2014 budget summary. Introduction 2 Superannuation 2

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1 Contents 2014 budget summary Introduction 2 Superannuation budget summary may 2014 Excess non-concessional contributions 2 Superannuation guarantee 2 Contribution caps 3 Military superannuation schemes 3 Personal taxation 4 Temporary budget repair levy 4 Personal tax rates 4 Medicare levy low-income threshold 5 Mature age worker tax offset 5 Dependent spouse tax offset 5 Social Security 5 Age pension 5 Payment rates 5 Income and assets test thresholds 5 Deeming thresholds 6 Eligibility age 6 Commonwealth Seniors Health Card 6 Seniors supplement 6 Income test 7 Income thresholds 7 Other welfare payments 7 Indexation of government payments 7 Deeming rate thresholds 7 Eligibility thresholds for government payments 7 Disability support pension 8 Restart program - assistance for mature age job seekers 8 Family tax benefit 8 Health 9 Pharmaceutical Benefits Scheme 9 General practitioner co-payment 9 Business 10 Company tax 10 Other measures 10 Public service 10 First Home Savers Account 10 Higher education arrangements 11 Infrastructure 11 Fuel excise 11 1 Please see important disclosures at the end of this document dixon.com.au

2 Introduction The Federal Government has handed down its keenly awaited first budget. The focus of this year s budget was reducing government expenditure so that over time the budget can return to surplus. A deficit of $29.8 billion is expected in , with the government confirming its commitment to reach a surplus of one percent of GDP by This budget will have an impact on all Australians as the government tries to spread the burden. Government assistance to self-funded retirees, pensioners, families and the unemployed will be tightened, affecting eligibility requirements and reducing future benefits. Additional changes will lead to increased health care costs for all and a higher tax burden on high income earners. Those already struggling with the cost of living face increased pressures as these measures take effect. The following summary is intended to help you understand the most relevant changes as well as Dixon Advisory s position on those measures and any appropriate actions budget summary may 2014 Superannuation Excess non-concessional contributions Excess non-concessional contributions (NCCs) made after 1 July 2013 may be withdrawn from superannuation. Any associated earnings would also need to be withdrawn and will be taxed at the individual s marginal tax rate. If an individual does not withdraw their excess NCCs, they will be subject to excess contributions tax. The government will release further details of this policy following industry consultation. These changes will provide relief to super fund members who inadvertently or mistakenly breach their NCC cap from 1 July Dixon Advisory has lobbied for changes to the treatment of excess non-concessional contributions and is pleased with this reform, but notes the lack of retrospectivity and final details may impact on the ultimate effectiveness of the measure. Superannuation guarantee The increase to the rate at which employers must make compulsory superannuation contributions (SG) for their employees will now be phased in as follows: Period Super guarantee rate Current Proposed Current 9.25% 9.25% 1 July June % 9.5% 1 July June % 9.5% 1 July June % 9.5% 1 July June % 9.5% 1 July June % 10% 2 Please see important disclosures at the end of this document dixon.com.au

3 1 July June % 10.5% 1 July June % 11% 1 July June % 11.5% 1 July June 2023 and 12% onwards 12% The proposed timing of the re-phasing will assist employers in planning ahead. Employees may find their take-home pay reduces from 1 July 2014 if their remuneration package is quoted as inclusive of SG. Action Individuals should review their salary sacrifice arrangements from 1 July 2014 to reduce the likelihood of exceeding the concessional superannuation contribution cap. Contribution caps From 1 July 2014, contribution caps will increase as scheduled: Contribution type Age Contribution limit Under 49* $30,000 Concessional 49 and over* $35,000 Non-concessional Under 75 $180,000 *Age at 30 June 2014 Higher contribution caps are great news for individuals saving for their retirement because they provide increased opportunity to direct surplus funds into the tax concessional super environment. Super fund members must consider their personal circumstances and prior contribution history before making any contributions to superannuation. Seek financial advice before taking any action. Military superannuation schemes From 1 July 2016, the Military Superannuation and Benefits Scheme (MSBS) will be closed to new members and replaced with an accumulation scheme called ADF Super. Under the new arrangements, contributions will be paid at a rate of 15.4%, or 18% in times of war-like service. Serving defence force personnel will be covered by statutory death and disability arrangements consistent with those available to members of the MSBS. From 1 July 2014, members of the Defence Forces Retirement Benefits (DFRB) and Defence Force Retirement and Death Benefits (DFRDB) superannuation schemes aged 55 and over will have their benefits indexed by the better of inflation and the Pensioner & Beneficiary Living Cost Index, with reference also to a benchmark level of male total average weekly earnings. 3 Please see important disclosures at the end of this document dixon.com.au

