The Federal Treasurer wants mums and dads, small business owners, farmers and the young to “get out there and have a go” in a budget targeted at stimulating activity at the grass roots. It is a carrot and stick affair, incentivising people in the heartland but penalising the “dirty thirty” multinationals at the “top end of town” who the Government does not believe are playing the tax game fairly. This budget is not a sequel to last year’s budget. This is a completely new plot with a new script. Families, particularly on lower incomes, were already winners with pre-budget expansions of childcare concessions examined below.
For retirees and pensioners, this is a “no-news is (at least) not bad news” budget. The Government confirmed that the Age Pension assets test threshold for a single homeowner will be increased to $250,000 (up from $202,000) and $375,000 for a homeowner couple (up from $286,500) from January 2017. The assets test threshold (or assets free area) for non-homeowners will be increased to $200,000 more than homeowner pensioners, i.e. $450,000 (single) and $575,000 (couple). The assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. This measure will essentially restore the $3.00 taper rate that was in place before 20 September 2007 when the then Government reduced it from $3.00 to $1.50 as part of the Simplified Superannuation measures. The proposed increase in the taper rate to $3.00 of reduced pension per fortnight for each $1,000 of assets over the relevant threshold will effectively reduce the maximum value of assets a homeowner couple can hold to qualify for a part pension from $1.151m to approximately $823,000 (plus the family home) or $547,000 (for a single homeowner instead of the current $775,500). For a non-homeowner couple, the Age Pension will not phase out completely until $1.023m (down from $1.298m) or $747,000 (for a single non-homeowner instead of the current $922,000). People affected by the scaling back of the maximum asset threshold will be guaranteed eligibility for the Commonwealth Health Seniors Card (CSHC) or Health Care Card. The previously announced measure to index pensions to CPI has been withdrawn and the higher present indexation rates will continue.
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For self funded retirees, the good news is that there are no superannuation tax changes. Pre-budget scare campaigns have proven unfounded.
The heartland should celebrate the fact that – finally! – we have a budget that provides targeted measures and incentives for micro and small businesses. Small businesses with a turnover of less than $2 million benefit from a range of measures. The company tax rate will drop to 28.5% (but the franking rate will remain at 30%!) There is also the “hire a hubbie” 5% tax discount for unincorporated small businesses that get a tax discount of up to $1,000. But the signature measure must be the immediate deduction for fixed asset purchases of less than $20,000. The Treasurer wants to trigger a 2015 year end small business spend-a-thon as SME’s lower their tax this year by upgrading their businesses before year end. This is the only measure to commence from budget night. You can commence the spending frenzy from now (subject to Senate approval). Also on offer is tax free rollover relief for a change of business structure – removing obstacles for selecting the most appropriate operating structure for business. Next FBT year go crazy with FBT free gadgets. You can have as many tax free iPhones as you like in a year (– look after mum, dad and the kids). Whereas your mates at the top end of town can only have 1 gadget with a distinct function per year (their kids will have to put up with hand-me-downs!).
Start ups will be able to write off professional fees related to commencing business as an outright tax deduction in the year incurred. This reverses a manifest injustice which required such costs to be written off over 5 years when the cash outflow occurred in year 1.
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Health and PBI organisations will need to rethink salary packages with a new FBT exempt meal entertainment expenditure cap of $5,000 to apply from 1 April 2016 (doctors, you have just under 1 year to hammer that credit card hard).
From 1 July, start up businesses will enjoy the improvement of tax rules for employee share schemes – extending access to the CGT discount where share options are converted to shares and the total ownership period is 12 months. Previously, the acquisition date was argued by the ATO to “reset” when the options converted to shares creating perverse outcomes. Farmers get a 3 year write-off for drought proofing measures for fodder and grain storage.
The 30-odd multinationals that have displeased the Government by not paying enough tax get a punch kick approach with a significant tightening of tax avoidance rules while at the same time raising the standard of documentation that must be maintained to substantiate transfer prices that shift profits out of the country. The most practical effect of this targeted approach on the rest of us is the so called “netflix” tax that will impose GST on supplies of digital content by 1 July 2017. Fly-in/ Fly-out workers are also penalised with the zone tax rebate being removed where the worker does not genuinely live in a remote area but flies to the remote area for work and then returns to their inner city apartment at Barangaroo. Alas, the next generation of working holiday seekers will not be able to claim the tax free threshold from 1 July 2016 by extending their visa to spend more than 1/2 the year in Australia, thereby “tipping” themselves into local “tax residency”. The Government is going to hunt down and recover HELP debt repayments for debtors residing overseas. KaPOW – take that foreign baddies.
Perhaps this is the best budget one could hope for from a Government so hopelessly blocked by a hostile Senate. Let us hope common sense prevails and that petty politics does not block a much needed boost to a small business community that has long been ignored by successive Governments.