Treasurer Joe Hockey last night handed down his second budget, using a very different approach to his first. Last year saw more than two thirds of his savings measures drown in a sea of messy politics. Perhaps this time it will be different.
Key Points from Budget:
- The 2015-16 Budget has seen a big shift from budget repair “the budget emergency” towards supporting growth, opportunity and boosting jobs.
- The budget deficit for 2015-16 is projected to be $35B compared to the $17B projected in last year’s budget.
- New spending in the areas of child care and small business tax cuts has been more than offset by various savings.
- It is anticipated that this year’s budget should be a lot more positive for confidence than last year’s, but that return to surplus is looking far more distant.
Tax cuts for small business
The Government has proposed to reduce the tax rate for the more than 90 per cent of incorporated businesses with annual turnover under $2 million from 1 July 2015. The company tax rate for these businesses will be reduced by 1.5 percentage points to 28.5 per cent. The Government estimates that up to 780,000 incorporated small businesses will be eligible for a tax cut as a result of this initiative. The Government has also announced that the franking credit rate will be unchanged at 30 per cent, which means incorporated small business owners will pay less tax and provides certainty for investors. The Government has announced tax cuts for unincorporated small businesses, including those structured as a sole trader, as a partnership or as a trust. The Government has announced a 5 per cent tax discount to unincorporated businesses with annual turnover less than $2 million from 1 July 2015. This tax cut is broadly in line with the 1.5 percentage point tax cut for small incorporated companies. Individual taxpayers will still calculate their business and personal income in the same way, and then they get a 5 per cent discount on the tax payable on their business income. The discount will be capped at $1,000 per individual in an income year, and it will be delivered as a tax credit in their tax return.
Accelerated depreciation for small business
The Government has announced that from Budget night until the end of June 2017 all small businesses will get an immediate tax deduction for every asset they buy costing less than $20,000. Currently, the threshold sits at $1,000. This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they like. Any assets over $20,000 (which cannot be immediately deducted) can be added together (“pooled”) and depreciated at the same rate. These assets are depreciated at 15 per cent in the first financial year, and 30 per cent per year thereafter. If the value of the pool is below $20,000 until the end of June 2017 it can be immediately deducted too.
Other tax concessions for small business
The Government has announced that from 1 July 2016 small businesses will also benefit from Capital Gains Tax rollover relief when changing their legal structures but keeping the same owners (for example, upon restructure of a business from sole trader to a trust structure). Start-up small businesses will also be allowed to immediately deduct professional expenses incurred when they start a business such as legal expenses on establishing a company, trust or partnership, rather than writing them off over five years
Employee Share Schemes
The Government has proposed expanded tax concessions for Employee Share Schemes. From 1 July 2015 the default taxing point for options will be changed so that employees will not generally have to pay income tax until they can realise a benefit from their options. This will benefit employees of all companies. Eligible start-up companies will also be able to offer shares or options to their employees at a small discount and have tax deferred until sale (for options) or the small discount exempt from tax (for shares).
Work-related car expense deductions
The Government has announced that from1 July 2015 the “12 per cent of original value method” and the “one-third of actual expenses method” (used by less than two per cent of those who claim work-related car expenses), will be removed. The “cents per kilometre method” will be modernised 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, with the Commissioner of Taxation responsible for updating the rate in following years. The “logbook method” of calculating expenses will be retained. These changes will not affect leasing and salary sacrifice arrangements.
Increase in Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and single seniors and pensioners from the 2014-15 year, to take account of movements in the Consumer Price Index so that low-income taxpayers generally continue to be exempted from paying the Medicare levy. The threshold for singles will be increased to $20,896. 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. For single seniors and pensioners, the threshold will be increased to $33,044.
The Government will reduce red tape in the Fringe Benefits Tax (FBT) system by ensuring that from 1 April 2016 all small business work‑related portable electronic devices are FBT free. Also from 1 April 2016, the Government has announced that “meal entertainment” benefits (including holidays, cruises, weddings, and meals and alcohol in restaurants) provided by some not-for-profit and public health sector employers (which are currently uncapped and not reportable for fringe benefits tax, or for other government tax and transfer payment income tests) will be subject to a new grossed-up exemption cap of $5,000.
