2014 Federal Budget Summary by Powers Financial Group

Federal Budget Summary 2014

‘PLUGGING THE LEAK’

Federal Budget 2014

CONTENTS TIME TO PULL ON THE REINS 3

SUPERANNUATION 11 Change of rules to superannuation guarantee rates 11 TAX RATES 4 Reduction in superannuation guarantee rates 11 Tax rate changes target higher income earners 4 Superannuation contributions 12 Tax repair levy 4 No change to the proposed concessional Company tax rate changes 4 and non-concessional contribution caps 12 Multiple personal tax offsets abolished 5 INFRASTRUCTURE 12 Abolition of various dependant tax offsets 5 Infrastructure spending to increase 12 Abolition of Mature Age Worker Tax Offset 5 Abolition of First Home Saver Account (FHSA) 12 FBT rate increases 5 National Rental Affordability Scheme discontinued 13 FBT exempt caps for not–for-profits 6 Uncontracted allocated funding in previous rounds 13 Exempt benefits 6 Asset Recycling Initiative – Asset Rebateable benefits 6 sales on understarters orders 13 Fuel excise 6 $5 billion over five years to 2018-19 13 I ndexation 6 Medical Research Future Fund 13 Ethanol and biodiesel 6 Technical tax changes 7 BENEFITS 14 Consolidations integrity measures 7 Changes to the Family Tax Benefit Schemes 14 Foreign resident CGT 7 Pension reform measures 14 D eferred Initiatives 7 Pension age to increase to 70 by 2035 14 Changes to climate change legislation & spending 8 Freeze on eligibility thresholds for Emissions Reduction Fund 8 Australian Government payments 14 Some climate change agencies to close 8 Indexation of pension and pension Green Army receives funding 8 equivalent payments by the CPI 14 Reset the assets test deeming rate thresholds 14 ENTREPRENEURS/INNOVATION 8 Cessation of Pensioner Education R&D Tax Incentive Program 8 Supplement and Aged Care Payroll Tax Supplement 14 Reduced rates of tax offsets 8 Changes to Commonwealth Seniors Health Card 15 Industry Assistance 8 Industry assistance programs 8 EDUCATION 15 Changes to rural research and development corporations 9 A Sustainable Higher Education System 15 Changes to automotive assistance 9 Repayment threshold and indexation of HELP debts 15 HELP loan & HECS-HELP benefit 15 MINING 10 Higher Education Loan Program 16 Mining interest realignment revisited 10 Deregulation of university fees 16 Clarification without specifics 10 Earn or Learn 16 Exploration Development Incentive 10 Job seekers aged 35 or under 16 Tax credit 10 Mature age job seekers 16 E ligible entities 11 Paid Parental Leave Scheme 17 E ligible expenditure 11 OTHER 17 Australian Taxation Office staffing reductions 7 Streamlining Government agencies to gain efficiencies 17 Handling of taxation complaints 17 Specialised support for small businesses 17 Amalgamation of Commonwealth merits review tribunals 18 IN CONCLUSION 19

For any further information, contact your local Powers Office.

BRI SBAN E

BILOEL A

M O N TO

O N LI N E

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Federal Budget 2014

PLUGGING THE LEAK

Whilst many will criticise the budget for reduced support for Health, Education and Welfare programs the true question is whether it does enough to support the growth of our economy. Whilst individuals and large corporations will shoulder the bulk of the increased levy’s, it will be left to small business to create the momentum we need to move forward. With a 1.5% reduction in the company tax rate lets hope its enough to get business owners to invest back into themselves for their long term prosperity. Despite many of the Budget’s key measures being released prior to Budget – which may have softened the blow to the public – Powers considers that while there will be some pain, the impact will not necessarily be the hard whipping previously imagined. However, there will be a number of issues that both business and individuals will need to face as we focus ‘less on consumption and more on investment’. There are a number of key issues from this year’s Federal Budget including: • I ncreases in the tax rates applying to high income individuals and fringe benefits •A reduction in the corporate tax rate for smaller companies, but a non-creditable levy on larger companies that will increase the tax paid by all shareholders • A reduction in the value of the R&D tax incentive •S ignificant reductions in welfare programs and an increase in the cost of higher education for most students.

The budget measures continue to tinker around the edges of real tax reform. Powers has persistently called for holistic tax reform to be debated and then implemented. It is to be hoped that real reform will come out of the proposed White Paper process later this year. In that process, Powers encourages the Government to seriously consider remedies previously identified, including a review of the GST, to ensure sustainability of the economy and stability in taxation policy into the future. Just as it is not easy to break in a wild horse, repairing the budget was never going to be an easy task. Only time will tell if the impact from the 2014 Federal Budget will reduce the economy to a slow trot, or ease it in to a comfortable canter.

Federal Budget 2014

TAX RATES TAX RATE CHANGES TARGET HIGHER INCOME EARNERS A temporary debt levy is to be introduced for individuals earning above $180,000. The well leaked Temporary Tax Repair Levy will apply for the 2015, 2016 and 2017 income tax years. Combined with the increase in the Medicare levy from 1 July 2014, the top marginal tax rate will rise to 49% for individuals in the top tax bracket. From 1 July 2015, the company tax rate is to be reduced to 28.5% for all companies. Small companies will enjoy a reduction in the corporate tax rate, whereas large companies will incur an additional levy of 1.5% to assist in funding the Government’s paid parental scheme. This levy will not give rise to franking credits, leading to an overall increase in tax payable by the shareholders of these companies. The changes in tax rates will increase the difference between the top marginal rate of tax on individuals and the corporate rate. This may have the unintended effect of encouraging the re-characterisation of individuals’ income as income earned by a company.

TAX REPAIR LEVY The tax slug to individuals earning above $180,000 will involve an increase in the top marginal rate of tax by 2%. This will mean a top marginal tax rate of 49% for the nation’s top income earners. This measure is expected to affect around 400,000 taxpayers and raise $3.1 billion in revenue over the forward estimates. The Government has proposed the following tax rates for the 2014/15financial year (the table below does not include the Medicare levy of 2% that will apply to certain taxpayers):

2014-15 INCOME YEAR TAXABLE INCOME $

TAX PAYABLE $

0 - 18,200

Nil

18,201 - 37,000

Nil + 19% of excess over 18,200

37,001 - 80,000

3,572 + 32.5% of excess over 37,000

80,001 - 180,000

17,547 + 37% of excess over 80,000

180,001+

54,547 + 47% of excess over $180,000

The increase in the top marginal tax rate will result in the additional tax liabilities as tabled below: TAXABLE INCOME $

TAX PAYABLE $

$180,000 or below

Nil

$200,000

$400

$250,000

$1,400

$500,000

$6,400

If the policy is implemented, almost half of taxpayer’s earnings above $180,000 will be paid to the Government in income tax levies. However, as neither the Labor Party nor the Greens have yet agreed to support the tax increase, taxpayers are left uncertain as to whether there will be a change in tax rates come 1 July 2014.

