- Salary packaging, $5,000 cap on meals entertainment, including venue hire, from next FBT year 1/4/2016. Above this amount become reportable on your group certificate.
- Reduction in asset threshold for Centrelink Age Pension - however if you lose the pension as a result you'll receive instead the Commonwealth Seniors Health Care Card, commencement date 1/1/2017.
- Child Care - paid parental leave stays for most (excluding private employer schemes).
- Small business - $20,000 deduction applies from May 2015 and lower tax rate 28.5% 15/16 (which was on the cards) - can still claim franking credits at 30% - so more people may incorporate, otherwise there is still a $1,000 p.a discount of tax for unincorporated small business.
- Aged Care - rental of home now to count in means tested fee - no longer exempt from January 2016.
- No changes to super - amazing!
- Increased age for Newstart to age 25, from July 2016.
- Cap on Defined pensions to non-assessable income for Centrelink being 10% from January 16.
A warning first – the budget has to pass through the Senate - so watch out for more detail and possible amendments! These measures are proposals only and may not become law.
On Tuesday 12 May 2015 the Federal Treasurer, Joe Hockey delivered his second budget, which he described as ’measured, fair and responsible’ and one designed to promote ’jobs, growth and opportunity’.
The following summary contains detail about each of those measures and what they may mean to you. It is important to discuss your particular circumstances with us and how these changes may apply to you with.
- Age Pension
- Aged Care
- Family Tax Benefits
- Personal Income Tax
- Small Business
- Young unemployed
The Government proposed the following changes, all with a commencement date of 1 January 2017.
Increase the Assets Test taper rate from $1.50 to $3.00
The Assets Test taper rate is used to determine a retiree’s Age Pension entitlement under the Assets Test. Currently a person’s Age Pension entitlement under the Assets Test is reduced by $1.50 for every $1,000 of assets above the Assets Test threshold (which is being increased as described previously).
The proposed measure will increase the taper rate to $3, effectively reducing the amount of assets a person can have before they are no longer entitled to a part Age Pension entitlement. A person is no longer entitled to a part Age Pension when their assets exceed the levels set out below.
Reducing the time a person may be absent before their Age Pension benefit is reduced.
Pensioners who do not have an Australian Working Life Residence (AWLR) of at least 35 years will only be paid their rate of Age Pension for six weeks while they are overseas instead of 26 weeks currently. After six weeks’ absence from Australia, pensioners who have lived in Australia for less than 35 years will be paid at a reduced rate proportional to their period of AWLR.
Pensioners overseas on the date of implementation will not be affected by this change unless they return to Australia and make a subsequent trip overseas. Pensioners with an AWLR of 35 years or more, or who are exempt from proportionality rules, such as recipients of the Disability Support Pension who are terminally ill or severely impaired and certain Widow B Pension and Wife Pension recipients, will not be affected.
Note: The AWLR is the period a person has lived in Australia, as a permanent resident, between the age of 16 years and Age Pension age.
The Government announced that they would no longer pursue the following measures affecting pensioners:
- limiting future indexation of the maximum Age Pension to CPI only
- freezing the Income Test threshold for three years
- resetting deeming thresholds on the 20 September 2017 to $30,000 for single pensioners and $50,000 for pensioner couples.
The Government has made the following Aged care proposals:
Removal of the rental income exemption, commencement date 1 January 2016
Under current rules where a person moves into a residential aged care facility, rents out their former home and pays part of their aged care accommodation costs by periodic payment any rental income is excluded from the aged care means test. The proposed change will mean a new resident entering care from 1 January 2016 will have rental income counted towards their aged care means test. Consequently, they may be required to pay a higher means tested care fee.
Increasing consumer choice within Home Care, commencement date 1 February 2017
My Aged Care Gateway will become responsible for allocating home care packages directly to consumers, giving them greater choice around the services they receive and their provider.