Tax integrity measures
The Government has announced a range of measures designed to address the integrity and fairness of the taxation system including:
- A multinational anti-avoidance law to ensure that foreign businesses cannot escape the Australian tax net using contrived arrangements;
- Closing the digital loophole to ensure that GST is applied to digital products and services imported by consumers; and
- Increasing penalties for tax avoidance by large companies.
Higher Education Loan Programme (HELP) repayments for Australians residing overseas
The Government has announced a change to HELP to impose the same repayment obligations to Australians living overseas as currently apply to those who reside in Australia, ensuring fairer and more equitable arrangements. Repayment obligations will be based on worldwide income. The new arrangements will apply from 1 January 2016 to both new and existing debts. From this date, debtors going overseas for more than six months will be required to register with the ATO, while those already overseas will have until 1 July 2017 to register. Repayment obligations will commence from 1 July 2017 (for income earned in the 2016–17 financial year).
Superannuation Access to super upon terminal illness
From 1 July 2015 the Government will extend access to superannuation for people with a terminal medical condition. Currently, patients must have two medical practitioners (including a specialist) certify that they are likely to die within twelve months to gain unrestricted tax free access to their superannuation balance. The Government will change this period to twenty four months. This will give terminally ill patients earlier access to their superannuation.
Lost and unclaimed super
From 1 July 2016 the Government will implement a package of measures that will reduce red tape for superannuation funds and individuals by removing redundant reporting obligations and by streamlining lost and unclaimed superannuation administrative arrangements. The changes will make it easier for individuals to be reunited with their lost and unclaimed superannuation.
Social Security Age Pension
The Government has announced that the plan to index the age pension to inflation will no longer proceed. The age pension will continue to be indexed by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI), benchmarked against a percentage of Male Total Average Weekly Earnings (MTAWE). The level of assets in addition to the family home that can be held to qualify for the full age pension will be increased from 1 January 2017. The maximum level of assets that can be held to qualify for a part pension will be reduced. However, those affected individuals who lose their pension will be automatically guaranteed a Commonwealth Seniors Health Card (CSHC) or a Health Care Card (HCC) which give cardholders access to less expensive medicines under the Pharmaceutical Benefits Scheme (PBS) as well as other concessions from state and local government authorities and private businesses.
Assets test threshold from 1 January 2017
|Family situation||Pension rate (20 March 2015)||Homeowner status||Assets test limit for full pension||For part pension assets must be less than:|
The age pension will decrease by $3 (currently $1.50) for every $1,000 in assets above the thresholds for the full pension. Example: Jason, a single homeowner, has assessable assets of $500,000. His age pension entitlement is calculated as: Current : $860.20 – [($500,000 – $202,000) × 1.5/1000] = $413.20 Proposed: $860.20 – [($500,000 – $250,000) × 3/1000] = $110.20 As a consequence, pension entitlements will reduce for single homeowners with assessable assets over $298,000 and homeowner couples with assessable assets over $463,500.
Defined benefit pensions – Income test assessment
The amount of income paid from certain defined benefit superannuation pensions that can be excluded from the pension income test (the deductible amount) will be capped at 10%, from 1 January 2016. Recipients of Veterans’ Affairs pensions and/or defined benefit income streams paid by military superannuation funds are exempt.
Portability of Centrelink benefits
From 1 January 2017, age pensioners, disability support pensioners and certain other pensioners will be required to have been permanent Australian residents for 35 years during their working life (from age 16 to age pension age) to receive their full means-tested pension after 6 weeks (currently 26 weeks) absence from Australia. Pensioners who have lived in Australia for less than 35 years will be paid at a reduced rate proportional to their period of working life residence in Australia. Pensioners overseas on 1 January 2017 will not be affected unless they return to Australia and subsequently travel overseas. From 1 January 2016, families will only be able to receive FTB Part A for six weeks in a 12-month period while overseas. Currently, FTB Part A recipients who are overseas can receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks.
Family Tax Benefit Large Family Supplement
The Family Tax Benefit (FTB) Part A 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. Eligibility age for Newstart and Sickness Allowances increased The age of eligibility for Newstart Allowance and Sickness Allowance will increase from age 22 to age 25, from 1 July 2016. Current recipients of Newstart Allowance and Sickness Allowance, age 22 to 24 on 30 June 2016, will remain on those allowances.
Cessation of low income supplement
The low income supplement (an annual $300 payment for low-income families) will cease from 1 July 2017.