COMPANY TAX RATE CHANGES The Government has reconfirmed its pre-election commitment to reduce the company tax rate to 28.5% for approximately 800,000 small to medium businesses. This reduction in the company tax rate is expected to commence from 1 July 2015, and if implemented, will result in an increase in net earnings for small businesses. For large companies (which the Government has previously defined to include companies with a taxable income of $5 million or higher), the reduction in the corporate tax rate will be immediately offset with an additional levy of 1.5% which will be used to fund the paid parental leave scheme. This will result in no net reduction in tax for large companies. However, the Government has proposed that the 1.5% levy to be imposed on large companies will not give rise to franking credits, meaning that the tax liabilities for shareholders of these large companies will ultimately increase. While higher income earners will be affected, this tax measure is likely to affect all Australians via investments held in their superannuation funds

POWERS COMMENT

The revenue measures proposed by the Government appear to assume inelasticity in taxpayers’ behaviours to increased income tax rates. However, Powers believes that this assumption underestimates the ability and desire of higher income earners to restructure their affairs to avoid an exposure to a higher tax impost. If this leads to further anti-avoidance provisions and action by the Australian Tax Office, the compliance cost impact on taxpayers may be high. In general, Powers considers that steps that have the effect of bringing the corporate and individual tax rates closer together are to be preferred.

Federal Budget 2014

MULTIPLE PERSONAL TAX OFFSETS ABOLISHED From 1 July 2014, the government will abolish a number of personal tax offsets. In particular, a range of dependent tax offsets, and will abolish the Mature Age Workers Tax Offset. Abolition of various dependant tax offsets In the Mid-Year Economic and Fiscal Outlook 2011-12, the Dependent Spouse Tax Offset (DSTO) was limited to taxpayers whose dependent spouse was born before 1 July 1952, effective from 1 July 2012. The 2013 Budget further combined eight dependency tax offsets into a single Dependent (Invalid and Carer) Tax Offset (DICTO) effective 1 July 2012. However, the phase-out exempted taxpayers who were eligible to receive the following tax offsets (in other words, they were still able to receive the Dependent Spouse Tax Offset regardless of the age of their spouse): •Z one Tax Offset • O verseas Civilian Tax Offset • O verseas Forces Tax Offset In addition, taxpayers eligible for the above offsets could claim eight other dependency offsets. The 2014 Budget measure will replace all of these dependency tax offsets with DICTO for all taxpayers from 1 July 2014. The measure is expected to save $320m over the forward estimates period. DICTO will be targeted towards taxpayers who have a dependant who is genuinely unable to work due to a carer obligation or disability. Abolition of Mature Age Worker Tax Offset The Government will abolish the Mature Age Worker Tax Offset (MAWTO) from 1 July 2014. The 2013 Budget limited the MAWTO to taxpayers born before 1 July 1957. The Government believes that policy measures such as direct payments or incentives would encourage greater workforce participation by mature aged workers. As such, savings from abolishing MAWTO will be redirected to an expanded seniors employment incentive program (called Restart) to encourage re-entry into the workforce by mature age job seekers. From 1 July 2014, a payment of $10,000 will be available to employers who hire a mature age worker who has been receiving income support for at least six months.

The measure is expected to save $760m over the forward estimates period.

POWERS COMMENT

The abolition of the above tax offsets is a natural progression of legislated changes to these offsets since 1 July 2012. It is in line with comments made in the Henry Tax Review that assistance provided by way of offsets, “although delivering lower net tax rates to taxpayers with particular characteristics” is not assistance that is particularly “transparent, timely, or well targeted”. We welcome the removal of these offsets because they reduce the complexity of the tax system for all taxpayers and allow the Government to provide support to those directly in need.

FBT RATE INCREASES The Fringe Benefits Tax (FBT) rate has traditionally been aligned with the top marginal personal income tax rate. Currently this top marginal rate and the FBT rate are 47%. From 1 July 2014, the Temporary Budget Repair Levy of 2% will apply to taxable incomes greater than $180,000, which is the level at which the top marginal rate of 47% applies. The FBT rate increase from 47% to 49% will apply to FBT years from 1 April 2015 until 31 March 2017. The change in the FBT rate will also change the gross up rates applied in calculating the FBT payable.

POWERS COMMENT

The increase in the FBT rate applies to all fringe benefits provided, including those where the employees have a personal income tax rate that is less than the top marginal rate. This rate increase should prompt employers to consider the taxation cost of providing the fringe benefits, and investigate whether the benefits being provided should be discontinued and the salary paid to the individual increased to compensate for the fringe benefit that is foregone. With a potentially lower marginal rate for the individual, there is opportunity for both the employer and employee to benefit.

Federal Budget 2014

FBT EXEMPT CAPS FOR NOT–FOR-PROFITS

FUEL EXCISE

The Government has announced changes to the current limits of grossed up exempt fringe benefits that Public Benevolent Institutions (PBIs), hospitals and other not-for-profits can provide.

Indexation Commencing on 1 August 2014, the Government will reintroduce the biannual indexation by the consumer price index of excise duty and excise equivalent customs duty on fuel (excluding aviation fuel) imported or manufactured in Australia.

Exempt benefits PBIs, health promotion charities, public and not-for-profit hospitals, public ambulance services, and limited other tax-exempt entities are able to provide employees with fringe benefits that are exempt from the FBT.

This amendment returns the law to its state prior to the freeze on indexation by the Howard Government, which has left fuel excise at 38.143 cents per litre since 2001.

The current limit per employee per FBT year for PBIs is $30,000 of grossed up benefits. For public hospitals, private hospitals that are rebatable, employers and public ambulance services, the reduced cap of grossed up benefits is $17,000.

Ethanol and biodiesel The Government will also introduce a variety of changes to ensure all local production and manufacture of ethanol and biodiesel will effectively be dutiable under the Excise Act from 1 July 2016.

With the increase in the FBT rate to 49% from 1 April 2015, the effect of this increase would be to erode the cash value of fringe benefits that could be provided and remain within the caps of grossed up benefit limits.

Currently, many producers of ethanol and biodiesel are reimbursed 100% of excise payable for the production of these fuels under either the Ethanol Production Grants Program or the Cleaner Fuels Grant Scheme. These schemes ensure local producers effectively pay zero excise duty on their fuel production.

