The OHL Wire ISSUE 11 - What Will Change On 1 July 2015
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The document outlines key changes effective July 1, 2015, stemming from the federal budget, including alterations to the Family Tax Benefit, business tax cuts, and new employment services. It covers modifications to superannuation rules, tax obligations related to deceased estates, and regulations for self-managed super funds investing in property. Additionally, it discusses the treatment of capital gains tax in divorce settlements and the responsibilities of executors in managing deceased estates.
The OHL Wire ISSUE 11 - What Will Change On 1 July 2015
- 1. June 2015 2 86 11page pagepage LEGAL - WEALTH PROTECTION - INVESTMENT - BUSINESS - LIFESTYLE - SYDNEY page10page Issue 11 What Will Change On 1 July 2015 Divorce, Tax and Super Taxation and Deceased Estates SMSFs Investing in Property: the Laws and Regulations The Five Smartest Ways to Spend Your Tax Refund
- 2. What Will Change On The government's recent budget outlines a broad set of changes. Many of these changes are intended to take effect from 1 July 2015. This article sets out some of those changes. PAGE 2 OWEN HODGE LAWYERS 1 J U L Y 2 0 1 5 Federal Budget 2015 - 2016 Family Tax Benefit FTB Part B: the income test will be lowered such that to be eligible, the payment will be available to families until the youngest child turns 6 FTB Part A: families with more than one child will no longer receive an add on amount per child Employment ServicesFor Job Seekers For Employers For work for the dole hosts Personal and Business Tax, Levy and Deduction Changes Business Tax Cuts: The 1.5% tax cut for small businesses and 5% tax cut for incorporate businesses Medicare Levy : Increase to $20896 Changed tax rules to MITs New way of calculating car expenses claims Aged Care Scheme New rules relating to home care packages Introduction of the Commonwealth Home Support Programme First Home Saver Accounts First Home Saver Accounts will be treated like any other bank account EmployeeShareSchemes Specialconcessionsforsmallstart-upcompanies
- 3. OVER 60 YEARS OF TRUSTED EXPERIENCE PAGE 3 The Federal Budget 2015-2016 Family Tax Benefit The Family Tax Benefit (FTB) is a two part payment that helps with the cost of raising children. The benefit is split into Part A and Part B. FTB Part A is paid for each child and will depend on each family's circumstances. FTB Part B is to provide extra assistance to single parents or families with one income. From 1 July 2015, the FTB will change. For FTB Part A, families with more than one child will no longer receive an add on amount per child. The Large Family Supplement will be paid for those families that are eligible for the FTB Part A and have four or more children. For FTB Part B, the income test will be lowered such that to be eligible, the primary earner cannot earn more than $100,000. From 1 July 2015, FTB Part B payments will be available to families until the youngest child turns 6. The changes will be implemented automatically from 1 July 2015. Consequently, you should examine these changes carefully to determine whether you will be affected so that you will be prepared for any decrease in the payments made to you. Employment Services From 1 July 2015, Job Services Australia will be replaced by a new employment service called jobactive. For employers and work for the dole hosts Employers who have taken on an employee through Job Services Australia will continue to be supported. Job Services Australia will contact employers and work for the dole hosts directly: • about the effect of the changes on them; • to inform them of the new organisation that will help them going forward; and • about the arrangements for any current employers/work for the dole participants. For job seekers The government states that if you are currently using Job Services Australia, you will have received a letter in mid-April outlining the changes and what you need to do. You should also have received a letter in late May – early June to inform you which jobactive organisation will be yours going forward. The government emphasises that until you receive a letter that tells you to do something different you must carry on working with your current Job Services Australia provider as normal. You must also continue to carry out all your other obligations, such as attending appointments, training, interviews, etc, as normal. FREE FOR JOB
