FMD Economic Snapshot: 2014 Federal Budget

There has been plenty of commentary surrounding the ‘winners and losers’ since the wash-up of the recent 2014 Federal Budget, but there is also plenty of opportunity to maximise your current financial position in the midst of a new fiscal landscape. Some of the key Budget changes and how they may affect you include:

Superannuation

Superannuation Guarantee (SG)

The Superannuation Guarantee rate (currently 9.25%) will increase to 9.5% from 1 July 2014, and will stay there until 30 June 2018. The SG will then increase by 0.5% each year until it reaches 12% in 2022-23.

Non-Concessional Contributions Cap

An individual who exceeds the superannuation non-concessional cap after 1 July 2013 will now be able to withdraw those excess contributions and associated earnings. For this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual’s marginal tax rate. If excess contributions are left in the fund, these contributions will be taxed at the top marginal rate.

The key message here – in particular for high income earners who exceed the non-concessional cap; the highest marginal tax rate will apply, so avoid making excess non-concessional contributions. That said, the delay in increasing the SG rates may have a negative impact on retirement savings so it’s important to consider and plan for voluntary salary sacrifice with your FMD adviser.

Taxation

Individual Tax

From July 2014, a Temporary Budget Repair Levy will be introduced and effectively increase the top marginal tax rate by two percentage points for people earning more than $180,000 a year.

The Levy is for three years only (from 1 July 2014 to 30 June 2017) and means that those earning above $180,000 will pay the extra 2% levy on all income in excess of $180,000.

For example, if you are earning $200,000 you will be taxed an additional 2% on $20,000 – a total Levy of $400; or if you are earning $300,000 you will be paying a 2% impost on $120,000 – or $2,400.

The Fringe Benefit Tax (FBT) rate will also be increased from 47% to 49% from 1 April 2015 until March 2017 to align with the FBT income year.

The Government also plans to introduce a new initiative by providing a tax receipt for all individuals on where and how their taxes were used.

For high income earners prepared to salary sacrifice, there is the potential to save up to 34% on tax, so talk to your FMD adviser if this may affect you.

Company Tax

From 1 July 2015, about 800,000 businesses will receive a cut to company tax of 1.5% (from 30% to 28.5%).

With the reduction in the company tax rate, investors in companies earning less than $5 million may receive greater dividends but less franking credits, leaving them in the same net after tax position. However, for companies with income of more than $5 million, the 1.5% reduction in tax will be offset by the 1.5% levy for the paid parental leave scheme. As a result, shareholders may receive the same level of dividends but less franking credits (assuming the levy is not franked).

Dependent Spouse Tax Offset

The Government will remove the Dependent Spouse Tax Offset for all taxpayers from 1 July 2014.

Mature Age Worker Tax Offset and Restart

Likewise, the Mature Age Worker Tax Offset will be abolished. In its place will be the seniors employment incentive payment; Restart, which is a payment of up to $10,000 made available to employers who hire a mature aged job seeker (conditions apply).

Health

Medicare

A $7 co-contribution fee for Medicare will be introduced, and an indexation freeze will apply for the Medicare safety net threshold. Patients with concession cards will have their contributions capped at 10 visits.

Medicare Levy Low-Income Threshold for Families

Effective from 1 July 2013, the Government will increase the Medicare Levy low-income threshold for families from $33,693 (2012-13) to $34,367 for the 2013-14 financial year. Low income earners will continue to receive relief from the current thresholds through family, senior, pensioner and Disability Care exemptions.

Medicare Surcharge on Hold

From 1 July 2015 to 30 June 2018 the Medicare Levy Surcharge and Private Health Insurance Rebate thresholds will not be indexed.

Commonwealth Seniors Health Card

Proposed changes to the Commonwealth Seniors Health Care Card (CSHC) include:

Indexation will apply to current income limits for the CSHC by the Consumer Price Index from September 2014.
From 1 January 2015 the Government will include untaxed superannuation income in the income assessment when determining eligibility for the CSHC.
All superannuation account-based income streams held by CSHC recipients before the implementation date will be grandfathered under existing rules.
From 20 September 2014 the Government will discontinue the Seniors Supplement for holders of the CSHC.
Eligible seniors who do not receive a pension will still be eligible to receive a CSHC and these holders will still receive the Clean Energy Supplement and a range of other concessional benefits.

The inclusion of deemed income on account based pensions in the assessment of income will have significant impact on self-funded retirees and those with smaller Account Based Pensions who have other adjusted taxable income.

Centrelink

Age Pension

From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035.

Those born before 1 July 1958 will not be affected by this increase.

Keep in mind that additional superannuation will be needed to fill the gap between retirement and age pension access. To close the gap, it’s important to determine with your FMD adviser how much you will need. Where necessary, adjustments to your retirement plans and relevant strategies can be made to ensure you have adequate retirement savings when the time comes for you to stop work.

Index Pension and Pension Equivalent Payments by Consumer Price Index

Pensions and equivalent payments and Parenting Payment Single will be indexed by the Consumer Price Index (CPI).

The indexation will come into effect on 1 July 2014 for Parenting Payment Single recipients and 1 September 2017 for Bereavement Allowances and payments such as Age Pension, Disability Support Pension and Carer Payment.

Centrelink Assets Test Deeming Rate

From September 2017 the Government will reset the deeming thresholds used in the pensions asset test as follows:

Singles:	From $46,000 to $30,000
Couples:	From $77,400 to $50,000

Additionally, older people subject to income-tested residential aged care or home care fees may also be affected. This measure will also impact holders of account based pensions which are impacted by the recent legislative change to deem account based pensions from 1 January 2015.

Other Reminders:

The fuel excise indexation will be reintroduced in August.

From 1 July 2014, the Medicare Levy will increase from 1.5% to 2.0%.

To determine how these Budget announcements can maximise your current financial position, book in for a free financial health check today to revisit your financial goals and get back in the driver's seat.

General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.