Federal Budget 2021

Federal Budget highlights


What it means for your super

The 2021/2022 Federal Budget focused on improving the aged care system, creating jobs, lowering unemployment rates and implementing changes to support women’s personal and economic security.

Last night, the Government announced changes to superannuation that will help increase the flexibility for older Australians, as well as support women and younger members. Below is an overview of the changes announced.

Increased flexibility for older Australians

The Government announced its plans to extend the Downsizer contribution scheme by lowering the age requirement to 60 years. The scheme currently allows eligible people aged 65 or older to make a Downsizer contribution into their superannuation of up to $300,000 (or $600,000 for a couple) from the proceeds of selling their home. The program will help reduce pressure on housing affordability, by freeing up housing stock for people trying to enter the housing market.

In addition, the Government has agreed to remove the work test for self-funded retirees aged 67 to 74 years old, unless they want to claim a tax deduction. Excluding the Downsizer scheme, currently if you are aged 67 to 74 years old, you have to meet a work test to be able to make extra contributions into your super account.

Both these measures will provide greater flexibility for older people wanting to add to their super.

A female friendly budget

Treasurer Josh Frydenberg said, ‘We want all Australians to get the most out of the superannuation system’. He also stated ‘On average, women retire with less superannuation than men.’

The Budget announced the removal of the $450 monthly earnings threshold for compulsory super payments. Currently, many employees earning less than $450 a month do not receive superannuation.

This change will help increase the super savings for young people entering the casual workforce and is another initiative to help women, who often enter or re-join the workforce on a casual or part-time basis. The Government has estimated the change will help improve the economic security in retirement for approximately 200,000 women.

To help increase workforce participation, the Government also announced it will be investing $1.7 billion into childcare, estimating that 250,000 families will be $2,200 better off every year.

From 1 July 2021, working families will see an increase in the childcare subsidy, covering up to 95% of childcare fees for second and subsequent children, plus the removal of the $10,560 annual per-child cap, which will benefit approximately 18,000 families (this will be means tested). 

These additional steps will help ease the pressure on working families by increasing childcare affordability.

Increasing the superannuation rate

Although changes to the compulsory superannuation rate did not make it in to the Treasurers speech last night, from 1 July 2021, the superannuation rate will increase from 9.5% to 10%.

Given the unforgettable events of 2020, the decision to proceed with the legislated superannuation rate increase is a vote of confidence in the economic recovery and good news for Australians and their super balances.

Treasurer Josh Frydenberg described the Australian economy as ‘better placed than nearly any other country to meet the economic challenges that lie ahead.’

Most Australian employees will enjoy the 0.5% increase in their super contributions and will see the extra money help build their super balances.

Increasing the superannuation rate beyond 10% has been on the agenda for a long time; legislation to increase the rate to 12% by 1 July 2019 was passed in 2012/13, however this was amended to 1 July 2025 following the global financial crisis.

The economic downturn caused by COVID-19 fueled speculation the changes may be delayed, however there doesn’t appear to be any plans to amend the current schedule for increasing the compulsory Superannuation Guarantee rate, as shown below:

 

Financial Year

Super Guarantee Rate

1 July 2002 – 30 June 2013

9%

1 July 2013 – 30 June 2014

9.25%

1 July 2014 – 30 June 2021

9.5%

1 July 2021 – 30 June 2022

10%

1 July 2022 – 30 June 2023

10.5%

1 July 2023 – 30 June 2024

11%

1 July 2024 – 30 June 2025

11.5%

1 July 2025 – 30 June 2026 and onwards

12%

Source: Australian Taxation Office, 2021

Additional help for first home buyers

The First Home Super Saver scheme was introduced in the 2017-18 Federal Budget and was designed to help younger Australians use their super account to help save for their first home.

Eligible first home buyers can potentially increase their house deposit savings through tax effective super contributions. When eligible members are ready to purchase their first home, the scheme allows them to apply to have the voluntary contributions released, plus any earnings on the money.

Previously, the total amount someone could access was $30,000, however, last night the Government announced that this amount would be increased to $50,000.

This brings the total tax benefit of contributing to the scheme to $7,500, up from the previously available $4,500. However, the annual limit on eligible contributions of $15,000 will also mean that people will need to start making contributions earlier to take full advantage of this potential.

Increases to contributions caps

The Government encourages additional contributions by making them a part of your pre-tax earnings. However, contribution caps are applied to limit the amount of money you can add to your super every financial year and are indexed annually. If you contribute over the allocated amount, there may be tax implications on the money contributed.

From 1 July 2021, the concessional contributions cap will increase from $25,000 to $27,500. This is the amount of money you are able to add to your super before tax. For members who don’t exceed the concessional cap, the government has a rule where you can ‘carry forward’ the remainder of the cap to increase the amount you can contribute the following year. You can take advantage of this rule for up to five years.

In addition, the non-concessional cap will also be increased from $100,000 to $110,000. This is the amount of super you can add to your account, after tax, without any penalties. The amount you are allowed to bring forward will also be increasing from $300,000 to $330,000 on 1 July 2021.

Questions?

If you have questions about these proposals, you can call the Helpline on 1800 635 796.

At Lutheran Super, you’re valued.