Small businesses, jobs and families were front and centre in this year’s budget, which focused on plans to restore confidence in the economy. Here we take a look at what the key changes are.
It’s important to note that the Budget announcements are still proposals at this stage.
What are the changes for Businesses
The ‘wins’ for Small Business
The Budget contains a range of measures to assist small businesses. Generally, this applies to businesses with a turnover of less than $2 million.
- New businesses will be able to claim an immediate tax deduction on a range of professional expenses associated with starting a business eg professional, legal and accounting advice (rather than a five-year write off period).
- From 1 July 2015, small companies will have their tax rate lowered from 30% to 28.5%.
- From 7.30pm on 12 May 2015 until 30 June 2017, small businesses can claim an immediate tax deduction for “each and every item” purchased up to the value of $20,000. Currently the threshold sits at $1,000.
- There will be an annual 5% tax discount of up to $1,000 a year for unincorporated businesses – these are small businesses which are not run through a company structure.
- Streamlining the process to register a new business through initiatives such as a new single online portal, registration software, reducing the number of business identifiers, and facilitating the use of crowd-source equity funding, including simplified reporting and disclosure requirements.
Accelerated depreciation for primary producers
From 1 July 2016, the Government will allow all primary producers to immediately deduct expenses on fencing and water facilities. They will also allow primary producers to depreciate over three years all money spent on fodder storage assets such as silos and tanks used to store grain and other animal feed.
Strengthening of multinational anti-avoidance laws
The Government is looking to implement a Multinational Anti‑Avoidance Law, to stop large multinational companies from avoiding Australian taxation obligations.
What are the changes for Individual Taxpayers
- Increasing the Medicare levy low-income thresholds – from 1 July 2014 – The Government will increase the Medicare levy low-income thresholds for singles, families and single seniors and pensioners to take into account movements in the Consumer Price Index. Taxpayers with taxable income below this threshold are exempt from paying the Medicare levy.
- Early access to superannuation for people with a terminal illness – from 1 July 2015 – The Government intends to make it easier for people suffering a terminal illness to access their superannuation benefits. Under the current rules, a person with a terminal illness can only access their preserved super benefits where they have been diagnosed as having less than 12 months to live. The Government plans to amend this to 24 months. This change may assist with the payment of treatment costs and allow them to make the most of their time with their family.
- If you claim Motor Vehicle Expenses in your personal Income Tax Return from the 1st July 2015 you will only have 2 options – cents/km and log book methods. The cents/km method will be capped at 66cents/km no matter what your engine size.
- Changes have been made to the Zone Tax Offset to eliminate workers who are on fly-in, fly-out contractors being able to access the offset. This applies from the 1st July 2015.
- Holiday workers (non-residents) will no longer have access to the Tax Free Threshold. They will instead pay tax at 32.5% for every dollar earned up to $80,000. This applies from 1st July 2016.
- HELP debts are under the microscope. For Australians who are living overseas for more than 6 months, they will need to register with the ATO and start to repay their debts based on worldwide income. This commences from the 2016-2017 year.
What are the changes for Pensioners
Changes to pension asset test – from 1 January 2017
The Government has proposed changes to the asset test thresholds which help determine a person’s pension entitlement as well as changes to the asset test taper rate (the fortnightly amount by which a person’s pension entitlement decreases under the assets test). The taper rate is proposed to increase from $1.50 to $3 per $1,000 of assets over the lower threshold.
What does this mean?
Under the proposed changes, pensioners with lower levels of assets could see an increase to their entitlement. However, pensioners with higher asset amounts could see a significant reduction or complete loss of their age pension entitlement. To qualify for a part pension your assets outside the family home will need to be less than $823,000 for couples and $547,000 for single retirees. These thresholds are dropping from $1.15 million for couples and $775,000 for singles.
All people who lose entitlement to the pension due to the scaling back of the maximum asset threshold will be guaranteed eligibility for the Commonwealth Seniors Health Card (CSHC) or the Health Care Card, providing concessional access to pharmaceuticals.
Rental income to be included in aged care means tests – from 1 January 2016
New aged care residents who enter aged care from 1 January 2016 will have any rental income earned from renting out their former home included in the calculation of their means tested amount, which is used to determine ongoing aged care fees.
This differs from the current rules, where residents who pay some or all of their accommodation payments as periodic payments are entitled to an exemption on the rental income from their former home when calculating their means tested amount for aged care fee purposes.
What are the changes for Families
There is a focus on support for families in this year’s Budget. The Government is looking to spend $3.5 billion over five years on child care assistance including a new child care subsidy, from 1 July 2017, based on family income.
Families earning $65,710* or less will receive a subsidy of 85% of their child care fees (up to an hourly cap). The subsidy gradually tapers to 50% for families earning less than $185,710*. Families earning $185,710 or more will have a $10,000 annual cap on the total amount of assistance provided per child per year.
From 1 July 2016, “double-dipping” of paid parental leave will be removed. Access to parental leave pay will be limited to individuals whose employer does not provide parental leave entitlements. In cases where individuals get less generous parental leave entitlements from their employer, the Government will top up the amount paid to be equal to the full amount available under the existing scheme.
This Budget is about restoring confidence in the economy. There are many new opportunities for starting new businesses and tax benefits for small business owners. Families with young children are also set to benefit with government subsidies relating to childcare. However, current and future retirees could lose their entitlement to the age pension from 1 July 2017.
While this is a general overview of the changes our next step at MSI Taylor is to embark on your personal tax planning – what you need to do before 30th June to pay less tax. To make the most out of these new budget measures expect your personal checklist of action items over the coming weeks.
*1 July 2017 amount referenced in Budget Paper – New Child Care support section.