What it means for you
13 May 2015
The Treasurer's ‘no surprises’ Federal Budget involves limited superannuation and taxation changes, with a number of key measures having been announced prior to Budget night. Of note is the Government’s announcement that it will reform a number of family assistance measures, as well as the means test for the Age Pension.
Below is a summary of key announcements that may affect you from a financial advice perspective. Please talk to your financial adviser for further details.
Income tax changes
Personal income tax
There were no changes to personal marginal tax rates for resident or non-resident taxpayers in this year’s Budget. However, the following changes in relation to personal income tax were announced:
Motor vehicle expense deductions
- The number of methods available for calculating tax deductions related to the business use of a motor vehicle will be reduced, with the ‘12 per cent of original value method’ and ‘one-third of actual expenses incurred method’ to be removed with effect from 2015/16 financial year
- The ‘cents per kilometre method’, which currently provides a deduction based on the size of the motor vehicle’s engine, will also be modified. The reference to engine capacity will be removed and a flat rate of 66 cents per kilometre will be applied to determine an individual’s deduction amount under this method.
Increase in penalty units
- The value of Commonwealth penalty units will increase from $170 to $180 from 31 July 2015. The penalty unit will also be indexed every three years by the Consumer Price Index, with the first indexation to occur on 1 July 2018
- Commonwealth penalty units are relevant for some Australian Taxation Office (ATO) penalties including:
- failure to lodge an income tax return or other document by the due date or in the approved form
- statements made or schemes undertaken by a taxpayer including intentional disregard of the tax law, recklessness or failure to take reasonable care
- breaches of the Superannuation Industry (Supervision) Act 1993.
Corporate tax changes
Capital gains tax (CGT) roll-over relief for small businesses
- Currently, CGT roll-over relief is only available for individuals who transfer to company structure, while all other entity type changes may give rise to a CGT liability.
- Commencing from the 2016/17 income year, changes to the legal structure of a small business (with aggregated annual turnover less than $2 million) will allow a deferral of tax via CGT roll-over relief. For example, a company could be restructured as a trust without the transfer of the company’s assets to the trust triggering CGT.
Tax cuts & discounts for small businesses - commencing 2015/16 income year
- Small businesses that are companies with aggregated annual turnover of less than $2 million will receive a tax cut of 1.5% to 28.5%.
- Companies exceeding the $2 million threshold will be subject to the existing 30% company tax rate on all taxable income. The current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies.
- Unincorporated small businesses, such as sole traders and partners in partnerships, will receive a tax discount of 5%, capped at $1,000.
Immediate deductibility for professional expenses of small businesses
- The Government will allow businesses to take an immediate deduction for a number of professional expenses associated with starting a new business, including legal and accounting advice expenses and will commence from the 2015/16 income year.(Under the current law, some professional expenses would ordinarily be deducted over a five year period.)
- Small businesses with an aggregate annual turnover of less than $2 million will be able to immediately deduct the cost of assets, provided the asset cost is less than $20,000. This measure represents an increase from the current threshold of $1,000. It will apply to assets acquired and installed ready for use between 7.30pm 12 May 2015 and 30 June 2017.
- Assets valued at $20,000 or more will continue to be placed in the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
- From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert to existing arrangements.
- it is proposed that GST will be payable on overseas supplied digital products from 1 July 2017.
Access to benefits
Release of superannuation benefits for terminal medical condition
Access to benefits using the ‘terminal medical condition’ condition of release is proposed to be extended from 12 months to 24 months with effect from 1 July 2015.
Employer/ Superannuation Guarantee
- In 2015/16, the minimum amount of super contributions employers must make into eligible employees’ accounts under the Superannuation Guarantee (SG) will remain at 9.5% per annum.
- The table below summarises the caps that will apply to super contributions in 2015/16.
|Cap applying in 2015/16
|All employer contributions (including SG and salary sacrifice), personal contributions claimed as a tax deduction and certain other amounts personal
Aged 49 + on 30/06/2015
Aged < 49 on 30/06/2015
|Personal after-tax contributions, spouse contributions and certain other amounts
|$180,000 or $540,000 provided you are aged 64 or under on 1/07/2015, don’t exceed this amount over a three-year period and meet certain other conditions
Social security and family assistance changes
Parental Leave Pay
- Eligibility conditions for the Government’s Parental Leave Pay scheme will be tightened, preventing some parents from claiming parental leave payments from both their employer and the Government. From 1 July 2016, parents who are eligible for employer-funded parental leave that is more generous than the Government’s Parental Leave Pay scheme will no longer receive the taxpayer-funded payment as well. Where employer-funded parental leave is less than the Government’s scheme, parents will be eligible for a Government payment, up to the maximum Parental Leave Pay benefit (ie currently 18 weeks at the national minimum wage).
- Government reforms include a new Child Care Subsidy that will replace the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programs from 1 July 2017.
- Eligibility for the new Child Care Subsidy will be based on an activity test and a means test. Families with incomes of up to $60,000 (in 2013/14) will be eligible for a Child Care Subsidy of 85% of the lesser of the actual child care fees and a benchmark price per child. The subsidy rate will reduce to 50% for families with income of $165,000 and above.The subsidy amount will be capped at $10,000 per child for families with income of $180,000 and above. No cap will apply for family incomes of less than $180,000.
- The Government has indicated it will not proceed with a reset of the deeming thresholds that was announced in the 2014 Federal Budget. Under the previous proposal, the deeming thresholds for the social security income test were to be reset to $30,000 for single pensioners and $50,000 for couples, with effect from 20 September 2017.
- The Government indicated it will make significant changes to the means test used to determine eligibility for the Age Pension. The changes include increases to the ‘asset free area’ for the full pension and assets test reduction rate and a subsequent reduction in the part-pension cut-out thresholds. The changes are proposed to come into effect from 1 January 2017.
- Pensioners impacted by the proposed changes to the Age Pension means test will be guaranteed eligibility for either the Commonwealth Seniors Health Card or the Health Care Card.
- The Government has also indicated it will not proceed with changes to indexation of the Age Pension that were announced in last year’s Federal Budget.
Income test treatment of defined benefit pensions
- The social security means testing of certain defined benefit pensions will be amended to impose a cap on the deduction amount available under the income test. Currently, a portion of an individual’s defined benefit pension, based on the tax free component, is not counted as income for social security purposes, which can result in a significant amount of income being disregarded in assessing eligibility for pensions under the income test. From 1 January 2016, this deduction amount will be limited to 10% of the value of the annual pension for defined benefit pensions payable from public sector and corporate defined benefit schemes.
- Military pensions, veterans’ pensions and income streams purchased from retail providers or through self-managed superannuation funds will not be affected by this change.
Means testing arrangements
- The Government will align the aged care means testing arrangements for residents who pay their accommodation costs by periodic payments with the arrangements that currently apply to those who pay via a lump sum. This will remove the rental income exemption for aged care residents who are renting out their former home and paying their accommodation costs by periodic payment. This measure will apply for new residents entering care from 1 January 2016.