Reflections on the 2017 Federal Budget and what it means for GPs

One week on from the 2017 Federal Budget, some of the dust has settled on the announcements and we are in a position to assess whether there really was much new in the way of increased support for the sector.

What we know

In the lead up to Budget night, the Federal Government worked closely with both the RACGP and AMA to trade off an end to the Medicare freeze in exchange for ongoing support of the MyHealth Record system, reviews of the MBS and tightening access to after-hours claims. Both organisations have defended their negotiations with the Government, claiming that they are a first step towards increased recognition of the value of general practice care.

The good news is that the Turnbull Government has pledged $10 billion to healthcare including the withdrawal of the Medicare indexation freeze and the establishment of a Medicare Guarantee Fund to ensure longevity of health care and access to medicines. Some of this funding is for new programs and some is confirming allocations previously announced. All of the initiatives are yet to be passed, so depending on where we end up some initiatives may not get the green light.

The funding for these announcements will come from a proposed increase in the Medicare Levy by 0.5 per cent from July 2019 in a move that will cost workers on average earnings $400 a year.

A slow melting of the Medicare Freeze

The government announced that it would resume indexation for:

  • GP bulk billing incentives from July 1, 2017,
  • Standard GP and specialist consultations from July 1, 2018
  • Specialist procedural and allied health from July 1 2019.

The budgeted cost of these changes in year one is just $9m, which is indicative of the slowness of the unfreezing measures. Indeed, even after July 2018, the rebate for a B level consult will increase by only around 55 cents. There is no evidence that the thawing will apply to services such as GP care plans.

With increasing bulk billing rates, there seems little pressure on the Government to allocate more funding towards the GP sector.  The Government’s statement that they are “recognising and rewarding General Practitioners” seems somewhat hard to swallow.

For dental support, families will receive an extra $300 to spend on their children’s dental care every two years. The amount families can spend on dental check-ups, fillings and other basic dental work every two years will rise from $700 to $1,000 as a result.

Medicines

Doctors prescribing medicines will also be encouraged to prescribe more generic brands to save taxpayers $1.8 billion. The new listings on the Pharmaceutical Benefits Scheme will include a $510 million new drug for patients with chronic heart failure. Large pharmaceutical companies will wear the pain for these cuts in return for certainty of funding a new five year agreement with the government.

Improved access to telehealth

People in remote areas with mental health problems have been promised access to city-based psychiatrists via a new $9m telehealth program. People suffering a mental illness who don’t qualify for care under the NDIS will continue to have access to psychosocial support programs under an $80m plan that will provide community support, matched by State funding if approved.

Healthcare homes start delayed

The Government’s flagship Health Care Homes (HCH) program, meant to revolutionise GP care by tying patients to a single GP practice, has been delayed. Of the shortlisted practices, 20 will launch the program in October with the bulk of practices participating in the trial – a further 180 – to start in December.

We continue to harbour concerns about how the implementation of the HCH model will impact the taxation arrangements of both practices and contracting GPs, with little apparent consideration being given to what we see will be a fundamental change in the tax status of practitioners at participating practices.

Pathology rents

One positive arising out of pre-budget negotiations and lobbying is that the Government appears to have dropped their plan to limit the rent payable by pathology centres to GP practices.  The budget does commit a further $18m towards audit and compliance programs designed to support existing rental regulations.

An industry under pressure

It is hard to see that any of the announcements will help address the fundamental issues facing General Practice. Recent studies have confirmed declines in job satisfaction, decreasing work life balance, ongoing pressure on GP net incomes and a shift in graduate numbers away from general practice into specialisations.

GP practices and individual contracting GPs have a long road ahead as they wait for any meaningful outcomes from the loosening of the Medicare freeze. In the interim, we continue to work with practitioners and practices to streamline processes, improve reporting and financial management and maximise the opportunities available to improve after-tax outcomes. Drawing on more than 25 years of industry practice we combine the skills, knowledge and know-how of chartered accountants, tax specialists, financial planners, business managers and cloud system experts to help practice owners and contractors to manage for prosperity.

Federal Budget 2017: Making the right choices and securing better days ahead……perhaps for some?

OVERVIEW

According to the Federal Treasurer, Scott Morrison, the 2017-18 budget is intended to be a “practical” budget. Mr Morrison pointed out that the economic changes we’ve experienced over recent years have delivered overall benefit but still left many Australian’s “digging deep”, with not all sharing in the nation’s growth and prosperity. Many of our small businesses and SMEs have gone without just to keep their businesses open.

So what does this budget hold for families and businesses which makes it “practical” and delivers on Mr Morrison’s vision of “fairness” and “opportunity”? Well, depending on where you sit there are winners and losers. Overall however there are fewer significant changes when compared to budgets in prior years, indicating a cautious Government looking to win back much needed community support.

Super

This budget presents nothing like the changes put forward last year which affect super. However the Government is proposing adjustments to how property with debt is treated in SMSF, and there is good news for ‘downsizers’ who can benefit from a new non-concessional contribution incentive.

Business

There is some positive support for business in the form of extending the instant asset write-off and implementing the first phase of the 10-year Enterprise Tax Plan. Importantly, the Government is proposing significant initiatives across infrastructure and health which are designed to create “more and better paid jobs” across all markets.

The Government says that the global economic outlook is good and that we can expect 3% real growth rebound over the next two years.

Individuals & Families

Mr Morrison spoke of the pressures on families and that we are “moving to the end of a difficult period”. Initiatives for individuals and families are a key feature of this year’s budget. However, changes to the Medicare levy are earmarked to fund the National Disability Insurance Scheme and the new “Guarantee Medicare Bill” will come at a cost to taxpayers. Stimulating housing stock is designed to provide affordable housing as well as jobs growth, while higher education students will find their costs increase and pensioners will win back some benefits. 

INDIVIDUALS & FAMILIES

Changes to Personal Taxes

  • 2% Debt Levy wound back

Some good news for taxpayers with taxable incomes which exceed $180,000 – the debt levy of 2% that increased the tax rate for these income earners to 49% will come to an end on 30 June 2017 with no indication that this will be reintroduced.

