I am sure you are all hanging on the edges of your chairs for my budget update. So putting aside the removal of the baby bonus, which has been done to death in the media (and in my opinion was about $1m short of an incentive to have more children), here are some other, perhaps more important, changes along with what action you might need to take now. Remember however that none of this is as yet legislated.
This is the 20% tax rebate you can get for certain out of pocket medical expenses. It is going to be phased out. However, if you manage to claim the offset in 2013, you will be eligible to claim in 2014. Then if you are eligible to claim in 2014 you can claim in 2015. If you can’t claim in 2013 you can’t claim in 2014 or 2015. Simple!
So if you are planning to get sick, try and do it before the 30 June. Or at the very least make sure you get to Centrelink with all your medical receipts that you may have lying around before 30 June, to maximise the chance of getting at least $1 of offset this year.
The offset will still be available for disability aids, attendant carers and aged care expenses until 2019.
If you are not yet aged 60 on the 1st July 2013 your concessional contributions cap (ie SGC and salary sacrifice) remains at $25,000. If you are aged 60 or more on the 1st July 2013, then your cap is now $35,000. We are waiting to hear what happens if you turn 60 in the 13/14 year – watch this space.
Note that most people will have to amend their salary sacrifice amounts in July anyway. As the SGC goes up to 9.5% your salary sacrifice amount will have to come down. Once the employer maximum limits are published for 2013/14 we will advise what your new salary sacrifice needs to be to avoid breaching the caps.
Earnings in Pension Phase
Hopefully you are all aware that one of the benefits of investing in super is that as soon as you press the “pension button” the earnings of the investments within the fund are tax free. If you have a good public fund (not an industry fund) or an SMSF, the franking credits will also be refunded to your account.
The new rules (proposed to start 1/7/2014) will cap these tax free earnings whilst in pension phase at $100k. Earnings above that will be taxed at 15%. The limit is person, not per fund, so this strengthens the case for trying to ensure that super is split as evenly as possible between a couple. Better to have two $500k balances than one $1m balance. There are various strategies available to do this we can help you with.
The calculation of income will include some capital gains on assets sold. There are various transitional rules, but in broad terms the gains will be calculated as the difference between sales proceeds and the market value at 30 June 2014, or purchase cost if brought after this date. Lots of valuations will be required.
High Earners Superannuation Contributions
There was no mention of removing this proposal, so we have to assume it stays. That is the proposal to tax the concessional contributions of those earning in excess of $300k at 30% rather than 15% on entry to the superfund.
Concessional contributions are added to adjusted taxable income to calculate the excess over $300k. For example, if you earn $280k and put $25k in to super, by way of salary sacrifice and SGC, then we add the two together to see if the $300k cap is breached. In this example the first $20k will be taxed at 15% and the excess $20k will be taxed at 30% on entry to the fund.
Not a nice change, but either way it is still less than the 48% tax you would pay if you didn’t contribute to super.
Downsizing the family home
Under current Centrelink testing, the family home is not counted in the assets test when calculating the aged pension. Perhaps encouraging little old ladies to stay in massive houses. This proposal says that if the home is sold and 80% of the proceeds (but no more than $200k) is put into a “special” (details of special not yet announced) account, then those funds will not be counted for the asset test. The balance of the proceeds will count in the normal way.
This is perhaps not going to be utilised by many, as to qualify you need to be over age pension age, have owned the home being sold for at least 25 years, and be up to date on the changes to the Centrelink rules!
The pension minimum percentages have been reduced in the past few years due to the GFC. With earnings back on the up again, and no mention of the reductions being extended, we have to assume that the pension minimum drawdowns are back up to normal levels.
So there we have what I hope has been a useful summary. You will find further analysis on our newsletter which can be found here.
Any questions, don’t hesitate to get in touch.