Federal Budget Update Adviser Version

Transcription

1 Federal Budget Update 2012 Adviser Version

2 BT Federal Budget Update 2012 Highlights of the 2012 Budget Key points on Economics 1. Budget Overview The Economic Background 3. Market Reaction Key points on Superannuation Key points on Taxation Key points on Social Security 1. Additional 15% tax on super contributions 2. Higher concessional contributions cap 3. Low income superannuation contribution 4. Super Guarantee changes 5. Tax relief for super fund mergers 6. SuperStream levy for super funds 1. Reductions in personal income tax 2. Increase in Medicare Levy low income thresholds 3. Loss carry back initiative for companies 4. Tax relief for businesses 5. Company tax rate cut to 28% abolished 6. 50% tax discount for interest income 7. Standard deduction for work related expenses 8. Amendments to Part IVA anti avoidance measures 9. Dependency tax offsets to be consolidated into one 10. CGT discount for non-residents 11. Income tax rate increase for non residents 12. Employment termination payment offset 13. Further reform for living away from home allowances 14. Means testing of net medical expenses tax offset 15. Mature age worker tax offset phased out 16. Recent disaster victims exempt from Flood Levy 1. National Disability Insurance scheme 2. Aged Care 3. Schoolkids bonus 4. Changes to Family Tax Benefit A 5. Australian working life Residency 6. Portability of Australian Government payments 7. Parenting Payment 8. Other minor changes BT Federal Budget Update

3 Key Points on Economics 1. Budget Overview 2012/13 The 2012/13 Budget was framed against an intriguing background; a Government in trouble and a two-speeded economy, both desperately seeking traction. In the past two Budgets, the Labor Government made a commitment to return to surplus in 2012/13. In the run-up to Tuesday night, it repeated this commitment at length. So it is no surprise at all that the Budget for 2012/13 projects a wafer-thin surplus of $1.5 billion. Given that a substantial deficit will be recorded this year (the current estimate is $44.4 billion), this will be a massive fiscal turnaround if achieved, equivalent to just over 3% of GDP (see table below). Not only would it be unprecedented in Australia, it would have rarely happened elsewhere. At present, probably only Greece and New Zealand are engaging in fiscal tightening of the same magnitude. This rapid return to surplus has been typified as sound economics. It is not. Among other things we have been told that it will permit more interest rate cuts than would otherwise occur. While there may be some truth to this at the margin, monetary and fiscal policy are not perfectly interchangeable. To attempt to offset fiscal tightening by monetary loosening is roughly equivalent to advocating that extra pressure on the brake while driving will enable greater use of the accelerator. Given that the commitment to return to surplus has been made in each of the past two years, it is helpful to look at why more has to be done in this year s Budget if this goal is to be achieved. It is mainly because the economy has grown more slowly than expected, and hence revenues have fallen short of expectations. So we are tightening fiscal policy further because of the surprising weakness of the economy! Most economists would argue that fiscal policy should lean against the business cycle; that is it should be anti-cyclical. Some may argue that it should simply be neutral. Very few with sound economics training would argue that it should be pro-cyclical, but that is what it has effectively become. While it is true that the Budget should be pointed in the direction of eventual balance, to endeavour to get there in one year, given the current softness of the non-mining economy, could well be counter-productive. Of course, we know that even if a surplus is achieved, some of it will be by means of smoke and mirrors. To take one example; the initial cash-in-hand compensation for the carbon tax will be paid out this year, thus increasing the starting-point deficit, while the revenue will be collected next year, thus increasing the size of the fiscal turnaround. But this is actually a virtue rather than a criticism. Given the shaky economic case for a quick return to surplus, if it is partly achieved by means other than genuine tightening so much the better! The true fiscal consolidation between this year and next is closer to 2% of GDP than 3%. BT Federal Budget Update

4 2. The Economic Background The principal Budget forecasts appear below The Australian economy is expected to show growth of 3% in the current fiscal year, accelerating to 3.25% in 2012/13 before settling back to 3% in 2013/14. The 2011/12 forecast is down by a quarter of a percent from that contained in the Mid-Year Economic and Fiscal Outlook (MYEFO) published last November. The level of GDP in 2012/13 is about 1.5% lower than assumed in last year s Budget, with nominal GDP perhaps 2% lower hence the loss of revenue before policy change. The growth in GDP is dominated in the first two years by a continuation of the mining investment boom; business fixed investment is expected to grow by 12.5% in 2012/13 and 8% in 2013/14. The forecast for the labour market is reasonably healthy. The inflation forecast includes an allowance of about 0.75 percentage point for the introduction effects of the carbon tax. BT Federal Budget Update

