Please find below a summary of the significant announcements from the Federal Government’s 2015 Budget issued on Tuesday 12 May 2015. There are a great deal of changes in this budget; however for those that satisfy the definition of a small business (with a turnover less than $2million) there are some greater tax planning opportunities prior to 30 June 2015. So please give us a call to discuss to take advantages of these opportunities 0n 02 4926 2300.
2015/16 Federal Budget Highlights
The Federal Treasurer, Mr Joe Hockey, handed down his second budget at 7:30 pm (AEST) on 12 May 2015. In general, the budget is aimed at supporting small business and growing jobs ($5.5b including $5b of tax relief), supporting families ($4.4b funding boost), ensuring fairness of tax and benefits, national security and progressing budget repair in a measured way.
Here are the tax, superannuation and social security highlights.
- The tax rate for companies with an aggregated annual turnover of less than $2m will be reduced by 1.5% to (ie from 30% to 28.5%) from the 2015/16 income year. A 5% tax discount for individual taxpayers with business income from an unincorporated business with an aggregated annual turnover of less than $2m will also be introduced from the 2015/16 income year.
- The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000. The rules preventing small businesses from re‐entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended.
- Start ups will be able to claim an immediate deduction for professional expenses associated with starting a business from the 2015/16 income year.
- Further changes will be made to the taxation of employee share schemes.
- Other measures to encourage business start‐ups and entrepreneurship will be introduced.
- Capital gains tax relief will be available to small businesses for a CGT liability arising from the alteration of their legal structure from the 2016/17 income year.
- Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from 1 July 2016.
- The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.
Fringe benefits tax and managed investment trusts
- A separate, single grossed‐up cap of $5,000 will be introduced for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of not‐for‐profits.
- The start date of the new managed investment trusts (MITs) regime has been deferred to 1 July 2016 but MITs can choose to apply the new regime from 1 July 2015.
- Offshore supplies of services and intangibles to Australian consumers will be subject to GST from 1 July 2017.
Individuals and families
- The methods of calculating work‐related car expense deductions will be modernised from the 2015/16 income year.
- From 1 July 2016, the income tax exemption that is 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, the tax residency rules will be changed to treat most people who are temporarily in Australia for a working holiday as non‐residents for tax purposes, regardless of how long they are here.
- The Medicare levy low‐income thresholds for singles, families and single seniors and pensioners will be increased from the 2014/15 income year.
- From 1 July 2015, the zone tax offset will exclude “fly‐in fly‐out” and “drive‐in drive‐out” (FIFO) workers where their normal residence is not within a “zone”.
- The government will not be proceeding with elements of the 2014/15 Budget measure that relate to the pension income test free areas and deeming thresholds.
- A new Child Care Subsidy will be introduced from 1 July 2017 as part of reforms to the child care system.
- 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.
- The ability for individuals to access government assistance in the form of the existing Parental Leave Pay (PLP) scheme, in addition to any employer‐provided parental leave entitlements, will be removed, from 1 July 2016.
- The Family Tax Benefit (FTB) Part A large family supplement will cease from 1 July 2016.
- From 1 January 2016, families will only be able to receive Family Tax Benefit Part A for six weeks in a 12‐month period while they are overseas.
- Early access to superannuation will be provided to people with a terminal medical condition with effect from 1 July 2015.
- A package of measures will be implemented to remove redundant superannuation reporting obligations and to streamline administrative arrangements for lost and unclaimed superannuation.
- The supervisory levies paid by financial institutions will increase.
Small business tax rate cuts
The tax rate for companies with an aggregated annual turnover of less than $2m will be reduced by 1.5% (ie from 30% to 28.5%) from the 2015/16 income year.
However, the maximum franking credit rate for a distribution will remain at 30%.
Further, a 5% tax discount will be introduced for individual taxpayers with business income from an unincorporated business, such as a sole trader, trust or partnership, that has an aggregated annual turnover of less than $2m. This measure will also apply from the 2015/16 income year.
The discount, given in the form of a tax offset, will apply to the income tax payable on the business income received and will be capped at $1,000 per individual for each income year.
Source: Budget Paper No 2, p 19‐20.
Small business accelerated depreciation changes
The threshold below which small businesses can claim an immediate deduction for the cost of an asset they start to use or install ready for use will be temporarily increased from the current $1,000 to $20,000.
The $20,000 threshold will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. It is available for small businesses with an aggregate annual turnover of less than $2m,currently, under Subdiv 328‐D of the Income Tax Assessment Act 1997, a small business can claim an immediate deduction for assets costing less than $1,000 to the extent the asset is used for tax deductible purposes.
With the increase of the threshold for the immediate deduction, assets valued at $20,000 or more that cannot be immediately deducted will be included in the entity’s small business pool and depreciated at 15% in the first income year and 30% each income year thereafter, in the same way the rules currently apply for assets costing $1,000 or more.
Similarly, over the period from 7.30pm (AEST) 12 May 2015 up to 30 June 2017, the balance in the small business pool can be immediately deducted if it is less than $20,000 (including an existing pool).
The current rules preventing a small business using the simplified depreciation regime for five years if it opts out of the regime will also be suspended until 30 June 2017.
From 1 July 2017, the $20,000 threshold for the immediate deduction of assets and the value of the pool will revert to $1,000.
While small businesses can access the simplified depreciation regime for a majority of capital assets, certain assets are not eligible (such as horticultural plants and inhouse software) for which specific depreciation rules apply.
Source: Budget Paper No 2, p 19.
Immediate deduction for business establishment costs
An immediate deduction will be available for professional expenses that are associated with starting a new business, such as professional, legal and accounting advice or legal expenses to establish a company, trust or partnership.
The deduction will be available to start‐up businesses from the 2015/16 income year. Currently, such expenses are deductible over five years under s 40‐880 of the Income Tax Assessment Act 1997, the blackhole expenditure provision.
Source: Budget Paper No 2, p 17.
Employee share schemes: further changes
Further changes will be made to the taxation of employee share schemes (ESSs).The government said that consultations on the draft legislation to implement changes to the taxation of ESSs identified some minor technical changes that could be made to the legislation by:
- excluding eligible venture capital investments from the aggregated turnover test and grouping rules (for the start‐up concession)
- providing the capital gains tax discount to ESS interests that are subject to the start‐up concession where options are converted into shares and the resulting shares are sold within 12 months of exercise, and
- allowing the Commissioner to exercise discretion in relation to the minimum three‐year holding period where there are circumstances outside the employee’s control that make it impossible for them to meet this criterion.
A number of other amendments will accompany these changes to make ESSs more accessible.
Together with the enabling legislation, these changes will take effect from 1 July 2015.
Source: Budget Paper No 2, p 16.
Measures encouraging business start‐ups
In order to encourage business start‐ups and entrepreneurship:
- business registration processes will be streamlined with a single online portal (business.gov.au) developed for business registration and company registration,making it quicker and simpler to set up a new business. A start up business will no longer need an Australian Company Number or business Tax File Number but can use its Australian Business Number to interact with the ATO and ASIC. The new portal (expected to be implemented by mid‐2016) will provide all the relevant information and have integrated customer support, and
- a regulatory framework to facilitate the use of crowd‐source equity funding will be implemented, including simplified reporting and disclosure requirements, to help small businesses access innovative funding sources.
Source: Budget Paper No 2, p 175; Growing jobs and small business package to help small businesses invest more, grow more, and employ more, Prime Minister, Treasurer and Minister for Small Business joint press release, 12 May 2015; Budget 2015 “Growing jobs and small business”
CGT relief reforms for small business restructures
Small businesses may change the legal structure of their business without attracting a capital gains tax (CGT) liability from the 2016/17 income year. This measure will be available for small businesses with an aggregated annual turnover of less than $2m. It will enable small businesses to alter their legal structure as they find suitable without being impeded by potential CGT implications.
Currently, CGT roll‐over relief is available under Div 122 of the Income Tax Assessment Act 1997 for individuals, trustees or partners in a partnership that incorporate as a company.
Source: Budget Paper No 2, p 18.
Accelerated depreciation for water facilities, fodder storage and fencing
All primary producers will be able to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps,water towers and windmills for income years commencing on or after 1 July 2016.
Primary producers will also be allowed to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed. Currently, the effective life for fences is up to 30 years, water facilities is three years and fodder storage assets is up to 50 years.
The measure is aimed at improving resilience for those primary producers who face drought, assist with cash flow and reduce red tape by removing the need for primary producers to track expenditure over time. It will form part of the government’s White Paper on Agricultural Competitiveness.
Source: Budget Paper No 2, p 14; Treasurer’s press release “Helping Australian farmers prepare for and manage drought”, 12 May 2015.
Broader FBT exemption for portable electronic devices
The fringe benefits tax (FBT) exemption for work‐related portable electronic devices used primarily for work purposes will be expanded from 1 April 2016. Small businesses with an aggregated annual turnover of less than $2m that provide their employees with more than one qualifying work‐related portable electronic device will be able to access the FBT exemption even if the additional items have substantially similar functions as the first device.
The current FBT exemption under s 58X of the Fringe Benefits Tax Assessment Act 1986 is limited to more than one portable electronic device if the devices perform substantially different functions.
Source: Budget Paper No 2, p 18.
Fringe Benefits Tax
FBT: meal and entertainment for not‐for‐profit employees
A separate, single grossed‐up cap of $5,000 will be introduced for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of not‐for‐profits. Meal entertainment benefits exceeding the separate grossed‐up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing fringe benefits tax (FBT) exemption or rebate cap. All use of meal entertainment benefits will become reportable.
Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap (this will be $31,177 for the first year of the measure, due to the budget repair levy) and employees of public and not‐for‐profit hospitals and public ambulance services have a standard $17,000 FBT exemption cap (this will be $17,667 for the first year).
In addition to these FBT exemptions, these employees can salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported. Employees of rebatable not‐for‐profit organisations can also salary sacrifice meal entertainment benefits, but the employers only receive a partial FBT rebate, up to a standard $30,000 cap ($31,177 for the first year). This measure will apply from 1 April 2016.
Source: Budget Paper No 2, pp 22‐23.
Individuals and Families
Modernising the methods used for calculating work‐related car expense deductions
The methods of calculating work‐related car expense deductions will be modernised 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 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.
These changes will better align car expense deductions with the average costs of operating a motor vehicle.
Source: Budget Paper No 2, p 27.
Medicare levy low‐income thresholds for singles, families and single seniors and pensioners increased
The Medicare levy low‐income thresholds for singles, families and single seniors and pensioners will be increased from the 2014/15 income year.
The threshold for singles will be increased to $20,896 (up from $20,542 for 2013/14). For couples with no children, the threshold will be increased to $35,261 (up from $34,367 for 2013/14) and the additional amount of threshold for each dependent child or student will be increased to $3,238 (up from $3,156 for 2013/14). For single seniors and pensioners, the threshold will be increased to $33,044 (up from $32,279 for 2013/14).
The increase in these thresholds takes into account movements in the Consumer Price Index so that low‐income taxpayers generally continue to be exempted from paying the Medicare levy.
Source: Budget Paper No 2, p 26.
Zone tax offset to exclude “fly‐in fly‐out” and “drive‐in driveout” Workers
The zone tax offset will exclude “fly‐in fly‐out” and “drive‐in drive‐out” (FIFO) workers where their normal residence is not within a “zone”.
The zone tax offset 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.
The specified remote areas of Australia covered by the zone tax offset are comprised of two zones, Zone A and Zone B. In general, Zone A comprises those areas where the factors of isolation, uncongenial climate and the high cost of living are more pronounced and Zone B comprises the less badly affected areas. The tax offset for ordinary Zone A residents is accordingly higher than the tax offset for ordinary Zone B residents. A special category of zone allowances is available to taxpayers residing in particularly isolated areas (“special areas”) within either zone.
Currently, to be eligible for the zone tax offset, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year. 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 zone tax offset was designed to address.
This measure will better target the zone tax offset to taxpayers who have taken up genuine residence within the zones. This will align the zone tax offset with the original intent of the policy, which was to support genuine residents of zones. For those FIFO workers whose normal residence is in one zone, but who work in a different zone, they will retain the zone tax offset entitlement associated with their normal place of residence. This measure will take effect from 1 July 2015.
Source: Budget Paper No 2, p 25.
Pension reforms not proceeding
The government will not be proceeding with elements of the 2014/15 Budget measure that relate to the pension income test free areas and deeming thresholds.
The government proposal was to change how it deems the return from a person’s financial assets for the purposes of the pension active test. The deeming thresholds were to be reset from $46,000 to $30,000 for single pensioners and from $77,400 to $50,000 for pensioner couples from 1 September 2017.
Instead, the pension income test free areas and deeming thresholds will continue to be indexed annually by the Consumer Price Index.
Source: Budget Paper No 2, p 167.
