October Federal Budget

The below Budget commentary is provided by NAB and in particular, Ms Gemma Dale (Director of SMSF and Investor Behaviour at nabtrade). More than happy to provide the long summary of the budget in terms of bigger picture impacts and all the announcements but the below is short and sweet and touches on some items I think that are relevant.

Welcome to our coverage of the Federal Budget, delivered by new Labor Treasurer Dr Jim Chalmers. Given the new government has only been in power a few months, the Budget is relatively light on personal impact, with no major reform predicted before the May Budget next year. There are, however, quite significant benefits for older Australians and those with young children, some changes for investors to be aware of, and several initiatives in health, housing and education.

Please note that all announcements are yet to be legislated.

Taxation

There are no major changes to the personal income tax rates or thresholds, nor to any existing rebates or credits.

Investors should be aware that the Government will align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. While this strategy has been used less than 50 times over the last fifteen years, it can offer very attractive tax treatment for some shareholders. This measure will apply from its announcement at7:30pm on Budget night. Companies will continue to be able to conduct on-market buybacks or pay franked dividends out of retained profits.

For those holding or trading cryptocurrency, the Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. This maintains the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment. This measure removes uncertainty following the decision of the Government of El Salvador to adopt Bitcoin as legal tender and will be backdated to income years that include 1 July 2021.

From 1 July 2022, electric vehicles will attract concessional tax treatment. This 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. The car must not have been held or used before 1 July 2022 so it will not apply to a vehicle you already own.

The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the previous Government’s 2021–22 Budget. Reversing this decision will maintain the status quo – effective lives of intangible depreciating assets will continue to be set by statute.

Families

From July 2023, Child Care Subsidy rates will lift from 85 per cent to 90 per cent for families earning less than $80,000. Subsidy rates will then taper down one percentage point for each additional $5,000 in income until it reaches zero per cent for families earning $530,000. Currently families lose eligibility for CCS once their income exceeds $350,000, so this will be attractive to those with higher incomes. The current higher CCS rates for families with multiple children aged 5 or under in child care will be maintained, with higher CCS rates to cease 26 weeks after the older child’s last session of care, or when the child turns 6 years old.

The Paid Parental Leave Scheme will become more 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, to take effect from 1 July 2023. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time. From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. 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.

 Superannuation

The Government will allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. This measure will have effect from the start of the first quarter after Royal Assent of the enabling legislation. The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Importantly these contributions do not count towards non-concessional contribution caps and both members of a couple can contribute, so it can be a very attractive strategy.

At the member level, there are no major changes to superannuation, with the proposed relaxation of residency requirements for SMSFs, which was to apply from 1 July 2022, not taking effect until the income year commencing on or after the date it has been legislated.

Older Australians

To encourage older Australians into the workforce, those receiving an Age Pension or DVA Pension will receive a temporary income bank top up of $4,000. This will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800, before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension.

For those over pension age, the income threshold for the Commonwealth Seniors Health Card will be increased from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This can offer very attractive savings so if you are not currently eligible for the health card, it is worth looking into.

The Government will also freeze social security deeming rates at their current levels for a further two years until 30 June 2024, to support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living. In a rising interest rate environment, this will be a welcome change for many who receive social security benefits.

In addition, the assets test exemption for principal home sale proceeds, that is, if you sell your home will be extended from 12 months to 24 months for social security purposes. The income test will be changed, to apply only the lower deeming rate, currently 0.25 per cent, to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.

Health Expenses

One significant change which will affect a wide range of people is the decrease in the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme from $42.50 to $30.00 on 1 January 2023. This effectively reduces the out of pocket cost for PBS medicines.

Housing

While a number of housing initiatives were announced, these will be relatively targeted.

In addition to several existing measures, the Government will establish the Regional First Home Buyers Guarantee to support eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5 per cent deposit, with 10,000 places per year to 30 June 2026.

In addition, the Government will provide $46.2 million over 4 years from 2022–23 (and approximately $17.8 million per year ongoing) to expand access to the Defence Home Ownership Assistance Scheme to support Australian Defence Force (ADF) personnel and veterans to purchase their own home. The expansion will reduce the minimum service periods for subsidised mortgage interest payments and remove the current post separation timeframe to allow veterans to access the scheme any time after they leave the ADF.

Education

In addition to further funding of higher education, the Government will provide 480,000 fee-free Technical and Further Education (TAFE) and vocational education places in industries and regions with skills shortages. These will be provided over five years.

I would add to the above, there is a fair amount from last night’s Budget that was left unsaid. The Treasurer announced that the Budget would return to its normal timing in May 2023. To quote directly from Dr Chalmers – “It’s just the beginning of the conversation we need to have as a country – about our economic
and fiscal challenges and about the choices we need to make on what’s affordable and what’s fair.”

So watch this space in 7 months!