Mark Draper

Mark Draper

Reduction in company tax rate

1 July 2015



The company tax rate will be reduced by 1.5% to 28.5% from 1 July 2015. For companies earning more than $5,000,000 in taxable income, this reduction will be offset by the 1.5% levy to fund the paid parental leave scheme which also commences from 1 July 2015.

GEM Capital Comment

With the reduction in the company tax rate, investors in companies earning less than $5 million may receive greater dividends but less franking credits, leaving them in the same net after tax position. However, for shareholders of companies with income of more than $5 million, the 1.5% reduction in tax will be offset by the 1.5% levy for the paid parental leave scheme. As a result, shareholders may receive the same level of dividends but less franking credits (assuming the levy is not franked), leaving them worse off. 

Superannuation guarantee rate to increase to 9.5% - Change to schedule for increase to 12%

From 1 July 2014



The Government has announced that the superannuation guarantee (SG) rate will increase from 9.25% to 9.5% from 1 July 2014, as currently legislated, given the defeat of the Minerals Resource Rent Tax (MRRT) Repeal and Other Measures Bill 2013 in the Senate.

However, the Government proposes to amend the schedule for SG to increase to 12% by freezing the SG rate at 9.5% from 1 July 2014 until 30 June 2018, and subsequently increasing the SG rate every year by 0.5% until it reaches 12% from 1 July 2022.

The table below shows the scheduled increase as currently legislated, as proposed in the defeated MRRT Repeal and Other Measures Bill 2013, and under the new Government proposal.

Financial year

SG rate 2010/11 Federal Budget, legislated 29 March 2012

Proposed SG rate defeated MRRT Repeal and Other Measures Bill 2013

Proposed SG rate 2014/15 Federal Budget













































GEM Capital Comment

This announcement gives employers and employees certainty that the SG rate will increase to 9.5% from 1 July 2014, allowing employers to prepare for the increase to their SG obligations, and giving time for employees’ salary sacrifice arrangements to be amended for the 2014/15 financial year to ensure they remain within their concessional contributions cap.

However, the new proposal represents a further delay to the SG rate reaching 12% by another year compared to the Government’s previous proposal, and represents a delay of 3 years compared to current legislation. Therefore, the new proposal will further reduce the SG entitlements of all employees until the SG rate reaches 12% from 1 July 2022 under the new proposal. 

Changes to the Commonwealth Seniors Health Card (CSHC)

The Government has announced a number of changes to the Commonwealth Seniors Health Card (CSHC). The CSHC allows self-funded retirees to gain access to medicines listed on the Pharmaceuticals Benefits Scheme at a concessional rate as well as other concessions.


To be eligible, a person must have an adjusted taxable income (ATI) of:

  •   $50,000 (singles)

  •   $80,000 (couples, combined), or

  •   $100,000 (couples, combined, for couples separated by illness or respite care)

    The proposed changes include:

  •   Annual indexation of the income thresholds to Consumer Price Index from September 2014.

  •   Account based pensions (ABP) that are subject to deeming will be included in the CSHC income test from 1 January 2015. Grandfathering applies to holders of a CSHC on 1 January 2015 with an ABP commenced prior to that date.

  •   Holders of the CSHC will cease to receive the Seniors Supplement beyond the June 2014 quarter. The Seniors Supplement is currently $876.20 p.a. (singles or couples separated due to illness) or $660.40 (couples, each). CSHC holders will still receive the Clean Energy Supplement.



GEM Capital Comment

The inclusion of deemed income on account based pensions in the assessment of income to determine eligibility to the CSHC will have a significant impact on a number of self- funded retirees.

Under the proposed change, based on the current deeming rates and thresholds and assuming no other income, a new applicant will not qualify for a CSHC if their ABP exceeds $1,448,543 (singles) or $2,318,886 (couple, combined).

However, these changes will not only impact self-funded retirees with large ABP balances, but also those with lower ABP balances who have other Adjusted Taxable Income such as income from untaxed Government schemes or foreign pensions.

The proposed change has a number of implications for holders of account based pensions. The grandfathering provision essentially “locks” clients into their existing ABP provider as any change after 1 January 2015 will see the new ABP deemed for CSHC purposes. 

Age pension age to increase to 70 by 2035


The Budget confirmed the Treasurer’s earlier announcement that the age pension age will increase to age 70 by the year 2035. This means that those born on or after 1 January 1966 (currently 48 years of age or younger) will have to wait until they are 70 before they are eligible for the age pension.

