This years budget contained few tax and superannuation measures but included a range of austerity measures, especially in relation to social security and healthcare. I have commented previously that in my view some fixing of the ‘budget concerns‘ could be achieved from increases to the Good and Services Tax (GST) however this has not been touched in this years budget.As always before any of these announcements can be implemented, they will require passage through parliament which may have some issue until after July when the Senate changes.Overview
In a budget intended to reduce the deficit from its current $49.9 Billion to $29.8 Billion next year there are few increases or benefits for people over the next 12 months. For a first budget of a newly elected Federal Government this isn’t a big surprise based on the leaked announcements which have occurred in the lead up to budget night.
We have prepared a summary of the key measures for Individuals, Companies, Superannuation and Social Security below:
Personal Income Taxes
With the exception of the Budget repair levy, the personal income tax rates and thresholds remain unchanged from 1 July 2014.
The Government is going to introduce a new initiative by providing a tax receipt for all individuals on where and how their taxes were used.
Temporary Budget Repair Levy
The Government will introduce a three year temporary levy on high income individuals from 1 July 2014 until 30 June 2017.
This will impact those earning above $180,000 in the 2014-15, 2015-16 and 2016-17 financial years and will be levied at a 2% rate.
To prevent high income earners from utilising Fringe Benefits Tax to avoid the levy, the Fringe Benefits Tax (FBT) rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017 to align with the FBT income year.
The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exmept entities will be protected by increasing the annual FBT caps. In addition the FBT rebate rate will be aligned with the FBT rate from 1 April 2015.
MM Comment: This will provide additional taxation benefit for clients who are salary packaging into superannuation. The Division 293 Superannuation tax of 15% on top of the 30% will still apply for those earning over $300,000.
Family Tax Benefit Part B
The Government will reduce the Family Tax Benefit Part B (FTB Part B) primary earner income limit from $150,000 to $100,000 per annum, from 1 July 2015. The income threshold for the Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000 as it is linked to the FTB primary income earner limit.
The Government will limit Family Tax Benefit Part B (FTB Part B) to families whose youngest child is younger than six years of age from 1 July 2015. As a transitional arrangement, families with a youngest child aged six and over on 30 June 2015 will remain eligible for FTB Part B for two years.
Family payment reform — limiting the Large Family Supplement to families with four or more children
The Government will limit the Family Tax Benefit Part A (FTB Part A) Large Family Supplement (currently $313.90 per child per annum) to families with four or more children from 1 July 2015. The Large Family Supplement will be paid in respect of the fourth and each subsequent child in a family.
MM Comment: This is not a good measure for Families affected by these changes who will lose out on receiving a FTB Part B up to $4,100 per annum (including the annual supplement). The current eligibility age allows families with the age of the youngest child up to age 18 (if in full time study) to be eligible for this payment. Affected parents may choose to return to work, but if their income is above $100,000, they will not receive FTB Part B. Affected families will lose out on receiving up to $3,018 per annum (the current maximum amount of FTB Part B for those with children aged between 5 and 18).
New Family Tax Benefit allowance
The Government will create a new allowance for single parents on the maximum rate of FTB Part A whose youngest child is aged between six and 12 years old from the point when they become ineligible for FTB Part B. This allowance will provide $750 for each child aged between six and 12 years old in an eligible family from 1 July 2015.
Remove the Family Tax Benefit Part A per child add-on
The Government will remove the FTB Part A per child add-on to the higher income-free threshold for each additional child from 1 July 2015.
Revised Family Tax Benefit end-of-year supplements
The Government will revise the FTB end-of-year supplements to their original values and ceasing indexation from 1 July 2015.
Dependent Spouse Tax Offset
The Government will abolish the Dependent Spouse Tax Offset for all taxpayers from 1 July 2014.
Mature Age Worker Tax Offset and Restart
The Government will abolish the Mature Age Tax Offset from 1 July 2014. Previously this measure was limited to those tax payers born before 1 July 1957.
The savings from this measure will be re-directed to the Government’s expanded seniors employment incentive payment called Restart to support mature age job seekers to re-enter the workforce.
From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 yearsor over who has been receiving income support for at least six months.
Medicare Levy Changes and GP Visits
The government will increase the Medicare Levy low-income threshold for families from $33,693 (2012-13) to $34,367 for the 2013-14 financial year with effect from 1 July 2013.
The additional amount of the threshold for each dependant child or student will also increase from $3,094 (2012-13) to $3,156 for the 2013-14 financial year.
In last years budget (2013-2014) there was the introduction of Disability Care and the increase in the Medicare Levy by half a percentage to help fund it which will proceed as planned so the Medical Levy will increase from 1.5% to 2.0% from 1 July 2014.