  • Medicare Levy Up

Medicare is getting a boost but the counter is a measure predicted to make $8.2billion for the Government over four years.

Most workers will be hit hard when the Medicare levy increases from 2% to 2.5% of taxable income from 1 July 2019 to fund the National Disability Insurance Scheme.

Individuals will only be exempt if their income is below the threshold of $21,655 for singles, $36,541 for families and $34,244 for pensioners.

Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

  • Travel Expenses related to residential rental properties disallowed

From 1 July 2017 with the aim of gaining $540million in revenue, travel expenses related to inspecting or collecting rent for a residential rental property will be disallowed.

  • Depreciation deductions limited for residential rental properties

To address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value, from 1 July 2017, investors can only claim depreciation on plant and equipment they actually acquire and not on items that are acquired from the previous owner of the property.

  • CGT Discount increased to 60% for “affordable housing” investments

From 1 January 2018, the CGT discount will increase from 50% to 60% for capital gains made by resident individuals from the sale of investments in “Affordable Housing”.

“Affordable Housing” are properties that are:

  • managed through a registered community housing provider;
  • provided to low to moderate income tenants;
  • with rent charged at a discount below the private rental market rate.

In addition, you must also own the property for a least three years to access the extra discount.

  • Purchasers of new residential properties to remit GST

From 1 July 2018, if you acquire a newly constructed property or new subdivision and GST is included in the purchase price, you will be required to remit the GST directly to the ATO at the time of settlement.

Previously, the developer who sold the property would collect the GST and remit the amount to the ATO.

  • New HELP repayments and thresholds for higher education debt

From 1 July 2018 a new minimum threshold of $42,000 will be established with a 1% repayment rate.  Currently the minimum repayment threshold for the 2017/2018 year is $55,874 with a repayment rate of 4%.

Foreign Residents

Foreign investors in Australian residential property are facing tougher rules. This includes the removal of the main residence Capital Gains Tax exemption, tightened compliance and a cap of 50% sales to overseas investors in new developments. There will also be a levy on all foreign investors who fail to either occupy or lease their property for at least six months of the year.

  • Capital Gains Tax Changes

Individuals who are foreign or temporary residents will no longer have access to the CGT main residence exemption from 9 May 2017. Existing properties held before this date will continue to be exempt until 30 June 2019.

Currently, the foreign resident CGT Withholding rate applies to Australian real property or related interests valued at $2million or more. From 1 July 2017 not only will the threshold be reduced to $750,000 but the rate will be increased from 10% to 12.5%.

  • Annual Levy on vacant residential properties

As a measure to make more rental properties available, a charge of at least $5,000 will be levied annually on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months.

The measure will apply to foreign investors who make a foreign investment application for residential property from 9 May 2017.

  • Foreign ownership in new developments restricted to 50%

With the aim of increasing housing stock to Australian purchasers, a 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates from 9 May 2017.

New dwelling certificates are granted to a property developer and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchase seeing their own foreign investment approval. The current certificates do not limit the sales that are made to foreign purchasers.

New & Existing Home Owners

  • Major Bank Levy

A new major bank levy is to be implemented affecting five of Australia’s biggest banks in an effort to level the playing field among big and small bank lenders. The Government proposes to monitor the potential impact on residential mortgage pricing with the aim to ensure that the levy is not passed on through mortgage pricing and fees to borrowers.

  • Access to Super for first home deposit

From 1 July 2017, individuals will be given the option of piggybacking on their superannuation to access a kind of super-charged savings account, which will allow savers to salary sacrifice up to $30,000 – with $15,000 in a single year – from their pre-tax income. It will receive the same favorable tax treatment as superannuation.

Then from 1 July 2018, individuals will be able to withdraw the contributions and the earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal rate, less a 30% tax offset.

Pensioners

The Government will provide $268.9 million over two years for a one-off winter energy payment in 2016-17 of $75 to singles and $125 per couple.

The pensioner concession card will be restored to those who lost it after the pension assets test change introduced earlier this year. Seniors will regain access to state and territory based concessions that were lost after the changes.

The Government will also provide $5.5 billion for home support services for the elderly as Australia’s population continues to age. However the residency requirements will be tougher, with recipients required to have 15 years of continuous Australian residence in order to access the support funding.

Anti-vaxxers “No Jab No Pay”

Parents who don’t vaccinate their children will be $14-a-week worse off, with $28 set to be wiped from their family tax benefits every fortnight.

The measure, which will start from July 2018, is expected to raise $15million over four years, while sending a tough message to those who fail or refuse to immunise their children.

Welfare recipients

A crackdown on unemployed Australians with drug and alcohol habits will include penalties for those who fail to turn up to appointments or work-for-the-dole placements due to intoxication, with payments to be reduced or cancelled.

A further initiative will target single parents who attempt to collect multiple welfare payments. Single-parent households will be subjected to closer scrutiny to verify any relationship status.

Smokers

Roll-your-own tobacco and cigars will soon be more expensive under a plan to bring their tax treatment in line with pre-made cigarettes. The change will be phased in over four years from 2017 to 2020, to coincide with the existing annual 12.5 per cent tobacco tax increases which occur on 1 September each year.

The move is expected to claw an extra $360million in tax revenue.

A boost for those in regional areas

Those living in regional areas can look forward to some improved infrastructure. Firstly, the government will provide an extra $8.4billion in equity investment to the Australian Rail Track Corporation to deliver inland rail. It’s earmarked as a boost for regional Australia and a boon for jobs growth.

There will be $28.5million to establish the Regional Investment Corporation to streamline the delivery of $4 billion in concessional loans. This includes the $2 billion National Water Infrastructure Loan Facility and the $2 billion Farm Business Concessional Loan Scheme.

Superannuation

Most had thought taxation of super would be untouched given the significant changes which were announced in last year’s budget.

  • SMSFs with loans targeted for $1.6million cap

The Government proposes to introduce legislation confirming that from 1 July 2017, the use of Limited Recourse Borrowing Arrangements will be included in a member’s total superannuation balance and transfer balance cap.

