The 2015 Federal Budget was released on the 12th of May 2015. Below is a summary of the key points that may affect you and your circumstances - Happy reading!
Immediate deduction of Assets less than $20,000 The government will significantly expand accelerated depreciation for small businesses. It will do this by allowing small businesses with aggregate annual turnover of less than $2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000. This will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). Tax cuts for small business
1.5% tax cut for small companies and 5% discount on income tax payable for unincorporated small business activity
From the 2015/16 income year, the government will deliver a tax cut to all small businesses: (a) Reduction in company tax rate – The company tax rate will be reduced to 28.5% for companies with aggregated annual turnover of less than $2 million. (b) 5% discount on tax payable for other taxpayers – Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received by an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and will be delivered as a tax offset. Claiming car expense deductions From the 2015/16 income year, the government will modernise the methods of calculating work-related car expense deductions, as follows:
The ‘12 per cent 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 (cents per kilometre) rates based on engine size, with one rate set at 66 cents per kilometre (in respect of all cars).
Immediate deduction for professional expenses on commencing a new business Currently, some professional costs associated with commencing a new business are deducted over a five-year period. From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. Release of superannuation for terminal medical condition Broadly, before an individual with a terminal medical condition can currently access their preserved superannuation benefits (generally as a tax-free lump sum), two registered medical practitioners (including a specialist) must certify, jointly or separately, that the person is likely to die within a one-year period. From 1 July 2015, the government will extend access to superannuation for people with a terminal medical condition by extending the above certification period (i.e., the period within which the individual is likely to die) to two years. This will give terminally ill patients earlier access to their superannuation entitlements.
Capital Gains Tax roll-over reliefRelief is currently available for individuals who incorporate, but other entity type changes have the potential to trigger a CGT liability. From 1 July 2016, the government will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point. 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.
Changes to Parental Leave Pay (‘PLP’) Currently, individuals are able to access government assistance in the form of PLP, in addition to any employer-provided parental leave entitlements. From 1 July 2016, the government will remove the ability for individuals to 'double dip’, by taking payments from both their employer and the government. 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). Child care (workforce participation stream) A new single Child Care Subsidy (‘CCS’) will be introduced on 1 July 2017. Families meeting the activity test with annual incomes up to $60,000 (2013/14 dollars) 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 CCS will have no annual cap for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the CCS will be capped at $10,000 per child per year. GST-related measures announced by the government The government has announced various GST-related measures, broadly as follows: (a) Cross border supplies of digital products and services – From 1 July 2017, GST will be extended to cross border supplies of digital products and services imported by consumers. Under the current law, digital products and services imported by consumers are not subject to GST. This results in forgone GST revenue to the States and Territories and places domestic businesses (which generally have to charge and remit GST on the digital products and services they provide) at a tax disadvantage compared to overseas businesses. Other Budget announcements Change to the asset test thresholds for the aged pension The government will increase the asset test thresholds at which pensions are reduced once the threshold is exceeded, as follows:
For a single person – a full pension may be received if the relevant value of included assets (i.e., assets other than excluded assets) is less than $250,000 for a homeowner (currently $202,000).
For a pensioner couple – a full pension may be received if the relevant combined value of included assets is less than $375,000 for a homeowner (currently $286,500).
Non-home owner pensioners will also benefit by an increase in their threshold to $200,000 more than homeowner pensioners. Pensioners who lose pension entitlements on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age. Cessation of the Large Family Supplement of Family Tax Benefit (FTB) Part A From 1 July 2016 families will continue to receive a per child rate of FTB Part A for each eligible child in their family. The government will also reduce the amount of time FTB Part A will be paid to recipients who are outside Australia. Currently, FTB Part A recipients who are overseas are able to receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks. From 1 July 2016, families will only be able to receive FTB Part A for six weeks in a 12 month period while they are overseas. Changes to residency rules for temporary working holiday makers Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency rules. The government will change the tax residency rules from 1 July 2016 (i.e., the 2017 income year) 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. Better targeting of Zone Tax Offset (‘ZTO’) to exclude ‘fly-in fly-out’ and ‘drive-in drive-out’ workers (‘FIFO/DIDO workers’) The ZTO is a concessional tax offset available to individuals in recognition of the isolation, uncongenial climate and high cost of living associated with living in identified locations. From 1 July 2015, the government will exclude FIFO/DIDO workers from the ZTO where their normal residence is not within a particular ‘zone’. Furthermore, for those FIFO/DIDO workers whose normal residence is in one zone, but who work in a different zone, they will retain the ZTO entitlement associated with their normal place of residence. Recovery of HELP repayments from overseas debtors The government will extend the Higher Education Loan Programme (‘HELP’) repayment framework to debtors residing overseas for six months or more if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia. The new arrangements will apply from 1 January 2016 to 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. Repayment obligations will commence from 1 July 2017. Research and Development (‘R&D’) tax incentive – introducing a $100 million expenditure cap from 1 July 2014 Currently, under the R&D tax incentive, companies can claim a refundable tax offset of 43.5% if their turnover is less than $20 million, or a non-refundable tax offset of 38.5%. The government has introduced a cap of $100 million on the amount of eligible R&D expenditure for which companies can claim a tax offset at a concessional rate under the R&D tax incentive. Expenditure beyond the $100 million cap will receive a lower offset at the company tax rate. These changes apply in relation to assessments for income years commencing on or after 1 July 2014.
The ATO is also reminding directors of companies, that are required to pay Superannuation Guarantee (SG) for their employees, that they may be personally liable for any unpaid or unreported SG Charge liabilities of their companies
ATO's audit targets
The ATO has set up a new page on its website called "Building confidence", which talks about its current compliance activities, and the amounts of tax and penalties it has collected in 2014 from its various initiatives. Some of the areas that the ATO has stated it will be focusing on are:
motor vehicle expenses for travelling between home and work
overnight travel; and
the work-related proportion of use for computers, phones and other electronic devices.
Rental property expenses
excessive deductions being claimed for holiday homes
husbands and wives inappropriately splitting rental income and deductions for jointly owned properties; and
interest deductions being claimed for the private proportion of loans.
the building and construction industry; and
the restaurant, café and takeaway industry.
employers misusing contracting arrangements with the intention of avoiding employment overheads.
Eligibility for net medical expenses tax offset
The ATO has reminded taxpayers that the net medical expenses tax offset (NMETO) is being phased out. To be eligible for the NMETO for 2014/15, a taxpayer must have received an amount of the tax offset in both of their 2012/13 and 2013/14 income tax assessments. If a taxpayer's 2012/13 notice of assessment shows an amount of zero for NMETO, they wouldn't have received this offset in that year and so are not eligible to make a claim in 2013/14 or 2014/15. However, the eligibility rule for the NMETO does not apply to clients with out-of-pocket medical expenses relating to disability aids, attendant care and aged care (these expenses can continue to be claimed until 30 June 2019).
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should give us a call to verify their interpretation and the information’s applicability to their particular circumstances.