Budget 2014/15: Business

The good news for business is that the decrease in the company tax rate from 1 July 2015 is safe for now. The bad news is that there are a series of other costs to contend with.

Company tax rate reduction remains

The Government will go ahead with the scheduled reduction in the company tax rate by 1.5% from 1 July 2015. For large companies, the reduction will offset the cost of the Government’s Paid Parental Leave levy.

Fringe Benefits Tax rate increase

Tying in with the 2% debt tax (see Individuals), the Government has announced that the FBT rate will increase from 47% to 49% from 1 April 2015 until 31 March 2017 to prevent high income earners trying to avoid the levy.

The problem is if you run a business and you are not trying to avoid the debt tax, you’re going to pay more in FBT regardless.

The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps. In addition, the fringe benefits rebate rate will be aligned with the FBT rate from 1 April 2015.

Date of effect: 1 April 2015

Fuel indexation and other measures

As widely predicted, indexation of the fuel excise levy will resume, generating $2.2bn over the next 4 years.

Bi-annual indexation by the CPI of excise and excise-equivalent customs duty will resume again on 1 August 2014. Aviation fuels are excluded.

Date of effect: 1 August 2014 for all fuels except aviation fuels

Tax treatment of biodiesel change

Grants made under the Cleaner Fuels Grant Scheme will be reduced to zero and the excise on biodiesel will also be reduced to zero from 1 July 2015.

From 1 July 2016, the excise rate for biodiesel will be increased for five years until it reaches 50% of the energy content equivalent tax rate. The excise equivalent customs duty for imported biodiesel will continue to be taxed at the full energy content equivalent tax rate.

Date of effect: 1 July 2015

Product Stewardship for Oil (PSO) levy increase

The PSO is aimed at supporting environmentally sustainable management of used oil including: the recycling of used oil, and use of the recycled product.

The levy rate will increase to 8.5 cents per litre of grease from 1 July 2014. The rate of the benefit for Category 8 oils (Category 8 benefits provide a mechanism to refund levies paid on oils that are being put to particular uses) will also be increased to ensure it continues to match the rate of the levy.

Date of effect: 1 July 2014

R&D incentives cut back

From 1 July 2014, the refundable and non-refundable offsets for the Research & Development Tax Incentive will be reduced by 1.5%. This means the refundable offset will be reduced to 43.5% while the non-refundable offset will be reduced to 38.5%.

Interestingly, the Government has said that reducing the R&D tax offset rates is consistent with the Government’s commitment to cut the company tax rate by 1.5%. However, the reduction in the company tax rate is not meant to occur until 1 July 2015.

Businesses that are undertaking R&D activities this year may want to consider bringing forward expenditure to ensure they maximise their claims for the year ending 30 June 2014 to take advantage of the higher tax offset rates.

Date of effect: 1 July 2014

Tax changes

The Government has restated its commitment to remove the Minerals Resource Rent Tax and the associated measures, and the Carbon Tax. While the rephrasing of the superannuation guarantee rate is noted in the budget (see Superannuation) the other associated measures are not.

Unfortunately there has been no mention of the planned reduction in the immediate asset write-off rate for small business entities. The threshold was meant to be reduced from $6,500 to $1,000 from 1 January 2014 but the legislation was blocked in the Senate. We still have no certainty on when this change will take place.

As part of the Government’s initiative to sort out and reduce the volume of announced but unenacted legislation, it has announced that it will not proceed with a number of other measures and amend others including:

Data matching and third party reporting

The Government will defer the start date for proposed legislative measures relating to third party reporting and data matching. The measures were originally intended to apply from 1 July 2014 but will be deferred until 1 July 2016. The expanded measures are expected to apply to taxable government grants and certain other government payments; sales of real property, shares and units in managed funds; and sales through merchant debit and credit services.

Multi-entry consolidated groups

The Government will not proceed with the proposal to remove inconsistencies in the tax treatment of multiple-entry consolidated groups. Treasury however will start consultation on an amendment to extend a modified form of the unrealised loss rules to multiple-entry consolidated groups and on other measures identified by a recent review that will clarify certain aspects of the tax law in this area.

Capital Gains Tax (CGT) and foreign residents

Refine the 2013/2014 Budget measure that amends the principal asset test in the foreign resident CGT regime.

To prevent the double counting of assets, the measure will now apply to interests held by foreign residents in unconsolidated groups as well as in consolidated groups.

For interests held by foreign residents in unconsolidated groups, the amendment will apply to CGT events occurring on or after the date the Exposure Draft is released for public consultation.

