Tuesday night, the new Treasurer, Dr Jim Chalmers, released the Government’s October 2022-23 Budget – the first Budget of this Parliament and Labor’s first Federal Budget since 2013.
There were very few surprises (which is a good thing!) as the new Government stuck to its pre-election promises on childcare, aged care and paid parental leave. They also took the opportunity in the October Federal Budget to provide clarity on the progress of certain unlegislated proposals announced in previous budgets.
The Budget features several measures that will impact our advice for both pre and post retiree clients, including aged care clients, and these measures are the focus of our summary.
It is important to note that at this time the proposed measures are not yet law and could change through implementation. Outlined below are some of the key items and how they may affect our advice going forward.
Superannuation
Expanding eligibility age for downsizer contributions to 55 and over
Downsizer contributions provide an opportunity for eligible individuals to contribute up to $300,000 to superannuation upon the sale of an eligible main residence. From 1 July 2018 until 30 June 2022 the eligibility age was 65. From 1 July 2022 this changed to age 60.
On 3 August 2022, the Government introduced Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 into Parliament, which if legislated, will ensure that the minimum qualifying age for downsizer contributions will be reduced to age 55.
The Government reaffirmed its commitment to this proposal in the Federal Budget.
This measure will take effect from the first quarter after passing into law, which is expected to be 1 January 2023.
FPW tip: New contribution opportunities arise with the age reduction to 55 for downsizer contributions. Downsizer contributions must be made within 90 days after settlement. This means that the date the contract of sale is settled does not need to be after the commencement date of the measure. For example, in the event of a 1 January start date, an individual aged 55 who settled their house on budget night, would be within the 90 day cut off date to make an eligible downsizer contribution from 1 January.
Update on previously announced superannuation
Superannuation Guarantee legislated increases to continue in accordance with original timetable
Currently, Superannuation Guarantee (SG) is 10.5%. It is legislated to increase by 0.5% at the start of each financial year from here on in until it reaches 12% on 1 July 2025. There is no change to the legislated increase of SG.
Period |
General SG |
| 1 July 2022 – 30 June 2023 | 10.5% |
| 1 July 2023 – 30 June 2024 | 11.0% |
| 1 July 2024 – 30 June 2025 | 11.5% |
| 1 July 2025 onwards | 12.0% |
FPW tip: For those not already making additional contributions to super, this legislation provides their retirement pot a much-needed boost throughout their remaining working life. For many this still will not be enough. Sacrificing a small component of your salary now, can have a meaningful impact on your eventual retirement. If you’re not already, contact us to see the impact a small change can make.
No extension to the halving of Super Income Stream minimums beyond the 2022-23 financial year
There was no announcement in relation to extending the halving of the SIS minimums beyond the 2022-23 financial year in relation to eligible income streams such as account-based pensions and market linked pensions.
FPW tip: Halving of minimum pensions over the last few years has allowed many to preserve their pension account balance. A higher drawdown places a higher onus on pension liquidity. For those who have taken advantage during this period to hold higher share exposures, care needs to be done where such positions need to be unwound in the current market.
Tax
Stage 3 tax cuts to proceed
The stage 3 tax cuts were introduced as part of the previous Government’s personal income tax reform. The cuts will remove the 37% income band and increase the higher threshold in the 45% income band from $180,000 to $200,000. The applicable rate on the 32.5% income band will also reduce to 30%.
Despite the ongoing debate about deferring or cancelling the stage 3 tax cuts, this measure will go ahead in accordance with the legislated timetable from 1 July 2024.
The table below summaries the current personal tax rates and the changes from 1 July 2024:
Resident tax rates and threshold
| Current | From 1 July 2024 | ||
| Taxable income | Tax payable | Taxable income | Tax payable |
| $0 – $18,200 | Nil | $0 – $18,200 | Nil |
| $18,201 – $45,000 | 19% | $18,201 – $45,000 | 19% |
| $45,001 – $120,000 | $5,092 + 32.5% | $45,001 – $200,000 | $5,092 + 30% |
| $120,001 – $180,000 | $29,467 + 37% | Income band removed | |
| $180,001+ | $51,667 + 45% | $200,001+ | $51,592 + 45% |
For more information on 2023 Tax Brackets, please click through this link. If you want to do some tax planning to stay on top of your tax position, use a tax calculator that is updated with the latest tax brackets.
