2015 post budget presentation ubs

2015 Post Budget and Pre Financial Year End Taxation Update.

1. www.hanrickcurran.com.au 2015 Post Budget & Pre Financial Year End Taxation Update Jamie Towers Taxation Partner 3 June 2015

2. Backdrop 2 e xperience. new thinking Estimated 2015/16 deficit of -$35.1 bn representing 2.1% of GDP A reduction of $ 6bn from 2014/15 (but an increase of $18 bn on previous est.) Forecast to return to surplus in 2019/20 (as expected last year) Payments remain high at 25.9% of GDP, falling to 25.3% over the forward est. Concerning proportion of recurrent expenditure, not capital investment Stable spending and recovery in receipts make much of the recovery in the budget position Recovery in receipts driven by employment growth on the back of real GDP growth of: 2.75% in 2015/16; 3.25 % in 2016/17 This leaves the budget susceptible to future shocks

3. Budget Insights 3 e xperience. new thinking Small Business GST Individuals Year End Planning

4. Budget Insights 4 e xperience. new thinking

5. Budget Insights 5 e xperience. new thinking

6. Budget Insights 6 e xperience. new thinking Very little for non-small business Tax Discussion Paper released in March – little substance Green ‘ideas paper’ to be released later this year White Paper with policies to take to next election – due 2016

7. Small Business 7 e xperience. new thinking Definition of “small” business: Aggregated turnover of less than $2 Million (when aggregated with other businesses under same control) Turnover test applies to current or previous year $2 Million threshold has been in place since at least 2001 with no indexation. Time to change?

8. Small Business 8 e xperience. new thinking 1.5% Company Tax Cut to 28.5% from 1/7/2015

9. Small Business 9 e xperience. new thinking 1.5% Company Tax Cut to 28.5% from 1/7/2015 Franking % to remain at 30% Will result in some unfranked dividends

10. Small Business 10 e xperience. new thinking Unincorporated Small Business Discount 5% discount on Business income in unincorporated entities flowing to individuals Capped at $1,000 per individual

11. Small Business 11 e xperience. new thinking Unincorporated Small Business Discount Example: Family business in family trust earns $80,000 of business income and distributes to Jack. Jack’s normal tax on $80,000 would be $17,534. Jack receives a tax offset providing a 5% discount of $876, meaning net tax payable of $16,658.

12. Small Business 12 e xperience. new thinking <$20,000 Small Business Asset Write-off Previously been as high as $6,500 under previous Government (Carbon Tax Initiative) but reverted back to $1,000 last year Any individual assets purchased with a value less than $20,000 (+ GST)? Deduction available in year asset is first used or installed ready for use Applies from Budget night until 30 June 2017

13. Small Business 13 e xperience. new thinking <$20,000 Small Business Asset Write-off Excluded Assets – Horticultural plants, Capital Works; Assets allocated to Pools ( ie software depreciation pool), assets under lease – Financing Impact! Primary Production assets – can choose write-off or specific primary production rules Assets Exceeding $20,000 get a 30% write-off (15% first year)

14. Small Business 14 e xperience. new thinking <$20,000 Small Business Asset Write-off Caution! ATO Will be closely monitoring new ABN applications and will likely create an audit program for contractors (who are otherwise just employees)

15. Small Business 15 e xperience. new thinking Immediate Deduction for Professional Expenses to establish a business Current rules provide write-off of business set up costs over 5 years From 1/7/2015 – immediately deductible

16. Small Business 16 e xperience. new thinking CGT Relief for Change to Entity Structure (from 1/7/2016) Currently roll-over relief only available for restructure into a company Will allow changes to any structure Silent on treatment of revenue assets Stamp (Transfer Duty) still applies in most States

17. Small Business 17 e xperience. new thinking FBT Exemption - Portable Electronic Devices Current rules – FBT exemption for the first device only each year where devices have ‘substantially identical features’

18. Small Business 18 e xperience. new thinking FBT Exemption - Portable Electronic Devices ipad and iphone have similar features Tablets and Laptops have similar features Small business will be able to provide more than 1 device without being subject to FBT Still a real issue for other businesses

19. Small Business 19 e xperience. new thinking Starting a Business to be streamlined – all registrations in a single online portal (business.gov.au) Interaction with ASIC or ATO just using ABN Raising funds to become simpler – Corporations Act to be amended to allow easier access to Crowd-source funding

20. AgriBusiness 20 e xperience. new thinking Farmers able to write-off capital expenditure on fencing and water facilities Write-off Fodder Storage over 3 years

21. Other Business 21 e xperience. new thinking R & D - $100M Expenditure Cap Government still aiming for 1.5% reduction in tax offset despite it failing to pass in an earlier bill.

22. Other Business 22 e xperience. new thinking Employee Share Schemes Rules will be fixed from 1/7/15 to ensure tax consequences only when can sell shares to pay tax For some ‘small companies’ ($50 Million turnover) – employees taxed as capital gain ( incl 50% CGT discount) rather than as ordinary income

23. Other Business 23 e xperience. new thinking Earn-Out Rules Further exposure draft legislation introduced recently Broad intent to treat additional consideration under ‘look through’ earnout rights as part of main capital gain Requires amendment of tax return No change to tax treatment of non-look though earnout rights

24. Other Business 24 e xperience. new thinking ATO – Power to fix law not operating as intended Power to Commissioner to issue a legislative instrument with the effect of removing unintended outcomes of legislation Commonwealth Penalty Units – up to $180 from 31 July 2015

