For once, the Budget left superannuation unchanged and reconfirmed all the previous announcements. Here is a rundown of the changes coming up, plus two other budget announcements that may affect some readers (the abolition of the net medical expenses tax offset, and a pilot program to help senior Australians downsize from the family home).
Legislation is currently before the Parliament to increases the concessional contributions cap to $35,000 for people aged 60 or over for the next financial year (2013/14), and for people aged 50 or over, from 2014/15. The expected concessional contributions caps are now as follows:
Super contributions go up to 9.25%
The super guarantee percentage increases from 9% to 9.25%. The maximum super contribution base increases to $48,040 per quarter (or approx $192,160 per annum). Technically, an employer is not obliged to make super contributions above this salary.
Low rate cap for lump sum payments
The low rate cap amount (the threshold at which the taxable component of lump sum payment may be taxable for some taxpayers) increases to $180,000, the untaxed plan and CGT cap amounts increase to $1,315,000.
Tax on income from pension assets
Announced on 5 April, this is the plan to tax the income earned on the assets supporting a pension. The first $100,000 per member will be tax free, the amount in excess would be taxed at 15%. The scheduled start date is 1 July, 2014.
Although unlikely to ever be legislated, the Government has reconfirmed its intent to proceed.
Net Medical Expenses Tax Offset to go
Last budget, the Government tightened eligibility, halved the rate, and increased the threshold for the Net Medical Expenses Tax Offset. In 2012/13, if your adjusted taxable income was over $84,000 as a single (or $168,000 as a couple), a tax offset of 10% of medical expenses in excess of $5,000 was available. If your adjusted taxable income was under these levels, the tax offset was 20% on expenses in excess of $2,120.
Unless you have aged care or disability expenses, the offset will not be available in 2013/14 unless you lodge a claim this year, in which case you may also be able to claim for the last time in 2014/15. Where aged care or disability expenses are involved, the offset may potentially be available until 2018/19.
Seniors downsizing from the family home
Perhaps the most innovative announcement was the introduction of a pilot program to provide a means test exemption for age pension recipients downsizing from their family home. The idea is to remove the “loss of pension/pension entitlement” disincentive for seniors to consider more appropriate housing.
If the pilot goes ahead in July 2014, then up to $200,000 of the net proceeds from the downsize, which are then deposited into a special bank account, would be exempt from pensions means testing for up to 10 years. To qualify for the downsize, the family home would need to have been owned for at least 25 years, and the new accommodation could include a granny flat or retirement village, but not residential age care.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report
- James Dunn: Bumper bank season for the Big Four
- Alex Milton: Fundie’s favourite – NovaPort on Kathmandu Holdings
- Geoff Wilson: Listen to Buffett – this too will end
- Ron Bewley: Time to rotate into the resources sector
- Tony Negline: Make sure your employer gets super contributions right
- Tony Negline: Question of the week – can my SMSF part-own my farm?