While the current pension age for both men and women is 65, it has been legislated that from 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65.5 years for both men and women. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023. See table below. 


Date of birth

Qualifying age at

Commencing from

1 July 1952 to 31 December 1953


1 July 2017

1 January 1954 to 30 June 1955


1 July 2019

1 July 1955 to 31 December 1956


1 July 2021

From 1 January 1957


1 July 2023


The changes proposed in the Budget will continue the propose increase in the pension age as follows:

Date of birth

Qualifying age at

Commencing from

1 July 1958 to 31 December 1959


1 July 2025

1 January 1960 to 30 June 1961


1 July 2027

1 July 1961 to 31 December 1962


1 July 2029

1 January 1963 to 30 June 1964


1 July 2031

1 July 1964 to 31 December 1965


1 July 2033

1 January 1966 onwards


1 July 2035


GEM Capital Comment

Whilst the policy intention is to encourage people to continue working until age 70, the reality is many people will be unable to continue working. This means there will likely be a gap between when someone retires and when they qualify for the age pension.

How much additional superannuation will be required to fund this gap? A person who is currently 48 (born 1 January 1966) who wishes to retire at age 65, will require approximately $96,432 to generate the equivalent of the maximum age pension currently $21,912 p.a. (for singles) to fund the five-year gap. For members of a couple, they require approximately $72,689 each to fund the five year gap.

This is a substantial amount to accumulate over the next 16 1⁄2 years. To close this gap, a 48 year old today will need to make additional pre-tax contributions of approx. $5,232 p.a. (for singles) or $3,943 p.a. (for members of a couple) every year for the next 16 1⁄2 years.


Figures are shown in today’s dollars; rate of inflation of 3% p.a. Centrelink rates for the period between 20 March 2014 and 30 June 2014. Pensions are indexed at 3.0% p.a. An account based pension is to be commenced at age 65 with rate of return of 7% p.a. Contributions tax of 15%, rate of return on investment in accumulation phase is 6.0% p.a. net of taxes and fees. Super contributions will increase by 3.5% p.a. 




Option to withdraw excess non-concessional contributions from superannuation

1 July 2013

The Government has proposed that individuals will have the option to withdraw contributions made from 1 July 2013 that exceed their non-concessional contributions cap.

Under this measure, associated earnings are also able to be withdrawn and taxed at the individual’s marginal tax rate. Final details of the policy will be settled following consultation with key stakeholders in the superannuation industry.

It is understood that individuals who do not withdraw their excess non concessional contributions will be subject to excess contribution tax at the top marginal tax rate on the amount of the excess. 




GEM Capital Comment

This proposal is good news as it will mean that clients who inadvertently exceed their non- concessional cap will have the ability to withdraw the excess amount rather than have it taxed at the top marginal rate. It also ensures the treatment of excess non-concessional contributions will be broadly consistent with the rules that apply to excess concessional contributions. 


Temporary Budget Repair Levy on income over $180,000

Applies from 1 July 2014 to 30 June 2017



A levy of 2% will apply to an individual’s taxable income over $180,000 per annum for three years from 1 July 2014. In addition, the rate of Fringe Benefits Tax (FBT) will also increase to 49% to prevent high income earners from using fringe benefits to avoid the levy. The increase in the FBT rate will be from 1 April 2015 to 31 March 2017 to align with the FBT year.

A range of other tax rates that align with the top marginal rate are also expected to increase.

The levy amount expected to be paid by taxpayers with taxable income over $180,000 is summarised in the following table. 


Taxable Income   Temporary Budget Repair Levy
$200,000  $400 
 $250,000 $1,400 
$300,000  $2,400 

GEM Capital Comment

As the Temporary Budget Repair Levy is proposed to apply to taxable income, strategies which reduce taxable income will result in a reduction in the amount of levy payable. This can be achieved by either reducing assessable income or increasing deductible expenditure.

It is also important to note that while the Temporary Budget Repair Levy is proposed to apply to high income earners, it could also potentially apply to people with income below $180,000 where they:

  • -  sell an asset and realise capital gains, or

  • -  take a superannuation lump sum benefit consisting of taxable component between the age of 55 and 59, as this amount will be included in the taxpayer’s taxable income and could push the client over the $180,000 threshold.

    Taxpayers considering selling assets or taking superannuation lump sums between 1 July 2014 and 30 June 2017 may therefore need to take into account any additional levy they may incur as a result. 