5 This forecast appears reasonable; while taking a view of the future is always fraught with peril, the Treasury/Government probably does it as well as anyone. That said, most forecasters (including the Reserve Bank) would have lower growth for the current year than the 3% in the table above. Given that the unemployment rate is assumed to fall to 5% and then flat-line, it could be argued that there is more downside than upside risk to the growth forecast. If, of course, growth were to fall short of this forecast then it would be quite appropriate to let the Budget bottom line take a hit. The Government is not guilty of cooking the economic books in order to achieve the ongoing surplus. Against this background, the Government is budgeting for a return to surplus in 2012/13, with a small surplus being maintained in the out-years. There are so many ways in which this can go wrong. First, the Budget measures have to be passed. Second, just as the economic background can turn out to be far different from that expected, so too can revenues, even given the state of the economy. In recent years, for example, revenues have tended to fall short of expectations. They have actually risen quite strongly, just not as strongly as projected. Some of the disappointment has come about because of volatility in corporate profits tax receipts, and because of the long-lasting effects of the GFC on capital gains taxes, for example. Some of the revenue disappointment has stemmed from the fact that, in recent years, growth has been dominated by lightly-taxed capital spending rather than consumer spending, which is subject to the GST. It won t get any easier to forecast revenues in the future, particularly for new taxes. The Minerals Resource Rent Tax (MRRT), for example is designed to ebb and flow with commodity prices; there has been substantial disagreement between the industry and the Government as to how much it is likely to raise. Even before the MRRT, the flow of revenues was very sensitive to movements in commodity prices. Deloitte Access Economics have calculated that a slowdown in Australia, accompanied by a global slowdown that led to a sharp fall in commodity prices, could quickly put the Budget in the hole by a staggering $36 billion in 2013/14! And that s before any offsetting easing of policy. Given that there is so much room for error, it is fortunate that it is far more important to have the Budget pointed in the right direction than it is for it to record a certain figure for the surplus or deficit! How the Surplus Was Achieved For a Budget that was pre-advertised as tough, there doesn t seem to be a lot of pain here. High-income earners get slugged, and a few planes don t get bought until later. Several measures announced in earlier Budgets but not yet implemented have been deferred or cancelled. People won t miss too much what they hadn t got yet. The Government s summary of the effect of measures announced since the MYEFO appear in the table below. In brief, spending has been raised, but so too have revenues. The net effect on the bottom line over the 5-year period is $17 billion. The biggest items of new spending include about $5 billion for families, $2.7 billion for the Pacific Highway and $1 billion for the new Disability Insurance scheme. On the savings side, there is a net $4 billion in lower/deferred defence spending, and $4.8 billion from a cancellation of the corporate tax cut. Do not proceed moves with respect to the standard deduction and reduced taxation of interest income contribute $3 billion (if they BT Federal Budget Update

6 were a good idea when announced, what has changed since then?) and the widely-bruited superannuation measures (deferral of higher concessional contributions and a higher tax rate for those earning more than $300,000) chip in with $2.4 billion. Reform of living-awayfrom home allowances (clearly a good idea) contributes $1 billion (all amounts are over the five-year period to 2015/16). Only a cynic would note that the Budget has been moved towards surplus in every year except the current one. The deficit has been increased this year in order to facilitate the return to surplus next year (see smoke and mirrors discussed earlier). 3. Market Reaction Markets don t fuss nearly as much about Budgets as they used to do, and quite right too. None of the new policy measures seem to have dramatic equity market implications (if they did, the incessant pre-publication would mean that it s already priced in), and the debt projections only confirm what is widely known except for a few recalcitrant politicians and some ignorant agenda-pushing shock jocks; Australia does not have a Government debt problem, and is in no danger of losing its AAA rating. Given that the 10-year bond rate starts at less than 3.5%, this seems to be well recognized by markets. Federal Government net debt is projected to peak at $145 billion (8.9% of GDP) in 2013/14, falling to 7.3% of GDP two years later. Chris Caton - Chief Economist, BT Financial Group The views expressed in this article are the author s alone. They should not be otherwise attributed. BT Federal Budget Update

