Category: Business Tax

Update – Instant Asset Write-off Changes now Legislated

In the Budget on Tuesday, the Government announced that it would increase the instant asset write-off threshold to $30,000 and extend it to medium sized businesses (those with an aggregated annual turnover of less than $50 million).

This, and the earlier change announced in January (to extend the write-off threshold to $25,000) passed both Houses of Parliament yesterday and is now law (subject to the formality of Royal Assent).

The amendments mean there will be three tiers in the 2018/2019 financial year:

1.     $20,000 threshold for depreciable assets that are acquired and installed ready for use before 29 January 2019. Only available for businesses with an aggregated turnover less than $10 million.

2.     $25,000 threshold for assets first used or installed between 29 January 2019 and 2 April 2019. Only available for businesses with an aggregated turnover less than $10 million.

3.     $30,000 threshold for assets first used and installed after the 2 April budget announcement and before 1 July 2020. Available for businesses with a turnover of less than $50 million.

Going forward, all businesses with a turnover under $50 million are now eligible for a write-off of $30,000. This will be available under 30 June 2020.

To get the taxation benefit of this in the current financial year, you will need to have the asset installed ready for use on or before 30 June 2019.

2019 Federal Budget Wrap

Following is a brief summary of some of the headline Budget measures.

BUSINESS

*         Instant Asset Write-Off Boosted and Expanded – Two key changes have been made:

o    The write-off has been extended to medium-sized businesses (those with an aggregated annual turnover of less than $50 million.

o    The threshold has been increased to $30,000.

Therefore, subject to legislation, businesses with an aggregated turnover of less than $50 million will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are purchased and then first used, or installed ready for use, from Budget night (2 April 2019) to 30 June 2020.

*         Division 7A Changes Deferred – The Government’s proposed Division 7A changes will be deferred by 12 months to 1 July 2020. To recap, Division 7A is designed to prevent profits or assets being provided to shareholders or their associates tax-free. You can read more about these proposed changes – which are not yet even in draft legislative form – on the ATO website.<//www.ato.gov.au/General/New-legislation/In-detail/Other-topics/Targeted-amendments-to-Division-7A/>

*         Crackdown on Unpaid Tax and Super by Larger Businesses – The Government will provide more than $40 million to the ATO to recover unpaid tax and Superannuation Guarantee owed by larger businesses.

*         Strengthening ABN Rules – This measure imposes new compliance obligations on ABN holders to retain their ABN. From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually.

*         Tackling Sham Contracting – The Government will provide more than $9 million to establish a dedicated unit within the Fair Work Ombudsman to address sham contracting. This is where employers seek to avoid statutory obligations and employment entitlements (such as paid leave and superannuation) by misrepresenting employer/employee relationships as independent contracts.

PERSONAL TAX CHANGES

*         Income Tax Cuts by Increasing Tax Offset – Subject to the passage of legislation, tax relief will be granted to individuals via the non-refundable low and middle income tax offset (LMITO). The LIMTO will increase from a current maximum of $530 per year to $1,080. Further, the base rate will increase from $200 to $255 per year for 2018/2019 through to 2021/2022. Depending on your level of income, the changes will benefit individuals as follows:

o    The LMITO will now provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.

o    Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080.

o    Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.

o    For taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

The LMITO will be enjoyed straight after individuals lodge their income tax returns for the above years.

*         Income Tax Cuts via Rate and Threshold Changes – The following changes are slated for future income years:

o    From 1 July 2022, an increase to the top threshold of the 19% personal income tax bracket from$41,000 to $45,000.

o    From 1 July 2022, an increase in the low income tax offset (LITO) from $645to $700.

*         New Deductible Gift Recipients (DGRs) Approved – The following organisations have been granted DGR status from 1 July 2019 to 30 June 2024: Australian Academy of Law, China Matters Limited, Foundation Broken Hill Limited, Motherless Daughters Australia Limited, Superannuation Consumers Centre Limited, and The Headstone Project (Tasmania) Incorporated. The Government will also establish a deductible gift recipient (DGR) general category to enable Men’s Sheds and Women’s Sheds to access DGR status from 1 July 2020.

