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Money Matters

Budget Update 2017


A continued commitment to growth

The Government has taken a two-prong approach in this year's Federal Budget to stimulate growth in the economy by providing targeted spending and business incentives. 

Regional infrastructure

A key feature of this year's Budget is the commitment to investing in regional growth to better the Australian economy. A $472 million Regional Growth Fund will be set up to invest in regional infrastructure projects.

An additional $8.4 billion will be allocated to fund the Melbourne-to-Brisbane Inland Rail in 2017-18. The Inland Rail will provide significant employment in regional areas as well as increased export opportunities.

Company tax plan 

The Government's promise to small and medium businesses in last year's Budget continues through its Ten Year Enterprise Tax Plan to reduce the company tax rate for all companies to 25 per cent by 2026-27.

Incorporated small businesses with a turnover less than $10 million will have their tax rate reduced to 27.5 per cent in 2016-17. Once legislated, the tax cut will be passed on to companies with an annual turnover less than $50 million by 2018-19.

A lower corporate tax rate will help permanently broaden the economy by just over one per cent in the long term and effectively promote business investment by raising the investment return in Australia.

The Government acknowledges the major role small businesses play in the Australian economy and is committed to supporting small businesses to continue to grow and flourish.

Instant asset write-off 

A further boost will be provided for small businesses as the Government is extending the $20,000 instant asset write-off for a further 12 months until 30 June 2018. Small businesses with an aggregate annual turnover less than $10 million can access the concession to help improve their cash flow and invest in the assets they need to grow. 

Reducing red tape 

The Government will provide $300 million over two years to states to help reduce the red tape for small businesses. The removal of unnecessary restrictions for small businesses will help level the playing field and lessen regulatory burden.

Keeping taxpayers honest

The Budget focuses on maintaining the integrity of Australia's tax system to ensure it is fair and secure to all and covers five key areas. 

Avoidance 

The Government will continue to crack down on the cash economy with additional funding for the Tax Office's Black Economy Taskforce extended until 30 June 2018. 

The taxable payments reporting system will be expanded to ensure payments made to contractors in the courier and cleaning industries are reported from 1 July 2018. 

Anti-avoidance tax behaviours will also be targeted as the Government intends on banning technology that modifies or deletes sales records for the purpose of minimising tax. 

Finally, aggressive tax structuring where hybrid instruments are used to exploit the tax differences between countries are on the Government's radar, and the Multinational Anti-Avoidance Law will be strengthened to ensure corporate structures, i.e. foreign partnerships or foreign trusts, are compliant with the law. 

Residential property 

Deductions for travel expenses for a residential investment property will be disallowed. This measure addresses issues with investors that have been claiming travel costs for private purposes or who have not properly apportioned their costs. Additionally, deductions for plant and equipment in residential property investments will be limited to expenses directly incurred by investors. 

Goods and services tax (GST) 

GST law will be strengthened to prevent some property developers from avoiding GST obligations by ensuring GST is paid directly to the ATO when purchasing newly constructed residential properties or new subdivisions. 

Capital gains tax (CGT) 

From 1 July 2017, small business capital gains tax (CGT) concessions will be amended to ensure that concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business. Tighter capital gains tax rules for foreign and temporary residents will deny access to the main residence exemption when they sell Australian property. Furthermore, the foreign resident capital gains tax withholding regime will see the withholding rate rise to 12.5 per cent, and the threshold will reduce from $2 million to $750,000.

Superannuation 

The Government intends on bolstering the integrity of the super system by including limited recourse borrowing arrangements (LRBA) in a member's total superannuation balance and transfer balance cap, effective from 1 July 2017. Also, on the cards is the tightening of related party transactions on non-commercial terms to help increase super savings from 1 April 2018.

CGT events affecting shareholders

There are a number of capital gains tax (CGT) events that could affect you as a shareholder. 

Capital gain tax (CGT) events include various transactions resulting in a capital gain or capital loss. CGT is the tax paid on any capital gain made. This is worked out by deducting capital losses and any CGT discounts from the total annual capital gains. 

A CGT event occurs if you have sold (or otherwise disposed of) your share or units or other assets. However, there are a number of other CGT events that can result in capital gains or capital losses. According to the ATO, a CGT event may also occur where an individual: 

• switches units between managed funds to redeem said units 

• attains a distribution from either a managed fund or a unit trust (not including dividends) 

• receives payments from a trust or company that are non-assessable 

• is the owner of shares in a company where shares have been declared worthless 

• owns shares in a company that are cancelled because the company is wound up. 

Individuals must also consider whether they are entitled to any income tax deductions. This occurs when a listed investment company (LIC) pays a dividend where a LIC capital gain amount is indicated. 