This is a highly controversial proposal because, in addition to capturing a larger amount against the transfer balance cap by adding outstanding loans to member balances, the interplay with the total superannuation balance could threaten the ability of the member to make a contribution which in turn could affect the fund’s ability to service the loan.

  • Added bonus for ‘downsizers’

Older Australians will benefit from the incentive to ‘downsize’ their home property.

From 1 July 2018, an individual aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their home. The key requirement is that they must have owned the home for at least 10 years.

The contributions are in addition to existing rules and caps and exempt from the works test, the $1.6million total superannuation balance test and age test for making non-concessional contributions.

This is available to both members of a couple for the same home. 

SME BUSINESS

  • Instant asset write-off extended

The $20,000 instant asset write-off concession will be extended for another year. This now applies to businesses with a turnover of up to $10million since the recently legislated expansion of the definition of a small business which was announced in last year’s budget. It’s noted that this is potentially more valuable in the current year due to the 2% reduction in the top marginal personal income tax rates (discussed above).

  • More support for small business

The Government will provide $15million over two years to undertake a small business information campaign to educate the small business community about what programs and support are available to assist them.

  • CGT concessions to tighten

The Small Business CGT Concessions will be tightened to deny eligibility for assets which are unrelated to the small business. This effectively closes a loophole whereby ownership interests in larger businesses did not count towards the tests for determining eligibility for the concessions. The exact mechanism to achieve this result remains to be seen, however it’s expected that where access to the concessions is established through the $2million turnover test, the relevant asset that the concession may apply to must be used in that business (or another business you are connected to), rather than, for example, a shareholding in another active business or an unrelated active asset.

  • Accessing Crowd-Sourced funding

The Crowd-Sourced Equity Framework (CSEF) regime will be extended to proprietary companies through additional funding with the aim of facilitating crowd-sourced financial contributions.

  • Skilling Australia

Businesses employing foreign workers on skilled visas will be subject to a new regime including an upfront levy. The levy is designed to fund a new ‘Skilling Australia Fund’. For each employee on a Temporary Skill Shortage visa the levy will be an upfront payment of $1,200 for small business (<$10m turnover) or $1,800 for other businesses. For each employee being sponsored for a subclass 186 or 187 visa the payment required will be $3,000 for small business and $5,000 for other businesses.

  • Increased reporting for courier and cleaning businesses

The taxable payments reporting system (TPRS) currently in place in the building industry will be extended to contractors in the courier and cleaning industries. Business owners will be required from 1 July 2018 to report payments (individual and total for the year) that they make to contractors. The first annual report will be due in August 2019.

  • A boost for manufacturing, tourism and Indigenous businesses

Just over $100million will be allocated over five years to establish an Advanced Manufacturing Fund to promote research and capital development for high technology manufacturing businesses.

Indigenous businesses and entrepreneurs will receive increased business support, albeit from a new department, including training, loan products and capital support.

$5million will be provided for tourism operators in Queensland.

Business Administration

The Government will seek to incentivise the States and Territories to cut “red tape” for small business and SMEs with rewards when they do. It remains to be seen what red tape is to be targeted and how and what the rewards will include.   

HEALTH SECTOR CHANGES

  • Lifting the Medicare freeze

The Medicare Benefits Schedule (MBS) will be unfrozen at an expected cost of $1billion over four years. The bulk-billing incentives for General Practitioners will be indexed from 1 July 2017, standard consultations by General Practitioners and specialist attendances will be indexed from 1 July 2018, and from 1 July 2019 indexation will apply to specialist procedures and allied health services.

Diagnostic imaging items on the MBS will be indexed from 1 July 2020. There will also be some minor amendments to MBS items with a focus on cancer screening.

Improvements to MBS compliance arrangements and debt recovery practices are anticipated to result in combined savings of $104million over four years. It will target unusual business billing and “improve the consistency of administrative arrangements”.

The MBS Review Taskforce will continue the review of the MBS with the aim of improving patient outcomes and $67million will be spent in 2017-18 in modernising the health and aged care payments system.

  • Hospital & health funding increases

The Government has indicated a total of $10.2billion for vital health funding. This includes additional funding of $2.8billion to be provided to a range of hospitals and $1.4billion to health research.

Up to $12.5million over six years will be allocated to the Central Coast Health & Medical Campus establishment in order to stimulate jobs and training access and participation.

There will be $115million for mental health initiatives, with $80million for severe mental illness support.

  • Changes to the PBS

The PBS will increase statutory price reduction arrangements with medicine manufacturers resulting in Government savings of $1.8billion over five years and reducing the cost of medicines for the public. A much needed win for individuals and families.

  • My Health Record System

Funding will be provided for the My Health Record system and the previously mooted national opt-out arrangements will be implemented.

  • NDIS

The National Disability Insurance Scheme is to be fully-funded by the 0.5% increase to the Medicare Levy from 2020 with legislation also to be passed to guarantee Medicare and the PBS. 

OTHER ENTERPRISES

Extension to the ‘Google Tax’ rules

Multinational anti-avoidance rules (such as the Diverted Profits Tax) will be extended to include partnerships and trusts. This will apply retrospectively from 1 January 2016.

 

Find out more

We are available to discuss your specific circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity Adviser today or give us a call on 1800 855 844.

What’s all the noise about mortgages?

In recent weeks we’ve seen a shift in lending policy combined with interest rate hikes across many of the major lenders. So what’s happening and why?

There is ongoing debate about whether we are living in a property bubble. What is fact however, is the fast rate of growth in property values. Sydney housing values for March grew at the fastest annual pace for 15 years. According to the latest monthly CoreLogic Hedonic Home Value Index, Sydney housing values grew by 19.7 per cent, while units in the NSW capital grew by 15.3 per cent over the last year. The study also found that four of the nation’s eight capital cities recorded an annual growth rate in housing values in excess of 10 per cent.

Disturbingly, what’s moving in the other direction is household indebtedness and slow growth in household income. At more than 120 per cent of GDP, Australia’s household debt is substantially higher than in most other advanced countries and has risen markedly in recent years. The governor of the Reserve Bank recently flagged that Australian households are carrying more debt than they have before, which is a “significant issue” that the central bank is “watching carefully”. RBA governor Philip Lowe explained recently that an increase in housing prices has gone “hand-in-hand” with a further pick-up in household indebtedness: “In aggregate, households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades. For many, this is a sobering combination,” he said.

