PERSONAL TAX RATES The income tax thresholds and tax rates for residents (excluding the Medicare levy) are: 2014-2015 Income year (current) 2015-17 Income years Taxable income Rate Taxable income Rate ($) ($) 0 18,200 0% 0 19,400 0% 18,201-37,000 19% 19,401-37,000 19% 37,001-80,000 32.5% 37,001-80,000 33% 80,001-180,000 37% 80,001-180,000 37% 180,001+ 47% 180,001+ 47% With Medicare Levy included, the top marginal rate would be 49% from 1 July 2015 to 30 June 2017. SMALL BUSINESS CHANGE TO SMALL BUSINESS TAX RATE The tax rate for companies with an aggregated annual turnover of less than $2m will be reduced by 1.5% from the 2015/16 income year. From 1 July 2015, the company tax rate applying to small businesses with turnover less than $2m, will fall from the current rate of 30% to 28.5%. Companies with an aggregated annual turnover of $2m or above will continue to be subject to the current 30% rate on all their taxable income. The current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies. As the tax cut will apply from 1 July 2015, companies with PAYG instalments can benefit from their first payment after 1 July 2015. From the 2015/16 income year, small business taxpayers with business income not generated through a company will be eligible for a tax discount of 5% of the income tax payable on their business income, capped at $1,000 per individual for each income year. The taxpayer will calculate their business and personal income in the same way, but receive a 5% discount on tax payable on their business income, claimed as a tax offset through their end-of-year tax return. Date of effect 1 July 2015.
SMALL BUSINESS ACCELERATED WRITE OFF Small businesses who previously claimed a deduction for new assets over several years will now be able to deduct in full expenditure on new depreciable assets costing less than $20,000, irrespective of the number of new assets they purchase, from 7:30pm on budget night up to 30 June 2017. Assets valued at more than $20,000 can be added together ( pooled ) and depreciated at the same rate which is 15% in the first income year, and 30% a year thereafter. When the value of the pool falls below $20,000, it can be immediately deducted, until the end of June 2017. 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. Date of effect 7.30pm, 12 May 2015. IMMEDIATE DEDUCTION FOR BUSINESS ESTABLISHMENT COSTS New companies will no longer have to wait for five years before writing off start-up professional costs. Many people need the advice of lawyers and accountants when they start a business. An immediate deduction will be available for professional expenses that are associated with starting a new business, such as professional, legal and accounting advice or legal expenses to establish a company, trust or partnership. The deduction will be available to start-up businesses from the 2015/16 income year. Currently, such expenses are deductible over five years under s 40-880 of the Income Tax Assessment Act 1997, the blackhole expenditure provision. CGT RELIEF REFORMS FOR SMALL BUSINESS RESTRUCTURES Small business owners may change the legal structure of their business without attracting a capital gains tax (CGT) liability from the 2016/17 income year. This measure will be available for small businesses with an aggregated annual turnover of less than $2m. It will enable small businesses to alter their legal structure as they find suitable without being impeded by potential CGT implications.