For interests held in a consolidated group or a multiple entry consolidated group the measure will continue to have effect from 7.30pm (AEST) 14 May 2013.

Integrity measure for consolidated groups

Refine the measure to clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group. This change will apply to arrangements that commence on or after 7.30pm on 13 May 2014. Transitional rules will apply to arrangements that commence before this time.

The double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after the date of announcement of the original measure (14 May 2013), rather than to the exit or entry of a subsidiary that takes place on or after the date of announcement.

The deductible liabilities measure will also be amended so that retirement villages’ residential loan liabilities are excluded from the measure.

Managed investment trusts tax system deferral

The Government will defer the start date of the new tax system for managed investment trusts by 12 months, to 1 July 2015. The tax law will also be amended to allow managed investment trusts and other trusts treated as managed investment trusts to continue to disregard the trust streaming provisions for the 2014/205 income year.

Government initiatives and programs for business

Incentives for employing workers over 50

From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature age job seeker (including those on the Disability Support Pension) aged 50 years or over who has been receiving income support for at least six months.

Payments will start after the worker has been employed for at least 6 months and paid in instalments:

• $3,000 after 6 months of employment;
• $3,000 after 12 months of employment;
• $2,000 after 18 months of employment; and
• $2,000 after 24 months of employment.

Date of effect: 1 July 2014

Aged care providers lose payroll tax subsidy

The Payroll Tax Supplement payments to eligible residential aged care providers will cease from 1 January 2015.

International tourism incentives

The Government is providing $43.1m over 4 years to implement a new Tourism Demand Driver Infrastructure grants program.

Small agricultural exporters

$15m has been set aside over 4 years for small exporters in sectors where there are specific export certification registration charges. Funding will be provided in 2014/2015 to provide eligible small exporters with a 50% rebate of their export certification registration costs, up to a maximum of $5,000. From 2015/2016, funding will be provided for projects that directly benefit small exporters, particularly projects to improve market access.

Date of effect: From 2014/2015 income year

Consolidation of support services for innovation

A raft of councils and support services to nurture innovation and enterprise have been abolished and replaced with the Entrepreneurs’ Infrastructure Programme through the Department of Industry. From 1 January 2015, The Entrepreneurs’ Infrastructure Programme will replace

• Australian Industry Participation;
• Commercialisation Australia;
• Enterprise Solutions;
• Innovation Investment Fund;
• Industry Innovation Councils;
• Enterprise Connect;
• Industry Innovation Precincts; and
• Textile, Clothing and Footwear Small Business and Building Innovative Capability.

Date of effect: 1 January 2015

Consolidation of support services for industry skills

The Industry Skills Fund (ISF) will replace a raft of skills training from 1 January 2015. The ISF will target the training needs of SMEs in health and biomedical products; mining, oil and gas equipment technology and services; and advanced manufacturing, including defence and aerospace. Business will need to make co-contributions to the cost of the skills training on a sliding scale depending on the size of the business. The ISF will replace:

• National Partnership Agreement on Training Places for Single Parents;
• Accelerated Australian Apprenticeships Programme;
• Australian Apprenticeships Mentoring Programme;
• National Workforce Development Fund;
• Workplace English Language and Literacy Programme;
• Alternative Pathways Programme;
• Apprenticeship to Business Owner Programme;
• Productive Ageing through Community Education;
• Australian Apprenticeships Access Programme; and
• Step Into Skills Programme

Date of effect: 1 January 2015

Previously announced initiatives

‘Asset recycling’ initiative – sale of State assets

The Government has allocated $5bn over 5 years to establish this initiative that provides “state and territory governments with incentive payments to unlock capital from state-owned assets and reinvest the proceeds in new productivity-enhancing economic infrastructure.”

Participating States and Territories receive an incentive payment of 15% of the sale price of the asset.

Fund for small minerals companies

As mentioned in the Government’s election policy material, $100m is being provided over 3 years towards an Exploration Development Incentive (EDI). The EDI is targeted to small mineral exploration companies with no taxable income to provide exploration credits, paid as a refundable tax offset, to their Australian resident shareholders for greenfields mineral exploration.

Date of effect: From 2014/2015 income year

Growth fund for VIC and SA to replace motor vehicle industry

As previously announced, the $155m growth fund supports a range of programs designed to fill the gap created by the announcements by Toyota and Holden that they will stop manufacturing in Australia. A third of the funding is provided by the States – with Toyota and Holden funding reskilling programs for workers.

To discuss how this may impact your circumstances please contact PPT on (03) 5331 3711.

DISCLAIMER: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.