Recent changes to lending rules plus interest rate rises

APRA, the mortgage regulator, recently introduced measures to limit the flow of new interest-only mortgages from banks to 30 per cent of total new residential mortgage lending. The regulator also provided instructions to banks to ensure that growth in housing investment mortgages remains comfortably below a 10 per cent limit.

APRA has advised the banks that they won’t tolerate going beyond the growth speed limit and that any breach will prompt a review of the offending bank’s capital requirements.

In the past two weeks, the industry has seen a flurry of mortgage rate hikes from big banks and non-major lenders. Increases at AMP, CBA, ANZ, NAB, Homeloans, Auswide, Bendigo Bank, St. George and Westpac have ranged from seven to 117 basis points. Many of the rate rises have been targeted at investor loans and interest-only loans. Lenders cited APRA’s measures as one of the reasons for hiking their rates. The ratings company Moody’s warned that even though Australian banks have already started to raise lending rates, lending rates for interest-only mortgages “are likely to rise further”.

Impact on borrowers

Industry analysts have warned of hard times ahead for borrowers due to increasing interest rates. The mix of record house prices, pending oversupply of apartments in some cities, investor lending curbs, and elevated household debt levels, coupled with rising interest rates on mortgages could be a volatile cocktail for some borrowers.

Plus, it’s possible negative gearing rules may come under fire at this year’s Federal Budget causing even more changes ahead.

What can you do?

For most borrowers, the lending interest they pay is the biggest cost and the biggest expense they’ll ever have and therefore they need to look after themselves. They need to be alert and, as the rates go up, check whether there is a better rate available and shift where it makes sense.

Borrowers can take action to potentially limit the financial impact of these changes by refinancing their home loans. Those borrowers who have not recently reviewed their cost of debt should certainly be talking to an adviser to see if their rates are appropriate. There are many options available from lenders and in today’s market where credit policies and rates are changing constantly, getting a clear view on what is available from an experienced adviser is important.

To discuss your household debt and explore your mortgage options, please call Prosperity on 1800 855 844.

 

Matthew Guy is an Authorised Representative of Prosperity Finance Advisers Pty Ltd ABN 69 143 861 303, 309 Kent Street Sydney, NSW 2000 is a Credit Representative (No 479852) of Hillross Financial Services Pty Ltd Licence 232705 ABN 77 003 323 055 and is one entity within the Prosperity Advisers Group Ph. 1800 445 767. Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person.

Government delivers good news for business to support economic growth

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There is finally good news for some businesses in the lead up to the new Federal Budget being handed down in May. Items flagged in last year’s budget are finally progressing through the Government and the Senate. This includes company tax cuts and the ability for more businesses to access the small business tax concessions.

Legislation containing the proposed tax cuts for companies – bringing company tax down to 27.5% – has now been passed however it is limited to companies with under $50m turnover.  The company tax cuts were intended in last year’s budget to apply progressively to all companies, however objection from opposition parties and deals made to pass the legislation resulted in the tax cuts being limited to small and moderate sized businesses.

For the 2016/17 year (this tax year) it will be limited to companies with less than $10m, for the 2017/18 year the threshold will raise to $25m turnover then $50m from the 2018/19 year onwards. The tax rate will gradually decrease from 27.5% to 25% from the 2025 to 2027 years.

Importantly, the new legislation also includes the budget proposal to increase access to the small business tax concessions (excluding CGT) to $10m from 1 July 2016. This means, for example, companies with between $2m and $10m turnover will be able to obtain an immediate write-off for depreciable assets acquired prior to 30 June. This is great news for a large number of businesses and should factor into business planning strategies for the 2017/18 financial year. Small business owners should contact their adviser to discuss these changes and how they can take advantage of this immediate stimulus prior to 30 June.

The legislation also progressively increases the small income tax offset for sole proprietors (eventually to 16% by 2027) and raises the threshold to $5m turnover.  Another great win for small business!

Contact Prosperity on 1800 855 844 or mail@prosperityadvisers.com.au if you would like to know how these changes can benefit your business.

SMEs: Who are the winners this year?

(First published in Business First Magazine – December 16)

Christmas is almost upon us and business owners will be shifting their focus to planning for 2017.  Let’s take a look at the highlights for 2016 and how they lead into key themes for 2017.

The budget of uncertainty

The Turnbull government’s May 2016 budget was widely flagged as a step in the right direction for small business. However, the proceeding lag time in policy implementation and uncertainty around superannuation policy has seen many SMEs simply “tune out” to how these changes affect them or their business.

Business owners should keep these in mind:

  • Reduction to the small business company tax rate down to 27.5% from 1 July 2016 – applicable to business with up to $10M turnover.
  • Other tax benefits opened to many businesses within the $2 and $10 million turnover band including simplified depreciation and trading stock rules
  • Tax offset of up to $1,000 for individuals carrying on business via a trust, partnership or sole trading.
  • No change to eligibility threshold for small business CGT concessions.
  • Small business restructure tax concessions made available to family groups

The bad news for SMEs was to be at the personal retirement level with super flagged for retrospective policy, restricted thresholds and months of uncertainty in policy.  While a backflip on the $500,000 retrospective lifetime non-concessional cap was announced in September the main superannuation policy announcements from the budget look set to become law from 1 July 2017, these include:

  • $1.6 million transfer balance for super pensions
  • Removal of the transition to retirement pension tax exemption
  • Reduction in the concessional cap to $25,000 annually and non-concessional to $100,000 annually
  • Lowering of the threshold for the additional 15% super contribution tax from $300,000 to $250,000

Business highlights as of November

The key 2016 highlights we hear from business owners on a day to day basis come from outside the tax sphere.

Low Interest Funding

Access to low interest business goodwill and asset funding has clearly been a key winner for business in 2016 –especially businesses that were able to capitalise on the low rates. We have seen many cases where the major banks have shown high degrees of flexibility on rates in order to retain and win new business – while this was not always on the first approach, it pays to be persistent.

