Mr Hockey unveiled a budget designed to undo last year’s electoral damage and transition the economy from mining to growth in small business. Small business in particular should benefit from a number of measures announced.
“Through careful planning we are successfully navigating the difficult transition from a mining investment boom, to one of broader-based growth across our economy,” he said.
The major revenue measures announced in the Budget include:
- A cut of 1.5% (to 28.5%) in the company tax rate for small businesses (those with turnover of less than $2 million).
- A 5% tax discount of up to $1,000 (per individual) for unincorporated small businesses.
- Small businesses will be able to write off in one year all assets valued at up to $20,000 each acquired from Budget night until 30 June 2017.
- Multinational enterprises (“MNEs”) face new “integrity” rules via amendments to the anti-avoidance provisions in Pt IVA.
- Stronger penalties for tax avoidance by MNEs.
- A GST “Netflix” tax will be applied to certain offshore intangible supplies from 1 July 2017.
- Work-related car expenses will be simplified – 2 methods will be discontinued, and only one flat rate of 66c/km will apply.
- Fringe Benefits Tax (“FBT”) concessions for charities and not-for-profits in respect of meal and entertainment expenses will be capped at $5,000 per annum.
- The government also confirmed its earlier announcement that it would not proceed with its Paid Parental Leave scheme from 1 July 2015.
- The government will not go ahead with last year’s unpopular pension indexation changes and instead from January 1, 2017 the taper rate for the pension will change.
We encourage you to contact your Walker Wayland NSW advisor if you wish to discuss any aspects of the Budget further.
- Individuals and Families
- Small Business
- Large Companies and International Taxation
- GST and Other Taxes
- Administration and Other Measures
Modernising work-related car expense deductions
The methods of calculating work-related car expense deductions will be modernised from 1 July 2015 with the removal of the following methods of calculation:
- “12% of original value method”; and
- “One-third of actual expenses method”.
The “cents per kilometre method” will be altered by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles. The “logbook method” of calculating expenses will be retained. These changes are intended to better align the average costs of operating a motor vehicle with the allowable car expense deduction.
Changes to tax residency rules for temporary working holiday makers
The tax residency rules will be changed to treat most people who are on a working holiday in Australia as non-residents for tax purposes. This means they will be taxed at 32.5% from their first dollar of income. Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency rules. This means they are able to access the beneficial resident tax treatments such as the tax-free threshold.
Medicare levy low-income thresholds for singles, families and single seniors and pensioners increased
The Medicare levy low-income thresholds for singles, families, single seniors and pensioners will be increased from 1 July 2014. The thresholds are as follows:
- Singles: increased to $20,896;
- Couples with no children: increased to $35,261, and the additional amount of threshold for each dependent child or student will be increased to $3,238; and
- Single seniors and pensioners: increased to $33,044.
The increases in these thresholds take into account movements in the Consumer Price Index (“CPI”).
Zone tax offset to exclude “fly-in fly-out” and “drive-in drive-out” workers
The zone tax offset will exclude “fly-in fly-out” and “drive-in drive-out” (“FIFO”) workers where their normal residence is not within a “zone”.
The zone tax offset is a concessional tax offset available to individuals in recognition of the high cost of living associated with living in isolated and identified locations. Eligibility is based on defined geographic zones. This measure will better target the zone tax offset to taxpayers who have taken up genuine residence within the zones and align the offset with the original intent of the policy, which was to support genuine residents of zones.
Updates to list of specifically listed deductible gift recipients
Two organisations have been added to the list of specifically listed deductible gift recipients and two organisations have had their listings extended. The following organisations have been approved as specifically listed deductible gift recipients (“DGRs”) from 1 January 2015:
- International Jewish Relief Limited; and
- National Apology Foundation.
The following organisations have had their listings extended, to expire on 31 December 2017:
- National Boer War Memorial Association; and
- Australian Peacekeeping Memorial Project.
Pension reforms not proceeding
The government will not be proceeding with elements of the 2014-15 Budget measures that relate to the pension income test free areas and deeming thresholds. These will continue to be indexed annually by the CPI.
Families package: reforms to child care system
The government will provide an additional $3.2 billion over five years from 1 July 2014 to support families with child care. A new Child Care Subsidy will be introduced from 1 July 2017 which will support families where both parents work.
