This year there are numerous changes to the rules that relate to superannuation, tax and retirement planning. This article covers some of the changes and how they will impact advice strategies.
A number of new measures are not yet legislated, they are still in proposal phase. Other changes have been brought into effect and are set to commence from 1 July 2014.
Keeping up to date with the changes is important in order to provide the best service for clients.
Aged care reforms (legislated)
From 1 July changes to the aged care system should give individuals and families a clearer understanding of the choices they have and the cost of getting home help or moving to residential care.
The provision of aged care services remains subsidised by the Government, but the focus of the changes is that those who can afford to contribute to the cost of their care should do so.[i]
Residential aged care
One significant change to reforms covering residential care is the removal of the distinction between low level care and high level care.
In addition, all residents will be subject to the same fee structure, known as an accommodation payment, which will depend on a resident’s assessable income and assets.
Residents with greater means will have to pay more for their ongoing care but caps will be put in place to protect those who receive care over a longer period.
Residents will be able to choose whether they pay for their accommodation as a refundable accommodation deposit (RAD) and equivalent daily accommodation payment (DAP) or a combination of both.
To help people determine whether they can afford a certain facility, all facilities must publish their prices on their website as well as a Government website myagedcare.com.au.
Keeping the family home
The income-tested fee for care is to be replaced with a means tested care fee to determine how much a resident can pay towards the cost of their care. Going forward a person’s home may play a greater role in the financial decision making around going into care.
Where someone going into care owns their own home and no-one eligible lives in it, a portion of its value – currently$155,823.20 (as at 20 September 2014) – will count towards the assets test. Under the new rules many residents may end up paying a lower means-tested care fee if they keep their home.
The new rules apply to individuals who enter residential aged care on or after 1 July 2014, with existing residents grandfathered under the pre-existing rules. [ii]
Concessional Contribution (legislated)
From 1 July 2014, the general concessional contributions cap will increase to $30,000 and the higher $35,000 cap will apply to those who are 49 years or older on 30 June of the previous financial year.
Remember that for 2013-14 and later years, amounts contributed over the concessional contribution cap will be included in a person’s assessable income and taxed at their marginal tax rate, less a 15% tax offset. An excess concessional contributions charge will also be payable by those who exceed their concessional contribution caps. This is effectively an interest charge on the additional income tax payable to discourage those intentionally exceeding their caps to defer paying tax.
Non-concessional contributions (legislated)
From 1 July 2014, the non-concessional contribution caps will increase to $180,000 (six times the general concessional contributions cap) or $540,000 under the bring-forward provisions.
Superannuation Guarantee (SG) (legislated)
The SG increased from 9.25% to 9.5% on 1 July 2014. Recently legislated changes freeze the 9.5% SG rate until 30 June 2021.
Deeming of account-based pensions (legislated)
From 1 January 2015, account based pensions that are not grandfathered will be deemed as financial investments for Centrelink/DVA purposes. This may mean a reduction in Age Pension entitlements for some people, whose entitlements are determined under the Income Test.
Recall that grandfathering will apply to account-based pensions which commenced prior to 1 January 2015 where the recipient is receiving an eligible income support payment immediately before that date and continue to receive an eligible income support payment after that date. Account-based pensions will also retain grandfathered status on death of the primary beneficiary if the pension automatically reverts to a reversionary beneficiary and that beneficiary is receiving an eligible income support payment at the time of reversion. [iii]
Temporary budget repair levy (legislated)
The Government has introduced a temporary budget repair levy from 1 July 2014. The temporary budget repair levy of 2% will be applied to taxable income over $180,000 for the three years commencing 1 July 2014. This will effectively bring the top marginal tax bracket to 47% (excluding Medicare levy).
Reminder: The Medicare levy has increased from 1.5% to 2% from 1 July 2014. Coupled with the budget repair levy, the top marginal tax bracket will effectively be 49% for those earning $180,000 or more.[iv]
If you need further information email firstname.lastname@example.org or call 03 9375 5100.
Marco Nazzaro is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult an accountant, tax professional or financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
[i] ChallengerTech_Aged Care reforms
[ii] Tapin Guide_June 2014
[iii] ChallengerTech_June 2014
[iv] ChallengerTech_June 2014