The Government has recently announced the Federal Budget for 2015/2016 with a focus on “fairness and family”. Treasurer Joe Hockey has encouraged Australians to “get out there and have a go”, recharging labourers and entrepreneurs to strengthen the economy and assist in restoring Australia to a sustainable fiscal position.
The main emphasis was on growing jobs and supporting small businesses ($5.5 billion package), a families support package with focus on child care ($4.4 billion package), and ensuring fair tax and social security settings.
Despite the iron ore price nearly halving and $52 billion in tax receipts write downs to 2017/2018 since the last Budget, the Government continues to progress budget repair in a way that is claimed to be “responsible, measured and fair”. The Government is predicting a Budget deficit of $35.1 billion in 2015/2016 (2.1% of GDP) with no surplus predicted in the Government's medium term projections but with the Budget deficit reduced to $6.9 billion by 2018/2019.
The Federal Budget has outlined targeted changes towards the nation’s savings and expenditure that may have an impact on you and your family. We have summarised these points below, noting that these are subject to the passing of legislation and should be discussed with your Financial Planner.
Small Business Support
The Government will significantly expand accelerated depreciation for small businesses by allowing small businesses with aggregate annual turnover of less than $2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000.
The Government will also deliver a tax cut to all small businesses through a 1.5 percentage point tax cut for small companies and a five per cent tax discount on income from unincorporated small business activity. Eligible small businesses will also be able to change legal structure without attracting a capital gains tax (CGT) liability at that point. CGT roll-over relief is currently available for individuals who incorporate but all other entity type changes have the potential to trigger a CGT liability.
Small Business Start-Up
For small business start-ups, business registration will be streamlined, with one website acting as a one-shop stop for setting up a small business.
The Government will also allow small businesses to deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
The 2015/2016 Federal Budget remained largely quiet on superannuation, however there were minor budget measures regarding unclaimed superannuation and conditions of release for terminal illnesses.
Terminal Medical Decision
From 1 July 2015, the Government will extend access to superannuation for people with a terminal medical condition from 12 months to 24 months.
Lost and unclaimed superannuation
From July 1 2016, the Government will introduce a package of measures that will remove redundant reporting obligations and will streamline lost and unclaimed superannuation arrangements. The changes will make it easier for individuals to be reunited with their lost and unclaimed superannuation.
Centrelink, Dept. of Veteran Affairs and Families
Low Income Support
The Government has announced that it will cease the Low Income Supplement from 2017, currently helping low-income families with an annual payment of $300 to assist with household costs.
Income Test Deeming Rate Thresholds
The Government has announced that it will not proceed with the 2014/2015 Budget measure to reset the Income Rate Deeming Rate Thresholds, which according to the Department of Social Services would have seen around 530,000 pensioners worse off.
Defined Benefit Income – caps to social security testing
From 1 January 2016, the Government has announced that it will introduce measures to cap the proportion of Defined Benefit income that can be excluded from any income test at 10%. Under current arrangements, some defined benefit superannuants are able to have in excess of 50% of their superannuation income excluded from the pension income test.
Social security assets test – rebalance asset test thresholds and taper rate
The Government will increase the asset test threshold and withdrawal rate at which pensions are reduced once the threshold is exceeded. The assets-test free threshold from 2017 for homeowners will be increased to $250,000 for singles and to $375,000 for couples and the tapering rate will be increased from $1.50 per $1000 over the asset test threshold to $3.00 per $1000 over the assets test threshold.
Pensioners who lose their pension entitlement as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.
The Government has also announced that it will not proceed with the 2014-15 Budget measure to index the Pension by the Consumer Rate Index. Instead, the Pension will continue to be indexed under the current arrangements, that being the average male weekly earnings.
In the 2014/2015 Federal Budget, the Government announced that a “One-Week Ordinary Waiting Period to all Working Age Payments (Widow Allowance, Newstart Allowance, Sickness Allowance, Parenting Payment and Youth Allowance). The Government has now amended this measure to exclude new claimants of Widow Allowance from this requirement.
Paid Parental Leave Scheme
From July 1 2016, individuals calming an employer-sponsored Paid Parental Leave Scheme will no longer have access to the Government assisted (minimum wage) tax payer funded scheme. Previously, individuals were able to take payments from both their employer and the Government.
The Government will ensure that all primary carers have access to parental leave payments that are at least equal to the maximum PLP benefit (currently 18 weeks at the national minimum wage).
Family Tax Benefit (FTB) Part A – Large Family Supplement
From July 1 2016, the Government will remove the additional FTB Part A Large Family Supplement, currently providing large families with up to $12.32 a fortnight for their third child, and each additional child after that.
Family Tax Benefit (FTB) Part A – Reduced Portability
The Government has elected to reduce the amount of time FTB Part A will be paid to recipients who are outside Australia. From 1 January 2016, families will only be able to receive FTB Part A for six weeks in a 12 month period while they are overseas. Currently, FTB Part A recipients who are overseas are able to receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks.
Families Package – Childcare
Over the next 5 years, the Government will provide additional funding to support families in obtaining flexible, accessible and affordable child care so that they can move into or return to work, stay in work, train, study or undertake other recognised activities.
A new single Child Care Subsidy (CCS) will also be introduced on 1 July 2017 which will replace the current Child Care Benefit (CCB), Child Care Rebate (CCR) and the Jobs, Education and Training Child Care Fee Assistance payments.
The existing CCB, CCR and Jobs, Education and Training Child Care Fee Assistance Programme will continue until the start of the CCS in 2017. The Department of Human Services will contact families directly and provide information on current entitlements and how they may change under new arrangements.
