Monthly Archives: June 2015

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PENSIONS AND PLANNING THROUGHOUT RETIREMENT – MAY 2015 CHANGES

Changes to the Age Pension announced in May 2015’s Federal Budget have been passed and are expected to benefit retirees with ‘modest’ assets, while ‘wealthy’ retirees may lose part or all, of their pension.

 

The changes, however controversial, set to commence on 1 January 2017, aim to make the payment of Age Pensions more sustainable by tightening the criteria around the asset test.

 

More retirees to receive full pension
Following these changes more retirees will be eligible for the full pension due to the increase in the Assets Test threshold.

 

The Assets Test threshold describes the level of assets a retiree can hold, on top of their family home, before their Age Pension entitlement is reduced. The current and proposed thresholds are detailed below.

  Assets Test threshold for full Age Pension
Currently From 1st January 2017 Increase
Single, homeowner $202,000 $250,000 $48,000
Single, non-homeowner $348,500 $450,000 $101,500
Couple, homeowner (combined) $286,500 $375,000 $88,500
Couple, non-homeowner (combined) $433,000 $575,000 $142,000

 

Part-pension retirees likely to lose out
Under the changes effective from 1 January 2017, retirees on a part-pension may lose part, or all of, their entitlements.

 

Retirees with assets over the thresholds outlined above receive a part-pension. The rate at which the pension is reduced (often referred to as the taper rate) increases in line with the value of assets a retiree holds.

 

Currently the Age Pension entitlement is reduced by $1.50 per fortnight for every $1,000 of assets above the Assets Test threshold. By way of example, a retiree with assets $10,000 above the threshold, will have the pension reduced by $15 a fortnight.

 

From 1 January 2017, entitlements will be reduced by $3 per fortnight for every $1,000. Using the example above, this will result in a reduction of $30 a fortnight.

 

An increase in the taper rate will effectively reduce the value of assets a retiree can hold before their pension is cut-off entirely. A person will no longer be entitled to a part-pension when their assets exceed the levels set out below.

 

Currently From 1st January 2017 Decrease
Single, homeowner $775,500 $547,000 $228,500
Single, non-homeowner $922,000 $747,000 $175,000
Couple, homeowner (combined) $1,151,500 $823,000 $328,500
Couple, non-homeowner (combined) $1,298,000 $1,023,000 $275,000

 

As a compensation for those who are affected by the scale back of maximum assets a retiree can hold before their pension is cut-off, the Government has announced that such retirees will automatically be eligible for the Commonwealth Seniors Health Care Card (CSHC).

 

Pensioners overseas to face stricter benefits test
From 1 January 2017, pensioners who have lived in Australia for less than 35 years could see their Age Pension reduced if they move overseas.

 

Currently, all pensioners that live overseas are entitled to their full pension for the first 26 weeks. After 26 weeks, pensioners with an Australian Working Life Residence (AWLR) of less than 35 years are paid a reduced rate proportional to their period of AWLR. Under the new changes, the period for testing will be reduced from 26 weeks to 6 weeks.

 

Pensioners who are overseas on 1 January 2017 will not be affected by this change unless they return to Australia and make a subsequent trip overseas. Pensioners 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.

 

Related changes for pensioners
Increasing consumer choice within Home Care
From 1 February 2017, the online portal My Aged Care Gateway will be responsible for allocating home care packages directly to consumers, giving them greater choice around the services they receive and their providers.

Newsletter: June 2015 Budget Edition

PERSONAL TAXATION

Personal tax rates: budget deficit levy not to be extended
The 2015–2016 Budget did not make any changes to the current personal tax rates, although in the lead-up to the Budget, the Treasurer indicated that the 2% budget deficit levy (tax) on incomes over $180,000 would not be extended beyond its initial three years.
The levy was announced in last year’s Budget and applies for three years from 1 July 2014. It is due to cease at the end of the 2016–2017 financial year.

 
Work-related car expenses simplified
The Budget confirmed that the 12% of original value and one-third of actual expenses incurred methods would be discontinued. That means only the cents per km and logbook methods remain. The Government will set 66 cents per kilometre as the rate for using the cents per km method, irrespective of a car’s engine size. The changes will apply from the 2015–2016 income year.

