2015-2016 Federal Budget – how does the Budget affect you?
Small business is a sector that came out a clear winner from the 2015-16 federal budget delivered by the Treasurer Joe Hockey.
Tax cuts for small business companies and unincorporated entities
The government will deliver a tax cut to all small businesses through:
- 1.5% tax cut for small companies, and
- 5% discount on tax payable on income from unincorporated small business activity.
‘Small’ companies tax cut to 28.5%
- The Government will, from 1 July 2015, reduce the company tax rate to 28.5% for small companies with an aggregated annual turnover of less than $2 million.
- 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, maintaining the existing arrangements for investors, such as self-funded retirees.
5% tax discount for unincorporated ‘small’ businesses
- 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 from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset.
Small Business Accelerated Depreciation is back
The Budget announced that small businesses (aggregate annual turnover less than $2 million) would be able to immediately write off assets they start to use or install ready for use, provided the asset costs less than $20,000.
Eligible assets could include things like cars, vans, kitchens, machinery, etc.
This measure will apply for assets acquired and installed ready for use between 7.30 pm (AEST) May 12, 2015 and June 30, 2017.
It should also be remembered that the threshold applies on a per asset basis, so several assets each costing up to $20,000 would qualify for the write-off if installed ready for use before 30 June 2017.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period
Immediate deduction for new business professional expenses
The government will allow businesses to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. Currently, some professional costs associated with a new business start-up are deducted over a five year period. This measure will apply from the 2015-16 income year.
Capital Gains Tax roll over relief for changes to entity structure
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 will apply from the 2016 – 17 income year.
CGT roll over relief is currently available for individuals who incorporate, 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.
No Fringe Benefits Tax on work-related electronic devices
The Government will allow an FBT exemption from 1 April 2016 for small businesses with an aggregated annual turnover of less than $2 million that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions.
Currently, an FBT exemption can apply to more than one portable electronic device used primarily for work purposes, but only where the devices perform substantially different functions.
- SMSFs and limited recourse borrowings – no change (yet)
Since 24 September 2007, super funds have been allowed to borrow pursuant to a limited recourse borrowing arrangement (LRBA) that strictly complies with the requirements in 67A and 67B of the SIS Act. The current provisions allow superannuation funds (especially SMSFs) to borrow directly with the underlying asset quarantined in a holding trust arrangement.
- Early access to super for terminal illness
The Government confirmed that it will extend early access to superannuation for people with a terminal medical condition (TMC). Under the current early access to superannuation arrangements, a person with a terminal illness is required to get 2 medical practitioners (including a specialist) to certify that they are likely to die within 12 months to gain unrestricted tax free access to their superannuation balance. The Government will amend the relevant regulations to change the life expectancy “certification period” from 12 months to 24 months. According to the Government, this will give terminally ill patients earlier access to their superannuation. The measure is estimated to only cost $0.3m over the forward estimates. This measure will apply from 1 July 2015.
- Superannuation supervisory levies
The Government will increase the supervisory levies from 1 July 2015.
- Work-related car expenses
Only two methods will remain: cents per km and logbook method, which apply from the 2015-2016 income year.
- Medicare levy thresholds
The government will increase the Medicare levy low-income thresholds for singles, families and single seniors and pensioners from the 2014 – 15 income year, to take account of movements in the consumer price index (CPI) so that low income taxpayers generally continue to be exempted from paying the Medicare levy.
1. For singles, the threshold will be increased to $20,896
2. For couples with no children, the threshold will be increased to $35,261 and the additional amount of threshold for each dependent child or student will be increased to $3,238
3. For single seniors and pensioners, the threshold will be increased to $33,044.
- Higher Education Loan Program (HELP) – recovery from overseas debtors
The government will extend the HELP repayment framework to debtors residing overseas. From 2016-17, HELP debtors residing overseas for six months or more will be required to make repayments of their HELP debt if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.
The Government says it will establish a new and simpler Child Care Subsidy from 1 July 2017. Families using child care in 2017, on family incomes of between $65,000 and $170,000 will be around $30 a week better off.
Those on higher incomes will, on average, continue to receive the same level of support and families on incomes of less than $65,000 per year will receive ongoing access to early childhood learning, and can be eligible for additional financial support through the Child Care Safety Net.
The Government said its objective is to help parents who want to work or work more:
- Paid parental leave – double-dipping to be eliminated.
The Treasurer said the Government will stop people from claiming parental leave payments from both the Government and their employers. After the changes, access to Parental Leave Pay will then be limited to individuals whose employer does not provide parental leave entitlements.
- No Jab No Pay
The government will ensure that children fully meet immunisation requirements before their families can access certain government payments. From January 1, 2016, families will no longer be eligible for subsidised child care or the Family Tax Benefit (FTB) part A end-of-year supplement unless their child is up-to-date with all childhood immunisations. Exemptions will only apply for medical reasons.