Federal Budget 2013/14

Transcription

1 Technical Strategy support: TechConnect Federal Budget 2013/14 For financial adviser use only No doubt we will hear many references from the media to the 2013/14 Federal Budget being a swan song as Treasurer Wayne Swan issues his sixth Budget and last before the September election. However, from a financial services perspective, it didn t have the big bang feel to it we have come to expect from past Budgets. Thankfully so. Our industry has seen plenty of legislative reform already, and a respite is welcomed. The Treasurer had already announced the big ticket items for superannuation and financial services in the weeks leading up to the Budget speech - the $35,000 concessional contributions cap for those aged 60 and over from 1 July 2013, and a cap of $100,000 for tax-free income from superannuation pension earnings. The details set out in the Budget papers did not deviate from these announcements, and gave little additional clarity. We will just have to wait for the outcome of September s election now. So what will the Government take to the election? Well, reforms to education funding and the national disability insurance scheme for a start - paid for by big savings through the deferral of scheduled tax cuts, axing of the baby bonus and increasing the Medicare levy to 2 per cent from 1 July Other expected changes also announced included monthly PAYG withholding for large superannuation funds sounds dull, but this will net around $900 million per year - and the end of dividend washing for sophisticated investors. It s fair to say that this Budget is appropriate for the current economic circumstances. With an election so close, it will be telling to hear the Shadow Treasurer Joe Hockey s Budget reply on Thursday, as it will serve as a litmus test for the Coalition s fiscal management plan into the future. So, here follows our summary of the Federal Budget for 2013/14. Contents Superannuation 2 Taxation 5 Other taxation administration issues 7 The IOOF TechConnect team, Damian Hearn, Pam Roberts, Julie Steed, Martin Breckon, Donald Lobo and William Truong provides a comprehensive range of technical support tools for professional financial advisers. Centrelink/ Department of Veterans Affairs / Families 8 1

2 Superannuation Fortunately, there were no significant Budget measures outside the Government s previous announcements from 5 April We ll cover a number of minor proposals, and reiterate the previous announcements. Reduction of tax concession for superannuation contributions of high income earners The 2012/13 Budget included the reduction of tax concessions on superannuation contributions for individuals earning over $300,000. Minor amendments will be made to this measure, which was effective from 1 July The amendments include: exempting employer contributions for Federal judges who are entitled to a benefit payable under the Judges Pension Act 1968 and exempting employer contributions made to constitutionally protected funds for some senior personnel using a similar definition of income for the measure to that used for calculating whether an individual is liable to pay the Medicare levy surcharge a refund of the tax paid by former temporary residents under the measure, as they effectively do not receive any concessional tax treatment on their contributions to superannuation. The exemption for Federal judges and certain State Government employees has been put in place to mitigate legal action which has previously been successful under the surcharge regime. However, this is inconsistent with the Government s current policy of equity in superannuation, and contrary to Senator Wong s previous assurances (9 May 2012 media release) that this policy will apply to all individuals earning over $300,000, whether they are politicians, corporate CEOs or public servants. Consistency in the definitions of income is desirable and welcomed but of little consequence in this instance. Low-income superannuation contribution The Government will make a minor technical amendment to the eligibility criteria for the low-income superannuation contribution (LISC) to extend the refund to individuals with an entitlement below $20 (where previously the LISC was not paid if the entitlement was less than $20.) In addition, entitlements under $10 will now be rounded up to $10. The LISC effectively refunds the tax paid on superannuation concessional contributions (up to $500 a year) for people with incomes up to $37,000. This amendment is only relevant for those clients who have superannuation guarantee (SG) contributions paid on salaries of up to $37,000 and may now be entitled to a $10 or $20 LICS. Superannuation Complaints Tribunal additional funding An additional $2.6 million will be provided over four years to support the operations of the Superannuation Complaints Tribunal (SCT). The cost of this measure will be offset by an increase in the levy on Australian Prudential Regulation Authority regulated superannuation funds. 2