 
Medicare levy low-income thresholds for 2014–2015
From the 2014–2015 income year, the Medicare levy low-income threshold for singles will be increased to $20,896 (up from $20,542 for 2013–2014). For couples with no children, the threshold will be increased to $35,261 (up from $34,367 for 2013–2014). The additional amount of threshold for each dependent child or student will be increased to $3,238 (up from $3,156).
For single seniors and pensioners, the Medicare levy low-income threshold will be increased to $33,044 (up from $32,279). This threshold applies to those entitled to the seniors and pensioners tax offset (SAPTO).
The measure will apply from 1 July 2014.

 
Temporary working holiday makers – tax residency rules to change
The Government will change the tax residency rules 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 here. This means they will be taxed at 32.5% from their first dollar of income.
This measure will apply from 1 July 2016.

 

SMALL BUSINESS

Tax rate cut to 28.5%
The Government announced, with effect from the 2015–2016 income year (ie from 1 July 2015), a 1.5% cut in the company tax rate applying to small businesses (turnover less than $2 million), reducing the tax rate to 28.5%. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30% rate on all their taxable income. The current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies.

 
Tax discount for unincorporated small businesses
The Government said that with effect from 1 July 2015 individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity, and will be capped at $1,000 per individual for each income year.

 
Small business asset accelerated depreciation write-off
Small businesses would be able to immediately write off assets they start to use or install ready for use, provided the asset costs less than $20,000. This will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool. The Government will also suspend the current “lock out” laws for the simplified depreciation rules until 30 June 2017.
From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert to existing arrangements.

 
Immediate deductibility for professional expenses re start-ups
The Government will allow businesses to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. The measure will be available to businesses from the 2015–2016 income year.

 
CGT rollover relief for change to entity structure
The Government has confirmed that it will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point.
The measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established, for example a sole trader changing its business structure to a trust. The measure will be available from the 2016–2017 income year.

 
No FBT on work-related electronic devices
From 1 April 2016, ie the start of the 2016–2017 FBT year, the Government will allow an FBT exemption for small businesses that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions.
Further ESS changes
Significant changes to the employee share schemes (ESS) rules were announced in October 2014. Additional changes announced in the Budget will:

  • exclude eligible venture capital investments from the aggregated turnover test and grouping rules (for the start-up concession);
  • provide the CGT discount to employee share scheme 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; and
  • allow the Commissioner to exercise a discretion in relation to the minimum three-year holding period where there are circumstances outside the employee’s control that make it impossible for them to meet this criterion.

These changes will take effect from 1 July 2015.

 

 

GST

“Netflix tax” to start 1 July 2017
The Government has announced that it will impose GST on offshore intangible supplies to Australian consumers with effect from 1 July 2017. The measure has been cited in the media as the “Netflix” tax. The Government released draft legislation which contains the details of the changes.
The key concept in determining if a supply is made to an Australian consumer is determining if the entity is an Australian resident. Broadly, for individuals, the term takes its ordinary meaning. Similarly, a company will be an Australian resident if the company is incorporated in Australia or if it is effectively owned or controlled by Australian residents.

 

 

 

CHILD CARE AND PENSION/WELFARE MEASURES

Major childcare payments revamp
The Government announced it will establish a new and simpler mainstream Child Care Subsidy from 1 July 2017. Key points include the following:

  • Abolition of the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programmes.
  • A single means tested Child Care Subsidy for all families, subject to a new activity test, for up to 100 hours of subsidised care per child per fortnight.

Child care subsidies will remain linked to immunisation requirements strengthened, from 1 January 2016, under the Government’s “no jab, no pay” policy.

 
Paid parental leave – no double-dipping
The Treasurer said the Government will stop people from claiming parental leave payments from both the Government and their employers – he said this was effectively double dipping. This would apply from
1 July 2016.

 
Age Pension assets test: threshold increased, taper rate tightened
The Government confirmed that the Age Pension assets test threshold for a single homeowner will be increased to $250,000 (up from $202,000) and $375,000 for a homeowner couple (up from $286,500) from January 2017. The assets test threshold (or assets free area) for non-homeowners will be increased to $450,000 (single) and $575,000 (couple).
The assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. The measures will commence from
1 January 2017.
The Government will also be dropping its 2014 Budget proposal to index the Age Pension to CPI.

 

 

 

SUPERANNUATION

Defined benefit super schemes: Government to close loophole
The Government confirmed that a 10% cap will apply to the “deductible amount” for pension income received from a defined benefit superannuation scheme for the purposes of the social security income test. Recipients of Veterans’ Affairs pensions and defined benefit income streams paid by military superannuation funds are exempt from this measure. In addition, the measure will not affect the means test treatment of income streams purchased for retail providers of these products. The measure will apply from 1 January 2016.