New tools to monitor your business

We have also seen a shift in openness to technologies and new streamlined processes.  Business owners now have access to apps and software that are affordable, giving them a comprehensive and real time view of their trading results and cash flow position.  Business owners who previously preferred traditional methods are beginning to realise that they must adapt or be left behind.

Innovation

Business operating in the innovation field fared well during 2016 with a range of policies and grants delivered to foster innovation.  The commercialisation of innovative products and services continues to be an area of growth with ongoing rounds of funding and tax incentives.  One of the most generous of the concessions is the Early Stage Innovation Company (ESIC) tax concession which provides investors with a rebate of 20% on their investment and the ability to disregard capital gains for assets sold within 10 year.

On the radar for 2017

The 2017 landscape for SMEs will continue to present challenges.  SMEs will need to be focused and savvy when it comes to steering their business in a winning direction.

Business Planning is Key

The top concern keeping business owners awake at night in 2016 was business planning (or lack thereof).  With research showing that 72% of business owners don’t have a business plan. Too many owners are concentrating on day to day operations and either don’t have the time, skills or support to focus on long term planning and growth.

Given the tools available to SMEs, 2017 will see in app based resources, there is no longer any excuse to shy away from strategic business planning and ongoing monitoring.  Benchmarking, industry averages and real time comparative data is readily available and should be put to work. 

People & processes – get these right and ease your stress

As engage with remote employees or “gig” workers, processes will need to be dynamic and streamlined.  Focusing on new ways of working along with smarter processes will be a key theme of 2017 and can also help ease the stress levels for business owners.

Stress and Lifestyle concerns rose from #5 in the 2015 SME research report to #3 in 2016.  The majority hold a belief that their business can’t operate without them. To avoid burnout and missing out on family time business owners should invest focus in this area. Cloud based tools that allow time away from the business without compromising connectivity can also be a useful planning tool for business owners.

Actively managing cash

The record low borrowing rates of 2016 can’t last indefinitely and cash should always be a key focus for business.  Most businesses that fail still do so because of cash flow issues.

In 2017, we recommend using KPIs, benchmarks and cash flow planning apps to make cash management a priority for your business. Once you’ve harnessed your cash flow you can take advantage of business opportunities when they arise.

Major US Tax changes imminent following Trump victory

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Prosperity through our extensive international alliances provides local knowledge with a global reach. In a time of rapid regulatory and commercial change these personal relationships will ensure we stay abreast of developments that may be of interest to our clients and friends.

With the recent victory of Donald Trump and the Republican sweep of the U.S. House and Senate, it is likely we will see significant tax legislation as early as 2017. President-elect Trump has proposed some of the largest tax cuts since Ronald Reagan. If Trump sticks to his campaign promises, here are the major changes his administration wants to make on individual taxes:

  • Reduce seven federal tax brackets to three. Rates for joint filers would be 12% (less than $75,000); 25% ($75,000 to $225,000), and 33% (over $225,000). Brackets for single filers would be half of these amounts. Currently, the top tax rate is 39.6%.
  • Increase the standard deduction from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for joint filers while ending personal exemptions.
  • Head-of-household filing status would be eliminated.
  • Itemized deductions would be capped at $200,000 for joint filers and $100,000 for single filers.
  • Repeal the Affordable Care Act (ACA) and the related 3.8% tax on investment income for higher income taxpayers.
  • Repeal the alternative minimum tax and the estate tax.

For business taxpayers:

  • Reduce the corporate tax rate from 35% to 15%.
  • Extend the 15% corporate rate to pass-throughs (e.g., S corporations, partnerships and LLCs)—but only “small businesses” would enjoy the lower rate. “Large businesses” would be required to be taxed as C corporations to get the lower tax rate. However, no guidance has been provided on what the threshold is for a “large business.”
  • Repeal the corporate alternative minimum tax.
  • Firms engaged in manufacturing in the U.S. could elect to expense capital investments and deduct interest expense only to the extent of interest income.
  • Deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%.

The House has proposed a platform that is similar to the Trump plan. Even though there is significant overlap in the two plans, we have a long way to go in predicting the specifics of the 2017 changes. However, we expect that significant changes are on the way.

NSW Stamp Duty relief has arrived!

Care for Savings - Woman with a Piggy Bank

We are pleased to confirm that the NSW Government has finally passed changes to stamp duty. As of 1 July 2016. NSW stamp duty on transfers of business assets, unlisted marketable securities and mortgages has finally been abolished. Transactions relating to land will still attract stamp duty unfortunately which includes transfers of land-rich entities and landholder duty.

From 1 July 2016 NSW stamp duty will no longer be payable on:

  • transfers of marketable securities – including shares in private companies and units in unit trusts (assuming land rich duty does not apply)
  • transfers of business assets including goodwill and intellectual property and plant and equipment when part of a transaction which includes goodwill (excluding land, certain goods e.g. when associated with land and not stock-in-trade)
  • mortgages executed after 1 July 2016 (nominal duty if executed prior to 1 July with the initial advance made after that date)
  • transfers of statutory licences and permissions and gaming machine entitlements
  • company charges and security agreements.

For individual investors the benefits will largely be limited to unlisted shareholdings because transfers of listed shares is already free of stamp duty and the application of stamp duty to transfers of land remains unchanged. However the removal of stamp duty on mortgages will be a welcomed change!

Overall these changes will make a range of restructures of businesses and other entities more attractive and will provide significant savings for business sales. To find out what the changes mean for you, please speak with your Prosperity adviser.

EOFY 2016: It’s all about the money!

Siobhan article EOFY all about the money

First published in Business First Magazine’s June/July 2016 edition.

Now could be the time for a financial reboot that is going to make the future smoother by following 3 key criteria to improve your bottom line and bank balance.  Here are 3 key things for you to consider.

