Budget Newsletter 2015

Prepared to be underwhelmed unless of course you are in a Small Business!

Once again Investment doomsayers have all but disappeared with both superannuation and negative gearing left alone and a positive focus on boosting small business let’s all get on with it…

Key Points:

The key initiatives in this year’s Federal Budget are:

  • Many lower income young families will benefit from greater childcare subsidies
  • Families choosing not to vaccinate their children will miss out on childcare subsidies and family benefits
  • Pension assets test changes will benefit lower net worth retirees, however, higher net worth retirees may receive reduced entitlements
  • It will no longer be possible to claim both the full Government and employer provided parental leave payments
  • The company tax rate for eligible small businesses will be reduced by 1.5%
  • Unincorporated small businesses will receive a 5% tax discount
  • Small businesses will be able to fully deduct capital expenses of up to $20,000 p/a
  • Farmers’ capital expenditure on fencing and water facilities will be fully deductible

Summary Courtsey of MLC – Analysis found here.

CIA’s Tax comments:

Last week we saw the Victorian Budget and its enormous reliance on the property boom continuing. Without ever increasing stamp duties and land tax revenues Victoria would be facing deficits of epic proportions.

Then last night actual epic budget deficits continue (and will well into the future compounding on top of each other) are in their way enormously reliant on low interest rates funding the government debt.

This compounding (excuse the pun) our view for never locking loan interest rates (betting against the bank) as it is unimaginable to see them being able to raise rates in the near terms and we can possibly can see them going down.

CIA can just imagine senior treasury members talking with their counterparts at the Reserve Bank letting them know what increases in underlying rates would do the government budget (blow it out) and the flow through effect to the economy as a whole.

Whilst low interest rates are good news for investors and small business alike it is bad news for retirees relying on bank interest to provide an income and they will (or at least should consider) be seeking out higher yields in more balanced investments.

The economies underlying problems are still there (living beyond our revenues) and not a lot will change until something fundamentally changes, steady as she goes (keep borrowing) and prop it up with low interest rates.
Some will argue this is sensible i.e. wait for next global boom to fix it and others will say building up debt to prop up lifestyle is bad and will bite us – who knows.

What we do know and what we can rely on is with an election year budget coming in 2016 (we should have stability) all we can do is continue to reduce our own personal bad debts in a low interest rate environment (home loans, credit etc) and make the most of investing with a supportive low interest rate and even more so financing within small businesses.

Small business Summary

  • The tax rate for companies with an aggregated annual turnover of less than $2m will be reduced by 1.5% to (ie from 30% to 28.5%) from the 2015/16 income year. A 5% tax discount for individual taxpayers with business income from an unincorporated business with an aggregated annual turnover of less than $2m will also be introduced from the 2015/16 income year.
  • The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000. The rules preventing small businesses from re-entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended.
  • Start ups will be able to claim an immediate deduction for professional expenses associated with starting a business from the 2015/16 income year.
  • Capital gains tax relief will be available to small businesses for a CGT liability arising from the alteration of their legal structure from the 2016/17 income year.
  • Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from 1 July 2016.
  • The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.

Summary Courtesy of the Tax Institute – www.taxinstitute.com.au


Small business accelerated depreciation changes

The threshold below which small businesses can claim an immediate deduction for the cost of an asset they start to use or install ready for use will be temporarily increased from the current $1,000 to $20,000.

The $20,000 threshold will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. It is available for small businesses with an aggregate annual turnover of less than $2m.

Currently, under Subdiv 328-D of the Income Tax Assessment Act 1997, a small business can claim an immediate deduction for assets costing less than $1,000 to the extent the asset is used for tax deductible purposes.

With the increase of the threshold for the immediate deduction, assets valued at $20,000 or more that cannot be immediately deducted will be included in the entity’s small business pool and depreciated at 15% in the first income year and 30% each income year thereafter, in the same way the rules currently apply for assets costing $1,000 or more.

Similarly, over the period from 7.30pm (AEST) 12 May 2015 up to 30 June 2017, the balance in the small business pool can be immediately deducted if it is less than $20,000 (including an existing pool).