- 4. The Federal Budget 2015-2016 Personal and Business Tax, Levy and Deduction Changes TAX Business Tax Cuts Perhaps one of the most well publicised tax cuts in the budget was for small businesses earning up to $2 million. The 1.5% tax cut for small businesses and 5% tax cut for incorporated businesses will commence on 1 July 2015. There were no other significant tax rate changes announced during the budget. However, the situation in relation to tax rates remains unclear due the previous government's tax cuts, which are due to take effect on 1 July 2015. The current government has stated that they will not proceed with these tax cuts and has introduced a bill before parliament to repeal the proposed tax cuts. Professional Expenses $ Businesses will no longer have to write off professional expenses over 5 years, such as the cost of incorporating a company. From 1 July 2015, new businesses will be able to immediately deduct expenses that they incur in setting up their business. Medicare Levy $ From 1 July 2015, the Medicare Levy low income threshold for individuals will increase to $20, 896. Once applicable, the levy remains at 2%. Car Expenses Claims From 1 July 2015, individuals claiming car expenses will no longer be able to calculate their claims through the following methods: • 1/3 of expenses; or • 12% of the cost of the car. When calculating their car expenses, individuals will have to choose between the following methods: • 66 cents per kilometre; or • logbook. Zone Tax OffsetTAX From 1 July 2015, there will be changes to the eligibility of the Zone Tax Offset (ZTO). The ZTO is the concessional tax offset available for individuals who live in very isolated and remote areas to recognise the costs associated with living in those extremes. From 1 July 2015, workers designated as fly-in, fly-out workers or drive-in, drive-out workers will no longer be eligible to claim the ZTO. OVER 60 YEARS OF TRUSTED EXPERIENCEPAGE 4 Managed Investment Trusts From 1 July 2015, managed investment trusts (MITs) can choose to be subject to changed tax rules. These tax rules will apply to all MITs from 1 July 2016. These tax rules are designed to simplify the current system, increase certainty and minimise compliance costs. The option to start applying the rules early is to ensure a smooth transition to the new rules.
- 5. The Federal Budget 2015-2016 Australian Border Force From 1 July, the enforcement of customs and immigration laws and the protection of Australia's borders will be carried out by a single entity called the Australian Border Force (ABF). The ABT will be administered by a newly constituted the Department of Immigration and Border Protection (DIBP). Aged Care Scheme From 1 July 2015, a number of changes to the aged care scheme will come into force. In brief, changes to the law include: • the requirement to ensure that all information put on the My Aged Care service providers portal is accurate and up to date • the introduction of the Commonwealth Home Support Programme designed to help the aged stay independent for longer • new rules relating to home care packages $ First Home Saver Accounts The government has been making a number of changes to the first home saver account scheme. From 1 July 2015, first home saver accounts will be treated like any other bank account. Employee Share Schemes From 1 July 2015, the government intends to make changes to the taxation of employee share schemes (ESS). An ESS allows employees to become part owners of their employer. The changes intended by the government to come into effect on 1 July offer various tax concessions to employees who participate in ESS including - special concessions for small start-up companies and deferred taxation. Each ESS has its own rules relating to the price, vesting and subsequent sale of the shares it provides to employees. Superannuation Dual Regulated Entities (SDRE) $ Up until 1 July 2015, SDREs are exempt from certain obligations in relation to adequate resourcing (including financial, human and technological) and risk management systems in relation to non-superannuation business. From 1 July 2015, SDREs will no longer be exempt from these requirements. The Australian Securities and Investment Commission (ASIC) and the Australian Pruden- tial Regulation Authority (APRA) have written to all trustees outlining these changes in detail. OVER 60 YEARS OF TRUSTED EXPERIENCE PAGE 5 Other Changes
- 6. PAGE 6 OWEN HODGE LAWYERS Who gets what? Divorce, Tax and Super In 2013, • There were 47,638 divorces granted in Australia • The median age at divorce for males was 44.8 years of age and the median ages of females was 42.2 years of age for the divorces granted • The largest proportion of divorce applications were from joint applicants, accounting for 41.2% of divorces. • Female applicants accounted for 32.9% of divorce applications while male applicants accounted for 25.9%.
