Federal budget update Presented by Benjamin Martin – Technical Services Manager 20 May 2015
General advice warning This presentation has been prepared by IOOF Investment Management Limited (IIML), ABN 53 006 695 021, AFS Licence No. 230524. and Australian Executor Trustees Limited (AET) ABN 84 007 869 794, AFSL 240023. IIML and AET are members of the IOOF group of companies consisting of IOOF Holdings Ltd, ABN 49 100 103 722, and its related bodies corporate. IIML's contact details can be found on www.ioof.com.au and AET’s contact details can be found on www.aetlimited.com.au Information contained within this presentation has been prepared as general advice only as it does not take into account your investment objectives, financial situation or particular needs. The presentation is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied on as such. You should consider whether the information is appropriate to your situation, and where appropriate, seek professional advice from a financial adviser and/or tax agent before making an investment decision. Before deciding whether to acquire or to continue to hold any investment mentioned in this presentation, a Product Disclosure Statement (PDS) should be obtained and considered. Past Performance is not a reliable indicator of future performance. All assumptions and examples are based on current laws (as at May 2015) and the continuance of these laws and IOOF’s interpretation of them. IOOF does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances.
Federal budget overview
Centrelink Aged care Small business
Age pension • Proposed assets test cut-off point in 2017: • $823,000 (couples) – currently $1.15m • $547,000 (singles) – currently $775,500
• Proposed increase to lower threshold to benefit clients with lower asset bases
• But will it pass through the Senate?
Couples (2017) Combined assets
Impact (pa)
less than $286,500
No change
$300,000
Extra $59
$400,000
Extra $2,009
$500,000
$1,892 reduction
$600,000
$5,792 reduction
$823,000
entitlement cuts off $14,467 reduction
Singles (2017) Assets
Impact (pa)
less than 202,000
No change
$250,000
Extra $1,540
$300,000
$410 reduction
$400,000
$4,310 reduction
$500,000
$8,210 reduction
$547,000
entitlement cuts off $10,042 reduction
Strategies •
Strategies to keep assets under cut-off point • Home renovations • Shelter super in younger spouse’s fund (if under pension age) • Cash gifts $10,000 per year over 3 financial years • Pre-paid funeral expenses – up to $12,000 each • Cars, holidays
Flow-on effects •
Affected clients automatically granted Commonwealth Seniors Health Card (CSHC)
•
Benefits, for NSW CSHC holders
• Discounts on PBS prescription medicines • Allowance – six-monthly payment to help with energy, rates • Telephone rebate paid quarterly • Potential council rate concessions
Questions? Next‌ aged care
Changes to aged care tests • For new residents entering care after 1 January 2016 • A conundrum: do I sell my home to pay the aged care home bond?
Case study: Catherine
• Catherine, widowed and likely to enter into an aged care home • Home: $1m • Super account based pension: $200,000 • Aged care home bond: $300,000
Should Catherine sell the home to pay the bond?
Case study: cash flow position Sell home (pa)
Retain home (pa)
Likely impact of proposal if home retained
Age pension entitlement
$1,261
$22,365
$22,365
Aged care fees
($36,022)
($25,696)
($38,654)
Investment income (assumed 3% return)
$33,000
$30,000
$30,000
Disposable income (after tax)
($1,761)
$21,977
$11,611
Questions? Next‌ small business
New company tax rate 28.5% • From 1 July 2015
• Example • Company; turnover of $1.3m • Taxable income = $200,000
• @ 30% tax rate = $60,000 • @ 28.5% tax rate = $57,000
Trusts, partnerships, sole traders • 70% of small business trade this way • Proposal: 5% tax discount (capped at $1,000) • Example • Sole trader, $300,000 turnover, $75,000 taxable income • Current law = approx $16,000 in tax • Proposed law = 5% discount off tax bill = $800 discount = net tax payable $15,200
Accelerated depreciation • Allow immediate deduction of capital assets (machinery, cars, vans, kitchens) under $20,000 • Threshold applies on a per asset basis • Less than $2 million turnover • For assets acquired between 7.30pm 12 May 2015 and 30 June 2017
EOFY tip for SMSFs
Contribution ‘parking’ for SMSFs • Anticipated to have unusually high income for FY14/15? (eg crystallised capital gain) • Double-dip strategy • Enhance super tax deductible contributions
Federal budget
But… •ATO
will raise incorrect income tax assessment objection process - costly and inconvenient? •
Contribution ‘parking’
1 June 15
1 July 14
$35,000 valid 290-170 notice of intent lodged and acknowledged by SMSF $35,000 immediately allocated to member’s interest. Counts towards 2014/15 concessional contributions cap
20 June 15
30 June 15
$35,000 Second contribution
In accordance with trust deed, $35,000 initially held in ‘suspense’ account then allocated to member’s interest on 3 July 2015. valid 290-170 notice of intent lodged and acknowledged by SMSF on 3 July 2015 Counts towards 2015/16 concessional contributions cap
Federal budget
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