3 The Government has increased the funding for the SCT but at the expense of the superannuation industry and its members, not consolidated revenue. Lost superannuation The Government will raise the threshold for inactive and uncontactable superannuation accounts that are required to be forwarded to the Australian Taxation Office (ATO) from the current level of $2,000 to $2,500 from 31 December 2015 and to $3,000 from 31 December This was raised from $200 to $2,000 from 31 December It is estimated that this measure will improve the Budget position by $123 million over the next four years. Although couched in terms of protecting member s superannuation, this may well be considered a revenue raiser, as the lost superannuation accounts are paid directly into consolidated revenue. Tax exemption for earnings on income stream assets From 1 July 2014 (subject to some grandfathering), the tax exemption for earnings on income stream assets will be restricted to $100,000 per annum per individual. If an individual s pension earnings exceed $100,000, excess income will be taxed at 15 per cent. The $100,000 threshold will be indexed to CPI annually in increments of $10,000. Defined benefit pensions will also be affected. Funds will need to make an actuarial calculation of notional earnings for individuals with defined benefit pensions and apply the tax to amounts over the $100,000 threshold. The Budget does not contain any information additional to the details provided in the Government s 5 April 2013 announcements. Of course the devil will be in the detail, but there are some significant impacts that may need to be considered: Self-managed superannuation funds (SMSFs) - tax could apply to SMSFs holding single assets with significant unrealised capital gains in pension phase (for example, commercial property). If sold down (or transferred out as a benefit) and realised capital gains are over $100,000 per member, tax may apply. Death benefits - upon death, pension investment assets are generally sold down to provide death benefits. If these assets generate significant capital gains, tax may apply. Administrative complexity The $100,000 limit for pension earnings will apply per individual across all superannuation funds. Timing of the purchase and/or sale of the pension assets - It is expected that the earnings definition will capture realised capital gains within the pension. The key determinant under this proposed measure will be the timing of the purchase and/or sale of the pension assets. The guidance to date is based on when the asset was purchased: before 5 April 2013: only capital gains on those assets that accrue from 1 July 2024 will be included in the pension fund earnings. between 5 April 2013 and 30 June 2014 (and sold after 30 June 2014): members will have the choice of including the entire capital gain for pension earnings calculations or just the gain accrued from 1 July purchased from 1 July 2014: the entire capital gain will be included in the calculation of pension fund earnings. 3

4 Higher concessional contributions cap for older persons The concessional contributions cap will be increased from the current $25,000 per annum to $35,000 per annum (unindexed) for those aged 60 or more from 1 July 2013, and for those aged 50 or more from 1 July By 2018, it is expected that, with indexation, the $25,000 cap applying to those under age 50 will have reached $35,000 and from that point on there will be no higher cap for older persons. The proposal for reintroducing the $50,000 pa concessional contributions cap for those aged 50 or more, where account balances are less than $500,000 will be scrapped as it is considered too difficult to implement. It may be starting earlier, but $35,000 is still a relatively low cap, particularly given that we are living longer and individuals save at different rates over their life. As a comparison, back in 2006/07 financial year, the age based tax deduction limit for superannuation contributions for a 40 year old was $42,385. The Government introduced draft legislation on 7 May 2013 in a bid to fast-track this initiative. A noteworthy feature of the draft legislation is that it will assist those who turn qualifying age (60 or 50 years as the case may be) in the financial year, make concessional contributions between the ordinary cap and the higher cap but die before their birthday in that year. Such individuals (or their legal personal representative) will not be assessed to have an excess concessional contribution. Excess concessional contributions tax changes from 1 July 2013 Excess concessional contributions will be taxed at the individual s marginal tax rate, rather than the current excess concessional contributions tax rate of 46.5 per cent (including a 15 per cent contributions tax). The Government will also allow individuals to withdraw any excess concessional contributions made from 1 July Again, the Budget does not contain any information additional to the details provided in the Government s 5 April 2013 announcements. Although the reforms to excess contributions tax are welcome, no mention has been made of what is widely considered to be the most unfair component of the contributions cap system - the application of tax to excess non-concessional contributions. A tax on non-concessional contributions is a tax on already taxed capital. The Government announced this proposed reform on 7 May 2013 to fast-track this initiative, however, draft legislation is still not available. Additionally, we do not know if any excess concessional contributions resulting in a refund will first be used to offset any debts held with other Commonwealth agencies. Other superannuation related measures The Government will also extend concessional tax treatment to deferred lifetime annuities from 1 July A deferred lifetime annuity is one which is purchased at retirement age (say 65) but which will commence to make annual payments at a later age (say 85) till death. Under current law, there is no tax exemption on income within the annuity between the time of purchase and the time payments commence. The Government will also establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability. 4

