May 16, 2013 by stirling
2013/14 Federal Budget Planner Briefing
Last night’s Federal Budget contained information relevant to the following areas:
3. Social Security
1.1 Increased concessional contributions cap
As previously announced, the Government will increase the concessional contributions cap to $35,000 (unindexed) as follows:
− For the 2013/14 financial year, the higher cap of $35,000 will apply to individuals who are aged 59 years or over on 30 June 2013. For all others the general cap of $25,000 applies; and
− For each financial year from 2014/15 onwards, the higher $35,000 cap will apply to individuals who are aged 49 years or over on 30 June of the previous financial year.
1.2 Reform of excess concessional contributions tax arrangements
Excess concessional contributions will be taxed at an individual’s marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
In addition, these individuals will have the option of deciding whether they want to withdraw their excess concessional contributions from their superannuation fund.
These reforms will apply to all excess concessional contributions made from 1 July 2013.
1.3 Limit on (tax free) exemption for earnings in pension phase
From 1 July 2014 the amount of exempt current pension income available to superannuation funds will be limited to $100,000 a year for each individual.
Fund earnings, derived from pension assets, above this limit will be taxed at the 15 per cent rate that applies to earnings in the accumulation phase.
This proposed $100,000 limit will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.
It is important to note that this reform will not affect the tax treatment of withdrawals (both lump sums and pensions) made from a superannuation fund. Withdrawals will continue to remain tax-free for those aged 60 and over, and be subject to the existing tax rates for those aged under 60.
2.1 Deferral of the 2015-16 tax cuts
The personal income tax cuts which involved increasing the tax-free threshold to $19,400, scheduled to commence on 1 July 2015, are to be deferred. (No date has been announced)
2.2 Monthly PAYG instalments – Extension to other large entities
The requirement to make monthly Pay As You Go (PAYG) income tax instalments is to be extended to include all large entities in the PAYG instalment system, including trusts, superannuation funds, sole traders and large investors. Generally, large entities are those that have a turnover of $20 million or more.
2.3 Increase in the Medicare levy
The Medicare levy will be increased by half a percentage point from 1.5 to 2 per cent from 1 July 2014 to provide funding for Disability Care Australia.
2.4 Medicare levy low-income threshold
The Medicare levy low-income threshold for families will increase to $33,693 for the 2012-13 income year, with effect from 1 July 2012.
2.5 Net medical expenses tax offset phase out
The net medical expenses tax offset will phase out from 1 July 2013. The phase out period has not yet been published.
2.6 Reforms to work-related self-education expenses
Work-related self-education expense deductions are to be restricted through an annual $2,000 cap on these expenses from 1 July 2014.
2.7 Foreign resident capital gains tax regime
From 1 July 2016, a 10 per cent non-final withholding tax will apply to the disposal by foreign residents of certain taxable Australian property. This measure will not apply to residential property transactions under $2.5 million or to disposals by Australian residents.
3. Social Security
3.1 Deeming rules to apply to account-based pensions
Under the current Centrelink rules, account based pensions are fully assessable under the assets test.
However, income received from account based pensions is currently treated more favourably than income generated by other financial investments such bank accounts, shares and managed funds under the income test. In comparison, other financial investments are subject to deeming rules which attribute a fixed rate of return to these investments, irrespective of how much income they actually produce.
The Government proposes that these normal deeming rules will apply to new superannuation account-based income streams commenced after 1 January 2015. All account based pensions held by pensioners before 1 January 2015 will be grandfathered and the existing rules (e.g. access to the non-assessable portion under the income test) will continue to apply, unless the product is changed on or after 1 January 2015.
3.2 Increasing and indexing the income free area for eligible income support recipients
The Government proposes to increase the income free area for eligible income support recipients from the current rate of $62 per fortnight to $100 per fortnight from 20 March 2014.
From 1 July 2015, the proposed income free area will also be indexed.
The payments affected by this proposal are:
− Newstart Allowance
− Sickness Allowance
− Parenting Payment (Partnered)
− Widow Allowance
− Partner Allowance Benefit
− Partner Allowance Pension.
3.3 Exempting proceeds from downsizing the family home
Under the pension means testing rules, the value of the family home is not assessed if the dwelling and adjacent land is less than 2 hectares. The Government believes that many older Australians may want to downsize and to move into more appropriate housing (e.g. retirement villages or granny flats) but are reluctant to do so in order to avoid the excess proceeds from sale of their home affecting their Age Pension.
Under this proposed measure, the Government will run a pilot which will offer a means test exemption for Age Pensioners and other pensioners over Age Pension age who are downsizing from their family home. Among other things, to qualify:
− the family home must have been owned for at least 25 years; and
− at least 80 per cent of the proceeds from the sale (up to $200,000) must be deposited into a special account by an authorised deposit taking institution.
These funds (plus earned interest) will be exempt from pension means testing for up to 10 years provided there are no withdrawals during the life of the account.
The exemption will also be accessible to people assessed as home owners who move into a retirement village or granny flat. It will not be available to people moving into residential aged care.
The pilot will commence on 1 July 2014 and be closed to new customers from 1 July 2017.
4.1 Child Care Rebate – indexation pause extension
Child Care Rebate provides a 50 per cent rebate on out of pocket eligible child care expenses, up to the maximum of $7,500 per child per year. This will not be indexed until 30 June 2017.
4.2 Continuing indexation pauses on upper income limits on certain family based payments
The Government will freeze the indexation of eligibility thresholds and amounts for certain family based payments at their current levels until 1 July 2017.
4.3 Replacing the Baby Bonus
The Baby Bonus is currently set at $5,000 per eligible child. The Government has proposed that the Baby Bonus will no longer be available from 1 March 2014.
Instead, for families that do not qualify for Paid Parental Leave, the Government will increase the Family Tax Benefit Part A (FTB Part A) as follows:
− by $2,000, to be paid in the year following the birth or adoption of a first child or each child in multiple births, and
− $1,000 for second or subsequent children.
The additional FTB Part A would be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments.
Parents who take up Paid Parental Leave will not be eligible for this additional FTB Part A component.
4.4 Changes to eligibility age for Family Tax Benefit (Part A)
From 1 January 2014, FTB Part A will only be paid until the end of the calendar year a child completes school.
Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance, subject to the usual eligibility requirements.