  1. Cash flow planning is paramount!

Regardless of size, cash flow management can be a challenge for business owners. Tips to help improve your cash position include:

  • Have a cash flow forecast for the coming year. This will help you better understand the ins and outs over the next 12 months.
  • Make sure you track your cash flow forecast against your actual cash in and out the door at least monthly.
  • Don’t use the cash in the business like a personal bank account! Break this habit if you are. Work out an amount you need each month and stick to it.
  • Be on top of your debtors and creditors. Understand what your collection days look like. Are you in line with industry average?
  1. Making the most of Technology

If you’re looking for the opportunity to save time, money and hassles consider turning to cloud-based software solutions. Whether you’re a fan of cloud accounting or not, current technology gives businesses opportunities, such as:

  • Access to valuable information in real time about business performance and benchmarks;
  • Save money by eliminating the purchase of software programs and servers to host the traditional accounting packages;
  • Allow seamless workflow amongst business teams and advisers by having data available to all authorised users at all times.

Now is the best time to talk to your advisers. Don’t just have the conversation about performance and results once a year – do it regularly and ask them how you can improve your business.

  1. Year-end tax planning

There are still opportunities for businesses to reduce an overall tax liability. Here are a few noteworthy items to have on your checklists:

  • Bring forward any creditors you know will come due in July or spending the money in June instead of deferring it until July;
  • Conduct a stocktake before year end to work out what stock can be written off;
  • Consider maximising the concessional superannuation contributions for key individuals. Don’t forget that you don’t get a tax deduction for super contributions until it has been paid into the fund;
  • Make sure you have met your superannuation guarantee obligations (9.5% for 2016) for all employees;
  • Review your debtors list and write off any bad debts;
  • Review your FBT costs and determine if it’s possible to reduce this cost;
  • Maximise work related car expense deductions. With changes applying from 1 July 2016 to limit the methods under which you can claim car expenses, it may be worth considering keeping a log book and record of expenses. Otherwise the maximum (under the only other available method) is 66 cents per business kilometre.

Understanding Small Business Entities

The big winners in terms of accessing various new and existing tax concessions are small business entities – businesses with an aggregated turnover less than $2m.  While in the Federal Budget the government announced a change to the definition of a small business entity, for the purposes of accessing a number of tax concessions, the current definition remains:

Reduction in company tax rate

The income tax rate payable by a company carrying on business has been reduced for the year ending 30 June 2016 by 1.5% to 28.5%.

Small Business Tax Offset

If you are an individual carrying on a business via a trust, partnership or sole trader and your taxable income includes assessable business income, then for the year ending 30 June 2016 you may be eligible to a maximum tax offset of $1,000.

Immediate Deduction for New Assets

One of the concessions for all small business is the ability to get an immediate deduction for depreciating assets that cost less than $20K (generally $1k).  You must ensure that the asset is first used or installed and ready for use by 30 June 2017. Note that the government did announce in the Federal Budget to extend this date further.

Restructuring

If you a small business operating via a trust and keen to access the lower company tax rate, changes to tax rules from 1 July 2016 will significantly broaden the landscape for small business owners to restructure with generally no immediate tax consequences.

Roll-over relief will be available where a small business entity transfers a business asset including goodwill to another small business entity that is part of the same family group under a “genuine business restructure”.

Together with the existing capital gains tax concessions for small business, the new concessions provide small business entities a significant opportunity to restructure for genuine commercial reasons such as asset protection, estate and succession planning.

There could also be the added benefit of tax savings that arise from a restructure so speak with your adviser about the options for your business.

 

Federal Budget 2016: Living within our means…or robbing Peter to pay Paul?

2016 Federal Budget Analysis (Small)

Overview

In handing down his first national budget, the Federal Treasurer, Scott Morrison was quick to remind us that these are very sensitive times. According to Mr Morrison, the budget delivered on 3 May is intended to be a foundation upon which we can build a brighter and stronger economy for Australia to ensure our future prosperity.

A significant component of this “brighter and stronger” economy will rely on making not inconsiderable changes to the fabric of our retirement system, while simultaneously providing a big bonus for not just small business. In fact we can say that small business isn’t so small anymore!

1 July 2017 is earmarked as a major date for many reforms set to shape our economy. Many of these are bold changes! Not unsurprisingly for this government, we’ll get good incentives for business owners but it comes at the expense of self-funded retirees and higher income earners.

Super

Heralding the biggest changes to superannuation since 2007, self-funded retirees and higher income earners will bear the brunt of the changes. The changes on the face of it seem contradictory to the essence of being financially independent and free of welfare support in retirement. It seems the intention of the changes is to continue to ensure the “integrity” of the superannuation system by stopping it from being a tax planning and estate planning mechanism. For the first time we’ll see the purpose of superannuation enshrined in legislation as “to provide income in retirement to substantiate or supplement the Age Pension”.

Business

Business reaps rewards with a 10 Year Enterprise Tax Plan, aimed at helping small and medium businesses – currently employing around 4.9 million workers  – to continue to drive jobs and growth. The plan involves lowering company tax from 1 July 2016 to 27.5% and increasing the threshold for businesses who can access this from $2m up to $10m. Our traditionally defined medium enterprises are a key winner here. But the big end also wins as the company tax rate is earmarked to be progressively reduce to 25% for all companies over a 10 year period.

The $20,000 immediate deduction for asset purchases by a ‘small’ business is extended to 30 June 2017. Note the eligibility for this has expanded to include businesses with turnover up to $10m.

Beware the Tax Avoidance Taskforce! With its extra funding the taskforce is expected to recover $3.7b by targeting multi-nationals, high net worth individuals and private groups who attempt to avoid their Australian tax obligations.

Individuals

Some 500,000 tax payers will be pleased to see the threshold at which the marginal tax rate of 37% applies, increase from $80,000 to $87,000 from 1 July this year. This might just help to take some of the sting out of the application of GST to low value goods imported by consumers (yes, that online shopping basket!) due to start on 1 July 2017.

Sigh of relief…no changes to negative gearing anytime soon.

Coinciding with an official interest rate drop of 0.25% on the same day as the budget, the scene is well and truly set to put a flame under small business, making it burn brightly for our nation.

This isn’t a budget about having more money in your hip pocket, it’s about having faith in building for the future.