5 Taxation Personal income tax rate reduction for 2015/16 deferred indefinitely The Government will defer the 2015/16 tax cuts (as shown in table 1 below) until the carbon price is projected to be above $25.40 in the Budget. The Government has estimated this may occur in 2018/19. Table 1 - Personal income tax rate reduction for 2015/16 deferred indefinitely Current and 2013/14 financial year Previous 2015/16 rates Threshold ($) Marginal Rate (%) Threshold ($) Marginal Rate (%) 1st Rate 18, , nd Rate 37, , rd Rate 80, , th Rate 180, , LITO Up to $ % withdrawal rate on income over $37,000 Up to $300 1% withdrawal rate on income over $37,000 Effective tax-free threshold* $20,542 $20,979 * Includes the effect of the tax free threshold and the low income tax offset (LITO). These minor adjustments to personal income tax rates from 2015/16 financial year will have an impact on low-income earning clients. Consequently, the effective tax-free threshold of $20,542 will remain, and a client earning $37,000 will be $83 per annum worse off (net of the maximum LITO). Medicare levy low-income threshold and increase in the Medicare levy The Government will increase the Medicare levy low-income threshold for families to $33,693 (up from $32,743) for the 2012/13 income year, with effect from 1 July The additional amount of threshold for each dependent child or student will also increase to $3,094 (up from $3,007). As previously announced, the Government will increase the Medicare levy by half a percentage point from 1.5 to 2 per cent from 1 July 2014 to provide strong and stable funding for DisabilityCare Australia. Net medical expenses tax offset phase out The Government will phase out the net medical expenses tax offset with transitional arrangements for those currently claiming the offset. The tax offset will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July This transitional phase out will coincide with the DisabilityCare Australia changes being fully operational and the aged care reforms having been in place for many years. From 1 July 2013, those taxpayers who claimed the tax offset for the 2012/13 income year will continue to be eligible for it for the 2013/14 income year if they have eligible out-of-pocket medical expenses above the relevant thresholds. Similarly, those who claim it in 2013/14 will continue to be eligible in 2014/15. The phase out of the tax offset may leave some clients worse-off post 1 July Albeit, clients who have received significant compensation settlements, and have relied upon the tax offset to reduce their personal income tax liability, may be worse off. However, the devil will be in the detail when draft legislation is released and the DisabilityCare Australia changes are known. 5

