Federal Budget summary – individuals

The 14 May Federal budget had no nasty surprises, confirmed changes to super summarised on our 5th April summary, but announced an across the board tax increase of 0.5% on all levels of taxable  income, in the guise of a higher Medicare levy from 1 July 2015, which was less welcome but understandable.

A summary of the budget measures which must be passed by Parliament before taking effect follows.

Personal Income Tax

  • From 1 July 2013: phasing out of the Net Medical Expense Offset (NMEO).  Transitional measures apply so those eligible to claim in the year to June 2013, who may be eligible to claim in the years to June 2014 and 2015 as well.  If possible, try to incur expenses to this year to stay eligible.
  • From 1 January 2014: end of 10% HECS-HELP discount and 5% voluntary HELP repayment bonus. Make voluntary repayments by 30 June 2014 for last chance of a discount.
  • From 1 July 2014: Medicare levy increases from 1.5% to 2.0% on taxable income, to raise money for the new disability insurance scheme, DisabilityCare. Salary sacrifice becomes marginally more attractive.  The Medicare levy low-income threshold for families will increase to $33,693 (from $32,743) for the current income year.
  • From 1 July 2014: Self-education expenses capped at $2,000 per person. Employers still receive deduction for education and training costs, so it may be worth negotiating with employer to pay as an extra benefit where they seek to be an employer of choice.  However, subject to fringe benefits tax if salary sacrificed.
  • From 1 July 2015: tax cuts now abolished, so current rates and thresholds to apply until the carbon price rises above $25.40, so the tax-free threshold remains $18,200 until then. From this date the NMEO becomes limited to disability aids, attendant care or aged care expenses until June 2019, when DisabilityCare  takes over.
  • From 1 July 2017: extension of monthly PAYG income tax instalments to all large entities with turnover at least $20m.

Super – accumulation mode

  • Higher concessional contribution limitof $35,000 for those age 60+ from 1 July 2013.
  • Higher concessional contribution limit of $35,000 for those age 50+ from 1 July 2014.
  • Indexation of current $25,000 limit to resume from 1 July 2014, when expected to be $30,000 for those below age 50.
  • Contributions in excess of the cap may be withdrawn from super from 1 July 2013, but taxed at marginal tax rate plus an interest charge.
  • Lost super limit raisedto $3,000 by December 2016, when the money is transferred to the ATO.
  • Those with income over $300,000 subject to an extra 15% tax on super contributions up to the cap, but still a lower tax rate than taking the money and paying tax at marginal rate.

Super –drawdown mode or retired

  • Pleasingly, the tax free status of withdrawals from age 60 remains in place.
  • New cap on tax free investment earnings introduced from 1 July 2014 – investment income over $100,000 will be taxed at 15%, the same rate as in accumulation mode. Consider withdrawal and re-contribution into spouse’s super account with the lower balance to better share the income.
  • Deeming rules for those applying for Centrelink pensions will be extended to include account based pensions from 1 January 2015. It may be beneficial to start a pension, including transition to retirement, before this date to take advantage of the current treatment, as the likely result will be a reduction in the Age Pension.
  • Encouragement to take up deferred lifetime annuities by providing same favourable tax treatment as super assets that support an income stream, from 1 July 2014.

Social Security and family assistance

  • Family Tax Part A increases now deferred indefinitely, instead of an extra $300pa from 1 July 2013.
  • Family Tax Part B limit of $150,000 for primary income earner is frozen, rather than being indexed.
  • Paid Parental Leave and Dad & Partner Pay income limits frozen at $150,000 in the financial year before the birth of the child.
  • Baby Bonus abolished from 1 March 2014, replaced by an extra $2,000 payment for the first child for families eligible for Family Tax Part A and $1,000 per subsequent child.
  • Trial means test exemption for downsizing family home, where those applying for the Age Pension and downsizing their home between 1 July 2014 and 2017, if owned for at least 25 years, may have up to $200,000 disregarded for the assets test if 80% of the proceeds are put into a special account.
  • Time period for lump sum claims and income reconciliation for Family Tax Benefit and Child Care Assistance reduced from 2 years to 12 months.  If not claiming through the year make sure you don't get behind on your tax returns.
  • Annual Child Care Rebate cap to remain at $7,500 until June 2017, instead of being indexed.

If you would like advice on how this might affect your personal situation, please don’t hesitate to give us a call.  Your usual contact or our Partner – Wealth Consulting, Michael Rees-EvansCFP®, can be reached on our office number at top right of this page, or you can email Michael at michael.rees-evans@lockwood.com.au.

Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.

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