The Government has announced that the caps of $30,000 and $17,000 will be increased to compensate for the increase in the FBT rate. The taxable value of fringe benefits in excess of the adjusted caps will continue to be subject to normal FBT on the excess. Rebateable benefits Certain other not-for-profit employers that do not qualify for the FBT exemption concession can receive a rebate of FBT. This rebate was set at 48% which is a hangover from a time when the FBT rate was also set at this rate. The current cap of $30,000 applies to the value of grossed up fringe benefits to which the FBT rebate can be applied. The FBT rebate rate is scheduled to be realigned with the standard FBT rate of 49% from 1 April 2015.

POWERS COMMENT

The not-for-profit sector has long had a concern that the FBT concessions used by the sector in attracting and retaining its workforce may be removed. These concessions were considered as part of the review undertaken by the former Government’s Tax Working Group. While the final report of the Tax Working Group was informally released under a Freedom of Information request, the current Federal Treasurer has not offered any comment on the matters contained in that report. The decision by the current Government to make an adjustment to the exemption caps is significant on two counts: • I t can be viewed as a statement that the system of FBT exempt benefits for the not-for-profit sector is to be retained • It is the first time that any increase to the caps has been made since they were first introduced. However, we will have to wait and see whether there are any further proposed changes to FBT on the not-for-profit sector in the Tax White Paper due to be released later this year.

From 30 June 2015, the Ethanol Production Grants Program will cease, and from 1 July 2015 grants made under the Cleaner Fuels Grant Scheme will be reduced to zero. Excise on ethanol and biodiesel will also be reduced to zero from 1 July 2015. However, from 1 July 2016 the rate of excise will be increased for five years until it reaches “50%of the energy content equivalent tax rate”. For ethanol, the Government considers 12.5 cents per litre represents “50% of the energy content equivalent tax rate”. However, for biodiesel no further guidance is given.

POWERS COMMENT

On a practical level, these amendments will likely increase the cost of fuel. However, as an entity’s entitlement to fuel tax credits should increase by the same amount as excise, the effect on businesses eligible for fuel tax credits should be minimal. Such businesses should confirm that they are claiming their full entitlement. Nonetheless, businesses will still not be able to recover the full excise amount for fuel used in certain off road activities (e.g. mining and manufacturing) until the repeal of the carbon tax and, in turn, the ‘carbon reduction’ provisions in the Fuel Tax Act.

Federal Budget 2014

TECHNICAL TAX CHANGES The Federal Government reiterated a number of previously announced tax changes, as well as announcing deferred or postponed start dates for other previously announced amendments. These announcements are welcome as they remove some of the uncertainty currently facing businesses and practitioners.

The proposal will apply to CGT events occurring on or after the date on which the exposure date legislation is released for public consultation. Deferred Initiatives The Treasurer announced that the commencement date for the following initiatives will be deferred.

Consolidations integrity measures The Government will refine the tax consolidation integrity measures announced in last year’s budget to ensure they operate as intended. A Managed Investment Trusts new measure will be added, and three other measures will be modified. The Government has decided to defer the commencement date for the introduction of the new tax system for managed investment trusts. The new measure will clarify that accounting liabilities relating to The new commencement date will be 1 July 2015. securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves or joins a consolidated group. The Government has also announced the current tax law will be This change will apply to arrangements that commenced on or after 13 amended to allow managed investment trusts to disregard the trust May 2014. Transitional rules will apply to arrangements commencing streaming rules for an additional year (to 30 June 2015). This is in before this time. keeping with the deferral of the commencement of the new rules, and to allow the interim rules to apply for an additional year (to 30 The three modifications will be made to ensure: June 2015). •T ax consolidated groups will no longer be able to access double deductions by shifting the value of assets between entities •N on residents will no longer be able to ‘churn’ assets between consolidated groups to allow the same ultimate owner to claim double deductions •T he consolidation regime’s treatment of certain deductible liabilities will be amended so that they are not taken into account twice. Residential loan liabilities payable by retirement villages will be excluded from this measure. These measures will be amended to apply to arrangements commencing on or after 14 May 2013, rather than to the exit or entry of a subsidiary occurring on or after that date. In addition, the Government announced that measures to remove inconsistencies in the tax treatment of multiple entry consolidation (MEC) groups and ordinary consolidated groups previously announced in last year’s budget will not proceed. Instead, the Government will consult on a modified form of the unrealised loss rules as they apply to MEC groups and on other relevant related measures. Foreign resident CGT In the 2013 Federal Budget, the Government announced integrity amendments to the foreign resident CGT provisions involving investments in consolidated groups and MEC groups. The amendments were aimed towards preventing avoidance of the Division 855 provisions through intercompany loans made within consolidated and MEC groups. In response to structured investments through unconsolidated groups that avoided these amendments, the Treasurer announced that the measures will be extended to cover unconsolidated groups.

The Government also announced that it intends to release the exposure draft legislation for the new rules that will apply to managed investment trusts by June 2014. Offshore Banking Units The Government reiterated its intention to defer the commencement date for reforms to the provisions relating to offshore banking units. This initiative will now commence on 1 July 2015. This decision was previously announced by the Government. Data Matching and Reporting The Government is progressively introducing reporting requirements for third parties to a variety of income and transactional matters. This system will ultimately introduce a reporting model for third party participants in a number of transactions and schemes. However, the Government has decided to defer the introduction of reporting for taxable government grants, other government payments (to be identified at a later date), sales of real property, sales of shares and options, sales of units in managed funds, and sales through merchant debit and credit services. These reporting models will be deferred until 1 July 2016.

POWERS COMMENT

These announcements are welcome, as they remove some of the uncertainty facing practitioners and businesses. However, whilst these announcements provide some relief, there are still too many previously announced changes that remain in limbo. The press release from the Assistant Treasurer states the Government is working through the backlog. Powers hopes the Government pursues this review as a matter of urgency, as further clarity and action from Government is required.

Federal Budget 2014

ENTREPRENEURS/ INNOVATION CHANGES TO CLIMATE CHANGE LEGISLATION R&D TAX INCENTIVE PROGRAM & SPENDING The Treasurer has reiterated the Government’s commitment to repealing the Carbon Pricing Mechanism early in the new financial year, with an intention to introduce the Direct Action Plan. This new legislation is designed to help Australia meet its Kyoto carbon reduction targets. The Direct Action Plan represents a complete reversal from the existing legislation. Replacing an approach whereby large emitters make payments to the Government to cover their carbon emission liabilities, to one where the Government will now pay organisations for reducing carbon emissions. Emissions Reduction Fund The Direct Action Plan will be underpinned by the proposed Emissions Reduction Fund, which will commence with an initial $2.55 billion commitment over the forward estimates. The fund will be jointly managed by the Department of Environment and the Clean Energy Regulator, one of the few carbon related agencies to be retained. This fund will largely be based on the existing Carbon Farming Initiative, although the scope will be expanded to include other forms of carbon reduction and other industry sectors. Interestingly, there are no estimates available as to the pricing for carbon emissions under this approach, nor the volume of reduction of CO2 emissions. Some climate change agencies to close The Government has reiterated its intention to close some climate change related agencies, including Low Carbon Australia and the Climate Change Authority. Green Army receives funding The Government has also committed to spending $525 million over the forward estimates, on grassroots action to meet local environmental challenges. A key part of this program will be the mobilisation of the Green Army, which is expected to comprise of up to 15,000 young people by 2018.

