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Federal Budget Update – Social Security & Welfare Changes

Article By Adam Hurwood | | Accounting & Tax

Deeming Superannuation Account Based Income Streams

Proposed for new income streams commencing from 1 January 2015

For Centrelink income test purposes, superannuation income streams are concessionally treated as a result of the calculation of a “deductible amount” that reduces the income amount assessed for benefit calculation purposes.

This concession will continue indefinitely for existing income streams. However, new superannuation account-based income streams starting on or after 1 January 2015 will be assessed under deeming arrangements applying to other financial investments.

This change is in line with a recommendation from the previous Australia‟s Future Tax System (Henry) Review, and was previously announced on 5 April 2013.

Continued Pausing of Indexation of Child Care Rebate

Proposed from 1 July 2013

For a further three years, the Government will freeze any indexation of the Child Care Rebate. The maximum level of rebate that can be paid in a year will remain at $7,500 until 30 June 2017. This won‟t reduce the level of payment currently available, nor change the method of calculation, but correspondingly won‟t lead to an increase in entitlements.

Increased Level of Income Before Allowance Payments Reduced

Proposed from 20 March 2014

Currently, allowance recipients can earn $62 per fortnight before there is reduction in the amount of the allowance payment they can receive. For the first time in over ten years, this threshold will be lifted. With effect from 20 March 2014, the threshold will increase by $38 per fortnight to $100 per fortnight. This equates to an annual increase in income under the income free threshold of $988.

In addition, from 1 July 2015, this new $100 threshold will also be indexed annually in line with movements in the CPI.

The payments impacted by these changes are Newstart Allowance, Sickness Allowance, Parenting Payment (Partnered), Widow Allowance, Partner Allowance Benefit, and Partner Allowance Pension.

Reduction in Time Overseas Before Payments are Impacted

Proposed from 1 July 2014

Currently, it is possible for certain benefit recipients to be temporarily absent from Australia for up to three years before benefit payments cease. From 1 July 2014, this will be reduced to one year for certain payments, including Family Tax Benefit Part A, Schoolkids Bonus, and Paid Parental Leave.

Continued Indexation Pausing on Certain Benefit Thresholds

Proposed from 1 July 2013

For a further three years (until 30 June 2017), the Government will pause any further indexation of the higher income thresholds for family payments and supplement amounts.

The existing $150,000 upper income test limit for Family Tax Benefit Part B, dependency tax offsets, Paid Parental Leave Scheme, and Dad and Partner Pay will remain. The Family Tax Benefit Part A upper income free area will remain at $94,316 plus an additional $3,796 for each child after the first.

Replacement of Existing Baby Bonus

Proposed from 1 July 2014

From 1 July 2014, the existing Baby Bonus scheme will be removed. Instead, for families eligible for Family Tax Benefit Part A, increased benefits of $2,000 will be paid in the year following the birth (or adoption) of a child, and a $1,000 increase for second or subsequent children. The additional amounts will be paid as an upfront payment of $500 with the remainder to be spread over the next seven fortnightly payments.

The increase in Family Tax Benefit Part A will not be available for parents who have taken up the Paid Parental Leave option, but they will qualify for improved access to the Paid Parental Leave for subsequent children.

As an additional measure, to make it easier for “working mums” with children born close together to qualify for Paid Parental Leave for subsequent children, the government will allow parents to count periods of government paid parental leave as work under the work test.

Changes to Age Eligibility for Family Tax Benefit Part A

Proposed from 1 January 2014

From 1 January 2014, the age at which Family Tax Benefit Part A payments will cease in respect of children aged 16 and over will change. Payments will cease at the end of the year when the child completes schooling.

Individuals who no longer qualify may instead be eligible to receive the Youth Allowance.

Family Tax Benefit and Child Care Assistance Tax Claims

Proposed from the 2012/13 income year

Family Tax Benefit and Child Care Assistance can be claimed through the income tax return process. From the 2012/13 financial year, families will have 12 months from the end of the financial year to file their claim rather than the current 24 months.

Pilot Programme for Age Pension Recipients Downsizing Their Principal Residence

Proposed from 1 July 2014 to 1 July 2017

The Government will implement a 3 year pilot programme aimed at removing the Social Security disincentive for Age Pension recipients to downsize their principal residence. Under this measure, up to $200,000 of the proceeds from a principal residence sale may be deposited into a “special account” (providers must be an authorised deposit taking institution, but other details are currently unknown). These accounts (including future earnings) will receive an exemption from Age Pension income and assets tests for up to 10 years.

To obtain access to the scheme, the following requirements must be met:

  • At least 80% of the “excess” sale proceeds (up to $200,000) must be deposited into a “special account”
  • The principal residence sold must have been owned by the Age Pension recipient for at least 25 years
  • The Age Pension recipient must move into a new principal home, granny flat, or retirement village (i.e. it is not available to those who move into residential aged care)
  • The means test exemption ceases if the account holder makes any withdrawals from the account.

Extension of the Pensioner Education Supplement for Single Parents

Proposed from 1 January 2014

The Government announced an extension of the Pensioner Education Supplement (PES) of up to $62.40 per fortnight to all Newstart Allowance single principal carer recipients.

This measure expands on the current arrangement that limits access to the PES to single principal carer recipients of Newstart who were receiving the supplement prior to transitioning off Parent Payment single.

Extended Pensioner Concession Card Entitlements for Single Parents

Proposed from 1 January 2014

Single parents who become ineligible for parenting payment due to the age of their youngest child and who do not qualify for any other income support payment due to employment income will no longer immediately lose access to the Pensioner Concession Card. The budget measures allow eligible single parents to retain eligibility for a period of 12 weeks.

To discuss in greater detail any of the proposed changes that will affect a benefit you are currently receiving, or could receive in the future, get in touch with us for adivce tailored to your personal circumstances.