The Australian Government hopes to turbocharge the “engine room” of Australia by giving small businesses with a turnover of less than A$2 million a year an immediate tax deduction on each asset costing less than A$20,000.
In helping an estimated two million businesses with bottom line and cash flow, the Government is hoping to grow business, boost confidence and innovation, and create jobs.
An A$5.5 billion jobs and small business package was central to the Government’s overall plan, announced in last night’s 2015-16 Federal Budget, to counter a number of headwinds and reduce the deficit from A$35.1 billion or 2.1 per cent of GDP in 2015-16 to A$6.9 billion or 0.4 per cent of GDP in 2018-19.
Speaking in the Budget lock-up, Federal Treasurer Joe Hockey encouraged Australians to take a “glass half full” approach when looking at the outlook for the economy and to "go out and have a go”.
Record building approvals, rising asset prices, record low interest rates, low electricity prices, good growth for exporters and a bullish outlook for China should be the focus, said Hockey, rather than challenges such as the dramatic fall in iron ore prices and a weaker than expected global economic recovery.
“There have been a number of headwinds but we are coming through those difficult days. The economy will grow faster, unemployment is coming down and the forecasts arepositive,” Hockey said.
Real GDP is forecast to grow from 2.5 per cent in 2014-15 to 2.75 per cent in 2015-16 before increasing to around trend growth of 3.25 per cent in 2016-17.
The unemployment rate is forecast to peak in 2015-16 at about 6.5 per cent and then decline.
While conceding that forecasts were difficult to make, Hockey noted that there was “nothing guilded” in those given and they were “the best possible forecasts in this environment.”
A look at some of the winners and losers emerging from this year’s Federal budget.
From 1 July 2015 about 780,000 small businesses with annual turnover of less than A$2 million will pay 1.5 per cent less in tax.
Not incorporated: Small businesses, including those operating as sole traders, partnerships or trusts and with a turnover of less than AA$2 million, will receive a 5 per cent tax discount – capped at A$1000 a year.
All small businesses will get an immediate tax deduction for any assets costing less than A$20,000 (up from the current threshold of A$1000) purchased from Budget night until 30 June 2017. Assets above A$20,000 can be pooled and depreciated at 15 per cent in the first income year and 30 per cent in the year thereafter.
Red tape relief for small business will come in the form of an expanded FBT exemption for work-related portable devices and CGT rollover relief when changing legal structures but keeping the same owners.
As announced prior to the release of the Budget, start-ups will immediately be able to deduct professional expenses incurred when they start a business, such as legal and accounting expenses.
From 1 July 2015, shares and options issued under an employee share scheme will generally be taxed when the recipient realises a financial gain, rather than when they are issued.
Eligible start-ups will be able to offer shares or options at a small discount to their employees and have tax deferred until sale (for options) or the small discount exempt from tax (shares).
Crowd-sourced equity funding will be made easier by removing the costly elements of transitioning to a public company, enabling small companies to more easily raise funds from a large number of small investors.
An A$1.2 billion wage subsidy pool will be established for employers looking to employ young people. A youth employment strategy, including a Youth Transition to Work Program, is aimed at young people who have disengaged from work and study.
Older workers: The Restart program for job seekers over 50 will enable employers to access wage subsidy payments of up to A$10,000 sooner, ie, over a 12-month period rather than two years as proposed in last year’s Budget.
A childcare subsidy is the core of a A$4.4 billion families package aimed principally at helping meet the cost of child care for working parents as well as parents looking for work, training, studying or volunteering.
Starting on 1 July 2017, the subsidy will be based on a percentage of the actual fee paid, up to a maximum hourly fee cap for long day care (A$11.55), Family Day care (A$10.70) and Outside School Hours Care (A$10.10).
Families earning up to A$65,000 will receive a subsidy of 85 per cent, with the subsidy tapering to 50 per cent for families earning above A$170,000.
For families earning above A$185,000, the subsidy will be capped to A$10,000 per child per year (there will be no cap for families earning below that amount). Eligibility for the subsidy will be determined by the number of hours spent in work, training, study or volunteering with hours of activity aligned to the hours of subsidised care. For example, working 49 hours a fortnight would entitle someone to up to 100 hours subsidy per child a fortnight.
Eligible families (those on incomes below A$250,000) using nannies will form part of a A$250 million Interim Home Based Carer Pilot Programme – known as the Nannies Trial – with a subsidy of up to A$7 an hour per child.
Parents/primary carers taking Parental Leave Pay from the Government and their employer will, from 1 July 2016, no longer be able to receive Paid Parental Leave Pay from the Government.