7 Key points on Superannuation 1. Additional 15% tax on superannuation contributions for high income earners Effective Date: 1 July 2012 The Government confirmed the introduction of an additional 15% tax on concessional contributions made to superannuation for those earning income of more than $300,000pa. The definition of income for this purpose includes: Taxable income Concessional contributions Adjusted fringe benefits Total net investment loss Target foreign income Tax-free Government pension and benefits Less child support payments For the purpose of this additional tax, concessional contributions includes SG contributions, voluntary employer contributions, salary sacrifice contributions and personal deductible contributions. For defined benefit members, concessional contributions also include notional employer contributions to (funded and unfunded) defined benefit schemes. The Government has advised that if a taxpayer s income exceeds $300,000 only due to their concessional contributions, the additional 15% tax will only apply to that portion of their contributions in excess of $300,000. For example, where income excluding concessional contributions is $285,000, and concessional contributions are $20,000 taking total income to $305,000, the additional tax will only apply on $5,000 of the concessional contributions. The additional tax will not apply to excess contributions (those over the concessional contributions cap) as the individual has not received any tax concessions on these. Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details. The table below illustrates the impact of the additional 15% tax in a range of circumstances. Salary (excluding Super) $280,000 $280,000 $300,000 $300,000 Concessional contributions $25,000 $30,000 $25,000 $30,000 Contributions tax at 15% $3,750 $4,500 $3,750 $4,500 Additional 15% tax $750 $1,500 $3,750 $3,750 Excess tax at 31.5% $0 $1,575 $0 $1,575 Total Conts tax $4,500 $7,575 $7,500 $9,825 Net Super contribution $20,500 $22,425 $17,500 $20, Higher concessional contributions cap for those aged 50 years and over BT Federal Budget Update

8 Effective date: 1 July 2014 The existing transitional $50,000 concessional contributions cap for individuals who are aged 50 or over ends on 30 June On 2 May 2010, the Government announced as part of the Stronger, Fairer, Simpler: A Tax Plan for our Future that from 1 July 2012, it would provide a higher concessional contributions cap for individuals aged 50 years or over with total superannuation balances below $500,000 from 1 July The Government has reconfirmed their commitment to this measure but will defer the start date by two years, to 1 July From 1 July 2014, individuals aged 50 and over with superannuation balances below $500,000 will be able to make up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap. This means for the 2012/13 and 2013/14 financial years, the general $25,000 concessional contributions cap will apply to all individuals. The general concessional contributions cap is projected to increase to $30,000 for the financial year (assuming AWOTE of 4% pa). This means the higher concessional cap would commence at $55,000. Impact: For clients who are aged 50 and over this financial year, this is their last chance to take advantage of the higher $50,000 concessional contributions cap for at least 2 years. Clients who are currently contributing more than $25,000 per financial year, will need to review the amount they are contributing from July This may include reviewing salary sacrifice and TTR strategies. Finer details on how the higher cap will operate from 1 July 2014 are still unknown. Splitting contributions to spouses may become more attractive if this measure is introduced. 3. Low income superannuation contribution (LISC) Effective Date: 1 July 2012 (already legislated) The LISC, will effectively return the amount of tax paid on concessional contributions to superannuation for eligible low income earners. An individual will generally be eligible for LISC in a financial year if their adjusted taxable income 1 is not more than $37,000 and at least 10% of their total income 2 was sourced from employment. The amount of LISC payable will be calculated as 15% of the total concessional contributions made by or on behalf of the individual for the financial year, up to a maximum BT Federal Budget Update

