If you have questions about what these measures mean for you and your retirement plans, a financial adviser can help you understand how they could affect you.

Tax

Tax cuts for every Australian taxpayer

The Government restated its already legislated tax cuts for 13.6 million Australian taxpayers from 1 July 2024. From 1 July this year, the Government will:

• Reduce the 19 per cent tax rate to 16 per cent.
• Reduce the 32.5 per cent tax rate to 30 per cent.
• Increase the income threshold above which the 37 per cent tax rate applies from $120,000 to $135,000.
• Increase the income threshold above which the 45 per cent tax rate applies from $180,000 to $190,000.

The legislated tax rates and thresholds are compared to the current rates and thresholds in the table below:

The stage 3 personal income tax changes could provide you with a reduction in personal income tax. As a result, leading up to 1 July 2024, it may be worthwhile to review your situation in preparing for any increase in disposable income. The following table outlines the reduction in personal income tax, excluding Medicare Levy and tax offsets, for specific income amounts.

The Government’s taxcuts.gov.au website provides a useful calculator to calculate the value of tax cuts with different levels of taxable income. If you're eligible for the Low Income Tax Offset (LITO) and/or the Seniors and Pensioners Tax Offset (SAPTO) the new tax rates and thresholds (in combination with these offsets) increase the effective tax-free threshold (shown in the table below).

* Does not include the provisions of unused SAPTO being transferred between spouses.

Increase in Medicare Levy exemption thresholds

The income limits when the Medicare Levy applies for singles, families and seniors will be increased effective for the 2023-24 financial year.

The thresholds are:

Social Security

Extending freezing of deeming rates until 30 June 2025

The freezing of deeming rates has been effective since 1 July 2022 and was intended to be applicable for two years until 30 June 2024. Current historical low deeming rates will continue to be frozen until 30 June 2025.

The deeming thresholds will continue to be indexed on 1 July each year. The current deeming rates and thresholds are as follows:

It is anticipated that freezing the deeming rates for another year will benefit approximately 876,000 income support recipients, including 450,000 Age Pension recipients.

Higher funding for Services Australia / Department of Veterans’ Affairs

Anecdotal feedback from financial advisers suggests that dealing with Services Australia and Department of Veteran Affairs has been challenging in the recent past due to either calls not being answered, extended wait times or issues associated with paperwork not being processed in a timely manner.

It’s hoped that more funding might alleviate some of the bottlenecks with the Government committing to provide:

• $1.8 billion over three years from 2023-24 for additional frontline staff to help stabilise Services Australia claims backlogs and service standards, to continue emergency response capability and improve the cyber security environment. It’s anticipated that around 7,500 additional staff will be hired to meet government and community expectations.
• $630.3 million over four years from 2024-25 to improve myGov.
• $194.4 million over four years from 2024–25 (and $20.6 million per year ongoing) to provide additional resourcing to meet increased service delivery pressures including claims processing and modernise the digital capability of the Department of Veterans’ Affairs.

The Government also indicated that future staffing needs for Services Australia will be evaluated alongside ongoing improvements to myGov service delivery.

Carer Payment – increased flexibility

Currently, if the carer ceases to provide care for more than 25 hours per week (including travel time and meal breaks) to participate in training, education, employment of voluntary work, eligibility for Carer Payment is reviewed to ensure that the carer is providing the required amount of care.

From 20 March 2025, in endeavouring to provide carers greater flexibility and choice to structure their work commitments around their caring role, the existing 25 hour per week participation limit will be amended to 100 hours over four weeks. The participation limit will no longer apply to study, volunteering activities and inclusion of travel time in the proposed 100-hours requirement, and will only apply to employment.

Carer Payment recipients exceeding the participation limit or their allowable temporary cessation of care days will have their payments suspended for up to six months, rather than cancelled.

Recipients will also be able to use single temporary cessation of care days where they exceed the participation limit, rather than the current seven day minimum.