There are certain occurrences where special capital gains tax rules apply, including: 

• attaining bonus shares and/or units and rights and/or options to acquire shares or units from a company or trust 

• entering into employee share scheme or dividend reinvestment plan or through buying convertible notes. 

If an individual has held a share for 12 months or more, they can use the 'CGT discount method' that allows them to reduce their capital gain currently by 50 per cent. In this instance, the cost base is subtracted from capital proceeds, then capital losses are deducted and then reduced by the relevant discount percentage.

Rates increase for fuel tax credits

Fuel tax credit rates increased on 1 February 2017. These rates are indexed twice a year, in February and August, in line with the consumer price index (CPI). 

The rates vary depending on when you acquire the fuel, the type and quantity of fuel you use, and the activity you use it for. Rates may also change for fuel used in a heavy vehicle for travelling on public roads. This is due to changes to the road user charge which is reviewed annually. 

If you claim less than $10,000 in fuel tax credits each year, there are now simpler ways to record and calculate your claim. For the BAS period ending 31 March 2016 and onwards, you can: 

• Use one rate in a BAS period - the rate that applies at the end of the BAS period 

• Work out your litres based on the cost of the fuel you purchased. 

To check which rate applies for your business, visit the Australian Tax Office (ATO) website or contact our office. Remember, there are time limits for claiming fuel tax credits, making adjustments and correcting errors - generally, you must claim or amend your claim within four years.

Building a sustainable lifestyle

While there have been no tax cuts for individuals in the Budget, the Government has introduced concessions in several areas addressing the cost of living.

Downsizing retirees 

From 1 July 2018, Australians over the age of 65 can contribute the proceeds of downsizing into their superannuation. A non-concessional contribution of up to $300,000 can be paid to their super using proceeds from the sale of a principal residence that has been held for a period of at least 10 years. Contributions will not be subject to any age or work tests. 

Affordable housing 

To assist Australian households, in particular first home buyers, the Government will support households building deposits by providing access to their superannuation. This will be implemented from 1 July 2017 and will allow access to voluntary concessional contributions and non-concessional contributions to super of up to $15,000 per annum; $30,000 of which will be concessionally taxed. Withdrawals on these contributions can be made from 1 July 2018. 

The Budget also imposes a $5000 annual levy that must be paid by foreign owners of Australian residential property that is underutilised or not available for rent in an effort to contain the cost of rising rent. 

Medicare 

The establishment of the Medicare Guarantee Fund (MGF) from 1 July 2017 will provide funding to the existing Medicare Benefits Scheme (MBS) and the Pharmaceutical Benefits Scheme to ensure Australians have continued access to affordable health care. The MGF will attain revenue generated from the Medicare levy as well as a small portion of personal income tax. 

The Government will provide $1 billion towards the reintroduction of indexation on specific areas of the MBS, including specialist procedures and diagnostic imaging fees. Bulk billing of under 18-year-olds and concession cardholders will be encouraged through incentives introduced to general practitioners from 1 July 2017. 

Higher Education 

From 2018, fees for university students will increase by 7.5 per cent. More repayment options through the Higher Education Loan Program will be offered to assist students with this. For 2018 and 2019, universities will pay a 2.5 per cent dividend and will also be subject to measures creating greater accountability and transparency. 

National Disability Insurance Scheme (NDIS) 

The Medicare levy will be increased by 0.5 per cent from 1 July 2019 with one-fifth of its revenue going towards the NDIS Savings Fund to ensure all Australians with significant and permanent disability have adequate support and lifetime care. 

An Independent NDIS Quality and Safeguards Commission has been funded through the budget, allowing for improved quality of safe services for those using the NDIS.

ATO to report unpaid debts

The Mid-Year Economic and Fiscal Outlook 2016-17 announced that from 1 July 2017, the ATO will disclose business tax debt information to credit reporting bureaus.

The new measure is geared to enhance the integrity of the tax system and ensure businesses who are not compliant do not gain an unfair competitive advantage over those businesses who are. 

The ATO will initially pass on unpaid debts from businesses with an Australian Business Number and with a tax debt of more than $10,000 which is at least 90 days overdue. Taxpayers will be notified by the ATO before the information is passed on to a credit reporting bureau. 

In addition, a special Taskforce specifically aimed at dealing with the cash economy has been developed as an innovative, whole-of-government policy response to this problem. Activities under scrutiny are those which disadvantage honest taxpayers, undermine the integrity of Australia's tax and welfare systems and reduce the amount of revenue collected by governments.

