Overview
In May, the Federal Government handed down its annual budget. Income tax rates were left unchanged and no new taxes on superannuation were introduced. The budget delivered mixed news for people currently receiving the age pension.
The Government has decided not to proceed with the indexation of the Age Pension payment rates linked to inflation only. They will also maintain the current deeming thresholds. In addition, the Assets Test threshold for the full pension will be increased. However, the maximum level of assessable assets for a part Age Pension will reduce. Pensioners who lose their pension entitlement will automatically be issued with a Commonwealth Seniors Health Card.
Please refer below for details. The announcements are proposed changes which will require passage of legislation before it can be implemented.
Increase in Assets Test Threshold
From 1 January 2017, the Assets Test thresholds for the full pension will be increased. The current and proposed thresholds are detailed below:
| Assets Test threshold for full pension(20 March 2015) | Assets Test threshold for full pension(1 January 2017) | |
| Single, homeowner | $202,000 | $250,000 |
| Single, non-homeowner | $348,500 | $450,000 |
| Couple, homeowner | $286,500 | $375,000 |
| Couple, non-homeowner | $433,000 | $575,000 |
An increase in the Assets Test thresholds for full pension means retirees can have a greater amount of assets (in addition to the family home) before their pension entitlement is reduced.
Increasing of the Assets Test taper rate
From 1 January 2017, the Assets Test taper rate will increase from $1.50 to $3.00, effectively reversing the 2007 decision to halve the taper rate at that time. The current and proposed thresholds are detailed below:
| Assets Test threshold for part pension(20 March 2015) | Assets Test threshold for part pension(1 January 2017) | |
| Single, homeowner | $775,000 | $547,000 |
| Single, non-homeowner | $922,000 | $747,000 |
| Couple, homeowner | $1,151,500 | $823,000 |
| Couple, non-homeowner | $1,298,000 | $1,023,000 |
Pensioners who lose their pension entitlement on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card (for those under Age Pension age).
Impact of increase in Assets Test thresholds and taper rates on pensioners
The proposed new taper rates and Assets Test thresholds mean some pensioners will receive a higher fortnightly pension, while others will see their pension reduced. The following table approximates the level of assets above which the pension (under the Assets Test) will reduce due to the proposed measures compared to current entitlements.
| Asset level above which pension (under the Asset Test) are reduced due to the proposed measures(from 1 January 2017) | |
| Single, homeowner | $289,500 |
| Single, non-homeowner | $537,000 |
| Couple, homeowner | $451,500 |
| Couple, non-homeowner | $699,000 |
Pension indexation changes not proceeding
The Government has decided not to proceed with the proposed 2014-15 measure to link pension increases to inflation only. Payment rates will continue to be indexed under current arrangements by the higher of increases in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI) and benchmarked against Male Total Average Weekly Earnings (MTAWE).
Deeming and Income Test threshold changes not proceeding
The Government will not proceed with the 2014-15 measures to reset the deeming thresholds and change the indexation of the pension Income Test thresholds and deeming thresholds. The deeming thresholds remain $48,000 for singles and $79,600 for couples, and the pension Income Test thresholds and deeming thresholds will continue to be indexed annually by CPI.
Tax Cuts for Small Business
Companies with aggregated annual turnover of less than $2 million will have their tax rate reduced from 30% to 28.5%. In addition, small business owners will be able to claim any asset under $20,000 in their tax return and a unincorporated businesses will receive a 5% tax discount up to $1,000.
Impact on Aged Care Residents
Aged care residents with pensions reduced under the measures may see a reduction in their means-tested care fees (due to a reduction in overall assessable income), helping to minimise the impact of the new measures. Conversely, those who see an increase in their pension entitlements may see an increase in their annual means-tested care fees. The annual care fees may increase up to 50c for every $1 increase in their annual pension.
Refundable Accommodation Deposits (RAD) are exempt assets under the Assets Test. The higher taper rate may lead to aged care residents being more likely to pay a RAD instead of a Daily Accommodation Payment (DAP) if the resident’s DAPs are based on an interest charge that is lower than 7.80% as calculated in the section above (currently DAPs are calculated as 6.36% of any outstanding accommodation payments – amounts not paid as a RAD).
Similarly, new residents from 1 January 2017 may find it more attractive to ‘upgrade’ their accommodation and pay a higher RAD if the resident’s pension is still determined under the Assets Test after paying the RAD. Paying a higher RAD can also reduce means-tested care fees as RADs are not deemed under the aged care income assessment.
The rental income exemption under the aged care means test, for aged care residents who are renting out their former home and paying their aged care accommodation costs by periodic payment, will no longer apply. This applies to new residents entering aged care from 1 January 2016.