Anticipated benefit to the revenue from this measure is anticipated to be $620 million in the period to 2017/18. For tax loss companies with a refundable R&D tax offset entitlement, the benefit is now 43.5% of their eligible R&D expenditure. For taxable companies, the permanent benefit of the R&D tax offset becomes 8.5 cents in the dollar of eligible R&D expenditure for those with a turnover over $20 million and 13.5 cents in the dollar for those with a turnover under that amount.

POWERS COMMENT

Powers notes that the change from a tax concession (i.e. additional deduction) to a tax credit (i.e. offset) was intended to decouple the incentive from the corporate tax rate, meaning that the expected reduction in the corporate tax rate would not reduce the incentives provided. In a practical sense, the change in rates results in a more complex calculation of the benefit of the R&D tax incentive. Changes will also need to be made in relation to the Feedstock and Clawback provisions to take into account these adjusted rates.

INDUSTRY ASSISTANCE

POWERS COMMENT

Industry assistance programs The Government has announced several changes with respect to the various industry assistance programs.

Taxpayers currently subject to the Carbon Tax will need to follow the details of the Direct Action Plan as they emerge.

Entrepreneurs’ Infrastructure Program (EIP) Over the next five years, the Government will provide $484.2 million to establish the Entrepreneurs’ Infrastructure Program. The aim of this program will focus on supporting 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. Whilst the detail is unclear it appears that this program will largely replace Enterprise Connect.

There are no real surprises in these budget announcements, as many announcements have been previously identified. However, all these changes hinge on the Government’s ability to successfully repeal the existing carbon legislation in the new Senate, noting that the legislation to abolish the Climate Change Authority was rejected by the Senate on 3 March 2014, and the carbon tax repeal bills on 20 March 2014.

Reduced rates of tax offsets In a budget repair initiative, the rate of R&D Tax Offset will be reduced from 1 July 2014, one year ahead of the reduction in the company income tax rate on 1 July 2015. In line with the proposed reduction in the company tax rate, the rate of R&D tax offsets will be reduced by 1.5%. This will reduce the Refundable R&D Tax Offset rate from 45% to 43.5% (for companies with group turnover of less than $20 million) and the Non Refundable Tax Offset rate from 40% to 38.5% for remainder of claimant companies.

Federal Budget 2014

Cessation/reduction of Government programs As a result of the introduction of the EIP the following programs will cease from 1 January 2015: • Australian Industry Participation • C ommercialisation Australia • E nterprise Solutions • Innovation Investment Fund • Industry Innovation Councils • E nterprise Connect • Industry Innovation Precincts • Textile, Clothing and Footwear Small Business and Building Innovative Capability

POWERS COMMENT

Whilst the Government has wielded its axe to a number of grant, industry and incentive programs, it is somewhat comforting to note that more beneficial Government programs such as the Export Market Development Grant (EMDG) program will remain, despite the recommendations made by the National Commission of Audit. We are disappointed to see the demise of Enterprise Connect which we have seen add significant value to the SME sector. We will, therefore, be interested to see the detail of the Entrepreneurs’ Infrastructure Program.

In addition to its abolition from 1 January 2015, the employment assistance element of the Textile, Clothing and Footwear Structural Adjustment Programme will be capped at $1 million from 1 July 2014. These changes are expected to achieve savings of $845.6 million over five years. Changes to rural research and development corporations As announced during the election, the Government will provide an additional $100 million over the next four years to fund research in partnership with rural research and development corporations (RDCs). The aim of this funding will be to provide grants for research projects that focus on delivering cutting edge technologies and applied research, with an emphasis on how the research outcomes would be used by farmers. Changes to automotive assistance Following announcements by vehicle manufacturers that they will cease vehicle manufacturing in Australia by the end of 2017 the Government has announced the termination of the Automotive Transformation Scheme from 1 January 2018, and reduction in direct funding to Holden. To offset the impact of the cessation of vehicle manufacture, the Government will, however, establish a $155 million Growth Fund to support new jobs, investment and economic growth in South Australia and Victoria.

Federal Budget 2014

MINING MINING INTEREST REALIGNMENT REVISITED

EXPLORATION DEVELOPMENT INCENTIVE

Clarification without specifics Further to its 6 November 2013 announcement, the Government will proceed with the 2013/14 budget measure to limit the application of immediate deductions for exploration interests. This 2014/15 budget announcement states an intention to revisit the treatment regarding ‘realignments of interests’ between joint venture partners.

The Budget provides for $100 million over three years for the introduction of an Exploration Development Incentive (EDI). The $100 million commitment, which was first pledged during last year’s election, follows a discussion paper released by Treasury in March 2014 which canvassed options for the implementation of the incentive.

The May 2013 proposal paper for this measure states where joint venture partners enter into transactions to realign or swap their tenement interests within the joint venture project itself, the cost of acquiring a mining, quarrying, or prospecting right first used in exploration may not be immediately deductible, but depreciated over the life of the asset. As a blanket exception this would reopen the integrity risk. These clarification measures are to have effect from 7:30pm (AEST) 14 May 2013. The Government has not offered any further comment other than stating it will ‘clarify’ the treatment of such realignment of interests between joint venture partners within a common project. The announcement states the opinion that these realignments do not raise the integrity concerns addressed by the original measure.

POWERS COMMENT

When the sole purpose of partners in a joint venture project swap or transfer mining interests to better align with the overall ownership interests of each partner, this should be concessionally treated. A swap of mining interests within a joint venture means that there is usually both an acquisition and a disposal of mining interests in each joint venture participant. Accordingly, the net economic impact on each participant may be minimal or nil and the income tax treatment should follow. There is no risk to integrity of the measures with such arrangements.

