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Federal Budget highlights

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What a difference a year makes. Following on the heels of Treasurer Joe Hockey's unpopular austerity budget last year, this year's effort felt very different, with an emphasis on spending instead of cuts, fairness instead of harshness.

The recipe this year will no doubt be more popular with the electorate but where does that leave the task of budget repair? Kicked into the long grass, it seems, at least until after the next election. For now, the emphasis is on the feel-good factor.

So what are the big changes?

2015 federal budget

Small business

By far the biggest winner, the small business sector was awarded a series of generous tax breaks. For companies with a turnover of less than $2m, there is a tax cut from 30% to 28.5% from July 1, 2015. For those small businesses with a turnover of less than $2m who operate in an unincorporated form (as a sole trader, for instance), there's a 5% tax discount from July 1, 2015, up to a maximum of $1000.

In good news for the owners of small companies, the government announced that the current maximum 30% franking credit would still be available to these companies' shareholders, allaying fears that the cut to small company tax would simply be paid for by shareholders paying extra tax on their dividends.

In addition, from 7.30pm on Tuesday night, small businesses are able to claim an immediate tax deduction for all assets acquired for use in the business up to a value of $20,000. This could include anything from computer equipment to motor vehicles and is bound to be warmly welcomed by small business, which currently has to write off the cost of such assets over several years. This tax break lasts until June 30, 2017.


Families with small children

A new childcare subsidy will be introduced from July 1, 2017, designed to support families where both parents work. Families with annual incomes up to about $65,000 will be eligible for a subsidy of up to 85% of the actual fee paid, up to an hourly fee cap. The subsidy will taper to 50% for families with annual incomes up to about $170,000. The subsidy will be capped at $10,000 per child for families with incomes above about $185,000. This means that families using childcare in 2017, on incomes between $65,000 and $170,000 will be about $30 a week better off.

To qualify, parents must undertake at least eight hours of work, study or training per fortnight.

Less positively, the Treasurer also announced changes to apply from July 1, 2016, to the rules around paid parental leave to prevent people claiming leave payments from both the government and their employers.


Pensions

As widely flagged before the budget, the government is not proceeding with last year's proposal to index the age pension by the consumer price index.

Instead, it is making changes to the assets taper rate, which will take some wealthier retirees out of the pension system. The effect is that there will be a drop in the maximum value of assets a couple can hold to qualify for a part pension from $1.151m to about $823,000 (plus the family home). For single taxpayers the threshold will reduce from the current $775,500 to $547,000.


Personal tax rates

There are no changes to personal tax rates or thresholds. Although not unexpected, this does mean that some taxpayers will over time be hit by "bracket creep" as their increased earnings push them into a higher tax bracket.


And what didn't happen...

Despite plenty of speculation beforehand, there were no major changes to the superannuation laws, the rules around negative gearing or the dividend imputation system. Nor were there major changes to the GST - unless you're a Netflix viewer, in which case you will now have to pay GST on your subscription.

None of these areas are completely off the table for reform, though. In the background the government is continuing with a major review of the tax system, which may impact next year's budget.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is the author of Life and Taxes: A Look at Life Through Tax.
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