6 Work related self-education expenses The Government will better target work related self-education expense deductions through an annual $2,000 cap on these expenses from 1 July Deductible education expenses are costs incurred in undertaking a course of study or other education activity, such as conferences and workshops, and include tuition fees, registration fees, student amenity fees, textbooks, professional and trade journals, travel and accommodation expenses, computer expenses and stationery, where these expenses are incurred in the production of the taxpayer s current assessable income. Employers are generally not liable for fringe benefits tax for the education and training they provide or fund for their employees, in order to support employers investing in the skills of their workers. This treatment will be retained, unless an employee salary sacrifices to obtain these benefits. This reinforces the Government s previous announcement on 13 April 2013 and the opportunity exists for taxpayers to utilise the current rules until 1 July Investigations could be made to pre-pay education expenses prior to the 1 July 2014 implementation date. Preventing 'dividend washing' for sophisticated investors The Government will aim to close a loophole that enables sophisticated investors to engage in dividend washing from 1 July Currently, an investor can engage in dividend washing to, in effect, trade franking credits. This can result in some shareholders receiving two sets of franking credits for the same parcel of shares. This is outside the intent of the dividend imputation system. The practice of dividend washing occurs when an investor who has held shares for the mandatory 45 day period sells the stock after it goes ex-dividend and immediately buys it back while trading cum dividend (ie when the purchaser of a share is entitled to receive a dividend that has been declared, but not paid). From 1 July 2013, this practice will be prohibited. The Government has cited that this applies to sophisticated investors, however, this loophole can be technically used by any investor within the market. The practice is often used by institutions and investment managers and any impact on after tax investment returns of managed fund investment portfolios remains to be seen. Farm Finance package Farm Finance will provide assistance to agricultural businesses and includes the following measures: the provision of up to $420 million over two years in concessional loans to eligible primary production businesses for the purpose of productivity enhancements and debt refinancing from 1 July 2013 changes to the Farm Management Deposit (FMD) scheme to allow FMD owners to consolidate their existing accounts that have been held for longer than 12 months without triggering tax liabilities increasing the non-primary production threshold for FMDs from $65,000 to $100,000, resulting in a reduction in estimated taxation revenue of $13 million over three years from 1 July 2014 $6.3 million over two years to expand the Rural Financial Counselling Service by an additional 17 full-time equivalent counsellors from 1 July 2013 $0.9 million over three years for a communication campaign to increase awareness of the assistance package the development of a nationally consistent approach to farm debt mediation process across all jurisdictions, to be developed by a working group comprising Federal, State and industry stakeholders. 6

7 Other taxation administration issues Tax agent services licensing regime - online registration for financial advisers The Government will provide funding for a single, online registration for financial advisers registered with the Australian Securities and Investments Commission (ASIC) who also need to be registered with the ATO as tax advisers from 30 June This follows the end of the exemption of financial advisers from the tax agent services licensing regime from 30 June The cost of this measure will be offset by fees charged by the ATO for registering financial advisers under the Tax Agency Services Act 2009 from 1 July Although the Government has not released the final draft legislation, this announcement foreshadows an intention to move to a new era of licensing financial advisers who provide taxation advice under the tax agent services licensing regime. This Budget announcement is contrary to a previous announcement that said financial advisers would need to register with the Tax Practitioners Board from 1 July Without the final draft legislation, and passage through the Parliament prior to the Federal election, it remains to be determined what steps the industry must take to comply. Increased transparency - third party reporting and data matching The Government has provided additional funding to the ATO to improve compliance on taxpayers by expanding data matching with third party information. This will both establish new and strengthen existing reporting systems for: taxable government grants and specified other government payments sales of real property, shares (including options and warrants), and units in managed funds managed investment trust and partnership distributions, company dividend and interest payments transactions reported to the ATO by the Australian Transaction Reports and Analysis Centre. Increased data matching will improve the ATO s ability to verify information on investments outside the standard PAYG reporting regime. This increased transparency will provide the ATO with the capacity to determine whether the taxpayer has accurately disclosed the assessable income within the taxation return in many instances without the need to request supporting information and/or completion of an auditing activity. Whilst the Government has been collecting this information for some time for dividend and income payments (such as shares and managed investment schemes), they have not had comprehensive information to assess the reliability of taxpayer s self-assessment for capital gains tax. This is a shift in focus and it increases the need for clients to accurately record and report capital gains and losses on assets. 7