A better workplace

The Budget sees the Government place emphasis on generating ongoing employment opportunities for all Australians. 

A focus on good debt/bad debt allows for investing a sizeable portion of the Budget into infrastructure; creating in excess of 50,000 jobs directly and indirectly from 2017 to 2030 and onwards. Major projects include: 

• Western Sydney Airport 

• Melbourne-to-Brisbane Inland Rail 

• National Rail Program 

Implementation of the Temporary Skill Shortage Visa following the abolishment of the 457 visa will create incentives to prioritise Australian workers. Employers who nominate foreign workers for this visa will pay a levy; generating revenue for the Skilling Australians Fund which will replace the existing unsuccessful training benchmarks. The Skilling Australians Fund assists financing apprenticeships and traineeships while allowing for employers to meet critical needs for their businesses where Australian skill sets are not available. 

The introduction of various reforms will see disadvantaged Australians receive appropriate support to acquire and retain employment. With a focus on indigenous and vulnerable new parents through ParentNext services; appropriate pathways to employment and formal education will be achieved through childcare and preemployment training, literacy and numeracy classes and financial management. 

To improve workforce participation, the Job Seeker Compliance Framework will create stronger penalties for those abusing the Work for the Dole initiative; holding non-compliant job seekers accountable while still providing sufficient support for disadvantaged and vulnerable job seekers. 

A guide to negative gearing

Negative gearing is a common tax strategy used by property investors to offset the costs of owning a property against assessable income. 

The strategy is arguably one of the most generous tax breaks available to Australian property investors. It allows investors to claim the shortfall between a property's associated expenses and its rental income as a deduction against their total taxable income - resulting in a lower annual income tax bill. 

Where the other income is not sufficient to absorb the loss it is carried forward to the next year. 

To access negative gearing on a property, the owner must have borrowed money to purchase the property and the net rental income must be less than the costs of maintaining the property. 

For example, if the rent of a property was $500 per week, and the property was fully tenanted for a full financial year, the rental income would be $26,000. If the deductible expenses for that year were $40,000, the net rental loss would be $14,000. The $14,000 loss can then be applied to reduce the property owner's taxable income. 

Although negative gearing is helpful for those owners experiencing a net rental loss, the strategy is not without flaws. An underperforming property is still making a loss, and ideally, investors would prefer to have a positively geared property where rental income exceeds expenses. 

Investors who have long term negatively geared properties are generally hoping to incur long term profits from capital growth. 

Even if you think that your investment property will be positively geared, understanding the benefits of negative gearing can give you a little peace of mind knowing that if the property does lose money, you will be able to offset the loss against your taxable income. 

When a property is positively geared, the income earned is added to your total taxable income. As such, it is taxed at your marginal tax rate. The same applies to any capital gain that you make from selling a property.

Speed up your BAS refund

As in any business, cash flow is a necessity. Having your business activity statement (BAS) refunded to you quickly is important as a small business owner.

Here are a few tips to follow to help speed up this process: 

• Ensure information is complete and correct; keep personal details, such as postal address, bank details and authorised contacts updated. Having a record keeping system in place is the best way to stay on track. 

• Submit BAS on time. 

• Lodge all outstanding activity statements: the ATO are unable to process the refund until they know the extent of the credit or liability. 

• Check financial institution details are entered correctly. 

• Be careful not to not double up by lodging both online and in person.


Know who you are purchasing your property from

Under new legislation if you are purchasing a property from a non-resident vendor, you will likely be required to withhold 12.5% capital gains withholding tax and forward to the ATO...

Click here for more information.



 

 



Plain English Budget Breakdown


Federal Budget - small business

This year's Federal Budget is based on a ten-year enterprise tax plan designed to stimulate more small business activity by boosting new investment, creating jobs and increasing real wages.

One of the key features of this plan is that the small business entity annual turnover threshold will be increased from $2 million to $10 million from 1 July 2016.

The Government will also reduce the corporate tax rate for businesses with a turnover of less than $10 million per year to 27.5 per cent from 1 July 2016. This lower rate will be progressively reduced to 25 per cent over 10 years.

An 8 per cent unincorporated tax discount will be provided to unincorporated businesses with turnover less than $5 million per annum, capped at $1,000 per year from 1 July 2016 for the following eight years. The discount will increase to 16 per cent in increments from 2024 to 2026 to coincide with the staggered reductions in the corporate rate.

All Australian small businesses from 1 July 2016 with an annual turnover of less than $10 million will have access to:

Simplified depreciation rules

These include immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017.

Simplified trading stock rules

New rules will give businesses the option to avoid end of year stocktake if the value of their stock has changed by less than $5,000.

