hanrick curran 2015 tax and superannuation post budget presentation
TRANSCRIPT
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2015 Post Budget & Pre Financial Year EndTaxation Update
Jamie TowersTaxation Partner
18 May 2015
Backdrop
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Estimated 2015/16 deficit of -$35.1 bnrepresenting 2.1% of GDP
A reduction of $6bn from 2014/15 (but an increase of $18 bn on previous est.)
Forecast to return to surplus in 2019/20 (as expected last year)
Payments remain high at 25.9% of GDP, falling to 25.3% over the forward est.
Concerning proportion of recurrent expenditure, not capital investment
Stable spending and recovery in receipts make much of the recovery in the budget position
Recovery in receipts driven by employment growth on the back of real GDP growth of:
2.75% in 2015/16; 3.25% in 2016/17
This leaves the budget susceptible to future shocks
-5.00%
-3.75%
-2.50%
-1.25%
0.00%
1.25%
2.50%
3.75%
5.00%
FY1971
FY1975
FY1979
FY1983
FY1987
FY1991
FY1995
FY1999
FY2003
FY2007
FY2011
FY2015
FY2019
Budget Balance
20.00%
21.00%
22.00%
23.00%
24.00%
25.00%
26.00%
27.00%
FY1997
FY2001
FY2005
FY2009
FY2013
FY2017
Payments & Receipts
Receipts Payments
Budget Insights
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Very little for non-small business
Tax Discussion Paper released in March – little substance
Green ‘ideas paper’ to be released later this year
White Paper with policies to take to next election –due 2016
Small Business
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Definition of “small” business:
Aggregated turnover of less than $2 Million (when aggregated with other businesses under same control)
Turnover test applies to current or previous year
$2 Million threshold has been in place since at least 2001 with no indexation. Time to change?
Small Business
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1.5% Company Tax Cut to 28.5% from 1/7/2015
Franking % to remain at 30%
Will result in some unfranked dividends
Small Business
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Unincorporated Small Business Discount
5% discount on Business income in unincorporated entities flowing to individuals
Capped at $1,000 per individual
Small Business
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Unincorporated Small Business Discount
Example:
Family business in family trust earns $80,000 of business income and distributes to Jack.
Jack’s normal tax on $80,000 would be $17,534.
Jack receives a tax offset providing a 5% discount of $876, meaning net tax payable of $16,658.
Small Business
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<$20,000 Small Business Asset Write-off
Previously been as high as $6,500 under previous Government (Carbon Tax Initiative) but reverted back to $1,000 last year
Any individual assets purchased with a value less than $20,000 (+ GST)
Deduction available in year asset is first used or installed ready for use
Applies from Budget night until 30 June 2017
Small Business
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<$20,000 Small Business Asset Write-off
Excluded Assets – Horticultural plants, Capital Works; Assets allocated to Pools (ie software depreciation pool), assets under lease – Financing Impact!
Primary Production assets – can choose write-off or specific primary production rules
Assets Exceeding $20,000 get a 30% write-off (15% first year)
Small Business
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<$20,000 Small Business Asset Write-off
Caution!
ATO Will be closely monitoring new ABN applications and will likely create an audit program for contractors (who are otherwise just employees)
Small Business
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Immediate Deduction for Professional Expenses to establish a business
Current rules provide write-off of business set up costs over 5 years
From 1/7/2015 – immediately deductible
Small Business
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CGT Relief for Change to Entity Structure (from 1/7/2016)
Currently roll-over relief only available for restructure into a company
Will allow changes to any structure
Silent on treatment of revenue assets
Stamp (Transfer Duty) still applies in most States
Small Business
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FBT Exemption - Portable Electronic Devices
Current rules – FBT exemption for the first device only each year where devices have ‘substantially identical features’
Small Business
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FBT Exemption - Portable Electronic Devices
ipad and iphone have similar features
Tablets and Laptops have similar features
Small business will be able to provide more than 1 device without being subject to FBT
Still a real issue for other businesses
Small Business
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Starting a Business to be streamlined – all registrations in a single online portal (business.gov.au)
Interaction with ASIC or ATO just using ABN
Raising funds to become simpler – Corporations Act to be amended to allow easier access to Crowd-source funding
AgriBusiness
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Farmers able to write-off capital expenditure on fencing and water facilities
Write-off Fodder Storage over 3 years
Other Business
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R & D - $100M Expenditure Cap
Government still aiming for 1.5% reduction in tax offset despite it failing to pass in an earlier bill.