The EDI will allow investors in early stage exploration entities to receive a credit for expenditure incurred by the exploration entity, and apply this directly against their personal taxable income. Tax credit Under the proposal put forward, Australian resident shareholders will receive a ‘credit’ for exploration expenditure incurred by eligible entities. The credit will be available on a dollar for dollar basis. The total credits available to all entities will be capped at $25 million in 2014/15, $35 million in 2015/16, and $40 million in 2016/17, which will be the final year of the program. Eligible entities will generate credits through exploration expenditure, which can then be distributed to shareholders for application against their assessable income in a manner similar to negative gearing. Integrity measures will be put in place to ensure the company cannot then offset its expenditure against future income. The distribution of credits to shareholders will be optional, with explorers able to otherwise carry forward losses. The policy intent of the EDI is to encourage investment in small exploration companies, and as such, availability of the credit is expected to be limited to investors who purchase shares in the company after commencement of the scheme. A modulation process is expected to apply to ensure the cap is not breached, which will result in a delay of the credits to shareholders, and several compliance obligations placed on explorers to ensure they are eligible for inclusion in the cap.

Federal Budget 2014

Eligible entities Eligible entities will be junior explorers who undertake greenfields exploration activities in Australia. While there have been previous attempts to define what greenfields expenditure is, the Treasury discussion paper proposes taking an approach similar to Canada. In Canada greenfields exploration is defined with reference to activities that are undertaken for the purpose of determining the existence, location, extent, or quality of a new mineral resource. The incentive is likely to be limited to Australian resident companies that are widely held (either publicly listed or have more than 50 members).

SUPERANNUATION CHANGE OF RULES TO SUPERANNUATION GUARANTEE RATES The previous Government introduced the Mineral Resources Rent Tax and with that came a number of superannuation changes, including an increase to the superannuation guarantee rates from 9% to 12% over a nine year period.

To appropriately target the incentive to small entities, an income threshold test will apply. Proposed options for this include no taxable income, or no assessable income from mining activities.

REDUCTION IN SUPERANNUATION GUARANTEE

Eligible expenditure The credit will be limited to exploration expenditure. Exploration expenditure as a concept already exists within the income tax law, therefore it would make sense to align the definition with the existing one. The definition is likely however to be narrowed to ensure the EDI is targeted only at greenfields expenditure, and cannot encompass brownfields exploration.

With their move to Government last year, the Coalition sought to abolish the Mineral Resources Rent Tax and introduce changes to the superannuation guarantee rates, fixing the rate at 9.25% for a further two years. However, the abolition of the Mineral Resources Rent Tax was unsuccessful and is unlikely to be passed before 1 July 2014.

The incentive will initially be limited to minerals exploration, therefore petroleum and geothermal exploration expenditure will not be eligible for the incentive.

RATES

To provide certainty for employers, the superannuation guarantee rate will increase to 9.5% from 1 July 2014 (as originally proposed) and will still increase to 12% per annum, but now over a 10 year period. The proposed rates are as follows: FINANCIAL YEAR

SUPER GUARANTEE RATE

While the aim of the EDI is to encourage investment in exploration, we anticipate uptake of the incentive will be limited due to junior exploration companies being unwilling to implement the scheme. Initial feedback to the discussion paper released by Treasury indicates that substantial compliance costs will arise. These include keeping account of which shareholders are entitled to credits and those that are not, the potential need to keep separate exploration expenditure accounts for greenfields and brownfields expenditure, and recording all payments into and out of the exploration incentive account.

2013/14

9.25%

2014/15

9.5%

2015/16

9.5%

2016/17

9.5%

2017/18

9.5%

2018/19

10.0%

2019/20

10.5%

2020/21

11.0%

The scheme will, however, be of assistance to junior explorers who are reliant on the continuity of ownership and same business tests to maintain deductibility of their carried forward losses.

2021/22

11.5%

2022/23

12.0%

POWERS COMMENT

We have previously called for the Government to consider the concept of a ‘flow through company’ to allow shareholders of any company that elects to be taxed directly on their share of the profits or losses of that company.

POWERS COMMENT

This announcement provides certainty for businesses and employers. It needs to be factored into cash flow and salary setting decisions in relation to amounts to be paid to employees from 1 July 2014.

Federal Budget 2014

SUPERANNUATION CONTRIBUTIONS Effective 1 July 2013, individuals who make excess non-concessional contributions, i.e. contributions from an in individual’s after tax income will have the option to withdraw the excess non-concessional contribution and associated earnings without any additional tax penalty being imposed upon the superannuation fund. The withdrawal of the earnings will be taxed at the individual’s marginal tax rate. Where individuals choose not to have their excess non-concessional contribution repatriated to them, the excess non-concessional contribution will be taxed at the top marginal rate. No change to the proposed concessional and non-concessional contribution caps There are no changes to the previously announced concessional contribution caps from 1 July 2014 which will be $30,000 for individuals aged under 49, and $35,000 for those aged 49 or over on 1 July 2014. Non-concessional contributions will be capped at $180,000 per annum (or $540,000 over 3 years for those less than 65 years of age).

INFRASTRUCTURE INFRASTRUCTURE SPENDING TO INCREASE The budget provides for a large increase in spending on nationally significant infrastructure projects. It includes $3.7 billion to be spent over the forward estimates period on road projects and $2.9 billion on the Sydney second airport project. Overall, the infrastructure package in the budget is projected to cost some $11.6 billion, although not all of these are newly announced projects.

POWERS COMMENT

The focus on infrastructure spending will be welcome news to businesses in the many sectors of the economy that have been impacted by the reduction in mining infrastructure investment spending. Whether the infrastructure component of the budget is sufficient to offset, the slowing effect on the economy of higher taxes and reduced welfare payments remains to be seen.

POWERS COMMENT

We believe this is a positive and common sense measure for all members of superannuation funds. It removes the possibility of an individual paying up to 93% tax on excess contributions.

ABOLITION OF FIRST HOME SAVER ACCOUNT (FHSA) The First Home Saver Account (FHSA) scheme, introduced in 2008 by the Federal Labor Government, entitled account holders to a 17% Government co-contribution on deposits, capped at a maximum cocontribution of approximately $1,000. The Government has announced the abolition of the scheme due to a lower than forecast take-up rate, with projected savings of $134.3 million over five years. At December 2013, only 46,000 FHS accounts were open - a fraction of the 2012 target of 700,000 accounts. The low adoption rates have been attributed to, amongst other things, low levels of public awareness and the highly restrictive criteria. In order to access funds in the accounts, account holders were required to make a minimum contribution of $1,000 each financial year for four consecutive financial years. In addition, the funds in the FHSA were subject to strict usage criteria, and any account holders unable to satisfy the criteria will have their funds rolled into superannuation. As part of the announced abolition, new accounts opened from Budget night will not be eligible for concessions, and Government cocontributions will cease from 1 July 2014. Further, all tax concessions and the income and asset test exemptions for Government benefits associated with the accounts will cease from 1 July 2015.

