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Retired, retiring soon or is retirement a distant dream? What does Budget 2015 mean for you?

Well, here we are…it is here…we have already heard so much about it!!

budget 2015 pic

Rather than provide you with a Budget Update that you could just go and read on any website, or in any paper, we have instead decided to focus on the key announcements from last night which we believe, if passed, might impact both you and I.

The measures announced will obviously impact people in a variety of ways, depending upon  financial position, and stage of life.

The main objective of this Budget it appears, is to stimulate the economy to spend, hence the small business concessions that were announced. There are conditions on these though, so it will be interesting to observe if they do the job that is intended.

And remember, these proposals, are just that…proposals! They still need to be passed as legislation. If the 2014 budget taught us anything, it was to treat all announcements with some caution!

You are retired

 Changes to Pension Eligibility

Pensions are the second biggest expense for the Federal Budget, with spending reaching around $42bn in 2014/15 and accounting for 9% of total federal government expenditure. It is not suprising that in a time of Budget deficit the pension system comes under pressure.

“The Good News”
  • The government have made assurances that those impacted by the changes to pension eligibility will still be guaranteed access to the Commonwealth Health Seniors Card or Health Care Card.
  • There was no introduction of tax on earnings on investment funds in pension mode.
  • Couples who own their own home with additional assets of less than $451,500 will get a higher pension.
  • Couples who don’t own their own home and have asset holdings up to $699,000 in January 2017 will be better off.
  • For singles the maximum threshold point, below which you would be “better off” will be $289,500 if you own a home, $537,000 if you do not.
  • The Government have given up on their 2014 Budget announcement which was to constrain pension increases to the Consumer Price Index (CPI).
  • The value of assets you can have in addition to your family home , in order to qualify for a full pension will increase. In addition to your family home, in order to qualify for a full pension, it is increasing to $250,000 from $202,000  for single homeowners and for couple home owners it is proposed to increase to $375,00 from $286,500.
“The Not-so-Good News”
  •  The maximum value of assets you can hold to qualify for a part pension will be reduced.  Currently it sits for couples at $1.15 million plus the family home.
Current – Cut-off limit Proposed – Cut-off limit [i]
$755,500 $547,000
$922,000 $747,000
$1,151,500 $823,000
$1,298,000 $1,023,000

[i] Based on 1 January 2017 rates

  •  The “taper rates” will return to pre-2007  levels of $3 (it is currently $1.50). What does this mean? Quite simply for every $1000 in assets you hold above the minimum threshold for a full pension, fortnightly pension payments are reduced by $3 a fortnight.

You are retiring soon

 “The Good News”
  • Transition to Retirement Pensions are still a viable strategy for many to bolster their super contributions whilst drawing down some of their pension, whilst still in the work force. This is great news for those who plan to gradually ease into retirement.
  • There are no changes proposed to the access age for superannuation.
  • No introduction of a tax on earnings on investment funds in pension mode.
“The Not-so-Good News”
  • There was no increase announced to contribution limits (not a big suprise given the media focus on this in the lead up).
  • Once you retire you may not be entitled to as much pension as you might have been pre-Budget.

Retirement is all but a distant dream!

“The Jobs for Families Childcare Package”

This package was released pre-Budget on 10th May 2015. If passed it will change the entire Child Care payment system as we know it.The government have made particular mention of wanting to remove the perception that child care support is a welfare payment. Rather it is a payment to help working families or those that wish to join the work force.

The government is having to walk a fine line in its attempts not to alienate the “stay-at-home mum” and the “working families”. This package does however appear to be focused upon getting many mothers back into the workforce by providing more money in their pockets at the end of the working week. The premise behind this is that the government in turn receives taxation benefit from those in the workforce, although this has been suggested might not in fact be the case in reality. See this ABC Fact Check Article

  • It will be effective from 1 July 2017.
  • It will abolish the current Child Care Benefit, Child Care Rebate, and Jobs, Education and Training Child Care Fee Assistance programmes.
  • It is a means-tested Child Care Subsidy, subject to an activity test (100 hours of subsidised care per child per fortnight).
  • It will be paid directly to the Child Care provider.
  • If your family income is up to $65,000 the Child Care Subsidy will be 85% per child of the actual fee or benchmark price (which ever is lower).
  • It will be on a sliding scale down to 50% for family incomes of approximately $170,000 and above.
  • If your family income is under $185,000 a cap will no longer be applied to the amount of subsidy you receive.
  • Over $185,000 family income? there will be a $10,000 per child cap applied.
  • There will be a work “activity” test:

Activity (per fortnight) # of hours of subsidy (per fortnight)

8-16 hours  | Up to 36 hours
17-48 hours | Up to 72 hours
49 hours |Up to 100- hours

According to Government modelling, families using child care in 2017, on family incomes of between $65,000 and $170,000 will be around $30 a week better off. If you are on an income greater than $170,000 your situation will remain the same.

Paid Parental Leave

  • The Government is removing the ability for individuals to double-dip when applying for Parental Leave, from 1 July 2016.
  • This means you cannot apply for both the Government PLP scheme in a addition to your employer entitlements.
  • All “primary carers” will have access to parental leave payments that are at least equal to the maximum PLP benefit (that is 18 weeks at the national minimum wage).

 “No Jab No Pay” Policy

From 1 January 2016 you cannot claim subsidised child care or Family Tax Benefit Part A if your child is not up-to-date with their immunisations. The only exemption to this now is “medical reasons”.

Tax on digital goods

  • Rules won’t apply until July 1 2017.
  • One of the most heavily-previewed aspects of this year’s budget is the so-called “Netflix tax”: ensuring GST is applied to digital goods purchased from overseas.
  • There is not much detail on this:  with the Government looking at how this is applied in practice by other countries.
  • Legislation has been drafted but doesn’t offer a lot of detail on how offshore entities will be forced to apply GST.

No fringe benefits tax (FBT) on mobile devices

  • Fringe Benefits Tax on all portable electronic devices used for work, like mobile phones, laptops and tablets has been made exempt.
  • There are, however, plenty of conditions: the exemption doesn’t kick in until April 1 2016 and only applies to businesses with a turnover under $2 million.

HELP repayments will apply if you work overseas

  • Currently, if you work overseas there is no obligation to repay any HELP debt you run up studying at university. However, from 1 January 2016, you will need to make repayments once you hit the threshold (currently $53,345).

No tax-free threshold for working holiday makers

Bad news if you’re working in Australia temporarily: the tax-free threshold will no longer apply. You’ll have to pay 32.5 per cent tax on all your income up to $80,000 (and higher rates on income above that).

Want to read the whole Budget Report? Enjoy! Find it here

Please give the office a call if you want to discuss exactly how this Budget might affect your personal situation.