The Federal Budget 2014 – Issues For SME Operators

The Australian government's Federal Treasurer, Mr Joe Hockey, delivered the first LNP government's budget on the 13th May 2014.  This special edition of Business Plus refers to many of the matters, contained in the budget, which will affect SMEs and primary producers.  None of the items contained within the budget will become law until the budget is passed by the House of Representatives and the Senate, and signed by the Executive Council.

Key Budget Outcomes – 2014/15

Australian Economic Predictions

 

Budgeted 2011

Budgeted 2012

Budgeted 2013

Expected 2014

Forecast 2015

Forecast 2016

Real GDP Growth %

2%

3%

2.6%

2.75%

2.5%

3%

CPI

3.6%

1.25%

2.4%

3.75%

2.25%

2.5%

Unemployment Rate

4.9%

5.25%

5.6%

6%

6.25%

6.25%

Wage Price Index

3.8%

3.7%

2.9%

2.75%

3%

3%

Deficit/Surplus

- $47.7B

- $43.4B

- $18.8B

- $49.8B

- $29.8B

- $17.1B

Population

22.6 million

22.8 million

23.3 million

23.7 million

24.1 million

24.6 million


Government Debt
•    2015 - $667 billion (expected)
•    2024 - $389 billion (expected)

Tax Changes From 1st July 2014

Individuals
•    Dependent Spouse Tax Offset abolished.
•    Mature Aged Worker Tax Offset abolished.

Families
•    The Family Tax Benefit (FTB) Part B – eligible until one parent earns more than $100,000 per annum (currently $150,000 per annum) until the youngest child reaches six years of age.
•    Phasing out of existing FTB Part B benefits, where children are six years or older, for the next two years.
•    Cuts to end of year supplement payments.
•    Part A threshold has not changed from $94,316.

Paid Parental Leave Scheme
•    The Paid Parental Leave Scheme will pay 26 weeks (six months) parental leave, based on the individual's full-time salary, to a maximum of $50,000.
•    Not means tested.

Welfare/Pension Measures
•    Aged Pension –gradually increase the eligibility of the aged pension to 70 from 1st July 2035.
•    Reset the assets test deeming rate threshold.
•    Commonwealth/Seniors Health Card – from 1st January 2015, exempt superannuation pensions will be added to income for the purposes of the eligibility test, except for account-based pensions that have commenced prior to 1st January 2015.

Taxation

Temporary Budget Repair Levy
The government has announced the introduction of a Temporary Budget Repair Levy, to apply from 1st July 2014 through to 30th June 2017.  The levy will apply to individuals with a taxable income exceeding $180,000.

Tax/levy rates applying to individuals, for the component of their taxable income exceeding $180,000, will be:
•    Income Tax – 45%
•    Temporary Budget Repair Levy – 2%
•    Medicare Levy – 2%
•    Total – 49%

If the individual is subject to the Medicare Levy Surcharge, the total of taxes/levies will be:
•    Without Medicare Levy – 49%
•    Medicare Levy Surcharge – 1.5%
•    Total – 50.5%
for component of their income, which exceeds $180,000.

Marginal Income Tax Rates 2014-15

Taxable Income Threshold Range

2014/15 Marginal Income Tax Rate %

$0 - $18,200

Nil

$18,201 - $37,000

19%

$37,001 - $80,000

32.5%

$80,001 - $180,000

37%

$180,001 plus

45%


To each of these rates, it is necessary to add the Medicare Levy of 2% and, for incomes in excess of $180,000, the Temporary Budget Repair Levy.

Company Tax Rates
From 1st July 2015, the company tax rates are as follows:
•    Companies with taxable income of less than $5 million – 28.5%
•    Companies with taxable income of over $5 million – 28.5%
•    In addition, companies with taxable income of over $5million will be liable for the Parental Leave Levy of 1.5%, bringing those companies' total tax/levy to 30% of taxable income.

Fringe Benefit Tax
The Fringe Benefit Tax rate for the period 1st April 2015 to 31st March 2017 will be 49%.

