The Federal Government’s 2013 Federal Budget was released earlier this week. The following summarises the key financial planning measures announced.
Superannuation Measures announced 5 April 2013
- Raising the concessional contributions cap to $35,000 for over 60s (from 1 July ’13) and over 50s (from 1 July ’14). The higher limit will not be indexed and it is expected the current $25,000 threshold, which is indexed, will increase to $35,000 by 2018. Draft legislation has been released and it is anticipated this measure will be enacted for 1 July 2013 start.
- Allowing excess concessional contributions to be refunded and the amount assessed at marginal tax rates (plus interest) from 1 July 2013. A consultation paper has been drafted for this proposal. Again it is anticipated this measure will also be enacted for 1 July 2013 start.
- Introducing a 15% tax on total earnings that exceed $100,000 supporting pensions and annuities from 1 July 2014. Earnings less than $100,000 will continue to be exempt from tax. Special transitional arrangements to apply for capital gains on assets, depending on the purchase date of the asset.
- The account balance threshold for lost super accounts to increase incrementally from $2,000 to $3,000 by end 2016.
- Extending the normal deeming rules to superannuation account-based pensions from 1 January 2015. Pension income streams started before this date will be grandfathered under existing Centrelink income assessment.
Higher Concessional Contributions Tax
Minor amendments have been made to the legislation including Federal Judges being excluded from this tax. Additionally, employer contributions made to constitutionally protected funds for State higher level office holders sitting on or after 1 July 2012 will also be exempted (to mitigate constitutional risks)
The calculation of income to determine eligibility for this tax will be similar to that used to calculate the Medicare Levy surcharge.
Former temporary residents will have any higher concessional tax refunded.
Low income superannuation contribution
The eligibility criteria for the low income superannuation contribution (LISC) will be amended to include individuals with an entitlement below $20. Previously, the LISC was not paid if it would be less than $20.
The LISC effectively refunds, up to $500 a year, the tax paid on superannuation concessional contributions for people with incomes up to $37,000.
Increase in Medicare Levy
To help cover the cost of the National Disability Insurance Scheme (NDIS), the Federal Government will, from 1 July 2014, introduce legislation to increase the current Medicare Levy rate from 1.5% to 2%. The Coalition has indicated their conditional support for this increase.
What does this mean for taxpayers?
|Annual Assessable Income ($)||1.5% Medicare Levy ($)||2% Medicare Levy ($)||Difference ($)|
Source: RBS Morgans
Planned Increase to Tax Free Threshold Scrapped
The tax free threshold of $18,200, which increased on 1 July 2012, was due to increase to $19,400 from 1 July 2015. This increase, which was part of the Carbon Scheme Compensation package, will now be deferred.
Dividend Washing Scheme
Investors with franking credit tax offset entitlements of more than $5,000 will be prevented from engaging in “dividend washing” thus claiming two sets of franking credits on effectively the same parcel of shares.
The Government will consult with business to determine how to best implement this measure.
There has been no real start date for this measure except that it will apply on or after 1 July 2013.
Net Medical Tax Offset
The net medical expenses tax offset (NMTO) will be phased out, with transitional arrangements applying to those who currently claim the offset.
From 1 July 2013, taxpayers who claimed the net medical tax offset in the 2012/13 income year will continue to be eligible for the offset in the 2013/14 income year if they have eligible out-of pocket medical expenses above the relevant thresholds. Similarly, those who claim the NMTO in the 2013/14 income year will continue to be eligible for the offset in the 2014/15 income year.
The NMTO will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019 when Disability Care Australia becomes fully operational and aged care reforms have been in place for several years.
Tax Agent Services Licensing Regime
The government will provide funding over four years to provide for a single, online registration for financial advisors registered with ASIC who also need to be registered with the Tax Office as tax advisors from 30 June 2013, which is the end of the exemption of financial advisors from the tax agent services licensing regime.
The cost of this measure will be offset by fees charged by the Tax Office for registering financial advisors under the Tax Agency Services Act 2009 from 1 July 2015. The proposed fees are $400 for a three year registration for a financial advisor who carries on a business as a Category 2 financial advisor; and $200 for a three year registration for a financial advisor who does not carry on a business as a Category 2 financial advisor.
Families & Centrelink
Family Tax Benefits
The bonus payment as part of Family Tax Benefit Part A will be scrapped. The payment was worth $300 a year for families with one child and $600 a year for families with two or more
The $5,000 Baby Bonus will be scrapped. In its place, families having their first child will receive a much lower $2,000 benefit under the Family Tax Benefits Part A scheme and $1,000 for subsequent children. In accordance with eligibility to FTB the income threshold for eligibility to this new payment will be $150,000.
The additional payment, applying from 1 March 2014, will be paid in the year following the birth (or adoption) of the child or children. There will be a lump sum payment of $500 followed by seven subsequent fortnightly payments.
Parents eligible for the Paid Parental Leave will not be eligible for this additional FTB payment; however, the ‘work test’ for access to Paid Parental Leave will be extended.
Increased Income Threshold for Newstart Allowance Recipients
From 1 July 2015, Newstart Allowance recipients will be able to earn an additional $38 per fortnight without having their allowance benef its impacted. The current fortnightly income threshold of $62 will increase to $100 where the recipient earns the additional income from paid work, study and access concessions.
Age Pension Exemptions for Seniors
Retirees will be able to downsize their homes and receive a means test exemption of up to $200,000 over a ten year period. This new measure will be trialled to assist senior Australians to downsize to a home more suitable to their needs without reducing their Age Pension. From 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years and who decide to downsize will have the option to invest surplus funds (up to $200,000) in an account. The funds invested in the account and earned interest, will be exempt from the Age Pension means test for up to 10 years.
New Aged Care Website
A My Aged Care website will be established this year to provide clear and reliable information about the services available. The My Aged Care website and a new call centre will be the main entry point into the system, enabling people easier access to all the information they need.
SOURCE: RBS Morgans
DISCLAIMER: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.