Social Security Measures
Freezing deeming rates until 2024
The Government recommitted to freezing the current deeming rates until 30 June 2024. The deeming thresholds will continue to be indexed on 1 July each year. The current deeming rates and thresholds are as follows:
| Threshold | Lower deeming rate | Upper deeming rate | |
| Single | $56,400 | 0.25% | 2.25% |
| Couple | $93,600 | 0.25% | 2.25% |
FPW tip: Despite increasing interest rates, Centrelink clients won’t be impacted by increasing deeming rates.
Home sale proceeds exemption
The Government recommitted to extending the exemption period for proceeds from selling the principal home to purchase or build another home. Specifically,
- the assets test exemption for principal home sale proceeds will be extended from 12 months to 24 months. If special circumstances exist, the exemption can be extended to 36 months, and
- the income test will be amended to treat the principal home sale proceeds as a separate pool to the individual’s or couple’s other financial assets for the purpose of calculating deemed income. Only the lower deeming rate (currently 0.25%) will be applied to these proceeds for the duration of the assets test exemption.
The changes are scheduled to commence from the later of 1 January 2023
FPW Tip: Centrelink clients transitioning between homes will have greater flexibility and potentially a reduced impact on their entitlements. Those clients that have already sold their home should consider whether the new rules can apply to their situation.
Temporary increase to pensioner Work Bonus income bank
The Government is providing an immediate one-off increase to an eligible pensioner’s Work Bonus income bank of $4,000 during 2022-23. This will increase the maximum unused income bank this financial year to $11,800 from $7,800 and will allow pensioners to work more hours without affecting their pension.
These changes will not affect the existing application of the $300 fortnightly Work Bonus. Instead, the changes will provide an immediate $4,000 increase to the income bank of all eligible pensioners. This will allow eligible pensioners to have an extra $4,000 of income from work immediately disregarded from the income test, rather than having to accumulate a balance over time.
The following table outlines the impact on clients (assuming no change to their client scenario):
| Client Scenario | Will they benefit from an increase in the Work Bonus income bank? |
| Asset tested | No |
| Income from work of less that $300pf | No |
| Income tested and earning income from work of more than $300pf | Yes* |
*Assumes a nil balance in the Work Bonus income bank before this change.
FPW Tip: For income tested clients (eligible for the Work Bonus), those earning:
- more than $300 pf may see a temporary increase in entitlements
- less than $300 pf may consider temporarily taking on additional paid work without impacting their Centrelink entitlements.
Changes to Commonwealth Seniors Health Card income thresholds
The Government recommitted to increasing the income thresholds for the Commonwealth Seniors Health Card from:
$61,284 to $90,000 for singles, from
$98,054 to $144,000 for couples and from
$122,568 to $180,000 for couples separated by illness, respite care, or prison.
Benefits of the CSHC include:
- cheaper medicine under the Pharmaceutical Benefits Scheme
- refund for medical costs when the Medicare Safety Net is reached
- bulk billed doctor visits at the clinic’s discretion
- one-off Economic Support Payments as determined by Federal Government
- certain State, Territory and Local Government concessions such as utility bills, property and water rates, public transport and motor vehicle registration. These concessions can vary based on the State or Territory.
FPW Tip: Self-funded retirees who don’t hold the CSHC should review their eligibility under the new income limits. Those that become eligible can start taking advantage of all the benefits associated with the card.
Pension Supplement to continue for permanent departures overseas and temporary absences
The previous Government had proposed changes as part of the 2016–17 MYEFO to the Pension Supplement for permanent departures overseas and temporary absences. Broadly, this measure would have stopped payment of the Pension Supplement to recipients who permanently reside overseas or who have been absent from Australia on a temporary basis for six weeks or longer, recognising that the intent of the Pension Supplement is to assist with specific cost of living pressures for pensioners living in Australia.
