Treasurer Wayne Swan delivered the Federal Budget last night. The winners were low income families while the losers had to be small business and wealthy Australians.

What was scrapped?

There were quite a few promises from last years budget with plans to start this year that have been scrapped. Namely:

• Cutting the Company Tax Rate - Yes the proposed reduction in Company Tax Rate to 29% has been axed.
• Cutting the Tax on Interest Income - the proposal to reduce the tax you pay on Interest Income by 50% has also been axed.
• Standard Deductions for Income Tax Returns - the idea of giving everyone a standard deduction of $500 without the need to keep receipts to simplify Income Tax Returns has been axed.
• Allowing those with less than $500,000 in Super aged over 50 to contribute $50,000 not the standard $25,000 each year to Super - this reduces the incentive to boost your retirement savings for those in the over 50 bracket who don't have a lot in Super (note this is *apparently* not scrapped completely but will be starting July 2014)
• Mature Age Workers Offset of $500 has also been scrapped. If you are aged 55 or over now you will still be eligible.
• Entrepreneurs Tax Offset has also been scrapped. This only applied to businesses with a turnover of less than $75,000

What's in and good news for small business?

In a nutshell - not much.....

• Immediate Write off of assets costing less than $6,500
• Immediate Write off of $5,000 for the purchase of Motor Vehicles

Its important to understand this is not an EXTRA, rather the bringing forward of your depreciation deduction. In other words you reduce tax payable this year but pay more when you would have been claiming the depreciation in further years.

• New Loss carry-back rules mean that if you make a loss in the 2013 Income Tax Year you can offset that loss against your 2012 Income Tax Profit and recoup some of the tax you have paid.

• To assist in the employment of older Australians the government is providing a jobs bonus of $1,000 to 10,000 employers tho recruit and retain a worker over 50 for 3 months or more.

What's in and good news for Individuals?

• Increase in Tax Free Threshold. You can now earn $18,200 and not pay any Income Tax. The rates after this amount have however Increased from 15% to 19% and from 30% to 32% on income over $37,000. People with $50,000 in taxable income will save $753 in tax and people with $80,000 in taxable income will save $3 per year in tax.
• Education Tax Refund has been simplified and replaced by the Schoolkids Bonus meaning you no longer have to spend money on education or keep receipts. The old maximum Rebate of $409 for primary students and $818 for secondary students is increasing to $410 for primary and $820 for secondary. It wont be managed through the taxation system rather will be a twice-yearly payment into your bank account. You still need to be eligible to receive Family Tax Benefit Part A for this to apply.
• Family Tax Benefit Rates will change but not until 1 July 2013. Rates will increase $300 a year for families with 1 child and $600 a year for families with more than 1 child

So where are the catches?

The focus this year seems to be on means testing everything.

• Medical Expenses Offset is now going to be means tested. If you earn more than $84,000 as a single or $168,000 as a couple you will need to have over $5,000 in out of pocket medical expenses (compared to $2,000 for everyone else) and will only be able to claim 10% Offset as opposed to the current 20%
• And don't forget Private Health Insurance Rebate will be means tested from the 1st July 2012 making Private Health Insurance more expensive
• Living Away from Home Allowances have seen some major changes. You will need to physically have two homes in Australia that you are maintaining. What it really means is if business want to attract highly skilled and specialised people from overseas the cost of doing so has just risen dramatically.
• The $1,500 incentive for employing Australian Apprentices has been scrapped. An additional $500 has been added to the Completion Incentive bringing it to $3,000.
• People who earn more than $300,000 per year are encouraged not to contribute to the Superannuation Environment with double the rate of the existing tax. Don't forget though they can only contribute $25,000 to Super in any case. So moral of the story if you earn $299,000 you will pay $3,750 tax on your Super. If you earn $300,001 you will have to pay $7,500 tax on your Super....yet you can't contribute more to ensure you are setting yourself up for retirement.
• Non-resident workers will lose the Living Away from Home Allowance and will have to pay a higher tax rate (32.5%)
• Low Income Tax Offset for minors has also been scrapped meaning you can no longer split in your Family Trust
• When you retire if your Taxable Income is over $180,000 you will be taxed at your marginal rates instead of a reduced rate of 15% on any ETP's paid.

It would seem this budget focuses on increasing taxes and increasing compliance. The big one I haven't mentioned yet is the additional funding given to the ATO to up GST Compliance Activities. What that means....more GST Audits & holding on to your refunds for extended periods of time for additional checking. Its now more important then ever to ensure you have your records in order and you are lodging AND paying your liabilities on time.

In a nutshell If you don't have a system tracking everything like Xero expect to be spending time this year collating and summarising your receipts for your GST Audit!

All in all a very disappointing budget for small business.