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CONTENTS

1. 2006/7 Federal Budget

2. Centerlink Deeming

3. Income for Centerlink Pensions

4. Austock Share Report

1. 2006/07 federal budget

The 2006/07 federal budget was announced by the federal treasurer on 9 May 2006 and contains significant tax and superannuation reform measures. A brief summary of these and other measures are given below.

Further updates on the budget measures will be available in future issues of CPA Tax News.

• Personal tax cuts – with effect from 1 July 2006, the 30 per cent threshold will rise from $21,601 to $25,001; the 42 per cent marginal rate will be cut to 40 per cent and its threshold will rise from $70,001 to $75,001; the top 47 per cent marginal rate will be cut to 45 per cent and its threshold will rise from $125,001 to $150,001.
• FBT – the FBT rate will be reduced from 48.5 per cent to 46.5 per cent, with effect from 1 April 2006; the in-house FBT-free threshold increased to $1,000 and the definition of ‘remote’ broadened.
• Small business tax measures – with effect from 1 July 2007, the STS annual turnover threshold increased to $2m; the $3m depreciating assets test removed from the STS eligibility requirements; the net assets threshold increased for the CGT small business concessions to $6m; STS taxpayers to be eligible for the CGT small business concessions without having to satisfy the net assets threshold and to pay quarterly PAYG instalments on the basis of GDP adjusted notional tax.
• Superannuation – with effect from 1 July 2007, major superannuation changes including: taxpayer aged 60 or over will be exempt from any tax on benefits paid from a taxed super fund (whether in lump sum or pension form); reasonable benefit limits (RBLs) and age-based limits will be abolished; a simple universal contribution limit will be introduced; self-employed will be able to claim a full deduction for their superannuation contributions; ability to make deductible super contributions extended to age 75.
• Tax avoidance – clarify that the 6-year amendment period for taxpayers involved in tax avoidance arrangements is repealed only for the 2004-05 and later years.
• Trusts – family trust elections and interposed entity elections will be allowed to be revoked or varied in certain limited circumstances; and simplification of the reporting requirements under the ultimate beneficiary rules; resident trustees required to pay tax on distributions to non-resident trustee beneficiaries.
• Franking credits – exclusion of certain income beneficiaries of testamentary trusts from the franking credit holding period rules, with effect from 1 July 2002.
• UCA – various changes to depreciation: the diminishing value rate for determining depreciation deductions increased from 150 per cent to 200 per cent for all eligible assets acquired on or after 10 May 2006; optional roll over relief extended to situations where a sole trader, trustee or a partnership in the STS disposes of all of the assets in an STS pool to a wholly owned company.
• Low income tax offset – amounts will increase from $235 to $600.
• Employee share scheme – with effect from 1 July 2006, employee share scheme measures extended to stapled securities that include an ordinary share and are listed on the Australian Stock Exchange.
• Boat hire arrangements – taxpayers who cannot demonstrate that they are actually carrying on a business using a boat will be allowed to claim deductions for the costs associated with hiring out their boats.
• International tax – measures to ensure consistent tax treatment of foreign dividends received by Australian companies.
• Venture capital – introduction of a new investment vehicle (an early stage venture capital limited partnership) which will, from 1 July 2006, replace the existing PDF arrangements; changes to the existing venture capital limited partnership regime.
• Senior Australians tax offset – eligible recipients will pay no tax on their annual income up to $24,867 for singles and up to $41,360 for couples.
• Medicare levy low income thresholds – increased to $16,284 for individuals and $27,478 for families, with effect from 1 July 2005.
• Philanthropy – measures to allow taxpayers to claim a tax deduction for the donation to a deductible gift recipient of publicly listed shares that have been held for at least 12 months and are valued at $5,000 or less.

Source: CPA

2. DEEMING - CENTERLINK

What does deeming mean?

