Last year’s tough budget has been followed up with a budget aimed squarely at growing the economy. According to Federal Treasurer Joe Hockey, this is a “responsible, measured and fair” budget with generous tax cuts for small business and a range of youth unemployment and infrastructure spending initiatives designed to stimulate growth.
Importantly, the government kept to its promise of no new taxes on superannuation. However, the budget contains significant changes to the age pension assets test and childcare subsidies.
Here is a summary of some of the main points and how they may impact your personal and business situation.
Supporting Small Business
Tax cuts and discounts
The Government will provide a tax cut for all small businesses with aggregated annual turnover of less than $2m of 1.5%. This will reduce the company tax rate for small businesses from 30% to 28.5% for the 2015-16 financial year.
Immediate tax deduction for items valued less than $20,000
The Government will allow small businesses with aggregated annual turnover of less than $2m, the immediate deduction of assets for that they start to use of install ready for use, provided the asset costs less than $20,000. This will apply to assets acquired and installed ready for use between 7.30pm 12 May 2015 to 30 June 2017.
Changes to the FBT system for work-related electronic devices
The Government will allow a FBT exemption from 1 April 2016 for small businesses with aggregated annual turnover of less than $2m. This FBT exemption will apply to those small businesses that provide employees with more than one qualifying work-related portable electronic device.
The Government is encouraging start-ups by implementing the following incentives:
- Immediate deduction of professional expenses incurred when beginning a business, such as legal expenses on establishing a company, trust or partnership. This replaces the existing rule which requires them to be written off over 5-years.
- Streamlined business registration processes will make it quicker and simpler to set up a new business – a single online
registration sire will be establishes to facilitate business registration.
- Removing obstacles to crowd-sourced equity funding to help promote small business access to finance.
The Government has held firm on its commitment not to announce any adverse superannuation changes in this term of office. However, superannuation will form part of the Tax White Paper discussion and the next election campaign.
Some areas of extended access, increase coverage and implementation include:
- Terminal medical conditions
- Full cost recovery of superannuation activities
- Cutting red tape on lost and unclaimed superannuation
Social Security and Family Payments
Low Income Support – cessation from 1 July 2017
Not proceeding with the measure to reset the incomes test deeming rate thresholds
Social security income test – cap deductible amount for Defined Benefit Income at 10% from 1 January 2016
Social security assets test – rebalance thresholds and taper rates
The Government confirmed that the Age Pension assets test threshold for a single homeowner will be increased to $250,000 (up from $202,000) and $375,000 for a homeowner couple (up from $286,500) from 1 January 2017. The assets test threshold (or assets free area) for non-homeowners will be increased to $450,000 (single) and $575,000 (couple).
The assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. The measures will commence from 1 January 2017.
Pensioners who lose 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.
The Government will also be dropping its 2014 Budget proposal to index the Age Pension to CPI.
Major childcare payments revamp
The Government announced it will establish a new and simpler mainstream Child Care Subsidy from 1 July 2017. Key points include the following:
- Abolition of the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programs.
- A single means tested Child Care Subsidy for all families, subject to a new activity test, for up to 100 hours of subsidized care per child per fortnight.
- Child care subsidies will remain linked to immunization requirements strengthened, from 1 January 2016, under the Government's “no jab, no pay” policy.
Paid parental leave – no double-dipping
The Treasurer said the Government will stop people from claiming parental leave payments from both the Government and their employers – he said this was effectively double dipping. This would apply from 1 July 2016.
Personal tax rates: budget deficit levy not to be extended
The 2015–2016 Budget did not make any changes to the current personal tax rates, although in the lead-up to the Budget, the Treasurer indicated that the 2% budget deficit levy (tax) on incomes over $180,000 would not be extended beyond its initial three years.
The levy was announced in last year's Budget and applies for three years from 1 July 2014. It is due to cease at the end of the 2016–2017 financial year.
Work-related car expenses simplified
The Budget confirmed that the 12% of original value and one-third of actual expenses incurred methods would be discontinued. That means only the cents per km and logbook methods remain. The Government will set 66 cents per kilometre as the rate for using the cents per km method, irrespective of a car's engine size. The changes will apply from the 2015–2016 income year.
Medicare levy low-income thresholds for 2014–2015
From the 2014–2015 income year, the Medicare levy low-income threshold for singles will be increased to $20,896 (up from $20,542 for 2013–2014). For couples with no children, the threshold will be increased to $35,261 (up from $34,367 for 2013–2014). The additional amount of threshold for each dependent child or student will be increased to $3,238 (up from $3,156).
For single seniors and pensioners, the Medicare levy low-income threshold will be increased to $33,044 (up from $32,279). This threshold applies to those entitled to the seniors and pensioners tax offset (SAPTO). The measure will apply from 1 July 2014.
Temporary working holiday makers – tax residency rules to change
The Government will change the tax residency rules 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. This means they will be taxed at 32.5% from their first dollar of income.
This measure will apply from 1 July 2016.
Please contact your professional adviser at WLM Financial Services to discuss how the Budget may affect you and how to best plan for your future.