Federal Budget – May 2015
Federal Treasurer Joe Hockey’s second Budget was delivered to the nation last night with the message of a “measured, fair and responsible” Budget, designed to provide jobs, growth and opportunity. Small Businesses with less than $2 million turnover were the big winners.
Small Business
Tax cuts for small business
From 1 July 2015, it is proposed to reduce the tax rate to 28.5% for companies with aggregated annual turnover of less than $2 million. Companies above $2 million turnover will continue to be subject to the current 30% rate on all their taxable income. This is the lowest small business company tax rate in almost 50 years.
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. This discount will be 5% of the income tax payable on the business up to a cap of $1,000 per individual each income year and delivered as a tax offset. Unincorporated businesses may apply to sole traders, trusts and partnerships.
Depreciated Tax Deduction
From 12 May 2015, it is proposed to expand accelerated depreciation by allowing small businesses with aggregate annual turnover of less than $2 million to immediately deduct assets that cost less than $20,000.
From 1 July 2017, the thresholds for the immediate depreciation of assets will revert back to existing arrangements.
Fringe Benefits Tax (FBT) changes for work-related electronic devices
From 1 April 2016, it is proposed to allow a FBT exemption for small businesses that provide employees with more than one qualifying work-related portable electronic device, even when the items have substantially similar functions.
Taxation
There are no changes to personal income tax rates.
New Cap for certain Exempt Fringe Benefits
From 1 April 2016, this proposal will cap the amount of ‘meal entertainment’ and ‘entertainment facility leasing’ fringe benefits that can be provided free of Fringe Benefits Tax by tax exempt employers. This new cap will be $5,000 per employee.
Superannuation
There are no new taxes on superannuation under this Government.
Relaxing criteria for access to super – Terminal Medical Condition
From 1 July 2015, the Government will change the current one year period to two years, giving terminally ill patients earlier access to superannuation. Two medical practitioners (one being a specialist) will only need to certify that the individual is likely to die within two years, not one.
Social Security
Centrelink Asset Test
From 1 January 2017, the lower assets test thresholds for pensions will be increased to $250,000 (singles) and $375,000 (couples) to allow applicants with higher levels of assets to receive the full Age or Disability Pension.
However, the taper rate will increase from $1.5 to $3 for every $1,000 of assets over the relevant lower assets test threshold. This will mean that couples with assessable assets of $823,000 (currently $1.15 million) and singles with assessable assets of $547,000 (currently $775,000) will no longer receive a partial pension.
Aged Care Fees and Age Pension
From 1 January 2016, it is proposed new residents paying accommodation costs by periodic payment will no longer be able to exclude rental income from the former home, from the calculation for aged care costs or the age pension. This will ensure that all aged care residents, whether paying for accommodation costs by lump sum or periodic payment, will be treated in the same way.
Defined benefit income deduction
The proportion of income that can be excluded from any Income Test (the deductible amount) will be capped at 10% from 1 July 2016.
End of 2014/2015 Financial Year Considerations
Superannuation Income Payment for the 2014/2015 Financial Year
If you are receiving a superannuation income stream, every year you are required to draw a minimum pension requirement from your superannuation pension account. At the 1st July each year, your minimum income pension is recalculated in accordance with Government rules. Please ensure you meet your minimum requirement for the financial year.
Concessional Contributions for the 2014/2015 Financial Year
Concessional Contributions can be an effective way to contribute to superannuation as they are made from pre-tax income up to an annual cap. This may also assist in reducing taxable income in the current year which may reduce your overall tax liability.
The cap is based on the age of a person as at 30 June of the previous financial year (2014).
| Income Year | Cap for those aged 49 years or over on 30 June 2014 | Cap for all other |
| 2014/2015 | $35,000 | $30,000 |
A concessional contribution is generally a super contribution to a complying super fund which is included in the super fund’s assessable income. Concessional contributions include employer contributions, personal contributions made by the member, for which a valid deduction notice is submitted and acknowledged, and member contributions made on behalf of the member by another person.
Excess concessional contributions count towards the non-concessional (after-tax) contribution cap. You can elect to withdraw up to 85% of any excess concessional contributions from your superannuation to help pay your income tax assessment when you have excess contributions. Any excess concessional contributions withdrawn from the fund is then grossed up and no longer counts towards your non-concessional contribution cap.
Salary sacrifice arrangements are only valid for future earnings and not for income and entitlements you have already earned.
If you are aged between 65 and 74, you are required to meet the works test (40 hours over 30 consecutive days) before the contribution is made. Once you are 75 or over, you can only receive mandated employer contributions.
Non-Concessional Contributions for the Financial Year
Superannuation can be a tax effective way to help build wealth for retirement. Non-concessional, or after-tax, contributions are one way to get more money into the superannuation system. These contributions are capped at $180,000 for the 2014/2015 financial year. If you exceed the non-concessional cap, you have the option of withdrawing superannuation contributions above this cap made from 1 July 2013 and 85% of the associated earnings, with the full earnings being taxed at your marginal tax rate (less a non-refundable tax offset equal to 15% of the associated earnings).
If you are under age 65 on 1 July of the financial year, you can ‘bring forward’ two years of non-concessional contributions giving a total non-concessional contribution cap of $540,000 for the three years. Prior to making any non-concessional contributions, it is important to review any contributions made during the current and previous two financial years to ensure the bring forward rule has not already been triggered.
Government Co-Contributions
Government co-contributions provide the opportunity to receive a co-contribution of up to $500 from the Government to help increase your retirement savings.
To be eligible you must:
- Make a non-concessional contribution to a complying superannuation fund in the 2014/2015 financial year and not claim a tax deduction for the contribution
- Receive 10% or more of your total income from eligible employment and/or carrying on a business
- Have less than $49,488 total income in the financial year
- Lodge an income tax return for the financial year
- Be under age 71 at the end of the financial year
- Not hold a temporary resident via during the year , unless you are a New Zealand citizen or the holder of a prescribed visa
Spouse Contributions Tax Offset
Spouse contributions are non-concessional contributions that you can make on behalf of your spouse. The contributing spouse may be eligible for a tax offset of 18% on contributions up to $3,000.
To be eligible:
- You must make a non-concessional contribution into your spouse’s complying super fund in the financial year and not claim a tax deduction for the contribution
- Your spouse must be under age 65 or if aged 65 but under age 70 must meet the work test
- You and your spouse must be Australian tax residents
- At the time of making the contribution you and your spouse are not living separately and apart on a permanent basis
- Your spouse’s total income must be less than $13,800 in the financial year
Spouse contributions count towards the spouse’s non-concessional contribution cap
Contribution Splitting Opportunities
Contribution splitting gives you the opportunity to increase your spouse’s superannuation using money you have accumulated within superannuation.
You can split up to 85% of concessional contributions (up to the concessional contribution cap) where your spouse:
- Has not reached preservation age or
- Has reached preservation age but is under age 65 and has not retired
To split a contribution, you must apply to your super fund by the earlier of:
- The day you request your entire account balanced to be rolled over, transferred or cashed in for the financial year in which the contribution was made or
- The end of the following financial year after the contribution was made
Contributions which are split continue to count towards your concessional contribution cap so it cannot be used as a strategy to mitigate excess contribution tax.