9 of $500. Where the amount of LISC calculated is less than $20, no LISC will be paid on behalf of the individual. The ATO will generally pay the LISC to a superannuation fund or RSA that holds an interest on behalf of the individual. 1_Adjusted taxable income = taxable income + adjusted fringe benefits + target foreign income + total net investment loss + tax-free pension or benefit + reportable superannuation contributions LESS deductible child maintenance expenditure. 2_Total income = assessable income + reportable fringe benefits + reportable employer superannuation contributions 4. Superannuation Guarantee (SG) Changes Effective Date: 1 July 2013 (already legislated) From 1 July 2013, the SG rate will gradually increase each financial year until it reaches 12% from 1 July The first increment in 2013/14 will bring the SG rate to 9.25%. The table below shows the SG rate applying for each financial year up to 2019/20. Quarter during the income year Charge percentage (%) and subsequent income 12 years From 1 July 2013, the maximum age limit for receiving SG contributions (currently age 70) will also be abolished. Impact: Leading up to the commencement on 1 July 2013, advisers may need to examine all clients with salary sacrifice arrangements in place to ensure that the rise in SG will not result in their clients exceeding their concessional contributions cap. Corporate super advisers may wish to begin educating employers of their new obligations. 5. Tax relief for super fund mergers Effective date: 1 June 2012 and 1 July 2013 The Government reconfirmed its intention to provide tax relief allowing superannuation funds to merge without triggering adverse tax consequences for members. BT Federal Budget Update

10 Given the potential benefits to members participating in superannuation fund mergers and successor fund transfers as well as the possible costs for superannuation funds transitioning to MySuper, the Government will provide: from 1 June 2012 to 1 July 2017, optional loss relief for mergers of complying superannuation funds on the same terms and conditions as the former temporary loss relief (which ceased 30 September 2011) with some exceptions including an optional roll-over for capital gains and proposed integrity provisions; and from 1 July 2013 to 1 July 2017, an optional roll-over and loss relief for capital gains and capital losses on mandatory transfers of default members benefits and relevant assets to a MySuper product in another complying superannuation fund. Self-managed superannuation funds will be excluded from the relief because the MySuper requirements do not apply to them. A discussion paper on this tax relief will be released in the next few weeks. 6. SuperStream levy for superannuation funds Effective Date: 1 July 2012 The Government confirmed that a temporary SuperStream levy will be paid by APRAregulated superannuation funds to cover the costs of implementing the SuperStream reforms. This levy will be collected by APRA within the existing Superannuation Supervisory levy. The additional SuperStream levy will be $121.5 million in , $111.1 million in , $83.1 million in , $69.3 million in , $41.2 million in and $40.9 million in A discussion paper will be released shortly setting out how the levy will be apportioned between superannuation funds. BT Federal Budget Update

11 Key points on Taxation 1. Reductions in Personal Income Tax Effective Date: 1 July 2012 The Government has confirmed previously announced changes to the personal income tax rates and Low Income Tax Offset (LITO) to apply from 1 July These changes are aimed at delivering tax cuts to the low and middle income earners, ensuring assistance is received for the impact the carbon price will have on the cost of living. These changes have already been legislated. Tax rates and thresholds for this and the next financial year are shown below: Income Threshold $ Marginal rate* Personal income tax rates 2011/ /13 Tax on this income* Income Threshold $ Marginal rate* Tax on this income* Up to 6,000 Nil Nil Up to 18,200 Nil Nil 6,001 37,000 15% 37,001 80,000 30% 80, ,000 37% 15c for each $1 over $6,000 18,201 37,000 19% $4,650 plus 30c for each $1 over $37,000 37,001 80, % $17,550 plus 37c for each $1 over $80,000 80, ,000 37% 19c for each $1 over $18,200 $3,572 plus 32.5c for each $1 over $37,000 $17,547 plus 37c for each $1 over $80, , % $54,550 plus 45c for each $1 over $180, , % $54,547 plus 45c for each $1 over $180,000 * These rates apply to Australia residents for taxation purposes and do not include the Medicare Levy of 1.5%. LITO will decrease from $1,500 to $445 for 2012/13, phasing out after $37,000 by 1.5 cents in the dollar to a maximum of $66,667 as per the below table. The impact of these changes are that the effective tax-free threshold will increase from $16,000 to $20,542 in 2012/13. Additional changes will also come into effect from 1 July 2015 as follows: The tax-free threshold will increase to $19,400 Marginal tax rate of between $37,001 and $80,000 will increase to 33% (or $3,344 plus 33c for each $1 over $37,000) The Low Income Tax Offset will further decrease to $300 with a phase out rate of 1% and an upper limit of $67,000. The graphs below show the reduction in tax payable for the 2012/13 financial year as compared to the 2011/12 financial year for a range of taxable incomes. BT Federal Budget Update

