The Federal Budget released on Tuesday 9 May contains a number of measures that should help our members, especially those saving for their first home or moving towards retirement.

The Federal Budget released on Tuesday 9 May contains a number of measures that should help members, especially those saving for their first home or moving towards retirement. 

These measures are in the areas of housing, pension, health, education and child care. We have prepared this summary under these broad headings.

The Medicare changes, including increases in the services rebated under Medicare, should help families and they are to be phased in over three years. The Medicare levy will increase from 1 July 2019 by half a percentage point to 2.5% of taxable income. At the same time, Medicare thresholds will increase, meaning most lower-income earners will remain unaffected.

Schools will gradually receive increased funding over 10 years, in line with the Gonski review. University students will pay higher fees and will have to start paying back student loans earlier when salaries reach $42,000 (currently $55,000).

The Budget announcements outlined in this article have not been legislated yet. The details are still to be worked through, and both Houses of Parliament need to pass legislation before taking effect.

If you have questions about how these changes might affect you, contact us for an appointment with a super adviser or a financial planner.

Housing affordability

First Home Owner Super Saver Scheme

From 1 July 2017, first-home buyers can make voluntary super contributions up to $15,000 a year ($30,000 in total over their lifetime) that can be withdrawn and put towards a home deposit.

The contributions will be taxed at 15% and receive ‘deemed’ earnings based on the 90-day bank bill rate plus 3%. The contributions and earnings may be withdrawn any time after 1 July 2018, and they will be taxed at the individual’s marginal rate less a 30% tax offset.

Individuals who are self-employed or whose employers do not offer salary sacrifice can claim a tax deduction for personal contributions, meaning that these contributions effectively come out of pre-tax income.

Contributions under this scheme must be made within existing superannuation caps. In other words, the total concessional (before-tax) contributions cannot exceed $25,000 in 2017-18.

Voluntary contributions can also be non-concessional (after tax) contributions. When non-concessional amounts are withdrawn, they will not be taxed.

The concessional (before-tax) part of a release amount will not impact income tests used for calculation of HECS/HELP repayments, family tax benefit or child care benefit.

Administration of the scheme

The First Home Super Saver Scheme will be administered by the Australian Tax Office (ATO). The ATO will determine the amount of contributions that can be released and instruct superannuation funds to make these payments accordingly.

  • The ATO will be responsible for determining the eligibility of the person seeking a release, and for calculating the release amounts based on information provided by the applicant and superannuation funds. The main responsibility of superannuation funds will be responding to a release request authorised by the ATO.
  • The ATO will also be responsible for administering compliance mechanisms to ensure that people purchase their first home after they withdraw from superannuation for their deposit.

Before legislation is passed, Treasury and ATO will develop details and consult to ensure a workable system is implemented.

What does this mean for you?

If you are saving for your first home, you will be allowed to withdraw some of your salary sacrifice contributions or personal contributions from 1 July 2018 onwards. The maximum amount that can be contributed is $15,000 a year, with a lifetime maximum of $30,000. Each partner in a couple can contribute this amount.

Example

Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she contributes $10,000 of pre-tax income into her super account each year, increasing her balance by $8,500 a year (after contributions tax). After three years, she can withdraw $27,380 she has saved, plus any deemed earnings. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30% offset.

Downsizing homes for those over 65

From 1 July 2018, people aged 65 and over will be able to make a non-concessional (after-tax) contribution to superannuation of up to $300,000 from the proceeds of selling their home.

The following voluntary contribution rules for people aged 65 and older will not apply to contributions made under the new downsizing cap:

  • work test for 65-74 year olds
  • no contributions for those aged 75 and over
  • restrictions on non-concessional contributions for people with balances above $1.6 million.

This measure will apply to a principal place of residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, which means a couple could contribute up to $600,000 to super under the proposed downsizing arrangement. Sale proceeds contributed under the cap will count towards the Age Pension assets test.

These contributions will be in addition to any other voluntary contributions that people can make under the existing contribution rules and caps.

