On 14 May 2013 the Federal Government handed down one of the most keenly anticipated budgets for years.
The talk in the lead-up to the 2013/14 Federal Budget was all about surpluses and schools, deficits and disability care. Some of the numbers are eye-catching. With $14.3 billion for DisabilityCare Australia and $9.8 billion for school funding, there are some big sums on the table.
But back at the kitchen table, what does all this mean for your hip pocket?
When it comes to accessing healthcare, education and aged care, not to mention paying the bills and saving for retirement, how will the budget change the way you live, work and pay for services on a practical day-to-day level?
On 14 May 2013 the Federal Government handed down one of the most keenly anticipated budgets for years.
The talk in the lead-up to the 2013/14 Federal Budget was all about surpluses and schools, deficits and disability care. Some of the numbers are eye-catching. With $14.3 billion for DisabilityCare Australia and $9.8 billion for school funding, there are some big sums on the table.
But back at the kitchen table, what does all this mean for your hip pocket?
When it comes to accessing healthcare, education and aged care, not to mention paying the bills and saving for retirement, how will the budget change the way you live, work and pay for services on a practical day-to-day level?
From expectant parents to working families and pre- retirees, Australians will be looking at the budget closely to see whether they will be better or worse off.
Here’s a brief round-up of what the budget means for your family finances. But don’t forget, the proposals may change as the legislation passes through parliament.
The budget essentially confirmed previous superannuation announcements and in some areas provided additional clarification. The key measures previously announced include:
As previously announced, the Government will increase the concessional contributions cap to $35,000 (unindexed) as follows:
The higher concessional contribution cap will apply until the general concessional contribution cap reaches $35,000 due to indexation (expected to occur from 1 July 2018). That is, the higher cap will only be temporary.
The current $150,000 limit together with the additional 2 year “bring forward” rules for non-concessional contributions remain completely unchanged.
If you make excess concessional contributions, they will be taxed at your marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax. You’ll also have the option of deciding whether you want to withdraw your excess concessional contributions from your superannuation fund.
These reforms will apply to all excess concessional contributions made from 1 July 2013.
Under the current arrangements, concessional contributions in excess of the annual cap are taxed at the top marginal tax rate regardless of your personal marginal tax rate. In addition, you can only withdraw excess concessional contributions the first time you make an excess contribution after 1 July 2011, and only up to a maximum amount of $10,000.
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.
Currently, when a superannuation fund makes a capital gain on assets in the pension phase, the capital gain amount is also treated as exempt current pension income (and therefore exempted from tax). However, a capital gains tax event is only triggered in the year that the fund disposes of the asset.
As such, special arrangements will apply when assessing capital gains on assets purchased by a fund before 1 July 2014:
When assessing capital gains that are subject to this tax, a 33 per cent discount will apply (where applicable), to effectively tax the gain at a rate of 10 per cent. 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 if you’re 60 or over, and be subject to the existing tax rates if you’re under 60.
The Government will also ensure that members of defined benefit funds, including federal politicians, are impacted by this new reform in the same way as members of defined contribution funds (i.e. that there will be a corresponding decrease in concessions in the retirement phase).
In the May 2012 Federal Budget the Government announced a proposal to apply an additional 15% tax to concessional contributions made from 1 July 2012 if your combined annual income and concessional contributions are greater than $300,000. Since then, draft legislation has also been released.
The key details of this measure are summarised below:
Example
Jack’s income, as defined above, before including his concessional contributions is $285,000. After adding his concessional contributions of $20,000 this takes his combined income to $305,000. So Jack will only pay the additional 15% tax on $5,000 of his contributions (i.e. an additional $750).
The personal income tax cuts which involved increasing the tax-free threshold to $19,400, scheduled to commence on 1 July 2015, are deferred.
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 DisabilityCare Australia.
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 the Medicare levy will also remain in place.