Deeming is a simple set of social security rules used to assess income from financial assets. Under these rules Centerlink assume financial investments are earning a certain amount of income, regardless of the income they actually earn. Deeming is used to calculate your entitlement to a pension, benefit and allowance payments.

Why have deeming?

·        It is a fairer way to treat people who have the same amount of financial investments

·        It encourages people to earn more income from their investments, and

·        It reduces the extent to which a person’s payments vary.

Is deeming about tax?

No. Taxation assessments are worked out on actual income from your investments and any other income you may have.

What if my investments earn more than the deemed rates?

If the actual income you receive from your investments is more than the deemed income, the extra income is not counted when assessing your rate of pension, benefit or allowance.

Who sets the deeming rates?

Deeming rates are continually monitored to ensure that they are appropriate. The deeming rates are amended by the federal Minister for Family and Community Services.

What are financial investments?

·        bank, building society and credit union accounts

·         term deposits and debentures

·         friendly society bonds

·         managed investments

·         listed shares and securities

·         shares in unlisted public companies

·         gold and other bullion

·         certain income streams, e.g. short-term assets tested income streams

·         approved deposit funds, deferred annuities and superannuation fund investments held by people over Age Pension age

·        loans, including those to family trusts and companies, and

·        gifts of money or other assets of more than $10,000 in a financial year, or more than $30,000 over five financial years.

What are the current deeming rates?

The current deeming rates are 3 per cent and 5 per cent.

How is deeming calculated and applied?

Deeming rates apply:

•            for a single person—3 per cent for the first $37,200 of their total investments with 5 per cent for any balance above $37,200,

•            for a pensioner couple (both receiving a pension) or a pensioner/allowee couple (one person receiving a pension and the other receiving an            

allowance)—3 per cent for the first $62,000 of their combined total investments with 5 per cent for any balance above $62,000, and

•            for an allowee couple (both receiving an allowance)—3 per cent for the first $31,000 of the total investments held by each with 5 per cent for any balance above $31,000.

What happens after deemed income from investments is worked out?

The deemed income is added to any income you have from other sources such as income from employment. Your total income is then used to work out how much pension, benefit or allowance can be paid to you.

Source: Centerlink

 

3. INCOME FOR PENSIONS - CENTERLINK

What is income?

It is any money, valuable consideration or profits you may have earned, derived or received. Income for the assessment of your pension includes deemed income on certain investments including income from overseas. The amount of income you or your partner receives may affect the amount of your pension payment. The way income is assessed depends on where this income comes from.

Examples of income which are included in the Social Security Income Test are:

•            deemed income from financial investments e.g. term deposits, shares, bank accounts including overseas investments

•            deemed income on money in superannuation or rollover funds if you have reached Age Pension age

•            payments from income streams

•            income from earnings (before tax)

•            income from self-employment and businesses, including family businesses and farms

•            income from real estate, including rental of holiday homes

•            income from deceased estates

•            compensation payments (compensation may affect your payment in different ways)

•            income from boarders or lodgers

•            attributable income from a private trust or company if you are a controller or distributions from a private trust if you are not a controller, and

•            overseas pensions, which can be assessed on the gross amount rather than the net amount after tax

Social Security payments are not included under the Income Test.

Source: Centerlink

 

4. AUSTOCK SHARE REPORT

Addisons has had no involvement in the preparation of this following information and we do not recommend that you act on the following information without first consulting your financial advisor or stockbroker. Addisons does not make any recommendations in relation to specific shares as the share market is highly volatile and carries significant risk and Addisons does not have the expertise to give specific recommendations.  Austock contact information appears at the bottom of this report and we draw your attention to their disclaimer.

 

Please feel free to review our websites at http://www.addisons.com.au/ and http://www.addisonsfinancial.com.au 

 

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Disclaimer

This document is intended only to provide a summary of the subject matter concerned and does not purport to be comprehensive or to render specific advice.  No reader should act on the basis of any matter contained in this document without first obtaining specific professional advice.