4 There will be no effect on current members of the MSBS, but the option of electing to be covered by the new arrangements may provide some members with more flexibility. Existing members considering their choices will need to weigh up the potential portability of the proposed accumulation style scheme against the benefits of the defined benefit scheme. The indexation of DFRB and DFRDB benefits will be more generous under these changes and has been a long fight for defence pensioners. Action Members of the MSBS should seek financial advice before making any changes to their superannuation. Personal taxation Temporary budget repair levy From 1 July 2014, a temporary levy of 2 per cent will be imposed on taxable income in excess of $180,000 per annum. The levy will apply for three years. A number of other tax rates that are linked to the top marginal tax rate will also increase for the same period of time, for example, the excess contributions tax and fringe benefits tax rate. The levy effectively increases the top marginal tax rate to 49 per cent, the eighth highest in the OECD. The levy will affect high income earners, with the actual amount payable depending on an individual s level of taxable income. Taxable income Levy payable Less than $180,000 $0 $200,000 $400 $250,000 $1,400 $300,000 $2,400 While the levy is less onerous than pre-budget leaks indicated, when combined with other recent measures aimed at high income earners, including a higher tax on concessional superannuation contributions and a higher Medicare levy surcharge, this group has faced a number of tax increases in recent years. Action High income earners should consult their financial advisor to identify appropriate tax-planning strategies to help manage their tax liability including considering the timing of asset sales and maximising concessional super contributions. Personal tax rates Apart from the temporary Budget repair levy, individual marginal tax rates remain stable for the financial year. The planned increase in the Medicare levy from 1.5 per cent to 2 per cent will occur on 1 July Please see important disclosures at the end of this document dixon.com.au

5 From 1 July 2015, income thresholds determining the Medicare levy surcharge and private health insurance rebate will not increase for three years. By keeping thresholds at the same level, over time wage inflation will result in reduced overall take-home pay through bracket creep. Medicare levy low-income threshold From 1 July 2013, this threshold will be increased from $33,693 (in ) to $34,367 for families. The additional amount of threshold for each dependent child or student will also be increased from $3,094 (in ) to $3,156 from 1 July There will be no changes to the Medicare levy low-income thresholds for individuals and age pensioners. Mature age worker tax offset The $500 tax offset payable to individuals born before 1 July 1957, who met certain work conditions, will be abolished from 1 July This measure will be replaced by the expanded senior employment incentive payment called Restart, which will be payable to employers from 1 July Dependent spouse tax offset This tax offset will be abolished for all taxpayers from 1 July Taxpayers with a dependant who is genuinely unable to work due to a carer obligation or a disability may be eligible for the dependent (invalid and carer) tax offset. Social security Age pension Payment rates From 1 September 2017, the age pension will be indexed to the consumer price index instead of male total average weekly earnings. The clean energy supplement of $ for singles and $ for couples paid to age pensioners will no longer be indexed. Income and assets test thresholds From 1 July 2017, the income and asset test thresholds for determining age pension eligibility will be frozen for three years. The family home will remain exempt from age pension testing. 5 Please see important disclosures at the end of this document dixon.com.au

6 Deeming thresholds From 20 September 2017, when calculating income on financial assets for age pension purposes the threshold tied to the highest deeming rate will reduce as follows: Current threshold New threshold Single $46,600 $30,000 Couple $77,400 $50,000 Eligibility age The age pension qualification age, which will reach 67 on 1 July 2023, will continue to increase until it reaches 70 by 1 July The increase will be phased in as follows: Age pension Date of birth qualification age 1 July 1952 to 31 December ½ 1 January 1954 to 30 June July 1955 to 31 December ½ 1 January 1957 to 30 June July 1958 to 31 December ½ 1 January 1960 to 30 June July 1961 to 31 December ½ 1 January 1963 to 30 June July 1964 to 30 December ½ 1 January 1966 and later 70 While a number of changes are proposed, the impact on existing age pensioners will be gradual commencing with the phasing out of the indexation on the Commonwealth Clean Energy Supplement. Other adjustments to indexation and thresholds which will lead to a lower real entitlement do not apply until after 1 July Full age pensioners who may not have capacity to adjust their budget will be most affected. Part age pensioners may need to draw upon a greater proportion of their own assets to cover their expenses. Changes to the eligibility age will only affect individuals born after 30 June Without significant reform of mature age employment and training opportunities, the delay in accessing the age pension may increase the call upon other forms of government benefits, including Newstart and the disability support pension. The government has proposed a new Restart program to encourage employers to take on workers aged 50 years and above, however a comprehensive approach, including training is likely to be required. Commonwealth Seniors Health Card Seniors supplement From 20 September 2014, the seniors supplement of $ per annum for singles and 6 Please see important disclosures at the end of this document dixon.com.au