Families meeting the activity test with annual incomes up to $60,000 will be eligible for a subsidy of 85% of the actual fee paid which will taper to 50% for eligible families with annual incomes of $165,000.
There will be no annual cap for families with annual incomes below $180,000. However, for families exceeding $180,000 the subsidy will be capped at $10,000 per child per year.
Under the new regime, parents must do a minimum of eight hours a fortnight of work, study or training to qualify for any child care support.
The income threshold for the maximum subsidy will be indexed by the CPI. Eligibility will be linked to a new activity test to better align payment of the subsidy with the number of hours worked, studied or other recognised activities.
The hourly fee cap in 2017-18 will be set at:
- $11.55 for long day care;
- $10.70 for family day care; and
- $10.10 for outside school hour’s care.
The hourly fee caps will be indexed by CPI.
Additional support will be provided to disadvantaged or vulnerable families who have trouble accessing child care. A Child Care Safety Net is being provided to target and address barriers to accessing child care. The Child Care Safety Net consists of three programmes:
- the Additional Child Care Subsidy;
- a new Inclusion Support Programme; and
- the Community Child Care Fund.
Families with income of around $65,000 or less in 2017-18, who do not meet the activity test, will be eligible to receive up to 24 hours subsidised care per fortnight under the Child Care Safety Net.
The Child Care Subsidy will replace the current child care fee assistance provided by the Child Care Benefit and Child Care Rebate, which will be abolished from 1 July 2017.
Immunisation requirements for eligibility to government payments
Children will have to fully meet immunisation requirements before their families will be eligible for subsidised child care or the Family Tax Benefit (“FTB”) Part A end-of-year supplement. Exemptions will only apply for medical reasons.
Accessing parental leave pay from both employer and government
From 1 July 2016, individuals will be unable to access a government assisted parental leave pay scheme at the same time as receiving any employer-provided parental leave entitlements. Individuals are currently able to access assistance from both the government as well as an employer. The government will ensure that all primary carers would have access to parental leave payments (“PLP”) that are at least equal to the maximum PLP benefit.
End of Family Tax Benefit Part A large family supplement
The FTB large family supplement will cease from 1 July 2016. Families will continue to receive a per child rate of FTB Part A for each eligible child in their family
Family Tax Benefit Part A reduced portability
From 1 January 2016, families will be able to receive FTB Part A whilst they are overseas only for six weeks in a 12-month period. 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. Portability extension and exception provisions which allow longer portability under special circumstances will continue to apply.
Instant write-off for assets under $20,000
There will be a temporary increase to the threshold for which small businesses can claim an instant write-off for the cost of an asset from $1,000 to $20,000. It is available for small businesses with an aggregate annual turnover of less than $2 million.
The increased threshold will apply for assets acquired and installed ready for use between 7.30pm (AEST) on 12 May 2015 and 30 June 2017.
In the same way the rules currently apply for assets costing $1,000 or more, assets costing $20,000 or more that cannot be immediately deducted will be included in the entity’s small business pool and depreciated at 15% in the first income year and 30% each income year thereafter. However, the balance in the small business pool can be immediately deducted if it is less than $20,000 (including an existing pool). This will apply from 7.30pm (AEST) on 12 May 2015 to 30 June 2017.
The current rules preventing small businesses using the simplified depreciation regime for five years if the business opts out of the regime will also be suspended until 30 June 2017.
Certain assets will not be eligible for these simplified deprecation rules, such as horticultural plants and in‐house software, as specific depreciation rules apply (as is the case with the current rules).
Tax rate cuts for small businesses
The tax rate for companies will be reduced by 1.5% (from 30% to 28.5%) for small businesses with an aggregated annual turnover of less than $2 million from 1 July 2015. This is expected to benefit some 780,000 incorporated small businesses.
In addition, individual taxpayers with business income from unincorporated entities with an aggregated turnover of less than $2 million will receive a 5% tax discount. This includes business held within trusts and partnerships. This measure will also apply from 1 July 2015.
The discount will be in the form of a tax offset and only applies to income tax payable on business income, and will be capped at $1,000 per individual for each income year.