Simpler PAYG instalments

Instalments will be calculated by the ATO, removing the risk of under or overestimating PAYG and the resulting penalties that may be applied.

The option to account for GST

Small businesses will have the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Other tax concessions

Other tax concessions that are currently available to small businesses, such as fringe benefits tax (FBT) exemptions (from 1 April 2017 to align with the FBT year).

A trial of simpler BAS

The trial is to reduce GST compliance costs, with a full roll-out from 1 July 2017.

These threshold changes will not affect eligibility for the small business capital gains tax concessions, which will remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test.

 

Industries on the ATO's radar this year

The ATO has identified that businesses in the supermarket, bakery, computer system design and car retailing industries often need more help meeting their tax and super obligations.

From July 2016, the ATO will be undertaking audits of employers who continually fail to meet their obligations, particularly those who do not correctly meet their superannuation obligations. In this regard, the tax office will be examining:

  • how much employers are required to pay
  • if employers are meeting their quarterly deadlines
  • if employers pay super for contractors
  • if employers are keeping accurate records
  • if employers pass on an employee's TFN to their super fund within 14 days of receiving it

Employers must pay their employees superannuation if all of the following apply:

  • the employee is aged 18 years old or over
  • the employee is paid $450 (before tax) or more in a calendar month
  • the employee works on a full-time, part-time or casual basis

Super payments for employees must be made at least four times a year by the quarterly due dates of April 28, July 28, October 28 and January 28. Employers who miss those deadlines become liable for the Superannuation Guarantee Charge (SGC).

The ATO has said it will support employers who genuinely try to rectify their mistakes by catching up on late payments and paying a little extra into their employee fund accounts. No action is likely to be taken in these circumstances. However, if an employer does nothing and waits for an employee complaint or for the ATO to audit their business, the ATO has warned that the SGC and other penalties may be applied.

The ATO has also reminded employers that they must pay superannuation contributions for contractors who they employ under a contract that is wholly or principally for the labour of that person. The reasoning behind this is because the contractor is considered as an employee for the purpose of super guarantee.

Another area where employers make mistakes is regarding the choice of employee super funds. All employees are eligible to choose which super fund their super contributions are paid into, therefore employers must provide them with a standard choice form within 28 days of the employee commencing work. While employees do not have to complete the form if they don't want to nominate a fund, employers must give them a choice if they are eligible.

 

Federal Budget - superannuation changes

The Budget has introduced a series of changes to superannuation tax arrangements that are intended to align superannuation with the purpose of providing income in retirement. 

The key elements of the superannuation changes include: 

Introducing a transfer balance cap 

There will be a $1.6 million superannuation transfer balance cap on the total amount of super that individuals can transfer into retirement phase accounts. While this limits taxpayer support for tax-free retirement phase accounts, it does not restrict the savings that can accumulate outside of superannuation or in superannuation accumulation phase accounts.

Increasing the 15 per cent tax rate on concessional contributions

Those with combined incomes and super contributions greater than $250,000 will now be required to pay 30 per cent tax on their concessional contributions. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. Superannuation fund members who are affected will still have significant incentives to save for their retirement alongside other provisions.

Lowering the superannuation concessional contributions cap 

The superannuation concessional contributions cap will be lowered to $25,000 per annum to provide more flexibility and accommodate modern working arrangements. Reducing the caps will only affect around three per cent of superannuation fund members, who will still be able to make enough contributions during their working life to be self-sufficient in retirement.

$500,000 lifetime cap for nonconcessional contributions:

The lifetime cap will limit the extent individuals can use superannuation for tax minimisation and estate planning. Less than one per cent of Australian superannuation fund members have made contributions above this cap since 2007.

Low Income Superannuation Tax Offset:

The Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution when it expires on 30 June 2017 to continue to support the accumulation of superannuation for low-income earners. The LISTO will allow individuals with an adjusted taxable income of $37,000 or less to receive a refund of the tax paid on their concessional contributions, up to a cap of $500. The LISTO will, in particular, assist women to build their superannuation savings.

 

ATO to focus on collectables

The ATO is working with insurance companies to assess artworks and collectables owned by taxpayers and identify the owners of these kinds of assets. 

There has been an increasing concern by the ATO that assets such as collectables are not being properly accounted for. Since these assets may be subject to capital gains tax (CGT) on disposal, taxpayers should be properly accounting for their assets and aware of any CGT applicable.

Collectables are items that individuals use or keep mainly for the personal use or enjoyment by them or their associates and include items such as paintings, sculptures, drawings, engravings or photographs, reproductions of these items or property of a similar description or use, jewellery antiques and coins.

