19 May Federal Budget 2015/16 – What You Need To Know
From 2015/2016 income year
The Government has announced tax reductions for small businesses with an aggregated annual turnover below $2m regardless of entity type.
For companies, the company tax rate will be reduced by 1.5% to 28.5%. Maximum franking credit rates for a distribution will remain unchanged at 30%.
For taxpayers operating through an unincorporated business structure (partnerships, trusts, etc.), they will receive a 5% tax discount on the income tax payable on business income received. The discount is capped at $1,000 per individual for each income year, and delivered as a tax offset.
It’s important to remember that you need to make a profit to benefit from these changes. The last taxation statics released by the ATO showed that less than half of all businesses with this income level made a taxable profit.
Accelerated depreciation on purchases up to $20k Date of effect
Between 7.30pm (AEST) 12 May 2015 and 30 June 2017
Businesses with an aggregated turnover of under $2m can now immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000.
The message is clear on this one – get out and start spending.
Of course this is subject to the amending legislation passing through Parliament (and in a timely manner). Many of us remember the last time the immediate deduction threshold was changed for small businesses and the confusion that was caused when the amendments were held up in Parliament.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out) will be suspended until 30 June 2017 allowing all small businesses to take advantage of the temporary increase in the deduction threshold.
FBT holiday for portable electronic devices
Currently, an FBT exemption can apply to more than one portable electronic device used primarily for work purposes, but only where the devices perform substantially different functions. Applying to businesses with and aggregated turnover of under $2m, this new measure will simplify the rules by removing the requirement for the devices to be substantially different. This should address some of the uncertainty that has arisen when applying the rules to tablets, laptops, phones and other devices that are hard to distinguish from each other in terms of functionality.
Immediate deduction for professional costs setting up a business
As previously announced, start ups will be able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.
Generally these expenses are deductible over 5 years.
CGT relief for changes to small business structures
As previously announced, small business with an aggregated turnover under $2m will be able to change their legal structure without triggering CGT. CGT rollover relief is currently available on transfer of business assets from individuals, partnerships and trusts into a company structure but all other entity type changes have the potential to trigger a CGT liability.
It is expected that this would allow a much broader range of restructuring options without triggering CGT. For example, a sole trader may be able to restructure their operations into a trust structure. Bear in mind that other tax issues may still need to be addressed on restructuring a business, particularly transfer duty.
GST on digital goods & services
On 11 May, Treasurer Joe Hockey announced that the Government will target providers such as Netflix to ensure a “level playing field for the suppliers of digital products and services in Australia in relation to the GST.”
The draft legislation introduced on Budget night broadens the GST system to digital products and other imported services supplied to Australian consumers by foreign entities in a similar way to equivalent supplies made by Australian businesses. The measure is expected to generate $350m over 4 years.
This change will result in supplies of digital products, such as streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services receiving similar GST treatment whether they are supplied by a local or foreign supplier.
In some cases the GST liability might shift from the supplier to the operator of an electronic distribution service where those operators have responsibility for billing, delivery and terms and conditions.
The regulations will be amended to allow for a change to the GST registration process for affected entities. Entities will also be able to elect to have limited registration for GST, which will prevent them from accessing input tax credits.
As this legislation seeks to amend the GST, the unanimous agreement of the States and Territories is required.
Who is affected?
Any business that supplies digital products to Australian consumers not currently subject to GST will potentially be affected by this change.
It will be interesting to see how the Government and ATO ensure compliance with the new measures particularly where many of the foreign suppliers would not typically have a physical presence in Australia. At a minimum, foreign suppliers would be expected to collect more details from Australian customers to establish their residency status, GST registration status and whether the acquisitions by the customers would qualify for GST credits.
R&D capped to $100m
Assessments for income years on or after 1 July 2014
A cap of $100m on the amount of eligible Research & Development (R&D) expenditure has already been introduced. Any expenditure above the cap will receive a lower offset at the company tax rate.
Business registration process to be streamlined
A single online registration site will be implemented in order to streamline the registration of new businesses.
Under the proposed new system, businesses will be able to log onto business.gov.au and enter the relevant details once in order to manage a number of business registration requirements such as ABN registration, company registration, business name registration, GST registration, PAYG withholding registration, FBT registration, an Australian Business Account as well as an online payment mechanism of registration costs.