CGT roll-over relief is currently available under Div. 122 of the Income Tax Assessment Act 1997 for individuals, trustees or partners in a partnership that incorporate as a company but all other entity type changes have the potential to trigger a CGT liability. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established. FBT EXEMPTION ON ELECTRONIC DEVICES The Government has announced an exemption from FBT for portable electronic work related devices provided to employees by small businesses. This expands on the existing exemption in that multiple devices will now be eligible for the exemption (previously only one device), even where the devices largely perform the same function. Date of effect 1 April 2016. GOODS AND SERVICES TAX THE "NETFLIX TAX" The Government has announced, and released draft legislation, in relation to imposing GST on intangible supplies made to Australian consumers by offshore suppliers, with effect from 1 July 2017. Online services based outside of Australia those that sell music, software and movies will cost more as the Government prepares to broaden the GST legislation. This means that supplies which were previously outside the Australian GST net because they were not connected with Australia, and were supplied by an unregistered entity, will now be a taxable supply. This change will result in supplies of digital products, such as streaming or downloading of movies, music, apps, games, e-books, as well as other services such as consultancy and professional services, receiving similar GST treatment whether they are supplied by a local or foreign supplier. The measure has already been cited in the media as the "Netflix" tax. The broad details of the new GST tax are as follows: the tax will be imposed on intangible supplies, such as supplies of digital content, games, software but will also extend to services performed offshore for customers within Australia (ie. the customer needs to be an Australian resident);
the liability for the GST will rest either with the supplier or the operator of an electronic distribution service, and it was confirmed no reverse charge mechanism would be utilised in this regard; GST will be imposed at a rate of 10% on the value of the intangible supply; at this stage it would appear all supplies will be caught, regardless of the value of the supply, which means even a $10 supply will be liable for the tax. However, there is scope in the draft regulations for this to be changed at a later date; only supplies made to consumers who are not registered or required to be registered will be caught, or those entities who are registered but do not acquire the supply for a creditable purpose (eg. business-to-business transactions will be exempt); and the measures will apply to supplies made on or after 1 July 2017. Date of effect - On or after 1 July 2017. CHANGES TO GOING CONCERN RULES NOT PROCEEDING The previously announced measure to replace the current GST-free treatment for supplies of going concerns and certain farmland sales with a reverse charge mechanism will not proceed. The Government had previously announced that it would proceed with the measure in December 2013. However, while designing the implementation of this measure, it became apparent that proceeding with this measure would have resulted in adverse consequences for taxpayers, which would have created an unrealistic tax burden for the taxpayer. PERSONAL TAXATION WORK RELATED MOTOR VEHICLE DEDUCTIONS Two of the four motor vehicle expense claim methods will be removed, being the 12% of cost method and the one-third of actual expenses method. Individuals will need to use either the cents per kilometre method or the logbook method. The cents per kilometre method (typically used by individuals who drive less than 5,000 business kilometres per year) currently has three different rates depending on the engine size of the motor vehicle. These rates will be replaced by a single rate of $0.66 per kilometre that will apply to all motor vehicles, regardless of engine size. Date of effect 1 July 2015.
MEDICARE LEVY THRESHOLDS FOR FAMILIES INCREASED From the 2014-15 income tax year, the Medicare Levy low income thresholds will be increased by $894 to $35,261. The additional amount of threshold for each dependent child or student will increase from $3,156 to $3,238 for 2014-15. The Medicare Levy low income threshold for individuals will increase by $351 to $20,896. The Senior Australians Medicare Levy low income threshold will increase to $33,044, up from $32,279. This threshold applies to those entitled to the seniors and pensioner tax offset. Date of effect 1 July 2014. UPDATES TO LIST OF SPECIFICALLY LISTED DEDUCTIBLE GIFT RECIPIENTS Two organisations have been added to the list of specifically listed deductible gift recipients and two organisations have had their listings extended. Since the 2014/15 Mid-Year Economic and Fiscal Outlook, the following organisations have been approved as specifically listed deductible gift recipients: (DGRs) from 1 January 2015: International Jewish Relief Limited, and National Apology Foundation. Date of effect 1 January 2015. The following organisations which are currently listed as deductible gift recipients have had their listings extended, to expire on 31 December 2017: National Boer War Memorial Association, and Australian Peacekeeping Memorial Project. TEMPORARY WORKING HOLIDAY MAKERS TAX RESIDENCY RULES TO CHANGE The tax residency rules will change 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 that they will be taxed at 32.5% from their first dollar of income.