A collectable also includes an interest in any of the items listed above, a debt that arises from any of those items or an option or right to acquire any of those items.

Capital gains or losses made from a collectable can be ignored provided the collectable was acquired for $500 or less; the interest in the collectable acquired was for $500 or less before 16 December 1995, or the interest in the collectable had a market value of $500 or less when acquired.

Capital losses from collectables can be used only to reduce capital gains (including future capital gains) from collectables. There is no time limit on how long a net capital loss from the disposal of a collectable can be carried forward.

The ATO's attention is not limited to capital gains tax and new rules have been introduced in relation to the recording and storage of collectables held by self managed super funds.

From 1 July 2016 new rules regarding any collectable and/or artwork owned by an SMSF state:

  • collectables cannot be stored at an SMSF trustee's residence
  • an SMSF trustee or a related party is not permitted to lease or use any of the collectables
  • the collectable must be insured by its own separate policy 
  • the storage decisions by the trustees must be documented and minuted
  • if the collectable is to be sold to an SMSF trustee or related party, then a valuation by a qualified independent valuer may be required to determine the market value

Tax on gifts and donations

Individuals can claim tax deductions when giving gifts or donations to organisations that have the status of deductible gift recipients (DGR).

To be eligible to claim a tax deduction for a gift, the ATO stipulates that it must meet the following four conditions:

  • the gift must "truly be a gift"; that is, a voluntary transfer of money or property where the giver receives no material benefit or advantage
  • the gift must be made to a deductible gift recipient (DGR)
  • the gift must be money or property
  • the gift must comply with any relevant conditions. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.

What you can claim

The amount an individual can claim for a gift or donation depends on the type of gift given. For gifts of money, individuals can claim the total amount of the gift, as long as it is $2 or more.

Different rules exist for gifts of property, and the amount of the tax deduction depends on the value and type of property.

Tax deductions for the majority of gifts can be claimed in the tax return for the income year when the gift is made. However, individuals can also spread the tax deduction over five income years under certain circumstances.

What you can't claim

Individuals cannot claim a tax deduction for gifts or donation items that provide some personal benefit, such as raffle tickets, the cost of attending fundraising dinners (unless certain conditions are met), membership fees, payments to school building funds, payments where there is an understanding with the giver and recipient that the payments will be used to provide a substantial benefit for the giver.

 

Federal Budget - individuals

The Government is now giving individuals a greater incentive to work without being taxed more by making a start to personal income tax relief.

The changes will take place from 1 July 2016 and will prevent average full-time wage earners from moving into the second top tax bracket until 2019-2020, by increasing the 32.5 per cent tax threshold from taxable incomes of $80,000 to $87,000. This will affect around 500,000 taxpayers who will no longer face the 37 per cent marginal tax rate.

The policy objective is designed to keep those earning average wages in the middle tax bracket for longer. This measure will reward hard working Australians for doing more overtime, picking up more shifts, taking a promotion or a better new job, without being penalised by paying more tax through the higher rate.

In addition, the Government will increase the low-income thresholds for the Medicare levy and surcharge from the 2015/16 income year, so that low–income taxpayers can continue to be exempted from paying the Medicare levy.

 

Federal Budget - flexible super

The Budget has made changes that reflect that the current superannuation system is out of kilter with individuals current lifestyles, with the introduction of more flexibility to address this.

Concessional contributions

Individuals under the age of 75 will now be able to claim tax deductions for personal superannuation contributions. From 1 July 2017, individuals can make concessional super contributions up to the concessional cap. This will benefit partially self-employed individuals and partially wage and salary earners whose employers do not offer salary sacrificing.

The Budget will improve the superannuation balances of low-income spouses as the current spouse tax offset is extended to assist more families in accumulating superannuation. The current income threshold for the receiving spouse (whether married or de facto) will be lifted from $10,800 to $37,000. A contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made to an eligible spouse's superannuation account.

Catch-up concessional superannuation contributions will be introduced to allow those with lower contributions and interrupted work patterns to make 'catch-up' payments to boost their nest egg. This will apply to those with account balances of $500,000 or less whereby allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years.

Contribution rules removed for older Australians

Australians aged 65 to 74 will be able to access the bring-forward of non-concessional contributions, minimum work requirements for voluntary superannuation contributions and restrictions on spouse contribution from 1 July 2017. The incentive is to assist older Australians to make superannuation contributions appropriate to their circumstances.

Retirement income products

Barriers are being removed to encourage innovation in the creation of retirement income products. These income products can enhance the flexibility and choice for retirees to better manage risk and improve their standard of living in retirement.

From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products.

 

Income protection insurance

Many Australians overlook the tax deduction they have available for the premiums paid for income protection insurance.