This measure will encourage some people to downsize into housing that is more suitable to their needs, freeing up larger family homes, and improving standards of living in retirement.

It will assist people aged 65 and over who are currently unable to contribute all or any proceeds of the sale of their home into superannuation because of the existing restrictions and caps.

What does this mean for you?

If you are over 65, the sale proceeds from your family home can be contributed to superannuation without satisfying the work test. People will be allowed to contribute to super even if they are over 75.

Example

George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total) even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their superannuation accounts.

Potential to invest in residential housing developments

From 1 January 2018, the government will provide an additional 10% capital gains tax discount to resident individuals investing in qualifying affordable housing. This means investors in qualifying affordable housing will be entitled to a 60% discount on CGT.

Additional measures include:

  • $375 million will be made available to providers of services to people who are homeless, or at risk of becoming homeless
  • $1 billion will fund infrastructure such as water to speed up housing supply
  • Housing supply targets and priorities will be revised with states and territories
  • Additional controls on foreign ownership occupancy requirements, and tighter capital gains tax rules.

Investment properties

In relation to negative gearing, from 1 July 2017, the government will disallow deductions for travel expenses. For properties bought after 9 May 2017, they will also limit plant and equipment depreciation deductions to only those expenses directly incurred by investors. 

Pension changes

Return of the Pensioner Concession Card

The Pensioner Concession Card will be reinstated for those pensioners who lost it after the pension assets test change from 1 January 2017. Reinstating the Pensioner Concession Card will enable pensioners to access Commonwealth subsidised hearing services.

One-off Energy Assistance Payment

Assistance Payment in 2016-17 of $75 for single recipients and $125 for couples. This will apply on 20 June 2017 to Australian residents who are eligible for these qualifying payments:

  • Age Pension
  • Disability Support Pension
  • Parenting Payment Single
  • Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments and War Widow(er)s Pension. 

Healthcare

Guaranteeing Medicare

Lifting the freeze

A staggered program of lifting the freeze on indexation of the Medicare Benefits Schedule will be phased in to the value of $1 billion:

  • From 1 July 2017, GPs will be encouraged to bulk bill children under age 16, and concession card holders with bulk billing incentives indexed
  • From 1 July 2017, specialists’ procedures and additional services fees will also be indexed
  • From 1 July 2020, additional diagnostic services and imaging will be indexed. 
Funding arrangements

From 1 July 2017, the government will establish the Medicare Guarantee Fund to make sure there is adequate funding for the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme. The fund will receive money from the Medicare levy and income tax.

Also from 1 July 2017, $1.2 billion will meet new products on the Pharmaceutical Benefits Scheme. Over $115 million will be provided for mental health services and further $9.8 million for veterans’ health.

Additional funding will be provided to state governments for public hospitals, increasing to $22.7 billion by 2020-21. A further $69.5 million will be provided from the Medical Research Future Fund for preventative health, clinical trials and other research; $5.8 million will go to childhood cancer research.

The government plans to fully fund its contribution to the National Disability Insurance Scheme (NDIS) to help those with permanent and significant disabilities.

Increase in Medicare levy

To help fund the NDIS, the government will increase the Medicare levy by half a percentage point from 2.0 to 2.5% of taxable income from 1 July 2019. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

Low-income thresholds

From the 2016-17 income year, the government will increase the Medicare levy low-income thresholds for singles, families, seniors and pensioners. For this year’s income tax returns, these thresholds will apply. The increases take account of movements in the CPI so that low-income taxpayers will generally be exempt from paying the Medicare levy as they are now.

Tax payer category New Medicare levy thresholds
Singles $21,655
Families
For each dependent child or student
$36,541
plus $3,356
Single seniors and pensioners $34,244
Family threshold for seniors and pensioners
For each dependent child or student
$47,670
plus $3,356 

Education

School funding

Schools will receive $18.6 billion in extra funding over the next ten years. The priorities for reform will be the subject of a new review chaired by Mr David Gonski AC, which will conclude by December 2017.