POWERS COMMENT

The FHSA scheme has widely been regarded as a failure due to poor up-take, which is likely a result of the highly restrictive nature of the accounts and poor public awareness. While the axing of new accounts comes as no surprise and is an effective cost saving measure, the cessation of Government co-contributions for existing account holders will be unwelcome news for those who may have been relying on their accounts to bolster their savings in a high-cost housing market.

Federal Budget 2014

NATIONAL RENTAL AFFORDABILITY SCHEME DISCONTINUED

$5 billion over five years to 2018-19 Commencing in 2014-15, the Government will provide $5 billion over five years to establish the Asset Recycling Initiative.

Despite the previous public invitation for interested parties to submit proposals for Round 5 of the National Rental Affordability Scheme (NRAS), which was closed in August 2013, the Government has now announced that it will not proceed with the Round 5 allocations to achieve cost savings.

This Initiative will be supported by a National Partnership Agreement with all participating states and territories, and will provide incentive payments set at 15% of the sale price of the asset. The payments will be made in two instalments and will be based on the completion of set milestones.

Uncontracted allocated funding in previous rounds The incentive payments will be available for asset sales and While the Government will continue to honour NRAS allocations made reinvestment programs agreed with the Commonwealth prior to 30 in previous rounds that were contracted with successful applicants June 2016. There is a time limit, however, and the initiative will close and where the funding was used within the agreed timeframes, any at the end of 2018-19, or before if the funds have been exhausted. allocated funding that is not contracted or used within the agreed timeframes will be returned to the Budget to address other priorities. Funding for tenanted NRAS properties is not affected.

POWERS COMMENT

The scrapping of NRAS is not a surprise, given how long it has taken for the Round 5 allocations to be announced. Although there have been media reports suggesting that NRAS has been exploited in some instances, probably due to dubious implementation, it is evident that the scheme has increased housing stock across the country. While the Government may look at other ways of addressing the social and affordable housing shortage problem, the fact is NRAS directly encourages construction of dwellings, while more traditional measures such as Rent Assistance do not have the same direct impact. The discontinuation of NRAS may, therefore, be a disappointment for the embattled property industry.

ASSET RECYCLING INITIATIVE – ASSET SALES ON UNDERSTARTERS ORDERS As foreshadowed in the Treasurer’s press release in March 2014, the Government will establish an Asset Recycling Initiative. The program is designed to incentivise state and territory governments to unlock existing capital tied up in state-owned assets in order to reinvest in new infrastructure which will enhance economic productivity.

POWERS COMMENT

This measure was announced by the Treasurer back in March. Given the financial pressures facing state governments, it encourages and perhaps paves the way for some potentially politically sensitive asset sales. This is with the proviso that the funds are ‘recycled’ into new and potentially stimulatory assets. There appears to be a belief in Government that voters are more likely to accept asset sales for this purpose, rather than for merely retiring debt or funding recurrent expenditure.

MEDICAL RESEARCH FUTURE FUND The Government will create a $20 billion Medical Research Future Fund (MRFF) which will be modelled on the existing Future Fund. The MRFF will be funded from 1 July 2014 by co-payments of $7 from previously bulk-billed patients for standard GP consultations and outof-hospital pathology and imaging services. From this contribution, $5 will be invested in the MRFF and $2 will go to the provider. It is anticipated that the MRFF will receive initial funding of approximately $1.16 billion in January 2015 from existing savings in the health portfolio. Annual dividends back to the Government are expected to start flowing from July 2015. The first dividend payout is expected to reach $20 million and increase to $1 billion by 2022-23.

POWERS COMMENT

From information provided to date, it is uncertain how the funds generated in the MRFF will be specifically directed, but this will be a benefit for Australia’s biotech sector. This sector, which is often starved for funding, will be eagerly waiting for more specific details of this program.

Federal Budget 2014

BENEFITS CHANGES TO THE FAMILY TAX

PENSION REFORM MEASURES

BENEFIT SCHEMES

The Australian Government has announced various reforms to the pension system. The savings from these measures will be redirected by the Government to repair the Budget and fund policy priorities.

Families will face significant welfare cuts after the Government announced changes to Family Tax Benefit A and Family Tax Benefit B in a bid to reduce the complexity of the family welfare system and ensure the ongoing feasibility of family welfare payments. The majority of the budget savings from these measures have been earmarked by the Government for redirection to repairing Australia’s Budget rather than any specific items, with the Treasurer saying in his address that, “staying at home should be a parent’s choice but there are limits on how much support the taxpayer can give”. Under the new measures, from 1 July 2015 the primary earner annual adjusted taxable income limit for Family Tax Benefit Part B and the Dependent (Invalid and Carer) Tax Offset will be reduced from $150,000 to $100,000. The Government anticipates that this limit decrease will result in savings of $1.2 billion over four years. In addition to the above, the eligibility for Family Tax Benefit Part B will be further restricted to families whose youngest child is younger than six from 1 July 2015. Under existing measures, families eligible for Family Tax Benefit Part B received fortnightly payments until their youngest child is 18 years of age. This measure is expected to save $1.9 billion over five years and aims to encourage the participation of primary caregivers in the workforce once their children reach school age.

Pension age to increase to 70 by 2035 The Treasurer’s earlier announcement that the Government would raise the eligibility age for the Age Pension to 70 by 2035 was confirmed in the Budget announcement. The Age Pension will eventually reach a qualifying age of 70 by 1 July 2035 through increases of six months every two years from 1 July 2025. This measure will not affect those born before 1 July 1958. The long implementation timeframe for this measure is to allow people who would be affected to consider their retirement income arrangements. Freeze on eligibility thresholds for Australian Government payments By maintaining eligibility thresholds for the Australian Government payments for three years, the Government will achieve savings of $1.5 billion over four years. The Government will freeze eligibility thresholds for pension and pension related payments for three years from 1 July 2017. Eligibility thresholds for non-pension payments will be maintained for three years from 1 July 2014.

