The proposals mean that the tax offset will no longer be available to anyone with adjusted taxable income over the Medicare Levy Surcharge threshold which is $84,000 for a single person or $168,000 for a couple or family. In addition, the offset will only be available for eligible medical expenses over $5,000 at the rate of 10% (down from 20%).

Eligible medical expenses include (but not limited to):

• most aged care fees
• doctor, dentist and optometrist fees
• hospital fees
• payment for therapeutic treatment administered at the direction of a doctor.

This change is proposed to take effect from 1 July 2012, so if possible, it would be advisable to bring forward any medical expenses if you are likely to exceed the current threshold of $2,000 in the current tax year.

The plan was released on 20 April 2012 and was included in last week’s Budget and will potentially have significant implications for those considering moving into Aged Care in the next couple of years.

Under the “Living Longer Living Better” plan, the Government will:

• overhault the way in which aged care costs are means-tested by requiring care recipients with greater financial means to make a greater contribution
• make it easier for older Australians to stay in their home while they receive care
• ensure more people will get to keep their family home and avoid the need for fire sales, and
• establish a simplied gateway for accessing aged care information.

Greater choice for paying costs

From 1 July 2014, all residents will have the choice to pay for accommodation costs with either:

• a fully refundable lump sum
• rental style periodic payments, or
• a combination of both.

Distinctions between low and high care will be removed and the fee structures will be more aligned. But part-pensioners and self-funded retirees may end up paying higher fees.

Bonds will be fully refundable upon departure from the facility.

Home care packages to increase

Retirees will gain access to a wider choice of services at home (and in residential care facilities). The number of home care packages will increase to four levels of care (up from two levels).

Annual and lifetime fee caps to apply

From 1 July 2014, fees for aged care residents will be capped at a maximum of $25,000 per annum and $60,000 over their lifetime. Caps will also apply to payments made towards the cost of home care packaged, which will also count towards the $60,000 lifetime limit.

Grandfathering rules

Those in residential care on 30 June 2014 will not be subject to the new arrangements while their current care continues. All residents will be subject to the new rules if their care needs change (eg they move from low level care to high level care).

Implications

No action is needed in the short term – particularly while still in proposal stage – but it will be worth planning ahead to determine whether the current system (in place before 1 July 2014) is preferable to the proposed system to apply from 1 July 2014 onwards.

Note: At this stage, there is no legislation to support these proposals. It is possible that details may change once legislation has passed Parliament.

Current offset rules

The private health insurance offset reduces the premium for private health insurance, both hospital and ancillary cover. It can be claimed as a reduction in premiums or a refund in the tax return.

The offset rate varies according to the age of the oldest person covered by the policy, as shown in the table below.

New rules from 1 July 2012

The full offset will only be available for people on lower incomes:

• single people – income* less than $83,001 per annum, and
• couples/families – combined income* less than $166,001 per annum.  

Singles and couples/families with income below these thresholds are not liable for the Medicare levy surcharge (MLS) even if they do not hold appropriate hospital cover.

If income exceeds the thresholds, the available age-based offset will be reduced and Medicare surcharge levy will increase (if appropriate cover is not held). The impact of the changes for 2012/13 is shown in the table below.

* The reduction applies to the relevant age-based offset.

The impact on you

Those earning a higher income may wish to review the cost effectiveness of private health insurance cover as they may pay higher premiums from 1 July 2012. However, this may result in higher tax under the Medicare levy surcharge if appropriate hospital cover is not held.

The decision on whether or not to hold private health insurance should be based on the cost of premiums versus the cost of Medicare levy surcharge and the benefits of health insurance.

The tables below provide an example of how the interaction between premiums and Medicare levy surcharge may work.

Details need to be calculated for your personal situation and will depend on income levels, health needs, age, family status and insurance premium rates.

Based on the premium rates in this example (table below), despite paying more for cover in 2012/13 singles with income over $96,000 and couples with income over $192,000 would find that it is cheaper to have the appropriate hospital cover than pay the Medicare levy surcharge. The cover may also provide them with health benefits.

Under age 65

Age 65 to 70 

Age 70 or over

The Family Law Act sets out rules for property divisions and maintenance orders after a relationship breakdown this includes Court orders and Binding Financial Agreements. Until 2009, this Act only applied to married couples as de-facto couples were governed by the various State laws.

However, when the Family Law Act was changed in 2009 and most States transferred powers to the Commonwealth, Proclamations needed to be made to bring the changes into effect and allow the federal family courts to rule on these matters. Due to an oversight, these Proclamations were not made, leaving separated de-facto couples with uncertain legal positions.