Currently, if they satisfy the tax residency rules, which generally means that they are in Australia for more than six months, they will qualify for the tax-free threshold of $18,200 before they are taxed. HELP DEBT OVERSEAS STUDENT PAYMENT OBLIGATIONS New arrangements will apply from 1 January 2016 requiring Australians residing overseas to repay their HELP debt. The arrangements will apply to both new and existing debts. From this date, debtors going overseas for more than six months will be required to register with the ATO, while those already overseas will have until 1 July 2017 to register. Only those graduates living overseas and earning incomes above the minimum HELP repayment threshold (AUD$53,345 in 2014-2015) will be required to make repayments. Repayment obligations will commence form 1 July 2017, for income earned in the 2016-2017 financial year. Date of effect 1 July 2017. BUSINESS TAXATION FBT - MEAL & ENTERTAINMENT FOR NOT-FOR-PROFIT EMPLOYEES CAPPED The Government will introduce a separate grossed-up cap of $5,000 per year on the FBT concessions for salary-sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of certain not-for-profit organisations (that is, public and not-for-profit hospitals, public ambulance services, public benevolent institutions (except hospitals) and health promotion charities). The FBT cap on exempt benefits provided by these not-for-profit organisations is currently (from 1 April 2015) $17,667 for public and not-for-profit hospitals and public ambulance services and $31,177 for public benevolent institutions (except hospitals) and health promotion charities. In addition to the capped exemptions, employees of not-for-profit organisations can also salary sacrifice meal entertainment benefits with no FBT being payable by the employer. These benefits will be subject to a separate grossedup cap of $5,000 per year per employee. All meal entertainment benefits will also become reportable benefits, thereby included in the employee's reportable fringe benefits amount for an income year. Currently, meal entertainment fringe benefits are excluded benefits and not included in the calculation of an employee's reportable fringe benefits amount. Date of effect 1 April 2016.
ACCELERATED DEPRECIATION FOR PRIMARY PRODUCERS The Government will allow all primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills. The Government will also allow primary producers to depreciate over 3 years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed. Currently, the effective life for fences is up to 30 years, water facilities is 3 years and fodder storage assets is up to 50 years. The measure aims to improve resilience for those primary producers who face drought, assist with cash flow and reduce red tape by removing the need for primary producers to track expenditure over time. SUPERANNUATION NO MAJOR SUPERANNUATION TAX CHANGES BUT REFORM PROCESS LOOMS The Treasurer pledged that there would be no new taxes on superannuation under this Government, but a range of related measures were announced, including changes to the Age Pension asset test. The Age Pension assets test threshold for a single homeowner will be increased to $250,000 (up from $202,000) and to $375,000 for a homeowner couple (up from $286,500) from 1 January 2017. For nonhomeowners, these thresholds will be $200,000 higher, that is, $450,000 for a single person and $575,000 for a couple. However, the taper rate at which the Age Pension begins to phase out above these thresholds will be increased from $1.50 to $3.00 per fortnight for each $1,000 of assets over the relevant assets test threshold. This means that for a homeowner couple, the maximum value of assets they can hold to qualify for a part pension will be reduced to approximately $823,000, down from $1.151 million. For a single homeowner, this reduces from $775,500 to $547,000. Date of effect 1 January 2017. DEFINED BENEFIT SUPER SCHEME CAP A 10% cap will apply to the deductible amount for pension income received from a defined benefit superannuation scheme for the purposes of the social security income test.
This will apply mainly to high-income members of some public sector and large corporate defined benefit schemes who, under the current arrangements are able to have a large portion of their superannuation income excluded from the pension income test. Date of effect 1 January 2016. SMSFs AND LIMITED RECOURSE BORROWINGS The Government did not make any announcements in the Budget in relation to recommendations made in the Murray Financial System Inquiry (FSI) to remove the borrowing exception for limited recourse borrowing arrangements (LRBAs) for superannuation funds. The Murray report recommended the restoration of the general prohibition on direct borrowings by superannuation funds (including SMSFs), with the exception that funds with existing borrowings would be permitted to maintain those borrowings. However, funds disposing of a single acquirable asset purchased via an LRBA would be required to extinguish any associated debt at the same time. Since September 2007, super funds have been allowed to borrow pursuant to a LRBA which complies with strict conditions, including the funds being allowed to borrow directly with the underlying asset quarantined in a holding trust arrangement. EARLY ACCESS TO SUPERANNUATION FOR TERMINAL ILLNESS The early access to superannuation for people with a terminal medical condition will be extended. Currently, a person with a terminal illness is required to get two medical practitioners (including a specialist) to certify that they are likely to die within 12 months in order to gain unrestricted free access to their superannuation balance. This requirement will be amended to change the life expectancy period to 24 months. Date of effect 1 July 2015. SUPERVISORY LEVY INCREASE The Government will increase the supervisory levy paid by financial institutions. There has been no mention of increase to the supervisory levy paid by Self Managed Superannuation Funds (SMSFs). Date of effect 1 July 2015.