- 7. Divorce and the resultant property settlement are determined separately. That means you do not need to wait until your your assets. While a divorce order is granted by the court, the property settlement can be decided by mutual agreement, mediation or by the court. The property settlement covers the division of the former couple's property and can be carried out as soon as you decide to separate. Usually the big ticket items, such as the couple's house, are high on the agenda. However, it is important to consider the broad overview of: • the treatment of capital gains tax (CGT) when a property is transferred from one former spouse to the other as a result of a property settlement; and • ways in which the former couple's superannuation fund may be divided. Capital Gains Tax If you transfer a property to your former spouse as the result of a divorce, then the normal rules relating to CGT generally will not apply. This means you will be able to disregard the capital gain or loss that otherwise would be subject to CGT. If, as the result of a divorce, you receive an asset, such as the family home, you will be considered to have made the capital gain or loss only when you subsequently sell the home. The“cost base” of a property is the original cost of the property when you bought it. If you receive a property from a divorce settlement, then this cost base will be transferred to you for the purposes of CGT calculation if and when you subsequently sell the property. Superannuation Your property settlement should include what happens to any superannuation funds you and your former partner have. How a superannuation fund is divided between you and your former spouse will depend on whether a super fund is regulat- ed by the Australian Prudential Regulation Authority (APRA) or if it is a self-managed superannuation fund (SMSF). Most people are members of an APRA-regulated fund. APRA-regulated super fund How an APRA-regulated super fund is divided will depend upon a number of factors, including: • the rules of the fund itself; and • the agreed property settlement between the former spouses; If you receive an interest in your former spouse's super fund, it generally will be in the form of either: • a lump sum; • a percentage of the income stream, once the super fund starts paying out the money on the retirement of your former spouse; or • a new super fund created from your percentage interest in your former spouse's super fund. The law states the tax-free and taxable components of any interest you receive in your former spouse's super fund must be calculated before the interest is transferred to you. How taxable interest in your former spouse's super fund will be • the rules of the fund; and • how you have taken the interest, e.g., in a lump sum. We recommend you obtain professional advice to determine your tax-free and taxable components of your interest and to carry out a calculation on the tax rate of the taxable compo- nent. A SMSF fund If you are a member of a SMSF, then how your superannuation will be divided between you and your former spouse and how it will be taxed will depend on a number of factors, including the fund’s rules. We recommend you obtain professional advice to ensure your property settlement complies with the rules of your fund. There are serious consequences for your fund if you do not act in accordance with your obligations as a member. These include your fund being deemed non-compliant and, subse- Next steps If you are in the process of negotiating your property settle- ment it is important to consider the division of superannuation property from a divorce. It is preferable to come to a mutual agreement relating to your property settlement. This way you maintain control over its terms. Research has shown former couples are more likely to comply with a mutually agreed property settlement. If you cannot agree, then the court will impose a legally binding settlement on you and your former spouse. We recommend you consult a lawyer as soon as you realise your relationship has irretrievably broken down. Then you can understand your rights from the outset. Owen Hodge Lawyers would be happy to help. OVER 60 YEARS OF TRUSTED EXPERIENCE PAGE 7
- 8. PAGE 8 OWEN HODGE LAWYERS Taxation and Deceased Estates What You Need to Know
- 9. A deceased estate trust return must be lodged in each income year until the deceased estate is fully administered. Special progressive trust tax rates will apply for deceased estates with a particularly prolonged administration. Generally, an executor cannot distribute the deceased estate liabilities have been discharged. An executor may have to pay tax on the income from a the sole claim on the estate’s income but is under the age of a deceased estate during the deceased estate's administra- tion. However, in certain circumstances, the executor has - administration, then please contact Owen Hodge Lawyers. Government Loans and Levies If the deceased person had any government student loans, such as loans from the Higher Education Loans Program (HELP) or the Student Financial Supplement Scheme (SFSS), the deceased estate may be subject to a compulsory repayment. Any outstanding HELP or SFSS loans after the date of death are cancelled. The Medicare Levy/surcharge is payable in the same way as if the income from the deceased Capital Gains Tax Generally, capital gains made on an asset acquired by the deceased estate on or after 20 September 1985 are not subject to capital gains tax if the asset passes either to the Superannuation estate's superannuation policy, it is called a super death recommend you obtain professional advice on whether it is subject to taxation. Employment Termination Payments The deceased estate may include certain termination payments made by the deceased person's employer. The law surrounding the taxation of an employment termination - mend you obtain professional advice to determine whether you will need to pay tax on it. When a person dies, all of their assets are called their deceased estate. Assets can include money in the bank, shares, personal possessions and real estate. The person who organises the distribution of the deceased estate