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Federal Budget October 2023

Written by Ivan Fletcher

Whilst there is a lot to digest from the Federal budget, we are aware that a lot is covered in the general media with particular focus on funding and or support measures such as paid parental leave and more funding for Aged Care and NDIS.

This article is focused on 3 key areas that may impact your financial planning, revolving around superannuation, Centrelink Pension payments and income tax.  For once the budget has mostly left superannuation alone and likewise taxation.  There are however quite a lot of changes in the welfare space– so if you do receive an age or disability based pension, or child care support this section is a must read.

 

1. SUPERANNUATION / PENSIONS

Expanding eligibility age for downsizer contributions – Reduced to age 55

Downsizer contributions provide an opportunity for eligible individuals to contribute up to $300,000 to superannuation upon the sale of an eligible main residence (if owned for 10 years or more).

This will allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. This reaffirms the pre-election announcement.

This measure is already before the Senate and could be effective as early as  1 January 2023 subject Royal Assent, however it could also be as late as 1 October 2023 (all depends upon how quick legislation can move).

Comment  – Keep an eye on this one if you are planning on selling your existing home in the next 12 months and you are between age 55 and 60  as the legislation date could be critical to your qualification.

These changes will allow eligible couples aged 55-74 to contribute up to $1.26m to super in a single year by making both a non-concessional contribution of up to $330,000 each, and a downsizer contribution of up to $300,000 each

SMSF audit requirement from annual to three-yearly –  no longer going ahead.
This measure was proposed at the time (by the previous government) to reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.

Superannuation Guarantee legislated increases to continue in accordance with original timetable

Currently, Superannuation Guarantee (SG) is 10.5%. It is legislated to increase by 0.5% at the start of each financial year from here on in until it reaches 12% on 1 July 2025. There is no change to the legislated increase of SG.

Pension Minimums  –  No News
There was no announcement in relation to extending the halving of the SIS minimums beyond the current 2022-23 financial year in relation to eligible income streams such as account-based pensions and market linked pensions.

Comment We note that from the last 2 years this decision was made very late in the financial year allowing the government to assess the economic landscape approaching 30 June.

 

2. TAX CUTS

In short, there are no changes to the currently legislated personal income tax arrangements  (known as Stage 3 tax cuts), but you could be forgiven for not knowing what they are.

The tax cuts will go ahead in accordance with the legislated timetable from 1 July 2024.

The stage 3 tax cuts that were introduced as part of the previous Government’s personal income tax reform, will remove the 37% income band and increase the higher threshold in the 45% income band from $180,000 to $200,000. The applicable rate on the 32.5% income band will also reduce to 30%  as summarised in the following table.

 

3. SOCIAL SECURITY MEASURES / AGE & DISABILITY PENSIONS / CHILD CARE

Freezing ALL deeming rates until 2024

The Government recommitted to freezing the current deeming rates until 30 June 2024 despite the rising interest rates. The deeming thresholds will continue to be indexed on 1 July each year.

The current deeming rates and thresholds are as follows:

Comment –  This is a case of Status Quo but is good news for Age & Disability Pensioners that are impacted by the INCOME TEST (as opposed to the Asset Test)  as normally deeming rates rise with interest rates. For the majority that are more exposed via the Asset test – this will have no impact.

Temporary increase to pensioner Work Bonus – Income Bank of $4,000
This will allow eligible pensioners to have an extra $4,000 of income from work immediately disregarded from the income test.  These logistics are a little more complex.  The Work Bonus relates the income an age pension can earn from employment including self-employment) which is exempt from the Centrelink INCOME TEST.

Currently all pensioners can earn up to $300 per fortnight from employment as exempt income from the Income Test.  For those who are genuinely retired (not working at all) this accumulates into a Work Bonus “Income Bank” for up to 1 years worth ($7,800) such that if a work opportunity was to arrive down the track– the first $7,800 would be Centrelink exempt.

The Government is providing an immediate one-off increase to an eligible pensioner’s Work Bonus income bank of $4,000 for the 2022-23 year only. This will increase the maximum unused income bank to $11,800 from $7,800 and allow pensioners to work more hours without affecting their pension.

  • For those who have not worked for the last 12 months – your income bank just increased – meaning you can earn up to $11,800 this financial year and be exempt from the Income
  • For those who are already working and earning $300 or more per fortnight – your income bank just goes up from $0 to $4,000 – allowing you to earn $4,000 more this year as exempt income.

This Bill and is currently before the House of Representatives.

Comment – For those people who are impacted by the Assets Test in their Centrelink calculations, this change may have zero effect on you.

Keeping the Pensioner Concession Card

The above Bill also contains provisions to enable Age Pensioners and certain DVA pensioners to have their pension suspended for up to two years instead of being cancelled under the income test, where the pensioner’s assessable income includes income from work. These pensioners will be able to retain their Pensioner Concession Card for up to two years and only be required to update their details, including their income and assets information, to have their payment reinstated instead of lodging a new claim.

