The budget this year had one important goal, to achieve the first budget surplus in over 25 years — a promise to take the Australian economy from a $44 billion deficit to a $1.5 billion surplus in 12 months. The prospect of a surplus puts Australia in an enviable position, ahead of many other economies.
But, to be able to achieve this, the Government has put a stop to the 1 per cent drop in company tax (a saving of $4.8 billion over four years) so they can spread the benefits of the mining boom to all Australians.
A budget surplus, however, could be a double edged sword with the RBA becoming less likely to increase interest rates and this could impact the savings of everyday Australians. There are a number of legislative changes that could have an impact on you and your family. We have summarised some of the key points below but please note that these are subject to the passing of legislation.
Superannuation and pensions
No higher concessional contribution cap for those 50 or over
From 1 July 2012, the $25,000 concessional contribution cap will apply to everyone. Previously, the Government had committed to increasing the cap for people age 50 or over with superannuation balances below $500,000, but this proposal has now been deferred until 1 July 2014.
Reduction of superannuation tax concessions for high income earners
From 1 July 2012, people earning over $300,000 will pay additional tax on their concessional superannuation contributions (such as superannuation guarantee and salary sacrifice amounts).
The Government has abandoned some taxation measures, to which it had previously committed, including:
- a $500 standard deduction on work related expenses
- a 50 per cent tax discount on up to $1,000 of interest income earned
- the lowering of company tax rates for small business.
Net medical expense offset
From 1 July 2012, this tax offset will be subject to an income test. People with an adjusted taxable income that is above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012/13), will be able to claim medical related expenses when their total expenditure exceeds $5,000 pa. This means only the amount in excess of $5,000 may be reimbursed and at a lower rate of 10 per cent (down from 20 per cent). People with income below this level will not be affected by this change.
Mature age workers’ tax offset
This will be phased out if you were born on or after 1 July 1957, however, if you’re currently receiving this offset you will not be affected.
From 1 January 2013, the Education Tax Refund will be replaced with a new Schoolkids Bonus that provides $410 pa for each primary school student and $820 pa for each secondary school student. To be eligible, families must be receiving the Family Tax Benefit Part A, Youth Allowance or other income support and veterans’ payments. This will mean that parents no longer need to keep education-related receipts to claim the Education Tax Fund via their tax returns — however as this has not yet been legislated we suggest you keep hold of any receipts for now.
From 1 July 2012, the availability of the employment termination payment tax offset for ‘golden handshakes’ will be limited. This will not affect those whose employment ends due to genuine redundancy, invalidity or death, or where compensation is due for an employment related dispute.
Companies and finance
Although the Government put a stop to the drop in company tax there was some good news for companies. Companies can now carry back up to $1 million of tax losses in 2012/13 to offset tax paid in 2011/12 and will receive a refund of previously paid tax. From 2013/14 tax losses can be carried back and offset against tax paid up to two years earlier.
Family Tax Benefit Part A
From 1 January 2013, eligibility for Family Tax Benefit (FTB) Part A will be limited to those under 18 years or those who remain in secondary school until the end of the calendar year in which they turn 19 years. Students who fall outside this category may be eligible for Youth Allowance. From 1 July 2013, the maximum rate of FTB Part A will increase by $300 pa for families with one child and $600 pa for families with two or more children.
Australian Government payments when overseas
From 1 January 2013, if you travel overseas, you will only be able to retain income support and family payments for 6 weeks (previously 13 weeks). This change will not generally affect recipients of the age pension or disability support pension who have been assessed under the 1 July 2012 rules as having a severe and permanent disability and no future work capacity.
The Government has announced a $3.7 billion ‘Living longer living better’ plan to reshape the aged care sector over ten years. There is a strong emphasis on making it easier for older Australians to stay in their home while they receive care, with an increased number of home care packages.
There will be a change to fee structures with greater consistency between high and low care levels, tighter controls around the setting of accommodation bond levels as well as a tighter means test to assess home care and residential care fees. However, part-pensioners and self-funded retirees could end up paying more in fees.
Many of the proposals will not affect those currently in care or entering into care before 1 July 2014. Older Australians not currently in care should plan ahead to make sure they can afford their desired level of care.