DisabilityCare Australia, the NDIS, is aimed at providing long-term, high quality support for individuals who have a permanent disability that significantly affects their communication, mobility and self-management. It is intended to improve the lives of people with a disability, their family, and carers by providing a lifetime approach towards individualised care and support. It is intended to
devote resources to focus on early intervention by investing in remedial and preventative early intervention and also promote social and economic/workforce participation.
With this proposed increase to the Medicare levy, taking the top marginal tax rate to 47% (previously 46.5%), a number of other tax rates which are based on this combination will also be increased to 47% from 1 July 2014. These include increasing the:
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. The additional amount of threshold for each dependent child or student will also increase to $3,094. The increase in these thresholds takes into account movements in the Consumer Price Index and ensures that low-income families are not liable to pay the Medicare levy.
For 2012-13, the Medicare levy low-income thresholds have increased to $20,542 for individuals and $32,279 for pensioners eligible for the Seniors Australians and Pensioners Tax Offset.
The net medical expenses tax offset (NMETO) will phase out from 1 July 2013, with transitional arrangements if you’re currently claiming the offset. From 1 July 2013, if you claimed the NMETO for the 2012-13 income year you will continue to be eligible for the NMETO for the 2013-14 income year if you have eligible out of pocket medical expenses above the relevant thresholds. Similarly, if you claim the NMETO in 2013-14 you will continue to be eligible for the NMETO in 2014-15.
From 1 July 2015, the NMETO will continue to be available for out of pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019 when DisabilityCare Australia is fully operational and aged care reforms have been in place for several years.
From 1 July 2014 there will be an annual cap of $2,000 on tax deductions for work-related self-education expenses.
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 as bank accounts, shares and managed funds under the income test. This is because income from an account-based pension attracts a non-assessable portion, which loosely recognises that part of these pension payments represent a return of capital.
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.
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:
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.
Child Care Rebate (CCR) 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.
The Government will continue to freeze the indexation of the annual cap on the CCR until 30 June 2017. This means that the maximum amount of CCR that can be paid will remain at $7,500 a year until 30 June 2017.
The Government will freeze the indexation of eligibility thresholds and amounts for certain family-based payments at their current levels until 1 July 2017. This will mean that the current upper threshold limit will be maintained for the following payments until 30 June 2017:
Further, the FTB supplement rates will be maintained at current levels of $726.35 per child per annum for FTB Part A and $454.05 per family per annum for FTB Part B.
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, if you do not qualify for Paid Parental Leave (PPL), the Government will increase the Family Tax Benefit Part A (FTB Part A) as follows:
The additional FTB Part A would be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments. If you take up PPL you will not be eligible for this additional FTB Part A component. However, the Government proposes that from 1 March 2014 you will be able to use the period while you are in receipt of Government PPL towards the work test requirements for assessing eligibility for PPL for a subsequent child. This treatment will be consistent with how the employer funded parental leave is treated for the work test purposes for PPL now.
From 1 January 2014, FTB Part A will only be paid until the end of the calendar year your child completes school. If your child no longer qualifies for FTB Part A, they may be eligible to receive Youth Allowance, subject to the usual eligibility requirements.
The June quarter was marked by resilience and recovery in global financial markets, despite a volatile backdrop shaped by shifting trade policies, persistent inflation and geopolitical tensions. After a turbulent start driven by new US tariffs and escalating conflict in the Middle East, markets rebounded strongly as optimism returned on the back of tariff implementation delays and some trade truces, robust corporate earnings and a dose of central bank hope.
As we have reached the end of another financial year, we wanted to send a reminder about income distributions.
The Australian equity market started the year with great gusto with key economic metrics broadly supporting the market. This swiftly turned in February and the local bourse continued to fall throughout the remainder of the quarter. The slide was largely due to the uncertainty over US President Trump's tariffs. Fear and speculation finally became reality as the index began its steep decent in early February, falling circa -10.3%; an official correction and potentially heading towards bear territory and global recession. The Australian market reacted sharply and negatively to the Trump tariffs during the March quarter and overall experienced its steepest losses since the onset of the COVID-19 pandemic. The Australian equity market ended the quarter down (-2.8%).