2015/16 Federal Budget Update
2015/16 Federal Budget Update
• Tax
• Super
• Social Security
• Aged care
• Preparing for 1 July
1
Proposed changes
• Proposed changes in this presentation require passage of legislation through
Parliament before becoming effective
• The final form of these proposals may differ significantly.
2
Tax changes
Federal Budget 2015/16
Small business
1 July 2015
• 1.5% tax cut
• Small business owners (turnover less than $2,000,000) will
receive a reduction in company tax from 30% to 28.5%
• Unincorporated business will receive a 5% tax rebate that will
be capped at $1,000 per individual
7:30 12 May 2015 up until 30 June 2017
• Temporary increase in instant asset write off
• $20,000 instant asset write off will be increased (from $1,000)
– Qualifying entities will be able to immediately depreciate
$20,000 per item purchased.
4
Work related car expenses
• Discontinuation of two methods
– Cents per kilometre and Logbook method to remain
– 12% of original value and one-third of actual expense to be abolished
• Alteration of amount
– Cents per kilometre
– 66¢ applies for all vehicles
– Currently (subject to cap of 5,000 kms)
– 65¢ for small car (up to 1600cc)
– 76¢ for medium car (1,600 to 2,600cc)
– 77¢ for large cap (Over 2,600cc).
5
GST on digital products and services
1 July 2017
• GST to apply to digital products and services.
6
Tax rates
1 July 2016
• Changes to the definition of tax residency for temporary working holiday
makers
• Tax residency rules will be changed to treat those who are temporarily working in
Australia as non-residents for taxation purposes
• Currently, a person may be considered a resident for taxation purposes once they
satisfy the tax residency status.
7
FBT measures
1 April 2016
• Reduction in cap
• A single grossed up cap of $5,000 applies
• PBI & Charitable institutions currently have a grossed up cap of $30,000. Not for
profit organisations have a grossed up cap of $17,000
– $31,177 and $17,667 applies due to the temporary budget repair levy.
8
HELP Debt recovery
1 July 2016
• From 2016/17, HELP debtors residing overseas for 6 months or more will be required
to make repayments of their HELP debt if their worldwide income exceeds the
minimum repayment threshold at the same repayment rates as debtors in Australia.
9
Other measures
• Changes to zone tax offset
• FBT changes to work related electronic devices
• CGT roll over relief for changes to entity re-restructure
• Employee share scheme amendments
• Streamlining business registration.
10
Update on measures from the previous budget
Tax measures
Status
Temporary budget repair levy from 1 July 2014
Legislation passed
Abolish mature age worker tax offset from 1 July 2014
Legislation passed
11
Superannuation
Federal Budget 2015/16
No changes to super
• Super has been left untouched.
13
Terminal medical condition period extended
From 1 July 2015
• The certification period has increased to 24 months
• Under current rules, a person with a terminal medical condition must obtain
certification from medical specialists they will die within 12 months
– This rule has created difficulty for some people
• The proposal is to increase the certification period to 24 months.
14
Increased penalty units
31 July 2015
• Commonwealth penalty units will increase in value from $170 to $180
• Penalty units are used to describe the amount payable for fines under Commonwealth
laws rather than specific dollar amounts
• SMSF administrative penalties will increase in value as follows:
– 5 penalty units: $850 increased to $900
– 10 penalty units: $1,700 increased to $1,800
– 20 penalty units: $3,400 increased to $3,600
– 60 penalty units: $10,200 increased to $10,800.
15
Update on measures from the previous budget
Super measures
Status
Deferred increase in super guarantee (the legislated rates were
different from those proposed in the Budget)
Legislation passed
Changes to tax treatment of excess non-concessional
contributions from 1 July 2013
Legislation passed
16
Social security
Federal Budget 2015/16
Changes to asset thresholds and taper rates
1 January 2017
• The lower pension asset thresholds are proposed to increase
• The assets test taper rate is proposed to change from $1.50 per fortnight to $3 per
fortnight
– Consequently, the upper asset thresholds reduce.
