This Budget Highlights 2009 is published as a summary of the features of the 2009 Federal Budget that could impact on you or your family in the management of your financial position – and wealth management planning.
Thank you to all of our clients who have patiently waited to see whether the rumours about potential Budget developments had any substance.
There were a few main issues that concerned a number of our clients:
- Would the Budget reduce the maximum superannuation contribution amounts allowed?
- From what date would any change be effective?
- Would withdrawals from superannuation accounts for the over-60s become taxable
- Would the co-contribution be eliminated?
We now have the answers to these questions: and they are as follows –
- The maximum deductible superannuation contribution levels applicable up to now will be halved. (Note: the Undeducted contribution limit will be recalculated to 6 times the deductible limit – so minimal change only);
- The effective date for this change will be 1 July 2009;
- There is no mention in the Budget about introducing taxation of withdrawals from superannuation accounts by the over-60s; and
- The co-contribution percentage has been reduced from a maximum 150% to 100% (and to be restored in later years).
There are a number of other financial consequences in this year’s Budget: some of these include:
- Private Health Insurance rebate adjustments for ‘high income earners’;
- Increased Medicare surcharge for the uninsured;
- A future increase in age before becoming entitled to Age Pension;
- Tightening of rules for deducting ‘hobby farm’ expenses (affecting those with an ‘adjusted taxable income’ over $250,000);
- Phasing down of the First Home Owners Grant; and
- Extended (and increased) ‘capital expenditure allowance’ for small business –
and there are others that will affect other clients or their families: most notably the announced increases in Age and Carer Pensions from September 20 this year (a very welcome move for those who will benefit from that increase); and the removal of the ‘exempt’ pension payments from the assessment of eligibility for the Seniors Health Card.
Some issues that were NOT affected:-
Agribusiness deductions still allowable;
Bring-forward of non-concessional contributions still allowable;
Tax-rate reductions set for 1 July 2009 will proceed.
Other Budget highlights for 2009
A number of reforms and new announcements were made in the Budget handed down by the Federal Government on Tuesday 12 May 2009.
Superannuation Contribution Limits changes:
Federal Government announced that the concessional contributions cap are proposed to halve to $25,000 per annum with effect from the 2009-2010 financial year, limiting the ability to salary sacrifice into super for higher income ear earners.
‘Transition to Retirement’ pensions remain, however the strategy will be somewhat limited with the transitional cap of $100,000 for those aged 50 or older also being halved from 2009-2010 to $50,000 and will cut out from 1 July 2012 as originally planned.
Grandfathering arrangements will apply to certain members with defined benefit interests as at 12 May 2009 (tonight) whose notional taxed contributions would otherwise exceed the reduced cap. Similar arrangements were applied when the concessional contributions cap was first introduced.
The annual cap on non-concessional contributions remains at $150,000 for 2009-2010. In the future, the cap will be calculated as six times the level of the indexed concessional contributions cap.
Increase in Age Pension Age:
The qualifying age for the Age Pension will gradually increase from 65 to 67 by 2023. The qualifying age for men and women will be increased by six months every two years, commencing 1 July 2017 and reaching 67 on 1 July 2023. Only new entrants to the pension system from 1 July 2017 will be affected.
The qualifying age for the Veterans’ Service Pension will remain at 60.
The table below highlights how the pension age will change:
Reduction in Private Health Insurance Rebates:
Effective from the 1 July 2010 there will be three new tiers applying to the Private Health Insurance Rebate.
Under the existing arrangements tax payers who have private health insurance are entitled to a 30% rebate of their premiums. From the 1 July 2010 this will remain unchanged for singles with income less than $75,000 per annum and families with incomes less than $150,000 per annum.
The table below outlines the different rebates that tax payers will be eligible to receive if their income is greater than $75,000 for singles and $150,000 for families.
Income in this context refers to income for Medicare Levy Surcharge purposes. The income thresholds will continue to be indexed to wages and will also be adjusted for families with more than one child in the same manner as existing arrangements for the surcharge.
Temporary Reduction of Government Co-Contribution:
The matching rate and maximum co-contribution payable will be reduced from 1 July 2009.
For the 2009, 2010 and 2011 financial years where you make a non-concessional contribution to superannuation and are eligible to receive the Government Co-contribution the government will match this contribution 100% up to a maximum payment of $1,000.
For the 2012, and 2013 financial years where you make a non-concessional contribution to superannuation and are eligible to receive the Government Co-contribution the government will match this contribution 125% up to a maximum payment of $1,250.
For the 2014 financial year where you make a non-concessional contribution to superannuation and are eligible to receive the Government Co-contribution the government will match this contribution 150% up to a maximum payment of $1,500.
Account Based Pensions Minimum Drawdowns:
The Government has announced that the minimum pension payment required to be withdrawn from an account base pension (Allocated Pension) will be halved for 2009/10 financial year.
The table below outlines the minimum pension you must draw from your pension account during the 2009/10 financial year based on your age.
Extension of the First Home Owners Boost:
For eligible first home buyers entering into contracts between 1 July 2009 and 30 September 2009 the First Home Owners Boost will continue to provide $7,000 for the purchase of established homes and $14,000 for the purchase of new homes.
This means that first home owners will receive a total of $14,000 for established homes and $21,000 for new homes.
For eligible first home owners entering into contracts between 1 October 2009 and 31 December 2009 the boost will provide $3,500 (making a total of $10,500) for the purchase of established homes and $7,000 (making a total of $14,000) for the purchase of new homes.
Commonwealth Seniors Health Care Card:
It was announced as part of the 2008-2009 Federal Budget that gross tax-free superannuation lump sum and pension income was to be included in the adjusted taxable income test for the Commonwealth Seniors Health Care Card.
The Government has decided not to proceed with this measure.
Increase to Medicare Levy Low Income Thresholds:
The thresholds will increase to $17,794 for individuals (up from $17,309) and $30,025 for individuals in families (up from $29,207) from 1 July 2008. The additional amount for each dependent child will increase from $2,682 to $2,757.
The Medicare levy threshold for pensioners below Age Pension age will increase to $25,299 ensuring pensioners below Age Pension age do not pay Medicare levy when they don’t have a tax liability.
Continuum Financial Planners Pty Ltd is at your service
The experienced adviser at Continuum Financial Planners Pty Ltd are available to help you navigate any of the pitfalls of the 2009 Budget that will impact your financial strategies.
To arrange a meeting with one of our team, phone our office (on 07-3421 3456), or complete and submit the website Contact form.
