The big news on 12 May was the government handing down their second budget. There have been some significant changes announced in the budget and it’s important to understand how these changes will affect you. There wasn’t a lot of tax reform in the budget because of the government’s forthcoming White Paper on Tax Reform, which is considering a number of different aspects of the taxation system in terms of fairness, complexity and how it can be improved. The White Paper on Tax Reform will not be completed quickly. However, it will most likely form the government’s policies leading into the next election.
Major items of the May 2015 budget affecting small business and taxpayers include:
One of the key strategies in the budget is the strengthening of the Part IVA rules to introduce a tax integrity multinational anti-avoidance law. This is an attempt to stop multinationals diverting profits away from Australia. The new law will apply to tax benefits obtained from 1 January 2016 and will effectively target about 30 companies.
Small business tax cut
From 1 July 2015 (for the 2015/2016 financial year) the corporate tax rate for small business (those businesses turning over less than $2 million) will be cut by 1.5% to 28.5%. The majority of small businesses are not incorporated, therefore the government has also proposed that unincorporated businesses will receive a tax offset. The discount will be 5% of the income tax payable on the business income received from an unincorporated entity. This discount will be capped at $1,000 per individual for each income year, and is delivered as a tax offset through their end-of-year tax return.
Small business accelerated depreciation
Small businesses (turnover under $2 million) will be able to immediately write-off up to $20,000 spent on business assets installed and ready to use after 12 May 2015. Currently the limit is $1,000 per asset so this is a very significant difference. Accelerated depreciation will apply to assets purchased up to 1 July 2017.
Small business start-ups
As an incentive for entrepreneurs, some start-up costs such as legal and accounting advice can now be claimed up-front instead of having to be claimed over five years under current rules. This will apply from the 2015/2016 financial year.
Small business CGT structural changes relief
For small businesses that change structure (for example, changing from a sole trader to a trust, or company) there will be CGT rollover relief applied. This starts for the 2016/2017 financial year.
Small business FBT relief
There will no longer be FBT charged against businesses that provide employees with more than one qualifying work-related electronic portable device.
GST “Netflix” tax
From 1 July 2017, the government will impose GST on intangible offshore supplies made to Australian consumers. This includes the supply of digital content, games and software and to services performed offshore for customers in Australia.
Personal tax rates
There have been no changes to personal tax rates. The 2% temporary budget repair levy, as announced in last year’s budget, will apply for the 2015, 2016 and 2017 financial years.
Motor Vehicle Deductions
The government is removing two of the methods for claiming motor vehicle deductions (the 12 or original value method, and the 1/3 of actual expenses method). This leaves only the cents-per-kilometre method, and the log book method. The cents-per-kilometre method will change to a base 66c per kilometre, regardless of engine size. These changes will apply for the 2015/2016 year and moving forward.
Graduates with a HELP debt who reside overseas will now have an obligation to repay if their level of income is above the threshold.
Primary producers accelerated depreciation
All primary producers will immediately be able to deduct capital expenditure on fencing and water facilities, tanks, bores, irrigation channels, pumps, water towers and windmills. All fodder storage assets will be able to be depreciated over 3 years.
There were no major changes announced in the budget directly affecting superannuation.
Age pensions test
As announced on 7 May 2015, the age pensions asset test for a single homeowner will increase to $250,000, and to $375,000 for a homeowner couple from 1 January 2017. The assets test for non-homeowners will be set at $200,000 more than homeowners. The assets test taper rate will be increased from $1.50 per fortnight to $3.00 per fortnight for every $1,000 above the threshold.
From 1 July 2017 the child care rebate and child care benefit will be abolished. In its place there will be a single means-tested child care subsidy for all families. For family incomes up to $65,000 the subsidy will be 85% of the cost (or benchmark rate, whichever is lower) for each child. This will reduce to 50% of the cost for families with income of $170,000 and above. Families on incomes under $185,000 will no longer have a cap. For those families over $185,000 the cap will be $10,000 per child. There will also be an activity test introduced.
Paid parental leave
The double-dipping of parental leave (whereby a mother could claim parental leave from both their employer, and the government) will be abolished. This will apply from 1 July 2016.
Taking the budget into account
Some changes delivered by the budget are designed to encourage investment by small business owners and primary producers. Some small business people might want to consider changing structure in response to the CGT rollover relief. Take time to review our May 2015 budget round-up and if you’d like to get some advice on any particular aspect of the budget in relation to your current planning or decision-making, give me a call at Billings and Ellis.