Tuesday, 06 May 2014 17:57

RBA keeps rates on HOLD - May decision

BillEvans small headshot WIBIQAs expected the Board decided to leave the cash rate unchanged at 2.5%.


There were only minor changes in the Governor's compared to the statement following the April Board meeting. We were most interested in the rhetoric around the Australian dollar given that in December it was referred to as "uncomfortably high" at US0.912. Today's level of 0.928 has not evoked stronger language than "the exchange rate remains high by historical standards". Of course this was the language used at the April meeting when the AUD was printing USD0.924 but it was reasonable to expect that with concerns around a lift in inflation having subsided with the March quarter print for core inflation falling from 0.9% in December to 0.52% in March stronger language around the AUD might reasonably have been reinstated.


In the event a preference for no change prevailed over a decision to restore a successful strategy that assisted in the fall in the AUD from USD0.95 to USD0.87 through 2013.


There were only four other changes in the statement from April:

1) recognition that commodity prices have recently softened;

2) describing the outlook for the housing construction cycle as "strong" rather than "solid";

3) recognising that the unemployment rate had fallen in March but maintaining a cautious view towards the labour market by indicating that "it will probably be some time yet before unemployment declines consistently";

4) linking ongoing weak wages growth to a moderation in the prices of non-traded goods and services. This link had been a source of some frustration for the Bank given that wages had clearly weakened but non traded inflation had been stubbornly high. It appears that this was the most significant take-out by the Bank of the surprise 0.52% print in core inflation for the March quarter rather than recognising that the pass through from the weak currency in 2013 had largely run its course in the December quarter.




The Governor repeated the key statement that "the most prudent course is likely to be a period of stability in interest rates". Our view that rates will remain on hold until the second half of 2015 is not widely held by other economic commentators with two thirds expecting rate hikes by early 2015 and some still anticipating rate cuts.

From our perspective encouraging evidence around the consumer, residential construction, exports and jobs preclude the need for lower rates whereas extensive spare capacity, a high AUD, the ongoing downturn in mining and a rising unemployment rate (despite a stronger jobs environment than in 2013) all point to an extended period of interest rate stability.


Bill Evans

Westpac Chief Economist

The imminent increase to the Medicare Levy and the planned Deficit Tax will soon make salary sacrifice even more attractive.


By way of background, from 1 July 2014, the Medicare Levy will increase from 1.5% to 2%.  For those who are employees and there are therefore in a position to salary sacrifice, the increase in the Medicare Levy actually increases the tax effectiveness of salary sacrificing.  This is because the Medicare Levy does not apply sacrificed amounts whereas it does apply to your taxable income.  However to emjoy this tax saving, you will need to sacrifice benefits that are exempt from fringe benefits tax such as superannuation, tools of trade, work related laptops, briefcases etc.  Where you sacrifice benefits that attract FBT (such as home loan repayments, cars used privately, school fees etc) the higher FBT rate of 47% will apply and thuse negate the benefit of this strategy.


The tax effectiveness of salary sacrifice will be enhanced even further if the Government goes ahead with its planned Deficit Tax which has been foreshadowed in recent times.  If implemented as reported, from 1 July 2014 the Deficit Tax would add 1% to the current 37% personal income tax rate, and 2% to the top marginal rate of 45%.  By salary sacrificing FBT exempt benefits however (such as superannuation) you can avoid these tax increases, and of course enjoy the benefit for which you have sacrificed salary (eg superannuation, laptops etc)


Those wanting to enter into a salary sacrifice arrangement, should discuss it with their employer.

Monday, 17 March 2014 16:01

Westpac no longer expect rate cuts





BillEvans small headshot WIBIQSummary: Westpac has revised its profile for the Reserve Bank cash rate in 2014.  Previously we expected that rates would be reduced by .25% in both August and November 2014.  The forecast is now for flat rates throughout 2014.  As before we do not expect a rate hike until the third quarter of 2015, with a .25% increase in both the Septemer and December quarters.

Our dominant theme in this cycle has been that a weak labour market would undermine consumer spending which in turn constrains investment, employment and incomes. Businesses react negatively to soft demand; an uncertain global environment and a “still high” AUD. Those forces are expected to be complemented by a number of known headwinds - mining slowdown; fiscal restraint; falling terms of trade and a resilient AUD as global growth, including in the US, disappoints.