For companies, the maximum franking credit rate for a distribution will remain at 30%.
Immediate deduction for business establishment costs
Currently, professional expenses that are associated with starting a new business (such as legal and accounting advice) are deducted over 5 years. These costs will now be available for an immediate deduction. The deduction will be available to start‐up businesses from 1 July 2015.
Capital gains tax relief for change in entity structure
Small businesses with an aggregated annual turnover of less than $2 million will be able to change legal structure without attracting a capital gains tax (“CGT”) liability. Currently, CGT roll-over relief is only available to individuals who incorporate. The new measure allows all other entity types to change structure without triggering a potential CGT liability.
The measure recognises that a small business might choose a legal structure that they later find does not suit them when the business is more established. The government gives the example of a sole trader changing their business structure to a trust. CGT roll-over relief will be available.
The measure is part of the government’s Jobs and Small Business package and aims to reduce red tape that hinders small business growth.
The measure will be available for businesses that change entity type from 1 July 2016.
FBT exemption for portable electronic devices extended
All portable electronic devices (for example laptops, mobile phones and tablets) used primarily for work purposes will be exempt from fringe benefits tax (“FBT”) for small businesses with an aggregated annual turnover of less than $2 million.
The current provisions allow an exemption for only one item per employee unless each device performs substantially different functions.
Primary producers – accelerated depreciation rates
All primary producers will be able to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills for income years commencing on or after 1 July 2016.
Primary producers will also be allowed to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed. Currently, fences are depreciated over a period of up to 30 years, water facilities are depreciated over a period of three years and fodder storage assets are depreciated over a period of up to 50 years.
The Treasurer also confirmed further changes to the previously announced employee share schemes (“ESS”) tax reforms. This includes providing the 50% capital gains tax discount to ESS interests that are subject to the start‐up concession where options are converted into shares and the resulting shares are sold within 12 months of exercise. Together with the enabling legislation, these changes will take effect from 1 July 2015.
Introduction of the new anti avoidance law to target Australian tax base erosion
The release of the draft Tax Laws Amendment (Tax Integrity Multinational Anti-avoidance Law) Bill 2015 is aimed at countering the erosion of the Australian tax base by multinational entities aiming to avoid the attribution of business profits to a taxable establishment in Australia through the implementation of elaborately contrived arrangements entered into for the sole purpose of avoiding tax.
The proposed bill will apply if, in connection with a scheme:
- a non-Australian tax resident entity derives income from the making of a supply of goods or services to Australian customers, with an entity in Australia supporting that supply; and
- the non-resident entity avoids attributing the income from the supply to a permanent establishment in Australia (and as a result reduces or eliminates the Australian income tax paid by the multinational group).
In circumstances where a scheme is identified by the proposed multinational anti avoidance law, the Commissioner will have the power to look through the scheme and apply the tax rules as if the non resident entity had made the supply through an Australian permanent establishment. This also includes any business profits resulting from the supply that would otherwise have been assessable to an Australia tax resident entity.
In order to reduce tax compliance costs to smaller multinational groups the proposed anti-avoidance law only applies to non resident entities that have annual global revenue of over $1 billion in the relevant income year in which they sought to obtain a tax benefit under the scheme.
Additionally, the proposed law will only apply to multinational groups that are, or have related entities in their corporate structure that are, subject to no or low corporate tax rates. The measures are intended to apply form 1 July 2016 to tax benefits obtained under both new and existing schemes.
Stronger penalties for multinational tax avoidance
The maximum administrative penalty that may be applied by the Commissioner of Taxation to large companies that enter into tax avoidance schemes is to be doubled. The increased maximum penalty is aimed at discouraging tax avoidance and will apply from 1 July 2015.
This measure will apply to companies with global revenue of $1 billion or more, and it is estimated to have an unquantifiable gain to revenue over the forward estimates period.
OECD’s transfer pricing documentation standards to be implemented
The transfer pricing documentation standards established by the OECD will be implemented from 1 January 2016.
Under the new standards, the Commissioner will receive the following information on large companies that operate in Australia:
- a jurisdiction by jurisdiction report showing information on the global activities of the multinational, including the location of its income and taxes paid;
- a summary of the multinational’s global business, its corporate structure and its transfer pricing policies; and
- a summary of the local taxpayer’s inter-company transactions.
