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Budget super changes

Budget super changes

The 2016/17 Federal Budget contained some major superannuation changes. Some highlights are below, but bear in mind these proposals still need to be passed into legislation.

Contribution cap changes

From 7.30pm (AEST) on 3 May 2016, a lifetime non-concessional cap of $500,000 will replace the current annual caps. This cap includes all non-concessional contributions made since 1 July 2007 and any excess contributions will need to be refunded or a penalty tax of up to 49% may apply.

If you have already contributed more than $500,000 of non-concessional contributions between 1 July 2007 and budget night, no excess will apply however any future contributions from budget night may exceed the cap.

Concessional contributions caps have also been reduced to $25,000 per year for all ages from 1 July 2017. If your superannuation balance is less than $500,000, you can carry forward any unused cap amounts over a rolling five year period. A 30% tax on concessional contributions will now apply to those on $250,000 p.a. income.

$1.6million cap on super pensions

From 1 July 2017, a cap of $1.6 million will be placed on the amount of superannuation that you can transfer to a superannuation pension. Any balance in excess of this must remain in an accumulation account where earnings are taxed at a maximum of 15%. Those who already exceed this cap will be required to transfer the excess amount back to superannuation by 1 July 2017.

Other highlights include:

  • Abolition of the work test for those up to age 75 who want to make super contributions.
  • The tax exemption on TTR pension earnings will be removed from 1 July 2017 – earnings to be taxed at 15%.
  • From 1 July 2017, there will be no employment restriction placed on who can claim a tax deduction for personal superannuation contributions.
  • The $540 p.a. tax offset on spouse contributions has been opened up with proposed increases to the threshold to $37,000 and the age limit to 75 starting 1 July 2017.
  • From 1 July 2017 a low income concessional contribution tax offset of up to $500 is available if your adjusted taxable income is less than $37,000.

Your adviser can provide more details on how these changes may affect you.

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2014-2015 Federal budget summary

2014-2015 Federal Budget Summary

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.

Superannuation

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.

Social Security

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

Payment rates

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.

Eligibility thresholds

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

Eligibility threshold

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.

Income definition

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)
Seniors Supplement $876.30 $660.40
Clean Energy Supplement $361.40 $273.00

Taxation

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.

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