Hanrick curran 2015 tax and superannuation post budget presentation

www.hanrickcurran.com.au

2015 Post Budget & Pre Financial Year EndTaxation Update

Jamie TowersTaxation Partner

18 May 2015

Backdrop

2experience. new thinking

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


Small Business

GST

Individuals

Year End Planning

Budget Insights


Budget Insights


Budget Insights


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


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


1.5% Company Tax Cut to 28.5% from 1/7/2015

Small Business


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


Unincorporated Small Business Discount

5% discount on Business income in unincorporated entities flowing to individuals

Capped at $1,000 per individual

Small Business


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


<$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



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



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


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


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


FBT Exemption - Portable Electronic Devices

Current rules – FBT exemption for the first device only each year where devices have ‘substantially identical features’

Small Business


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


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


Farmers able to write-off capital expenditure on fencing and water facilities

Write-off Fodder Storage over 3 years

Other Business


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


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


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


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


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


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


Paid Parental Leave Election Promise – gone!

No Double Dipping

Families – Child Care


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



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



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


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


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


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


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


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


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


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


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


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


Budget Brief: Superannuation

Clive Todd

20 May 2015

It’s not what did change that’s important, it’s what didn’t!

41

experience. new thinking

What didn’t change?

42


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

43


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

44


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

45


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

46


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

47


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

48


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

49


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

50


• 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.

Topic \\ Date

Thank you


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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