There were few particularly notable budget impacts for personal taxation; personal tax rates will not change, however changes were announced for work related car expenses, Medicare levy thresholds, and the Zone Tax Offset. For families, a new childcare package was announced and parental income testing for allowances to young people will be amended. The budget announcement which will have the most significant impact on middle Australia is the child care reform package.
Personal tax rates
Personal tax rates will not change, and the 2% Temporary Budget Deficit Levy for taxable incomes over $180,000 will not be extended. The levy will, as expected, cease at the end of the 2016-17 income year.
Work related car expenses
The government announced its intention to change the methods of calculating work related car expense deductions from the 2015 16 income year. The “12% of original value method” and the “one third of actual expenses method”, which are used by less than 2% of those who claim work related car expenses, will be removed.
The “cents per kilometre method” will be modernised by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles, with the Commissioner of Taxation responsible for updating the rate in following years. The “logbook method” of calculating expenses will be retained. These changes will not affect leasing and salary sacrifice arrangements.
Medicare levy thresholds
The government will increase the Medicare levy low-income thresholds for singles, families and single seniors and pensioners from the 2014 15 income year, to take account of movements in the consumer price index (CPI) so that low income taxpayers generally continue to be exempted from paying the Medicare levy.
- for singles, the threshold will be increased to $20,896;
- for couples with no children, the threshold will be increased to $35,261 and the additional amount of threshold for each dependent child or student will be increased to $3,238;
- for single seniors and pensioners, the threshold will be increased to $33,044.
Zone Tax Offset to exclude ‘fly-in fly-out’ and ‘drive-in drive-out’ workers
The government will exclude “fly-in fly-out” and “drive-in drive-out” workers from the Zone Tax Offset (ZTO) where their normal residence is not within a “zone”. This measure will take effect from 1 July 2015.
The ZTO is a concessional tax offset available to individuals in recognition of the isolation, uncongenial climate and high cost of living associated with living in identified locations. Eligibility is based on defined geographic zones.
Currently, to be eligible for the ZTO, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year. According to the government, it is estimated that around 20% of all claimants do not actually live full-time in the zones. Many of these are FIFO workers who do not face the same challenges of remote living that the ZTO was designed to address.
Those fly-in fly-out workers whose normal residence is in one zone, but who work in a different zone, will retain the ZTO entitlement associated with their normal place of residence.
“… a nation that lives as a family must help to strengthen and support all of its families.”
(Treasurer Joe Hockey)
Child care measures
The government announced a child care package, which includes the following measures.
i. New Child Care Subsidy
A new single Child Care Subsidy (CCS) will be introduced from July 1, 2017 for changes to the existing child care payments. The CCS will replace the current child care fee assistance provided by the Child Care Benefit, Child Care Rebate and the Jobs, Education and Training schemes.
Specifically, under the (CCS):
- families meeting an “activity test” with annual incomes up to $60,000 (based on 2013-14 income) will be eligible for a subsidy of 85% of the actual fee paid, up to an hourly fee cap;
- the subsidy will taper to 50% for eligible families up to annual income of $165,000;
- the CCS will have no annual cap for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the CCS will be capped at $10,000 per child per year;
- the income threshold for the maximum subsidy will be indexed to the CPI with other income thresholds aligned accordingly;
- eligibility will be linked to a new activity test to better align receipt of the subsidy with hours of work, study or other recognised activities;
- the hourly fee cap in 2017-18 will be set at $11.55 for long day care, $10.70 for family day care, and $10.10 for outside school hours care. The hourly fee caps will be indexed to CPI.
Note: In 2017-18, the family income thresholds will be $65,710 (maximum subsidy), $170,710 (minimum subsidy) and $185,710 (application of the annual cap of $10,000). The annual cap will be indexed to CPI from July 1, 2018.
ii. Interim Home Based Carer Subsidy Program
A new Interim Home Based Carer Subsidy Program will subsidise care provided by a nanny in a child’s home from January 1, 2016.
The pilot program will extend fee assistance to the parents of approximately 10,000 children. Families selected to participate will be those who are having difficulty accessing child care with sufficient flexibility (such as nurses, shift workers, police, etc). Support for families will be based on the CCS parameters, but with a fee cap of $7.00 per hour per child.
iii. Child Care Safety Net
The government will provide additional funding from 2015-16 to provide targeted support to disadvantaged or vulnerable families to address barriers to accessing child care. The assistance will be provided through the Child Care Safety Net, which consists of three programs: Additional Child Care Subsidy (ACCS), providing additional assistance to supplement the Child Care Subsidy; Inclusion Support Program (ISP), assisting families with children with additional needs to access child care; Community Child Care Fund (CCCF), providing grants to child care services to improve access to child care in disadvantaged communities, increase the supply of child care places in areas of high demand and low availability, and improve affordability for low income families in areas where the average fees are greater than the CCS fee cap.
iv. No Jab No Pay
From January 1, 2016, the government will ensure that children fully meet immunisation requirements (subject to limited exemptions) before their families can access subsidised child care or the Family Tax Benefit (FTB) part A end-of-year supplement.
The government will amend parental income testing arrangements to provide more support for families with dependent young people who qualify for certain income support payments, including Youth Allowance, ABSTUDY Living Allowance, and the Assistance for Isolated Children Scheme.
From January 1, 2016
- Families with dependent children receiving income support payments would be subject to the Parental Income Test arrangements currently in place for FTB Part A and will no longer be subject to the Family Assets Test or Family Actual Means Test.
- Where a family has a dependent child who receives an individual income support payment and younger siblings who qualify the family to receive FTB Part A, a single Parental Income Test will be applied taking into account all income support benefits the family receive.
From January 1, 2017
- A Maintenance Income Test will be introduced for dependent children receiving individual income support payments. This test will apply to that child only and not include other child support amounts provided in relation to other children in the family. This will be of particular benefit to rural and regional families whose children continue to study beyond Year 12.