Overview

On 12 May 2015, the Treasurer Mr Hockey handed down the 2015-16 Federal Budget. The Budgets key role is to strengthen the Australian economy. We have looked at the budget and extracted some of the more important points in all the technical jargon to give you the important changes that will affect you and your business as a veterinary practioner.

This Budget has been designed to empower small business to invest, grow and create jobs.

From 1 July 2015, small companies with annual turnover of less than $2 million will have their tax rate lowered, from 30 per cent to 28 and a half per cent. 

Also from budget night 7:30pm small business can claim an immediate tax deduction for each and every item they purchase up to $20,000. YES, those of you who turnover less than $2 million can now buy all that equipment you’ve been wanting and each item up to $20,000 will be a full tax deduction and not just slowly depreciated! – call us if you need more advice on this.

Income Tax

A new drought preparedness framework – accelerated depreciation for primary producers

The Government will allow all primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills. The Government will also allow primary producers to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed.

These changes will be for income years commencing on or after 1 July 2016. Currently, the effective life for fences is up to 30 years, water facilities is three years and fodder storage assets is up to 50 years. Those of you that are primary producers may want to delay this type of expense until July 2016 if it’s not urgent.

Allow immediate deductibility for professional expenses

The Government will allow businesses to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. This measure will be available to businesses from the 2015-16 income year (1 July 2015). Currently, some professional costs associated with a new business start-up are deducted over a five year period. Allowing start-ups to immediately deduct these expenses will provide much needed cash flow for these new businesses.

Accelerated depreciation for small business 

The Government will significantly expand accelerated depreciation for small businesses by allowing small businesses with aggregate annual turnover of less than $2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000. This will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

Tax cuts for small business

The Government will deliver a tax cut to all small businesses through a 1.5 percentage point tax cut for small companies and a five per cent tax discount on income from unincorporated small business activity. These tax cuts will be available from the 2015-16 income year, and are estimated to have a cost to revenue of $3.3 billion over the forward estimates period.

The Government will reduce the company tax rate to 28.5 per cent for companies with aggregated annual turnover less than $2 million. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30 per cent rate on all their taxable income.

The current maximum franking credit rate for a distribution will remain unchanged at 30 per cent for all companies, maintaining the existing arrangements for investors, such as self-funded retirees.

Modernising the methods used for calculating work-related car expense deductions

The Government will modernise the methods of 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’, which are used by less than two per cent of those who claim work-related car expenses, 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.

CGT

Capital gains tax roll-over relief for changes to entity structure

The Government will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a capital gains tax (CGT) liability at that point. This measure will be available for businesses that change entity type from the 2016-17 income year. This measure is estimated to have a cost to revenue of $40.0 million over the forward estimates period.

CGT roll-over relief is currently available for individuals who incorporate but all other entity type changes have the potential to trigger a CGT liability. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.

This is a long time away for those of you needing to change structure. There are are other rules that we can apply at present that can often reduce this down to nil, so don’t delay any necessary structure changes based on this, rather talk to us first.

Superannuation

Release of superannuation for terminal medical condition – relaxing criteria

From 1 July 2015, the Government will extend access to superannuation for people with a terminal medical condition. Currently, patients must have two medical practitioners (including a specialist) certify that they are likely to die within one year to gain unrestricted tax free access to their superannuation balance. The Government will change this period to two years. This will give terminally ill patients earlier access to their superannuation.

Tax Administration

Growing Jobs and Small Business – streamlining business registration

The Government will make a provision of $32.4 million over five years from 2014-15 (including capital of $13.5 million over three years from 2014-15) for the Australian Taxation Office, Australian Securities and Investments Commission and the Department of Industry and Science, to develop a single online portal for business and company registration; publish new computer code to enable developers to build new registration software; and reduce the number of business identifiers.

(However, Zack, the office Beagle (and CEO) read this and told us he hoped they manage to make this ‘bug free’ as he is tired of hearing us complain about the ‘down time’ and ‘glitches’ every time there is a software update to the ATO systems! He also hopes it makes it easier for clients to sort out their internet accesses to the ATO which seems to be a struggle. It seems our complaining is disturbing Zack’s afternoon nap).

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.