Federal Budget - 2015-2016 Brief Welcome to the KSR edition of the Federal Budget overview. The Federal Government handed down its second budget last night and in contrast to last year s austerity measures, this budget has focussed on the government s plan to strengthen the economy and to reduce the surplus deficit to $7bn by 2018-19. Joe Hockey was careful to place the emphasis on the budget being responsible, fair and measured. This is a clear turnaround from the message delivered in last year s budget. Key areas of the budget are: Small businesses with less than a $2M turnover win with a reduced tax rate applying from 1 July 2015, and an immediate tax write off for purchases costing less than $20,000; New measures introduced to encourage start-ups and entrepreneurship; Changes to the Employee Share Schemes rules; Fringe Benefits Tax abolished on all portable electronic devices; Cap of $5,000 introduced for salary sacrificed meal entertainment and entertainment leasing facility expenses; No change to superannuation taxes, but asset tests to tighten for aged pension from 1 July 2017; Farmers battling drought win with accelerated tax deductions for water facilities and fences; New Tax Integrity Multinational Avoidance measures introduced for Multinational Companies operating in Australia; Foreign workers on working holidays in Australia not eligible for tax-free threshold; Zone tax offset for fly-in, fly out workers axed; Introduction of Netflix tax - foreign businesses providing digital products within Australia required to pay GST; New Child care subsidy introduced from 1 July 2017 along with Nannies trial available to families earning less than $250,000 per year; No Jab, No Pay no child care payments from 1 January 2016 to families with children that have not been vaccinated; No more double dip on parental leave payments. Please do not hesitate to contact the team here at KSR if you have any questions. The KSR Team
Small Business concessions: For small businesses with turnover of less than $2M, the measures announced include: From 1 July 2015, the company tax rate will reduce from 30% to 28.5% The franking credit rate will remain unchanged at 30% For unincorporated small businesses, a 5% tax discount will apply from 1 July 2015. This is intended to equalise the taxing of small businesses and to give unincorporated businesses the same advantage as a company. The discount will be capped at $1,000 per individual in an income year and will be offset as a tax credit in their tax return. All small businesses, starting from 7.30pm AESDT on 12 th May 2015 are eligible for an immediate tax deduction for any individual assets costing less than $20,000. Any assets over $20,000 can be pooled together and deprecated at the same rate, 15% in the first income year and 30% per annum from the second year onwards. Where the value of the pool is below $20,000, it can be immediately deducted until 30 June 2017. Entrepreneurs will be able to claim 100% of some start up consulting costs, such as legal costs on establishing a company, trust or partnership. The business registration process will also be streamlined requiring only one single online registration, a site which is still to be developed. Start up businesses will be able to more easily source funding from a large number of small investors (crowd funding) under changes to the rules. Small businesses with an annual turnover of less than $2 million dollars will have access to CGT Rollover Relief when changing their legal structures while keeping the same owners. As a result, as small businesses become more established and discover that their current legal structure does not suit their needs they will be able to change their legal structure without triggering CGT on the transfer of businesses. By doing this the Government aims to reduce the risk, complexity and ease for businesses as they grow. Incentives to employ unemployed youth and disadvantaged workers For employers employing new workers, wage subsidies will be available for businesses employing unemployed youth and or disadvantaged workers. Employers who hire a worker aged over 50 will be able to gain up to $10,000 over 12 months under the Restart Program. The payments will be available in fortnightly payments from the time the worker is employed. From October 2015, jobactive and Disability Employment Services organisations can place young workers into work experience for up to 25 hours per week. Wage subsidies will continue to apply but will be simplified and made more flexible. Changes to Employee Share Schemes From 1 July 2015, employees who are issued options will generally not be liable to pay upfront tax on the options they receive. Instead, tax will be deferred until the employee actually receives a benefit. This change applies to all companies. For eligible start up companies, they will be able to offer shares or options to their employees at a small discount and have tax deferred until sale (for options) or the small discount exempt from tax (in the case of shares).