Individuals and Family

Personal Income Tax Relief

The big winners are middle income earners. With what the Government terms a genuine tax cut, 500,000 Australians will be able to ‘earn more without being taxed more’. For at least the next 3 years, the average full-time wage earner will not move into the 37% tax bracket.

The tax bracket at which the tax rates increases from 32.5% to 37% will change from $80,000 to $87,000 from 1 July 2016.

Medicare Levy and Medicare Levy Surcharge Thresholds to Increase

Low income earners will continue to be exempted from paying the Medicare Levy (2%) and the Medicare Levy Surcharge (1%).

The Government will increase the Medicare Levy low income thresholds for singles, families and seniors and pensioners from 2015-16 income year.

Medicare Levy Surcharge and Private Health Insurance Rebate Thresholds

To cover the cost of increases in the low income thresholds noted above, the thresholds will be paused for a further 3 years.  They will not be indexed in line with CPI increases.

Other

Other changes proposed that impact families include the Child and Adult Public Dental Scheme. All children and adult concession card holders will be eligible for fully funded dental services as part of the Government’s reforms to the new Child and Adult Public Dental Scheme.

Superannuation

The Government has certainly taken a very large knife to superannuation tax concessions.

New ‘Transfer Balance Cap’

By far the biggest change to the taxation of superannuation earnings since 2007 will see a cap of $1.6m introduced from 1 July 2017 to the amount that can be tax-free during retirement phase.

Members with large balances in super that currently pay no tax on earnings that support tax-free retirement benefits to members, will see a significant change in their super funds tax position as result of the cap.

Where an individual accumulates amounts in excess of $1.6m, they will be required to maintain this excess in an accumulation account where earnings will be taxed at the concessional rate of 15%.

Members already in accumulation phase with balances above $1.6m will be required to reduce their retirement balance to $1.6m from 1 July 2017.  Excess balances will need to be converted to accumulation phase accounts.

Lifetime Cap on Non-Concessional Superannuation Contributions

A life-time non concessional cap of $500,000 will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year or $540,000 over three years for individuals aged under 60.

This rule will commence from 3 May 2016 and will take into account all non-concessional contributions made on or after 1 July 2007.

However, contributions made before 3 May 2016 cannot result in an excess.  Any excess contributions made after this date will need to be removed or be subject to penalty tax.

Changes to Annual Concession Caps

From 1 July 2017 the annual cap on concessional superannuation contributions will also be reduced to $25,000. Currently the caps for those under age 50 is $30,000 and those aged 50 and over is $35,000.

Tax Exemption Supporting Transition to Retirement Income Streams Removed

Currently individuals over preservation age, i.e. 55 but not retired can commence a Transition to Retirement Income Stream. The earnings in the fund supporting the income stream are exempt from tax.

From 1 July 2017 tax exemption on earnings from assets supporting Transition to Retirement Income Streams as predicted will be removed.

Changes to Contribution Rules for People Aged 65 to 74

Currently there are minimum work requirements for individuals aged 65 to 74 who want to make superannuation contributions.

From 1 July 2017, the restrictions will be removed and individuals under the age of 75 will no longer have to satisfy the work test and will be able to receive contributions from their spouse.

Catch-up Concessional Superannuation Contributions

Aimed at increasing the super balances of women in particular, from 1 July 2017, individuals with superannuation balances of less than $500,000 due to lower contributions, interrupted work patterns or irregular capacity to make contributions, can make catch up payments to boost their superannuation balances.

Any unused amounts from 1 July 2017 can be carried forward on a rolling basis for a period of 5 consecutive years.

Restrictions for Personal Superannuation Contribution Deductions Eased

Currently, not all individuals making a personal superannuation contributions can claim an income tax deduction due to the restrictions that apply such as having no employer support or having less than 10% of assessable income being from salaries and wages.

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions regardless of their employment circumstances.

Division 293 Tax Income Threshold Reduced

The point at which high income earners pay additional tax on contributions will be lowered from $300,000 to $250,000 from 1 July 2017.

This lower threshold will also apply to members of defined benefit schemes and constitutionally protected funds.

Low Income Spouse Tax Offset Increased

As it stands currently, the low income spouse offset provides up to $540 per annum for the contributing spouse where the receiving spouse’s income is less than $10,800.  From 1 July 2017 this low income threshold will increase to $37,000.

Low Income Superannuation Tax Offset Introduced

From 1 July 2017 low income earners will get the benefit of a tax offset, reducing the tax payable by their superannuation fund on superannuation contributions made on their behalf.

A super fund would currently pay 15% tax on concessional contributions. The low income superannuation tax offset will provide a non-refundable tax offset to the fund of up to $500 per annum for members with adjusted taxable incomes up to $37,000.

Anti-Detriment Death Benefit Provision Removed

The anti-detriment as it currently applies can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is a dependent of the member.

This provision in respect of death benefits from superannuation will be removed from 1 July 2017.

Small Business

Increased Turnover Threshold For Certain Tax Concessions

From 1 July 2016, the small business entity turnover threshold will be $10m (previously $2m).

This is a big win for small business as it allows many more taxpayers to qualify for certain tax concessions including the:

  • Lower small business company tax rate (to be reduced to 27.5% with effect from the 2016/17 year of income)
  • The simplified tax depreciation regime which includes the immediate asset write off threshold of $20,000 which will operate up to 30 June 2017
  • Simplified trading stock rules; and
  • Other concessions including the immediate deduction of professional expenses under the “blackhole” rules and the extension of the FBT exemption for work related portable electronic devices.

This measure will not affect the current $2m turnover threshold to access the CGT small business concessions.

Unincorporated Small Business Tax Discount Increased

The tax discount for unincorporated small business entities is to be incrementally increased over 10 years from the current rate of 5% to 16%.  This will coincide with the staggered corporate tax rate cuts to 25%. The current cap of $1,000 is retained.

Other Enterprises

Staggered Tax Cuts

After much speculation, the company tax rate is to be reduced to 25% on a phased in basis over 10 years. This initiative is described in the Budget Papers as the “Ten year Enterprise Tax Plan”.