CHILDCARE MEASURES NEW CHILD CARE SUBSIDY KEY POINTS As from 1 July 2017, a new Child Care Subsidy will be introduced with the following measures: Abolition of the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programmes. Introduction of a single means tested Child Care Subsidy for all families, subject to a new activity test for up to 100 hours of subsidised care per child per fortnight, paid directly to approved care service providers. For family incomes of up to approximately $65,000, the Child Care Subsidy will be 85% per child of the actual fee or a benchmark price, whichever is lower. This will reduce to 50% for family incomes of approximately $170,000 and above at the time of implementation. Families on incomes under $185,000 will no longer have a cap on the amount of subsidy they receive. [The cap is currently $7,500.] A cap of $10,000 per child at the time of introduction will be established for the total value of subsidies for family incomes of $185,000 and above. Hourly benchmark prices at the time of introduction will be $11.55 for Long Day Care, $10.70 for Family Day Care, $10.10 for Out of School Hours Care and $7.00 for the In Home Care (Nannies) Pilot commencing in January 2016. The benchmark price has been based on the projected mean price at the time of implementation plus 17.5% for Long Day and Out of School Hours Care and 5.75% for Family Day Care, recognising their lower cost of overheads. A new activity test will be established as follows: Parents working between 8 and 16 hours per fortnight will eligible for up to 36 hours of childcare. Parents working between 17 and 48 hours per fortnight will be eligible for up to 72 hours of childcare. Parents working 49 hours or more per fortnight will be eligible for up to 100 hours of childcare. Up to 24 hours per fortnight will also be provided to children from families with incomes less than approximately $65,000 per year who do not meet the activity test to ensure continued access to early childhood learning. The 24 hours is equivalent to two 6-hour sessions, which is the same period provided for K-2 public school education. Service providers will have full flexibility and discretion in how these hours of support are delivered.
All child care subsidies and support will remain linked to immunisation requirements which from 1 January 2016 will be strengthened under the Government's "no jab, no pay" policy. The only exemption to this policy will be on medical grounds. Date of effect 1 July 2017. PAID PARENTAL LEAVE DOUBLE DIPPING TO BE ELIMINATED As from 1 July 2016, the Government will stop people from claiming parental leave payments from both the Government and their employers. People on the minimum wage (around $640 per week) should still receive $11,500 for the 18-week period of parental leave, but will not be able to claim both from their employer and from the Government. After the changes, access to Parental Leave Pay will then be limited to individuals with employers do not provide parental leave entitlements. PENSION & WELFARE MEASURES PENSION ACCESS WHILE OVERSEAS Pensioners that have lived in Australia for less than 35 years will have their pension paid at a reduced rate after they have been absent from Australia for more than 6 weeks (currently 26 weeks). The reduction will be calculated based on the pensioner s Australian Working Life Residence (AWLR). Recipients of the Age Pension, Wife Pension, Widow B Pension and Disability Support pension will be affected. Excluded from these measures will be pensioners that are overseas at the date of implementation (unless they return to Australia and make a subsequent departure), pensioners with an AWLR of 35 years or more, Disability Support Pension recipients that are terminally ill or severely impaired and, certain Widow B and Wife Pension recipients. Date of effect 1 January 2017. FAMILY TAX BENEFIT PART A LARGE FAMILY SUPPLEMENT The additional Family Tax Benefit (FTB) Part A Large Family Supplement will cease. However, families will continue to receive a per child rate of FTB Part A for each eligible child in their family.
Note that the Family Tax Benefit Part A large family supplement had already been limited to families with 4 or more children from 1 July 2015. That is, between 1 July 2015 and 30 June 2016, only families with 4 or more children would receive the Supplement, until the Supplement ceases altogether from 1 July 2016. Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances. Liability limited by a scheme approved under Professional Standards Legislation.