12 $700 $600 $500 Clean Energy Tax Savings 2012/13 Clean Energy Tax Savings 2012/13 $400 $300 $200 $100 $0 Taxable Income $800 $700 $600 $500 $400 $300 $200 $100 $0 Combined Tax Savings 2012/13 (Flood Levy + Clean Energy) Flood Levy Savings 2012/13 Taxable Income 2. Increase in the Medicare Levy low income thresholds Effective Date: 1 July 2011 and 1 July 2012 The Government has announced new Medicare levy thresholds that are applicable for the current financial year (ending 30 June 2012). These are $19,404 for individuals (previously $18,839) and $32,743 for families (previously $31,789). The increase on these thresholds for each dependent child or student will be $3,007 (up from $2,919). BT Federal Budget Update

13 The low income threshold for single pensioners below age pension age has been increased to $30,451 (previously $30,439) for the year ending 30 June This will ensure such pensioners do not pay the Medicare Levy when they do not have an income tax liability. As part of the Clean Energy Future Plan household assistance package, from 1 July 2012, the Medicare Levy low income threshold: for individuals, will increase to $20,542; and for single pensioners below age pension age, will be fixed at the level applicable to seniors entitled to the Senior Australians Tax Offset (SATO), as part of the merger of the pensioner tax offset into the SATO 3. Loss-carry back initiative for companies Effective date: 1 July 2012 As announced in early May, the Government will provide new tax relief for companies by introducing a loss carry-back initiative. This initiative will allow companies to 'carry back' their losses (as an alternate to the current carry forward provisions), to offset past taxable income and obtain a refund of tax previously paid. From 1 July 2012, companies will be able to carry back up to $1 million worth of losses and receive a refund of tax paid of up to $300,000 for the financial year 2011/12. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid for each of the two years earlier, providing a tax refund of up to $300,000 per year. The Government will release a discussion paper about the loss carry-back initiative in the next few weeks. 4. Tax relief for businesses immediate deduction Effective Date: 1 July 2012 (already legislated) Other tax relief for small businesses applying from , regardless of structure, include: an immediate deduction for the cost of any new business assets costing less than $6,500, for as many assets as they purchase assets costing $6,500 or more will be depreciated in a single pool (15% in the first year, 30% in each subsequent year) an immediate deduction for the first $5,000 of a new or used motor vehicle. 5. Company tax cut to 28% abolished Effective date: will not proceed The Government has decided not to proceed with lowering the company tax rate (due to start from 2013/14 financial year, or 2012/13 for small businesses). The Government has put this decision down to the fact that they have not been able to progress this change through the Parliament. BT Federal Budget Update

14 6. 50% tax discount for interest income Effective date: will not proceed The government has abolished this measure which was due to commence on 1 July Originally announced in 2010, the 50% discount was to apply to the first $1,000 on interest income earned from 1 July As part of the Mid Year Economic and Fiscal Outlook in November 2011, the measure was delayed by another year and was due to start on 1 July The government s public consultation process revealed concerns with the complexity involved in calculating the discount. 7. Standard deduction for work related expenses Effective date: will not proceed The government will not proceed with this measure which was due to commence on 1 July In the 2010 Budget, the Government announced individual taxpayers would have the option of receiving a standard deduction for work related expenses and the cost of managing tax affairs. The standard deduction was originally intended to be $500 in 2012/13 and $1,000 from 1 July 2013 onwards. 8. Amendments to Part IVA general anti-avoidance rule Effective date: 1 March 2012 On 1 March 2012, the Government announced that amendments would be made to Part IVA of the Income Tax Assessment Act 1936 to ensure that the general anti-avoidance rule continues to be effective in countering tax avoidance schemes carried out as part of broader commercial transactions as well as protect the integrity of the tax system. These proposed changes have been brought about by recent court cases, the outcome of which potentially affected the overall effectiveness of Part IVA. Extensive consultation on these amendments will be conducted to ensure that do not interfere with genuine commercial transactions and activities of taxpayers. The Government intends to only introduce the Part IVA amendments into Parliament in the Spring 2012 sittings, however, it has indicated that the amendments will apply to schemes carried out or entered into from 2 March BT Federal Budget Update