Not surprisingly, the initial beneficiaries will be small businesses (i.e. companies with an aggregated turnover of less than $10m), that, commencing in FY 2016-17, will pay corporate tax at the rate of 27.5%.

This $10m threshold will be increased on a progressive basis so that by FY 2023-24 all companies, regardless of their turnover, will be subject to a corporate tax rate of 27.5%.

For those of us lucky enough to be still staggering around, it is proposed that the company tax rate will then be progressively lowered to 25% from FY 2024-25.

Targeted Amendments to Division 7A

The Government has foreshadowed targeted amendments to improve the operation and fairness of “Division 7A” i.e. private company dividend deeming rules for loans and other distributions.

This has been on the horizon for some time and is welcome news for closely held private groups.

Although light on detail, the amendments include:

  • A self-correction mechanism for inadvertent breaches of Division 7A (a positive initiative given the complex nature of these provisions and the practical every day compliance difficulties for taxpayers)
  • Appropriate safe harbour rules to provide certainty
  • Simplified Division 7A loan arrangements; and
  • A number of technical adjustments to improve the operation of Division 7A and provide greater certainty.

Broadening of Tax Incentives For Early Stage Investors

As part of its National Innovation and Science Agenda, the Government had introduced legislation giving effect to a range of concessional tax measures to encourage investment in emerging/start up innovation companies.

Subject to various requirements being met, these concessions included:

  • A 20% non-refundable tax offset capped at $200,000 per investor per year; and
  • A CGT exemption, provided investments are held for at least 3 years.

The progress of this legislation was suspended following the announcement by Prime Minister Turnbull to recall Parliament in April which in turn set the scene for a Federal election.

It’s encouraging that this initiative is still very much on the agenda and that, following further consultation with stakeholders, the Government has decided that the tax incentives will be amended for angel investors to:

  • reduce the holding period from three years to 12 months for investors to access the 10 year capital gains tax exemption;
  • include in the definition of eligible startups, a time limit on incorporation and criteria for determining if the startup is an innovation company;
  • require that the investor and innovation company are non-affiliates; and
  • limit the investment amount for non-sophisticated investors to $50,000 or less per income year in order to receive a tax offset.

Proposed Expansion of Funding Arrangements for Venture Capital Investment

The Government has amended the National Innovation and Science Agenda — new arrangement for venture capital investment to introduce measures that are designed to improve access to venture capital investment.

Modifications to Tax Consolidation Tax Cost Setting Measures

Technical amendments will be made to legislation governing tax consolidated groups to address tax benefits (i.e. step ups in the tax cost of assets) arising in the entry tax cost setting process and also to improve the integrity of the tax consolidation regime.

The start date for the tax cost setting adjustments will be deferred from 14 May 2013 to 1 July 2016.

GST and Other Indirect Taxes

GST on Low Value Goods

The powerful retail lobby group appears to have finally got their way….with effect from 1 July 2017, GST will be imposed on low value goods imported by Australian consumers i.e. products costing less than $1,000.

Under this measure, overseas suppliers with turnover in Australia exceeding $75,000 will be required to register for, collect and remit GST for low value goods supplied to consumers in Australia.

Bad News for Smokers

The price of cigarettes is set to increase significantly with tobacco excise and excise-equivalent customs duties to be subject to 4 annual increases of 12.5% from 2017 to 2020.

Wine Equalisation Tax Rebate Cap Reduced

Due to perceived integrity concerns, the Government is proposing to water down entitlements to the Wine Equalisation Tax rebate. It is hoped that this measure will better target assistance and reduce distortions in the wine industry.

Tax Administration

The ATO will receive $679m over 4 years to fund a Tax Avoidance Taskforce to enhance the ATO’s current compliance activities. The Taskforce has been tasked with the objective of recovering $3.7b in tax liabilities.

The Government says that it will also provide “whistleblowers” with improved protection under the law.

Multinationals and Profit Shifting Measures

The Government intends to hit non law abiding multinationals with a 40% diverted profits tax (DPT). Broadly, the DPT will be levied on profits deemed to have been artificially diverted from the Australian tax system.

The Australian DPT regime will apply for income years commencing on or after 1 July 2017 to significant global entities (entities and their associates with global revenue of at least $1b) that are Australian tax residents or have a permanent establishment in Australia.

The Australian transfer pricing rules are also to be strengthened with emphasis to controlled transactions relating to intangibles and hybrid mismatch arrangements.

Health Sector Specific

Some of the key measures aimed at the Health Sector include:

Medicare Benefits Schedule Paused

There will be an extension on the pause on indexation of Medicare Benefits Schedule fees for all services provided by general practitioners, medical specialists, allied health and other health practitioners until 30 June 2020.

The Government is set to achieve $925.3m over 2 years from 1 July 2018 with this measure.

Healthier Medicare

The Government intends to introduce an advanced data analytics capability to better target providers who make Medicare claims that are inconsistent with existing rules.

The estimated $66.2m in savings are intended to be directed to fund the Governments other health policy priorities.

Support for Rural and Remote Registrars

The Government intends to provide $8m over 4 years from 1 November 2016 to enable general practice registrars training on the Australian of Rural and Remote Medicine Independent Pathway to claim a higher level of Medicare benefit rebate for the services they provide while training.

Rural General Practice Grants

The Government intends to redesign the Rural and Regional Training Infrastructure Grants Program to provide a broader range of infrastructure grants to increase opportunities to teach and train health practitioners in rural, regional and remote areas across Australia.

Find Out More

We are available to discuss your circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity contact today or give us a call on ‌1800 855 844.

Australian Benefits for Export Industries and Opportunities for Foreign Investors

Empty road and containers in harbor at sunset

Over the past decade, Australia has actively participated in intensive activity in the Asia-Pacific region to link its economy into increasingly integrated systems and ways of doing business.

The Trans-Pacific Partnership is one of the latest in a suite of Free Trade Agreements supported by Australia. An overview of the impact and opportunity for different sectors can be found in this quick reference tool (click here). For more information and to speak with one of our business advisers on how you can take advantage of a Free Trade Agreement, please contact Prosperity Advisers directly on 1800 855 844.