Dying able to access their super earlier
After a few horrible cases where terminally ill people could not access their superannuation, the Government is changing the rules to provide some respite.
Currently, patients must have two medical practitioners (including a specialist) certify that they are likely to die within 1 year to gain unrestricted tax free access to their superannuation balance. The Government will change this period to 2 years.
Social Security for superannuants
A larger proportion of a superannuant’s defined benefit income will be taken into account when applying the relevant social security income test, capping the proportion of income that can be excluded at 10%.
A defined benefit income stream is a pension paid from a public sector or other corporate defined benefit superannuation fund where the pension paid generally reflects years of service and the final salary of the beneficiary. Under current arrangements, some defined benefit superannuants are able to have a large proportion of their super income excluded from the pension income test.
Recipients of Veterans’ Affairs pensions and/or defined benefit income streams paid by military superannuation funds are exempt from this measure.
Changes to work related car expenses
The way work related deductions for car expenses are calculated will change.
The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed – the Government says they are only used by less than 2% of those who claim work related car expenses.
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 Tax Commissioner 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.
Zone Tax Offset excludes fly in fly out and drive in drive out workers
Fly-in fly-out’ and ‘drive-in drive-out’ (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’. This means that some individuals who currently qualify for the offset will miss out from the 2016 income year onwards if they do not actually live full-time in a zone.
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. The Government 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.
For those FIFO workers whose normal residence is in one zone, but who work in a different zone, they will retain the ZTO entitlement associated with their normal place of residence.
Medicare levy low income threshold increased
The Medicare levy low-income thresholds for singles, families and single seniors and pensioners will increase to take account of movements in the CPI so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
The threshold will be increased to:
Singles – $20,896
Couples with no children – $35,261
Additional amount of threshold for each dependent child or student – $3,238
Single seniors and pensioners – $33,044
Low income supplement axed
The Low Income Supplement will be axed from 1 July 2017.
Recipients of most Government payments will continue to receive carbon tax compensation through the Energy Supplement, which provides up to $14.10 per fortnight depending on individual circumstances.
Govt employees lose Official Development Assistance tax exemption
An income tax exemption currently available to government employees who earn income while delivering Official Development Assistance overseas for more than 90 continuous days will be removed. From 1 July 2016 these employees will be taxed on foreign earnings as long as they continue to be treated as Australian residents. A foreign income tax offset may be available to reduce the Australian tax liability that arises on this income.
Australian Defence Force and Australian Federal Police personnel and individuals delivering Official Development Assistance for a charity or private sector contracting firm will maintain eligibility for the exemption.
Asset test changes
As previously announced, the Government will increase the asset test thresholds and the withdrawal rate at which pensions are reduced once the threshold is exceeded.
The taper rate will revert back to the pre 2007 level of $3 (from $1.50).
The maximum value of assets you can hold to qualify for a part pension will also be reduced. Approximately 91,000 current part pensioners will no longer qualify for the pension and a further 235,000 will have their part pension reduced.
Pensioners who lose pension entitlement on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.
For pensioners with modest assets, the change will increase their pensions.
The value of assets you can have in addition to your family home in order to qualify for a full pension will increase from $202,000 to $250,000 for single home owners and from $286,500 to $375,000 for couple home owners.
Pensioners who do not own their own home will also benefit by an increase in their threshold to $200,000 more than homeowner pensioners. This increases the gap between homeowners and non-homeowners thresholds by more than a third, recognising their higher living costs.
All 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 pensioners will be better off, will be $289,500 for home owners and $537,000 for non-homeowners.
Working holiday tax changes
The tax residency rules will change to treat most people who are in Australia temporarily for a working holiday as non-residents for tax purposes, regardless of how long they are here. This means that those on working holidays lose access to the tax-free threshold, low income tax offset and lower tax rates. Instead, they will pay 32.5% tax on every dollar they earn.
Higher Education Loan recovery from overseas debtors
The Higher Education Loan Programme (HELP) repayment framework will be extended to debtors residing overseas. From 2016/2017, HELP debtors residing overseas for 6 months or more will be required to make repayments of their HELP debt if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia. The change is expected to recover $26m over 4 years.
Changes to NewStart postponed
Postponed but not forgotten, the Government has delayed the previously announced changes to the age of eligibility for the NewStart and Sickness Allowances. Originally, the age of eligibility for the allowances was to increase from 22 to 25 years of age from 1 January 2015 but has been delayed.
