Federal Budget 2015 – What You Need To Know
written by Josh McMullen
The 2015 Federal Budget was handed down on Tuesday 12 May. Following are some of the headline announcements. If you have any questions on how these measures may impact you or your business, please contact your PT Partners Advisor.
GENERAL ECONOMIC CONDITIONS
In good news for business owners and the wider public, the Budget forecasts that economic conditions will improve in the coming years. According to the Budget, economic growth is forecast to increase from 2.5% this year to 2.75% in 2015/2016, before rising to a robust 3.5% by 2017/2018. The other key economic indicator, unemployment, is also predicted to improve. In good news for job-seekers, unemployment is expected to fall over the coming years from 6.5% in 2015/2016 to 5.75% by 2018/2019. All told, economic conditions, while far short of the “boom times” of the early 2000’s are at least, according to the Budget, on the upswing.
INDIVIDUALS and FAMILIES
- Car Expense Claims Simplified – The methods for claiming work-related car expenses will be simplified. The “12% of original value” method and the “one-third of actual expenses” method will be abolished (the “log-book method” will remain in place). Furthermore, the “cents per kilometre method” will be streamlined by replacing the three current rates based on engine size, with one rate set at 66 cents per km to apply to all motor vehicles. This change will result in a smaller deduction for those who drive vehicles with an engine capacity of 1,600cc (more than 0.8 litres) or more. Effective 1 July 2015.
- Age Pensioners Spared – The Government will not proceed with an unpopular measure from last year’s Budget whereby it was seeking to index the Age Pension in line with the Consumer Price Index (CPI) which would have resulted in smaller future increases. Going forward, the Age Pension will continue to be set 27.7% of Male Total Average Weekly Earnings. Also, despite pre-Budget speculation, the Government has not changed the asset exemption for the family home.
- Fly-In Fly-Out and Drive-In Drive-Outs Lose Out – The Zone Tax Offset will no longer be available for these types of workers where their normal residence is not within a “zone”. Effective 1 July 2015.
- Childcare Relief – A suite of measures have been announced to assist those who have children in childcare including:
- A new Child Care Subsidy (CCS) will be introduced. Families meeting the activity test with annual incomes up to $60,000 will be eligible for a subsidy of 85% of the actual fees paid, up to an hourly fee cap. The subsidy will taper to 50% for eligible families with annual incomes of $165,000. Families with annual incomes of $180,000 or more will have their CCS capped at $10,000 per child, per year. No annual cap will apply for families with income less than $180,000. The CCS will replace the Child Care Benefit, Child Care Rebate and the Jobs, Education and Training Child Care Fee Assistance payments. Effective 1 July 2017.
- A new Child Care Safety Net will be introduced to provide additional support to eligible disadvantaged or vulnerable families.
- Immunise or Lose Out – In order to receive childcare subsidies and the Family Tax Benefit (Part A) year-end supplement, children will need to be up-to-date with all childhood immunisations. Effective 1 January 2016.
- PPL Double-Dip Removed – Individuals will no longer be able to access both the Government paid parental leave (PPL) scheme and any PPL that is provided by their employer. They will only be able to access one of these. Effective 1 July 2016.
- Family Tax Benefits Tightened – Two Family Tax Benefit (FTB) measures were announced:
- Family Tax Benefit (Part A) large family supplement will cease from 1 July 2016, and
- Families will only be able to receive FTB (Part A) for six weeks in a 12-month period while they are overseas. Currently, recipients who are overseas are able to receive their usual rate for six weeks and then the base rate for a further 50 weeks.
- Overseas HELP Debts Chased – The HELP (HECS) repayment scheme will now apply to individuals residing overseas for six months or more if their worldwide income exceeds the standard HELP repayment thresholds (applying to both new and existing debts). From 1 January 2016, individuals going overseas for six months or more must register with the ATO. Those already overseas must register by 1 July 2017. Repayment obligations commence 1 July 2017.