8 ATO trusts taskforce The ATO will undertake compliance activity in relation to taxpayers who have been involved in tax avoidance and tax evasion using trust structures. The ATO will target the exploitation of trusts to conceal income, mischaracterise transactions and artificially reduce trust income amounts to avoid or reduce tax. Emerging evidence, including substantial ATO data from two recent law enforcement operations, shows a significant increase in the level of trust-based non-compliance. Even though this has occurred, the increased surveillance will be focussed on compliance and tax avoidance. The intelligence that is gathered by the ATO will be used for the next phase of consultation on trust taxation reform. The Government has also announced that Treasury will consult with the ATO s National Tax Liaison Group (NTLG) Trust Consultation sub-group on the most appropriate way to progress the reform, and in particular to address integrity concerns arising from the mismatch between trust and tax concepts of income. Overall this means clients with trusts are on notice and opportunities to minimise tax liabilities will be again put under the microscope. This raises the question of uncertainty in this space, and advisers should be aware that anti-avoidance practices will be a main area of focus. Centrelink/ Department of Veterans Affairs / Families Account-based pensions and the Centrelink income test The Government will amend the Centrelink income test to extend the deeming regime to superannuation account-based pensions. Currently, these pensions are favourably assessed under the income test, as the amount of income included under the income test is reduced by the non-assessable component which is equal to the purchase price of the pension divided by life expectancy. This will only apply to new account-based pensions commencing after 1 January 2015 and all existing account-based pensions will be grandfathered indefinitely or unless commuted and rolled into a new income stream after 1 January It will be important for advisers to review client strategies in order to see if any changes are required (such as transitioning to new pensions) before 1 January 2015, in order for grandfathering to apply. Advisers should also look at clients in receipt of income support payments who have not reached age pension age yet, and whether they should commence account based pensions earlier. Grandfathered pension accounts for Centrelink purposes (commenced prior to 1 January 2015) will also need to be considered when moving from one product to another after 1 January This could result in a reduction to the client s income support entitlement. Some income support recipients who are asset-tested may become income-tested. In addition, all Centrelink and DVA benefits will be more susceptible to changes to the deeming rates over time. There may also be a focus on other investments such as ordinary money annuities, superannuation annuities, and investment bonds held within a trust. 8

9 Higher income-free limit for allowances The income-free limit will be increased from $62 per fortnight to $100 per fortnight from 20 March 2014 before an individual s income support will start to reduce. The Government will also commence annual indexation of the incomefree limit from 1 July The payments affected by this change are Newstart Allowance, Sickness Allowance, Parenting Payment Partnered, Widow Allowance and Partner Allowance. The higher income-free limits should encourage greater working participation by increasing the capacity of recipients to earn income before it starts reducing their support payments. Under the income test, eligible clients may receive an additional allowance of $19 per fortnight [($100 - $62) x 0.5]. This will be the first increase in more than a decade and, for the first time, the income-free limits will increase in line with movements in the Consumer Price Index (CPI.) This change does not assist a number of older income support recipients who cannot find paid work. Removal of the scheduled increase in Family Tax Benefits In the 2012/13 Federal Budget, the Government had proposed to increase the rate of Family Tax Benefit Part A (FTB Part A) with effect from 1 July 2013 as shown in table 2 below: Table 2 Increase in the rate of FTB Part A Increase in base rate Increase in maximum rate Families with 1 child $100 $300 Families with 2 or more children $200 $600 The Government announced that the increase to the FTB Part A will not proceed. Abolishing the Baby Bonus new family payment arrangements for newborns New family payment arrangements will replace the Baby Bonus from 1 March 2014 after which the Baby Bonus will no longer be available. From 1 March 2014, families eligible for FTB Part A will receive an additional loading on their family payments when they have a new baby to help with upfront costs (if they are not accessing the Government s Paid Parental Leave scheme (PPL). The extra FTB Part A payments for families will total $2,000 for their first child (or each child in multiple births) and $1,000 for subsequent children. It will be paid as an initial instalment of $500, with the rest rolled into normal fortnightly payments over a three-month period. Parents who take up the PPL will not be eligible for the additional FTB Part A component, but will benefit from improved access to PPL as their family expands. As part of this package, parents will be able to count time on Government PPL in the work test period, where it occurs for a subsequent child; just like employer funded parental leave can be counted now. Last year, the Government legislated to pause the indexation of the Baby Bonus for three years from 1 July 2012 and to 9