Low-income earners will continue to receive relief from the Medicare Levy through the low-income thresholds for singles, families, seniors and pensioners. The current exemptions from Medicare will also remain and apply to Disability Care.
From 1 July 2015 to 30 June 2018 the Medicare Levy Surcharge and Private Health Insurance Rebate thresholds will not be indexed.
From 1 July 2015 there will be a $7 charge for each currently bulk-billed service. This will be capped at 10 services per calendar year for concessional patients and children under 16.
Pharmaceutical benefits scheme Increase in co-payments and safety net thresholds
The Government will achieve savings of $1.3 billion over four years from 1 January 2015 by increasing the Pharmaceutical Benefits Scheme (PBS) co‑payments and safety net thresholds.
Co‑payments will increase for general patients by $5.00 (from $37.70 to $42.70) and for concessional patients by $0.80 (from $6.10 to $6.90) in 2015.
PBS safety net thresholds will increase each year for four years from 1 January 2015, with general safety net thresholds to increase by 10 per cent each year and concessional safety nets to increase by the cost of two prescriptions each year.
These increases are in addition to the existing annual indexation of co‑payments and safety net thresholds in line with the CPI.
Paid Parental Leave
From 1 July 2015 the Government will deliver the paid parental leave scheme which will provide six months paid leave and
will include superannuation.
First Home Savers Account
The First Home Savers Account is being abolished with a phase out approach starting from 13 May 2014. The Government will make regulations to ensure that all new accounts opened from 13 May 2014 will be informed of these changes by their
Existing account holders will continue to receive the Government co-contribution and all tax and social security concessions associated with these accounts for the 2013-14 financial year.
The Government co-contribution will cease from 1 July 2014 and the tax and social security concessions associated with these accounts will be withdrawn from 1 July 2015. As of 1 July 2015, account holders will be able to withdraw their account
balances without restriction.
Once the First Home Savers Accounts scheme is abolished from 1 July 2015, these accounts will be treated like any other account held with the product provider.
National Rental Affordability Scheme
The National Rental Affordability Scheme (NRAS) will be abolished. Funding for tenanted NRAS properties is not affected.
The scheme is a partnership between the Australian Government and the states and territories to invest in affordable rental housing. The scheme, which commenced in 2008, sought to address the shortage of affordable rental housing by offering financial incentives to persons or entities such as the business sector and community organisations to build and rent dwellings to low and moderate income households at a rate that is at least 20 per cent below the market value rent. That meant that an investment property owner who was prepared to commit to offering a property at 20 per cent below market rent could obtain tax free rebates of up to $14,000 per annum for up to ten years from the State and Federal Governments. The main attraction was that the rebates were tax free whereas the rent foregone would have otherwise have been taxable.
Companies / Small Business:
The Government will provide $8 million over four years to establish the Small business and Family Enterprise Ombudsman. The policy intention is to allow small business to get the same protections as consumers when it comes to unfair contracts imposed by big business.
From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature age job seeker (including those on the Disability Support Pension) aged 50 years or over. Payments will commence after the worker has been employed for at least six months and will be paid in the following instalments: $3,000 after six months of employment $3,000 after 12 months of employment $2,000 after 18 months of employment $2,000 after 24 months of employment.
Company tax rates
The government will cut the company tax rate by 1.5% from 1 July 2015. For large companies the reduction will offset the paid parental leave scheme.
The schedule for increasing the superannuation guarantee rate to 12% will be changed. From 1 July 2014 this will increase to 9.5% as planned.
Non-Concessional Excess Contributions Tax
Individuals will be given the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate.
Defence Force Retirement Benefits and Military Superannuation
From 1 July 2014, DFRB and DFRDB superannuation scheme members aged 55 and over will have their superannuation benefits indexed by the better of the Consumer Price Index and the Pensioner and Beneficiary Living Cost Index, with reference also to a benchmark level of Male Total Average Weekly Earnings (still a better indexation than the current Public Sector Super and Commonwealth Super Scheme Members).
Additionally, the Government will exempt DFRB and DFRDB members from any Division 293 tax ability for the one-off increase in the capitalised value of the benefit arising from the new indexation arrangements.
The Division 293 tax is imposed under the Income Tax Assessment Act 1997 on concessional contributions made by
individuals whose income and relevant concessionally taxed contributions exceed $300,000. This measure delivers on the
Government’s election commitment.
The Government will allow ADF members to choose which superannuation fund they belong to and, for the first time, give
those members the ability to transfer their accumulated benefits to a new fund if they leave the ADF.
From 1 July 2016, the Government will also establish a fully funded, accumulation superannuation scheme called
ADF Super for new members of the Australian Defence Force (ADF). The existing Military Superannuation and Benefits
Scheme (MSBS) will be closed to new members from this date.