25. GST 25 e xperience. new thinking Netflix Tax – Overseas companies providing digital content to Australian consumers will become subject to GST (from 1/7/2017) Requires support of States Collection and its enforcement is the main problem as no requirement for overseas business to register

26. GST 26 e xperience. new thinking Reverse Charge for Going Concern and Farmland Exemption not proceeding (policy announced last year) No GST on taxable importations of < $1,000. (Again collection is a problem)

27. CHARITIES & NOT FOR PROFITS 27 e xperience. new thinking FBT Cap on ‘Meal Entertainment Expenses’ Currently no FBT if benefits are below either a $17,667 cap or a $31,177 cap. PLUS no FBT on any Meal Entertainment Expenses From 1 April 2016 – proposed $5,000 cap on meal entertainment. Excess counts towards other caps. Budget Paper indicates “all use of meal entertainment benefits will become reportable”

28. Families 28 e xperience. new thinking Paid Parental Leave Election Promise – gone! No Double Dipping

29. Families – Child Care 29 e xperience. new thinking Current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programmes abolished. Replaced with single means tested Child Care Subsidy Subject to a new activity test for up to 100 hours of subsidised care per child per fortnight, paid directly to approved care service providers Up to 24 hours per fortnight also provided where family income < $65,000 per year, do not meet the activity test – equivalent to two 6-hour sessions All subsidies will be linked to ‘no jab, no pay’ from 1 January 2016, unless exempt on medical grounds

30. Families – Child Care 30 e xperience. new thinking Family Income Thresholds up to $65,000 the Child Care Subsidy will be 85% of the fee (up to a benchmark price); will reduce to 50% for family incomes of $170,000 and above a cap of $10,000 per child for the total value of subsidies for family incomes of $185,000 and above

31. Families – Child Care 31 e xperience. new thinking Family Income Thresholds Family Income Per Child Subsidy Cap Up to $65,000 85% of fee# n/a $65,000 - $170,000 Tapers from 85% - 50% n/a $170,000 - $185,000 50% n/a >$185,000 50% $10,000 pa # % of lower of fee or benchmark price   Activity (hours worked per fortnight) Subsidised hours (per fortnight) 8-16 up to 36   17-48 up to 72   49+ up to 100  

32. Families 32 e xperience. new thinking Funding linked to passage of Family Tax Benefits measures from 2014 Federal Budget (Legislation stalled in Senate) FTB Part B primary earner income limit will be reduced to $100,000 from $150,000 FTB Part B payment will be limited to families whose youngest child is under 6 years of age ( 2 year transitional arrangement for families with the youngest child aged 6 and over on 30 June 2015) The FTB Part A Large Families Supplement will be limited to families with 4 or more children. The FTB Part A per child add‑on to the higher income free threshold removed. FTB Part A payment of $750 introduced for single parents on the maximum rate of FTB Part A whose youngest child is aged between 6 and 12 years from the point they become ineligible for FTB Part B. The FTB Part A and Part B end-of-year supplements will return to the original amounts of $600pa for each FTB Part A child and $300pa for each FTB Part B family and will cease indexation.

33. Individuals 33 e xperience. new thinking Maybe a tax cut? Tax cuts legislated from Labor Government Bill to repeal not yet passed (only effects low income individuals – no real change above $80,000 of income)

34. Individuals 34 e xperience. new thinking   2012/13 2015/16 Legislated 2015/16 New Tax Threshold Rate Threshold Rate Threshold Rate Thresholds             1 18,201 19% 19,401 19% 18,201 19% 2 37,001 32.5% 37,001 33% 37,001 32.5% 3 80,001 37% 80,001 37% 80,001 37% 4 180,001 45% 180,001 45% 180,001 45% Low Income Tax Offset (LITO) $445 # 1.5% above $37,000 $300 # 1% above $37,000 $445 # 1.5% above $37,000 Effective tax free threshold 20,542   20,979   20,542   # Rate at which LITO reduced above threshold

35. Individuals 35 e xperience. new thinking HELP Debts – repayments apply to overseas debtors If live overseas for > 6 months and have worldwide income above HELP repayment threshold ($54,126 - 2016), then required to register with ATO and make repayments from 1/7/2017

36. Year End Planning 36 e xperience. new thinking If possible – Defer income until next financial year Bring forward expenditure Review & write-off bad debts Make super contributions before 30 June 2015 Prepayments are effective for individuals and small business Interest on Investment Loans Business Expenses

37. Year End Planning 37 e xperience. new thinking Take the benefit of the $20,000 asset write-off For assets costing > $20,000 buy before 30 June as still get 15% depreciation even if held for 1 day ( eg – purchase a car for $50,000 on 30 June 2015. you add it to the small business pool and get a $7,500 depreciation deduction for 1 day)

38. Year End Planning 38 e xperience. new thinking If you are able to income split, take into account: Top Marginal Tax Rate - $180,000 Superannuation (Division 293) tax - $300,000 HELP repayment – 2014/15 - $53,345

39. Year End Planning 39 e xperience. new thinking Trust Distributions – Check Trust deed for distribution resolution requirements Ensure the trustee makes an income resolution and records in writing on or before 30 June 2015 (or other earlier date specified in deed) If any Division 7A loans from private companies – ensure you have made minimum repayments and charged interest

40. Ultimate Tax Deduction 40 e xperience. new thinking Give the gift that keeps on giving Donations over $2 to Deductible Gift Recipients allow you to FEEL GOOD about helping the chosen charity AND you get to reduce your tax. Hanrick Curran assists many fantastic charities – see details on our website

41. Disclaimers This document contains information in summary form and discusses proposed but not legislated rules and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice. We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. © Hanrick Curran, June 2015 All rights reserved