Abolishing Fringe Benefits Tax on Portable Electronic Devices: FBT will no longer apply to the provision of portable electronic devices, electronics and digital equipment such as tablets, laptops and phones. Cap of $5,000 on Meal and Entertainment Expenses: The government has announced they will clamp down on overly generous meal and entertainment expenses. These meal entertainment benefits encompass expenses paid for holidays, cruises, weddings, meals and alcohol at restaurants. The benefits will now be subject to a new reportable grossed-up exemption cap of $5,000. These are targeted at FBT exemptions or rebates for public health sector works and the notfor-profit sector. These benefits are not currently capped nor FBT reportable and as such provide salary packaging benefits that are not available to other taxpayers. As a result the Government hopes to improve the fairness of the tax system. However, the overall FBT exemptions for such employees will still remain more generous than other employee groups. Method of claiming work related car expense deductions to be modernised: From the 2015-16 financial year, the methods of claiming work related car expense deductions will be given an overhaul. The 12 per cent of original value method and the one third of actual expenses method will be made redundant. Instead, the cents per kilometre method will be upgraded by replacing the 3 current rates which are based on engine size with one single rate of 66 cents per kilometre to apply to all motor vehicles, no matter the size or power. The rate will be updated by the ATO in future years, but the logbook method will still continue to exist. Indexing of Medicare Levy From the 2014-15 year, the Medicare levy low income thresholds for singles, families and single seniors and pensioners will be indexed in accordance with CPI so that lower income taxpayers will continue to be exempt from paying the Medicare levy. The rates are as follows: Singles Threshold $20,896 Couples with no children Threshold $35,261, with an additional $3,238 added for each dependent child or student Single seniors and pensioners Threshold $33,044 Concessions on Water Saving Initiatives for Farmers: From 1 July 2016, a depreciation concession will be available to farmers on capital expenditure spent on water saving initiatives by allowing water storage assets, equipment and fencing to be depreciated over three years. There will also be an immediate deduction on the cost of fencing for farmers in addition to the concessions available to small business such as the tax rate cut and the $20,000 immediate deduction. The Government has pledged $300 million to be put aside for farmers affected by drought. In 2015-16 there will be a drought package that includes $250 million dollar commitment to
a Drought Concessional Loan Scheme and Drought Recovery Concessional Loan Scheme and $35 million dollar grants programme to boost economic activity in severely affected towns and regions through funding civil infrastructure projects. Furthermore a $25 million dollar commitment to assist farmers reduces the impact of pest animals in drought affected areas. Taxation of Superannuation: The Government has announced that there will be no new changes to the taxation of superannuation in Australia. Aged Pension: There will be tighter access to the age pension by increasing the asset test threshold and the asset test taper rate will increase from $1.50 to $3. This means that for each $1,000 over the asset threshold the pension rate per fortnight will be reduced by $3. Wealthier retirees will lose access to the age pension. Maximum value of assets increased from $202,000 to $250,000 for single home owners and from $286,500 to $375,000 for couples who own their home. This is estimated by the government to save $2.4 billion dollars over the next four years. Pensioner cards and their attached concessions will be continued for those eligible. The Government also announced that pension will continue to be indexed under current arrangements. Plans to index the pension according with CPI have been scrapped. Multi National Corporation anti avoidance law There have been 30 multinational corporations targeted as suspects for not contributing their fair share of tax in Australia. A new multinational anti avoidance scheme will be put in place from January 2016 to catch those large companies that are avoiding their tax obligations by using artificial structures. Where the law applies, heavy penalties will occur of being made to pay back double their tax liability as well as interest charges. Ensuring that businesses with economic activities in Australia pay tax in Australia
Netflix Tax closing the digital loophole Everybody loves the guilty pleasure and accessibility of digital downloads. The new tax system is now being implemented to include GST to all digital products and services imported by Australian consumers. A number of other countries have also applied similar rules including Japan, Norway, South Africa, South Korea. According to Hockey, this GST extension wouldn t apply to products that cost under $1000 imported into Australia. Zone Tax Offset The tax offset was originally introduced to help compensate residents that live in remote areas that are isolated and incur a high cost of living. These laws are being tightened to better target the genuine residents in these areas. Fly in Fly out workers will no longer be eligible for this offset. Working holiday Visa For those fun and friendly tourist wanting to come to Australia and enjoy our beautiful sunshine on a working holiday visa will now be taxed on their first $1 earned. They will no longer be able to access the tax free threshold. The visa is designed for the temporary visitor; therefore they will be taxed as a foreign resident. This also includes if they are in the country for longer that 6 months. The following rates apply if you are a foreign resident. Taxable income Tax on this income 0 $80,000 32.5c for each $1 $80,001 $180,000 $26,000 plus 37c for each $1 over $80,000 $180,001 and over $63,000 plus 45c for each $1 over $180,000 Foreign Investment in Australian Property The Government has announced that it will compile a comprehensive land register from 1 July 2015 with the aim of providing for greater transparency around the level of foreign ownership in Australian property. The ATO will start to collect data on 1 July 2015. Negotiations are underway to include state and territories land data to expand the register to all land by 1 July 2016. The government has also announced new application fees and penalties to apply in respect of foreign ownership of Australian property from 1 December 2015.
Application fees and penalties from 1 December 2015 Investment Type Fees Penalties* Residential real estate Property valued under $1 million $5,000 Property valued over $1 million $10,000 then $10,000 incremental fee increase per additional $1 million in property value Maximum criminal penalty increased to $135,000 or 3 years imprisonment New maximum civil penalty of the greater of capital gain or 25 per cent of the value of the property Maximum criminal penalty increased to $135,000 or 3 years imprisonment Business $10,000 $100,000 New maximum civil penalty of $45,000 Maximum criminal penalty increased to $135,000 or 3 years imprisonment Agriculture $5,000 $100,000 New maximum civil penalty of $45,000 *Penalty rates for individuals, a multiple of 5 applies for company penalties