10 reset the amount to $5,000 per child from 1 September It also introduced legislation in Parliament to reduce the Baby Bonus for second and subsequent children from $5,000 to $3,000. This was not passed but it appears the Coalition is softening its stance which has led the Government to introduce this Budget measure. The Baby Bonus was spawned at a time when the Budget was in surplus and its reduction or demise will leave no surprises. The inclusion of time on the PPL as satisfying the work test period will mean more women will be able to access it when they have another baby. Child care rebate indexation pause (extension) The Government will continue to pause the indexation of the annual cap on the Child Care Rebate (CCR) for a further three years. The maximum amount of CCR that can be paid will remain at $7,500 a year until 30 June The percentage of out-of-pocket expenses reimbursed by the Government will remain at 50 per cent until the cap is reached. Family and Parental Payments change to rules for receiving payments overseas The Government will change the allowed period of temporary absence from Australia for accessing certain family and parental payments from three years to one year from 1 July Affected payments include FTB Part A, Schoolkids Bonus and PPL. Australian Defence Force and Australian Federal Police personnel deployed overseas will not be affected by this measure and will continue to be able to access payments while overseas for up to three years. Family payments reform continuing indexation pauses on upper income limits and supplements The Government will maintain the higher income thresholds for family payments and supplement amounts at their current levels until 1 July This measure will maintain the current upper income test limit of $150,000 for Family Tax Benefit (FTB) Part B, the dependency tax offsets, the PPL and Dad and Partner Pay. The FTB Part A upper income free area will remain at $94,316, plus an additional $3,796 for each child after the first. FTB supplement amounts will also be maintained at current levels of $ per child per annum for FTB Part A and $ per family per annum for FTB Part B. The pausing of indexation will gradually reduce the number of eligible recipients and reduce the real value of family payments received over time. Family Tax Benefit and Child Care Assistance realignment of time period for income reconciliation The Government will bring lump sum and income reconciliation periods for Family Tax Benefit (FTB) and Child Care Assistance (CCA), which includes Child Care Benefit and the Child Care Cash Rebate, more in line with the usual arrangements for lodging tax returns. Beginning with 2012/13, families will have 12 months rather than two years from the end of the financial year for which the family is claiming FTB or CCA to reconcile their income, initiate lump sum claims and satisfy any requirements for the 10

11 end of year supplements. The timing required for lodging tax returns means that most families will have the information they need to reconcile their income within the 12 month period. Family Tax Benefit Part A changes to age of eligibility The Government will change eligibility for FTB Part A for children aged 16 years and over. FTB Part A will only be paid until the end of the calendar year a child completes school. This change will start from 1 January Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance, subject to the usual eligibility requirements. This change will focus payments in the family assistance system on families with children who are at school, while Youth Allowance will become the primary form of assistance to eligible young people who have completed secondary school, or are no longer in school. The means testing for Youth Allowance may include a parental income test, a personal income test, an assets test and a family actual means test. This could be more stringent than the tests for FTB, resulting in revenue savings for the Government. Pension Bonus Scheme - cease late registrations The Government will cease late registrations for the Pension Bonus Scheme (Scheme) from 1 March This will simplify administrative arrangements following the decision to close the Scheme and replace it with the new Work Bonus as part of the Government's age pension reforms. The Scheme was closed on 20 September 2009 and was replaced with the Work Bonus which provides concessional treatment of employment income under the age pension income test. The Scheme was available to individuals who turned age pension age before 20 September 2009 and who registered for the scheme within 13 weeks of turning age pension age. However, the Government has been allowing late registrations on a case by case basis. As the maximum bonus period that could be accrued was for five years, the closing off for late registrations by March 2014 will ensure most eligible individuals will not miss out on the bonus. Clients who are eligible for the Scheme will have an opportunity to register before 1 March 2014 and receive the bonus. Helping senior Australians downsize the family home - pilot The Government will trial a means test exemption for age pension recipients who are downsizing from their family home. Eligible pensioners who have lived in their own home for at least 25 years and want to downsize will need to put a minimum of 80 per cent of the excess sale proceeds from the sale of their former home into a special account, up to a maximum of $200,000 (plus earned interest). The funds in this account will not be counted under the pension income and asset tests for up to 10 years or until a withdrawal is made from the account. The exemption will also be accessible to people assessed as home owners who move into a retirement village or granny flat. It will not be available to people moving into residential aged care. 11