Indexation of pension and pension equivalent payments by the CPI The Government announced a further $2.6 billion saving over the next Pension and equivalent payments will be indexed by the Consumer four years by freezing payment rates for both Family Tax Benefit A Price Index (CPI). Over five years, the Government expects savings and Family Tax Benefit B for the 2014/15 and 2015/15 financial years. of $449 million. In addition to this, a further $1.2 billion is expected to be saved over the next four years by freezing the end of year Family Tax Benefit This measure will commence from 1 September 2017 for pension supplements from 1 July 2015. payments such as the Age Pension, Disability Support Pension and Carer Payment and Veterans’ Affairs pensions. Large families will be even more affected, with a further $377.7 million savings over the next four years expected by limiting the Family Tax These payments are currently indexed in line with the higher of the Benefit A Large Family Supplement to families of up to four children. increases in the CPI and the Pensioner Living Cost Index. Family Tax Benefit A Large Family Supplement annual payments are currently $313.90 per child, however, the new measures will mean Reset the assets test deeming rate thresholds that families will not be eligible to receive payments in respect of The Government will change how it deems the return from a person’s more than four children. financial assets for the purpose of the pension income test. The deeming thresholds will be reset from $46,600 to $30,000 for single The budget did deliver positive news for some families, with the pensioners and from $77,400 to $50,000 for pensioner couples from 1 announcement that single parents who are on the full Family Tax September 2017. Savings of $32.7 million over five years are expected. Benefit A and whose youngest child is between six and 12 years of age will, when they become ineligible for Family Tax Benefit B, This measure ensures better targeting of pension payments, by receive a $750 allowance for each child between six and 12 from 1 tightening the Assets test. July 2015. This measure is expected to cost the Government $155 million per year. Cessation of Pensioner Education Supplement and Aged Care Payroll Tax Supplement

POWERS COMMENT

We expect these changes to Family Tax Benefits will affect a significant proportion of Australian families. While we welcome the encouragement of the participation of primary caregivers in the workforce, we do question whether some of the funds collected should have been redirected to further achieving this goal rather than for the general reduction in budget deficit. We believe some of these funds may have been better used by proposing incentives to employers to offer flexible work arrangements for primary caregivers.

By abolishing the Pensioner Education Supplement, the Government will achieve savings of $281.2 million over five years from 2013-14. The Government also announced that it will cease Payroll Tax Supplement payments to currently eligible residential aged care providers from 1 January 2015. This measure is expected to achieve savings of $652.7 million over four years.

Federal Budget 2014

EDUCATION

Changes to Commonwealth Seniors Health Card The Commonwealth Seniors Health Card (CSHC) provides assistance to retirees who do not qualify for the Age Pension. Beginning from September 2014, the Government will deliver on its election commitment to provide $95.8 million over five years by indexing The Government has announced a commitment to the improvement current income limits for the CSHC. This will allow for additional people and sustainability of the Higher Education System with a push to place to qualify for the CSHC and allow more retirees to access medicines. at least one Australian university in the top 20 best universities in the Additionally, the Government will cease Senior Supplements payments world, and have more Australian universities placing in the top 100. for CSHC holders.

A SUSTAINABLE HIGHER EDUCATION SYSTEM POWERS COMMENT

This Budget sees a gradual change to welfare payments to individuals, particularly seniors. While these changes occur over a long period of time, the savings to the budget are significant. It is particularly of note that the changes to the deeming and income thresholds may require reporting of information from currently tax exempt retirement income streams to the Government to allow it to monitor eligibility.

Repayment threshold and indexation of HELP debts The Government will reduce the income threshold for repayment of Higher Education Loan Program (HELP) debts commencing in 2016/17 and will adjust the indexation of HELP debts from 1 June 2016. The new minimum threshold will be set at 90% of the minimum threshold that would otherwise have applied in 2016/17. The minimum threshold is currently estimated to be set at $50,638 for the 2016/17 income year. The repayment rate will be set at 2% of repayment income for debtors with incomes above the new minimum threshold. Further, the annual indexation applied to HELP debts will be adjusted to a rate equivalent to the yields on 10 year bonds issued by the Australian Government, capped at 6% pa, from 1 June 2016. Currently HELP debts are indexed at the consumer price index (CPI) rate. Reducing the income threshold for the repayment of HELP debts commencing in 2016/17 and adjusting the indexation of HELP debts from 1 June 2016, estimates savings of $3.2 billion over four years from 2014/15. HELP loan & HECS-HELP benefit The HELP loan will continue to be available to eligible students so they do not have to pay their fees upfront. However, the HECS-HELP benefit, which provided some incentive to graduates of particular courses to take up related occupations or work in specific locations, will end in 2015/16. This measure is estimated to deliver savings of $87.1 million over three years. Additionally, loan fees for undergraduate FEE-HELP and VET FEEHELP will be abolished.

Federal Budget 2014

Higher Education Loan Program The Government has announced a continued commitment to the removal of the up-front cost barriers to tertiary education and training. Income contingent loans will be available to eligible students undertaking higher education courses. This Commonwealth funding has been extended to students completing certain Vocational Education and Training (VET) accredited diploma, advanced diploma, graduate certificate and graduation diploma courses. The loans will be provided to assist students with the repayment of student contributions, tuition fees, student services fees and amenities fees charged by their higher education provider. From July 2014, those learning a trade will also be able to apply for loans of up to $20,000 over a four year apprenticeship. The Government estimates that the extensions to HELP will cost $820 million over three years. Deregulation of university fees The Government also announced that from 1 January 2016, there would be a complete deregulation of university fees. The Government noted that this will allow a fully competitive market in higher education when all higher education providers will be able to set their own fees. This extends to all universities, private colleges and TAFEs. The Government will mandate that 20% of the additional revenue raised from higher fees will be used to fund Commonwealth scholarships to support disadvantaged students. For students currently studying, existing arrangements will continue to apply, provided their course is completed by December 2020.

POWERS COMMENT

Just like any competitive environment, there will be winners and losers from these announcements. Although the proposed Government changes will allow more students to access financial help to assist with higher education costs, the total deregulation of tuition fees will inevitably result in many course costs rising..

EARN OR LEARN The Government has announced a number of changes relating to the subsidies and allowances on offer for both young and mature aged job seekers. These initiatives have been introduced to encourage the expansion of the workforce and to reduce the reliance upon support payments for those able to enter the workforce. Job seekers aged 35 or under Under the Government’s earn or learn initiative, young Australian job seekers under the age of 25 will no longer be entitled to receive the Newstart Allowance as income support. Additionally, those under the age of 30 must wait at least six months before they are entitled to receive unemployment benefits. The Government is expanding the Work for the Dole Program by providing $14.9 million over two years. The program will be mandatory for job seekers aged between 18 and 30 in selected priority employment areas. In order to be eligible for income support payments, job seekers are required to occupy Work for the Dole Placements at assigned organisations including not-for-profit and Government agencies. Jobs Brokers will be appointed to assist with this initiative in identifying and securing Work for the Dole Placements for these job seekers. Further initiatives will see the Government saving $20.9 million over four years by deterring non-compliant job seekers perceived as taking advantage of the Program. From 15 September 2014, those who do not comply with Dole requirements by refusing work for no good reason, will lose their income support payment for eight weeks and will no longer be permitted to waive their penalty. Those receiving the Disability Support Pension under the age of 35 will also be encouraged to participate in the workforce where they have capacity to do so. Mature age job seekers The Government will introduce the Restart Program from 1 July 2014 which will provide $304.1 million over four years in order to promote the employment of mature age job seekers. The Restart Program will replace the Mature Age Worker Offset which currently provides a maximum offset to eligible employees of $500. Payments up to $10,000 will be available to employers who hire job seekers aged 50 years or over where the job seeker has remained unemployed for six months or more. The incentive payments will start with a $3,000 payment made available after six months of full time employment and another $3,000 after an additional six months. Further payments of $2,000 will be made after 18 and 24 months of full time employment with the organisation. To preserve the integrity of this measure, the incentive will only be available to employers who can show that the job being provided is ‘sustainable and ongoing’ and will not displace current employees.