Issues For Small Businesses And Primary Producers

Superannuation Contributions
From 1st July 2014, the superannuation guarantee rate will be 9.5%.

The superannuation contributions in future years will be:
•    2015/16 – 09.5%
•    2016/17 – 09.5%
•    2017/18 – 09.5%
•    2018/19 – 10.0%
•    2019/20 – 10.5%
•    2020/21 – 11.0%
•    2021/22 – 11.5%
•    2022/23 – 12.0%

Superannuation Contribution Limits

Age

Superannuation Contribution Limit

2013/14

2014/15

Under 50 years

$25,000

$30,000

50 years to under 60 years

$25,000

$35,000

60 years and over

$35,000

$35,000


Non-Concessional Contribution Cap

Financial Year

Standard Cap

3-Year Contribution Limit

2013/14

$150,000

$450,000

2014/15

$180,000

$540,000


Excess Contributions Tax (ECT)
From 1st July 2013, the ability to withdraw non-concessional contributions that exceeded the $150,000 per annum cap without ECT includes associated earnings.

Research And Development Rebate
The rebates for the 2013/14 financial year will be:
•    Companies with turnovers of under $20 million – 45%
•    Companies with turnovers of over $20 million – 40%

For the 2014/15 financial year, the R&D rebates will be:
•    Companies with turnovers of under $20 million – 43.5%
•    Companies with turnovers of over $20 million – 38.5%

Exporters
•    The government has ignored the recommendation from the Audit Committee and will continue to support the Export Finance Investment Corporation.
•    The Export Market Development Grant will continue with an extra $50 million in funding.

Fuel Excise Indexation
The government will re-introduce the Fuel Excise Indexation.  The indexation will be assessed twice a year, rising about one cent a litre to 39 cents per litre this year.

Small Business And Family Enterprise Ombudsman
The government is allocating $8 million in extra funding in the budget to turn the existing office of the Australian Small Business Commissioner into a Small Business and Family Enterprise Ombudsman, with extra powers and functions to act as a 'one-stop shop' for small business interactions with the government.

Major Project
The government has announced a large funding commitment, in conjunction with State governments, for road projects and other major infrastructure projects around Australia.  Some small businesses will benefit from these projects.

Unfair Contract Protection
The government has indicated that it will extend unfair contract protection for small businesses.  The government has allocated $1.4 million to enable small businesses to access the same unfair contract protection currently available to consumers, under the Australian Consumer Law.  The government has indicated that this will help to provide a level plain field for small businesses and enhance the welfare of Australians, by increasing a small business certainty, confidence and productivity.

Farmers Affected By Drought
The government has confirmed the announcement, originally made in February 2014, of a $320 million drought package.  Drought concessional loans will be available to eligible farm businesses.

The Farm Household Allowance commences on the 1st July 2014, to help farmers during times of financial hardship, ensuring income support, to assist with essential bills and to put food on the table.

Agriculture Research And Development
The government will provide $100 million in new funding for rural research and development, specifically to support continued innovation in the agriculture, fisheries and forestry sectors.

The program will be known as Rural R&D for Profit Policy Initiative and will fund research activities, which focuses on enhancing the profitability of agriculture industries.  The research will focus on delivering cutting edge technologies with an emphasis on making research accessible for farmers.  The initiative will be delivered in a competitive grants process.

Small Exporters
The government has announced that small exporters will have access to $15 million in funding over the next four years, to deal with the cost of export fees and charges.  The grant will apply to small exporters in the meat, dairy, fish, horticulture and grain industries.  The rebate will be made available in 2014/15 financial year, to cover 50% of export registration charges up to a maximum of $5,000.

Incentive To Hire Older Workers
From 1st July 2014, businesses will be able to receive up to $10,000 in government funding if they hire a jobseeker aged 50 or over.  Eligible employers will receive $3,000 if they hire a full-time, mature-aged jobseeker who was previously unemployed for a minimum of six months and employ that person for at least six months.