usually is named in the will and is called the executor or administrator. If no executor is named, then the estate is administered by the court. The executor needs to consider many factors when organising the distribution of the deceased estate, including whether any taxable. Probate and Authority Before an executor can administer the deceased estate, he or she must be granted probate. Probate is the legal authority given by the court to the executor to administer the deceased estate. In addition, an executor will not be able to deal with the tax Executor's Responsibilities An executor has many responsibilities in relation to the deceased estate. In relation to taxation, the executor must: • lodge any previous tax returns on behalf of the deceased person, if necessary; • lodge a trust income tax return for every income year until the estate is fully administered, if necessary; and distribution of the deceased estate including, in some circum- stances, paying tax on their behalf. Tax Returns It may be necessary to lodge any previous tax returns on behalf of a deceased estate may be required, for example, if the deceased person earned income that exceeded the tax-free behalf of a deceased estate. If no tax return is required, then the All income earned before the deceased's death should be return. Losses may not be carried over into the deceased estate. return will lapse. Income earned by the deceased estate after the person's death should be included in the deceased estate's trust return. OWEN HODGE LAWYERS - OVER 60 YEARS OF TRUSTED EXPERIENCES PAGE 9 Disclaimer : The above information is for reference only. Owen Hodge Lawyers does not guarantee, and accepts no legal responsibility whatsoever (including negligence) arising from or in connection to, the accuracy, reliability, currency, correctness or completeness of any part of this material. Users must exercise their own skill and care with the respect to their use of the information contained in this material. For further information on deceased estate and taxation, please contact your local accountant.
- 10. SMSFs Investing in Property: the Laws and Regulations PAGE 10 OWEN HODGE LAWYERS Funds acquire property either by using assets within the fund as a deposit and borrowing money to pay for the property; or by using the assets in the fund to purchase the property in the fund’s name. There are restrictions on the type of property that can be purchased and all rules for SMSF investing must be followed. For example, you cannot buy a property from a related party of a member and the property must be intended as an invest- associated with a real estate investment through a self-man- aged super fund also will vary depending upon whether the property is local or overseas. the investment include: Your SMSF must be established and ready to make the real estate purchase. The SMSF must be established prior to signing a contract to buy real estate. All trustees and members must have signed and dated the SMSF and a clear investment strategy must have been developed. An SMSF bank account should be established. Enough money should have been deposited into the account to pay for all costs and fees associated with the real estate transaction, including the deposit. Your investment must meet the sole purpose test: The investment being made must be used solely for the investment in a residential property for you or your family members to live in and you cannot rent the property to a fund member or related party. If you purchase a rental property and you or your family stay in it - even for a vacation -without paying rent, this can contravene the sole purpose test. Phone, GPS and credit card records showing you stayed in the property retirement. It would be up to you prove you didn’t use the property as a personal vacation home. You must follow special rules for borrowing. The Superannuation Industry (Supervision) Act creates a general rule against borrowing, but an exemption is made to allow the fund to invest in real estate. Limited Recourse Borrowing Arrangements are possible, provided the borrowed funds are used to acquire either a single asset or a collection of assets treated as a single asset (these must have the same market value). The borrowed funds must not be used for improvements of the assets and must be used to purchase assets the fund would be allowed to acquire with its own money. SMSF property loans usually cost more than other property loans, so be sure to factor this added cost into your investment. You can lease the property back to your business, but there are restrictions. Buying a property and leasing it back to a business is one of the most common real estate investments made using an SMSF. However, if you buy a property and lease it back, the lease terms must be commercially competitive and you must make payments in full and on time every month just as you would with any other landlord. You still must satisfy the sole purpose test and regular valuations must be done on the property, which can be time-consuming and costly. You must follow rules for in-house assets. Gener- percent of a fund’s total assets. An in-house asset is an investment in or loan to a related party of the fund; an investment in a related trust of the fund; or an asset in your fund that you have leased to a related party. If you invest in property overseas, some countries discourage foreign investments and will require you to hold the property in a company in the foreign country. You’ll need to establish a company within that country that your SMSF trustee then buys shares of, so the share capital investment in the shares of the overseas company could be percent limit. because your super fund typically is taxed at a lower rate than your personal rate (the tax rate is just 15 percent). Buying property through a self-managed super fund (SMSF) is an increasingly popular investment strategy, especially as limited recourse borrowing agreements (LRBA) have made it possible to invest in real estate even if you do not have enough funds to buy properties outright. However, if you are going to buy property through your SMSF, it is important to understand the rules and requirements.
