Super and tax largely unchanged in the recent Federal Budget

As expected, Labor’s first Budget was filled with measures aimed at easing the cost of living over the coming years, addressing the challenges of a slowing economy, and introducing investments designed to place Australia in a stronger position for the future. For superannuation and tax, the announcements were mainly recommitments from earlier Budgets. This includes the change to the eligibility age for downsizer contributions. The stage 3 tax cuts for 2024 are also unchanged. Instead of focusing on super and tax, most of the proposals centred around investing into key sectors and infrastructure, and providing affordable housing for more Australians through a new national Housing Accord.

Key points:
- Yet another revenue windfall and the offsetting of new spending with savings has resulted in sharply lower budget deficits this year and next, with the deficit this year expected to be $36.9bn (down from $78bn in March).
- This avoids adding to inflation and pressure on the RBA.
- Key measures include more on childcare, health, the aged, housing and the NDIS.
- Budget deficit projections are now worse beyond 2024-25 and will need to be addressed in next May’s budget.

Superannuation Changes - confirming announcements made by the previous Govt

Reduction in downsizer contribution eligibility age from 60 to 55

The eligibility age for clients to make downsizer contributions reduced from 65 to 60 on 1 July 2022. The Government has announced a further reduction to allow eligible clients aged 55 or over to make downsizer contributions.

These changes will allow eligible couples aged 55-74 to contribute up to $1.26m to super in a single year by making both a non-concessional contribution of up to $330,000 each, and a downsizer contribution of up to$300,000 each.

Taxation Changes - budget repair measures aimed at increasing tax receipts

Extending three existing ATO compliance programs:

- Tax Avoidance Taskforce

- Shadow Economy Program

- Personal Income Taxation Compliance.

Ensuring multinationals pay their fair share of tax, including:

- limiting the amount of debt-related deductions multinationals can claim under the thin capitalisation regime

- requiring relevant companies to enhance the tax information they disclose to the public from 1 July 2023

- closing loopholes on payments from 1 July 2023 to related parties for intangibles held in low tax jurisdictions.

These measures are estimated to increase tax receipts by $4.7 billion over the next four years.

No announcement to change the legislated stage 3 tax cuts

In the lead up to the Federal Budget, there was a lot of speculation about whether it would contain any changes to the ‘stage 3’ tax cuts which were legislated by the former Government and are due to take effect from 1 July 2024. Under the legislated measure, from the 2024-25 income year, the 32.5% marginal tax rate will reduce to 30%. For a resident individual, the tax rate on their taxable income will be as follows:

From 2024-25 income year 

Taxable income Tax rate on this income
$18,200 to $45,000 19%
$45,001 to $200,000 30%
$200,001 and over 45%

No change to these tax cuts was announced by the Government in this Federal Budget. The effective date of the final stage of the personal income tax plan remains unchanged at this stage, although there are likely two further Budgets prior to their commencement.

Social Security Changes

Lifting the income threshold for the Commonwealth Seniors Health Card

As previously announced, the Government has proposed increasing the income threshold for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.

Legislation implementing this measure is currently before Parliament. It was initially proposed to commence 20 September 2022. However, due to delays in passing the legislation, the commencement date is now proposed to be 7 days after the legislation receives Royal Assent.

The Government estimates that approximately 50,000 additional older Australians will be eligible for the Commonwealth Seniors Health Card. For clients with account-based pensions that are deemed under the Commonwealth Seniors Health Card income test, the low deeming rates of 0.25% and 2.25% that are frozen until 30 June 2024 will also assist more clients to be eligible for the card.

Incentivising pensioners to downsize by extending the sale proceeds exemption

As previously announced, the Government has proposed an extension to the assets test exemption of principal home sale proceeds that are intended to be spent on purchasing a new home from 12 months to 24 months for social security income support recipients.

In addition, during the asset test exemption period, the Government will apply the lower deeming rate of 0.25% to the principal home sale proceeds.

This measure aims to reduce the financial impact on pensioners looking to downsize their homes in an effort to minimise the burden on older Australians and free up housing stock for younger families.

Legislation implementing this measure is currently before Parliament.

Temporary increase to Work Bonus

As previously announced, the Government will provide a once-off increase to the Work Bonus income bank of $4,000 for Age and Veteran Pensioners.

The temporary increase to the income bank will increase the amount pensioners can earn in 2022–23 from $7,800 to$11,800, before their pension is reduced.

If legislated, this measure is aimed at encouraging people to work beyond Age Pension age to assist with the skills shortage. Legislation implementing this measure in currently before Parliament with a proposed commencement date of 1 December 2022 and ending on 30 June 2023.

If implemented, pensioners over Age Pension age will be able to earn a substantial amount of employment income without impacting their pension entitlement.

Aged care

The Government will provide funding to reform the aged care system and respond to the Final Report of the Royal Commission into Aged Care Quality and Safety. The new measures will:

- make sure aged care residents have access to a registered nurse in every aged care facility on site, 24 hours a day, seven days a week
- enable every aged care resident to receive an average of 215 minutes of care per day
- ensure better food for aged care residents
- provide tailored support for older people with a disability
- increase access to culturally-safe care for First Nations Elders and older Australians from diverse communities
- limit the amount of home care that recipients can be charged in administration and management fees
- redesign in-home aged care to meet the changing needs of older Australians
- empower older Australians to make informed choices
- introduce stronger regulation and independent oversight to protect older Australians from neglect

Plan for cheaper medicines

From 1 January 2023, the Government will decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme from $42.50 to $30.00 on 1 January 2023.

Should have any questions about any of the Budget Announcements, please don't hesitate to contact me on 0477 007 838.