A Proclamation has now been made setting 11 February 2012 as the date from which the federal family courts can exercise this jurisdiction so any orders made from this date will be valid.

The Government intends to introduce legislation in March 2012 to backdate the powers to validate all defacto property and maintenance orders made by the Family Court of Australia and Federal Magistrates Court between 1 March 2009 and 10 February 2012 in all states/territories except WA and SA and between 1 July 2010 and 10 February 2012 for SA.

It should be noted that WA has still not referred its powers in these areas to the Commonwealth and so defacto couples in WA are still bound by state laws.

If you are a defacto couple and still in a relationship but entered into a Binding Financial Agreement, you should check with your legal adviser to determine whether the agreement continues to be effective or whether it should be redrafted to avoid future uncertainties.

With the number of hybrid securities being issued at the moment, the Australian Securities and Investments Commission (ASIC) has urged investors to exercise caution before investing in hybrid securities and unsecured notes.

Hybrid securities have features of both debt and equity, and have been issued by a number of major Australian corporations, including the big four banks. Given the ongoing volatility in equity markets, many investors are attracted to such investments, which they perceive as offering more reliable returns.

However, ASIC has expressed concern that investors may not fully understand the risks of the instruments they are investing in.

ASIC Chairman Greg Medcraft said: ‘Retail investors may be attracted by the interest rates offered by household name companies and trusted brands, but hybrid securities should not be confused with government bonds or ‘vanilla’ corporate debt. In some cases investors are taking on equity-like risks but only receiving bond-like returns.’

Medcraft drew attention to conditions of some issues including:

• an issuer’s right to suspend or defer coupon payments to holders
• an issuer’s right to terminate or redeem the instrument, without the investor being offeredthe same right
• extremely long timeframes, sometimes of several decades
• subordinated ranking, meaning that holders stand behind creditors and bondholders if the issuing company becomes insolvent.

He urged investors to closely scrutinise the terms of such securities before committing their funds.

If you have any queries with any hybrid issues being issued to you, do not hesitate to contact us.

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The UK’s HM Revenue and Customs (HMRC) sets the rules for QROPS status. Generally speaking, an Australian super fund (including an SMSF) will be granted QROPS status if it matches preservation and benefit payment rules in the UK pension scheme.

The UK government has expressed concerns that the preservation restrictions are not appropriately applied in many countries and on 6 December 2011 released a draft of proposed changes to QROPS status. If passed, the changes will apply to any transfers received by a QROPS fund on or after 6 April 2012.

The proposed changes include:

• The QROPS provider will need to report withdrawals made within the first 10 years from the date of transfer (currently only required if the pensioner had been a UK resident within the previous five years)
• More personal data will need to be provided by the client to the UK pension scheme before a transfer can be approved, with that data then reported to HMRC
• Payments by a QROPS fund will need to be reported to HRMC within 60 days of the transfer.

These changes will affect existing and new members in Australian super funds (including SMSFs) that already have QROPS status or apply for status on or after 6 April 2012.

If you have already transferred your benefit, no action is required and the additional requirements are the responsibility of the superannuation fund to meet. However, this is an additional deterrent for establishing a self managed superannuation fund to receive UK pension benefit transfers.

Life on today’s treadmill is fed by a daily infusion of bad news media stories and society’s expectations, yet the popularity and plethora of lifestyle programs and self-help books show we’re all wanting something more. Conditioned to struggle, we aren’t taught how to find contentment or appreciate what we have.

We’re more time poor and discontented than ever, working longer hours, taking fewer holidays and being reachable 24/7. Productivity is lower and absenteeism is higher than ever, we spend more time and money on commuting than ever before and our health and relationships are suffering.

In The Great Life Redesign, Caroline Cameron not only helps you identify how 21st-century living is impacting you, but what you can do to change your life for the better. Whether you need to make some minor changes to make instant improvements or undertake a major life renovation to realise your dreams, Caroline’s wealth of experience will help you get clear about what it is you want, how to plan for it, how to afford it and how to make it happen. It really is quite simple to achieve and The Great Life Redesign will help you reshape the life you have into one you’ll love.

With practical, easy-to-apply techniques, exercises, tools and tips – including your own life redesign blueprint & a Thrival Kit – plus more than 30 inspirational case studies, you’ll soon be well on your way to a great life. Featuring expert advice from Summerhill Financial Services very own Caroline Bell, you’ll also learn how to crunch the numbers, plan and afford your redesigned life.

Don’t settle for ‘good enough’ – you only have one life, so vow to make the most out of it.

To find out more, subscribe to the blog and get your own personally signed copy, go to www.greatliferedesign.com.au.