On Tuesday 12 May 2015, Federal Treasurer Joe Hockey released his second budget.  The budget contained a number of cost saving measures, as well as some programs designed to boost economic activity and employment.

The following summarises the major changes which are expected to have some impact on the budgets of retirees, families and small business owners.

Age Pension

Well flagged in advance, one of the biggest changes was to the asset test assessment for the Age Pension.  As part of the budget, the government is formerly abandoning its planned changes to indexation, announced in the previous budget. Instead, from 1 January 2017, there is proposed to be two changes;

Firstly, the asset thresholds for qualifying for a full pension have been raised. This will have effect of increasing benefits for those with lesser amounts of assets. It will mean that the maximum thresholds for full pensions will become;

Secondly, the pension taper rate (the rate at which the pension reduces above the thresholds) will increase from $1.50 a fortnight per $1,000 to $3.00 a fortnight. For many part pensioners, it will mean significant age pension reductions and possibly a complete loss of pension benefits.

The asset levels at which pensions will no longer be paid are;

To provide some relief to those affected, the government will ensure that those who lose pension benefits will retain access to pensioner cards that offer the same benefits.

The government has also proposed that for those on defined benefit pensions, the proportion of income that can be excluded from the income test will be capped at 10%. This will apply from 1 January 2016 and will mean that for many with defined benefit pensions the amount included in Centrelink income testing will rise.

Veteran’s Affairs pensioners with defined benefit military pensions will be excluded.

Elston comment

The hardest hit by the Age Pension asset test changes will be those around the new upper limits.  People in this bracket may go from having a significant part pension to little or nothing. 

Take for example a homeowner couple with $800,000 worth of assets.  They stand to lose $13,592 per annum.  This would mean that they would essentially need to generate an extra 1.7% pa return on their $800,000 of assets to compensate for the lost income.

Aged Care

The current rental income exemption for the former family home is to be removed, affecting new residents entering aged care from 1 January 2016.  This means that from this date, if the family home is rented out, the income will no longer be exempt from the income test.

Taxation for small business

The budget contained a number of measures designed to provide opportunities for small business to grow, including;

• Reduction of the company tax rate for businesses with annual turnover of less than $2 million from 30% to 28.5%, from 1 July 2015.
• For unincorporated small businesses, a 5% tax discount will be available for individuals with business income.  This will be capped at $1,000 per person.
• The threshold for which small businesses can claim an immediate deduction for asset purchases increases to $20,000 from $1,000.  This will apply immediately for the current year and for the next two financial years.
• Small businesses can change the legal structure of their business without attracting capital gains tax from 1 July 2016.
• Primary producers will be able to claim accelerated depreciation for drought proofing infrastructure.  This will include immediate deductions for fencing and water facilities such as dams and pumps.  There will also be faster depreciation allowed for fodder storage facilities.

Personal Taxation

There were also some adjustments to employee benefits, including;

• A cap of $5,000 on salary sacrificed meal and entertainment benefits.
• Changes to the Fringe Benefits Tax (FBT) allowances for employees of not for profit employers.
• A broader FBT allowance for portable electronic devices for employees of small businesses (with less than $2m turnover).
• Adjustments to the work related car expense deductions will apply.
• Zone offsets will be amended so they are no longer accessible by fly-in fly-out workers who live outside the zone. This will apply from 1 July 2015.
• From 1 July 2015, the government has proposed changes to the taxation of Employee Share Schemes.

GST

The GST will be extended to include offshore suppliers of intangibles and services to Australian consumers.  This will result in GST being charged on digital products obtained from overseas vendors.  This will include such items as video streaming services, e-books and music downloads.

Child Care & Families

A new Child Care Subsidy will be introduced from 1 July 2017 which will support families where both parents work.

• Families with annual incomes up to $60,000 and meet an activity test will be eligible for a subsidy of 85% of the fee paid (subject to hourly limits). This will reduce to 50% for eligible families with annual incomes of $165,000.
• There is no annual cap for families whose income is below $180,000. For families above this level, it will be capped at $10,000 per child per year.

Access to the government’s parental leave scheme will be removed for those employees who have access to employer provided leave entitlements.

• At a minimum, this measure will ensure that all primary carers have access to payments at least equal to the maximum parental leave scheme payment.

Superannuation

In contrast to opposition plans, the Government has re-affirmed its policy to not increase taxes on superannuation. As a result, the budget was very quiet on superannuation changes.

The government did however make a minor change to the accessibility rules where a person is diagnosed with a terminal illness.  These changes now make it easier for those with such illnesses to access their super in a timely manner.

Elston comment

We believe the lack of tinkering with super is a major benefit for those who are retired or planning to become retired in the future.  Consistent and clear rules will provide all Australians the certainty they need in order to put long term plans in place to manage their savings.

Our Conclusion

The 2015 budget was one of few surprises and without the drastic cost cutting measures of Joe Hockey’s previous effort.  The largest impact is likely to be on those retirees who were planning on using some Age Pension support to supplement their own savings.

For those who are already retired, careful planning will be needed to ensure that their retirement capital is not exhausted.  For those planning to retire, the continuation of generous superannuation tax concessions, coupled with reduced access to Age Pension benefits should provide further impetus to put a savings plan in place.

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If you would like to discuss the above changes to the budget with your adviser please call 1300 ELSTON or email info@elston.com.au and your adviser will be in touch.