Being fair isn’t always easy
Posted: July 02, 2010
In the 2008 Budget speech, Wayne Swan said “We have decided to redirect welfare payments to where they are needed most. The Government does not believe hard earned tax dollars are best spent on cash payments to the wealthiest Australians. It is simply not defensible”.
We have become used to the idea that the age pension and other Centrelink payments are means tested. Government policy has taken this a whole lot further in 2009-10. The Government’s aim is to improve equity and to save money by not providing benefits to people it considers can fund themselves.
There are many examples of Government policy in action and most use an income test. In 2009-10 the definition of income for many tests was widened. In most cases, income for means tests will include taxable income, reportable fringe benefits, net investment losses and reportable superannuation contributions.
The last item includes any concessional superannuation contributions where the individual had an influence on the amount or the timing of payment. This means superannuation guarantee contributions are excluded but salary sacrifice contributions and contributions for which tax deductions were claimed will count.
This new income definition means it will not be possible to make superannuation contributions or negatively gear investments to reduce income to qualify for concessions or benefits or to avoid all taxes. The test will mean Government money is allocated more equitably for many arrangements including:
- The superannuation co-contribution and spouse contribution tax offset
- Tax offsets such as for mature age workers, senior Australians and pensioners and for dependants
- Family Tax Benefits, the Baby Bonus and Child Care Benefit
- Commonwealth Senior's Health Card
The same definition of income applies to the Medicare Levy Surcharge - an extra 1% tax where a taxpayer does not have private health insurance - and Higher Education Loan Repayments.
Pension and allowance income test
The benefits paid by Centrelink such as the age pension and New Start Allowance will also include reportable superannuation contributions in the income test to ensure benefits are paid to the ‘target' recipients.
Superannuation contribution caps
In 2009-10 the cap on concessional contributions per person in the year is $25,000 - half the amount allowed in the previous year. For people over age 50, the cap was also halved to be $50,000 until 30 June 2012. The reduction on the caps reduces the cost of the tax concessions and allows the Government to reallocate money elsewhere.
The 2010 Budget announced more favourable treatment for large concessional contributions for members over age 50 from 1 July 2012. However the new arrangement is means tested with the $50,000 cap only applying to individuals who have less than $500,000 in superannuation.
Most of these new rules apply for the first time in 2009-10. The Government's desire to ensure better targeting of their social support and tax programs will mean more administrative complexity and it is recommended you discuss your situation with your adviser.