18
Changes to asset thresholds and taper rates
1 January 2017
Status
Lower threshold
Upper threshold
Single homeowner
$250,000
$547,000
Single non-homeowner
$450,000
$747,000
Couple homeowner
$375,000
$823,000
Couple non-homeowner
$575,000
$1,023,000
Lower threshold
Upper threshold
Single homeowner
$202,000
$775,500
Single non-homeowner
$348,500
$922,000
Couple homeowner
$286,500
$1,151,500
Couple non-homeowner
$433,000
$1,298,000
Current
Status
19
Changes to asset thresholds and taper rates
Single Homeowner
Combined
current age pension
Combined age pension
from 1 Jan 2017
combined
Difference
$100,000
$23,166
$23,166
$0
$200,000
$23,166
$23,166
$0
$250,000
$21,626
$23,166
$1,540 increase
$289,500
$20,085
$20,085
$0 decrease
$300,000
$19,676
$19,266
$410 decrease
$400,000
$15,776
$11,466
$4,310 decrease
$500,000
$11,876
$3,666
$8,210 decrease
$600,000
$7,976
$0
$7,976 decrease
$700,000
$4,076
$0
$4,076 decrease
$800,000
$0
$0
$0
Assessable assets
20
Changes to asset thresholds and taper rates
Couple Homeowner
$100,000
$34,923
Combined age pension
from 1 Jan 2017
combined
$34,923
$200,000
$34,923
$34,923
$0
$300,000
$34,865
$34,923
$59 increase
$400,000
$30,965
$32,973
$2,009 increase
$451,500
$28,956
$28,956
$0
$500,000
$27,065
$25,173
$1,892 decrease
$600,000
$23,165
$17,373
$5,792 decrease
$700,000
$19,265
$9,573
$9,692 decrease
$800,000
$15,365
$1,773
$13,592 decrease
$823,000
$14,467
$0
$14,467 decrease
$900,000
$11,465
$0
$11,465 decrease
$1,000,000
$7,565
$0
$7,565 decrease
$1,100,000
$3,655
$0
$3,655 decrease
$1,200,000
$0
$0
$0
Assessable assets
Combined
current age pension
Difference
$0
21
Changes to asset thresholds and taper rates
• It is estimated that under the new rules:
– Around 50,000 part pensioners will qualify for a full pension
– More than 90% of pensioners and those that receive pension linked payments will
be better off or unchanged
– Approximately 91,000 part pensioners will no longer qualify for the pension and a
further 235,000 will have their part pension reduced
• Pensioners who lose their entitlement on 1 January 2017, as a result of the asset test
changes, will be issued a Commonwealth Seniors Health Card (CSHC) or Health
Care Card.
22
Changes in defined benefit income testing
1 January 2016
• The level of income that can be excluded from the pension income test will be capped
at 10%
– DVA pensions and or defined benefit income streams paid by military super funds
are exempt from this measure.
23
Changes to last year’s budget
Abolition of changes to indexation
• In last year’s budget, the Federal
Government proposed to change the
indexation of pension payments to
movements in CPI. This proposal is
now abolished.
• Pensions will continue to be indexed
in line with the higher of increases in
CPI, male total average weekly
earnings and the pensioner and
beneficiary living cost index.
Abolition of resetting the deeming
threshold
• In last year’s budget, the Federal
Government proposed to change the
deeming thresholds to $30,000 for
singles and $50,000 for couples.
This proposal is abolished.
24
Changes to child care
1 July 2017
• Abolition of Child Care benefit, Child Care rebate, and other programs
• Introduction of a single means tested Child Care subsidy for all families
– Subject to a new activity test for up to 100 hours of subsidised care per child per fortnight
– Fortnightly activity of between 8 – 16 hours provides up to 36 hours of child care that attracts a subsidy
– Fortnightly activity of between 17 – 48 hours provides up to 72 hours of child care that attracts a subsidy
– Fortnightly activity of 49 hours provides up to 100 hours of child care that attracts a subsidy
– Up to 24 hours per fortnight will be provided to children from families with income less than $65,000 who
do not meet the activity test
– Based upon family income
– Tapers from 85% for families earning up to approximately $65,000. Tapers down to 50% of the fee for
families earning approximately $170,000 or more
– A cap may apply
– Below $185,000: No cap on the CCS applied
– Above $185,000: A cap of $10,000 per child.
25
Paid parental leave sceme
1 July 2016
• Recipients who receive paid parental leave entitlements from their employer will have
their government paid parental leave scheme entitlements reduced or cut off
– Currently, qualifying individuals can access both the PPL and employer assistance.