POWERS COMMENT

The estimated savings from these measures suggests that the Government is of the view that job seekers are taking advantage of current subsidies on offer without suffering real hardship, and that this has contributed to increased unemployment. The incentives for business in the package are attractive, so long as the compliance costs of applying for them do not outweigh the benefits.

Federal Budget 2014

OTHER PAID PARENTAL LEAVE SCHEME

AUSTRALIAN TAXATION OFFICE

The controversial Paid Parental Leave Scheme was reinforced as part of the Federal budget measures, and will proceed, albeit amended, as per the Government’s election promise. The Scheme, to begin from 1 July 2015, will see payments capped at $50,000 (based on salary of $100,000 per annum).

STAFFING REDUCTIONS

The scheme is said to “encourage and assist women to be able to have a family and remain connected to the workforce”.

In a further effort to repair the Budget and fund policy priorities, the Government has announced that it will cut funding to the Australian Taxation Office (ATO) to achieve savings of $142.8 million over three years from 2015/16.

As indicated by the Prime Minister prior to Budget night, it is proposed that payments will be capped at a lower threshold of $100,000 per annum. During the election, it was proposed that the scheme would be capped at $150,000 per annum.

The Government will reduce the ATO’s resourcing and bring forward staff reductions that were already planned in response to efficiency dividends and decisions of the former Government. The former Government planned for 4,700 staffing reductions to occur up to the period 2017/18. This included a reduction of 900 in 2013/14, 500 in 2014/15, 1,600 in 2015/16, 1,200 in 2016/17 and 500 in 2017/18.

The scheme will continue to pay 26 weeks parental leave based on the recipient’s full-time salary, subject to the cap. Payments will include superannuation contributions.

The Government will bring forward the reduction in staffing numbers that were due to occur in 2015/16. Therefore, an additional 1,600 jobs at the ATO will go in the coming year.

This levy is to be funded by a 1.5% levy on some companies, as well as the associated increased income and superannuation taxes flowing from the scheme. Details relating to funding were not outlined in detail in the Budget paper.

POWERS COMMENT

This was a key election promise for the Government, and one upon which they had to deliver for voters. Critics of the original, more generous proposed scheme should welcome the reduction in the capped amount, and we anticipate this will bode well for its passage through the Senate. Although the Government claims that the scheme will “help address the disparity between the average retirement incomes of men and women” as a result of women being out of the workforce during child rearing, we note that the superannuation top up provided by the scheme is about $5,000. Unless the scheme encourages women to return to work earlier than would otherwise be the case, a significant closing of the retirement incomes gap appears unlikely.

POWERS COMMENT

The Budget papers do not give an indication of which areas or Departments of the ATO will be impacted. There is speculation that the abolition of the carbon and mining taxes may be to blame for the reduction in staffing requirements which has forced the ATO to review its structure. It will be interesting to see how the resourcing decision impacts the current increasing ATO review and audit activity that we have observed.

STREAMLINING GOVERNMENT AGENCIES TO GAIN EFFICIENCIES The Government has announced that it will streamline a number of administrative functions and roles to gain efficiencies that will better serve the community and in some instances save costs. Handling of taxation complaints To ensure that taxation complaints are handled by a more specialised and focused agency, the current function of the Office of the Commonwealth Ombudsman in handling these complaints will be transferred to the Inspector-General of Taxation from 2014/15. Specialised support for small businesses Also, from 2014/15, the existing Office of the Australian Small Business Commissioner will be transformed into a ‘Small Business and Family Enterprise Ombudsman’, who will have additional functions and powers. The Small Business and Family Enterprise Ombudsman will be an Australia-wide advocate for ‘smaller enterprises’ and provide a single entry point agency for small businesses to access relevant support and programs. The Ombudsman will also contribute to the making of laws and regulations that are more small business friendly and provide a central avenue for small businesses to resolve disputes.

Federal Budget 2014

Amalgamation of Commonwealth merits review tribunals From 1 July 2015, the Government will amalgamate all of the Commonwealth merits review tribunals except for the Veterans Review Board into a single body. This will assume the current functions of the Administrative Appeals Tribunal, the Social Security Appeals Tribunal, the Refugee Review Tribunal and Migration Review Tribunal, and the Classification Revenue Board. Other Government agencies will be abolished or merged to achieve a smaller Government.

POWERS COMMENT

The streamlining of Government functions and roles is a response to criticism that Australian Governments are often bureaucratic, riddled with resource duplication and are inefficient. While some of the measures announced do not necessarily provide substantial savings based on the budget projections, they have the potential to deliver much better services, particularly to small businesses which often find government services cater best to the ‘big end of town’. Proper implementation will be the key to the success of these measures.

Federal Budget 2014

IN CONCLUSION From a taxation point of view, this budget contains very few measures that advance the cause of real tax reform. The Government will claim that this was not the aim of the current budget. The Treasurer will claim that in this budget the Government has taken action to avert what it saw as the looming crisis in the nation’s finances by aggressively trimming spending on welfare and grant programs.

The Treasurer and his posse have worked hard to tighten the belt. In the current economic climate, perhaps this will be enough. However we would like to see a tax system that is efficient and fair, but also supports businesses that break away from the herd.

However, the risk of not considering tax reform holistically is evident from the second order effects that may be expected from the few tax changes that were made. For example: •T he increase in the disparity between the corporate and highest individual tax rate is likely to encourage more taxpayers to ‘hide’ income in companies •P roviding a reduction in the company tax rate, but then for larger companies replacing that tax with a ‘levy’ that does not give rise to franking credits, will mean that all shareholders (and particularly superannuation funds) will pay an increased rate of tax on company dividends • R educing the rate of R&D tax incentive offsets will change investment decisions for companies who are contemplating improvements to processes or products that may be of marginal economic benefit in the short term, but which could provide large benefits to the Australian economy in the longer term.

Federal Budget 2014

For any further information, contact your local Powers Office.

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