Current recipients of the NewStart and Sickness Allowances aged 22 to 24 years of age on 30 June 2016 will remain on those allowances.
Income support access for job seekers softened
Last year’s Budget sought to make those under 25 with no significant barriers to employment wait 6 months before accessing any benefits. The position has now softened requiring a 4 week waiting period before receiving support.
Changes to child care
New subsidy replaces 3
A new single Child Care Subsidy (CCS) will be introduced to replace the existing Child Care Benefit, Child Care Rebate and the Jobs, Education and Training Child Care Fee Assistance payments. The current child care related benefits will cease on 30 June 2017.
The new subsidy is means and activity tested to align it with hours of work, study etc. An indexed cap also applies to the hourly fees that can be claimed of $11.55 for long day care, $10.70 for family day care and $10.10 for outside school hours care.*
For families with an annual income of up to $65,000 who meet the activity test, the subsidy covers 85% of the actual fee paid up to an hourly fee cap. The subsidy then tapers to 50% for families with annual incomes of $170,000 where it stays until family income reaches $185,000. Families with income levels of $185,000 or more will have the CSS capped at $10,000 per child per annum.
Home based care trial
As previously announced, the Government is also introducing a trial of a home based carer subsidy that provides funding for a nanny in a child’s home from 1 January 2016. The pilot program is limited to
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approximately 10,000 children. Families selected for the program have difficulty accessing childcare with sufficient flexibility (shift workers such as nurses and paramedics etc.,). Support will be based on the CSS parameters and provides $7 per hour per child.
Child care safety net
Additional funding will provide targeted support to disadvantaged or vulnerable families. The assistance will be provided through the Child Care Safety Net, which consists of three programmes:
- The Additional Child Care Subsidy (ACCS) – additional assistance to supplement the Child Care Subsidy for eligible disadvantaged or vulnerable families
- A new Inclusion Support Programme (ISP) – assistance for families of children with special needs
- The Community Child Care Fund (CCCF) – grants to child care services to improve access to child care in disadvantaged communities
No jab no pay
As previously announced, families will no longer be eligible for subsidised child care or the Family Tax Benefit Part A end of year supplement unless their child is up to date with all childhood immunisations.
‘Double dip’ on parental leave pay
Saving $967.7m over four years, primary carers with employer provided paid parental leave will be prevented from claiming Government support.
Large family supplement axed
The Large Family Supplement of Family Tax Benefit Part A will be axed. Families will continue to receive a per child rate of FTB Part A for each eligible child in their family.
Changes to parental income testing for youth payments
1 January 2016 – change to parental income support tests
1 July 2016 – changed tests for families with a child receiving income support and other siblings qualify to receive FTB A
1 January 2017 – introduction of a maintenance income test
Parental income testing arrangements will be amended to provide more support for families with dependent young people who qualify for certain income support payments, including Youth Allowance, ABSTUDY Living allowance (ABSTUDY), and the Assistance for Isolated Children Scheme.
From 1 January 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.
From 1 July 2016, 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, one Parental Income Test will be applied taking into account all income support benefits the family receive. This will result in a lower rate of reduction to the dependent child’s individual payment than is currently the case where separate Parental Income Tests are applied to each payment.
From 1 January 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. The same Maintenance Income Test already applies to FTB Part A. This will be of particular benefit to rural and regional families whose children continue to study beyond year 12.
Summary of economy
- Deficit of $35.1 bn in 2015/2016 reducing to $6.9 bn by 2018/2019
- Real GDP expected to grow by a modest 2.75% in 2015/2016, which is 0.25% slower than expected 12 months ago.
- Stronger non-mining business investment expected to drive growth in 2016/2017 to 3.25%
- Unemployment rate currently better than predicted at 6.25% but expected to push higher in 2015/2016 before falling again.
- Tax receipts downgraded by $52 billion since the 2014 Budget – $20 bn a result of the iron ore spot price almost halving:
- Iron ore investments and exports directly contributed 15% to economic growth over the last decade
- Australia accounts for 1/3 or world iron ore production
- Australia’s major trading partners are expected to grow by 4.5% in 2015 and 2016.
- Total exports expected to increase by 5% in 2015/2016 and 6.5% in 2016/2017
- Non-mining business investment has increased but remains uncommitted