Other Business
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Employee Share Schemes
Rules will be fixed from 1/7/15 to ensure tax consequences only when can sell shares to pay tax
For some ‘small companies’ ($50 Million turnover) –employees taxed as capital gain (incl 50% CGT discount) rather than as ordinary income
Other Business
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ATO – Power to fix law not operating as intended
Power to Commissioner to issue a legislative instrument with the effect of removing unintended outcomes of legislation
Commonwealth Penalty Units – up to $180 from 31 July 2015
GST
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Netflix Tax – Overseas companies providing digital content to Australian consumers will become subject to GST (from 1/7/2017)
Requires support of States
Collection and its enforcement is the main problem as no requirement for overseas business to register
GST
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Reverse Charge for Going Concern and Farmland Exemption not proceeding (policy announced last year)
No GST on taxable importations of < $1,000. (Again collection is a problem)
CHARITIES & NOT FOR PROFITS
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FBT Cap on ‘Meal Entertainment Expenses’
Currently no FBT if benefits are below either a $17,667 cap or a $31,177 cap. PLUS no FBT on any Meal Entertainment Expenses
From 1 April 2016 – proposed $5,000 cap on meal entertainment. Excess counts towards other caps.
Budget Paper indicates “all use of meal entertainment benefits will become reportable”
Families – Child Care
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Current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programmes abolished. Replaced with single means tested Child Care Subsidy
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
Up to 24 hours per fortnight also provided where family income < $65,000 per year, do not meet the activity test – equivalent to two 6-hour sessions
All subsidies will be linked to ‘no jab, no pay’ from 1 January 2016, unless exempt on medical grounds
Families – Child Care
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Family Income Thresholds
up to $65,000 the Child Care Subsidy will be 85% of the fee (up to a benchmark price);
will reduce to 50% for family incomes of $170,000 and above
a cap of $10,000 per child for the total value of subsidies for family incomes of $185,000 and above
Families – Child Care
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Family Income Thresholds
Family Income Per Child Subsidy Cap
Up to $65,000 85% of fee# n/a
$65,000 - $170,000 Tapers from 85% - 50% n/a
$170,000 - $185,000 50% n/a
>$185,000 50% $10,000 pa
# % or lower of fee or benchmark price
Activity (hours worked p.f) Subsidised hours (p.f.)
8-16 up to 36
17-48 up to 72
49+ up to 100
Families
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Funding linked to passage of Family Tax Benefits measures from 2014 Federal Budget (Legislation stalled in Senate) FTB Part B primary earner income limit will be reduced to $100,000
from $150,000 FTB Part B payment will be limited to families whose youngest child is
under 6 years of age ( 2 year transitional arrangement for families with the youngest child aged 6 and over on 30 June 2015)
The FTB Part A Large Families Supplement will be limited to families with 4 or more children.
The FTB Part A per child add-on to the higher income free threshold removed.
FTB Part A payment of $750 introduced for single parents on the maximum rate of FTB Part A whose youngest child is aged between 6 and 12 years from the point they become ineligible for FTB Part B.
The FTB Part A and Part B end-of-year supplements will return to the original amounts of $600pa for each FTB Part A child and $300pa for each FTB Part B family and will cease indexation.
Individuals
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Maybe a tax cut?
Tax cuts legislated from Labor Government
Bill to repeal not yet passed
(only effects low income individuals – no real change above $80,000 of income)
Individuals
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2012/13 2015/16 Legislated 2015/16 New
Tax Threshold Rate Threshold Rate Threshold Rate
Thresholds
1 18,201 19% 19,401 19% 18,201 19%
2 37,001 32.5% 37,001 33% 37,001 32.5%
3 80,001 37% 80,001 37% 80,001 37%
4 180,001 45% 180,001 45% 180,001 45%
Low Income Tax Offset (LITO) $445
#1.5% above
$37,000 $300
#1% above
$37,000 $445
#1.5% above
$37,000
Effective tax free threshold 20,542 20,979 20,542# Rate at which LITO reduced above threshold
Individuals
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HELP Debts – repayments apply to overseas debtors
If live overseas for > 6 months and have worldwide income above HELP repayment threshold ($54,126 -2016), then required to register with ATO and make repayments from 1/7/2017
Year End Planning
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If possible – Defer income until next financial year
Bring forward expenditure
Review & write-off bad debts
Make super contributions before 30 June 2015
Prepayments are effective for individuals and small business
Interest on Investment Loans
Business Expenses
Year End Planning
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Take the benefit of the $20,000 asset write-off
For assets costing > $20,000 buy before 30 June as still get 15% depreciation even if held for 1 day
(eg – purchase a car for $50,000 on 30 June 2015. you add it to the small business pool and get a $7,500 depreciation deduction for 1 day)
Year End Planning
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If you are able to income split, take into account:
Top Marginal Tax Rate - $180,000
Superannuation (Division 293) tax - $300,000
HELP repayment – 2014/15 - $53,345
Year End Planning
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Trust Distributions – Check Trust deed for distribution resolution requirements
Ensure the trustee makes an income resolution and records in writing on or before 30 June 2015 (or other earlier date specified in deed)
If any Division 7A loans from private companies –ensure you have made minimum repayments and charged interest
Ultimate Tax Deduction
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Give the gift that keeps on giving
Donations over $2 to Deductible Gift Recipients allow you to FEEL GOOD about helping the chosen charity AND you get to reduce your tax.