26
No jab, no pay
1 January 2016
• Families will no longer be eligible for subsidised child care or Family Tax Benefit Part
A end-of-year supplement unless their child is up-to-date with their immunisations
(exemptions only apply for medical reasons).
27
Other measures
• Cessation of the Low Income Supplement
• Strengthening of job seeker compliance arrangements
• Consolidation of wage subsidy programmes
• Extending one week ordinary waiting period
• Reduced portability of FTB Part A.
28
Update on measures from the previous budget
Social security measures
Status
Add deemed amounts from certain account based pensions as income for the Commonwealth Seniors
Health Card (CSHC) from 1 January 2015
Legislation passed
Index CSHC income limits from 20 Sep 2014
Legislation passed
Pause indexation of asset thresholds for allowances and similar payments from 1 July 2015 for 2 years
Legislation passed
Pause indexation of asset thresholds for pensions and similar payments from 1 July 2017 for 3 years
Legislation passed
Family Tax Benefit (Part B) Primary income earner threshold reduction to $100,000
Legislation passed
Increase age pension age to 70 (phased increase starting 1 July 2025)
Legislation not passed
Abolish the Seniors Supplement paid to CSHC holders
Legislation not passed
Reduce the deeming thresholds to $30,000 for singles and $50,000 for couples from 20 Sep 2017
Abandoned
Change to CPI indexation of social security pension payments (20 Sep 2017)
Abandoned
Add deemed amounts from certain account based pensions as income for the Commonwealth Seniors
Health Card (CSHC) from 1 January 2015
Legislation passed
Index CSHC income limits from 20 Sep 2014
Legislation passed
Pause indexation of asset thresholds for allowances and similar payments from 1 July 2015 for 2 years
Legislation passed
Pause indexation of asset thresholds for pensions and similar payments from 1 July 2017 for 3 years
Legislation passed
Family Tax Benefit (Part B) Primary income earner threshold reduction to $100,000
Legislation passed
29
Aged care
Federal Budget 2015/16
Abolition of rental exemption of the former home
1 January 2016
• New entrants to aged care will not gain the rental exemption of the former home for
the means tested care fee, when paying a daily accommodation payment / daily
accommodation contribution
– Impacts the MTCF
– Social security entitlements remain unaffected.
31
Preparing for 1 July
Federal Budget 2015/16
Thresholds from 1 July 2015
The ATO has released certain super and tax thresholds for the 2015/16 financial year.
Threshold
2014 / 15
2015 / 16
$30,000 / $35,000
$30,000 / $35,000
$180,000 / $540,000
$180,000 / $540,000
CGT cap
$1.355m
$1.395m
Low rate cap
$185,000
$195,000
Untaxed plan cap
$1.355m
$1.395m
$34,488 / $49,488
$35,454 / $50,454
SG quarterly contribution base
$49,430
$50,810
Employment termination payment
cap (life/death)
$185,000
$195,000
$9,514 / $4,758
$9,780 / $4,891
Concessional cap
Non-concessional cap
Co-contribution
Tax free redundancy
33
30 June 2015 financial planning checklist
 Notice of intention to claim tax deduction/variation for 2013/14
 Personal contribution for tax deduction in 2014/15
 Contribution splitting notice for 2013/14 splittable contributions
 Personal contribution for 2014/15 to receive Gov’t co-contribution
 Spouse contribution made for 2014/15
 Utilise CC and NCC caps for 2014/15
 Tax deductible expenses for 2014/15
 Salary sacrifice for 2015/16
 Draw minimum from SMSF pension for 2014/15.
34
2015/16 Federal Budget Update
Key Messages
• Small business tax breaks
• Changes to the asset test for Age Pensioners
• Work related car expenses
• Child care rebate re-structure
• PPL is changing to avoid ‘double dipping’
• Aged care concessions are being wound back
• 1 July is just around the corner
• Proposals are subject to the passage of legislation.