SUPERANNUATION CHANGES

  *   Removal of Work Test for Certain Taxpayers – The current superannuation work test will be removed for people aged 65 and 66 from 1 July 2020.

  *   Extending Eligibility for the Bring-Forward Cap – From 1 July 2020, access to the bring-forward cap will be extended from taxpayers aged less than 65 years of age to those aged 65 and 66.

  *   Increase to Age Limit for Spouse Contributions – The age limit for spouse contributions will increase from 69 to 75 from 1 July 2020.

Interest Rates on Hold

Last week (05/03/19), the Reserve Bank of Australia decided not to change the official cash rate of 1.5%. Two days later the December quarter economic growth figures showed that the economy had slowed considerably – growing by just 0.2% from October to December, and 2.3% over the previous 12 months. This is considerably less than the forecast 3% in the Federal Budget. As a result, many economists are now expecting the Reserve Bank to reduce interest rates even further in the coming year; which would represent record lows. It’s an opportune time therefore to review whether you are making the most of this low rate environment. 

Have you considered the following? 

*         Fixed rate options. While rates are at an all-time low there may be opportunities to fix your loans for 3 or 5 years at under 5% per annum. Explore your options. Some borrowers may wish to fix just a portion of their loan. 

*         Review your position. Low interest rates offer an opportunity to refinance or revise your payment schedule to pay your loan off sooner. Talk to your broker to see if there’s a home or business loan that better suits your needs. 

*         Debt reduction. With lower rates, your monthly/fortnightly repayments will be less. Rather than pocketing the difference, if you put the difference into extra repayments, you can shave years off your loan and, in doing so, save thousands in interest. For example, a $500,000 home loan at an interest rate of 7% requires repayments of $3,078 per month over 30 years. At 4.5%, the repayments are $2,533, a difference of $545 a month. If you put that $545 into extra repayments, you can potentially take more than 9 years off the home loan term and save almost $140,000 in interest. 

*         Create an offset account. This is effectively a money source sitting beside your mortgage. Any savings inside this account are effectively offset against your loan, which in turn reduces the amount of interest you pay. 

Of course, low rates will not be around forever. As a borrower it’s important not to become complacent and to make sure that you still have the capacity to meet your repayment obligations in the event that rates increase. 

Key Dates for Business Mar-Apr 2018

March 2018

21 March
February monthly Activity Statements – due for lodgement and payment.

April 2018

21 April
March monthly Activity Statements  – due for lodgement and payment.
21 April
Quarter 3 (January-March) PAYG instalment Activity Statments for head companies of consolidated groups – due for lodgement and payment.
28 April
Quarter 3 (January-March) Activity Statements – due for lodgement and payment (if lodging by paper).
28 April
Quarter 3 (January-March) PAYG instalment notices (forms R and T) – final date for payment and, if varying the instalment amound, lodgment.
28 April
Quarter 3 (January-March) GST instalment notices (forms S and T) – final date for payment and, if varying the instalment amount, lodgement.
28 April
Quarter 3 (January-March) superannuation guarantee contributions to be made to a complying fund on behalf of your employees.
30 April
Quarter 3 (January-March) TFN Report for closely held trust for TFNs quoted to a trustee by beneficiaries – fiinal date for lodgement.


Where one of these dates falls on a weekend or a public holiday, the due date is extended to the next business day.

Key Dates for Business Jan-Feb 2018

January 2018

15 January 
Due date for lodgement of income tax returns for companies and trusts that were taxable medium to large businesses in the prior year and are not required to lodge ealier. If you fail to lodge by the due date, your 2017/2018 income tax return will be due on 31 October 2018.
21 January
Due date for lodgement and payment of December 2017 monthly Activity Statements.
28 January
Due date for October-December 2017 Superannuation Guarantee contributions to be made to a complying fund on behalf of your employees.
31 January
Final date for lodgement of october-December 2017 TFN report for closely held trusts for TFNs quoted to a trustee by beneficiaries.

