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Five federal budget takeaways

May 13, 2015

The government's promised 'boring' budget featured a couple of surprise sweeteners, but whether they'll help to grow personal wealth or simply spur small business investors to trade cash flow for tax-free work assets is up for debate. 

Small businesses were among the major beneficiaries, with immediate tax deductions on every item of up to $20,000 in value, a 1.5 per cent company tax cut and a 5 per cent tax discount up to $1000 for unincorporated or sole trader businesses. 

For investors wanting to pair up with small market players, there was a $7.8 million investment over four years for crowd-source funding. It is understood ASIC will be employed to monitor capital raising activities among the small ventures. 

The change to the business expenses tax cap was labelled the main "game changer" this year by Deakin University tax specialist and senior lecturer Dr Adrian Raftery, who also expressed concerns it could create "asset heavy, cash poor" businesses.

Couples with assets exceeding $820,000 excluding their family home (singles with more than $550,000 excluding their home) will lose their part-pension eligibility.

"Yes, it is 100 per cent tax deductible, but you're only going to get the benefit at your company tax rate. So currently for small business it's 30 per cent, so if you spend $20,000 you're only going to get $6000 tax saving, so your cash flow is $14,000 worse off," he said. 

When the small business tax rate reaches 28.5 per cent, businesses would be $14,300 out of pocket, he said. 

Raftery discouraged investors from rushing out to load up on assets simply for the tax break and said businesses would still get the same benefit over a longer 5- or 10-year time frame.  

"All this is doing is [giving] you the deduction in the first year... There is that benefit by getting the money upfront, but you're not getting any extra deductions."

Few secrets for punters

The remainder of the budget offered held few secrets for pundits. Changes to how any retirees qualify for the part-pension were well publicised in the lead up, with an estimated 91,000 to lose access to their partial payment from January 2017 and 50,000 to be upgraded to the full pension based on a new asset-based means test. A further 235,000 will have their rates cut, while 122,000 will get around $30 extra a fortnight. On budget night, Treasurer Joe Hockey said the measure was to "give Australian workers confidence in their retirement plans". 

As promised, superannuation was left alone, much to the delight of bodies like the SMSF Association who noted the impact a pause in tinkering has on DIY investors.

"The stability to superannuation in the current budget cycle allows SMSF trustees to take a deep breath and assess their long-term strategies without having to confront constant regulatory change," CEO Andrea Slattery said.  

Below are the changes most relevant to investors. 

Part-pension eligibility changes 

  • Couples with assets exceeding $820,000 excluding their family home (singles with more than $550,000 excluding their home) will lose their part-pension eligibility. Around 91,000 will no longer receive payments, while 235,000 will have their rate cut.

  • However, 50,000 will be upgraded to the full pension and 122,000 will get a extra $30 a fortnight on top of their current payment. 

But no tax changes for super or indexation

  • The government kept its promise to leave the taxation of super alone. "There will be no new taxes on superannuation under this government and the age pension will continue to increase , twice a year, this year and every year, at the highest available indexation rate," Hockey said. 

Small business tax cuts 

  • Tax cut for businesses making less than $2 million annually from 30 per cent to 28.5 per cent from July 1. The measure was foreshadowed in last year's budget. 
  • Immediate tax deductions for every small business item purchased up to $20,000. 
  • "We will also get an annual 5 per cent tax discount to up to $1000 a year for unincorporated businesses," Hockey said.

Crowd source funding

A $7.8 million investment to pair investors with small businesses via crowd-sourced equity funding. 

Crackdown on investment fraud

The government will invest $128 million over four years in a Serious Finance Crime Taskforce to tackle financial crime against investors and superannuants.


Original article publiched in The Financial Review 12 May 2015


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