35
Disclaimer
RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429. The information in this
presentation has been developed by OnePath Life Limited (OnePath) ABN 33 009 657 176 AFSL 238341 without taking into account a
potential client’s objectives, financial situation or needs. OnePath is a wholly owned but non-guaranteed subsidiary of Australia and New
Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. Before making a decision based on the information in this presentation, a
potential client should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Certain
of the statements contained herein are statements of future expectations and other forward-looking statements. These expectations are based
on management's current views and assumptions and involve known and unknown risks and uncertainties. A potential client should consider
the PDS available at wealth.anz.com when considering if a product is suitable for them.
Actual results, performance or events may differ materially from those in such statements due to, among other things, (i) general economic
conditions, in particular economic conditions in OnePath’s core markets, (ii) performance of financial markets, including emerging markets, (iii)
the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) interest rate levels,
(vii) currency exchange rates (viii) general competitive factors, (ix) changes in laws and regulations, (x) changes in the policies of governments
and/or regulatory authorities. OnePath and ANZ assume no obligation to update any forward-looking information contained in this document.
OneCare is issued by OnePath. No part of this presentation may be reproduced or distributed without prior written permission of ANZ or
OnePath.
36
Keeping you in touch – May 2015
<Adviser’s Name>
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Keeping you in touch – May 2015
<Adviser’s Name>
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Keeping you in touch – May 2015
<Adviser’s Name>
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Keeping you in touch – May 2015
<Adviser’s Name>
My Name Financial
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Keeping you in touch – May 2015
<Adviser’s Name>
JV logo
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Are you entering the ‘T-Zone’?
<Adviser’s Name>
<Date>
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Disclaimer
Important Notice
RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429
and is licensed to provide financial product advice and deal in financial products such as: deposit and
payment products, derivatives, life products, managed investment schemes including investor directed
portfolio services, securities, superannuation, Retirement Savings Accounts.
The information presented in this seminar is of a general nature only and neither represents nor is intended to
be specific advice on any particular matter. RI Advice Group strongly suggests that no person should act
specifically on the basis of the information contained herein but should obtain appropriate professional advice
based on their own circumstances.
43
Agenda
•
What is the ‘T-Zone’?
Also known as Transition to Retirement
•
The benefits to you:
•
1.
Boost your retirement savings in a tax effective way
2.
Ease into retirement by working less
3.
Pay off your mortgage sooner and more tax effectively
How we can help
44
What is Transition to Retirement?
Transition to Retirement pensions can allow you to:
 Income remains the same
 Boost retirement savings
 Income remains the same
 Reduce working hours
 Increase income
 Own home sooner
A tax-effective way to build on your retirement savings while maintaining
– or even improving your lifestyle!
45
Accessing your super
Date of birth
Age you may qualify to access
your super
Before 1 July 1960
55
Between 1 July 1960 and 30 June 1961
56
Between 1 July 1961 and 30 June 1962
57
Between 1 July 1962 and 30 June 1963
58
Between 1 July 1963 and 30 June 1964
59
After 30 June 1964
60
46
The T-Zone model
Traditional model
Retire at age 65
Earned income
Superannuation income
‘T-Zone’ model
Preservation age
Earned income
Retire at age 65
T-Zone
Superannuation income
47
How does it actually work?
$
Super accumulation phase
Pension phase
The
T-Zone
Salary sacrifice
Extra cash (0% tax)
9.5% SG
15% tax
on earnings
0% tax
on earnings
0% tax
on earnings
Time
48
Let’s take a closer look
We will now go through some case studies to explain how you can:
1
2
Boost your
retirement
savings
3
Ease into
retirement by
working less
Pay off your
mortgage
sooner
All with 0% tax on earnings to boost your super
49
How to save tax and boost your super
Salary sacrifice… and receive the same income!
Salary sacrifice
Salary
Cash salary
Superannuation fund
(accumulation)
Account
balance
Pension income
Account-based pension
(non-commutable)
Don’t forget there is 0% tax on earnings to boost your super!
51
What are T-Zone benefits?
Net income unchanged
Boost super savings
Reduced tax
52
Meet Elizabeth
Elizabeth is 55 years old.
•She earns $100,000.
•She has $220,000 in her super account.
•Elizabeth loves her work and is happy to work another ten years.
By age 65 Elizabeth’s retirement savings would grow to $543,202
if she does nothing...
53
Elizabeth’s strategy
Implement a Transition to Retirement strategy, draw $16,000 from the pension and salary
sacrifice $20,000 into super.
The outcome...
