09 May May 2016 Federal Budget
The Federal Government has released its 2016-17 Budget introducing a number of positive business measures including cuts to the company tax rate, the expansion of the instant asset write off and a new youth employment initiative to boost workforce participation.
To read the official budget summary please click on the DOWNLOAD button at the bottom of the page.
With the Prime Minister expected to fire the starters pistol on the next federal election in a matter of days, the budget has clearly put the Government on a campaign footing with small business, once again, front and centre in the Government’s key budget measures.
The current small business tax rate of 28.5 per cent will be lowered to 27.5 per cent from July 1 – one day prior to the federal election.
As the Chamber has consistently called for, eligibility for the new tax rate has also been increased to capture companies with a turnover of up to $10 million, up from its current $2 million threshold. This threshold change also allows greater access to the instant asset write-off scheme letting small firms immediately write off an unlimited number of assets worth up to $20,000 each.
The Government has also put youth unemployment on the national agenda with its new $840 million youth employment initiative.
Set out below are the key things you need to know about the budget and what it will mean for your business.
We know you’re busy so we’ve kept our analysis short, but if you want to know more, our national chamber, the Australian Chamber has produced the Budget in Depth document which can be found here, and the full budget papers are available at www.budget.gov.au.
1. Tax cuts for Australian businesses starting with small and medium enterprises
From 1 July 2016, businesses with a turnover of less than $10m will benefit from a reduction in the company tax rate to 27.5 per cent. This extends the benefits of last year’s small business tax package by increasing the threshold at which companies can access the company tax discount (from $2m to $10m) and increases the size of the discount (with the tax rate decreasing from 28.5 per cent to 27.5 per cent).
Into the future, the company tax rate will be lowered for larger businesses according to the following schedule:
Financial year Turnover
Once all companies are transitioned to the 27.5 per cent rate by 2023-24, the Government has committed to reducing the company tax rate to 25 per cent, for all companies, by lowering the company tax rate progressively until 2026-27. While this is a significant win for the business community, its implementation over 10 years will require ongoing commitment by Governments and will be subject to implementation risks.
Unincorporated small businesses will also enjoy the benefit of an increase in the small business tax discount from 5 per cent to 8 per cent, with the turnover threshold increased from $2m to $5m.
More businesses will also gain access to the instant asset write-off, with the turnover threshold increasing to $10m. The program will expire as originally planned on 30 June 2017.
Importantly, these measures will not just benefit business, with the economic dividends of this reform also benefiting workers through greater investment and jobs.
Changes to combat multinational tax avoidance are not expected to impact directly on small or medium businesses, however a newly established Tax Avoidance Taskforce within the ATO will need to ensure they do not impose undue costs on businesses that do the right thing.
2. The Budget position and economic outlook
The Government’s GDP forecast for 2016-17 has been downgraded to 2.5 per cent, compared with 2.75 per cent forecasted as part of the Mid-Year Economic and Fiscal Outlook (MYEFO) handed down in December 2015.
The Budget deficit stands at $37.1bn for 2016-17. While there has been a slight deterioration in the Budget position compared with 2015-16, the deficit as a percentage of GDP remains broadly consistent. The Government’s medium-term fiscal strategy remains to achieve budget surpluses, on average, over the course of the economic cycle.
The Government projects the Budget to return to balance by 2020-21, however this remains vulnerable to receipts from new revenue measures. A significant share of the funding for new measures comes from increases in tobacco excise ($4.7bn), changes to superannuation tax concessions ($2.9bn), and new measures to combat multinational tax avoidance ($3.9bn). Vulnerability to movements in international commodity markets continue to pose considerable risks for a return to surplus with the budget forecast for iron ore set at $US55 per tonne Free on Board (FOB), compared with $US39 per tonne FOB at the 2015-16 MYEFO.
The NSW Government Budget will also benefit from its share in the previously announced $1.2bn in funding between 2018 and 2020 for schools, and $2.9bn to support public hospitals until 2019-20 when longer term arrangements are developed.
3. Workforce participation and productivity
The Budget contains good news for young people looking to secure their first job, with $840 million for a suite of programs designed to reduce unemployment.
The centrepiece of the package is the Youth Jobs PaTH (Prepare-Trial-Hire) Programme to help young people develop the practical skills needed to enter the workforce. This is a clear response to the message we’ve received from business: that young people need more help to boost their employability skills.
The three-stage program involves practical workforce preparation, an internship and employment by a participating business. Resolving youth unemployment is a two-way street, which is why we’re encouraged by the incentives offered to businesses participating in the Youth Jobs PaTH program. Participants will receive an upfront incentive payment of $1,000, with a wages subsidy of up to $10,000 available for businesses who hire young people emerging from the program.
The Budget also includes an additional $88.6 million for entrepreneurial job seekers looking to start their own businesses. The New Enterprise Incentive Scheme (NEIS) will be expanded to job seekers who are not on income support, with funding for an additional 2,300 places.
To help fund new priorities, the Government has announced that they are halving the total funding made available under last year’s Industry Skills Fund budget measure, removing over $55 million each year for the next four years. This Fund was designed to provide training support to SMEs.
To encourage greater workforce participation, the Government will also increase the $80,000 threshold to $87,000 to provide tax relief for workers close to the upper limit of the middle income tax bracket. This will reduce disincentives to work associated with higher marginal tax rates for workers only slightly above the average full time wage.
Aside from the broader superannuation tax changes announced in this Budget, the Government also intends to introduce a Low Income Superannuation Tax Offset from 1 July 2017 to ensure that low income earners do not pay more tax on their super than they do on their income.
4. Infrastructure, innovation and specific measures affecting business
New federal infrastructure spending for NSW includes $115m for preparatory activities for Badgerys Creek Airport as well as funding via the asset recycling initiative for the Sydney Metro and Parramatta Light rail.
The Government will also establish a $2bn Water Infrastructure Loan Facility for new investment in dams and pipelines across Australia. The $5.6bn funding for the Pacific Highway upgrade will continue to benefit regional NSW as it is delivered.
The Budget funds initiatives first outlined in the Government’s National Innovation and Science Agenda, subject to implementation arrangements. These include tax incentives for early-stage investors to encourage capital investment and funding changes to the rules around venture capital.
The Government will also expand CSIRO’s accelerator program and will include support for an industry-led Cyber Security Growth Centre. The Government has also signalled its intention to foster development of FinTech products and services.
Disappointingly, despite conducting an 11th hour review of their planned changes to the Working Holiday Tax arrangements, tonight’s budget indicated that the changes outlined last year will be implemented on 1 July.
As a result, from July 1, working holidaymakers will be required to pay 32.5 per cent tax from the first dollar earned rather than having an $18,000 tax-free threshold. With many of these visa holders working in the hospitality and agricultural sectors, which are already facing skills shortages, these changes will make the sourcing of labour even more difficult. With the number of working holiday visas issued already on a downward trend (in the 2014-15 financial year, 173,491 visas were granted, down 5.4 per cent from the previous year) this issue is likely to emerge as hot button issue for the sectors that rely on these workers as we head towards the 2016 federal election.
The Budget also announced that the Government will reduce the Wine Equalisation Tax rebate cap from $500,000 to $350,000 on 1 July 2017, and to $290,000 on 1 July 2018. Funding worth $50m over four years will however be provided to promote wine-related tourism.