On Tuesday, 12 May 2009, the Federal Treasurer, the Hon Wayne Swan MP, handed down the 2009-10 Federal Budget. On the back of a deteriorating economic outlook the budget delivered a huge $57.6bn deficit for 2009/10 which represents 4.9% of GDP. Tax revenues were down more than $210bn over the forward estimates. Despite this, there were $52.2 bn of spending initiatives announced to occur over the next four years and savings totaling $22.6bn.
Rumors that the superannuation system might have come in for some attention rang true with changes to concessional contribution caps and co-contributions, although, there were no changes to transition to retirement pensions and the reduction in minimum pension drawdowns remain for the 2009/2010 financial year.
Detailed below are a number of superannuation, taxation and social security measures announced.
Superannuation
1. Concessional Contributions
Effective 1 July 2009, the concessional contributions (before tax contributions) cap will be reduced to $25,000 (indexed) per annum. Concessional contributions generally include Super Guarantee, salary sacrifice reduced contributions and personal deductible contributions.
The transitional concessional contributions cap, which applies to individuals aged 50 and over at any time during the transitional period (2007/08 to 2011/12), will be halved from $100,000 pa to $50,000 pa (not indexed) for the 2009/10, 2010/11 and 2011/12 financial years.
However, the annual non-concessional contributions (after tax contributions) cap will remain at the 2008/09 level of $150,000. It is proposed that from next financial year the non-concessional contributions cap will be calculated as six times the level of the concessional contributions cap.
There was no mention in the budget of any change to the three year bring forward arrangement for non-concessional contributions.
The indexation method of the concessional contributions cap remains unchanged.
To be considered….
- Clients who have money available to invest into superannuation in the current financial year could consider maximising superannuation contributions to fully utilise their 2008/09 contributions caps.
- Clients currently making total concessional contributions of more than $25,000 each year (or $50,000 if aged 50 or over) will need to reduce salary sacrifice (or personal deductible contributions) from 1 July 2009 to ensure that they do not inadvertently breach the reduced concessional contributions cap. Excess concessional contributions are subject to tax of 31.5%, in addition to the 15% contributions tax. Excess concessional contributions also count towards an individual’s non-concessional contributions cap.
- For clients not currently making additional contributions to superannuation (i.e in addition to SG), the need to start making contributions earlier is now greater, as the ability to make large ‘last minute’ concessional contributions has been diminished. Clients could be encouraged to start a regular savings plan into super to ensure adequate retirement savings are accumulated.
- Contributions splitting — the maximum allowable amount able to be split will be reduced in line with the concession contribution cap.
- Clients who are salary sacrificing bonuses, especially where the amount is unknown, need to take extra care not to inadvertently exceed the concessional contribution cap.
2. Maximum Government Co-Contribution reduced
The superannuation government co-contribution matching rate that is payable on eligible personal superannuation contributions will temporarily reduce, with effect from 1 July 2009. The temporary matching rates as proposed are:
- for the 2009-10, 2010-11 and 2011-12 income years, the rate is 100% (ie $1 for each dollar of contribution), up to a maximum of $1,000 per annum for a $1,000 personal contribution. ;
- for the 2012-13 and 2013-14 income years, the rate is 125%. (ie $1.25 for each dollar of contribution), up to a maximum of $1,250 per annum for a $1,000 personal contribution. ; and
- for the 2014-15 and later income years, the rate will revert back to 150% (ie $1.50 for each dollar of contribution), up to a maximum of $1,500 per annum for a $1,000 personal contribution.
For 2009/10, individuals with total income under $50,000 pa and $1,000 of after tax money available to contribute will be generally better off investing an after-tax amount of $1,000 compared with an equivalent (grossed up) amount invested pm-tax. This is because the benefit received by the Government co-contribution is higher than the equivalent tax savings available through salary sacrifice.
3. Minimum pension reduction extended
The Government will extend to 2009-10 its decision to reduce by 50% the minimum annual payment amounts for account-based pensions and annuities for 2008-09.
From 1 July 2009, self-funded retirees will only have to draw down halve of the minimum amounts from their account-based pensions for 2009-10. The Government said this extends the drawdown relief provided by the Government for 2008-09, recognising the impact of the global recession. The reduction in the minimum payment amounts applies to account-based, allocated and market-linked (term allocated) pensions.
According to the Government, this measure will assist pension account balances to recover from capital losses associated with the global recession. It will also reduce the need for self-funded retirees to sell assets at a loss in order to meet the minimum withdrawal required in 2009-10.