•
Her salary falls to $96,000 (before tax) while she supplements her income
with pension payments.
•
Elizabeth receives the same income after tax.
54
Elizabeth’s income position – Year 1
Any earnings on her pension account is now tax free
Without strategy
With strategy
$100,000
$100,000
Less salary sacrifice
Nil
($20,000)
Pension income
Nil
$16,000
Taxable income
$100,000
$96,000
Net tax and Medicare levy
$26,947
$22,987
Nil
$2,400
$73,053
$73,013
Salary package
15% pension tax offset
Net cash after tax
55
Elizabeth’s retirement savings
Retirement savings on reaching age 60 are tax-free...
Without strategy
With strategy
If everything was left in super, Elizabeth’s
retirement savings
would grow to $543,202.
Retirement savings with strategy will be
$589,168, a whopping $45,966 more
than if she hadn’t used this strategy.
Retirement savings
Retirement savings
$543,202
$589,168
Assumption: Earnings at 7%, CPI at 2.5%, 9.50% SG paid on full salary package and no
loss of employment benefits.
56
How does Elizabeth benefit?
More savings for Elizabeth
Salary sacrifice taxed
at 15% not 39% or 34.5%
Pension payments tax-free from age 60
57
How to ease into retirement
Meet Samuel
Samuel has a full time salary of $60,000 pa
Samuel has just turned 60
• Wants to start easing into retirement and has decided to only work 3 days a week.
• Samuel has $160,000 in his super account.
Samuel can afford to reduce his take home pay a little and use his super to soften the
drop!
59
Samuel’s strategy
1. Reduce working hours and receive a reduced salary of $36,000 pa before tax.
2. Commence a Transition to Retirement pension to supplement this reduced income.
3. Draw $15,510 per annum tax free from the pension.
The outcome...
•
Samuel can still receive the same take-home income as he did working full time – even
after reducing his work hours.
•
This may start eating into Samuel’s retirement savings so long-term planning
is required.
60
The outcome
Samuel can now work less – and earn the same income!
Without strategy
With strategy
Salary package
$60,000
$36,000
Pension income
NA
$15,510
Taxable income
$60,000
$51,510
Net tax and Medicare levy
$12,147
$3,657
NA
$0
$47,853
$47,853
Tax offsets
Net cash after tax
Assumption: Earnings at 7% .
61
How does Samuel benefit?
Samuel works less hours but has same income
Superannuation guarantee
by employer
Pension payments tax-free from age 60
62
Pay off your mortgage sooner and more tax-effectively
Meet Brian
Brian is 60 years old and earns $50,000 pa
•
Looking to pay off his mortgage before he retires in 3 years time.
•
Mortgage of $50,000 at 5.88% with monthly repayments of $553
(9 years to run).
•
Superannuation of $300,000.
If everything was left in super, after three years Brian’s balance would be $374,830
and he would still have a sizeable mortgage of $37,909...
Assumption: Earnings at 7%, CPI at 2.5%, 9.50% SG paid on full salary package.
64
Brian’s strategy
1. Rollover super balance of $300,000 into a Transition to Retirement pension
2. Draw a pension of 4% or $12,000 p.a.
3. His financial adviser suggests Brian use all this as additional payments off the mortgage
The outcome..
•
Brian gets to pay off his mortgage sooner.
•
Saves over $11,000 in interest payments.
•
He can retire when he plans to – without debt!
Assumption: Account-based pension return of 7.07% and superannuation return
of 7.00%.
65
How does Brian benefit?
Without strategy
With strategy
• If everything was left in super,
after three years Brian’s balance would
be $374,830.
• Mortgage paid off in three years instead
of 9, saving $11,901
in interest.
• Mortgage would still be $37,909.
• Withdraw from super to pay mortgage.
• Account-based pension and
superannuation has a balance
of $344,108.
Net position $336,921
Net position $344,108
Assumption: Account-based pension return of 7.07% and superannuation return
of 7.00%, CPI 2.5%
66
In conclusion
Recap of the T-Zone strategies we have covered
1
2
Boost your
retirement
savings
3
Ease into
retirement by
working less
Pay off your
mortgage
sooner
All with 0% tax on earnings to boost your super
Contact me to learn how you can personally benefit from the transition
to retirement strategy.
67
Thank you for attending