Income protection insurance policies are designed to protect individuals in the event they become unable to work due to sickness or an accident. Policies will generally pay a portion of an individual's income up to a maximum time period if they are unable to work. Payments are usually subject to a waiting period.

Generally speaking, taxpayers can claim the cost of premiums they pay for insurance against the loss of income. However, any amounts received for lost salary or wages under an income protection insurance policy must be included in an individual's income tax return.

Where an insurance policy provides for benefits of an income and capital nature, only that part of the premium attributable to the income benefit is deductible. Taxpayers cannot claim a deduction for a premium or any part of a premium for a policy that compensates them for such things as physical injury. Proceeds received from this form of insurance are usually tax-free, provided certain conditions are met.

Individuals cannot claim a tax deduction for a premium where the policy is taken out through superannuation and insurance premiums are deducted from their super contributions.

 

Renting out a room can incur CGT

Many taxpayers who rent out a room in their home, whether it be via Airbnb or another avenue, are unaware that the practice can incur capital gains tax (CGT).

Many assume CGT does not apply because profit made on the sale of the family home (or 'primary residence') is tax-free. However, those who earn an income from a portion of the family home may inadvertently create a capital gains tax liability.

Some people are aware that renting out a portion of their home may trigger a capital gain event, but errors when calculating the percentage of the property the calculated gain should be attributed to are still common.

Taxpayers that sell a property need to work out the portion of the property that was used for 'investment' or 'income producing' purposes based on the floor area rented out as a percentage of the total property. This needs to then be apportioned to the period that space was made available to rent for the duration of ownership.

Even though CGT is affected by events throughout the ownership period, it is often calculated many years down the track. Many owners do not remember or are unable to locate records for a relatively short time in which they were renting part of the house out.

Taxpayers may have some CGT relief where they owned the property for more than a year, giving them a potential CGT discount of 50 per cent.

 

 

 

 

 

Budget Update


Personal tax measures

Whilst there were no significant taxation proposals in this year's Budget, the Government has made some relatively conservative changes to FBT exemption and employee share schemes. 

FBT exemption for electronic devices

 

Small business FBT exemption for work related electronic devices Effective date: 1 April 2016 Currently, an exemption from fringe benefits tax is available where an employee packages (or an employer provides) a portable electronic device (eg mobile phone, iPad, laptop etc).

This exemption is currently available where an employee packages (or is provided) multiple devices provided that the devices perform substantially different functions. 3 From 1 April 2016, where this device is provided (or packaged) with a small business employer (ie aggregated annual turnover below $2M), this exemption will be available across all such devices that are primarily used for work purposes. This change recognises that with the evolution of technology, there is an increasing level of similarly in functions that can be undertaken by items such as smart phones, tablets and some laptops.

FBT: meal and entertainment

A $5,000 grossed-up cap will be introduced for salary sacrificed meal entertainment expenses for employees of not-for-profit organisations from 1 April 2016. The cap previously sat at $30,000, allowing charities and other similar groups to compete with the private sector for the attention of prospective employees. Not-for-profit employees can now salary sacrifice meal entertainment benefits without reporting them. In addition, their employers will not have to pay fringe benefits tax.

Employee share schemes

Expanded tax concessions for employee share schemes from 1 July 2015, will allow employees to share in and gain from the future growth and success of the business. The new start-up concession ensures employees are not liable to pay tax up-front until they are able to grasp a benefit from the share options.

Other measures

The Government tightened access to pension payments as a result of decreases in the assets test. The maximum value of assets outside the family home a couple can hold while still qualifying for a part pension will be reduced from $1.15 million to $823,000. Pensioners with substantial private assets will have to draw on slightly more of their assets to maintain their current income levels in retirement. 

The asset test taper rate will be increased from $1.50 of pension per fortnight to $3 of pension for each $1,000 of assets over the relevant assets test threshold from 1 January 2017. It will allow those with moderate assets to receive a full or increased pension.

 

Budget focus on stimulating small business activity

The Budget has introduced a number of measures for small businesses designed to revive investment and support entrepreneurship and startups.

Tax cuts

The Government has followed through with its announced 1.5 per cent tax cut for small businesses with an annual turnover of less than $2 million, which will take effect from 1 July 2015. The Government will also provide a 5 per cent tax discount (capped at $1000) for small businesses that are unincorporated with an annual turnover of less than $2 million, such as sole traders and trusts.

Accelerated depreciation

Businesses that invest in new tools or machinery will receive an immediate tax deduction for any individual assets under $20,000 from 12 May 2015 until 30 June 2017. Currently, the threshold sits at $1,000. They can apply the $20,000 limit to as many individual items as they wish. 

