As widely expected, the Federal Budget delivered on 12 May 2009 contained
a number of proposals aimed at stimulating the economy, protect jobs and fund the deficit. Below is a summary of the key proposals, which may impact you.

Superannuation

The key announcements centred on the reduction of the concessional contribution cap, the temporary reduction in the matching rate of the Government co-contribution and the extension of the 50 per cent pension drawdown relief.

Reducing the concessional contributions caps

The Government announced a proposed reduction to the concessional contribution cap effective from 1 July 2009. The reductions are as follows:

•    The concessional contributions cap will be reduced from $50,000 per annum (indexed) to $25,000 per annum (indexed)  
•    The transitional concessional contributions cap (applicable to individuals aged 50 and over for the 2009/2010, 2010/2011 and 2011/2012 financial years) will be reduced to $50,000 per annum
•    ‘Grandfathering’ arrangements will apply to certain members with defined benefit
interests as at 12 May 2009 whose notional taxed contributions would otherwise exceed the reduced cap.

The non-concessional contribution cap will remain at $150,000 per annum for the 2009/2010 year. Going forward this cap will be calculated as six times the level of the (indexed) concessional contribution cap.

Temporarily reducing the Government co-contribution

The Government announced a temporary reduction in the matching rate for the government co-contribution. Effective from 1 July 2009, the matching rates are:

• 100 per cent for 2009/10, 2010/11 and 2011/12, with a maximum co-contribution of $1,000
• 125 per cent for 2012/13 and 2013/14, with a maximum co-contribution of $1,250
• 150 per cent from 2014/15 onwards, with a maximum co-contribution of $1,500.

Account based pensions — extended drawdown relief for income streams

The Government announced that the 50 per cent  pension drawdown relief applicable to the 2008/2009 financial year will be extended to the 2009/2010 financial year for certain income streams.

Social Security

Increase in the Age Pension Age

The Government will gradually increase the qualifying age for the Age Pension and the Commonwealth Seniors Health Card for men and women to 67 from 2023. The transition to the higher Age Pension age will commence in July 2017, with the qualifying age increasing by six months every two years, to reach 67 on 1 July 2023.

Increase to Age Pension payments

From 20 September 2009 the Government will provide age pensioners, DVA service pensioners, war widows, disability support pensioners and carer payment recipients with an increase in their entitlements as follows:

• for singles: an increase of $30.00 per week in the base pension and $2.49 per week in a new Pension Supplement
• for couples: an increase of $10.14 per week in a new Pension Supplement.
  

This new Pension Supplement will combine the existing pension supplement, Pharmaceutical Allowance, Utilities Allowance and Telephone Allowance into a consolidated payment.

Income test: increasing the income test taper rate

From 20 September 2009, the Government will also increase the income test taper rate from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents in the dollar for each member of a couple, for income above the relevant income free threshold.


Existing part pensioners affected by the income test changes will keep existing entitlements (maintained in real terms) plus an increase of $10.14 per week for singles or couples combined.

Income test: changes for Commonwealth Seniors Health Card

The income test for the Commonwealth Seniors Health Card will include salary sacrificed amounts to superannuation. However, the proposal to include tax-free superannuation pension income in the income test for the Commonwealth Seniors Health Card from 1 July 2009 will not be legislated, which is good news for self funded retirees eligible for the card. 

Private health insurance rebate and taxation

Private health insurance rebate (PHIR)

To balance the mix of incentives for people to take out private health insurance the Government will introduce a three tiered approach to determine recipients rebate entitlements, which will become effective from 1 July 2010. The proposed tiers are:

• Tier 1 - will apply to singles with income of more than $75,000 and families with income of more than $150,000 per annum. The PHIR will be 20 per cent if under 65, increasing to 25 per cent from age 65 and 30 per cent from age 70. The surcharge for not taking out private health insurance will remain at 1 per cent.
• Tier 2 - will apply to singles with income of more than $90,000 and families with income of more than $180,000. The PHIR will be 10 per cent if under 65, increasing to 15 per cent from age 65 and 20 per cent from age 70. The surcharge for not taking out private health insurance will increase to 1.25 per cent.
• Tier 3 - will apply to singles with income of more than $120,000 and families with income of more than $240,000. In this circumstance there will be no PHIR. The surcharge for not taking out private health insurance will be increased to 1.50 per cent.
  

Until 1 July 2010 the existing 30 per cent PHIR will remain for singles with income of less than $75,000 per annum and families with income less than $150,000 per annum.

First Home Owners Boost extension

The Government announced that they will continue the First Home Owners Boost until 30 September 2009 which, when combined with the $7,000 First Homebuyers Grant, provides eligible individuals with $14,000 to purchase an existing home or $21,000 for a new home.

For eligible home buyers who enter contracts between 1 October 2009 and 31 December 2009, the boost will be halved providing individuals with $10,500 to purchase an existing home or $14,000 for a new home.

For full details or further clarification of the Federal Budget please contact our office.

Josh Davis
Consultant
jdavis@moorestephens.com.au