12 This exemption is sold as a benefit to pensioners but it is merely a deferral of the means testing treatment. If a pensioner wished to receive the full 10 year exemption period, they must use other available funds to meet living expenses (if any). This trial will help the Government determine the extent to which the pension means test is a factor in pensioners downsizing their homes, and whether mean test exemptions help reduce some of the pressure on the housing market. The Government has encouraged State governments to consider any exemptions or concessions for stamp duty which can be a sizeable cost when downsizing. The stipulation that applicants must have owned their home for at least 25 years is too limiting, and doesn t reflect the needs and circumstances of most aged pensioners. In encouraging age pensioners to move, the Government has not recognised that contracts for retirement village accommodation are based on insufficiently regulated state legislation. The exclusion for people moving into residential aged care is not apparent but could possibly be because the aged care reforms due to take effect from 1 July 2014 encourage a higher number of Home Care places. Staying at home - improvements The Government will make changes to improve Home Care for care recipients by aligning leave provisions across all levels of Home Care packages and providing oxygen and enteral feeding supplements to all care recipients who have a clinical need. This measure will also ensure that there is no reduction in funding for existing recipients of Community Aged Care packages (CACP) or Extended Aged Care at Home packages when the dementia supplement is introduced, and will provide a new top-up supplement for existing Extended Aged Care at Home Dementia recipients. Under the Living Longer Living Better reforms, CACP recipients, EACH recipients and EACH (dementia) recipients will transition to a level two home care package, level four home care package or level four with dementia home care package respectively with effect from 1 July As mentioned earlier, the Government will encourage more individuals to take up home care to reduce funding pressures on residential aged care. Accommodation bond insurance for aged care providers The Government will defer implementation of the requirement for providers of residential aged care to insure any accommodation bond they hold for residents entering care on or after 1 July This was evident from the legislation for the Living Longer Living Better reforms that was introduced into Parliament. There was specific content to extend the current arrangements to protect accommodation bond deposits. If a provider becomes insolvent or bankrupt and is unable to repay outstanding bond balances to aged care residents, the Australian Government will repay the balance owing to each resident. HECS-HELP Discount and Voluntary HELP Repayment Bonus ending discounting The Government will remove the discounts applying to up-front and voluntary payments made under the Higher Education Loan Program (HELP) from 1 January The following discounts will be removed: the 10 per cent discount available to students electing to pay their student contribution up-front 12

13 the 5 per cent bonus on voluntary payments to the ATO of $500 or more. Under HELP, students choosing not to pay up-front can take out a concessional loan to pay their student contribution, which will be repaid gradually when their assessable income exceeds a minimum repayment threshold ($49,096 in 2012/13). The removal of the incentives to make lump sum repayments will drive more students to amortise their loan over a period of time. While the Government might benefit from the savings in not providing the discount or bonus, this could be offset by the repayments being extended. Extended Pensioner Concession Card entitlements for single parents Commencing 1 January 2014, eligible single parents will be able to retain eligibility for the Pensioner Concession Card (PCC) for a period of 12 weeks if they: no longer qualify for Parenting Payment Single (PPS) because their youngest child has turned eight do not qualify for another social security benefit, pension or allowance due to earnings from employment. In addition, the Pensioner Education Supplement of up to $62.40 per fortnight will be available to all Newstart allowance single parents. It appears this concession has been offered as a sweetener to single parents whose entitlement to PPS was tightened, under last year s budget measures. Previously, a single parent was able to continue receiving PPS until their youngest child turned 16. For more information, please contact us. 13

14 This document is for financial adviser use only it is not to be distributed to clients. This Federal Budget Update has been prepared by the IOOF TechConnect team on behalf of IOOF Investment Management Limited (IIML), ABN , AFSL No IIML is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN and its related bodies corporate, and is not a registered Tax Agent. Not all measures announced in the Federal Budget may be enacted into law in the form announced. IOOF does not undertake to notify recipients of any changes in the measures, the law or its interpretation. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. IOOF accepts no liability for any loss or damage in connection with the use of, or reliance on, the information contained in this Federal Budget Update. 14