- Company Tax Cut – The company tax rate will be cut by 1.5% (from 30% to 28.5%) for companies with an annual aggregated turnover of less than $2 million. However the maximum franking credit rate for a distribution will remain at 30%. Effective from the 2015/2016 year.
- Tax Cut for Other Small Businesses – A new 5% tax discount will be given to individuals with business income from an unincorporated business (e.g. sole trader, trust or partnership structure) that has an aggregated turnover of less than $2 million. The discount, to be provided by way 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, per year. Effective from 2015/2016. This is a welcome measure as many small businesses are not incorporated and thus would not derive any benefit from the above-mentioned corporate tax reduction.
- Accelerated Depreciation – The threshold at which small businesses can claim an immediate deduction for a depreciating asset (i.e. totally write it off) will be increased from $1,000 to $20,000. This will apply for assets that are installed ready for use between 12 May 2015 and 30 June 2017. To be clear, this will not result in any extra cash for eligible businesses, but it will provide cash flow relief in the sense that your deductions in respect of these assets will be brought forward.
- Assistance for Start-Ups – An immediate deduction will be available for professional expenses associated with starting a new business (such as legal or accounting advice in establishing your business structure). Currently some of these expenses are only deductible over a five year period under the Blackhole Expenditure provisions contained in the Tax Act. Effective from 2015/2016.
- CGT Relief for Restructures – Small businesses will be permitted to change their legal structure (e.g. from a sole trader to a trust) without attracting a CGT liability. Currently CGT relief is only available where sole traders, trustees or partners in a partnership incorporate as a company. This measure will apply for small businesses who change entity type from 2016/2017. This is a welcome reform as small businesses often desire a change of structure (for example, a number of small businesses start out as sole traders but, as their business grows, this structure no longer meets their needs).
FRINGE BENEFITS TAX (FBT)
- More Work-Related Electronic Devices – Businesses with a turnover of less than $2 million will now be permitted to provide employees with more than one eligible work-related portable electronic device during the year, without attracting FBT. Currently, only one such device can be provided each year per worker, unless the second or subsequent device performs substantially different functions or is a replacement for the original device. This change will allow employers to provide, for example, a laptop and a tablet to an employee during the same year without attracting FBT. Effective 1 April 2016.
- Not For Profit Crackdown – A separate, single grossed-up cap of $5,000 will apply for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of not-for-profits. Such benefits exceeding this cap can also be counted in calculating whether an employee exceeds their existing FBT exemption or rebate cap. Furthermore, all meal entertainment benefits will become reportable. Under current law, these employees can salary sacrifice these benefits with no FBT payable and without it being reported. Effective 1 April 2016.
- “Netflix Tax” – Australian consumers will soon be forced to pay GST on offshore intangible supplies. “Intangibles” will be defined as anything other than goods or real property (such as digital products including streaming or downloading movies, music, apps, games, e-books, as well as consultancy and professional services). With the world becoming increasingly global, with the ability to purchase and download many items online, this change is arguably one of the most significant to the GST system since its introduction way back in 2000. Effective 1 July 2017.
- Multi-National Crackdown – There will be a general crackdown on tax avoidance by multi-national enterprises. In the main, this will be achieved by strengthening the anti-avoidance provisions of the Tax Act.
- Superannuation and Terminal Illness – Although the Government kept its promise of making no major adverse changes to superannuation, it did provide relief for those diagnosed with terminal illness. Currently, individuals can access their superannuation early if they have two medical practitioners certify that they are likely to die within one year. This period will be increased to two years. Effective 1 July 2015.
- Employee Share Schemes – To complement the generous concessions it has already announced to the tax treatment of employee share schemes (commencing 1 July 2015), further concessions were announced in the Budget and will commence from the same date. Most significantly, the CGT discount will apply to employee share scheme 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.
Josh McMullen is a senior tax writer at PT Partners.