2015 Federal Budget Update
Described by Joe Hockey as the "fair" budget, every new spending measure is paid for by savings elsewhere. Overall message is that the budget deficit is here to stay for some time. There are some key themes that emerge from the budget:
- stimulating the small business sector and startups by providing concessions to small business to promote growth
- childcare reforms to help the growth in the economy by encouraging workplace participation via more accessible and affordable childcare
- ensuring multinationals pay their fair share of tax in Australia
We look at specific areas below:
Personal Income Tax
- no changes to personal tax rates, including the Temporary Budget Repair Levy which remains in place until 2016-17
- change to work-related car expense deductions - the '12% of original cost' and '1/3rd of actual expenses' methods abolished from 1 July 2015; one rate of 66 cents per kilometre for all cars
- workers who are employed under 'fly-in fly-out' and 'drive-in drive-out' arrangements will no longer be eligible for the offset where their normal residence is not within a 'zone' (from 1 July 2015)
- Australians residing overseas repay both new and existing HELP debts when the minimum HELP repayment threshold is reached (from 1 July 2016)
- people here on work holidays will no longer have access to tax-free thresholds (from 1 July 2016)
- cessation of Low Income Supplement from 1 July 2017
With a goal of supporting small business and encouraging growth, the budget targets small business - those with total turnover less than $2m:
- individual taxpayers - tax discount of 5% of tax payable on business income up to $1,000 (from 1 July 2015)
- companies - tax rate cut by 1.5% to 28.5%, franking credit rate remains at 30% (from 1 July 2015)
- immediate deduction for assets costing less than $20,000, includes any remaining pool balances - from 13 May 2015 until 30 June 2017
- CGT rollover relief for changes to entity structures (from 1 July 2016)
- FBT exemption on providing employees with more than one qualifying work-related portable electronic device
Superannuation and Pensions
- no new taxes on superannuation
- despite speculation, limited recourse borrowing arrangements (LRBAs) in SMSFs were not addressed
- SMSF trustee penalties will increase from $170 to $180 per penalty unit
- increase in the life expectancy period for patients with a terminal illness to 24 months from 1 July 2015, providing earlier access to superannuation benefits.
- increase in the Assets Test thresholds and the Assets Test taper rate for pensioners - retirees can have a greater amount of assets (in addition to family home) before pension entitlement is reduced
- removing the former home rental income exemption for aged care residents entering care from 1 January 2016
- no changes to indexation of the Age Pension and the deeming thresholds
Families and Young Workers
- removing the Parental Leave Pay scheme from those receiving employer-paid parental leave entitlements
- introduction of a single child care subsidy which is means tested
- increase in the Medicare levy low-income thresholds for families
- cessation of the Large Family Supplement
- eligibility age for Newstart Allowance to increase from 22 to 25 years of age
- all new claimants of Newstart or Youth Allowances to engage in additional job search activities before receiving income support
- 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.
- extending the increases to the PBS safety net thresholds to 2018-19
Other Business Measures
Accelerated depreciation for primary producers
From 1 July 2016 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) and depreciate over three years all capital expenditure on fodder storage assets (such as silos and tanks used to store grain and other animal feed).
Immediate deduction for professional expenses
From the 2015/16 income year businesses will be able to immediately deduct a range of professional expenses associated with starting a new business; including legal and accounting advice on establishing a company, trust or partnership. Currently these expenses are deducted over five years.
Fringe Benefits Tax meal and entertainment concessions for Non-for-profit employees to be capped
From 1 April 2016, a single grossed-up cap of $5,000 will be introduced for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of certain non-for-profit organisations. Amounts in excess of the cap will be counted towards the standard Fringe Benefits Tax exemption caps for other benefits. All meal entertainment benefits will become reportable for the calculation of various surcharges.
Employee Share Schemes
As part of the Mid-Year Economic and Fiscal Outlook 2014-15 the Government released draft legislation to implement changes to the taxation of employee share schemes. The changes were to re-introduce the deferral of taxation on employee shares and options arrangements and the introduction of new concessions for small start-up companies. Some minor amendments to make schemes more accessible were identified during consultation. The proposed legislation including the minor amendments will take effect from 1 July 2015.
Goods and Services Tax (GST) extended to offshore supplies of services and intangibles to Australian consumers ('Netflix tax')
The Government intends to introduce changes so that Goods and Services Tax will apply to the purchase of digital products and services from overseas suppliers from 1 July 2017. This will bring Australia into line with the European Union which has implemented similar changes with effect from 1 January 2015.
Combating multinational tax avoidance
The Government has announced measures to combat tax avoidance by multinationals with global revenues of $1bn or more. From 1 January 2016 new tax integrity measures will be introduced to counter arrangements used to avoid a taxable presence in Australia, where:
- the activities of an Australian entity are integral to the Australian customer's decision to purchase goods or services;
- the contract is entered into with a foreign related party to the Australian entity;
- the profit from the Australian sales is booked overseas and subject to low or no global tax; and
- one of the principal purposes of the arrangement is to obtain a tax benefit.
From 1 July 2015 the maximum penalties for such companies that enter into tax avoidance and profit shifting will be doubled. In addition, the OECD's new transfer pricing documentation standards will be implemented from 1 July 2016. The Government has also indicated its intention to implement the OECD initiatives in respect of hybrid mismatches and treaty abuse. These are two key aspects of the BEPS project.