Commonwealth Seniors Health Card  – Income thresholds have been lifted

The Government recommitted to increasing the income thresholds for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles, from $98,054 to $144,000 for couples and from $122,568 to $180,000 for couples separated by illness, respite care, or prison.

This is a significant change and will qualify a lot more people for the Seniors Health Care Card which is available to those who fail the centrelink means testing for Age Pension support.

This Bill is also currently before the House of Representatives.

Comment  IF you are above Pension Age and have not considered applying for the Seniors Health Care Card previously, it may be time to revisit whether you qualify or not as these threshold changes are Significant.

Home sale proceeds and  Centrelink Exemption
The Government recommitted to extending the exemption period for proceeds from selling the principal home to purchase or build another home.  This refers to the treatment under “means testing’ of the proceeds of your home – when those proceeds are earmarked for the purchase/build of a new home  (up until the sale the home asset is excluded from centrelink assets).

The Assets Test exemption for principal home sale proceeds will be extended from 12 months to 24 months. In certain circumstances, such as experiencing delays beyond a person’s control, the exemption can be extended to 36 months, and

The Income Test  applied to the sale proceeds is applied immediately.  However this test is now much lighter.  The intention is to treat the principal home sale proceeds as a separate pool to the individual’s or couple’s other financial assets for the purpose of calculating deemed income. Only the lower deeming rate (currently 0.25%) will be applied to these proceeds for the duration of the assets test exemption.

This is a significant change for those impacted as the majority of the proceeds from a home sale would normally be deemed at the higher rate of 2.25%  (so this is 2% lower) and would have a large favourable impact on the INCOME Test.   Example $800,000 deemed at 2% less is $16,000 p.a. less in deemed income and could result in much better outcome regrading centrelink support under this test.

This Bill is already  before the Senate and is scheduled to commence from the  1 January 2023 (pending Royal Assent).

Comment – This could be a very significant outcome for those going thru a home change and will be temporarily sitting on cash for up to 2 years between residences (in particular those who are building).

Pension Supplement to continue for permanent departures overseas and temporary absences
The previous Government had proposed to stop payment of the Pension Supplement to recipients who permanently reside overseas or who have been absent from Australia on a temporary basis for six weeks or longer. The new Government announced that they will not proceed with this measure.

Increasing the Totally and Permanently Incapacitated Payment for Veterans

The Government announced that it will increase the Special Rate of Disability Compensation Payment, Temporary Special Rate Payment, and the Special Rate Disability Pension by $1,000 per year from 1 January 2023. Eligible veterans will receive an increase to their fortnightly payment of $38.46 per fortnight. From 1 January 2023 the Special Rate will be $1,617.16 (including the Energy Supplement) per fortnight.

A plan for cheaper medicines
The Government will provide funding to decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme (PBS) from $42.50 to $30.00 from 1 January 2023.

Plan for Cheaper Child Care

The Government will provide $4.7 billion over 4 years from 2022–23 (and $1.7 billion per year ongoing) to deliver cheaper child care, easing the cost of living for families and reducing barriers to greater workforce participation.  Several benefits identified under this plan include :

a total of 20-weeks in payments to families, including a portion reserved for each parent on a “use it or lose it” basis. Single parents will be able to access the full 20 weeks.

The Government will also introduce reforms from 1 July 2023 to make PPL flexible for families. If they meet eligibility criteria it means either parent is able to claim the payment, and

both birth parents and non-birth parents with a newly adopted child are allowed to receive the payment. Parents will also be able to claim weeks of the payment concurrently, so they can take leave at the same time. To further increase flexibility, from July 2023 parents will be able to take Government-paid leave in blocks as small as a day at a time, with periods of work in between, so parents can use their weeks in a way that works best for them. Eligibility will be expanded through the introduction of a $350,000 family income test, under which families can be assessed if they do not meet the individual income test currently set at $156,647.

Other outcomes include:

  • increase the maximum Child Care Subsidy (CCS) rate from 85 per cent to 90 per cent for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income
  • maintain current higher CCS rates for families with multiple children aged 5 or under in child care, with higher CCS rates to cease 26 weeks after the older child’s last session of care, or when the child turns 6 years old
  • improve the transparency of the child care sector by requiring large providers to publicly report CCS-related revenue and profits.

Paid Family and Domestic Violence Leave –  small business assistance

Effective 1 July 2022 The Government has introduced new legislation4 to provide 10 days of paid Family and Domestic Violence Leave. The Bill has passed the House of Representatives and is currently before the Senate. The Government announced it will provide funding to support the development and delivery of education, technical advice and support services to help small business employers implement this new measure once it becomes law.

Sources :  Challenger  Tech Update,  Colonial First Tech Update

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