Federal Budget Review - 2015

Last night’s Federal Budget demonstrated that the Government is relying on small business to get the Australian economy moving, but that major (and overdue) structural reform is still a few years away.

Overall, it was an uneventful Budget.  A deficit of $35.1 billion has been projected for the 2015-16 financial year.

It’s important to note that two major reviews are currently underway into structural reform in Australia, and these will dictate the timing of new major initiatives:

  1. Financial System Inquiry has already provided a number of recommendations relating primarily to superannuation but also capital gains tax and dividend imputation policies.  The Government’s formal response to these recommendations in expected in June/July.
  2. Better Tax System Review is preparing a White Paper to consider changes to GST, personal income tax rates, State taxes and more.  The consultation process remains open and closes in June.  It is expected the Government will make a statement on tax reform by the end of 2015 and take these initiatives to the next Federal Election around September 2016.  However, the Budget did confirm that GST will now be levied on digital products and services imported by consumers from 1 July 2017.

Whilst we await these outcomes, it appears clear that the Government has been spooked by the negative reception to its last Budget and has focused on being a small target to please as many people as possible.  Key matters are detailed below:

Superannuation

It was confirmed that there will be no changes to current superannuation arrangements before the next election.

Aged Pension

To try and make the aged pension more sustainable, effective from 1 January 2017, the maximum amount of investible assets a home owning couple can have before they become eligible for a part aged pension will reduce from $1.15M to approx. $830,000.  This will consequently reduce the number of people eligible for a part pension.

Small Business

The major initiatives announced for small businesses (being those with annual revenue of $2M or less) are:

  • Tax rate cut from 30% to 28.5%.  It’s worth noting that this is still much higher than most of the developed world where corporate tax rates have fallen significantly over recent years.  For example, in the UK the corporate tax rate has steadily fallen from 28% to 20%. 
  • Assets costing less than $20,000 will be entitled to an immediate 100% tax deduction.  This initiative is designed to promote business investment by improving cashflow.
  • The costs of setting up a new business will also be immediately deductible rather than being deductible over a 5 year period.
  • ASIC has been charged with reviewing existing crowd source funding rules to help start-ups attract this source of equity from retail investors.
  • Effective from 1 July 2015, employees who are issued shares or options in a business will “generally” not be liable to pay upfront tax on those shares or options.  This has been a major issue for start-ups in Australia, as there has been a mismatch of when affected employees had to pay their tax liability and the (future) liquidity event of realising the value of their shares or options. Australia has long been out of step with the world on this item.

Families

From 1 July 2017, existing childcare benefits and rebates will be merged into a single subsidy arrangement.  Whilst means tests and activity tests will apply (details to be confirmed), most working families will receive higher benefits going forward.

 Work-Related Car Expenses

The popular ‘cents per kilometre’ method used for people making work-related car expense deductions will replace the three current rates based on engine size with a flat 66c per kilometre rate.  This is to encourage drivers to move into cars with smaller capacity engines that use less fuel.

Author: Rick Walker & Greg Keady

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