7 $1, per annum for couples will no longer be paid to Commonwealth Seniors Health Card (CSHC) holders. Income test From 1 January 2015, the definition of income used to determine eligibility for the CSHC will be expanded to include deemed income from tax-free superannuation income streams. This change will not apply to account-based income streams held by CSHC holders before 1 January Income thresholds The CSHC income thresholds of $50,000 for singles and $80,000 for couples will be indexed by inflation from September Existing CSHC holders will have less than six months to adjust their budgets to account for the loss of the seniors supplement payment. The deeming of account based pension income will have the greatest effect on self-funded retirees reaching age pension age after 1 January 2015 because they will not be able to access the more favourable current rules that exclude tax-free super pension income from the CSHC income test. Existing CSHC holders will need to be cautious as the conditions to maintain exemptions on pre- 1 January 2015 income streams are expected to be very rigid. When changing income streams after this date the implications on CSHC will also need to be considered. Indexation of the income threshold, which has been frozen at current levels since 2001, may allow individuals who are currently cut out of the CSHC to qualify. Action Consult a financial advisor to see if strategies can be implemented to improve eligibility for the CSHC before 1 January Other welfare payments Indexation of government payments Indexation of pension and equivalent payments will be linked to the consumer price index (CPI). These changes will take effect from: Date Types of payments included 1 July 2014 Parenting payment single recipients 1 September 2017 Carer payment, disability support pension, carer payment, bereavement allowance and the veterans service pension Deeming rate thresholds The deeming rate thresholds for recipients of government pensions will be made consistent with the newly proposed thresholds for the age pension effective 20 September Eligibility thresholds for government payments Eligibility thresholds for income and asset test-free areas for the following payments will be 7 Please see important disclosures at the end of this document dixon.com.au

8 maintained for three years, taking effect from: 1 July July 2017 Date Types of payments included Child care benefit, child care rebate, Newstart allowance, parenting payments and Youth Allowance Carer payment, disability support pension and the veterans service pension 2014 budget summary may 2014 Disability support pension Those under age 35 who are receiving a grandfathered disability support pension and earning some employment income will need to undertake new participation requirements and complete a program of activities to maintain eligibility. Restart program assistance for mature age job seekers From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 years and over, who has been receiving income support for at least six months. Payments will be made in instalments over 24 months of employment. Dixon Advisory supports initiatives aimed at making it easier for mature aged workers to return to the workforce. Other ways to increase job opportunities for mature aged workers must be considered given the change to age pension settings requiring older Australians to remain in the workforce longer. Family tax benefit The benefits available under the family tax benefit (FTB) will be tightened as follows: FTB Part A: The payment rate will be frozen at current levels until 30 June From 1 July 2015, additional children will no longer increase the income threshold. From 1 July 2015, the end-of-year supplement will reduce to $600 per child and will not be indexed. From 1 July 2015, the large family supplement will only be paid for the fourth and subsequent child. From 1 July 2015, a supplement of $750 will be paid to single parents on the maximum rate of FTB Part A whose youngest child is aged between six and 12 years old from the point when they become ineligible for FTB Part B. This payment will continue until their youngest child is Please see important disclosures at the end of this document dixon.com.au

9 FTB Part B: The payment rate will be frozen at current levels until 30 June From 1 July 2015, the primary earner income limit will be reduced by $50,000 to $100,000. From 1 July 2015, benefits will only be paid until a family s youngest child reaches six. Transitional arrangements will allow existing recipients to continue to receive the payment until 30 June From 1 July 2015, the end-of-year supplement will reduce to $300 per family and will not be indexed. These changes will have the greatest impact on families receiving FTB Part B whose youngest child is aged six and over. The impacts will be most severe where the capacity to find additional or higher paying employment, or to reduce household expenses is limited. Health Pharmaceutical Benefits Scheme From 1 July 2015, recipients will pay an additional $5.00, or $0.80 if they hold a concession card, for each Pharmaceutical Benefits Scheme (PBS) prescription. These changes will lead to higher out-of-pocket expenses for individuals accessing medicines under the PBS. General practitioner co-payment From 1 July 2015, patients will face increased costs to visit a general practitioner (GP): Bulk billing doctors general patients will be charged a $7 co-payment per visit. Concession card holders and children under age 16 will only need to make this copayment for the first 10 visits each year. Non-bulk billing doctors patients will have their Medicare refund reduced by $5 per visit. All Australians will now pay more to visit their local GP, with those most affected being patients requiring regular visits, such as families with children and individuals with chronic illnesses. 9 Please see important disclosures at the end of this document dixon.com.au

