The Budget proposed changes to superannuation, social security and taxation, and presents opportunities to review financial plans. If passed by parliament, there are several changes that come into effect from 1 July 2014 while others are progressive and will significantly impact retirement strategies. We have provided a summary of some the changes and potential impacts on personal circumstances which are discussed below.
Increase in Superannuation Guarantee schedule amended
From 1 July 2014, the Superannuation Guarantee (SG) rate will still increase to 9.5% and remain at this rate until 1 July 2018, when it will increase by 0.5% pa, before reaching 12% on 1 July 2022. This change, together with the increase to the concessional caps in the 2014/15 year to $30,000 for those under aged 50, triggers an opportunity to review current salary sacrifice arrangements.
Excess non-concessional contributions tax
For the year from 1 July 2013, any non-concessional superannuation contributions (and related earnings) made that exceed the non-concessional contributions cap, will be able to be withdrawn.
These minor changes to superannuation will allow clients to more effectively manage contributions and caps for the next few years. The changes provide a more similar treatment of excess concessional and non-concessional contributions.
Increase in Age Pension qualifying age to 70 by 1 July 2025
Currently, the Age Pension age is due to increase from 65 starting on 1 July 2017. The Age Pension age will now increase to 67.5 from 1 July 2025, then it will continue to rise by six months every two years, until the pension age reaches 70 by 1 July 2035.
|Date of Birth||Age||Eligibility|
|Before 1 January 1949||65||Already eligible|
|1 January 1949 – 30 June 1952||65||1 January 2014|
|1 July 1952 and 31 December 1953||65.5||1 July 2017|
|1 January 1954 and 30 June 1955||66||1 July 2019|
|1 July 1955 and 31 December 1956||66.5||1 July 2021|
|1 January 1957 and 30 June 1958||67||1 July 2023|
|1 July 1958 and 31 December 1959||67.5||1 July 2025|
|1 January 1960 and 30 June 1961||68||1 July 2027|
|1 July 1961 and 31 December 1962||68.5||1 July 2029|
|1 January 1963 and 30 June 1964||69||1 July 2031|
|1 July 1964 and 31 December 1965||69.5||1 July 2033|
|1 January 1966 and later||70||1 July 2035|
Reduced deeming threshold for pensions
From 1 September 2017, deeming thresholds used in the pension assets test will be reduced to $30,000 for singles and $50,000 for couples. (Current singles threshold is $46,600 and the couples (pensioner) threshold is $77,400.) This change could potentially mean a higher Centrelink assessable income, which could reduce the amount of Centrelink pension payments.
Increased cost of medical care
From 1 July 2015, visits to a general practitioner and out-of-hospital pathology and diagnostic imaging services will cost patients $7 per visit contribution fee beyond Medicare bulk billing.
Limits apply for holders of concessions cards and children under age 16 years, who can only be charged for the first 10 visits in a year. Visits beyond the first 10 will not require a patient contribution.
Decreases in Family Tax Benefit, supplements and allowances
From 1 July 2014, the maximum and base rates of the FTB Part A and B will be frozen until 1 July 2016. The FTB Part A and B end of year supplements will be reduced from 1 July 2015. The supplements will reduce from:
- $726.35 to $600 for FTB Part A, and
- $354.05 to $300 for FTB Part B.
The FTB Part A per child add-on, which currently increases the higher income free threshold for each additional child, will be removed from 1 July 2015. (Under existing arrangements, a family may qualify for FTB Part B if the primary income earner has income up to $150,000 pa. This will be reduced to $100,000 pa from 1 July 2015.)
FTB Part B
From 1 July 2015, payment of FTB Part B will be limited to families whose youngest child is under the age of six. Families already in receipt of FTB Part B, whose youngest child is aged six or over on 30 June 2015 will remain eligible for FTB Part B under the transitional measures for two years.
FTB Part A
From 1 July 2015, a new Family Tax Benefit Allowance will be available to single parents receiving the maximum rate of FTB Part A, whose youngest child is aged 6 to 12. This will apply from the time; they become ineligible for FTB Part B. An additional payment of $750 will be paid for each child aged 6 to 12.
Commonwealth Seniors Health Card
From 20 September 2014, the income thresholds for eligibility for the Commonwealth Seniors Health Card will be indexed to the Consumer Price Index. Indexation may allow more over 65s to become eligible for this card.
From 1 January 2015, the definition of income for the Seniors Health Card will be expanded. Income from superannuation pensions will be assessed using pre-determined rates, not the actual income earned. Income from these pensions is currently not included in the definition of income. Grandfathering rules will apply to those already holding the Card.
Seniors Supplement abolished
From 20 September 2014, the Seniors Supplement will no longer be payable to holders of the Seniors Health Card. Card holders will still receive the Clean Energy Supplement. This will impact low income earners especially.
The current rates of Seniors and Clean Energy supplements are:
|Payment p.a.||Single||Couple (each)|
|Clean Energy Supplement||$361.40||$273.00|
Debt Tax for three years for higher earners
From 1 July 2014, a 2% Temporary Budget Repair Levy will be payable on taxable incomes over $180,000 p.a. for the next three financial years. This levy will effectively increase the top Marginal Tax Rate to 49%, including the Medicare levy. From 1 July 2017, the top marginal rate will reduce back to 47%, including the Medicare levy. Salary sacrifice arrangements for high income earners will be very effective in helping to reduce the effect of this increase.
Increase Fringe Benefits Tax (FBT)
From 1 April 2015, until 31 March 2017, the FBT rate will increase from 47% to 49% for the three FBT years commencing 1 April 2015, to prevent high income earners exchanging income for fringe benefits to avoid the Temporary Budget Repair Levy.
Tax offsets abolished
From 1 July 2014, the Tax Offsets for Dependent Spouses and Mature Age Workers (max $500) which were being phased out slowly will now cease. The 2013/14 financial year will be the last year in which these Tax Offsets will be claimable. A Restart Programme funded from the abolished Mature Age Worker Tax Offset will be introduced to encourage employers to hire mature age job seekers (including those on the Disability Support Pension) aged 50 years or over.
HELP debt clawback
From 1 June 2016, Higher Education Loan Programme debts such as HECS/HELP will accrue interest at the rate of the 10 year Government bond, subject to a maximum rate of 6%. (Currently, HELP debts are indexed to the Consumer Price Index.) From 1 July 2016, HELP debts will start to be repayable from a lower income level. A new 2% repayment rate will apply to those whose income falls within the new lower income level band.
Company tax cuts
From 1 July 2015, the company tax rate will reduce by 1.5%. For small to medium size companies that means a tax reduction of 1.5% to 28.5%. For large companies, the reduction will offset the cost of the Government’s Paid Parental Leave levy.
Please contact us, should you wish to discuss how any of these changes may impact on your situation or financial plan.
Disclaimer: The information contained in this 2014/15 Budget Summary is current as at 15 May 2014 and is prepared by Matrix Planning Solutions Limited (ABN 45 087 470 200. AFSL & ACL No. 238256). Our registered office is Level 3, 31 Market St, Sydney NSW 2000. This article contains general information only. Whilst every effort has been made to ensure the information is correct, its accuracy and completeness cannot be guaranteed, thus Matrix Planning Solutions Limited cannot be held responsible for any loss suffered by any party due to their reliance on the information or arising from any error or omission. As the particular circumstances and needs of individual investors may vary greatly, the information herein should not be used as a substitute for personalised professional advice.