To be considered….
- Individuals with an existing income stream, and those who purchase a new income stream in 2009/10, will have the ability to only receive half of their minimum annual payment in 2009/10.
- Centrelink/DVA clients who choose to reduce their payments should be aware that their Centrelink benefits may be affected by their choice. These clients should advise Centrelink/DVA of their change in circumstances within 14 days. This is an existing Centrelink/DVA requirement for notification of change in circumstances.
- Clients will have more flexibility with their income payments. Their income needs can be reviewed to ensure their pension payments next year reflect those needs.
4. Transition to Retirement (TTR) Pensions Retained
No specific change was announced regarding TTR income streams. However, the contribution cap change may impact individuals who utilise strategies which combine salary sacrifice and TTR pensions.
To be considered….
- Clients currently undertaking TTR strategies and who make concessional contributions of $50,000 or less per annum will not be impacted by the contribution cap change.
- Those making concessional contributions in excess of $50,000 will need to review their strategy to ensure it is re-balanced for the post 1 July 2009 contribution rules, This may include:
- reducing the amount of their salary sacrifice or personal deductible contributions;
- reducing the income from their TTR pension
- if already drawing the minimum income from their TTR, rolling some of their TTR pension into accumulation phase of superannuation (keeping in mind the continued temporary reduction in minimum payments for 2009/10), or
- contributing surplus income as personal after-tax contributions after reaching the new concessional cap (care should be taken as this is generally, only appropriate for some individuals age 60 or over).
Social Security
1. Age Pension Increases
The Government has announced the following changes from 20 September 2009:
- an increase to the base rate for single age pensioners of $30 per week;
- a combining of the four separate allowances (GST, Utilities, Telephone, lnternet and Pharmaceuticals) into one pension supplement’ that will be paid fortnightly; and
- an increase to the pensioner supplement of $2.49 per week for singles and $10.14 per week (combined) for couples.
These increases will apply to recipients of the Age Pension, Service Pension, Disability Support Pension, Carer Payment, Bereavement Allowance, Widow B Pension, Wife Pension, Income Support Supplement and to War Widows.
TOTAL INCREASE IN AGE PENSION ENTITLEMENTS
Maximum Single Age Pension Entitlement |
20 March 2009 |
From 20 September 2009 |
Increase |
Per Fortnight |
$575.80 |
$640.78 |
$64.98 |
Per Annum |
$14,970.80 |
$16,660.28 |
$1,689.48 |
Maximum Couple Age Pension Entitlement (Combined) |
20 March 2009 |
From 20 September 2009 |
Increase |
Per Fortnight |
$957.80 |
$978.08 |
$20.28 |
Per Annum |
$24,902.80 |
$25,430.08 |
$527.28 |
2. Incentives for pension-age Australians to remain in the workforce
a) Pension bonus scheme scrapped
The pension bonus scheme will be closed from 20 September 2009 to new entrants. There will be no change to existing members of the scheme, and they will continue to accrue entitlements under the current rules. The new ‘work bonus’ will replace the pension bonus scheme.
b) Pensioner ‘Work Bonus’
From 20 September 2009, this bonus will allow pensioners to get a maximum of $125 per fortnight in additional pension payments. This will be achieved by disregarding half of the first $500 per fortnight of employment income under the income test.
3. Benefits for self-funded retirees
a) Commonwealth Seniors Health Card — Government back flip
Earlier this year the Government introduced legislation to include tax free pension income in the income test for the Commonwealth Seniors Health Card (the Card) from 1 July 2009. The intention of this measure was to reduce the number of self funded retirees who were eligible for the Card. The Government has decided not to proceed with these changes.
b) New payment for self funded retirees
From 20 September 2009, approximately 300,000 self-funded retirees will be provided with access to the Seniors Supplement.
The Seniors Supplement will be $790.40 a year for singles and $1190.80 a year for couples combined, Payments will be made quarterly. Self-funded retirees eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold card with the current Seniors Concession Allowance will receive the Seniors Supplement.
