The recent Federal Budget and Federal election have resulted in several government proposed changes to social security, support for homebuyers and superannuation.
In addition, several changes relating to superannuation are coming into effect from 1 July 2022 – which may provide even greater opportunities.
We have prepared the article to explain Labor's key pre-election proposals and how the proposals could impact you.
Purposed commencement 1st July 2022
The Government has committed to freezing deeming rates for two years until 2024. This may benefit you if you’re receiving an income tested pension or allowance or are a concession card holder. While the deeming rates are subject to periodic change, the current deeming rates have been in effect since 1 May 2020.
The deeming rates and thresholds are shown in the table below. As explained in the table, the deeming rates are based on the amount of financial investments you hold, and increase based on assets held above a certain level.
What is deeming and how does deeming work?
Many social security payments have an income and assets test to determine eligibility for a payment or benefit. The test which provides the lowest entitlement is generally the test used to determine your payment.
In addition, eligibility for some concession cards which have an income test may also be impacted by the deeming rules. Examples are the:
When determining entitlement to some payments and concessions under an income test, taxable income is not always the determining factor. To determine how much income is derived from certain types of investments, a ‘deeming rate’ is used is certain circumstances. This is an assumed rate of return on certain investments, and actual income earned from those investments is ignored. For example, the balance of your bank account and the value of your shareholdings may have a deemed rate of return. Actual interest earned, capital gains and dividends you receive, which generally form part of your taxable income, are ignored under deeming.
What assets are subject to deeming?
Financial investments and certain other assets have income determined based on the deeming rules. The most common examples include:
Will this change impact you?
This change will not in itself cause an increase in your entitlement to a payment or concession card. This is because the proposal is to freeze the deeming rates, rather than to decrease them. As a result, your ‘income’ for certain social security purposes won’t decrease because of this proposal.
However, as the income limits that apply to payments and concession cards are generally indexed each year, this could mean that you’re able to hold greater levels of financial investments without impacting your entitlement, compared to a situation where deeming rates were to increase.
Also, if your payment entitlement is currently determined under the assets test, this proposal won’t impact you.
What do you need to do?
You don’t need to do anything – Centrelink or the Department of Veterans Affairs (DVA) will automatically calculate your entitlement based on the information you’ve provided to them. If deeming rates change in the future, your entitlement will be automatically adjusted if applicable.
Proposed commencement: 1 July 2022
The Commonwealth Seniors Health Card (CSHC) may be available to you if you’ve reached your Age Pension age, but don’t qualify for the Age Pension due to the income and/or assets test. The CSHC has an income test which is used to determine eligibility for the card.
It is proposed that the income test eligibility thresholds will be increased as below:
What income is assessed?
Eligibility for the CSHC is based on an income test only. No assets test applies. The income test for the card is based on adjusted taxable income (ATI), plus deemed income from certain retirement income streams. Adjusted taxable income includes:
What do I need to do?
If you’re an existing cardholder, you don’t need to do anything. You’ll retain your entitlement to the CSHC.
If you think you might become eligible for the card, you’ll need to lodge an application with Centrelink. In addition to meeting the income test and age requirements, there are a number of other eligibility rules. Generally, you must:
You will also need to provide a range of documents to Centrelink to substantiate your income, and to identify yourself if you’re not an existing social security recipient. More information can be found on the Services Australia website.
Benefits to CSHC holders
Several benefits may be provided to cardholders. Some of these benefits are state based and vary, depending on your location. Some of the benefits may include:
Proposed commencement date: 1 January 2023
The Government has proposed to extend the existing 12-month exemption that applies if you’re a social security recipient, and you sell your primary residence. The exemption applies to a certain potion of the sale proceeds of your home under the assets test. The proposal is to extend the exemption for an additional 12-month period.
How does this work?
The assets test exemption applies to the portion of the sale proceeds that you intend to use to purchase, construct or renovate a new primary residence. The extension applies until you’ve purchased, renovated or built your new residence, or for 12 months, whichever is earliest. The exemption under the assets test may mean your entitlements are not impacted during that period.