15 9. Dependency tax offsets to be consolidated into one Effective date: 1 July 2012 Eight dependency tax offsets will be consolidated into a single, non-refundable offset which will only be available to individuals who maintain a dependant who is genuinely unable to work due to carer obligations or disability. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child house-keeper, child housekeeper (with child), invalid relative and parent/parent-in-law tax offsets. 10. CGT discount for non-residents Effective date: 7.30pm (AEST) on 8 May 2012 The government has announced that it will remove the 50% CGT discount for non-residents on capital gains accrued after 7.30pm (AEST) 8 May This will be grandfathered with the CGT discount available for gains that accrued prior to this time where non-residents choose to obtain a market valuation of assets as at 8 May Impacts If you have clients in the following situations, they should seek professional tax advice: Former Australian tax residents, who made the choice on leaving Australia to have their CGT assets remain taxable. Current tax residents who are contemplating moving overseas for extended periods of time. BT Federal Budget Update

16 11. Income tax rate increase for non-residents Effective date: 1 July 2012 The personal income tax rates and thresholds that apply to non-residents Australian income will be increased as per the following table: Taxable income Tax rate Taxable income Tax rate $0 - $ % $ $37,000 29% $37,001-30% Up to $80, % 33% $80,000 $80,001-37% $80,001-37% 37% $180,000 $180,000 Over $180,000 45% Over $180,000 45% 45% 12. Employment termination payment offset Effective date: 1 July 2012 Currently the employment termination payment (ETP) tax offset can be used to reduce tax payable on payments included in remuneration packages such as golden handshakes. The current rules excluding the transitional measures are: Age at 30/6/2012 Taxable Maximum Tax rate* component Below preservation age First $165, % excess 46.5% Preservation age and over First $165, % excess 46.5% * These rates apply to Australia residents for taxation purposes and include the Medicare Levy of 1.5%. From 1 July 2012 the rates of tax applying to ETPs will be: Age at 30/6/2013 Taxable Maximum Tax rate* component Below preservation age First $175, %, until income 1 reaches $180,000 then 46.5% excess 46.5% Preservation age and over First $175, %, until income 1 reaches $180,000 then 46.5% excess 46.5% * These rates apply to Australia residents for taxation purposes and include the Medicare Levy of 1.5%. 1 Income = taxable income (including the ETP) Existing arrangements will be retained for certain ETPs relating to legitimate redundancy, invalidity, compensation due to an employment-related dispute and death. BT Federal Budget Update

17 Impact: Clients who receive golden handshakes from 1 July 2012 may be impacted. It is important to note that the ability to contribute qualifying Transitional Termination Payments into super ceases on 30 June Fringe benefits tax - further reform for living away from home allowances Effective date: from 1 July 2012 and 1 July 2014 The Government announced it will reform the tax concessions for the living away from home allowance by better targeting them at people who legitimately maintain a second home in addition to their actual home for an initial period of 12 months. This will commence from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012 and from 1 July 2014 for arrangements entered into prior to that time. This measure is not intended to affect the tax concession for fly-in fly-out arrangements as these employees will not be subject to the 12 month limit or the tax treatment of travel and meal allowances which are provided to employees who have to travel away from their usual place of work for short periods. 14. Means testing of net medical expenses tax offset Effective date: 1 July 2012 A means test will be introduced for the net medical expenses tax offset (NMETO) from 1 July Individuals with adjusted taxable income above the Medicare Levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012/13) will only receive a 10% reimbursement of eligible out of pocket expenses incurred greater than $5,000 instead of the current $2,060. Those earning under the thresholds will still be entitled to the 20% offset. 15. Mature age worker tax offset phased out Effective date: 1 July 2012 The mature age worker tax offset (MAWTO) will be phased out for taxpayers born on or after 1 July 1957 (ie individuals aged under 55 on 1 July 2012). Access to the MAWTO will be maintained for taxpayers who are aged 55 years as at 1 July Recent disaster victims exempt from flood levy Effective: 1 July 2011 A flood and cyclone reconstruction levy generally applies to individual taxpayers with income over $50,000 in 2011/12. Individuals who received an Australian Government Disaster BT Federal Budget Update

18 Recovery Payment (AGDRP) from Centrelink for certain natural disasters in 2010/11 were generally exempt from the payment of this levy. That exemption has now been extended to include: Those eligible for that AGDRP but did not apply for it, and Those eligible for an AGDRP for natural disasters in 2011/12, namely the floods in NSW and Queensland. BT Federal Budget Update

