With tax revenues falling well short of expectations - $17 billion write-down in tax receipts - it has been clear that promises of a return to surplus in 2013 could not be kept.
Set against a backdrop of uncertainty around the global economy and the domestic political situation, the Budget night proved to have no surprises, with the majority of measures announced prior to the night itself.
Increase in Medicare Levy
One of the main points of the Budget was the news, previously announced, that from 1 July 2014 the Medicare Levy will be increased by 0.5%, from 1.5% of taxable income to 2% of taxable income.
The Levy will apply to all those taxpayers who are currently subject to the Medicare Levy. This will fund Disability Care Australia, formerly the National Disability Injury Scheme.
Baby Bonus Eligibility Tightened
The Baby Bonus will remain in place until 28 February 2014, nine-and-a-half months from now. This will mean that until then, those with incomes of up to $150,000 a year are eligible to receive $5,000 on the birth of their first child and $3,000 for each subsequent baby (assuming that they do not elect to receive Paid Parental Leave).
After 1 March 2014, the Baby Bonus qualifying threshold will drop significantly and will only be avaialble for those who also qualify for Family Tax Benefit Part A. This menas that couples earning over $101,000 will not be eligible for a bonus for their first baby. The threshold for a second baby will be about $112,000.
For those eligible, the Baby Bonus will be reduced to $2,000 for the birth or adoption of a first child or each child in multiple births and $1,000 for second or subsequent children. This will be paid through an initial payment of $500 with the remainder paid in seven fortnightly instalments.
It is important to note that there are no changes proposed to the existing Paid Parental Leave scheme.
Changes to Superannuation (announced prior but reiterated in the budget)
A higher concessional contribution cap of $35,000 will apply to people aged 60 and over from 1 July 2013. The higher cap will then become available to people aged 50 and over from 1 July 2014.
While the higher concessional contribution cap is now less than the $50,000 promised to come into effect from 1 July 2014, the requirement to have less than $500,000 in total superannuation savings has been removed.
In addition, any excess contributions will be able to be withdrawn. Individuals will be able to have them taxed personally at their marginal tax rate. An interest amount will also apply to the excess amount, reflecting the delay in collection by the ATO.
The tax-free treatment of assets in supporting a superannuation income stream will be limited to the first $100,000 of earnings on those assets. Earnings above that will be taxed at 15%. It is expected that this threshold will be indexed to CPI and increase in $10,000 increments.
For those earning over $300,000, the Government will be imposing an additional tax of 15% on all your concessional super contributions.
Deeming rules for Account Based Pensions
Effective 1 January 2015, the social security (e.g. Centrelink) deeming rules applying to financial investments are proposed to apply to Account Based Pensions with a commencement date of 1 January 2015 or later.
Grandfathering rules apply to Account Based Pensions held before 1 January 2015. These income streams are assessed under the existing rules, that is, the annual payment less the social security deductible amount.
Given the above, for those over 55 who think that they may be entitlted to Centrelink Age Pension in the future, they may wish to commence an Account Based Pension before 1 January 2015. This will lock-in the concessional income test treatment afforded to pension payments under the current rules.
Other budget items of note include:
- The abolition of the Net Medical Expense Tax Offset in 2014/15,
- The deferral of personal income tax cuts which were due to begin in July 2015 to help with carbon tax,
- Limiting tax deductions for self-education expenses (capped at $2,000 per year from 1 July 2014),
- Ending the HECS-HELP debt discount for up-front payment,
- Indexation of thresholds for family payments and supplements will remain frozen until 30 June 2017,
- The announcement of a pilot scheme to assist Centrelink aged pensioners who wish to downsize their home.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.