4. Increase to the minimum Age Pension Age
The qualifying age for the Age Pension and Commonwealth Seniors Health card will increase for both men and women to 67 from 2023. The transition will not commence until July 2017, when the qualifying age will increase by Pension Age 6 months every 2 years
Commencement date |
Qualifying Age |
Affects people born |
Reach new Age |
Until 1 July 2017 |
65 years |
Before 1 July 1952 |
|
01 July 2017 |
65 and 6 months |
1 July 1952 to |
1 January 2018 to |
01 July 2019 |
66 years |
1 January 1954 to |
1 January 2020 to |
01 July 2021 |
66 and 6 months |
1 July 1955 to |
1 January 2022 to |
01 July 2023 |
67 years |
From 1 January 1957 |
From 1 January 2024 |
The above changes do not impact the qualifying age (age 60) for the Veterans’ Service Pension.
Taxation
1. Personal Income Tax
The Government has confirmed that previously legislated tax cuts will go ahead for the 2009/10 and 2010/11 Personal Income Tax financial years. No additional tax cuts were announced in this budget.
Taxable income |
Rate |
Taxable income |
Rate |
Taxable income |
Rate |
0- $6,000 |
0% |
0- $6,000 |
0% |
0- $6,000 |
0% |
$6,001- $34,000 |
15% |
$6,001- $35,000 |
15% |
$6,001- $37,000 |
15% |
$34,001- $80,000 |
30% |
$35,001- $80,000 |
30% |
$37,001- $80,000 |
30% |
$80,001- $180,000 |
40% |
$80,001- $180,000 |
38% |
$80,001- $180,000 |
37% |
$180,001+ |
45% |
$180,001+ |
45% |
$180,001+ |
45% |
2. Private Health Insurance
The Government has announced changes to the private health insurance rebate. From 1 July 2010 the Government will introduce a 3 tiered approach to determine the amount of private health insurance rebate payable to individuals. Once income is above the upper threshold ($120,000 for singles and $240,000 for couples) no private health insurance rebate will be payable. The amount of the rebate will also be dependant on the age of the individual.
3. Medicare Levy Surcharge increase
To ensure that middle and high income earners do not abandon their private health insurance the Government has introduce variable rates of Medicare Levy surcharge, if appropriate private heath insurance cover is not held and certain income thresholds are exceeded (as illustrated in the table above).
Previously legislated changes to the definition of ’income’ will also apply to the Medicare levy surcharge from 1 July 2009, which includes:
- taxable income;
- reportable fringe benefits;
- reportable employer superannuation contributions;
- personal deductible superannuation contributions;
- total net investment loss
Note: amounts withdrawn from superannuation to which the low rate cap amount ($150,000 for 2009/10) has been applied are not included in ‘income”.
4. Increase in the Medicare Levy low income thresholds
The Government has announced new Medicare levy thresholds that are applicable for the current financial year (ending 30 June 2009). These are $17,794 for individuals (previously $17,309) and $30,025 for families (previously $29,207). The increase on these thresholds for each dependent child or student will be $2,757.
The low income threshold for pensioners below age pension age has been increased to $25,299 for the year ending 30 June 2009. This will ensure such pensioners do not pay the Medicare levy when they do not have an income tax liability.
5. Small business tax relief
Effective date: eligible assets acquired between 13 December 2008 and 31 December 2009
As part of previous fiscal stimulus packages, the Government had announced that small business (those with a turnover of less than $2million) would be able to claim a bonus tax deduction for the acquisition of eligible assets, in addition to the usual capital allowance deduction. Initially set as a 10% bonus deduction, then 30%, the bonus has again been lifted to 50%.
To be an eligible asset for this bonus, the asset must:-
- cost more than $1,000 (although substantially similar assets may be aggregated in order to reach this threshold)
- be purchased between 13 December 2008 and 31 December 2009
- be used or installed ready for use by 31 December 2010.
For non-small business taxpayers, the minimum asset threshold to qualify for a bonus is $10,000 (subject to similar aggregation rules) and the bonus conditions are set out in the following table.
Bonus deduction |
Asset purchased between |
First used by
or |
30% |
13 December 2008 and 30 June 2009 |
31 December 2010 |
10% |
1 July 2009 and 31 December2009 |
31 December 2010 |
Disclaimer
This document is to be used as general information only and should not be considered a comprehensive statement on any matter and should not be relied upon as such. This document has been prepared without taking into account any individual objectives, financial situation or needs.No member of Evolution Super, nor any of their employees or directors gives any warranty of accuracy or reliability nor accepts any liability in any other way, including by reason of negligence for any errors or omissions contained herein, to the extent permitted by law.This document may not be used or reproduced without the prior consent of the Evolution Super.Please contact Evolution Super on (08) 8271 2711 if you would like more information.