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2015/16 Federal Budget

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In this month’s Wealth Pipeline, we outline some of the proposals contained in the Federal Government’s 2015/16 Budget. Specifically, we detail changes to age pension entitlements, small business reforms, childcare support and car expense deductions.

2015/16 Federal Budget

Age Pension eligibility changes

There are three changes that have been made.

  1. Asset test threshold upper limit decreases: At present, a retired couple owning a family home and holding up to $1.15 million in assets qualifies for a part pension. From 1 January 2017, this threshold will be reduced to $823,000 and this will reduce the number of people eligible for a part Age Pension.
  2. Asset test threshold lower limit increases: At present, a retired couple owning a family home and holding less than $286,500 in assets can qualify for a full Age Pension. From 1 January 2017, this threshold will be increased to $375,000 and this will increase the number of people eligible for a full Age Pension.
  3. Taper rate increases: The 'taper rate' for the assets test determines how much Age Pension someone receives. At present, the Age Pension entitlement is reduced by $1.50 a fortnight for every $1,000 of assets over the full Age Pension threshold. From 1 January 2017, the taper rate will increase to $3 per $1,000 of assets over the full Age Pension threshold and in effect narrow the band of people eligible for a part Age Pension and reduce the pension payable to those that are still eligible.

Collectively, these three changes mean that more people will qualify for a full Age Pension but fewer will qualify for a part Age Pension.

Small Businesses
  • The tax burden for small business owners – those with annual turnover under $2 million – will be lowered to the tune of 1.5 per cent, costing the Government $1.45 billion.
  • For smaller, unincorporated businesses – sole traders, partnerships, trusts, etc. – there will be a 5 per cent tax discount. The discount will be capped at $1,000 per individual for each income year, and will be delivered as a tax offset. 
  • Note, the current maximum franking credit rate for a distribution will remain at 30% for all companies. 
  • To help small businesses invest in new tools or machinery the Government will provide an immediate tax deduction of all assets under $20,000. Small businesses can buy as many items under that amount as they like and receive that deduction on each one. This will apply for assets acquired and installed ready for use between 12 May 2015 and 30 June 2017.
  • For start-ups, business registration will be streamlined, with one website acting as a one-stop shop for setting up a business.
Child Care
  • A new single Child Care Subsidy (‘CCS’) will be introduced on 1 July 2017. Families meeting the activity test with annual incomes up to $60,000 (2013/14 dollars) will be eligible for a subsidy of 85% of the actual fees paid, up to an hourly fee cap. The subsidy will taper to 50% for eligible families with annual income of $165,000.
  • The CCS will have no annual cap for families with annual income below $180,000. For families with annual incomes of $180,000 and above, the CCS will be capped at $10,000 per child per year. Eligibility will be linked to a new activity test.
  • The 2015/16 Federal Budget announces the introduction of a new Interim Home Based Carer Subsidy Programme, which is a limited pilot programme to subsidise care provided by a nanny in a child’s home for 1 January 2016.
    • Government assistance will be provided by way of an hourly subsidy to be paid per child towards the cost of using a nanny. The subsidy will be paid directly to services                 and will be adjusted according to family income consistent with the broader child care subsidy model. 
    • Little information about who exactly is eligible is still unknown. We know that it will be available for approximately 10,000 children and be able to be accessed by middle                 to low income families.
Car Expenses
  • From the 2015/16 income year, the government will ‘modernise’ the methods of calculating work-related car expense deductions
    • The ’12 percent of original value method’ and the ‘one-third of actual expenses method’ (which are used by less than 2% of those who claim work-related car expenses) will be removed.
    • The ‘cents per kilometre method’ will be modernised by replacing the three current (cents per kilometre) rated based on engine size, with one rate set at 66 cents per kilometre (in respect of all cars). 
Professional Expenses

• Currently, some professional costs associated with commencing a new business (i.e, black hole expenditure) are deducted over a five-year.
• From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.

Our Comments

With the exception of the proposed changes to the age pension the budget was not largely detrimental. The pleasing news was that the Coalition kept true to their promise to leave superannuation alone in their first term.

By: May 28, 2015 Tax Tags: ;