The 2014-15 Budget proposal to fix the indexation of the pension income free areas and deeming rate thresholds for 3 years will not proceed. The pension income test free areas and deeming rate thresholds will continue to be indexed annually by CPI.
Reset of Income Test Deeming Rate Thresholds abandoned
The Government will not proceed with the 2014-15 Budget measure Reset the Income Test Deeming Rate Thresholds.
From 1 January 2016, families will no longer be eligible for subsidised child care or Family Tax Benefit Part A end-of-year supplement unless their child is up-to-date with all childhood immunisations. Exemptions will only apply on medical grounds.
Activity test for early school leavers
From 1 January 2016, all early school leavers will be required to actively look for work if they are not in full-time education or a combination of education and part-time work of 25 hours per week. The 25-hour per week activity test applies until they turn age 22 or have achieved a Year 12 or Certificate III qualification.
Other Means testing for Aged Care residents
The Government has announced, from 1 January 2016, alignment of aged care means testing arrangements for residents who pay their accommodation costs by periodic payments with the arrangements that currently apply to those residents who pay via a lump sum. This will remove the rental income exemption under the aged care means test for aged care residents who are renting out their former home and paying their aged care accommodation costs by periodic payments. Existing protections such as annual fee caps and lifetime fee caps remain.
It is proposed that the Child Care Benefit (CCB), Child Care Rebate (CCR) and jobs, education and training child care fee assistance (for parents who qualify for the maximum rate of CCB) will be combined into a single means-tested Child Care Subsidy (CCS), paid directly to providers, from 1 July 2017.
|Annual family income (2017/18)||Subsidy payment||Cap on subsidy|
|Under $65,710||85% of actual fee up to hourly fee cap*||No cap|
|Over $170,710||50% of actual fee up to hourly fee cap*||No cap|
|Over $185,710||50% of actual fee up to hourly fee cap*||$10,000 cap per child (indexed from 1 July 2018)|
* 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 hours care.
The income thresholds and hourly fee caps will be indexed by CPI. Additional assistance will be provided for eligible disadvantaged or vulnerable families. To be eligible for CCS, parents must satisfy an activity test (eligible activities include work, training, study or any other recognised activity such as volunteering). Families earning less than $65,710 a year will get up to 24 hours per fortnight of childcare without meeting an activity test. Parents with family income greater than $65,710 must meet an activity test to qualify for the CCS:
|Hours of eligible activity per fortnight||Number of hours of subsidy per fortnight|
|Between 8 and 16 hours||Up to 36 hours|
|17 to 48 hours||Up to 72 hours|
|49+ hours||Up to 100 hours|
Nanny pilot programme Up to 50 hours of care per week provided by a nanny in a child’s home will attract a subsidy from 1 January 2016 under a pilot programme. Approximately 10,000 families (with annual family income less than $250,000 and meeting an activity test) unable to easily access flexible childcare for their needs (eg shift workers, rural families) will be selected to participate. The hourly fee cap will be set at $7 per child. Nannies must be age 18 or over, have a current Working with Children Check, meet first aid requirements and be attached to a government-approved service.
Double dip on parental leave
Individuals who receive generous parental leave payments from their employers will not be permitted to also claim Government parental leave payments, from 1 July 2016. Government parental leave pay is currently $641.05 gross per week for a maximum of 18 weeks for primary care givers earning up to $150,000 pa. Parents can currently claim parental leave payments from both the government and their employers. Parents receiving employer-provided paid parental leave payments more than the maximum government payment will no longer receive payments under the government scheme. However, those receiving less than the maximum government payment will be topped up so they receive the maximum benefit of around $11,500.
Banking and Life Insurance unclaimed monies
The Government has announced changes to the way that unclaimed money in savings accounts and life insurance policies are managed. The government will restore the time before they are transferred to the government from three years to seven years, reversing the changes made by the previous government in 2012. Children’s bank accounts will also be exempt to ensure funds put aside in these accounts will never be transferred to the government. These changes will take effect from 31 December 2015.
Commonwealth penalty units
All Commonwealth penalty units will increase from $170 to $180, from 31 July 2015. Penalty units will be indexed every 3 years based on CPI commencing 1 July 2018. Penalty units are amounts payable for fines under Commonwealth laws, including for breach of certain superannuation obligations by employers and self-managed super funds.