Collectively, this information aims to provide the ATO with a global picture of how multinational entities operate and in turn assist with the identification of multinational tax avoidance.
The measure applies to companies with global revenue of $1 billion or more.
Voluntary corporate disclosure code to be developed
The treasurer aims to implement a voluntary code in order to promote increased disclosure of tax information by larger corporate taxpayers. The code aims to highlight companies that are paying an appropriate share of taxation, as well as discourage companies from implementing aggressive tax avoidance strategies.
The Board of Taxation will head the development of the disclosure code. The board’s progress will be evaluated and the government will consider implementing changes to legislation if required.
Treaty abuse rules
Although Australia already includes integrity rules in its tax treaties, the government aims to incorporate OECD recommendations on combating treaty abuse. The OECD’s wider Base Erosion and Profit Shifting (“BEPS”) Action Plan recommended including limitation of benefits provisions and anti-abuse provisions in model double tax conventions. The provisions are designed to foil attempts by multinational enterprises to structure business operations in a manner to take advantage of jurisdictions with favourable tax treaties.
Anti hybrid rules
The Board of Taxation will consult on the implementation of the OECD’s draft plan to tackle the problem of multinationals claiming a tax deduction in one country but not paying tax in another.
Harmful tax practices — information exchange
The ATO has commenced the exchange of information on secret tax deals provided to multinationals by other jurisdictions that may contribute to Australian tax base erosion.
Some jurisdictions provide secretive or preferential tax deals to multinationals in an attempt to attract their business. According to the OECD, the Australia government does not engage in any harmful tax practices.
Investment by the Federal Government in ATO Funding profit-shifting investigations
The ATO will be allocated $87.6 million over the next three years to continue its ongoing International Structuring and Profit Shifting program. The program has so far raised over $250 million in tax liabilities and is estimated to raise a total of $1.1 billion.
Release of superannuation for terminal medical condition
From 1 July 2015, individuals with a terminal medical condition will be entitled to early access to their superannuation. Under the current regime terminally ill patients require the certification of two medical practitioners (including a specialist) outlining that they are likely to die within 12 months to gain unrestricted access to their superannuation balances tax free. The government has extended this to a period of 24 months giving patients earlier access to their superannuation.
Lost and unclaimed superannuation
The government has announced that it is removing unnecessary reporting obligations in addition to streamlining administrative arrangements for lost and unclaimed superannuation to reduce red tape for individuals and superannuation funds. These measures will be met by utilising existing resources of the ATO and will be effective from 1 July 2016.
Increased supervisory levies
With effect from 1 July 2015 financial institutions will be required to pay increased supervisory levies in order to recover the full cost of the ATO and Department of Human Services superannuation activities.
Age Pension assets test
Further to the governments announcement on 7 May 2015 it has confirmed the following changes to the assets test threshold from 1 January 2017:
- Single homeowner – $250,000 (previously $202,000)
- Homeowner couple – $375,000 (previously $286,500)
- Single non-homeowner – $450,000
- Couple non-homeowner – $575,000
In connection with the above asset threshold changes, the government has also confirmed that the taper rate will be increased by $3.00 per fortnight for every $1,000 of assets exceeding the applicable threshold. As a result, the maximum value of assets to qualify for a part pension will be $823,000 and $547,000 for a homeowner couple and single homeowner respectively.
GST extended to offshore supplies of services and intangibles to Australian consumers
Offshore supplies of services and intangibles to Australian consumers will be subject to GST from 1 July 2017.
The government has released the Tax Laws Amendment (Tax Integrity: GST and Digital Products) Bill 2015. This will amend the GST Act and result in supplies of digital products such as streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services receiving similar treatment whether they are supplied by a local or a foreign supplier. At this stage it would appear all supplies will be caught, regardless of the value of the supply. However, there is scope for this to be changed by regulation at a later time.
GST will only apply if a supply is made to an Australian consumer. The key concept in determining whether a supply is made to an Australian consumer is if the entity is an Australian resident. The test revolves around the tax residency of the consumer, not where that consumer is located at the time of the supply. Although this means that services performed while an Australian resident is travelling overseas could be caught by the measures, amendments will ensure that such services are not caught by the changes.
