Federal Treasurer Wayne Swan has handed down his sixth Budget which confirms a range of recently announced proposed changes to Superannuation, Income Tax and the Medicare Levy.
It also announces a range of proposed changes to the social security and tax systems.
The proposed changes announced in the Budget focused particularly on the following six key announcements:
- confirming proposed changes to superannuation announced on 5 April 2013
- increasing the Medicare Levy by 0.5% from 1 July 2014
- not proceeding with tax cuts that were legislated to apply from 1 July 2015
- phasing out the Net Medical Expenses Tax Offset
- limiting tax deductions for self-education expenses
- trialing means test concessions for pensioners looking to downsize their homes
Superannuation Reforms Reconfirmed
As the Government had already announced its planned superannuation reforms on 5 April 2013, the Budget contained no further surprises for superannuation.
The Government has clarified that for the purposes of the proposed taxation of earnings in pension phase above $100,000 pa, capital gains that are subject to tax will receive a 33 per cent discount and will therefore be taxed at 10 per cent.
Increase in the Medicare Levy from 1 July 2014
The Government has confirmed that it will increase the Medicare Levy by half a percentage point from 1.5% to 2% from 1 July 2014 to provide funding for Disability Care Australia.
Draft legislation to give effect to this change has already been released.
Low Income Earners will continue to receive relief from the Medicare Levy through the low income thresholds for singles, families, seniors and pensioners.
The current exemption from the Medicare Levy will remain in place including for blind pensioners and sickness allowance recipients.
Reforms to Deductions for Work-Related Self-Education Expenses from 1 July 2014
The Government confirmed in the budget the treasury’s announcement on 13 April 2013 that a $2,000 cap on tax deduction claims for work-related self education expenses per individual will be introduced.
Education expenses include formal qualifications and associated tuition fees, textbooks, stationery and travel expenses and also conferences, seminars and self-organised study tours.
There will be no change to employers receiving exemptions on fringe benefits tax for eligible education and training that they provide or fund for their employees, unless an employee decides to salary sacrifice in order to obtain these benefits.
Net Medical Expenses Tax Offset (NMETO) phase out from 1 July 2013
The Government will phase out the net medical expenses tax offset (NMETO) with transitional arrangements for those currently claiming the offset. However, the offset will continue to be available for tax payers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care until 1 July 2019.
From 1 July 2013 those taxpayers who claimed the NMETO for the 2012-13 income year will continue to be eligible for the NMETO for the 2013-14 income year if they have eligible out of pocket medical expenses above the relevant thresholds. Similarly, those who claim the NMETO in 2013-14 will continue to be eligible for the NMETO in 2014-15.
Supporting Senior Australians – Housing Help for Seniors Pilot from 1 July 2014
The Government will introduce a trial means test exemption program for Age Pension recipients who are downsizing from their family home. Under this program the family home must have been owned for at least 25 years with at least 80 per cent of any excess sale proceeds (up to $200,000) from the family home deposited into a special account by an authorised deposit taking institution. The funds in this account (including interest earned) will be exempt from pension means testing for up to 10 years as long as there are no withdrawals from this account.
People who are assessed as home owners who moved into a retirement village or granny flat will also have access to this exemption, however, it is not proposed to be available to those moving into residential aged care.
The trial will be closed to new customers from 1 July 2017.
Other Super & Tax Changes
The Government has announced that it will make minor amendments to the proposed reduction of tax concessions for the concessional contributions of very high income earners, effective from 1 July 2012.
Removing the discounts applying to up-front and voluntary payments made under the Higher Education Loan Program (HELP) from 1 January 2014.
The Government proposes to close a taxation loophole that enables certain sophisticated investors to engage in ‘dividend washing’ and effectively trade franking credits.
Pension Bonus Scheme – ceasing late registrations from 1 March 2014.
The Government will increase the income free area for eligible income support recipients from $62 per fortnight to $100 per fortnight from 20 March 2014 and commence annual indexation of the income free area from 1 July 2015 in line with the consumer price index (CPI).
The Government has announced a number of changes to the eligibility and payment rules for Family Tax Benefit (FTB) Part A as well as other family payments.
A new Farm Household Allowance (FHA) under National Drought Program Reform will commence from 1 July 2014.
The Government has confirmed that it is deferring the requirement for aged care providers to take out insurance on accommodation bonds paid by aged care residents due to industry concerns.
The indexation of the annual cap on the Child Care Rebate will be paused for a further three years. The maximum amount of rebate that can be paid will remain at $7,500 a year until 30 June 2017.
The Disaster Recovery Allowance will commence on 1 October 2013 and will, for future declared disasters, be provided to eligible people who have had their pre-disaster income temporarily affected as a direct result of the disaster.