leave Pay and Dad and Partner Pay would be combined into Paid Parental Leave as a single scheme providing up to 20 weeks in a fully flexible, shareable scheme for eligible working parents. Eligible single parents would also benefit from two additional weeks.
Work test amendments become law, bring forward clarified
Related to last year’s Budget, one of the technical topics that had been top of mind for advisers in recent weeks was the changes to the work test, with the passing of legislation in February which confirmed that the work test would no longer be required for voluntary member contributions, including non-concessional, bring-forward non-concessional and small business contributions up to the age of 75 – commencing from 1 July, 2022.
The amendments effectively would simplify the rules for older Australians who wanted to make additional contributions into their super.
With the passage of the Treasury Laws Amendment (More Flexible Superannuation) Bill 2021, it was also confirmed individuals aged under 75 at any time within a financial year would be eligible to trigger a bring-forward non-concessional contribution, subject to all other existing eligibility criteria being met, such as their recent contributions history, total super balance and timing around when they make the contribution if approaching age 75.
The Australian Taxation Office had also recently issued a much-anticipated example, illustrating an individual aged 74 on 1 July, being eligible to trigger a bring-forward non-concessional contribution.