Assets that exceed the $20,000 limit will be added to the entity's small business pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. These were the current rules for assets costing $1000 or more. The Government will also suspend the current lock-out laws for the simplified depreciation rules. These will prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out until 30 June 2017. 

Measures encouraging business startups

In order to encourage business start-ups, business registration processes will be streamlined through the creation of a single website (business.gov.au), which allows new businesses to register using a one key identifier. The new online portal will be implemented by mid 2016. The Government will also change the regulatory framework for crowd-sourced equity funding, including simplified reporting and disclosure requirements, to provide small businesses with access to additional funding from innovative sources.

Business establishment costs

Small businesses will be able to immediately write off professional costs associated with starting up a company from the 2015/16 income year instead of over a five-year period. Business owners will be able to invest more money into the growth of their new business.

CGT relief reforms for small business

A new CGT relief measure will be available for small businesses that change their legal structures and do not necessarily involve incorporated entities from the 2016/17 income year. However, small businesses can only apply changes to the legal structure once.

Age pension changes - good and bad

The budget papers contained significant changes to the aged pension assets test that will come into effect on 1 January 2017.

Under the proposed changes, the value of assets you can have in addition to the family home to qualify for the full pension will increase significantly. However, the taper rate will increase from the current $1.50 per fortnight per $1,000 of assets over the lower threshold to $3.00 per $1,000 of assets. The government estimates this will mean 91,000 people will stop having access to part pensions and a further 235,000 people will have their part pensions decreased.

                  Assets test threshold - now
 

  Homeowner
Full Pension
Homeowner
cut-out
Non- Homeowner
Full Pension
Non- Homeowner
cut-out
 Single

 $202,000 $775,000 $348,500 $922,000
 Couple

 $286,500 $1,151,000 $433,000 $1,298,000


              Proposed assets test threshold from 1 January 2017

  Homeowner
Full Pension
Homeowner
cut-out (estimated)
Non-Homeowner
Full Pension
Non-Homeowner
cut-out (estimated)
 Single

 $250,000  $547,000  $451,500  $747,000
 Couple

 $375,000  $830,000  $575,000  $1,023,000

As a sweetener to those who will lose their pension, the government will guarantee eligibility for the Commonwealth Seniors Health Card (CSHC), which provides the same concessional access to pharmaceuticals as those on the pension.


The government also said it will scrap the proposal announced in last year's budget to index pension solely to CPI increases. As such pensions will continue to be indexed by the greater of CPI and the Pensioner and Beneficiary Living Cost Index plus benchmarked to a percentage of Male Total Average Weekly Earnings.

Budget outlook for individuals and families

The 2015 Budget made sweeping changes for individual taxpayers and families with its focus on improving the economy.

Car expense deductions

The Budget has introduced new modernised methods for calculating work-related car expense deductions from the 2015/16 income year. The '12 per cent of original value method' and the 'one-third of actual expenses method,' which are used by less than 2 per cent of those who claim workrelated car expenses will be removed. 

The 'cents per kilometre method' will be modernised, allowing workers to claim a deduction for each kilometre driven in the car for work based on a schedule of typical costs. Under the new regime, one rate will be set at 66 cents per kilometre to apply for all motor vehicles. Taxpayers can continue using the 'logbook' method of calculating expenses if they do not want to use the cents-per-kilometre approach. These changes will adjust car expense deductions to align with the average cost of running a car.

Ageing workers

A flexible wage subsidy will give older Australians approaching retirement an incentive to remain in the workforce with the possibility of receiving a bonus later. It will also shorten the length of time Australians over the age of 50 have to wait on income support or the pension before they qualify for job incentives. 

Amendments to the new Restart program will offer older workers incentives for training to further assist them with retraining for a job and prevent them from falling back on unemployment benefits or pensions.

In addition, employers who hire job seekers under the age of 30 or workers aged 50 or older will share in a redesigned national wage subsidy pool from 1 November 2015. Eligible employers will be granted a subsidy of up to $6,500 for hiring a job seeker under the age of 30, an indigenous job seeker, a parent returning to the workforce, or a longterm unemployed job seeker. They can also receive up to $10,000 under the Restart program for hiring workers aged 50 or older.

Families

The childcare scheme has received a major overhaul to support low income families. Families with access to maternity leave through work will no longer receive government assistance in the form of the existing Parental Leave Pay (PLP) scheme from 1 July 2016. This measure will prevent families from double dipping into both schemes.