JobSeeker Payment – higher rate for single recipients with reduced work capacity

Currently, the JobSeeker Payment (JSP) rates are:

From 20 September 2024, single recipients with a partial capacity to work up to 14 hours per week will also be eligible for the higher rate of $816.90 (indexed) and the higher rate of Energy Supplement, currently $9.50 per fortnight.

Aged Care

Additional Home Care Packages

The Government will provide an additional 24,100 Home Care Packages in 2024-25 to reduce wait times in the National Priority System (NPS) to an average of 6 months.

There were 51,044 people in the NPS who were waiting on a Home Care Package (HCP) at their approved level as at 31 December 2023. Of these people, 11,822 were in an interim lower level HCP while they wait for a HCP at their approved level.

A person’s place in the NPS is solely based on the date of approval and priority for care. The estimated wait times for a person with medium priority entering the NPS on 31 March 2024 by HCP level are as follows:

Home Care Packages Program Data Report April 2024.

Other budget measures

Introducing superannuation payments on Paid Parental Leave benefit

To reduce the impact on superannuation savings whilst on parental leave, the Government has proposed to pay superannuation contributions on the existing government-funded Paid Parental Leave to eligible parents of children born or adopted on or after 1 July 2025. The contribution will be based on the Superannuation Guarantee (SG) rate of 12% (in line with the gradual increment of SG rate to 12% on 1 July 2025).

The payment will be taxed at the current superannuation tax rate of 15%. Payments made under this measure will count towards an individual’s concessional contributions cap.

From 1 July 2024 Paid Parental Leave is paid for a maximum period of 22 weeks and the rate is based on the national minimum wage (currently $882.75 per 5 day week). Legislation has been introduced to increase the maximum period to 24 weeks and 26 weeks from 1 July 2025 and 1 July 2026 respectively and received Royal Assent on 20 March 2024.

Small business support – $20,000 instant asset write-off

The Government has announced they will extend the $20,000 instant asset write-off by 12 months until 30 June 2025.

Small businesses with aggregated turnover of less than $10 million will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025.

The $20,000 threshold will apply on a per asset basis so that eligible small businesses can claim a full tax deduction for multiple assets.

Assets valued at $20,000 or more, which cannot be immediately deducted, can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year after that.

Freezing Pharmaceutical Benefit Scheme co-payments

The maximum Pharmaceutical Benefits Scheme (PBS) co-payment will be frozen for five years for concession cardholders and one year for Medicare cardholders.

The PBS co-payment is the amount patients pay towards the cost of Government-subsidised medicine. The co-payment amounts are adjusted on 1 January each year in line with movements in the Consumer Price Index.

Concession cards include the Pensioner Concession Card, Commonwealth Seniors Health Card, Health Care Card and DVA White, Gold or Orange Cards. The maximum PBS co-payment for Commonwealth concession cardholders is currently $7.70. This will not be indexed between 1 January 2025 and 31 December 2029 (inclusive), with indexation resuming on 1 January 2030.

The maximum PBS co-payment for Medicare cardholders is currently $31.60. This will not be indexed between 1 January 2025 and 31 December 2025 (inclusive), with indexation resuming on 1 January 2026.

Strengthening the foreign resident capital gains tax regime

The Government has announced they will make a number of amendments to the foreign resident capital gains regime. The amendments will apply to CGT events commencing on or after 1 July 2025 to:

• clarify and broaden the types of assets that foreign residents are subject to CGT on
• amend the point-in-time principal asset test to a 365-day testing period
• require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

These amendments are in addition to the increase in the foreign resident capital gains withholding tax rate from 12.5% to 15% and reduction to the withholding threshold from $750,000 to $0 for real property disposals from 1 January 2025.

The Government will consult on the implementation details of the new amendments.

Legislative update

The Government has a number of measures both legislated and unlegislated in train. A number of superannuation caps and thresholds are also due to increase on 1 July 2024. While not addressed in the Budget, the following is provided as a reminder of these measures.

Superannuation rates and thresholds

Preservation age increasing to 60 for everyone from 1 July 2024

Starting from 1 July 2015, depending on a person’s date of birth, preservation age has been gradually increasing from age 55 to 60. From 1 July 2024, preservation age will be age 60 for everyone.

