The 2014 Federal Budget has been delivered, and has brought with is a great deal of heated and mixed emotion.
Do you understand how the proposed changes may impact on you? If not, you are certainly not on your own. The budget has, as much as anything else, created a good deal of confusion, as people struggle to grasp what it will mean to them, from a 'hip pocket' perspective.
We have prepared a concise "at a glance" summary of the major changes, to cut through the confusion and emotion, and simplify the key points. They have been grouped into the following specific areas:
1. Temporary Budget Repair Levy of 2% on incomes over 180,000 per annum for the next three years from 2014-15.
2. Fuel excise indexation.
3. Mature Age Workers Tax Offset abolished.
4. Dependent Spouse Tax Offset abolished.
5. Increased Medicare Levy from 1 July 2014.
1. Indexing pensions to the CPI, rather than wages, from September 2017.
2. Increase to the Age Pension age to 70 by 1 July 2035.
3. Pausing of Pension Assets Test & Income Test eligibility thresholds for three years.
4. Resetting the Assets Test Deeming Rate thresholds from 20 September 2017.
5. Annual Seniors supplement to be abolished
6. Indexation of the Commonwealth Seniors Health Card income thresholds from September 2014.
7. Untaxed superannuation income to be included in the income test for the Commonwealth Seniors Health Card for new recipients.
8. Change to the schedule for increasing the superannuation guarantee rate to 12%
9. Increase in the concessional contributions cap from $25,000 to $35,000 for individuals aged 49 and over from 1 July 2014.
10. Increase in the concessional contributions cap from $25,000 to $30,000 for individuals aged younger than 49 from 1 July 2014.
11. Increase in the non-concessional contribution limit to $180,000 from 1 July 2014.
12. Deeming rules for account based pension income.
13. Defence Forces Retirement Benefits & Defence Force Retirement & Death Benefits superannuation payments indexation.
Government Benefit Planning
1. Medicare co-payment of $7 from 1 July 2015.
2. Increased costs of Pharmaceuticals Benefits Scheme medicines and Safety Net thresholds.
3. Medicare Safety Net changes.
4. Tightening the eligibility for Family Tax Benefit Part B.
5. Indexation of many payments and programs will be temporarily paused, including: Eligibility thresholds for Family Tax Benefit and Newstart; Thresholds for the Medicare Levy Surcharge; Private Health Insurance Rebate and most Medicare Benefits Schedule fees; Official Development Assistance funding; Local Government Financial Assistance Grants; 112 Government grant programs.
6. Indexing Disability Support Pensions to the CPI, rather than wages, from September 2017.
7. Disability Support Pension reduced portability.
8. HELP debt repayment threshold decreased to $50,638 from 1 July 2016 & interest rate applied changed to a rate equivalent to yields on 10 year bonds rather than CPI.
9. First Home Saver Account Scheme cessation.
Strategy Options from the Budget
Here are some possible strategy modifications arising from this year's budget:
1. Those earning more than $180,000 per annum and not maximizing concessional contributions into super, consider increasing salary sacrifice contribution levels.
2. Those in the workforce who will be 49 or older on 30 June 2014 should consider strategies to increase the level of concessional contributions being paid into superannuation up to the new $35,000 limit from 1 July 2014.
3. Those in the workforce who will be younger than 49 on 30 June 2014 should consider strategies to increase the level of concessional contributions being paid into superannuation up to the new $30,000 limit from 1 July 2014.
4. Those who are looking to add more to an account based pension or switch provider may want to plan for this to occur before 1 January 2015 due to the changes to means testing deeming rules.
5. Those who are making the maximum allowable concessional contributions into super should consider the implications of receiving 9.5% standard employer super contributions from 1 July 2014 and adjust salary sacrifice levels accordingly.
6. Salary sacrifice strategies to be re-assessed under the new Medicare Levy arrangement and the increases in concessional contribution limits from 1 July 2014.
7. Personal superannuation contribution strategies to be re-assessed due to the increases in non-concessional contribution limits from 1 July 2014.
8. Those with a HELP debt may want to consider a voluntary repayment before 1 June 2016 to reduce potential increases in interest increases.
9. If turning Age Pension age before the end of 2014 but ineligible for the pension due to means testing, consider applying for the Commonwealth Seniors Health Card before superannuation income stream income assessment rules change.
If you are in the dark about what all of this means for you, we strongly suggest you make time to review your position with one of our staff. Accurate information, clarity and perspective all help to bring much greater peace of mind. And having a clear strategy in place in anticipation of these changes will very firmly place you in a position of strength to play to the new rules being laid out to us.
You can call our office on 5482 2855 to make an appointment.