The key changes within the budget of potential relevance to you as a Doctor are:
High income earners levy
A 2% levy will apply to those earning an income above $180,000. The impost is for three years only from 1 July 2014 to 30 June 2017 and means that those earning above $180,000 will pay the extra 2% levy on all income in excess of $180,000.
That is, if you are earning $200,000 you will be faced with an additional 2% on $20,000 – a total levy of $400, or if you are earning $300,000 you will be paying a 2% impost on $120,000 – or $2400.
This extra 2% will also affect the FBT rate, which determines the net value of salary packaging benefits. We expect that the annual amount that will be packagable to reduce to a total of about $8,415 total per year.
Not too much to say here – more tax on high income earners. We just hope that the government stays true to its word and reduces this levy from 2017. The potential reduction in total amount that can be packaged per year is fairly small, and the tax benefits of packaging still significantly outweigh the drawbacks.
Healthcare to cost more to patients
From 1 July 2015, previously bulk-billed patients can expect a charge of $7 per visit towards the cost of standard GP consultations and out-of-hospital pathology and imaging services. For concessional patients and children under 16 years, the contribution will be limited to the first 10 visits each calendar year. Hospitals will also be able to charge this fee for ‘GP equivalent’ consultations.
Primary health care providers such as GPs, Radiologists and Pathologists will also experience a reduction in Medicare rebates, with the opportunity to claw back revenue through co-payments.
We are divided on this one. On the one hand, we can see the potential reduction in cost and strain on the healthcare system due to the reduction in ‘unnecessary’ consults, but on the other hand are concerned about the people in genuine need of care who forsake it due to the cost, both in terms of poorer health outcomes for patients and future cost to the health system from untreated illness.
A reduction in co-payments will likely reduce the demand for GP visits and consequently, also reduce the demand for other primary health care services, such as pathology, diagnostic imaging and specialists. This will especially be the case in lower socioeconomic areas and for predominantly bulk-billing GP practices and their associated primary health care service providers.
It is important to note that such proposals as the extra charge for standard GP consultations and out-of-hospital pathology and imaging services may not actually pass through the Senate and come into effect.
Super Contributions will increase
The Super Guarantee will increase from 1 July 2014 to 9.5%. It will then remain frozen for 4 years, after which it will increase 0.5% a year until it reaches 12% in July 2022. For anyone in the hospital system who is already receiving 12.75% contribution from the employer, there will be no change.
Medicare levy increase from 1.5% to 2% – effective 1st July 2014 (this is from last year’s budget)
The Medicare levy is proposed to increase from 1.5% to 2% to fund DisabilityCare, the Government’s national disability insurance scheme.
The increased rate results in the following additional amount payable per annum:
|Taxable income||Increase in levy (extra tax paid)|
As the Medicare levy is based on taxable income, reducing assessable income and/or increasing allowable tax deductions becomes even more valuable due to the higher total tax rate and thus a higher net saving.
Salary packaging, salary sacrifice to superannuation, and negative gearing for investment property purchase will all be useful strategies to reduce taxable income. Salary sacrifice to superannuation becomes slightly more attractive given that contributions are generally taxed at a maximum of 15%, compared to effective marginal tax rates which are set to increase by 0.5%.
Age Pension age increase – effective 1st July 2015
Australians aged 48 or under in 2014 will not be eligible for the Age Pension until they reach age 70.
For those aged 49 or older in 2014, the Age Pension will be 65-69.5
The greater concern from this change is the possible flow-on effect that we may see the age superannuation can be accessed also raised to age 70 in subsequent budgets. This is a very compelling reason to build wealth outside the superannuation environment to provide greater financial freedom and lifestyle options and minimise any impact from government policies.
Overall, our view at Doctors Wealth is that most clients will be slightly worse off under the proposed budget, based on the above changes.
However, as with any change in the legislation, there are often strategies to circumvent or at least minimise the impact of the changes, and even emerge in a better financial position than before.
Please contact us on (07) 32528810 or email@example.com if you would like to arrange an appointment to discuss how the above affects you specifically, or to access our financial planning, accounting or property services.