19 Key points on Social Security 1. National Disability Insurance Scheme Effective Date: 1 July 2013 The government announced $1 billion of funding in the budget to start rolling out a National Disability Insurance Scheme (NDIS). In August 2011, the Productivity Commission recommended that a NDIS be created to provide all Australians with insurance for the costs of long-term care and support if they or a family member acquire a significant disability. The government announced in late April that the first stage of National Disability Insurance Scheme will start from July 2013 in up to four locations across Australia. From that time, people with significant and permanent disabilities will start to receive support, regardless of how they acquired their disability. A new National Disability Transition Agency, funded by the Australian Government, will be established to run the delivery of care and support to people with disability, their families and carers in the select locations. The NDIS will be designed to provide: Lifetime approach individualised care and support received will change as needs change Choice and control people choose how they get support and have control over when, where and how they receive it. Social and economic participation Focus on early intervention Diagram: Client Centered Approach for People Eligible for Individualised NDIS funding support Source: Budget Overview 2012 BT Federal Budget Update

20 2. Aged Care On 20 April 2012, the Government released its Living Longer. Living Better aged care reform package which is its response to the Productivity Commission s inquiry. During the budget they confirmed a number of the measures in the package and provided some additional details. Means testing of Home Care services Effective date: 1 July 2014 Currently, a recipient of Home Care support can be asked to contribute towards the cost of their care by way of two fees, a basic fee which is 17.5% of the basic Age Pension and an income tested fee. However, for a variety of reasons the current system has been ineffective in raising the income tested fee. The Government has proposed to introduce a more formal income tested care fee. Those on the full Age Pension will not be required to pay the new income tested fee. Part pensioners will be required to pay a fee capped at $5,000 pa and the fee for self funded retirees will be capped at $10,000 pa. Means testing of residential aged care Effective date: 1 July 2014 The Government will remove the current distinctions between low level and high level care and the associated differences on fees on entry to residential care and strengthen the means testing arrangements for people entering residential care. It will combine the current income and asset tests to ensure a consistent fees policy to provide more equality in accommodation and care payments for age care residents. The treatment of the family home will not change from current arrangements. The current exemptions for accommodation payments within the Age Pension means test will be maintained. All residents who can afford to pay their residential care costs will have the choice of paying through a fully refundable lump sum, or a rental style periodic payment, or a combination of both. Providers will not be allowed to choose between prospective residents on the basis of how they intend to pay. A new cooling off period will mean that residents will not need to decide how they intend to pay until they have actually entered care. Ongoing care and accommodation fees will also change as follows: the current basic fee of up to 84% of the basic age pension a means tested contribution to the accommodation cost a means tested contribution to the care cost People in residential care on 30 June 2014 will continue under their current fee arrangement. BT Federal Budget Update

21 3. Schoolkids bonus Effective date: 1 January 2013 From 1 January 2013, the Government will replace the Education Tax Refund (ETR) with a Schoolkids Bonus which will be paid as two equal instalments in January and July each year commencing January From this date, eligible families with children enrolled and attending school will receive:- $410 pa for each primary school student, and $820 pa for each secondary school student All eligible families will receive the full rate of payment. As a result, unlike the ETR families are not required to receipts as proof of purchase, or wait until they submit their tax return to receive the Schoolkids bonus. Eligibility for this bonus is the same as that for the ETR, and is primarily for families receiving Family Tax Benefit Part A. As a transitional arrangement the ETR in 2011/12 financial year will be replaced by a one-off lump sum payment to eligible families in June Changes to Family Tax Benefit Part A Effective date: 1 July 2013 From 1 July 2013, the Government will increase the maximum payment of Family Tax Benefit (FTB) Part A by:- $300pa for families with 1 child, and $600pa for families with 2 or more children Families receiving the base rate of FTB Part A the increase will be:- $100pa for families with 1 child, and $200pa for families with 2 or more children Additionally, the Government will tighten the age requirement for FTB Part A from less than 21 years of age, to less than 18 years of age (or where a young person remains in secondary school, the end of the calendar year in which they turn 19). Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance subject to usual eligibility requirements. 5. Australian Working Life Residency Effective date: 1 January 2014 Currently, Age Pension recipients who are overseas for more than 26 weeks are only paid their maximum entitlement if their Australia Working Life Residence (AWLR) is 25 years or more. A recipients AWLR refers to periods from age 16 to Age Pension age when they were an Australia resident. (There is no requirement to work to accrue AWLR years). BT Federal Budget Update