10 Business Company tax From 1 July 2015, the company tax rate will be reduced by 1.5 per cent. The tax cut for companies with a taxable income of $5 million or greater will be offset by a 1.5% paid parental leave levy. The levy will not provide franking credits to investors. Investors will receive a greater share of company profits due to the lower tax rate. Companies may benefit from increased cash flow due to the lower tax rate leading to an increase in the amount of capital available for re-investment. Taxpayers who use franking credits to equalise their individual tax liability may wish to consider other strategies to manage their personal tax position. High income earners should discuss with their financial advisor opportunities to take advantage of the difference between the highest marginal tax rate and the company tax rate. Other measures Public service The number and size of government bodies is expected to be reduced starting with the privatisation of Australian Hearing, Defence Housing Australia, the Australian Securities and Investment Commission Registry function and the Royal Australian Mint. 16,500 Australian Public Service (APS) jobs will also be cut over the next four years. Action APS employees who may be affected should seek specialist financial advice to help them assess the impact of a potential voluntary redundancy and manage their redundancy payment. First Home Savers Account From 1 July 2015, the First Home Savers Account (FHSA) scheme will be abolished. From 7:30pm Tuesday 13 May 2014 (AEST), new First Home Saver Accounts established will not be entitled to the government co-contribution, tax or social security concessions. Existing account holders will continue to receive the government first home saver cocontribution, tax and social security concessions until 30 June 2014, after which only tax and social concessions will apply. From 1 July 2015, all concessions will cease but unrestricted withdrawals will be permitted for FHSA holders. This is a valuable planning opportunity for existing First Home Saver Account holders as funds will be accessible from 1 July 2015 and do not have to be put towards the purchase of a house. Subject to personal advice, they should consider maximising the government assistance by contributing before 30 June 2014 to receive the maximum co-contribution amount. 10 Please see important disclosures at the end of this document dixon.com.au

11 Higher education arrangements From 1 June 2016, the annual indexation applied to HELP debts will increase while individuals will have to start repaying their debts at a lower level of income. From 1 January 2014, discounts available for upfront and voluntary payments will be removed. From 1 January 2016, education institutions will be free to set their own fees for new students. Existing students at 14 May 2014 will not be affected until Students or their parents planning to make upfront payments or voluntary payments towards their higher education course fees will face increased costs. An increase to the annual indexation rate applied to the HELP debts and a reduction to the HELP repayment threshold will mean students will be forced to start repaying their HELP debts sooner than before, putting pressure on their cash flow in the early stages of their career. Infrastructure An additional $11.6 billion has been committed to infrastructure spending on top of the existing commitment to spend $39 billion, bringing the government s total infrastructure spend to $50 billion over the next five years. The bulk of the funds will go towards improving roads and rail links, reducing congestion and improving access to regional areas. Increased infrastructure spending should provide an initial stimulus to the economy, however, the results of long-term economic growth won t be realised for many years to come. Much of the potential growth will depend on the effectiveness of the states and territories in using the additional Commonwealth infrastructure funding to drive private sector productivity. Infrastructure spending is a long-term capital intensive investment, which will likely involve public/ private partnerships. Fuel excise From 1 August 2014, the government will reintroduce indexation of the fuel excise, which was frozen at 38.1 cents a litre in 2001 by the Howard government. The funds raised from the fuel excise will go towards planned road infrastructure spending. The increased fuel excise will have a direct impact on the cost of fuel for all motorists. Consumers can also expect to see a rise in the price of goods and services as businesses pass on the added costs of fuel. General Advice Warning: This advice is general advice only. It has been prepared without taking account of your objectives, financial situation or needs. Therefore, before acting on the advice, you should contact your Dixon Advisory Advisor to discuss the appropriateness of the advice, having regard to your objectives, financial situation and needs. 11 Please see important disclosures at the end of this document dixon.com.au