Under the new proposals, both parents must do at least eight hours a fortnight of work, training or study to qualify for any childcare support. Families earning up to $65,000 will receive 85 per cent off childcare fees, while stay-at-home parents with a family income over $65,000 will no longer secure childcare subsidies.

A two-year nanny trial starting on 1 January 2016 will assist the parents of approximately 10,000 children, especially those working for emergency services or living in regional areas, without access to regular childcare services. 

Rural Australia

Farmers can continue the Drought Concessional Loan Scheme for another year. Farmers will also be able to claim fences and new water storage as tax write-offs. 

Power to amend fraud and evasion 

The Commissioner of Taxation has been granted power to modify the time limit for assessments and testing of fraud and evasion, which normally varies between two and four years.

Under subsection 170 (1), (2) and (3) of the Income Tax Assessment Act 1936 (ITAA), the Commissioner can adjust the assessment of an individual or small business entity within two years of the day they were given notice of the assessment.

A small business entity is an entity which carries on a business and has turnover of less than $2 million. A four year period of assessment still applies for other entities.

The Commissioner may revise an assessment under section 170 (5) when they believe there has been fraud or evasion. Fraud is not limited by a time period and is evaluated on the absence of veracity in a statement or carelessness to its truths.

Evasion is gauged from the avoidance or withholding of information in a statement.

Lower penalties are imposed for carelessness and recklessness. Carelessness attracts a penalty of 25 per cent of the tax avoided, recklessness 50 per cent and intentional disregard 75 percent. An additional uplift penalty of 20 per cent will be issued for fraudulent misstatement in a tax return.

The time period applicable for fraud and evasion commences when the assessment is made or any time afterwards. 

 

 

Last year I branded the federal budget as boring, I won't be doing the same this year! It's a tough budget with all Australians told to bear the burden.

Tony Abbot has dubbed it "pain with a purpose" and according to Federal Treasurer Joe Hockey, "the economy is growing at less than normal speed and the time to fix the budget is now."

For families, there is a focus on healthcare and education; for high income earners, a new tax just for them; for pensioners – new eligibility rules; and for the rest of us – a little bit of extra super.

For anyone who just wants an absolute bare bones budget breakdown, I've prepared a summary of the main points below. At the very least you can pretend to care if one of your friends or family members raises the matter.

And for anyone who would like a more comprehensive look at what this year's Federal Budget involved, I've catered for your taste too by including some links to a much longer report and even a video.

First, the summary.

Personal Taxation
  • A levy of 2% will apply for three years to incomes over $180,000 pa, starting in 2014/15. It will increase the top marginal tax rate to 49%.
  • The levy will increase the Fringe Benefits Tax rate to 49% for three years, starting on 1 April 2015.
  • Tax offsets available for dependent spouses and mature age workers will be abolished on 1 July 2014.
  • Income thresholds determining the Private Health Insurance Rebate and Medicare Levy Surcharge will not increase for three years, starting in 2015/16.
  • Interest on HELP debts will increase, with a maximum rate of 6% pa from 1 June 2016.

Superannuation
  • People who make after-tax (non-concessional) super contributions from 1 July 2013 that exceed the cap will have the option to withdraw the excess amount plus earnings on the excess. Currently these excess contributions are taxed at 46.5%.
  • The timeframe for increasing the Superannuation Guarantee contribution rate to 12% will be amended. The next increase, to 9.5%, will occur on 1 July 2014 where it will remain for four years. From 1 July 2018, the rate will increase by 0.5% pa before reaching 12% on 1 July 2022.

Social Security
  • The age at which people will be eligible to receive the Age Pension will increase to 70 from 1 July 2035.
  • From 1 July 2015, Family Tax Benefit – Part B will only be available to families who earn up to $100,000 pa, down from $150,000 pa. This payment will also be limited to families whose youngest child is under 6.
  • The amount of income earned to be eligible for the Commonwealth Seniors Health Care Card will increase each year in line with inflation from 20 September 2014. However, tax-free payments from superannuation pensions will be included in the income assessment from 1 January 2015 for new applicants.
  • From 20 September 2014, the Seniors Supplement will no longer be payable to holders of the Commonwealth Seniors Health Care Card. However, cardholders will still receive the Clean Energy Supplement.
  • People receiving the Disability Support Pension under age 35 may need to undertake a compulsory workforce participation plan.

It's important to note that at this stage, the measures announced are proposals only and may or may not be made law. So don't go acting on them just yet…

If you'd like to hear more of what I have to say on the matter, click here for a recording of my most recent "You & Your Money" radio segment on 98.1FM Radio Eastern and click here for your more detailed Budget report.

And if you'd prefer to watch a 6 minute youtube budget update, click here.

Talk soon,
Caren
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