- 11. OVER 60 YEARS OF TRUSTED EXPERIENCE PAGE 11 Garden Art for Kids - Mount Annan 1st July to 9th July Narellan Road, Mount Annan NSW 2567 (02) 4634 7935 The Dreamers Market- Parramatta 18th July Church St, Parramatta NSW 2150 dreamersmarkets@gmail.com The Dreamers Market is a quarterly market that thrives on artisan works handmade in Australia. Stallholders are carefully chosen to ensure the philosophy of Australian handmade is upheld. Brick Man Lego Exhibition 27th June till 12th July 483 George St (cnr Druitt St) Sydney 9092 8448 A variety of Ryan’s LEGO® works will be displayed including a never seen before QANTAS A380, a quarter scale LEGO® Ferrari and a giant space shuttle. Incredibly, over 5 million LEGO® bricks make up the works! Real Insurance Sydney Harbour 10K 12th July George St, The Rocks NSW 2000 (02) 9282 0413 Free Admission The Typists - Balmain 8 July to 24 July 94 Beattie St, Balmain NSW 2041 companyofrogues@gmail.com The Typists is an absurd comedy about about becoming a lawyer and climbing the corporate ladder; Sylvia, is a bitterly single shopaholic who dreams of marriage. PBR Australia Nation Finals Sydney 11 July 35 Harbour St, Darling Harbour NSW 2000 jackie@pbraustralia.com It's a showdown like no other - Twenty-two riders all eager for glory as they strive to overcome the power of the 52 most extreme bucking bulls in a head to head battle of power, at a time. What’s On in Sydney Nurture your kids with nature at this school holiday workshop. With help from Garden to collect seed, leaves and grasses and bring them back to the workshop to create some beautiful nature art. The Sydney Harbour 10k and 5k is back, sponsored by Real Insurance, and giving you the chance to run around the fast course. The 5 Smartest Ways to spend your tax refund Tax refund time is a joyful time when you may get a large sum things you can do with the money: • Pay down your debt: If you have credit card debt, personal loan debt or other money owed, your tax return can go a long way towards paying down the balance. The less you owe, the lower your interest and the more quickly you can become debt free. • Set money aside for an emergency: It is a good idea to have account in case of an emergency such as a job loss or an illness. This should include the money you need to pay for food, utilities and your mortgage costs. If you do not already have an emergency fund, get one started with your tax return. • Invest for the future: Consider setting aside the money towards your retirement costs or towards a fund for your child’s education. Investing the money from your tax return lets you take advantage of compound interest. • Improve your home: Your home is an investment and making it better is not only nice for you but also can help if you ever have to sell it. upgrading to newer models that use less power. • Make sure your insurance needs are met. The superannuation you have may not be enough to cover your family’s expenses or your costs of living if you become permanently sick or pass away to pay for a policy and pay your premiums so you will be covered. While you may want to set aside a little of your tax refund to have some fun, don’t spend it all on a big vacation and have nothing to
- 12. INDIVIDUAL AND COMMERCIAL LAW SPECIALISTS Enhancing the lives of our clients by providing for their financial and legal requirements in the acquisition of wealth, protection and management of assets and the transfer of wealth throughout generations. CALL 1800 770 780 VIEW www.owenhodge.com.au VISIT Sydney Office Level 3, 171 Clarence Street, Sydney NSW 2000 Hurstville Office Level 2, 12-14 Ormonde Parade, Hurstville nsw 2220