Once the jobseeker has been working for the same employer for 12 months, the business will receive another payment of $3,000, then another payment of $2,000 at 18 months and a final payment of $2,000 at two years.

To be eligible for Restart, businesses will need to demonstrate that the job they are offering is sustainable and ongoing and they are not displacing existing workers with subsidised jobseekers.

New Government Grants

The government has announced some new government grants and initiatives.  These are as follows:

Growth Fund
To assist the Victorian and South Australian Economies adjust to a future without car assembly.

Manufacturing Transition Grants Program
To assist manufacturers to move towards higher value and niche manufacturing opportunities (an additional $50 million will be provided).

Exploration Development Incentives
Available for small explorers not making any taxable income.  The funding is $100 million. This is a refundable tax offset, payable to Australian Residents Shareholders, of small minerals explorers that undertake green fields' exploration and have no taxable income against which to offset this expenditure.

Entrepreneurs Infrastructure Program
From 1st July 2014, this fund will be allocated $484.2million over 5 years, to support the 'commercialisation of good ideas' and boost small business.

The focus of the program is to support 'the commercialisation of good ideas', job creation and lifting the capability of small business, the provision of market and industry information, and the facilitation of access to business management advice and skills from experienced private sector providers and researchers.  This program has been introduced after the government has removed eight other program initiatives.

Industry Skills Fund
Will be created to support the training needs of SMEs, focusing on health, mining and advanced manufacturing (this will be after the abolishment of 10 different skills and training programs).

Medical Research
The government has announced that medical research will be boosted by the fund that will distribute $276.2million over the three financial years, starting in 2015-16 and, ultimately, aims to provide $1billion per annum in medical research funding by 2022/23.

Government Grants Removed
The treasurer has announced the removal of a number of grant programs, including:
•    Supporting automotive sector jobs program.
•    Automotive Transformation Scheme (ATS) will cease on the 1st January 2018.  (The treasurer has indicated there's still $1billion available for allocation by the ATS, to assist the motor vehicle industry sector.)
•    Commercialisation Australia
•    Enterprise Solutions Program
•    Innovation Investment Fund
•    Enterprise Connect
•    Industry Innovative Precincts
•    Australian Industry Participation Program
•    Textile, Clothing and Footwear – Small Business
•    Building Innovative Capability
•    The government will abolish 10 different skills and training programs (partly offset by the announced introduction of the Industry Skills Funds).
•    Tools for Trade Program (partly offset by the Trade Support Loans program for apprentices).
•    Australian Renewable Energy Agency
•    There have been a number of deductions, which will be repealed.  As a result, of the government's commitment to repeal the Minerals Resources Rent Tax:  
–    This include faster write-off to small business' depreciating assets (no longer available after the 1st January 2014); and
–    Loss Carry Back Offset measures (basically, a one-year initiative for 2013 only).
•    Mature Aged Worker Tax Offset will be abolished from the 1st July 2014.

Government Grants Reduced Funding
The government has announced reduced funding for a number of programs, including:
•    Clean Technology (investment and innovation program)
•    Cooperative Research Centres
•    Carbon Capture and Storage Flagships Program
•    National Low Emissions Coal Initiative
•    Subsidies to bio-fuel producers
•    Ethanol Production Grants Program
•    Cleaner Fuel Grants Scheme
•    First Home Saver Accounts Scheme

Apprentices

The government will introduce a Trade Support Loans Program, which will give apprentices a loan of up to $20,000 over a four-year apprenticeship.

The loans will be provided at concessional interest rates and will be staggered across the four-year period with up to $8,000 available for the first year of an apprenticeship, $6,000 in the second year, $4,000 in the third year and $2,000 in the fourth year.

The loan will not be tied to the particular spending requirements and recipients will be required to pay back the loan when their income exceeds the minimum repayment threshold of $53,345.  Those who complete their training will receive a 20% discount.

At the same time, the government will withdraw the previous scheme, Tools for your Trade, from 1st July 2014.

Professional Advice

If you have any queries or any item in the Federal Government's Budget, please contact us.
 

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