Federal Budget Snapshot

It was hard to ignore the budget this week as the traditional storm of analysis broke over the nation.

Federal Budget

Yet commentators have dubbed it a budget more ruled by politics than economics and there were not many new details to discuss: the $41.1 billion forecast deficit was in line with expectations and most of the initiatives published in the budget had been telegraphed beforehand.

From a remuneration and governance perspective, the most important measures at the Board or HR executive level were:

  • Employee share scheme rule changes

The budget reiterated the legislation changes to employee share schemes contained in draft legislation currently before the House of Representatives and scheduled to come into effect for equity grants from 1 July 2015. An announcement was made at the end of 2014 that a number of changes would be made to the taxation of share schemes including that options would be taxed at exercise rather than at vesting. After consultation, further alterations were made to the legislation before its introduction into parliament.

  • Fringe benefits tax (FBT) change for not-for-profits (NFPS)

Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap and employees of public and NFP hospitals and public ambulance services have a standard $17,000 FBT exemption cap.

In addition to these FBT exemptions, these employees can salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported. Employees of rebatable not-for-profit organisations can also salary sacrifice meal entertainment benefits, but the employers only receive a partial FBT rebate, up to a standard $30,000 cap.

In the budget, the government has announced a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses. Benefits exceeding the cap can also be counted in calculating whether an employee exceeds their existing FBT exemption or rebate cap. This change will apply from 1 April 2016.

Commentators believe this measure is likely to affect the ability of these organisations to attract employees on the levels of salary currently offered. Others have noted that caps have already been written into employment contracts, so the effect of the change will be quite small.

  • Parental leave

Organisations may need to reconsider whether parental leave is the right benefit to grant female employees after the government announced that employees who are recipients of a company parental leave scheme that equals or improves on the government scheme will not be eligible for the latter. This measure will apply from 1 July 2016.

Some commentators have noted that this decision could lead to backward steps in workplace diversity. However, there will be additional funds for childcare from 1 July 2017 for low and middle income earners, which could potentially enable more women to return to work.

Families meeting the activity test with annual incomes up to $60,000 (2013-14 dollars) will be eligible for a subsidy of 85% of the actual fee paid, up to an hourly fee cap. The subsidy will taper to 50% for eligible families with annual incomes of $165,000.

There will be no limit to the amount that can be claimed per year for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the benefit will be capped at $10,000 per child per year.

Low income families will receive further support under a childcare safety net.

  • Remote workers

From 1 July 2015 FIFO (fly-in fly-out) workers will no longer be eligible to claim the Zone Tax Offset, which is intended to compensate workers living in remote areas. This may affect the attractiveness of certain roles for mining organisations.

Currently, to be eligible for the offset, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year.

  • Work vehicles

For the 2015-2016 income year, the government has reduced the number of calculation methods for work-related car expense deductions, removing the “12% of original value” and “one third of actual expenses” methods, leaving the logbook and cents per km method. For the latter, it has also introduced a flat rate of 66c per km rather than varying rates depending on engine size.

  • Hiring incentives

From 1 November 2015, businesses will be eligible for a $6,500 subsidy if they employ a young jobseeker for six months. This was previously 12 months. Payments to businesses for hiring workers over 50 will also be made available over 12 months instead of 2 years.

  • Defined benefit schemes

Under current arrangements, some defined benefit superannuants (mainly employees in the public service) are able to have a large proportion of their superannuation income excluded from the pension income test.

From 1 July 2016, the proportion of income that can be excluded will be capped at 10% from 1 January 2016. Recipients of Veterans’ Affairs pensions and/or defined benefit income streams paid by military superannuation funds are exempt from this measure.

On the day following the budget new figures were released by the Australian Bureau of Statistics (ABS) for the Wage Price Index that reported Australian wage growth at 2.3% – its slowest pace since the ABS began publishing the data in 1998.

Other measures include:

  • Crackdown on taxation avoidance – The government intends to focus on tax avoidance through a number of measures: focusing on multinationals funnelling profits through low-tax jurisdictions; increasing GST compliance; and preventing financial and tax fraud. Country by country reporting and additional transfer pricing reporting will also be introduced from 1 January 2016 for large multinationals with global revenues of $1 billion or more.

    A consultation process has also been flagged in parallel with the budget for large companies to voluntarily increase the transparency of their taxation position as part of a code. The intention is that the Board of Taxation lead the development of a voluntary code to highlight companies that are “paying their fair share of tax”.

    The announcements follow a general theme in recent months around ensuring companies are paying a “fair” level of taxation. Boards may want to review their taxation management practices consider the government and community’s taxation focus in their risk scenarios, especially around reputational risks.

  • The addition of GST to digital products and services imported by customers such as such as movies, music, apps, games and e-books as well as services including consultancy and professional services may affect certain organisations directly while indirectly affecting other businesses competing against overseas companies. This is due to begin on 1 July 2017.
  • Infrastructure organisations and those operating in northern Australia will benefit from the establishment of a $5bn Northern Australian concessional loan facility to make money available for the construction of ports, pipelines, electricity and water infrastructure across Northern Australia, comprising WA, NT and QLD. The facility will be open for applications from 1 July 2015.
  • Small businesses (turnover less than $2 million) are the recipients of significant measures. A tax reduction of 1.5% (from 1 July 2015) and an immediate tax write-off on assets of up to $20,000 acquired from 12 May 2015 to 30 June 2017 have been announced. The 1.5% tax rate reduction also means the net benefit from the 45% R&D tax offset is greater for small businesses at 16.5%. These measures have been bolstered by cuts in red tape for starting a business, the abolition of fringe benefits tax on portable electronic devices and the ability for businesses to change their legal structure without attracting a capital gains tax liability at that point.
  • Pensioners who have assets in excess of $823,000 excluding the family home will now be excluded from the pension. This threshold has been reduced from $1.15 million. The lower threshold for the assets test has also been increased from $286,000 to $375,000 and the taper rate has been changed, from $1.50 to $3 in pension lost per $1000 over the lower threshold. For non-homeowners, the threshold will fall from $922,000 to $747,000 for singles and from $1.3 million to $1 million for couples. As a sweetener, the government has guaranteed eligibility for the Commonwealth Seniors Health Card.

For more detailed information on these changes, here are the links to the budget papers as well as summaries from KPMG, Deloitte, PWC and EY.