February 2018

21 February
Due date for lodgement and payment of January monthly Activity Statements.
28 February
Due date for lodgement and payment of October-December 2017 quarterly Activity Statements, including electronic lodgments.
28 February
Due date for lodgement and payment of Annual GST returns or Annual GST information reports – if you do not have an income tax return lodgment obligation.
28 February
Due date for lodgement and payment of income tax return for self-preparing entities that were not due at an earlier date. If you fail to lodge by this date, your 2017/2018 reutrn will be due by 31 October 2018.
28 February
Due date for lodgement and payment of income tax returns for medium to large businesses (taxable and non-taxable that are new registrants)
28 February
Due date for lodgement and payment Superannuation Guarantee Charge Statement if you failed to pay Superannuation Guarantee Charge on time for the October-December 2017 quarter. Superannuation Guarantee Charge is not deductible.

Where one of these dates falls on a weekend or public holiday, the due date is esxtended to the next business day except in the case of October-December 2017 Super Guarantee contributions – these are due on Sunday 28 January 2018.

Key Dates for Business Nov-Dec 2017

Many key dates are looming for business including those relating to Activity Statements, superannuation, and more

November 2017

11 November July-September quarterly Activity Statements – due for lodgement and payment (if lodging electronically)
21 November October monthly Activity Statements – due for lodgement and payment
28 November Superannuation Guarantee Charge (SGC) Statement – due for lodgement and payment if insufficient contributions or late contrifutions were made for the July-September quarter

December 2017

01 December Due date for income tax payment for companies that were required to lodge by 31 October 2017
21 December November monthly Activity Statements – due for lodgement and payment

NON-COPRPORTATE TAX CUTS – SBITO

The Government has passed legislation increasing the rate of the Small Business Income Tax Offset (SBITO). This article details this change and its tax impact.

INCREASED OFFSET
Along with companies, the more than 70% of small businesses that are not incorportated will also enjoy additional income tax relief from 2016/2017. In 2016/2017 income and later income years, a higher rate of SBITO will apply:

  • For 2016/2017 to 2023/2024, the SBITO is 8% of an eligible individual’s basic income tax liability that relates to their total net small business income (up from 5% in 2015/2016).
  • For 2024/2025, the SBITO is 10% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2025/2026, the SBITO is 13% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2026/2027 and later income years, the SBITO is 16% of an eligible individual’s basic income tax liability that relates to their total net small business income.
Furthermore, the aggregated turnover test for access to the SBITO has been increased from 2016/2017 to $5 million (up from $2 million).

BACKGROUND
By way of background, individuals are entitled to the SBITO if they are an SBE (i.e. sole trader) or they have a share of a smaill business’ net income included in their assessable income (for example, distrbutions from a partnership or trust which themselves are SBEs) provided the small business is not a corporate tax entity (i.e. company). An individual can only claim one SBITO for an income year irrespective of the number of sources of small business income that an individual receives. The maximum amount of the SBITO from all sources of SBE income is $1,000 for an income year which will be claimed in your year-end tax return. 

Although capped at $1,000 per individual, serveral individuals within the one structure can enjoy their own SBITO (not just the business owner) provided at the end of income year they are assessed on income from an SBE. The discount is applied to your net small business income’ as follows:

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Company Tax Rate Clarification

The Government has just announced that it will introduce legislation into Parliament to clarify confusion around the applicable tax rate for companies.

