2015 Federal Budget

Presented by: Keat Chew- Head of Technical Services Nigel Smith-Technical Services Consultant

Session overview

• Small business• Taxation• Superannuation• Social Security and Aged Care• Other

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Small business tax cut

• Tax cut for companies with aggregated annual turnover < $2m

• From 1 July 2015, tax rate reduced to 28.5%• Maximum franking credit unchanged at 30%

• Small unincorporated businesses eligible for a small business tax discount

• Applies to sole trader, trust or partnership• 5% tax discount apply to the income tax payable• Given in the form of a tax offset, and capped at $1,000 per individual for

each income year

• Strategic considerations and impacts:• Reduced tax rate does not apply to larger companies (i.e.

over $2m)• 3 ways to work out if it is a small business• It may be more advantageous to receive the tax cut of 1.5%

through a company than receiving the tax offset as an individual

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Small business depreciation

• Immediate depreciation of assets costing less than $20,000• Acquired and installed ready for use between 7.30pm, 12 May

2015 and 30 June 2017• Assets more than $20,000 can continue to be put in the

simplified depreciation pool, depreciated at 15% in first year and 30% thereafter

• Pool if under $20,000 over this period can be written off immediately

• Majority of assets can access accelerated depreciation (exception such as horticultural plant)

• From 1 July 2017, revert back to existing arrangement

• Strategic considerations and impacts:• Advance depreciation facilitates additional cashflow for the

business (and could be directed to fund superannuation for example)

• Any major asset purchase should be bought during this period to maximise claim in shortest time period

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Other small business initiatives• CGT roll-over relief for changes to entity structure

• From 1 July 2016, small businesses may change legal structure without crystallising CGT

• Immediate deduction for professional expenses• From 1 July 2015, immediate deductions available for costs

associated with start up of a new business, such as professional, legal and accounting advice

• From 1 Apr 2016, FBT change on work related electronic devices• FBT exemption applies to more than 1 every FBT year, even when

similar functions

• Strategic considerations and impacts:• Increase flexibility to optimise business operating structure over

lifecycle, and prevent unintentional crystallisation of cgt on the business

• Reduce the cost of setting up new businesses with the immediate write off of set up costs

• With the FBT exemption widened, it should encourage more use of technological devices that improve business efficiencies

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Individual car expenses

• From 1 July 2015, in relation to work related car expenses• ‘12% of original value’ and ‘1/3 of actual expenses’ methods

abolished• ‘Cents per km’ will only have a single rate at 66c per km

(updated by ATO for following years)• Logbook method will be retained• Leasing and salary sacrifice arrangements not effected

• Strategic considerations and impacts:• Less complexity with only 2 possible methods of claim• Need to ascertain if logbook method could result in a higher

claim especially where there is a higher level of business mileage

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Increase in Medicare levy low income thresholds• ML low income threshold increase by CPI, from the 2014/15

income year:• $35,261 for families (up from $34,367) (plus $3,238 per

dependant child)• $20,896 for individuals (up from $20,542)• $33,044 (up from $32,279) for Seniors and Pensioners

• Strategic considerations and impacts:• Bear in mind the thresholds (particularly if close to the

threshold) to reduce payment of Medicare levy

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Working holiday makers

• Change of tax residency rules for temporary working holiday makers

• From 1 July 2016 those who are temporarily in Australia for working holidays will be regarded as non residents for tax purposes

• This is regardless of how long they are here• No access to tax free threshold, therefore tax at 32.5% from

first dollar

• Strategic considerations and impacts:• They are now likely to pay tax and lodge a tax return. Normal

expenses deduction would apply to reduce the impact.

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Meals entertainment• From 1 Apr 2016, FBT change on meals entertainment benefit

• Single cap of $5,000 grossed up for salary sacrificed meals entertainment

• Any excess over the cap can be counted against their existing FBT exemption

• All meal entertainment benefits now reportable

• Strategic considerations and impacts:• As many claims as possible should be put through this FBT year

to enjoy the limitless exemption as it currently stands• Being reportable, going forward it will have impact on ATI (which

will have a number of tax implications e.g. income for private health insurance purposes, high income earners Div 293 super tax)

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Superannuation• No new tax on super under this government (at least this term)