Nannies Trial Scheme
From 1 January 2016, a new Interim Home Based Carer Subsidy Programme will subsidise care provided by a nanny (within the family home). This pilot programme will extend the current fee assistance to the parents of approximately 10,000 children. Families selected to participate will be those who are having difficulty accessing child care with sufficient flexibility.
Youth Payment Testing Arrangements
Over the next 5 years, the Government has elected to amend parental income testing arrangements to provide more support for families with dependent young people who qualify for certain income support payments, including Youth Allowance, ABSTUDY Living allowance (ABSTUDY), and the Assistance for Isolated Children Scheme.
Higher Education Loan Help (HELP)
From 2016-17, HELP debtors residing overseas for six months or more will be required to make repayments of their HELP debt if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.
Means testing arrangements
The government is refining the aged care means testing arrangements for new residents entering aged care from 1 January 2016.
The measure will remove the rental income exemption under the aged care means test for aged care means test for aged care residents who are renting out their former home and paying their aged care accommodation by periodic payments. Existing protections such as annual fee caps and lifetime fee caps remain.
Home Care Program
The Government will provide $73.7 million over four years to increase consumer choice and flexibility for older Australians in receipt of a Commonwealth funded Home Care Package.
This measure includes $19.9 million over two years in capital funding to enhance the My Aged Care Gateway functionality to manage the allocation of Home Care Packages to consumers.
Increasing short term restorative care places
The Government will incorporate short term restorative care places into the aged care planning ratio from 1 July 2016.
This measure will result in an overall increase in the number of short term restorative aged care places to support older Australians regain mobility and confidence to live safely at home after a period of hospitalisation and reduce the number of premature admissions into permanent residential care.
Medicare Levy low-income threshold for families
The Government will increase the Medicare Levy low-income threshold for singles, families and single seniors and pensioners from 2014-15.The threshold for singles will be increased to $20,896. For couples with no children, the threshold will increased to $35,261 and the additional amount of threshold for each dependent child or student will be increased to $3,238. For single seniors and pensioners, the threshold will be increased to $33,044.
Work-related car expenses
The Government will modernise the methods of calculating work-related car expense deductions from the 2015-16 income year. The '12 per cent of original value method' and the 'one-third of actual expenses method' will be removed. The 'cents per kilometre method', will be modernised by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles, with the Commissioner of Taxation responsible for updating the rate in following years. The 'logbook method' of calculating expenses will be retained. These changes will not affect leasing and salary sacrifice arrangements.
Zone Tax Offset
The Zone Tax Offset applies to individuals in recognition of the isolation, uncongenial climate and high cost of living associated with living in identified locations.
From July 1 2015, the Government will now exclude ‘fly-in fly-out’ and ‘drive-in drive-out’ (FIFO) workers from the Zone Tax Offset where their normal residence is not within a ‘zone’.
Changes to residency tax rules for temporary holiday workers
The Government will change the tax residency rules from 1 July 2016 to treat most people who are temporarily in Australia for a working holiday as non-residents for tax purposes, regardless of how long they are in Australia. This means they will be taxed at 32.5% from their first dollar of income up to $80,000.
Cap for not-for-profit salary sacrificed benefits
The Government will cap the amount employees of public benevolent institutions and health promotion charities can salary sacrifice for meal entertainment benefits to a separate single grossed up amount of $5,000. All use of meal entertainment benefits will become reportable and this measure will apply prospectively from 1 April 2016.
Employee share schemes
From 1 July 2015 the Government brings in changes to the taxation of employee share schemes. These changes were designed to make employee share schemes more attractive and accessible for all companies in Australia, and provide additional tax assistance to eligible companies through a start-up concession.
GST - applying to digital products and services imported by consumers
The application of the GST will be extended to cross border supplies of digital products and services imported by consumers from 1 July 2017.
Unclaimed Monies Provisions
From December 31 2015, the Government will improve the way unclaimed money in savings accounts and life insurance policies are managed.
The Government will restore the time before they are transferred to the Government from three years to seven years, reversing the changes made by the previous Government in 2012. Children’s bank accounts will also be exempt to ensure funds put aside in these accounts will never be transferred to the Government.
The Government will also make changes to enable genuine inactive accounts to be transferred to ASIC to address concerns around identity theft and to stop unscrupulous people preying on vulnerable Australians.
A new drought preparedness framework
The Government will allow all primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills.
The Government will also allow primary producers to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed.
With home-grown terrorism a major concern for the Government, the Budget sets aside $450 million to boost national security by giving various intelligence agencies more resources. This includes boosting the technological capabilities of the countries intelligence-gathering agencies and providing additional training to border protection officers.
Tougher enforcement and penalties for foreign investment law breaches, especially related to real estate, as well as significant new application fees will assist the Government in raising revenue in excess of $651 million over the next four years.
Commonwealth Penalty Units & SMSF Administration Penalties
The Government will increase the value of all Commonwealth penalty units (the amount payable for fines under Commonwealth Laws) from $170 to $180, with effect from 31 July 2015. This will mean increases in all existing penalties under the SMSF administrative penalty regime.
Multinational Tax avoidance
The Government will introduce a new targeted anti-avoidance law in the Income Tax Assessment Act 1936 aimed at multinationals that artificially avoid having taxable presence in Australia earning a global revenue of $1 billion or more.
The Government also expects to collect $350 million from the “Netflix Tax”, which applies GST to foreign businesses selling digital products, such as downloaded movies, games, and e-books.
The NetActuary Team