By way of background, in recent times the Government has passed legislation to progressively reduce the company tax rate for companies with a turnover of up to $50 million as follows:

 

Income year

 

Turnover threshold

Company tax rate for entities under the threshold

Company tax rate for entities over the threshold

 

2015–2016

$2m

28.5%

30.0%

2016–2017

$10m

27.5%

30.0%

2017–2018

$25m

27.5%

30.0%

2018–2019
to
2023–2024

$50m

27.5%

30.0%

2024–2025

$50m

27.0%

30.0%

2025–2026

$50m

26.0%

30.0%

2026–2027

$50m

25.0%

30.0%

 

It appears that the Government’s intention in making these reductions was to encourage small to medium businesses to reinvest the tax savings in their business, and in turn promote employment and investment growth.  

However, this intent became clouded recently when the ATO issued a draft Taxation Ruling in which it stated that, in its opinion, companies that were engaged in passive investments in shares and property could be seen to be carrying on a business, and thus eligible for the reduced company tax rate.

In response to this, the Government has stated that it will soon move to introduce legislation clarifying that only active trading companies qualify for the lower tax rate (and therefore not bucket companies or passive
investment companies).

Accordingly, if your company because of its turnover currently qualifies for the 27.5% tax rate and you are varying or otherwise calculating its PAYG Instalments, these should be calculated based on the reduced 27.5% tax rate only where the company is actively trading.

Bucket companies and companies that are solely engaged in passive investments in shares and property should operate (and calculate their PAYG Instalments) on the basis of the 30% rate applying; irrespective of the level of turnover.  

//www.ato.gov.au/Business/Small-business-entity-concessions/Concessions/Income-tax-concessions/Small-business-company-tax-rate/


SMALL BUSINESS REDIFINED

On 31 March, the Government secured Senate support for the passage through Parliament of legislation to assist small to medium businesses. While company tax cuts were the headline measure, included in the changes was an increase to the Small Business Entity (SBE) turnover threshold. Backdated to 1 July 2016, the SBE turnover threshold has been increased from $2 million to $10 million. Treasury estimates that this will allow an additional 90 000 to 100 000 businesses to qualify for a range of SBE tax concessions including:

 

  • Immediate deductibility for small business start-up expenses
  • Simpler depreciation rules
  • Simplified trading stock rules
  • Roll-over relief for restructures of small businesses
  • Deductions for certain prepaid business expenses immediately
  • Accounting for GST on a cash basis
  • Annual apportionment of input tax credits for acquisitions and importations that are partly creditable
  • Paying GST by quarterly instalments worked out by the ATO
  • Fringe benefits tax (FBT) car‑parking exemption and
  • Pay‑As‑You‑Go (PAYG) instalments based on gross domestic product (GDP)‑adjusted notional tax.

 

With the legislation and therefore increased SBE eligibilty backdated to 1 July 2016, this presents a tax planning opportunity for business. Among the depreciation concessions is the $20 000 instant asset write-off – giving SBEs the ability to claim as a deduction the full cost of the asset in the year of purchase and installation (rather than having the item depreciated over a number of years). The real benefit of the write-off is an improvement to your cash-flow – bringing forward deductions rather than having them spread out over more than one year. To claim a deduction in 2016/2017, the asset must have been acquired on or after 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017. So if you are contemplating purchasing a depreciating asset for your business (such as furniture, machinery, tools, equipment, small motor vehicle etc.) you may wish to bring forward that purchase to before 1 July 2017 and enjoy the cash-flow benefit.

 

Over the coming months we will be detailing the other various concessions listed above.

 

Federal Budget 2016 – What You Need To Know

The 2016 Federal Budget was handed down on Tuesday 3 May. Following are some of the headline announcements that the Government intends to implement in the event that it is re-elected in the coming months.

INDIVIDUALS and FAMILIES

Income Tax Cuts

Individual income taxes will be reduced over the next two years as follows: 
  • From 1 July 2016, the threshold at which the 37% marginal tax rate commences will increase from taxable income of $80,000 to $87,000. This will benefit approximately one-quarter of taxpayers, and will result in a tax cut of up to $6 per week.
 
