No significant changes for private clients this year with the Budget revealing minor changes to superannuation and medicare.
It was a quite night for Private Clients this year with the changes to the social security rules having already been well flagged. Although they were much debated in the press, there have been no changes to superannuation other than some adjustments to administrative arrangements. What was interesting to note was the budget has forecast that bracket creep will mean that the average rate of tax paid by individuals will continue to rise in the coming years.
The Government will increase the ‘assets free area’ which is the value of the assets you can have in addition to your family home. The threshold will increase from $202,000 to $250,000 for single home owners and from $286,500 to $375,000 for couples who own their home. The maximum assets you can hold to qualify for a part pension will be reduced from $775,000 to $547,000 for single homeowners and from $1.15 million to $823,000 for couple homeowners. This is expected to see 91,000 people lose their part age pensions, however those affected by these reductions will be guaranteed eligibility for the Commonwealth Health Seniors Card (CSHC) or Health Care Card (HCC), which provides the same concessional access to pharmaceuticals.
The Government also announced changes to the assets test taper rate which will increase from $1.50 to $3 per $1,000 of assets over the asset test free threshold. This means that for every additional $1,000 in assets above the minimum threshold for a full pension, fortnightly pension payments will reduce by $3. The Government will also scrap the proposed change to index pensions to CPI that was included last year and the lower means-test thresholds will also continue to index on 1 July each year.
The Government has announced it will increase the Medicare levy low-income thresholds for singles, families and single seniors and pensioners from the 2014-15 income year. The threshold for singles will increase from $20,542 to $20,896. For couples with no children, the threshold will increase from $34,367 to $35,261 and the additional amount of threshold for each dependent child or student will be increased from $3,156 to $3,238. For single seniors and pensioners, the threshold will be increased from $32,279 to $33,044.
Family Tax Benefit Part A
The Government has announced it will reduce the amount of time the Family Tax Benefit (FTB) Part A will be paid to recipients who are outside Australia.
From 1 January 2016, families will only be able to receive FTB Part A for six weeks in a 12 month period while they are overseas. Currently, FTB Part A recipients who are overseas are able to receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks.
There were very few changes to the superannuation system in this year’s budget with only some minor changes, directed more at administrative provisions than big picture revenue raising. The much discussed taxing of pensions was not included, nor was reducing the income threshold at which the additional 15% contributions levy was applied. This was in keeping with the Government’s statements that they would not make significant changes to superannuation in their first term.
The current rules for releasing superannuation early for those diagnosed with a terminal illness will be relaxed to only require certification from two medical practitioners (including specialists) that they are likely to pass away within two years, which has been increased from the current one year. The only other items addressed in the Budget were that superannuation levy’s paid by financial institutions will be increased over four years from 2015-16 and a reduction in red tape for superfunds and individuals trying to claim back lost superannuation.
Employee Share Schemes
Favourable changes have been announced to the taxation of employee share schemes which remove some risk for employees looking to participate. The changes proposed will allow the capital gains tax discount to be applied where shares are sold within 12 months of option exercise and allowing the Tax Commissioner to exercise discretion regarding the 3 year holding rule. This will provide for greater flexibility when an employee has received shares up to the $1,000 limit but is subsequently compelled to dispose of their shares before 3 years.
The Government has announced it will exclude the ‘fly-in fly-out’ and ‘drive-in drive-out’ workers from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’. This measure will take effect from 1 July 2015.
The eligibility of the ZTO is based on defined geographic zones as it is a concessional tax offset that recognises the isolation, uncongenial climate and high cost of living associated with living in identified locations. Currently, to be eligible for the ZTO, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year.
The Government has announced it will change the tax residency rules from 1 July 2016 for those who are temporarily in Australia for a working holiday so they will now be taxed at 32.5 per cent from the first dollar.
Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency rules by residing in Australia for more than six months. This means they are able to access resident tax treatment, including the tax-free threshold, the low income tax offset (LITO) and the lower tax rate of 19 per cent for income above the tax free threshold up to $37,000.
Tax deductions for cars
The Government has announced it will modernise the methods of calculating work-related car expense deductions from 2015-16.
The ‘12 per cent of original value method’ and the ‘one-third of actual expenses method’ will be removed and the ‘cents per kilometre method’, will be modernised by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles.