Federal Budget Bulletin - May 2015
In a perceived attempt to undo some of the political damage and resulting loss of consumer and business confidence, this Budget delivers various favourable initiatives for families and small business, while containing no real reform to address the growing budget deficits. The projections show an expected deficit decline of only 0.5% of GDP per year on average, over the four years from 2015/16 to 2018/19. This is mostly attributable to expected increased tax collections from personal income tax, due to ‘bracket creep’ as more taxpayers get pushed into higher tax brackets, which remain unindexed.
To the relief of many, there are no changes to superannuation, however some changes have been made to the Age Pension. These measures will increase the number of people eligible for a full Age Pension but reduce the level of assets at which a part Age Pension tapers off. The Government also abandoned the previously announced changes to the indexing of the Age Pension and the resetting of the deeming thresholds.
A number of measures were introduced to encourage growth in small business, including a reduction in the company tax rate to 28.5% and a 5% tax discount for small unincorporated businesses, and an immediate tax deduction for the acquisition of assets costing under $20,000.
The ability of the Government to implement the newly announced, as well as the currently outstanding measures remains uncertain given the challenges faced by the Government in the Senate to date.
Changes effective Budget Night – 7.30pm (AEST) 12 May 2015
Immediate tax deduction for assets costing less than $20,000
The government will significantly expand accelerated depreciation for small businesses. It will do this by allowing small businesses with aggregate annual turnover of less than $2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000 (currently, an immediate write-off is generally available for assets costing less than $1,000).
This will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017.
Assets costing $20,000 or more (which cannot be immediately deducted) can continue to be placed in the 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).
It should also be remembered that the threshold applies on a per asset basis, so several assets each costing up to $20,000 would qualify for the write-off if installed ready for use before 30 June 2017.
From 1 July 2017, the rules for the immediate depreciation of assets and the value of the pool will revert to the current ‘less than $1,000’ threshold.
Changes effective 1 July 2015 (2015/16 income year)
Tax cuts for small business
The government has announced a tax cut to all small businesses from the 2015/16 income year:
- Reduction in company tax rate – The company tax rate will be reduced from 30% to 28.5% for companies with aggregated annual turnover of less than $2 million. It is expected that this reduction will apply to small companies carrying on active businesses, rather than deriving passive income from investments such as rental properties or securities. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30% rate on all their taxable income.
The current maximum franking credit rate for a distribution will remain at 30% for all companies, maintaining the existing arrangements for investors, such as self-funded retirees.
- 5% discount on tax payable for other taxpayers – Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received by an unincorporated small business entity.
The discount will be capped at $1,000 per individual for each income year, and will be delivered as a tax offset. This tax offset will be exhausted at $20,000 of tax payable which equates to taxable income of approximately $89,500.
Work-related car expenses
Currently, an individual (or a partnership which includes at least one individual partner) can claim car expense deductions in respect of a car owned or leased using one of four methods. The Government has announced that it will abolish the “12 percent of original value method” and the “one-third of actual expenses method” for calculating an individual’s work-related car expense deductions.
The “cents per kilometre method” will also be amended to replace the three current rates based on engine size with one flat rate set at 66 cents per kilometre. The changes to the “cents per kilometre method” will result in reduced work-related car expense claims for vehicles with engine sizes above 1,600cc, whilst vehicles with engine sizes less than 1,600cc will enjoy a slightly increased claim. These changes are not proposed to affect leasing and salary sacrifice arrangements.
There will be no changes to the “logbook method” rules.
Immediate deduction for professional expenses on commencing a new business
Currently, some professional costs associated with commencing a new business (i.e., black hole expenditure) are deducted over a five-year period.
From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
Release of superannuation for terminal medical condition – relaxing the release criteria
Currently, before an individual with a terminal medical condition can access their preserved superannuation benefits, generally as a tax-free lump sum, two registered medical practitioners (including a specialist) must certify, jointly or separately, that the person is likely to die within a one-year period.
From 1 July 2015, the government will extend access to superannuation for people with a terminal medical condition by extending the above certification period (i.e., the period within which the individual is likely to die) to two years. This will give terminally ill patients earlier access to their superannuation entitlements.
Changes effective 1 July 2016 (2016/17 income year)
Capital gains tax roll-over relief for small business restructures
Capital gains tax (“CGT”) roll-over relief is currently available for individuals and trusts who move to a company structure, but other entity type changes have the potential to trigger a CGT liability.
From 1 July 2016, the government will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.
While there is very little detail on the proposed measure at this stage, it is hoped that the measure will extend relief to situations where a sole trader wishes to move to a trust or partnership structure, or where a company structure wishes to adopt a trust structure for its business.
Accelerated depreciation for primary producers
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. For income years commencing on or after 1 July 2016 (i.e., from the 2017 income year), the government will allow all primary producers to:
- immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills; and
- depreciate all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed over three years.
This will be a permanent change and represents a substantial acceleration from the current regime.
Relaxing the FBT exemption for work-related electronic devices
Currently, an FBT exemption applies in respect of eligible work-related items such as portable electronic devices, however the FBT exemption generally does not apply to multiple items provided by an employer to an employee in the one FBT year, where those multiple items have substantially identical functions.
From 1 April 2016, the FBT exemption relating to work-related portable electronic devices will be extended to allow small business employers with an aggregated turnover of less than $2 million to provide more than one substantially similar work-related portable electronic device annually to each employee (e.g. a tablet and a phablet). It appears that, consistent with the current rules, the FBT exemption will only apply if the relevant item is primarily for use in the employee’s employment.
This measure will remove confusion where there is a function overlap between different products (such as between a tablet and a laptop) provided to employees in the same year.
Capping FBT threshold for salary sacrificed meal entertainment and entertainment facility leasing expenses (‘EFLEs’)
Currently, certain employers are capped on the amount of concessionally taxed fringe benefits they can provide to their employees, as follows:
- FBT-rebatable employers (e.g., certain societies, associations or clubs) are subject to a $30,000 cap on the amount of fringe benefits (which are eligible for an FBT rebate) they can provide to each of their employees.
- Public benevolent institutions and health promotion charities are subject to a $30,000 cap on the amount of FBT-exempt benefits they can provide to each of their employees.
- Public and non-profit hospitals, and ambulance services, are subject to a $17,000 cap on the amount of FBT-exempt benefits they can provide to each of their employees.
Certain benefits are currently excluded from these caps, such as the following:
- Meal entertainment-related benefits (e.g., restaurant meals); and
- EFLEs (e.g., holiday accommodation, and venue hire for a special event, such as a wedding).
Additionally, meal entertainment-related benefits and EFLEs are also currently excluded from the FBT payment summary reporting rules.
From 1 April 2016, the government will introduce a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and EFLEs (meal entertainment benefits). Where these benefits exceed the separate grossed-up cap of $5,000, they can also be counted in calculating whether an employee exceeds their existing (relevant) cap.
Importantly, the changes will not affect any meal entertainment or EFLE expenses typically provided by employers in the ordinary course of business (i.e. not under salary packaging arrangements – e.g. meals with clients, year-end functions etc).
Furthermore, all meal entertainment benefits will become reportable.
Other Budget announcements
Recovery of HECS/HELP repayments from overseas debtors
The government will extend the HECS/HELP repayment framework to debtors residing overseas for six months or more if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.
The new arrangements will apply from 1 January 2016 to new and existing debts. From this date, debtors going overseas for more than six months will be required to register with the ATO, while those already overseas will have until 1 July 2017 to register. Repayment obligations will commence from 1 July 2017.
Change to the asset test thresholds for the Aged Pension
The government will increase the asset test thresholds at which pensions are reduced once the threshold is exceeded, as follows:
- For a single person – a full pension may be received if the relevant value of included assets (i.e., assets other than excluded assets) is less than $250,000 for a homeowner (currently $202,000).
- For a pensioner couple – a full pension may be received if the relevant combined value of included assets is less than $375,000 for a homeowner (currently $286,500).
Non-home owner pensioners will also benefit by an increase in their threshold to $200,000 more than homeowner pensioners.
However, the current ‘taper rate’ at which the age pension begins to phase out will be increased from $1.50 to $3 for every $1,000 of assets over the relevant assets test threshold.
Pensioners who lose pension entitlements 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.
Tasmanian Freight Equalisation Scheme
The Government will extend the Tasmanian Freight Equalisation Scheme (TFES) from 1 January 2016 to include a subsidy at a flat rate of $700 per twenty‑foot equivalent unit for exports, at an estimated cost to the Commonwealth of $202.9 million over four years.
The current scheme for domestic goods will be retained. In addition to this extension, the Government will reduce the time‑frame for TFES claims from two years to six months from the time of shipment.
The budget papers also note that the scope of the "Tasmanian Freight Revitalisation project" has been "reduced".
Boost to Tasmanian wage subsidy
The budget papers also reveal a doubling of the payment available under the Tasmanian Jobs program.
The wage subsidy, which started in 2014, had been capped at $3,250, which was paid to businesses that provided jobs to people who had been unemployed for at least six months. The payment has now been doubled, and from 13 May 2015 will be capped at $6,500.
Measures not proceeding
Pension indexation changes not proceeding
The Government has decided not to proceed with the proposed 2014-15 measure to link pension increases to inflation only. Payment rates will continue to be indexed under current arrangements by the higher of increases in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI) and benchmarked against Male Total Average Weekly Earnings (MTAWE).
Deeming and Income Test-threshold changes not proceeding
The Government will not proceed with the 2014-15 measures to reset the deeming thresholds and change the indexation of the pension Income Test threshold areas and deeming thresholds. The deeming thresholds remain $48,000 for singles and $79,600 for couples, and the pension Income Test-free areas and deeming thresholds will continue to be indexed annually by CPI.
DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein. The content of this newsletter does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. © Ruddicks 2015