No one likes a tough budget or the thought of paying higher taxes. The big issue seems to be the flow on impacts to State & Local Governments and we think it will be safe to assume the rises in the cost of water, power, and rates will continue unabated.
The biggest winners of the budget are self-funded retirees drawing income from tax free superannuation funds. The biggest losers are arguably working families who face loss of the family tax benefits (or income supplements) where there is often minimal surplus disposable income after paying for life’s essentials.
A summary of the key proposed changes are set below. We will highlight the specific items which will impact you in your next update.
No change to the taxation of income within superannuation regardless of your member balance
The previous government proposed a 15% tax on a super fund where a member drawing a pension had greater than $100,000 pa of earnings in their account, but this has been discarded (for now?).
Temporary Levy for High Earners
A Temporary Budget Repair Levy of 2% will be payable where taxable income exceeds $180,000 pa for the next three financial years. From 1 July 2014 this levy will increase the top tax rate to 49%, including the Medicare levy (which also increases 0.5% to 2% from 1 July 2014 to fund the National Disability Scheme). For those without private health insurance the effective top rate rises to 50.50% (pay more tax than you keep).
Increase in Fringe Benefits Tax
The rate of FBT will rise to 49% to reflect the debt levy. This will reduce the savings on salary packaged items for a wide range of employees.
Increased Costs of Medicare
A patient contribution of $7 may be charged from 1 July 2015, for:
- General practitioner (GP) consultations; and
- Out-of-hospital pathology and diagnostic imaging services.
Concession card holders and children 10 will be without cost. This announcement also lifts the restriction on State Governments charging patients at hospital emergency departments for GP like consultations.
Superannuation Guarantee Increase
The legislated increase to 9.5% (from 9.25%) will take effect on 1 July 2014. It is proposed the rate will remain at 9.5% for four years. From 1 July 2018 it will increase by 0.5% pa, before reaching 12% on 1 July 2022 (a year later than originally scheduled).
Commonwealth Seniors Health Care Card
Previously exempt superannuation pension income will be included in the income test for new applicants from 1 January 2015. The current limit is taxable income < $50k for singles and < $80k for couples.
Excess Non-Concessional Contribution Withdrawals
Individuals who make contributions exceeding their non-concessional contribution cap from 1 July 2013 will have the option to withdraw the excess amount plus earnings on the excess. This is a sensible legislative update which removes highly punitive penalties which previously applied.
Increase in Age Pension Age
The Age Pension age will increase to 67.5 from 1 July 2025 and rise by six months every two years, until the pension age reaches 70, by 1 July 2035. People currently aged 49 and under have to wait until age 70.
Company Tax Rate Reduction
The company tax rate will reduce to 28.5% (down 1.5%) from 1 July 2015. This will be advantageous for those with private investment Pty Ltd (or bucket) companies.