Budget – mostly a yawn, with some benefits for downsizing

Co-founder of the Switzer Report
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For once, the Budget left superannuation unchanged and reconfirmed all the previous announcements. Here is a rundown of the changes coming up, plus two other budget announcements that may affect some readers (the abolition of the net medical expenses tax offset, and a pilot program to help senior Australians downsize from the family home).

Contribution caps

Legislation is currently before the Parliament to increases the concessional contributions cap to $35,000 for people aged 60 or over for the next financial year (2013/14), and for people aged 50 or over, from 2014/15. The expected concessional contributions caps are now as follows:

There is no change to the non-concessional contributions cap of $150,000 in 2013/14.

Excess concessional contributions

If you make a concessional contribution in excess of the cap, from 1 July 2013, you will be allowed to withdraw the excess from your fund and have it taxed at your marginal rate, plus an interest charge.

Higher income earners to pay 30% tax on concessional contributions

Individuals whose adjusted taxable income exceeds $300,000 will effectively have their concessional contributions taxed at 30% (rather than 15%). This measure applies from 1 July 2012 – see Tony Neglines article for more.

Minimum pension payments go back up

Following the GFC, the Government reduced the minimum amount that needed to be taken as a payment from a super pension account balance. The concession has now ended, and from 1 July, the minimum pension payment amounts (as a percentage of the account balance) are:

Super contributions go up to 9.25%

The super guarantee percentage increases from 9% to 9.25%. The maximum super contribution base increases to $48,040 per quarter (or approx $192,160 per annum). Technically, an employer is not obliged to make super contributions above this salary.

Low rate cap for lump sum payments

The low rate cap amount (the threshold at which the taxable component of lump sum payment may be taxable for some taxpayers) increases to $180,000, the untaxed plan and CGT cap amounts increase to $1,315,000.

Tax on income from pension assets

Announced on 5 April, this is the plan to tax the income earned on the assets supporting a pension. The first $100,000 per member will be tax free, the amount in excess would be taxed at 15%. The scheduled start date is 1 July, 2014.

Although unlikely to ever be legislated, the Government has reconfirmed its intent to proceed.

Net Medical Expenses Tax Offset to go

Last budget, the Government tightened eligibility, halved the rate, and increased the threshold for the Net Medical Expenses Tax Offset. In 2012/13, if your adjusted taxable income was over $84,000 as a single (or $168,000 as a couple), a tax offset of 10% of medical expenses in excess of $5,000 was available. If your adjusted taxable income was under these levels, the tax offset was 20% on expenses in excess of $2,120.

Unless you have aged care or disability expenses, the offset will not be available in 2013/14 unless you lodge a claim this year, in which case you may also be able to claim for the last time in 2014/15. Where aged care or disability expenses are involved, the offset may potentially be available until 2018/19.

Seniors downsizing from the family home

Perhaps the most innovative announcement was the introduction of a pilot program to provide a means test exemption for age pension recipients downsizing from their family home. The idea is to remove the “loss of pension/pension entitlement” disincentive for seniors to consider more appropriate housing.

If the pilot goes ahead in July 2014, then up to $200,000 of the net proceeds from the downsize, which are then deposited into a special bank account, would be exempt from pensions means testing for up to 10 years. To qualify for the downsize, the family home would need to have been owned for at least 25 years, and the new accommodation could include a granny flat or retirement village, but not residential age care.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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