• Terminal illness condition of release• From 1 July 2015, extended access to super on terminal illness• Requires 2 medical practitioners (including a specialist) to certify that

they are likely to die within 2 years (currently 1 year)

• Increase in supervisory levies• Recovery of costs for various regulatory bodies

• Lost and unclaimed superannuation• From 1 July 2016, reduction of red tape to allow individuals to more

easily recover lost superannuation

• Strategic considerations and impacts:• Enjoy the current stable super environment whilst it lasts i.e. max

contributions• Work with clients under the new rules when available to recover

lost super• Consolidate super accounts

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Sustainable Age pensions

• Proposal (from last year) to index Age pension to CPI no longer going ahead

• Change in Asset Test thresholds- from 1 Jan 2017• Couples who are homeowners

• Lower threshold: increase from $286,500 to $375,000• Higher threshold: decrease from $1,151,000 to $823,000

• Couples who are non homeowners• Lower threshold: increase from $433,000 to $575,000• Higher threshold: decrease from $1,298,000 to $1,023,000

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Sustainable Age pensions- contd• Singles who are homeowners

• Lower threshold: increase from $202,500 to $250,000• Higher threshold: decrease from $775,500 to $547,000

• Singles who are non homeowners• Lower threshold: increase from $348,500 to $450,000• Higher threshold: decrease from $922,000 to $747,000

• For every additional $1,000 in assets above lower threshold, payment reduced by $3 per fortnight

• A pensioner who loses entitlement on 1 Jan 2017, will automatically be issued a CSHC card or a Health Care card

• Implications and strategic considerations:• Excess assets can be used to renovate home or purchase bigger home

or granny flat arrangement• Gifting within the exemptions will improve payment (pre 5 year

retirement gifting)

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New Homeowner Couples Asset Test -Thresholds

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New Single Homeowner Asset Test - Thresholds

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Example: Impact of change• Homeowner couple• Have $823,000 assessable asset, earn interest at 2.5%• Based on projected pension rates at 1 Jan 2017

• Current- Prior to change• Interest @ 2.5% $20,575• Pension $14,467• Total pa: $35,042

• With the change• Interest @ 2.5% $20,575• Pension $0• Total pa: $20,575 (decrease of $14,467 over current)

• With the change and some planning (reducing assessable asset by $423,000)• Interest @ 2.5% $10,000• Pension $32,973• Total pa: $42,973 (increase by $7,961 over current)

• Implications and strategic considerations:• By reducing assets by $423k, improve pension $7,961 over current situation• And improve by $22,398 over proposed change

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Child Care subsidy• Assist low to middle incomes families enter & remain in the

workforce

• Abolition of Child Care Benefit, Child Care Rebate, & Jobs, Education & Training Child Care Assistance

• From 1 July 2017, a single means tested Child Care Subsidy to meet child care cost for parents engaged in work, training, study

• Subject to a new activity test for up to 100 hours of subsidised care per child per fortnight

• Paid directly to approved care service providers• Next table summarises the specific conditions & thresholds

• Implications and strategic considerations:• Be aware of the income threshold to avoid cap (< $185,000)• Reduce income which is defined as adjusted taxable income

(ATI)

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New Child Care SubsidyFamily Income Thresholds for subsidy

Benchmark Rates

Activity Test

Family incomeActual or Benchmark fee

Up to $65,000 85% per child$65,000 - $170,000 Tapers to 50%$170,000+ 50%

Hourly Benchmark rate Per hourLong Day Care $11.55Family Day Care $10.70Out of School Hours $10.10In Home (Nannies) $7.00

Activity PF No. hours of subsidy PF8 to 16 hours Up to 36 hours17 to 48 hours Up to 72 hours49 hours Up to 100 hours

Caps to apply as follows: $ Under $185,000 No Cap$185,000 + Capped @ $10,000

Caps on subsidies

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Case Study : Child Care Subsidy

• Couple with one child aged two, in long day care for four days per week at $85 per day rising to $98 pd in 2017-18

• Husband works full-time & wife works four days a week. • Current family income is $99,500, • Rising in 2017-18 to $105,000

• Under existing system - they will receive $10,970: • $4,157 in child care benefit and• $6,813 in child care rebate.