The other key concept is determining whether an Australian resident entity is a consumer. In general, the amendments will apply to supplies that are not acquired by an entity in the course of an enterprise carried on in Australia. However, an entity will also be a consumer if it is carrying on an enterprise but is not registered or required to register for GST because its turnover is less than the GST registration threshold (currently $75,000).
No GST liability arises under the amendments if the recipient acquires the supply as a business rather than as a final consumer i.e. the entity acquires supplies in whole or part in the course of an enterprise and the entity is registered or required to be registered for GST.
In certain circumstances where the operator of an electronic distributions service controls key elements of the supply such as delivery, charging or terms and conditions, responsibility for the GST liability may be shifted to them. This is intended to minimise compliance costs on the basis operators are better placed to comply.
If an entity that has the GST liability for offshore supplies of services and intangibles to Australian residents:
- takes reasonable steps to obtain information concerning whether the recipient of the supply is an Australian consumer; and
- after taking these steps, reasonably believes that the recipient is not an Australian consumer,
then the entity may treat the supply as if it had been made to a non-resident even if this is later found not to have been the case
The Bill also amends the GST law to permit regulations to be made to provide for a modified GST registration and remittance scheme for entities only making supplies that are connected with Australia’s indirect tax zone as a result of the amendments. Entities will also be able to elect to have limited registration for GST which will prevent them accessing input tax credits.
GST reverse charge rules for going concerns and farmland sales
The previously announced measure to replace the current GST-free treatment for supplies of going concerns and certain farmland sales with a reverse charge mechanism will not proceed. It was determined during design of the implementation of the measure that it would have adverse consequences for taxpayers.
Luxury car tax exemption for public museums and art galleries
Public museums and art galleries that have been endorsed as deductible gift recipients (“DGR”) will be allowed to acquire cars free of luxury car tax. This will apply only to cars acquired for public display, consigned to the collection and not used for private purposes. The measure will take effect from the date of Royal assent of the enabling legislation.
FBT on meal and entertainment for not-for-profit employees
A separate, single grossed-up cap of $5,000 will be introduced from 1 April 2016 for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of not-for-profit entities. Meal entertainment benefits exceeding the separate grossed-up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing fringe benefits tax exemption or rebate cap. All use of meal entertainment benefits will become reportable.
Managed investment trusts: transitional start date
The start date of the new managed investment trusts (“MITs”) regime has been deferred to 1 July 2016. MITs and other trusts treated as MITs will continue to be allowed to disregard the trust streaming provisions for the 2015/16 income year. This will ensure these interim arrangements for MITs continue to apply until the commencement of the new rules.
ATO reforms to cut red tape
An additional $130.9 million will be provided to the ATO over four years to deliver an improved experience for clients. Red tape will be reduced and future administrative savings delivered through investment in three initiatives: (1) a digital-by-default service for providing information and making payments, (2) improvements to data and analytics infrastructure, and (3) enhancing streamlined income tax returns through the myTax system for taxpayers with more complex tax affairs.
Specifically listing Global Infrastructure Hub as an income tax exempt entity
The Global Infrastructure Hub (“the Hub”) will be specifically listed as an income tax exempt entity by amending Division 50 of the Income Tax Assessment Act 1997.
The Hub, which was established following a joint statement from the Prime Minister and the Treasurer at the G20 Leaders’ Summit in November 2014, will work internationally to lift the quality and quantity of public and private investment in infrastructure through information development, knowledge sharing, training and the implementation of leading practices.
The mandate for the Hub will cease in 2018 and the exemption from income tax will apply to amounts that would be included in assessable income from 24 December 2014 to 30 June 2019.
Additional funding for IGT
The government will provide at least $14.6 million over five years to the Inspector-General of Taxation’s (“IGT’s”) office to support its operations. This funding is in addition to the 2014/15 Budget funding to the IGT in relation to the transfer of tax complaints handling.
The value of all Commonwealth tax penalty units will increase form $170 to $180 form 31 July 2015. In addition ongoing indexation of penalty units will be introduced based on the CPI, with indexation to occur on 1 July every three years. The first indexation will occur on 1 July 2018.