This proposed measure had not been legislated. The Government announced that they will not proceed with this measure.
FPW Tip: With the world opening up post-Covid, this is fantastic news for retiree travellers who want to go away for more than 6 weeks! Europe here we come.
A plan for cheaper medicines
The maximum general co-payment for prescriptions under the Pharmaceutical Benefits Scheme (PBS) will reduce to $30 per script (down from $42.50) for general patients.
Under the PBS, the Government subsidises the cost of PBS medicines and individuals make a co-payment towards the cost. In some cases, individuals may pay more than the co-payment. The scheme is generally available to all Australian residents who hold a current Medicare card.
Once an individual or their family pays a certain amount on PBS medicines (known as the PBS Safety Net threshold) the co-payment for PBS medicines is reduced ($6.80 per script for general patients).
FPW Tip: It is estimated that someone taking one medication a month could save up to $150 pa (two medications = $300 and three medications = $450 pa). Reducing the co-payment to $30 per script does not assist concession card holders (they currently pay $6.80 per script and then free once the PBS safety net is attained).
Improvements to Parental Leave Pay
Extending the period of paid Parental Leave Pay
The Government will increase the number of weeks of paid Parental Leave Pay (PLP) by two weeks each 1 July, until it reaches a total of 26 weeks.
The following table illustrates the progressive increase in the number of weeks of PLP:
| Date | Weeks of Parental Leave Pay* |
| Current | 20 |
| 1 July 2024 | 22 |
| 1 July 2025 | 24 |
| 1 July 2026 | 26 |
*Includes 2 weeks Dad and Partner Pay
Currently, PLP includes a continuous payment of up to 12 weeks and an additional six weeks of flexible leave, which must be used within two years of the child’s birth or adoption. PLP is a taxable payment of $812.45 per week (based on the national minimum wage).
Increased flexibility for Parental Leave Pay
Date of effect: 1/7/2023
The Government will introduce the following measures to increase PLP flexibility:
- PLP can be taken in blocks between periods of paid work
- partners will have better access to PLP at the same time as an employer-funded parental leave
- to incentivise both parents to access PLP, there will be ‘use it or lose it’ portion for each parent, and
- sole parents can access the full 26 weeks.
Increasing eligibility to paid Parental Leave Pay
Date of effect: 1/7/2023
A new family income test will be introduced for PLP. An individual will be able to qualify for PLP if either:
- their individual income is less than $156,647
- their family income is less than $350,000
The reference year for the income test is the financial year before the earlier of:
- the date of birth or adoption, or
- the date you lodge your claim.
In addition, either parent can be the primary claimant and both parents can take weeks of leave at the same time. Under the current rules, the birth parent or initial primary carer of an adopted child must be the primary claimant and then transfer PLP to the other parent if they want to share it.
FPW Tip: Clients with a newborn or newly adopted child should consider entitlement to PLP. The increased number of weeks and flexibility will assist the primary carer with returning to work.
Child Care Subsidy
Currently before Parliament
Child Care Subsidy (CCS) assists families with the cost of childcare. The following measures will generally increase the amount of subsidy and reduce the cost of childcare:
- the maximum childcare subsidy percentage will increase to 90% for those with family income of $80,000 or less (currently 85% where family income is $72,466 or less)
- the CSS is no longer payable for family income of at least $530,000 (currently $356,756), and
- extend the increased subsidy to outside school hours care
The amount of subsidised childcare that can be accessed per fortnight applies to each child and depends on:
- family income (determines a family’s CCS percentage)
- an hourly cap rate based on the type of approved childcare used and the child’s age
- the hours of activity the parents do, and
- the number of children in the family’s care
FPW Tip: Higher subsidies will reduce the cost of childcare for eligible families. The Government estimates that:
- 96% of families will be better off under the CCS changes, and
- a family on the median combined income of $120,000 with one child in early childhood education will save $1,780 in the first year of operation.
To find out more, please reach out to us | Ph: (08) 9382 1866 | Email: [email protected]