The current rules preventing a small business using the simplified depreciation regime for five years if it opts out of the regime will also be suspended until 30 June 2017.

From 1 July 2017, the $20,000 threshold for the immediate deduction of assets and the value of the pool will revert to $1,000.

While small businesses can access the simplified depreciation regime for a majority of capital assets, certain assets are not eligible (such as horticultural plants and in-house software) for which specific depreciation rules apply.

Source: Budget Paper No 2, p 19.

Personal Taxes

Major one:

  • The methods of calculating work-related car expense deductions will be modernised from the 2015/16 income year.

The “12% of original value method” and the “one-third of actual expenses method”, which are used by less than 2% of those who claim work-related car expenses, will be removed. The “cents per kilometre method” will be modernised by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles, with the Commissioner responsible for updating the rate in following years. The “logbook method” of calculating expenses will be retained. These changes will not affect leasing and salary sacrifice arrangements.

These changes will better align car expense deductions with the average costs of operating a motor vehicle.


Reforms to child care system

The government will provide an additional $3.2b over five years from 2014/15 to support families with child care so they can move into work, stay in work, train, study or undertake other recognised activities.

A new Child Care Subsidy will be introduced from 1 July 2017 which will support families where both parents work. Families meeting the activity test with annual incomes up to $60,000 will be eligible for a subsidy of 85% of the actual fee paid, up to an hourly fee cap. The subsidy will taper to 50% for eligible families with annual incomes of $165,000. The Child Care Subsidy will have no annual cap for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the Child Care Subsidy will be capped at $10,000 per child per year.

Under the new regime, parents must do a minimum of eight hours a fortnight of work, study or training to qualify for any child care support.

The income threshold for the maximum subsidy will be indexed by the Consumer Price Index (CPI) with other income thresholds aligned accordingly. Eligibility will be linked to the new activity test to better align receipt of the subsidy with hours of work, study or other recognised activities. The hourly fee cap in 2017/18 will be set at $11.55 for long day care, $10.70 for family day care, and $10.10 for outside school hours care. The hourly fee caps will be indexed by CPI.

Additional support will be provided to eligible families through a Child Care Safety Net providing targeted support to disadvantaged or vulnerable families to address barriers to accessing child care. The Child Care Safety Net consists of three programmes — the Additional Child Care Subsidy, a new Inclusion Support Programme and the Community Child Care Fund. Families with incomes of around $65,000 or less in 2017/18, who do not meet the activity test, will be eligible to receive up to 24 hours subsidised care per fortnight under the Child Care Safety Net.

A new Interim Home Based Carer Subsidy Programme will subsidise care provided by a nanny in a child’s home from 1 January 2016. The pilot programme will extend fee assistance to the parents of approximately 10,000 children. Families selected to participate will be those who are having difficulty accessing child care with sufficient flexibility. Support for families will be based on the Child Care Subsidy parameters, but with a fee cap of $7.00 per hour per child.

The Child Care Subsidy will replace the current child care fee assistance provided by the Child Care Benefit and Child Care Rebate. Accordingly, the existing Child Care Benefit and Child Care Rebate will be abolished from 1 July 2017.

Source: Budget Paper No 2, p 154-155; Prime Minister’s and Minister for Social Services’ joint press release “Jobs for families child care package delivers choice for families”, 10 May 2015.

Accessing parental leave pay from both employer and government

From 1 July 2016, the ability for individuals to access government assistance in the form of the existing Parental Leave Pay (PLP) scheme, in addition to any employer-provided parental leave entitlements, will be removed.

Currently, individuals are able to access government assistance in the form of PLP as well as any employer-provided parental leave entitlements.

The government will ensure that all primary carers would have access to parental leave payments that are at least equal to the maximum PLP benefit (currently 18 weeks at the national minimum wage).

The government will achieve savings of $967.7m over four years through this measure.

Where to find the Budget papers and Press Releases on the net

The Budget papers are available for viewing and downloading from the internet at the following sites:

  • Treasury – go here
  • Australian Government – go here
  • Parliament of Australia – go here
  • The Press Release from the Treasurer and Finance Minister can be found here
  • The Tax Institute media release – here