Families package: reforms to child care system
The government will provide an additional $3.2b over five years from 2014/15 to support families with child care so they can move into work, stay in work, train, study or undertake other recognised activities.
A new Child Care Subsidy will be introduced from 1 July 2017 which will support families where both parents work. Families meeting the activity test with annual incomes up to $60,000 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 with annual incomes of $165,000. The Child Care Subsidy will have no annual cap for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the Child Care Subsidy will be capped at $10,000 per child per year.
Under the new regime, parents must do a minimum of eight hours a fortnight of work, study or training to qualify for any child care support.
The income threshold for the maximum subsidy will be indexed by the Consumer Price Index (CPI) with other income thresholds aligned accordingly. Eligibility will be linked to the 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 by CPI.
Additional support will be provided to eligible families through a Child Care Safety Net providing targeted support to disadvantaged or vulnerable families to address barriers to accessing child care. The Child Care Safety Net consists of three programmes — the Additional Child Care Subsidy, a new Inclusion Support Programme and the Community Child Care Fund. Families with incomes of around $65,000 or less in 2017/18, who do not meet the activity test, will be eligible to receive up to 24 hours subsidised care per fortnight under the Child Care Safety Net.
A new Interim Home Based Carer Subsidy Programme will subsidise care provided by a nanny in a child’s home from 1 January 2016. The pilot programme 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. Support for families will be based on the Child Care Subsidy parameters, but with a fee cap of $7.00 per hour per child.
The Child Care Subsidy will replace the current child care fee assistance provided by the Child Care Benefit and Child Care Rebate. Accordingly, the existing Child Care Benefit and Child Care Rebate will be abolished from 1 July 2017.
Source: Budget Paper No 2, p 154‐155; Prime Minister’s and Minister for Social Services’ joint press release “Jobs for families child care package delivers choice for families”, 10 May 2015.
Immunisation requirements for eligibility to government payments
Children will have to fully meet immunisation requirements before their families can access certain government payments, from 1 January 2016. 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. Exemptions will only apply for medical reasons.
Source: Budget Paper No 2, p 167.
Accessing parental leave pay from both employer and government
From 1 July 2016, the ability for individuals to access government assistance in the form of the existing Parental Leave Pay (PLP) scheme, in addition to any employer provided parental leave entitlements, will be removed.
Currently, individuals are able to access government assistance in the form of PLP as well as any employer‐provided parental leave entitlements.
The government will ensure that all primary carers would have access to parental leave payments that are at least equal to the maximum PLP benefit (currently 18 weeks at the national minimum wage). The government will achieve savings of $967.7m over four years through this measure.
Source: Budget Paper No 2, p 168.
End of Family Tax Benefit Part A large family supplement
The Family Tax Benefit (FTB) Part A large family supplement will cease from 1 July 2016.
Families will continue to receive a per child rate of FTB Part A for each eligible child in their family.
Source: Budget Paper No 2, p 151.
Family Tax Benefit Part A reduced portability
From 1 January 2016, families will only be able to receive Family Tax Benefit (FTB)Part A for six weeks in a 12‐month period while they are overseas. Currently, FTB Part A recipients who are overseas are able to receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks. Portability extension and exception provisions which allow longer portability under special circumstances will continue to apply. The government will achieve savings of $42.1m over five years through this measure.
Source: Budget Paper No 2, p 157.
Release of superannuation for a terminal medical condition
Early access to superannuation will be provided to people with a terminal medical condition with effect from 1 July 2015. Currently, patients must have two medical practitioners (including a specialist) certify that they are likely to die within one year to gain unrestricted tax‐free access to their superannuation balance. The government will change this period to two years. This will give terminally ill patients earlier access to their superannuation.
Source: Budget Paper No 2, p 29.
Lost and unclaimed superannuation
The government will implement a package of measures to reduce red tape for superannuation funds and individuals by removing redundant reporting obligations and by streamlining administrative arrangements for lost and unclaimed superannuation. The cost of implementing the measures will be met from within the existing resources of the ATO. The measures will have effect from 1 July 2016.
Source: Budget Paper No 2, p 173.
Supervisory levies to increase
The government will raise additional revenue of $46.9m over four years from 2015/16 by increasing the supervisory levies paid by financial institutions. It says that this will fully recover the cost of superannuation activities undertaken by the ATO and the Department of Human Services, consistent with the government’s cost recovery guidelines.
Source: Budget Paper No 2, p 17.
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