The increase in the preservation age will impact a number of strategies:

• Retirement condition of release
  From 1 July 2024, a member can meet the retirement condition of release through two definitions:
  – Has reached age 60 and ceases employment on or after turning 60. Only the balance as at termination date can be unrestricted non-preserved.
  – Has reached age 60 and does not intend to work more than 10 hours per week. The entire balance can be unrestricted non-preserved.
• Commencement of Transition to Retirement Income Streams
  With preservation age increasing to 60, this means that that Transition to Retirement Income Streams can only be commenced once the individual has reached at least age 60.
• Low-rate cap for super lump sum withdrawals is a redundant concept
  Since 1 July 2015, where a person was over preservation age and less than age 60, they got the benefit of the lifetime low-rate cap which assisted with reducing tax on super lump sums. As the low-rate cap only applied to those who were over preservation age and less than 60, from 1 July 2024, with preservation age being 60, low rate cap for super lump sum
  withdrawals is a redundant concept. This is because super benefits from taxed-funds are tax-free if the withdrawal is made once the individual is 60 or over and up to 22% applies if the person is under preservation age.

Division 296 tax – reducing tax concessions on super balances over $3 million

Initially announced on 28 February 2023, the Government has since introduced the amending bill into parliament on 30 November 2023 but is not yet legislated.

Proposed to commence on 1 July 2025, the changes will reduce the tax concessions on superannuation balances over $3 million by levying a 15% tax on the proportion of earnings on an individual’s total super balance (TSB) of more than $3 million.

Tax liability = 15% x earnings x proportion of earnings above $3 million.

Where:

• Earnings = (TSB on 30 June of current financial year + withdrawals - net contributions) less TSB on 30 June of previous financial year.
• Proportion of earnings = (TSB on 30 June of current financial year - $3 million) / TSB on 30 June of current financial year.

The amending bill provided details on what is counted as withdrawals and net contributions. Withdrawals includes lump sum withdrawals, super contribution splits to a spouse and amounts released under First Home Super Saver scheme. Net contributions includes non-concessional contributions or 85% of concessional contributions, spouse contribution splitting amounts received, insurance proceeds and transfers from a foreign super fund.

Importantly, the amending bill also made changes to the definition of TSB which will apply beyond Division 296 to other purposes such as determining an individual’s non-concessional contribution cap as well as the ability to utilise catch-up concessional contributions.

The new TSB definition is broadly the sum of each super interest’s total super balance value and it is:

• The account balance for accumulation phase super interests and account-based pensions.
• The maximum commutation value for innovative super incomes (excluding deferred income streams).
• The family law value or a scheme specific amount for defined benefit pensions.

Get in touch

Want to know more about these or other measures announced in this year’s Federal Budget?

Get in touch with your financial adviser – they’ll be happy to talk everything through with you. Or contact our friendly Challenger team.

This update is issued by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger) and is current as at 15 May 2024. It is a guide only based on Challenger’s understanding of the 2024-25 Federal Budget Report and current taxation and (where relevant) social security laws. These laws may change and the proposals mentioned in the Federal Budget Report may not become law. It does not constitute financial product advice, taxation advice or advice on social security laws. Before making a decision about a financial product, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice, from qualified professional advisers who are able to take into account the investor’s individual circumstances. In preparing this update, Challenger relied on publicly available information and sources believed to be reliable, however, the information has not been independently verified by Challenger. While due care and attention has been exercised in the preparation of this information, Challenger gives no representation or warranty (express or implied) as to its accuracy, completeness or reliability. The information presented in this update is not intended to be a complete statement or summary of the matters to which reference is made in this update. To the maximum extent permissible under law, neither Challenger nor its related entities, nor any of their directors, employees or agents, accept any liability for any loss or damage in connection with the use of or reliance on all or part of, or any omission inadequacy or inaccuracy in, the information in this update. Neither Challenger, nor any of its officers or employees, are a registered tax agent or a registered tax (financial) adviser under the Tax Agent Services Act 2009 (Cth) and none of them is licensed or authorised to provide tax or social security advice