Legislative Changes

A number of important legislative changes that may impact clients and client strategies have now received Royal Assent and become law, including:

• Higher tax on concessional contributions for very high income earners (effective 1 July 2012).
• A higher concessional contributions cap for clients aged 60 or over (effective 1 July 2013).
• Excess concessional contributions taxed at a client’s marginal tax rate and refundable (effective 1 July 2013).
• Reduction in maximum co-contribution to $500 from 1 July 2012.
• Abolishing the Baby Bonus from 1 March 2014.

In addition, significant aged care reforms have been legislated.

Tax on concessional contributions for very high income earners

From 1 July 2012, clients with income exceeding $300,000 are subject to an additional 15% tax on part or all of their non-excessive concessional contributions.

The definition of income used to determine whether a client must pay this additional tax includes:

• Taxable income (including the net amount on which family trust distribution tax has been paid).
• Reportable fringe benefits.
• Total net investment loss.
• Low tax super contributions (which in most cases are non-excessive concessional contributions).

The additional 15% tax is only payable on the portion of low tax contributions which (along with other income) exceed the $300,000 threshold. It is levied on the client by the ATO in a similar way to excess contributions tax.

$35,000 concessional contributions cap for clients aged 60 or over

Clients aged 59 or over on 30 June 2013 have access to a higher concessional contributions cap of $35,000 for the 2013 — 14 financial year. From 1 July 2014, this higher cap extends to clients aged49 or over on 30 June 2014.

The $35,000 higher concessional cap is not indexed. Indexation of the standard concessional cap means that by 1 July 2018, it is expected to equal the higher cap amount of $35,000.

This higher cap replaces the Government’s previous proposal to allow a $50,000 concessional cap to those aged 50 or more with superannuation balances below $500,000.

Changes to the treatment of excess concessional contributions

Excess concessional contributions made from 1 July 2013 will effectively be taxed at a client’s marginal tax rate. This is achieved through:

• The 15% tax payable by the client’s super fund.
• Any excess concessional contributions being included in the client’s assessable income.
• The client receiving a tax offset equal to 15% of their excess concessional contributions.

An excess concessional contributions charge (essentially an interest charge) also applies to recognise that a client making excess concessional contributions can avoid these amounts being taken into account under the PAYG rules.

From 1 July 2013, clients can also elect to have up to 85% of their excess concessional contributions released from their super fund.

Maximum co-contribution reduced to $500

Legislation has finally passed enacting the government’s proposal to reduce to co-contribution from 1 July 2012.

The changes reduce the maximum co-contribution to $500 and reduce the matching rate from 100% to 50%.

The lower and upper thresholds for 2012 — 13 are $31,920 and $46,920 respectively. For 2013 — 14, the thresholds are $33,516 and $48,516.

Baby Bonus abolished from 1 March 2014

The baby bonus will no longer be available from 1 March 2014. In its place, families who are eligible for family tax benefit Part A, and who are not accessing parental leave pay, will receive an extra payment.

The extra family tax benefit Part A payment is $2,000 for a family’s first child (and for each child in a multiple birth) and $1,000 for second and subsequent children.

Prior to the abolition of the baby bonus, the amount payable will be reduced from $5,000 to $3,000 for second and subsequent children who come into a family between 1 July 2013  and 28 February 2014.

Aged care reform

Significant reforms to the aged care system have received royal assent. The reforms include:

• New aged care gateway available from 1 July 2013 at www.myagedcare.gov.au.
• Home care

• New home care packages program and additional home care places commencing 1 August 2013.
•  New income testing arrangements commence 1 July 2014 including fee caps of $5,000 for part-pensioners and $10,000 for self-funded retirees

• Residential aged care

• Grandfathering arrangements will apply to residents who enter care before 1 July 2014.
• Removal of the distinction between low care and high care with all facilities charging a fully refundable accommodation bond for new residents from 1 July 2014. Residents will have the option of paying a lump sum, periodic payments or a combination.
• All approved providers will be required to publish accommodation prices and bonds over a certain level must be pre-approved.
•  Income tested fee to be replaced by a means tested fee which is both income and asset tested. Means tested fee to be capped at $25,000 p.a. or $60,000 lifetime.
•  Former home will be included as an assessable asset for the asset test unless a spouse or other protected person resides in the home. Where the former home is included, the assessable amount is capped at $144,500.

Indices:

The Australian All Ordinaries Index has moved sideways decreasing +0.1% since closing last Friday to 12:50 pm today.

                                                                                                                                  

The rest of the world as measured by the MSCI index increased +0.8% in A$ from closing last Friday to end of trade Thursday.

Have a great weekend,

The team at IPS