22 The Government will amend these rules so that the maximum entitlement will only continue if their AWLR is 35 years or more. Pension recipients with less than 35 years AWLR will be paid a proportional rate. Pensioners overseas on the date of implementation will not be affected by this change unless they return to Australia for at least 26 weeks. In addition, all partnered pensioners residing overseas will be paid based on their own AWLR rather than their partner s AWLR. 6. Portability of Australian Government Payments Effective date: 1 January 2013 Currently, certain Social Security recipients who are temporarily absent from Australia continue to receive their payment for 13 weeks. From 1 January 2013, this period of will reduce to 6 weeks. The main payments affected include:- Disability Support Pension (except those assessed under new rules from 1 July 2012 as having a severe and permanent disability and no future work capacity); Parenting Payment; Carer Payment; Carer Allowance; Family Assistance; and Paid Parental Leave. The Age Pension will be excluded (subject to the AWLR changes above) as this payment can be paid overseas indefinitely, once certain criteria are met. Centrelink recipients who are outside Australia on the date of implementation will retain the 13 week portability of their payments until they return to Australia. 7. Parenting Payment tightening of eligibility for grandfathered recipients Effective date: 1 January 2013 Currently, recipients of Parenting Payment (PP) who were granted the payment prior to 1 July 2006 do not lose eligibility until their youngest child attained age 16. From 1 January 2013, the Government will align PP eligibility for all recipients so that the payment will cease when the recipients youngest child attains age 6 (for partnered recipients), or age 8 (for single recipients). Recipients who cease to be eligible for PP will transition to Newstart Allowance (NSA) unless they move into paid employment. This will result in the more onerous activity test associated with NSA, and for single parents:- A reduction in the payment rate, and BT Federal Budget Update

23 A more generous income test taper compared to other recipients of NSA (40 cents rather than 50 cents) for every dollar of income earned above the income-free area (currently $62 per fortnight). 8. Other minor changes i. Investment property review Effective date unknown Certain income support recipients who own investment property will be subject to an asset review once a year (currently once every 2 years). ii. Liquid Asset Waiting Period Effective date 1 July 2013 The Government will increase the maximum reserve amount for the liquid assets waiting period for recipients of particular income support payments. Liquid assets are assets in the form of cash or those which can be easily converted into cash, including shares and term deposits. A single person without dependents will now have an increased maximum reserve amount of $5,000, while a person who is a member of a couple and/or has a dependent child will now have an increased maximum reserve amount of $10,000. The change will affect applicants for Newstart Allowance, Youth Allowance, Sickness Allowance and Austudy payments. iii. Reporting process for Family Tax Benefit recipients and Commonwealth Seniors Health Card (CSHC) holders Effective date 1 July 2012 The income reporting process for FTB recipients and CSHC holders will be streamlined for those who are no longer required to lodge a tax return as a result of the increase in the tax free threshold. This will allow those in the $6,000 - $18,200 income range to update their income online, over the phone, or in person with the Department of Human Services to reconcile their FTB A entitlement/determine their CSHC eligibility. iv. New Supplementary Allowance Effective date: March 2013 The Government will create a new Supplementary Allowance for certain income support recipients to help them meet the costs of essential bills. The Supplementary Allowance will BT Federal Budget Update

24 be payable to those receiving qualifying payments including Newstart Allowance, Youth Allowance and Parenting Payment. Singles will receive an additional yearly allowance of $210, and couples will receive $350, paid in two instalments in March and September, with the first payment to commence on March Disclaimer The information contained in this document dated 9 May 2012 has been given in good faith and has been derived from laws current at this date and our interpretation of them. It has also been devised from the 2012 Federal Budget Papers, Ministerial statements, associated materials, and our interpretation of them. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice. 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 the Westpac Group, or the BT Financial Group, 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 BT Financial Group. It is important to note that the policies discussed in this webcast are yet to be passed as legislation and therefore may be subject to change or further refinement. This disclaimer is subject to any contrary requirement of the law. BT Federal Budget Update