Family Tax Benefits
Various family measures to tighten family tax benefits and changes to child care:
- From 1 January 2016, families will only be able to receive Family Tax Benefit (FTB) Part A for six weeks in a 12 month period while they are overseas.
- From 1 July 2016, the Government will cease payment of the additional FTB Part A Large Family Supplement.
- From 1 July 2016, the Government will remove the ability for individuals to take Parental Leave Pay from the Government in addition to any employer-provided parental leave entitlements.
- From 1 July 2017, the Government will replace the Child Care Benefit, Child Care Rebate and the Jobs, Education and Training Child Care Fee Assistance programs with a new, single, means-tested Child Care Subsidy.
Personal Income Tax
Cap on Meals Entertainment, including venue hire, of $5,000, commencement date 1/4/2016
- The amount that can be included for meal entertainment benefits will be capped at a grossed-up amount of $5,000.These benefits include items like holidays, cruises, weddings and restaurant meals.
- Amounts exceeding this cap are included to determine whether an employee exceeds their fringe benefits tax (FBT)
There will be increases to the Medicare levy low income thresholds for the 2014-15 financial year to help low-income taxpayers to remain exempt from paying the Medicare levy. New thresholds are:
- $33,044 per annum for seniors and pensioners
- $35,261 per annum for couples with no children (adding $3,238 per annum for each child)
- $20,896 per annum for singles.
Superannuation was largely untouched in this Budget. The changes in age pension causing retirees with higher levels of savings to lose age pension (or suffer a reduction) may have taken some pressure off the need to tax income from pensions.
But we are still anticipating a Tax White paper to be released later this year, and it may address some of the tax implications for superannuation.
Defined Superannuation Income Test Changes - commencement date – 1 January 2016
- Clients who have Defined Benefit Pensions paid from a public sector or Corporate Defined Benefit Superannuation fund will have the deductible amount capped at 10% of pension payments.
- This may increase the amount of income assessable under the Centrelink income test. The changes will not impact Veterans’ Affairs pensions and/or defined benefit income streams paid under the defence force superannuation funds.
Early Access to Superannuation for Terminally Ill People
- Early access to superannuation for people diagnosed with a terminal Illness will be allowed provided they have two medical practitioners certify that they have a life expectancy of less than 24 months instead of 12 months currently.
Various measures were introduced to help businesses with aggregated annual turnover of less than $2 million (small business):
- From 7.30pm (AEST) 12 May 2015 and up until 30 June 2017, businesses may claim an immediate tax deduction on an eligible business asset that they start to use or install ready for use, provided it costs less than $20,000.
The budget has not yet passed the Senate!
- The $20k tax deduction is for asset purchases only – between budget night and 30 June 2017
- The $20k is a tax deduction (effectively accelerated depreciation) it is not a rebate
- Each asset must be under $20k, it is not the first $20k that is deductible
- From 1 July 2015, reduce the small business company tax rate to 28.5% (the 30% maximum tax rate will be maintained for franking credit). For those small businesses which are not incorporated, for example sole traders, a discount of 5% of the income tax payable on business income (capped at $1,000 per individual) will be available each income year.
- From 1 July 2015, businesses are eligible to claim a tax deduction for a range of professional expenses associated with starting a new business.
- From 1 April 2016, relax the fringe benefit tax rules to allow small business to provide employees with more than one qualifying work-related portable electronic device.
- From 1 July 2016, may change their legal structure without attracting a capital gains tax liability.
The eligibility age for Sickness allowance and Newstart allowance is proposed to increase from 22 to 25. But anyone receiving the payments at 30 June 2016 can continue to stay on benefits. A four week waiting period is likely to apply. Commencement date – 1 July 2016
Any advice contained in this article is to be regarded as general investment advice and factual of nature rather than personal advice. As it is not possible to take into account each reader’s individual circumstances, before acting on the information you must determine the appropriateness in light of your investment objectives and financial situation.