The 2015 Australian Federal Budget
01/06/2015 Darren Rieger, Senior Paraplanner & Manager of Financial Administration
The 2015-16 Federal Budget presented few surprises in light of the announcements made in the preceding weeks. While there were some changes in the areas of family support packages, Age Pension asset testing and Age Care means testing, there were no major changes that would significantly affect the financial planning industry and its clients.
Once again, no new taxes were introduced to superannuation providing a rare sense of stability in the important area of creating wealth for retirement. Importantly, the Federal Treasurer Joe Hockey continues to state there will not be any new taxes within superannuation under the current Government as well as preservation ages remaining unchanged. This will help your financial adviser provide advice in relation to superannuation with a relative degree of certainty regarding the impact of legislation in the short term while the incumbent Government remains in power.
Personal Income Tax
All of the categories within the Medicare Levy low income thresholds, apart from married sole parents, have been increased to take into account Consumer Price Index (CPI) movements commencing from the 2014-15 financial year.
Changes to Employee Share Schemes (ESS) have been proposed with the aim of making ESS more accessible to all Australian businesses and their employees and, in particular, potential tax assistance to start-up companies. These changes include start-up concession exclusions to the aggregated turnover test and grouping rules as well as provisions for a CGT discount on ESS interests that are subject to the start-up concession where options are converted into shares and the resulting shares are sold within 12 months of exercise. Additionally, the Commissioner of tax will be able to exercise discretion in relation to the minimum three year holding period where there are no circumstances outside the employees control that make it impossible to meet the aforementioned criteria.
The Government has announced a number of tax concessions designed to assist small businesses; especially in these difficult economic times. The first major incentive is a 1.5% cut in the small business tax rate for entities with an aggregated annual turnover of less than $2 million, reducing the rate to 28.5%. This is in addition to the decision made to retain the current maximum franking credit rate of 30% allowing small business owners to maintain the higher level of tax advantages associated with franked dividends.
An exciting proposal that has generated much interest within the business community is the proposal to allow an immediate deduction for small businesses on assets that cost less than $20,000 and are used, or are ready for use, between Budget night and 30 June 2017. In addition, assets valued at $20,000 or more can continue to be depreciated at 15% in the first income year and 30% for each income year thereafter.
Start-ups and entrepreneurs will receive further encouragement from this Budget by the way of funding to develop a single online portal for business and company registration, the publishing of a new computer code to enable developers to build new registration software, the reduction in number of business identifiers and ASIC funding for the implementation and monitoring of a regulatory framework to facilitate the use of crowd-source equity funding.
New businesses will also be able to claim an immediate deduction on a range of professional expenses that are associated with starting a business such as professional, legal and accounting advice. Currently such expenses are written off over a five year period so this measure will allow for more money to be invested in the growth of the business from the outset.
The most important change in relation to superannuation is the increase in the life expectancy period for early access to benefits for people with a terminal illness. Under current legislation, a person with a terminal illness can only access their preserved superannuation benefits when they have been diagnosed as having less than 12 months to live. The proposed change will increase this period to 24 months which could have an enormous effect on the quality of time spent with loved ones as treatment costs can be better absorbed in the earlier stages of a terminal diagnosis.
As our population continues to age, the Government remains ever mindful of the fact that individuals will be required to take on more of the responsibility to fund their own retirement lifestyle and lessen the burden on taxpayers. With this in mind, they have announced that from 1 January 2017 there will be an increase to the asset free areas for homeowners and non-homeowners when assessing pensions under the asset test, as well as an increase to the tapering of the asset test when the lower threshold is exceeded. These proposed changes will result in some individuals losing a portion of their entitlement and for others their whole entitlement. There will, however, also be instances where individuals may receive an increase. Those individuals who do lose their entitlement to the pension as a result of these changes on 1 January 2017 will be automatically issued with a Commonwealth Seniors Health Card or a Health Care Card for those who are under pension age.
The higher thresholds are also expected to have an effect on whether an individual who was previously assessed by the Assets test will now be assessed under the income test or not. Due to these proposed changes the Government has also determined that the changes to the pension income test and deeming thresholds announced in the 2014 Federal Budget will not proceed. This will result in indexation to continue for the income test and the deeming thresholds for singles and couples to be maintained at current rates.
For those individuals with defined benefit pension income, the level of income that can be excluded from the pension income test will be capped at 10% from 1 January 2016. This is designed to address a loophole created in 2007 that allowed some individuals to exclude a large percentage of their defined benefit income stream from the test, resulting in significantly higher pension payments compared to entitlements under the proposed cap. Veterans Affairs pensions and Military defined benefit superannuation funds will be exempt from this cap.
Allowances and Supplements
From 1 July 2016 the Family Tax Benefit (FTB) Part A Large Family Supplement, which is paid for the third and each subsequent FTB child in a family, will cease to be paid. In addition from 1 July 2015 to 30 June 2016 this supplement will only be paid to families with four or more children. The Government has also reduced the portability of FTB Part A from 1 January 2016 for recipients who are outside Australia. These families will now be able to only receive the supplement for six weeks in a 12 month period while they are overseas as opposed to their current payment rate of 6 weeks and then a base rate for a further 50 weeks.
From 1 July 2016 the age of eligibility for Newstart Allowance and Sickness Allowance will be increased from 22 to 25 years of age, delaying the proposal introduced in the 2014-15 Budget.
The Government has also decided to scrap the annual $300 Low Income Supplement payment from 1 July 2017. This payment is currently being made to individuals who have income below certain thresholds and do not receive a pension or benefit from the Government for more than 39 weeks in the previous financial year.
A new payment to be introduced is a single Child Care Subsidy (CCS) from 1 July 2017 which will effectively replace the current Child Care Benefit and Child Care Rebate. The CCS will be payable to families who use an approved child care service for a child under the age of 13 and is determined by meeting the criteria of an activity test based on the amount of work, study, training or other recognised activities that are undertaken with hourly caps and family income also factored in to the equation.
New aged care residents who enter an aged care facility from 1 January 2016 will no longer have their rental income from renting out their former home exempt from the aged care means test. This is designed to bring in to line means testing arrangements for individuals who pay their aged care accommodation in periodic payments as opposed to lump sum payments. This may have a significant effect on aged care fees for those who will be entering an aged care facility after 1 January 2016 and considering receiving rental income from their former home.
Consumer choice will be increased for home care with Home Care Packages being allocated directly to consumers from 1 February 2017 via My Aged Care Gateway who will be responsible for prioritising clients’ access to packages at a regional level and allow them to receive services from a provider of their choice.
The changes to the pension Assets Test thresholds will also see a possible reduction in an aged care residents means-tested care fee, in the event of a reduction in overall assessable income, while an increase in pension entitlements may also see an increase in their means-tested care fees.
As always, it is important to be aware that all announcements proposed in the Federal Budget are subject to being legislated under the Senate.
Whilst this is by no means a fully comprehensive summary of all the budget changes, we have endeavoured to present to you the key changes that may impact upon your financial planning needs going forward.
If you would like to discuss any of the points raised in this article and other matters concerning the federal budget in more depth, or would like to speak with someone with regard to any financial matter, please feel free to call our office on 1300 726 082 and ask to speak with a financial planner who will be able to assist.
John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL:326450.
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.
Any tax advice provided in this document is incidental to the financial advice provided, being unaware of, nor able to considered all aspects of your tax affairs. You should consult your own tax professional to confirm any tax advice provided is appropriate with regards to your total tax planning needs.
Sources: Challenger Federal Budget Report 2015-16 – May 2015
FirstTech Federal Budget Briefing 13 May 2015
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