We still see those forces operating to moderate growth and inflation pressures but now assess that better news on employment; consumption; and business confidence will dampen those contractionary forces to exclude a sufficiently strong case to cut rates. This is in the context of a high hurdle from the perspective of the Reserve Bank to further cutting rates. Equally, however, there will be no case for higher rates for 18 months or more. Details behind this view change are set out below :

1. The upward revisions to the current state of the labour market as indicated by the February jobs report where jobs growth in February was reported as 47,300 (80,500 full time) and January was revised up from –3,700 to 18,000 painted a much more normal picture of the Australian jobs market. That meant that the dismal start to 2014 of –10,400 in the previous 3 months was revised to a modest but respectable 41,000 over the three months to February. We accept that there were probably sampling issues with this report but that revised picture of the labour market now seems more consistent with recent lead indicators of employment intentions in the business surveys (which have recently lifted). It is true that the unemployment rate was unchanged at 6% and we still expect that the unemployment rate will increase from this point to reach around 6.5% by year’s end. However, whereas before we saw the risks to that forecast to the upside they are now tilted to the downside.

  1. We have been impressed by the momentum in household spending in the final quarter of 2013 (up 0.8% real); the upward revision in spending growth in Q3 from 0.4% to 0.7%; and the surprising 1.2% print for retail sales growth in January. That momentum is partly associated with the lift in Consumer Sentiment to a peak of 110 in November last year. The recent drop in the Index to 100 is indicating a slowing in that momentum in the second quarter but not to a pace that would, of its own, trigger a rate cut.

  2. Public comments from Reserve Bank officials and recent written commentary point to the Bank having a “high hurdle” to cutting rates. The improved picture for the labour market and consumers has now, probably, made that hurdle just too high.

  3. Offshore developments have added to the rate cut case. The terms of trade will have fallen in Q1 while the AUD has remained stubbornly high. However, due to supply constraints in the key commodity markets, we do not envisage a fall in terms of trade in 2014 much beyond 6%.

  4. The Westpac Melbourne Institute Index of Unemployment Expectations has reached a 5year high. Households are nervous about their job security and that is likely to weigh on household spending going forward providing further support for a “soft spot” in consumer spending in the June and September quarters. That is likely to keep rates on hold, although more positive trends in the labour market are likely to see that “soft spot” insufficiently threatening to warrant a rate cut. 

  5. Dwelling approvals have lifted markedly. They are now up by 35% over the year to January 2014, indicating a solid lift to residential building in 2014. We have always anticipated that lift to construction activity but had expected that the slow down in the momentum in overall consumer spending would largely offset that boost. With consumer spending momentum holding up better than expected that offset is now seen to be less significant.
  6. In preliminary calculations we have raised our forecast for headline inflation in the March quarter 2014 from 0.6% to 0.7%. At this stage we retain our call for the core inflation print of 0.6% but recognise that the risks on the core are now to the upside. Note that the Reserve Bank's implied forecast for core inflation in the March quarter appears to be 0.8%, with the assumption that the pass through from the fall in the $AUD in 2013 will take longer to work through than just in the December quarter 2013. If the Reserve Bank's forecast is correct then rate cuts would be firmly off the table.

8. Growth in housing finance has been very strong, up 26.9% for the year to December and 22.3% for the year to January. Within that, loans to investors slowed from 40% (in December) to 28.6% in January. Owner occupiers slowed from 19.4% (December) to 18.6% (January). The "time to buy a dwelling" index from the Westpac Melbourne Institute Consumer Sentiment Survey is down by 16.8% from its September peak. There are tentative signs that housing lending might be slowing. As discussed, that slowdown, which has always been core to our forecasts, appears to be  evolving. However, such a slowdown was a necessary but not sufficient condition for lower rates.

9. We retain our forecast for an improvement in the condition of non mining equipment investment from a contraction of 11.5% in 2013 to a modest lift in 2014 of 3.4%.

The Australian Dollar. Our previous profile for the AUD included resilience around 90¢ until the market started to forecast the anticipated rate cuts. We still see most of the contractionary forces operating in the economy but not sufficiently strong to trigger a rate cut from the RBA. We also expect a fall in the terms of trade and a higher USD. Accordingly we are retaining our directional forecast for a lower AUD through 2014 with a target end point of 87¢ by March 2015 rather than the lower 85¢ when we expected rate cuts.


Bill Evans - Westpac Chief Economist


The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. 


Wednesday, 12 March 2014 08:25

Aussies should be investing overseas now


Investment specialist Douglas Isles, from Platinum Asset Management talks with Peter Switzer on Sky Business News about the reasons why Australian investors should think about investing outside of Australia.


Douglas offers his views on which markets look attractive, the $AUD and much more.