2015 FEDERAL BUDGET
COMMENT
Small Business Deprecia on Bonanza to the Rescue while we wait for
poli cs to make way for real reform!
There are plenty of Federal Budget reports in the press or through other subscrip ons. The focus of this report is to consider selected key measures relevant to our client base and what they mean. Should you require more detail on the Budget overall or any par cular Budget measure please email [email protected] SMALL BUSINESS COMPANY TAX CUT With eﬀect from the 2015-16 income year (i.e. from 1 July 2015), a 1.5% cut in the company tax rate applying to small businesses (turnover less than $2m). That would reduce the tax rate applying to those businesses to 28.5%.  This is a real tax cut because the Imputa on (Franking Credit) rate stays at 30%,
at least in rela on to exis ng franking credits held. It is not clear whether 28.5%
tax will generate 28.5% franking because that would add complexity.
 The cut will be reflected in the first PAYG instalment a er July 2015
 Likely to e in with the Division 328 defini on of “Small Business En ty” which
requires the company to carry on a business. Investment companies will not
benefit from the tax cut.
SMALL BUSINESS TAX DISCOUNT FOR OTHER ENTITIES
With eﬀect from 1 July 2015, individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2m will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received with a cap if $1000 per individual.  Around 70% of small businesses are trusts, partnerships, and sole traders so this
a empts to benefit non-incorporated businesses.
 It sounds a bit fiddly and messy though be er than nothing. There will be some
interes ng trust distribu on opportuni es if there is no restric on on who can
benefit from the cap. SMALL BUSINESS ACCELERATED DEPRECIATION WRITE OFF UP TO
$20,000 PER ASSET PER YEAR
Small businesses (aggregate annual turnover less than $2m) will be able to immediately write oﬀ assets they start to use or install ready for use, provided the asset costs less than $20,000. Date of eﬀect: This will apply for assets acquired and installed ready for use between 7:30pm (AEST) 12 May 2015 and 30 June 2017.  This applies from right now – that gives the opportunity to spend now, save 2015
tax and enjoy lower tax rates for 2016 FY.
 This applies on a per asset basis. Poten al write oﬀs are huge!
 Individual items in sets of may not need to be aggregated
 Eligible assets include equipment, vehicles, furniture, and so ware. Div 43
building improvements which are fixtures will not qualify
 Again likely to be ed with the Div. 328 defini on of Small Business En ty
CGT ROLL‐OVER RELIEF FOR CHANGE IN BUSINESS STRUCTURE
Small businesses with an aggregated annual turnover of less than $2m will be allowed to change legal structure without a rac ng a CGT liability from 1/7/16. The measure recognises that new small businesses might choose an ini al 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 rollover relief will be available.
 Currently CGT roll-over relief is available for some but not all restructures
 This concession gives small business good flexibility to change structures they may
have grown out of.
 Again likely to be ed with the Div. 328 defini on of Small Business En ty
 In some instances businesses will be be er oﬀ not triggering these roll-overs and
instead taking advantage of the Div 152 Small Business Ac ve Asset CGT
Concessions.
 Unfortunately Stamp Duty concessions apply to very few roll-overs.
SMALL BUSINESS FBT EXEMPTION ON MULTIPLE WORK RELATED
PORTABLE ELECTRONIC DEVICES
From 1/4/16 FBT exemp on will be extended for small businesses with an aggregated annual turnover of less than $2m to cover more than one qualifying work-related portable electronic device per employee, even where the items have substan ally similar func ons. Currently, an FBT exemp on (under s 58X FBTAA) can apply to more than one portable electronic device used primarily for work purposes, provided the devices perform substan ally diﬀerent func ons (or, if the items perform substan ally the same func on, the second item is a replacement for the first item).  This is supposed to avoid confusion where func ons of devices overlap
 If that is the case it is curious why the change only applies to Small Business
En es. TIP: Businesses close to the Small Business En ty Threshold will need to plan carefully to ensure they qualify for these generous new concessions. It is most likely that eligibility as a “Small Business En ty” will be tested under the preexis ng defini ons under Div 328 of the 1997 Tax Act. Those rules are not simple. In par cular there are very complex rules that group together “connected en es” and “aﬃliates” determining “aggregate turnover”. For a taste of how the aggregate turnover threshold is likely to apply refer to: h ps://www.ato.gov.au/Business/Small‐business‐en ty‐
concessions/Eligibility/ IMMEDIATE DEDUCTIBILITY OF START UP COSTS
From 1/7/15 all businesses will be allowed to immediately deduct a range of professional expenses associated with star ng a new business, such as professional, legal and accoun ng advice. For example, legal expenses with establishing a company, trust or partnership.