An extension may be applied for a further 12 months in certain circumstances, where there is a delay outside of your control, however this is at the discretion of Centrelink/DVA.
Note that there is no income test exemption and the full sale proceeds may be assessed under the income test (depending on what you do with the funds). After the expiration of the exemption period, any sale proceeds that you haven’t used for a new home will again be assets tested.
What do I need to do?
This change is not proposed to commence until 1 January 2023. If you’re thinking about selling your primary residence, you should speak to your financial adviser to understand how this change might apply to you.
Proposed commencement: January 2023
The Government has proposed the Regional First Home Buyer Scheme provide support for 10,000 first home buyers to purchase a home in regional Australia. The Government will guarantee up to 15% of the eligible purchase price which would allow mortgage insurance to be avoided.
To be eligible to participate in the scheme, you must:
Property price thresholds will also apply based on the region in which the property is located.
The scheme applies to existing properties as well as house and land packages, off-the-plan apartments and land purchased with contract to build. The price caps will be reviewed on a six-monthly basis and consider the re-allocation of any unused guarantees.
It is understood that the scheme will operate alongside other existing support measures and concessions for first homebuyers, including the First Home Super Saver Scheme, and other state-based concessions and incentives, such as stamp duty concessions and first home buyer grants. For information about state-based support measures, contact the Office of State Revenue in your location.
Proposed commencement: Not yet announced
The Government has proposed to introduce the Help to Buy scheme, which is a shared equity scheme. Support will be available for up to 10,000 people each year.
If you’re eligible, the scheme will provide support for up to:
You will be required to have at least a 2% deposit, and Lenders Mortgage Insurance will also be avoided.
To be eligible you must:
After the initial purchase, it is proposed that you will be able to purchase additional interests in the property from the Government (minimum of 5%). There is no requirement to pay rent to the Government for its share in the property.
Important to know
It is important to understand that it is proposed that where your income exceeds the annual income cap for two consecutive years, this will trigger a requirement to either fully or partially repay the Government’s contribution to your purchase, which may be based on your affordability.
It is not currently clear how this will be determined and the way in which a partial liability to repay would be calculated, particularly with consideration of your capacity to pay. It is very important to discuss with your financial adviser, the impact on your future circumstances, should this arise.
Care should be taken to understand how payment receipts such as bonuses, taxable termination payments, taxable social security payments as well as the assessable component of a withdrawal under the First Home Super Saver Scheme could impact this requirement.
Proposed commencement: 1 July 2022
The eligibility age for downsizer contributions is already legislated to be reduced from 65 to 60 from 1 July 2022. The Government has proposed to further reduce the eligibility age to 55 from 1 July 2022.
Downsizer contributions allow eligible individuals to contribute some or all the proceeds of the sale of their home to superannuation, without impacting other contribution caps. Unlike other types of contributions, such as personal after-tax contributions, downsizer contributions do not have a total super balance limit, or an upper age limit. It’s a great way to boost your super if you don’t meet other eligibility rules to contribute, or where your other contribution caps have been earmarked for other purposes.
Contribution limits
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
Downsizer contributions won’t count towards your concessional or non-concessional contribution (NCC) caps. You’ll need to make the contribution within 90 days of settlement of your sale. You also need to complete the Downsizer contribution to super form to notify your fund that you’re making a downsizer contribution which must be submitted no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.
Possible benefit
Aside from super being a concessionally taxed investment, there are several other ways a downsizer contribution could benefit you. Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment.
What do I need to do?
If you’re planning to sell a property, speak to your financial adviser to better understand whether you could benefit from this change, as well as explore other opportunities for you.
It is important to remember that at present time, these government proposals are not yet law. You should not act on any of these announcements until they are legislated or take effect.
While changes may bring opportunity, it’s important to speak to your financial adviser to fully understand how the changes apply to you and whether they are appropriate for your circumstances.
Important information - Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.