Hanrick Curran assists many fantastic charities – see details on our website
What didn’t change?
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No superannuation tax changes
With official cash rates at 2%, 2015 isn’t time to hit up retirees on super savings
Superannuation Tax Reform is still on the agenda
Super is set to become an election football in 2016
Labor plans to limit tax-free earnings above $75k and tax contributions at 30% if income >$250k
LNP to issue a Tax White Paper in 2016 with their plans
A ban on SMSF limited recourse borrowing arrangements didn’t eventuate yet despite the Murray report recommendations
What did make the brief in 2015
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Access to super for terminal illness extended to 2yrs
Lost & unclaimed superannuation claim process to be simplified
Superannuation supervisory levies to be increased
SMSF trustee penalty increases were in the fine print
Breaches of the rules will attract higher penalties effective 31 July 2015
Changes to Government Pensions
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Removal of the CPI indexation proposal (AWOTE indexation remains)
Interaction with deeming rules effective January 2015
No change to deeming levels
Super pensions now deemed.
Changes to Government Pensions
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Old Limits New Limits
Single (Homeowner) Up to $202,000 Less than $775,500 Up to $250,000 Less than $547,000
Couple (Homeowners) Up to $286,500 Less than $1,151,500 Up to $375,000 Less than $823,000
Single (Non-Homeowner) Up to $348,500 Less than $922,000 Up to $450,000 Less than $747,000
Couple (Non-Homeowners) Up to $433,000 Less than $1,298,000 Up to $575,000 Less than $1,023,000
Changes to the Centrelink Assets Tests: Increasing the lower asset limits Increase in the taper rate (reduction in the upper asset
limits). This changes from $1.50 to $3.00 per $1,000 of assets.
Concession Cards retained
Change impacts
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Description Impact Level
Single, Homeowner $289,500
Couple, Homeowners$451,500
Single, Non-Homeowner$537,000
Couple, Non-Homeowners$699,000
-$14,000
-$12,000
-$10,000
-$8,000
-$6,000
-$4,000
-$2,000
$0
$2,000
$4,000
$100,000 $300,000 $500,000 $700,000 $900,000 $1,100,000
Effect of Asset Test & Tapering Changes (Couple)
Super contributions reminder
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Concessional Contribution Limits Under 50 $30,000 Over 50 $35,000
Individuals who derive less than 10% of their assessable income (including reportable fringe benefits and reportable super contributions) from a supported source are eligible to claim a tax deduction for their own contributions
Non Concessional Contribution Universal $180,000 Averaging $540,000
Super contributions reminder
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Contributions Tax 15% paid by fund 15% paid by individual on element in excess of $300,000 (incl.
income, super, fringe benefits, net losses)
Excess Contributions Concessional Contributions returned and taxed at MTR – 15%.
Counts towards Non-Concessional Cap. Non-Concessional Contributions are returned tax free Earnings returned and taxed at MTR – 15%
Super pensions reminder
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Ensure minimum superannuation pension drawings are taken by 30 June 2015
Preservation age increase kicks in from 1 July 2015 and increasing each year for 5 years to age 60.
Accessing a tax free pension from superannuation at age 60 is unchanged.
Age Drawings
55+ 4%
65+ 5%
75+ 6%
80+ 7%
85+ 9%
90+ 11%
95+ 14%
Age Age
Current 55
1 July 1960 56
1 July 1961 57
1 July 1962 58
1 July 1963 59
1 July 1964 60
In summary
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• Pretty uneventful budget in 2015/16, however the stage is being set for Superannuation to become the political battle ground in the 2016/17 election.
Disclaimers
This document contains information in summary form and discusses proposed but not legislated rules and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.
We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid.
© Hanrick Curran, May 2015
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