 This is a helpful change. Currently these expenses are usually deduc ble over 5
years under S40-880
 It is likely that the concession will be based around S40-880 defini ons regarding
a business or proposed business? WORK RELATED CAR CLAIMS FOR INDIVIDUALS AND PARTNERSHIPS OF
INDIVIDUALS “SIMPLIFIED”
From 1/7/15 substan a on relief op ons using 1/3 running costs or 12% of vehicle cost will be removed and the range of c/km rates restricted to (currently ranging from 65c/km to 77c/km) one rate being 66c/km. The c/km rate will s ll be limited to 5000 business kms. The log book method will con nue to be available.  This is proposed as a “streamlining” measure. The reality is that the old system
was fine and this will reduce available claims and flexibility and incidentally save
the government $845m
 With the new deprecia on concessions and with FBT Statutory Formula Method
s ll available there is probably added incen ve to salary package low value cars
including to all family members
TEMPORARY RESIDENT WORKERS TO BE TAXED AT NON‐RESIDENT RATES
From 1/7/16 people who are temporarily in Australia for a working holiday will be taxed as non-residents regardless of how long they are here. This means they will be taxed at 32.5% from their first dollar of income. 
People who don’t vote are always an easy target. Hard to see the unions not
being on-board with this one
HELP DEBT PAYMENT OBLIGATIONS FOR STUDENTS OFFSHORE
Graduates residing overseas will have to repay their HELP debts from 1/7/17. This will be based on applica on of the usual on-shore income thresholds currently star ng at AUD$53,345.  An interes ng development not widely reported.
 Exactly how that will be administered and policed will be an interes ng revela on
NOT FOR PROFIT FBT EXEMPTION ON ENTERTAINMENT CAPPED AT
$5000
A grossed-up cap of $5,000 per year on the FBT concessions for salary-sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees of certain not-for-profit organisa ons (i.e. public and not-for-profit hospitals, public ambulance services, public benevolent ins tu ons (except hospitals) and health promo on chari es). The FBT cap on exempt benefits provided by these NFPs is currently (as from 1 April 2015) $17,667 for public and not-for-profit hospitals and public ambulance services and $31,177 for public benevolent ins tu ons (except hospitals) and health promo on chari es. In addi on to the capped exemp ons, employees of these NFPs can also salary sacrifice meal entertainment benefits with no FBT payable by the employer.  This is focused on elimina ng an anomaly whereby employees in these sectors
could be exempt on unlimited Meal Entertainment and Entertainment Facility
leasing expenses which resulted in a rort whereby wedding costs were packaged
 The basic exemp ons which are very valuable to these employees will remain in
place
NEW IMMEDIATE DEDUCTIONS AND ACCELLERATED DEPRECIATION FOR
PRIMARY PRODUCERS
Eﬀec ve from 1/7/2016 all primary producers can immediately deduct capital
expenditure on fencing and water facili es such as dams, tanks, bores, irriga on
channels, pumps, water towers and windmills. Deprecia on over 3 years will be allowed
on all capital expenditure on fodder storage assets such as silos and tanks used to store
grain and other animal feed.
 This is designed to assist Primary Producers in dealing with drought
 Further measures to support farmers who are preparing themselves for the
damaging eﬀects of drought will be announced in the Government's forthcoming
White Paper on Agricultural Compe veness
SOCIAL SECURITY ASSETS TEST TIGHTENED FROM JANUARY 2017
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 taper rate at which the Age Pension begins to phase
out will however 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. The tests are set out in
tabular form below:
Social Security assets test - current (20 March 2015 - 31 December 2016)
Homeowners
Full pension/part pension
Non-homeowners
Single
Couple (combined)
Single
Couple (combined)
$
$
$
$
Full pension (assets at or below)
202,000
286,500
348,500
433,000
No pension (assets at or above)
775,500
1,151,500
922,000
1,298,000
Social Security assets test - proposed from January 2017
Homeowners
Full pension/part pension
Non-homeowners
Single
Couple (combined)
Single
Couple (combined)
$
$
$
$
Full pension (assets at or below)
250,000
375,000
450,000
575,000
No pension (assets at or above)
547,000
823,000
747,000
1,023,000
o Real Tax reform – we will have to wait un l later in the year when the
Tax White Paper recommenda ons are released and probably un l
there is a majority government before there are worthwhile tax and
spending measures put in place.
o A Change in personal tax rates – most budgets nker with that
o A reduc on in the very generous superannua on concessions enjoyed
by high net worth re rees in tax – free pension funds – it will come
o The winding back of the availability of “limited recourse borrowing”
for SMSFs. This is being used inappropriately and will end in tears
o Extension of the 2% Budget Emergency Levy applicable to incomes
>$180k. That s ll ceases in the 2017 financial year. o A credible return to surplus. With the age of en tlement and a hos le
Senate that isn’t going to happen in a hurry.
Small businesses will by all means enjoy being the unexpected focus of a poli cal bidding war. It’s quite unrealis c to expect them to suddenly break the shackles of red tape and a ridiculous IR framework to “get out and have a go” and rescue the economy from ins tu onalized bad policymaking. DISCLAIMER Before relying on the information on this newsletter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain professional advice relevant to their particular circumstances. We and associated parties cannot guarantee nor assume any legal liability or responsibility for the accuracy, currency or completeness of the information or material.