On Tuesday nightTreasurer Wayne Swan handed down his sixth Budget with a larger than anticipated deficit. I would like to focus on the following key announcements that we feel are important to our clients:
- Confirming proposed changes to superannuation announced on 5 April 2013
- Increasing the Medicare levy by 0.5% from 1 July 2014
- Not proceeding with tax cuts that were legislated to apply from 1 July 2015
- Phasing out the Net medical Expenses Tax Offset
- Limiting tax deductions for self-education expenses
- Trialling means test concessions for pensioners looking to downsize their homes.
I would like to inform you that these announcements are only proposed at this stage and may change prior to being legislated.
The Government has reconfirmed its intention to implement the following superannuation reforms:
- Taxing earnings where clients are in their retirement stage (pension phase) that exceed $100,000 pa
- Increasing the concessional contributions cap (for example but not limited to Super Guarantee (9%) and Salary Sacrifice) to $35,000 from:
- 1 July 2013 for those aged 60 and over
- 1 July 2014 for those age 50 and over
- For those excess concessional contributions made into your superannuation fund, the excess will now be taxed at your marginal tax rate. There will also be a potential to withdraw those excess contributions from your fund.
- For those receiving the Age Pension, Centrelink will potentially use the Deeming method for account based pensions under the social security income test
- Where clients have commenced a pension within their superannuation fund, the minimum pension payments will return to the standard percentage factors as of 1 July 2013. This will result in the minimum pensions increasing due to Global Financial Crisis relief concluding.
Medicare Levy increased
The Government has confirmed that it will increase the Medicare Levy by half a percentage point from 1.5% to 2% from 1 July 2014 to provide funding for DisabilityCare Australia.
Deferral of 1 July 2015 tax cuts
The Government has announced it will defer the tax cuts that were due to come into effect from 1 July 2015. As a result, the marginal tax rates are proposed to remain at their current settings.
Net medical expenses tax offset (NMETO) phase out from 1 July 2013
The Government will phase out the net medical expenses tax offset, but will allow those currently claiming this offset to continue to for the next two financial years. If you do not claim the NMETO within this current financial year (subject to eligibility) you will not be able to claim this next year or 2014/15. However, please note that the offset will continue to be available for out-of-pocket expenses relating to disability aids, attendant care or aged care until 1 July 2019.
I recommend that if you have any upcoming large medical expenses, that you look to pre-pay this within this financial year. However please call me before you commit to this expense to ensure you are financially eligible.
The Government confirmed in the budget that a $2,000 cap on tax deduction claims for work-related self-education expenses per individual will be introduced. Education expenses include formal qualifications and associated tuition fees, textbooks, stationery and travel expenses and also conferences, seminars and self-organised study tours.
Supporting senior Australians ?housing help for seniors pilot from 1 July 2014
The Government will introduce a trial means test exemption program for Age Pension recipients who are downsizing from their family home. This program is for clients who have owned their home for more than 25 years, in which at least 80% of any excess sale proceeds (up to $200,000) from the family home deposited into a special account by an authorised deposit taking institution. The funds in this account (including interest earned) will be exempt from pension means testing for up to 10 years as long as there are no withdrawals from this account.
Additional relevant Budget announcements:
Replacement of existing Baby Bonus
From 1 July 2014, the existing Baby Bonus scheme will be removed. Instead, for families eligible for Family Tax Benefit Part A, increased benefits of $2,000 will be paid in the year following the birth (or adoption) of a child, and a $1,000 increase for second or subsequent children. The additional amounts will be paid as an upfront payment of $500 with the remainder to be spread over the next seven fortnightly payments.
Pension Bonus Scheme ?ceasing late registrations from 1 March 2014
On 20 September 2009, the Government closed the Pension Bonus Scheme (PBS) to new entrants and replaced it with the new Work Bonus. Currently, late registrations for the PBS may be accepted for those who can demonstrate they were able to meet the PBS eligibility criteria as at 19 September 2009.
The government will continue to guarantee accommodation bonds in the event of the age care provider becomes bankrupt or insolvent.