University fees

University students will pay an extra $2,000 to $3,600 for a four-year course. Fees will increase by 1.8% each year for four years or 7.5% over the four years to 2021.

For example, a nursing or teaching student who commences a four-year course in 2018 will see fees increase by $1,250, from $26,550 to $27,800.

Repaying HELP loans

The income level at which students will start repaying HELP loans will be reduced. Currently, students start to repay debt when they earn more than $55,000.

From July 2018, they will start to repay HELP loans once earnings reach $42,000. The rate starts at 1% at $42,000 and rises until it reaches 10% at the maximum threshold of $119,882. These thresholds will now be indexed by the Consumer Price Index (CPI) rather than Average Weekly Earnings (AWE), meaning the thresholds will increase more slowly as CPI typically increases more slowly than AWE.

It is estimated that the new thresholds will bring an additional 183,000 people with HELP loans into the repayment stream in 2018–19.

Example

Charlie is an entry level nurse starting with a salary of $50,000. Under the current rules he will not begin repaying any HELP loan as his salary is below the current minimum threshold of $55,000. Under new rules he will repay at a rate of 2% because his income is over the new threshold of $42,000.

Infrastructure investment opportunities

Nation-building infrastructure - trains, planes and automobiles

Over $75 billion has been allocated to transport infrastructure over 10 years for funding road and rail investments. Initiatives include the Western Sydney Airport, road and rail projects in Victoria, Western Australia and Queensland. A $10 billion national rail program has also been announced together with plans to increase the generation capacity of the Snowy Mountains Scheme.

A new body, the Infrastructure and Project Financing Agency, will be established to identify financing solutions. 

Families and childcare

A single, means-tested Child Care Subsidy will replace the Child Care Benefit (CCB) and Child Care Rebate (CCR) on July 2018.

Families earning $65,710 or less will receive a subsidy of 85 per cent of the actual fee charged. For family incomes above $65,710, the subsidy tapers down to zero per cent when family income reaches $350,000 or more.

Eligibility will be determined by a three-step activity test providing for up to 100 hours of subsidy per fortnight. Activities include paid work, being self-employed, doing unpaid work in a family business, looking for work, volunteering or studying. Exemptions will exist for parents who legitimately cannot meet the activity requirements.

Low income families on $65,710 or less a year who don’t meet the activity test will be able to access 24 hours of subsidised care per fortnight without having to meet the activity test, as part of the Child Care Safety Net.

These thresholds will be increased by CPI for implementation in July 2018.

Financial and superannuation complaints

A new one-stop shop, the Australian Financial Complaints Authority (AFCA), will provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service.

The AFCA will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal (SCT). The AFCA will operate from July 2018, and the SCT will be wound down and no longer operate from 1 July 2020.

ASIC will receive additional resourcing to monitor AFCA. 

Financial literacy measures

In addition, ASIC will broaden its financial literacy program in promoting investor and consumer confidence, trust and participation in the financial system, by providing impartial information, tools and guidance.

ASIC will receive additional funding of $16 million over four years from 2017-18, including funding from an increase of $12 million in the levies recovered from entities regulated by ASIC.

Small businesses and employers

Small businesses with turnover up to $10 million will be able to immediately write off expenditure up to $20,000 for a further year to 30 June 2018.

Incorporated small businesses with turnover less than $10 million will pay 27.5% tax in 2016-17. From 2018-19, this rate will also apply to companies with less than $50 million turnover.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. Amendments will be made to ensure these concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business. Under current rules some taxpayers can arrange their affairs in order to access these concessions for assets which are unrelated to their small business.

Migrant workers

The government announced that it will require companies to pay a levy if they sponsor migrant workers. This levy will be used toward the “Skilling Australians Fund”, which will pay for the training of Australians. This foreign worker levy will be $1,200 or $1,800 per worker per year on temporary work visas and a $3,000 or $5,000 one-off levy for those on a permanent skilled visa.

We're here to help

If you have questions about how these changes might affect you, contact us for an appointment with a super adviser or a financial planner.