There will be no change to the superannuation arrangements for existing MSBS members, but they may elect to be covered
by the new arrangements. Under the new arrangements, the Government will pay a 15.4 per cent contribution to a member’s
chosen superannuation fund, or 18 per cent in periods of warlike service.
Advice Required: If ADF members are looking to switch funds from 2016 you should fully explore this option as the defined benefit and indexed pension are a high quality fund and option for existing members.
The Age Pension qualifying age will continue to increase by six months every two years, such that it will reach a qualifying age of 70 by 1 July 2035. This measure will not affect those born before 1 July 1958.
Pension and Pension Equivalent Payments by the Consumer Price Index
The Government will commence indexing pension and equivalent payments and Parenting Payment Single by the Consumer
Price Index (CPI). This measure will commence on 1 July 2014 for Parenting Payment Single recipients and from 1 September 2017 for Bereavement Allowance and pension payments such as:
• Age Pension;
• Disability Support Pension;
• Carer Payment and
• Veterans’ Affairs pensions.
Currently, these payments are indexed in line with the higher of the increases in the CPI, Male Total Average Weekly
Earnings or the Pensioner and Beneficiary Living Cost Index.
Asset Test Deeming Rates
The government will change how it deems the return from a person’s financial assets for the purposes of the pension income test. The deeming thresholds will be reset from $46,600 to $30,000 for single pensioners and from $77,400 to $50,000 for pensioner couples from 1 September 2017.
Disability Support Pension
The Government will introduce compulsory activities for Disability Support Pension (DSP) recipients less than 35 years of age with an assessed work capacity of eight hours or more a week, and who have a participation plan. Activities will vary depending on the person’s circumstances and will focus on obtaining employment. Sanctions will also be introduced for non-compliance.
DSP recipients with a severe impairment and an assessed work capacity of less than eight hours a week will be exempt.
The amount of time DSP recipients can leave Australia and still receive the DSP will be reduced. Clients who are on DSP will receive the payment for a maximum of four weeks in a 12 month period should they travel overseas. Clients on the DSP who choose to leave Australia on or after 1 January 2015 will be subject to the new rules. This change is a contrast to the current rules which allow the DSP to be paid during absences from Australia for up to six weeks, on multiple occasions in any one year.For clients who have special circumstances, a portability extension and exception provisions will continue to apply. This will allow a longer or unlimited portability period.
Increasing the age of eligibility for Newstart Allowance and Sickness Allowance
The Government will increase the age of eligibility for Newstart Allowance and Sickness Allowance from 22 to 24 years of age from 1 January 2015. Current recipients aged 22 to 24 years of age on 31 December 2014 will continue to receive these allowances.
Commonwealth Seniors Health Card
The Government will index current income limits for the Commonwealth Seniors Health Card by the Consumer Price Index
from September 2014.
This will allow more retirees access to medicines listed on the Pharmaceuticals Benefits Scheme at a concessional rate.
Include untaxed superannuation income in the eligibility assessment
From 1 January 2015 the Government will commence including untaxed superannuation income in the assessment of
income to determine eligibility for the Commonwealth Seniors Health Card (CSHC).
The assessment of superannuation income will be the same for CSHC holders as for Age Pension recipients and will align
with the 2013-14 Budget measure to deem the balances of account-based superannuation of pensioners from 1 January 2015.
All superannuation account-based income streams held by CSHC holders before the implementation date will be grandfathered under the existing rules.
Cessation of the Seniors Supplement
From 20 September 2014 the Government will cease the Seniors Supplement for holders of the Commonwealth Seniors
Health Card (CSHC).
Eligible seniors who do not receive a pension will continue to be eligible for a concession card. CSHC holders will still
receive the Clean Energy Supplement and a range of concessional benefits including lower co-payments for medicines on the
Pharmaceutical Benefits Scheme and access to the lower threshold for the extended Medicare Safety Net.
Supporting Seniors who downsize their home
The Government has decided to NOT proceed with the Supporting Senior Australians — Housing Help for Seniors — pilot
measure, announced in the 2013-14 Budget, and due to commence on 1 July 2014.
The previous government was going to run a trail to support Age Pensions who want to downsize their home, without it
immediately affecting their Age Pension.
Under the current rules, the value of the family home is not assessed and does not affect a person’s pension. This means that
many seniors may not sell the home as a result of it impacting on their Age Pension.
Again as with all budget announcements these need to get pass through as legislation however if you have any questions with regards to your current arrangements please do not hesitate in contacting our office 1300 772 643.
Scott Malcolm (firstname.lastname@example.org) is Director of Money Mechanics a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.