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Ivan Fletcher

Federal Budget For Retirees – Receiving Centrelink / DVA Support

Written by Ivan Fletcher

You could be forgiven for thinking, there was very little relevant news in the recent Federal Budget in relation to Services Australia or as most of us know it “Centrelink” or the “DVA”.  However, there are a few benefits to note by taking a closer look.

  1. Deeming Rates for the Income Test – Frozen for a further 12 months

The Government announced it will freeze the social security deeming rates at their current levels for a further 12 months until 30 June 2025. The deeming rates have been frozen at 0.25% (low threshold) and 2.25% (high threshold), to help pensioners ‘keep more in their pockets’ during the cost of living increases caused by COVID.

The extension to the deeming rate freeze for a further 12 months applies to all Centrelink and Department of Veterans Affairs income support recipients (ie pension payments), as well as concession card holders such as the Commonwealth Seniors Health Card.

 Impact

  • This impacts the Deemed income earned on Account based pensions commenced from 1 January 2015 onwards as well as any other financial assets (Cash, Shares, managed funds, etc). The 12-month delay is good news for Centrelink and Department of Veterans Affairs income support recipients; however, it will be interesting to see whether deeming rates increase substantially from 1 July 2025 – given it will be an election year.
  • If the deeming rate freeze had ended on 30 June 2024 (as scheduled), many social security recipients could have seen substantial reductions in their rates of Government Pension payment.
  • This will come as welcome news to those who have multiple income sources such as Defined Benefits pensions, foreign pensions and rental income in addition to Deemed assets such as Cash shares and Account Based Pensions.
  • For many, with Deeming rates locked at ultra-low rates, it will be the ASSETS TEST that remains as the harsher Means Test (ie No Change). 

History

On May 1st 2020 as part of the Pandemic response the Federal Government lowered the deeming rates down to their lowest ever levels snice Deeming was introduced in 1991 to be in alignment with ultra-low interest rates and went one step further and FROZE them from any potential increase until 30 June 2024.   We have seen RBA cash rate increase by 4.25% since April 2022.  As a result, it was widely anticipated we would see some increases in the deeming rates creep back in. 

  1. Commonwealth Rent Assistance – Increase (Up to 10%)

The Government has announced it will increase the maximum rate of Commonwealth Rent Assistance by 10% from 20 September 2024 to help address rental affordability challenges for recipients.

  • It is anticipated that this will assist nearly one million Australians with a potential boost up to 10% to their fortnightly payments.
  • This builds on the 15% increase in September 2023 and will take maximum rates over 40% higher than in May 2022 (just 2 years ago) a combined result of indexation and the actions of Government.
  • Regular indexation will also be applied on top of the increase.
  1. Securing cheaper medicines

From 1 July 202, as part of a range of measures aimed at reducing the cost of medicines, the Government has announced a one-year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for everyone with a Medicare card and a five-year freeze for pensioners and other concession cardholders. This change means that no pensioner or concession card holder will pay more than $7.70 (plus any applicable manufacturer premiums) for up to five years. 

  1. Increasing the Effective Tax-Free Thresholds (01 July 2024)

With the new tax cuts effective 01 July 2024, there are some positive flow on impacts for retirees and pre retirees who still have lower levels of taxable income.

The reduction in the lowest tax rate from 19% to 16% will result in an increase in the Seniors and Pensioner tax offset (SAPTO) income thresholds, as well as the effective tax-free thresholds which is the level of taxable income a tax resident can receive before income tax becomes payable.

The following table compares the effective tax-free income thresholds between the current year and from 1 July 2024 under the changes based on the application of the Low Income Tax Offset (LITO) and Seniors and Age Pension Tax Offset (SAPTO)

Source Colonial First State – Firsttech

Graph Ivan

To Qualify for Seniors and Age Pension Tax Offset (SAPTO)

You must be an Australian Resident above age 60 and in receipt of a government pension such as an age pension, disability support pension, or other specified pensions (eg DVA and above age 55).

Outcomes

  • For those in receipt of some form of Government Pension, the tax-free threshold has increased by $2,725 (to $35,813) for Singles and $2,105 (to $31,888) per member of a couple.
  • If you are not in receipt of a Government Pension – the effective tax-free threshold has increased by $691 to $22,575 (singles or member of a couple). 
  1. Services Australia (Centrelink / DVA) – Additional resourcing (7,500 Staff)

The Government has announced it will provide additional funding to improve the way Services Australia delivers services to the Australian community.    There will be an additional 4,030 staff in 2024–25 and 3,530 staff in 2025–26. The additional staff will better position the agency to meet government and community expectations of service delivery performance which have been significantly lacking.   No doubt it will take some time to find new staff and train them up, so you will need maintain your patience a while longer.

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