Preschool funding continues to State and Territory governments, giving all Australian families access to a pre-school program for up to 15 hours a week or 600 hours a year.
Security and defence
An additional A$1.2 billion will be added to the existing A$1 billion in funding for a multi-pronged strategy to counter terrorism threats including, through strengthening monitoring and disruption activities, increasing intelligence collection and analysis and enhancing border protection.
Australia’s military operations in Afghanistan, Iraq and the Middle East will be extended and expanded.
The Drought Concessional Loan Scheme and Drought Recovery Concessional Loan Schemehave been extended for another year with the provision of A$250 million. Assistance of A$25 million has also been granted to farmers to reduce the impact of pest animals in drought-effected areas.
Farmers are encouraged to build fences, dams, tanks and irrigations channels and from 1 July 2016 will be able to immediately deduct capital expenditures on fencing and water facilities.
A$50 billion has been committed to infrastructure upgrades and road construction across the country including the Pacific Highway in NSW (A$5.6b), WestConnex Stages 1&2 and the Toowoomba Second Range Crossing.
A A$5 billion Northern Australia Infrastructure Facility is the start of a broader plan to develop Northern Australia, which will be the focus of a White Paper later in the year. The facility will be available for major projects including ports, railways, pipelines and electricity generation. The cattle supply industry will receive A$100m to improve the industry’s productivity and resilience.
There will be winners and losers from changes to the pension system set to begin on 1 January 2017. The beneficiaries from the changes include an expected 170,000 people on part pensions who will benefit from an average increase of A$30 a fortnight to their pension due to an increase in the “asset free area”means test.
The assets free area is set to be increased.This is the value of assets a pensioner can have in addition to the family home in order to qualify for a full pension from A$202,000 to A$250,000 for single home owners and from A$286,500 to A$375,000 for couple home owners.
Pensioners who do not own their own home will also benefit by an increase in their threshold to A$200,000 more than homeowner pensioners. This increases the gap between homeowners and non-homeowner thresholds by more than a third, recognising the higher living costs.
Tightened eligibility for those with higher assets will see approximately 91,000 part pensioners no longer qualify for the pension and a further 235,000 part pensioners will have their part pension reduced. Couples will now lose their part pension if their assets (excluding their home) exceeds $823,000 down from the current threshold of $1.15 million and for singles the threshold will drop from $775,000 to $547,000.
An earlier proposal to index pension and pension entitlements only to inflation was scrapped.
Those who no longer receive a pension will remain eligible for a Commonwealth Seniors Health Card or Health Card.
The Government will commit $24.3 million over two years to promote recently concluded free trade agreements and other opportunities to the business sector through roadshows, advertising and regional training.
The Government will establish a taskforce to review Medicare Benefits Schedule items over the next two years.
The Budget provides A$1.6 billion for new and amended listings on the Pharmaceutical Benefits Scheme. The Medical Research Future Fund established last year will distribute A$400 million from the fund to medical researchers for drug development and cures.
From 1 January 2016, when Australian customers deal with an Australian subsidiary or local entity that is integral to the customer’s decision to enter into the contract, those Australian sales will be recognised as Australian income. Approximately 30 large multinational companies are suspected of diverting profits using artificial structures to avoid a taxable presence in Australia. Where the law applies, multinationals will be subject to the Government’s new doubled penalty regime for tax avoidance and profit shifting schemes.
Foreign investors will face greater scrutiny, new application fees on all investment applications (ranging from A$5000 to A$100,000) and tougher penalties for breaches with a particular focus on residential real estate, business and agriculture.
Health care workers
Fringe benefits tax exemptions currently available to not-for-profit and health care workers for items such as holidays, cruises and weddings will be capped at A$5000.
The zone tax offset currently available to fly-in, fly-out workers to compensate for the high cost of living, climate and isolation will be axed.
Holiday workers will no longer be able access the tax-free threshold. Instead, they will be treated as non-residents for tax purposes and pay tax at 32.5 per cent from the first dollar they earn up to A$80,000.
Graduates living overseas
Australians with Higher Education Loan Programme (HELP) debts going overseas for more than six months, or currently living overseas, will be required to register with the ATO and repay their debts once their incomes exceed the minimum HELP repayment threshold (A$53,345 in 2014-15).
Importers of digital products
GST will apply to digital products and services imported by Australian consumers including on online music, movies, e-books and legal and consultancy advice.
Superannuants on defined benefit schemes
From 1 July 2016 the proportion of income that can be excluded from any pension income test will be capped at 10 per cent.