Update of the 2015 Australian Federal Budget

The 2015 Australian Federal Budget was issued from 12th May 2015, it contains some interesting and exciting updates which will affect you or your business.

Firstly, the tax rate for the individual resident taxpayer did not change from the 2014/15, however, it is important to note that from 2014/15 the Medicare levy had increased from 1.5% to 2%. Secondly, for high income earner of an annual salary of $180,000 or over, it is imperative that you need to plan ahead as you might be affected by the temporary deficit repair tax of 2% of your taxable income; this will apply until 2016-17 financial year. Thirdly, for people on back packer visa, you will no longer to able to enjoy the tax free threshold as had enjoyed in the prior tax years.

One of the key things which come out from the Federal Budget is the $20,000 immediate asset write off. This rule applies to small business whose aggregated turnover is less than $2,000,000.00; the depreciation rule will apply from 12 May 2015 to 30 June 2017. Don’t miss this exceptionally large tax break, as the prior rule is only $1,000. The new rule is about per asset item, rather than a group of asset, and it applies to both newly purchased asset and/or second hand asset. It is also important to note that if the asset is over $20,000, then you can not apply this special rule, but rather need to pool the asset in general pool to depreciate it accordingly to the simple depreciation rule for the small business. If you are running a small business, it is encouraged that you give us a call on 08-8123-6788 to ascertain whether are eligible for this new rule, and also how can you structure you bookkeeping hence to enjoy the tax break effectively.

The other key item which comes out from this budget is the lowering of the company tax rate from 30% to 28.5% to be started from 2015-2016 financial year; the franking credit will still maintain at 30%. The 1.5% tax saving in the company tax rate would be save around $3000 for a company making $200,000 net profit.

The ability to retain profit is a very important concept and planning tool for any business. It is also vital for the business future growth, as they need to be able to tap into fund to enhance the infrastructure to achieve the growth path in the future. However, businesses who produce income mainly from their personal exertion or skill set might have a difficult position now day to be able to retain the profit in the company or trust. Even if they meet the personal service business definition, ATO might still be able to use the S.260 of the ITAA 36, Part IVA and the Taxation Ruling 2503 to ensure that those professional firms might not be able to retain the profit. An interesting event is that recently ATO has been focusing quite heavily on the concept of the personal service income, and initiate audits on professional firms, and the recent Tax Alert TA 2013/3 (‘TA 2013/3’) titled ‘Assessing the risk: allocation of profits within professional firms’ (‘the guidelines’) also demonstrates ATO’s stance on this issue . The ATO has now changed the long standing principles highlighted above through the concept of personal service business, in that they will accept the professional firm can retain the profit if there are as many non principal employee compare to the principal employee in the professional firm.

In light of this, I would encourage you to come and talk to us at EndureGo Tax to see how you can benefit from the changes as derive from the 2015 Australian Federal Budget, and if you are a professionals running your own business, then it is imperative that you come and see us to evaluate how your professional firm will be able to retain profit in light of the recent approaches by ATO. Act now, and call us on 08-8123-6788, or 0403-418-758. Remember our motto is Your Success, Our Passion, and our service standard is not just to make you happy, but to deliver exceptional service standard to amaze you.