The Federal Budget - Our Take

The 2015 / 2016 budget was pleasing in that it did not have many surprises that had not been previously released prior to last night’s budget announcement by the Government.

The Highlights

• The deficit predicted to be $35bn with a return to surplus now pushed out until the 2020 financial year,
• There were no new taxes on superannuation which was pleasing,
• More generous child care payments, but these are subject to new annual income thresholds,
• Tax concessions for small business (defined as turnover less than $2m) in the form of lower taxes for unincorporated businesses and increased deductions for capital expenditure. Also CGT concessions for small businesses changing their legal structure,
• An immediate deduction on assets worth less than $20,000 between now and 30 June 2017 for small businesses, 
• Changes for the aged pension assets testing regime,
• A new cap for some fringe benefits for tax exempt employers,
• Small changes to make employee share schemes ESS more appealing, particularly for start-up companies,
• Removal of double dipping on paid parental leave.

The impact on different asset classes

Cash and term deposits – with interest rates expected to remain low for an extended period, returns from cash and bank term deposits are expected to remain very low at around 2%.

Bonds – a major impact on the bond market from the Budget is unlikely. With five year bond yields at 2.4%, it’s hard to see great returns from Australian sovereign bonds over the next few years.

Shares – the potential boost to confidence from this Budget could be a small positive for the Australian share market. However, it’s offset by the ongoing drag coming from fiscal policy. Overall, the Budget’s impact is unlikely to be huge. Stocks that benefit from infrastructure and child care spending may be beneficiaries.

Property – the Budget is unlikely to have much impact on property markets where the dominant impact remains very low interest rates. Expect further modest gains in most cities although momentum may slow over the year ahead in Sydney.

The Australian dollar – the announcements in the Budget alone are not radical enough to have much impact on the $A. With the commodity price boom fading, the interest rate differential in favour of Australia having fallen and the $A still too high, the trend in the $A is likely to remain down.

The Detail

Small Business Owners

Company tax cuts – A tax cut of 1.5% is which will reduce the company tax rate for small business entities to 28.5%.

Unincorporated small business tax cuts – 5% tax discount on business income for unincorporated businesses with less than $2m in annual turnover on business income received from the 2015/16 financial year. The discount will be capped at $1,000 per individual for each income year.

Expansion of accelerated depreciation – An immediate deduction on assets worth less than $20,000 between now and 30 June 2017. 

Deduction on professional advice fees relating to establishment of a business – New businesses can claim an immediate deduction on professional expenses associated with starting a business, such as professional, legal and accounting advice. This measure is proposed to apply from 2015-16.

Capital gains tax roll-over relief for changes to entity structure – From the 2016-17, small businesses can change legal structure without attracting a capital gains tax (CGT) liability at that point.

Fringe benefit tax change for work-related electronic devices – From 1 April 2016 a fringe benefit tax (FBT) exemption will be available to small businesses that provide employees with more than one qualifying work-related portable electronic device.

Pensioners

Asset testing – A tighter assets test so that those with high-value assets will either receive less or will stop receiving the part-pension.

Seniors Health Card – Pensioners who lose pension entitlement on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.

Part-pensioners – The maximum value of assets you can hold to qualify for a part pension will also be reduced.

Individuals and Families

Changes to work related deductions for car expenses – 12% of original value and one third of actual cost methods removed and simplification of cents per kilometre method.

Child care shake up – The activity test that determines the number of childcare hours a family can claim will be tightened in accordance with how many hours of work or training parents undertake. There is increased support for parents, particularly where there are two working parents.

Double dipping – Primary carers with employer provided paid parental leave will be prevented from claiming Government support.

While this is a general overview of the budget, our next step at Altus is to make a start on your tax planning – what you need to do before 30th June to improve your tax position.