AFEI Online Employers Adviser Article

 

Key Elements in the 2015 -16 Federal Budget

Published: 13 May 2015

  • A forecast deficit of $41.1 billion (2014-15), down from the $48.5 billion forecast last year (2013-14 -- inherited from the outgoing Rudd government) and a forecast deficit of $35.1 billion (2015-16).
  • Tax receipts have been downgraded by $52 billion since the 2014 Budget. Over $20 billion of these write-downs have been directly as a result of the fall in the iron ore price.
  • A projected return to surplus in 2019-20, one year later than stated in the previous budget.
  • $5.5 billion Jobs and Small Business Package including $5 billion of tax relief:
  • 1.5% company tax cut for businesses under $2 million turnover.
  • 5% tax discount to small unincorporated businesses up to $1,000.
  • Increased instant asset write off of up to $20,000 for items purchased between Budget night and 30 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.

  • A $4.4 billion Families Package including a $3.5 billion package for child care.
  • Strengthening anti-tax avoidance for multinationals
  • No bank deposits levy (yet?). This will depend on the Government’s response to the  Financial System Inquiry Final Report due later this year.
  • Temporary Budget Repair Levy remains unchanged.

The Budget is predicated on Gross Domestic Product growing by 2.75% in 2015-16, rising to 3.5% by 2017-18 and unemployment (currently 6.2%) falling from a forecast 6.5% to 5.75% by 2018-19. Treasury predicts that much needed investment in the non mining sector will pick up, growing by 4% over 2015-16 and then by a substantial 7.5% in 2016-17.

The Government is aiming to stimulate this business investment and activity through its jobs and small business package and hoping for an increased tax revenue take through higher employment growth and consumer confidence. It recognises that sustainable growth can only come through an expansion in the private sector. A key factor in this will be continued wage growth moderation. Without a substantial lift in consumer and investor confidence and economic activity, job growth is likely to be retarded in the face of increasing labour costs.

However, a critical factor in encouraging business investment and in boosting consumer confidence is the willingness of the Senate to pass the Budget and adopt a less hostile stance to the need for major fiscal repair.  Business does not want another year of political gridlock. With the collapse in iron ore prices and an uncertain global and domestic economy there are no easy fixes to be had through increased budget revenue.

The deficit is costing around $96 million a day in interest alone let alone any start in repaying the debt. At this rate the Budget is losing over $35 billion of potential spending power in a year.

 

Budget Measures affecting Payroll

Personal income tax — increasing the 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 income 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 will be increased as follows:

  • For singles: to $20,896.
  • For couples with no children: to $35,261
  • For couples with children: for each dependent child or student  the additional amount of threshold will be increased to $3,238.
  • For single seniors and pensioners: to $33,044.


Paid Parental Leave

From 1 July 2016 Federal Paid Parental Leave Scheme payments are to be reduced where an employee is also receiving employer-sponsored parental leave payments. The intent is that the federal scheme will only apply where there are no employer sponsored payments or to the extent that the employer scheme provides less than the federal scheme in terms of total payment.

 

Introducing a cap for salary sacrificed meal entertainment and

entertainment facility leasing expenses

The Government will introduce a separate single grossed up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees. Meal entertainment benefits exceeding the separate grossed up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing fringe benefits tax (FBT) exemption or rebate cap. All use of meal entertainment benefits will become reportable.

Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap (this will be $31,177 for the first year of the measure, due to the Temporary Budget Repair Levy).

In addition, these employees can salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported. Employees of rebatable not for profit organisations can also salary sacrifice meal entertainment benefits, but the employers only receive a partial FBT rebate, up to a standard $30,000 cap ($31,177 for the first year).

This measure will apply prospectively from 1 April 2016 to coincide with the start of the FBT year.


Methods used for calculating work related car expense deductions

From the 2015-16 income year the '12 per cent of original value method' and the 'one third of actual expenses method' 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.

 

Zone Tax Offsets

"Fly in fly out" and "drive in drive out" (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a "zone". This measure will take effect from 1 July 2015 if passed by Parliament and may affect the offsets claimed by these workers through the PAYG system.



Changes to tax residency rules for temporary working holiday makers

The Government will change the tax residency rules from 1 July 2016 to treat most people who are temporarily in Australia for a working holiday as non residents for tax purposes, regardless of how long they are here. This means they will not receive the tax free threshold and they will be taxed at 32.5 per cent from their first dollar of income.

 

More information:
For further information and assistance contact the AFEI Hotline on 02 9264 2000.


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