• Under the Child Care Subsidy they receive $14,657• Up $3,687 or $71 a week

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Child Care Safety Net and Nanny Programme

• From 1 July 2016, the Child Safety Net to be rolled out• Where the work activity test is not met & income is under $65,000

then special assistance available

• From 1 July 2017, an additional Child Care Subsidy at a higher capped rate is available when transitioning from income support to work and undertaking study or training

• From 1 January 2016 – Nanny Pilot programme:• Applies to families not able to access mainstream services• An income test applies – less than $250,000• Maximum of 50 hours care / week• Benchmark rate of $7.00 ph / child• Activity test & Income Thresholds to apply

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Paid parental leave

• From 1 July 2016, current scheme would operate with restriction• Cannot receive both parental leave pay from both employer and government• Currently pays 18 weeks at minimum wage totalling $11,500• Will only act as a top up to $11,500

• No change to the existing scheme conditions, other than above

• Implications and strategic considerations:• Those who receive employer funded paid parental leave more than the

maximum taxpayer funded benefit ($11,500) will not receive anymore• Those who receive less, will have additional taxpayer funded payment top up

to the maximum• Plan for parental leave before 1 July 2016!

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Youth allowance

• From 1 July 2016, new claimants for Newstart, Youth Allowance and Special Benefit must undertake a number of additional job search activities within first 4 weeks before receiving any income support

• From 1 Jan 2016, means testing arrangement for youth allowance• Families with dependant children subject to Parental Income test and no

longer the Family Assets test or Family Actual Means test• Where a family in receipt of FTB Part A for a younger sibling, a modified

Parental income test is applied• From 1 Jan 2017, an additional Income Test now including any child support

payment for that child only will be introduced

• Implications and strategic considerations:• Making claims on these benefits are getting more complex and difficult

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Other Centrelink announcements

• Age, Wife, Widow B and Disability Support pensions may reduce if absent from Australia• For 6 weeks or longer, and less than 35 years residency, reduced rate

proportional to their period of Australian Working Life Residence

• Age of eligibility for Newstart and Sickness Allowance will increase from 22 to 25 years of age from 1 July 2016

• Low income supplement to cease from 1 July 2017• The proposed reduction in deeming rates thresholds axed

• Implications and strategic considerations:• Excellent news with retaining the deeming thresholds plus the recent

reduction of rates to 1.75% and 3.25%

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Aged Care

• From 1 Jan 2016, where the former home is being rented in conjunction with a DAP payment, the rental income exemption for Aged Care purposes will be removed

• All existing protections such as annual and lifetime fee caps remain

• Implications and strategic considerations:• Not clear whether the asset test exemption under the Aged Care

means testing compromised• Also not clear is the impact on the continuing Centrelink exemption of

the former home• Ideally, if strategy considered, then need to have it in place prior to 1

Jan 2016- this change needs to be watched closely to assess impact

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Other announcements

• Help debt recovery• From 1 July 2016, Help debtors residing overseas for 6 months or more

will be required to make repayment instalments based on their worldwide income and the current rates as debtors in Australia

• Banking and Life insurance unclaimed provisions• Unclaimed monies to be paid to government after 7 years (previously

3 years) • Children’s bank accounts exempt from these provisions

• Application fees for foreign investors• Fees will be levied on all foreign investment applications• Residential properties valued at $1m or less, a fee of $5,000 payable• Higher fees will apply to more expensive residential and business,

agriculture and commercial real estate

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Winners and losers

• Winners• Small business owners• Superannuation believers• Pensioners• Child care industry

• Losers• Expectant Mum and Dad• Stay at home parents• Online consumers• Employees of charitable organisations and PBIs• Multi-nationals• Pensioners

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Disclaimer

This information has been prepared and issued by netwealth Investments Limited (“netwealth”), ABN 85 090 569 109, AFSL 230975 for the general information of financial advisors only. It is a general summary only and contains opinions on some publically released information and is not advice. While care has been taken in the preparation of this information (using sources believed to be reliable and accurate), netwealth does not warrant or represent that the information is accurate, complete or current. netwealth, Financial Planning Services Australia ABN: 55 010 521 810, AFSL: 225982, Pathway Licensee Services Pty Ltd ABN: 13 114 805 104 and other member of the netwealth group of companies, their officers, employees or representatives will not be liable for any loss or damage suffered by any person arising from reliance on any of this information. Anyone proposing to rely on or use the information should first obtain appropriate independent professional advice.