  • From 1 July 2017, the 2% Debt Levy will be abolished. This is currently payable by individuals with taxable incomes of more than $180,000. Once abolished, the top marginal tax rate will fall to 45% (not including Medicare Levy).
Medicare Levy Surcharge and Private Health Insurance Rebate

The pause in the indexation of the income thresholds for the Medicare levy surcharge (MLS) and the private health insurance rebate will continue for a further three years from 1 July 2018. For higher income earners who don’t have private health coverage, this may result in an increased MLS liability in coming years. For those who do have private coverage, the pause in the rebate thresholds may result in a possible reduction in the amount of the rebate you receive going forward.

Tobacco Excise Increased

In bad news for smokers, tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017. As a result, a packet of cigarettes could cost as much as $40 by 2020.

Tax Relief for ADF Personnel

Income tax exemptions will be provided to Australian Defence Force personnel deployed in Afghanistan, the Middle East and in international waters.

BUSINESS

Increased Turnover Threshold for SBEs

The Small Business Entity (SBE) turnover threshold will be increased from $2 million to $10 million from 1 July 2016. This will allow thousands more businesses to access the lower company tax rate, and a range of existing income tax concessions including the $20,000 instant asset write-off. The increased threshold will not however apply for the purposes of accessing the small business CGT concessions.

Company Tax Cut

From 2016/2017, the company tax rate for businesses with an annual turnover of less than $10 million will be reduced to 27.5%. The company tax rate will be progressively reduced to 25% over 10 years for all companies. As per the following table, the rate will remain at 30% until annual turnover qualifies your company for a reduction:

Income Year

Applicable Turnover Threshold

Company Tax Rate (%)

   2015/2016

   $2 million

 28.5

2016/2017

$10 million

27.5

2017/2018

$25 million

27.5

2018/2019

$50 million

27.5

2019/2020

$100 million

27.5

2020/2021

$250 million

27.5

2021/2022

$500 million

27.5

2022/2023

$1 billion

27.5

2023/2024
All Companies
27.5
2024/2025
All Companies
27
2025/2026
All Companies
26
2026/2027
All Companies
25

 

 

 

 

 


Non-incorporated Business Tax Cut

The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. However, the current cap of $1,000 per individual for each income year will be retained. The current $2 million turnover eligibility threshold for this discount will be increased to $5 million from 1 July 2016, allowing thousands more sole traders and individuals in partnerships to access this discount.

GST Reporting Requirements Simplified

In welcome compliance news, GST reporting requirements will be simplified as follows:
  • Extending the option to account on a cash basis to businesses with an annual turnover of less than $10 million from 1 July 2016.
  • Allowing businesses with an annual turnover of less than $10 million to pay ‘GST installments’ as determined by the ATO from 1 July 2016
  • Allowing businesses with an annual turnover of less than $10 million to use simplified BAS reporting from 1 July 2017 (following a trial in 2016/2017).
Division 7A Simplification

From 1 July 2018, the Division 7A compliance burden will be eased. These changes will provide clearer rules for taxpayers while maintaining the overall integrity and policy intent of Division 7A. The amendments will include:
  • A self-correction mechanism for inadvertent breaches of Division 7A
  • 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 increased certainty for taxpayers.
SUPERANNUATION 

Additional Contributions Tax

The income qualification threshold at which high income earners pay an additional 15% concessional contributions tax will be lowered from $300,000 to $250,000 from 1 July 2017. For those who earn below this amount, the contributions tax remains at 15%. To be clear, this tax is payable by your superannuation fund (not you personally) in the year that concessional contributions are made.

Contribution Caps Slashed

In changes that will limit the amount of money taxpayers can inject into the concessionally taxed superannuation environment, the contribution caps have been significantly pared back as follows:
  • Effective 3 May 2016, the non-concessional (after-tax) contributions cap will now be a lifetime cap of $500,000 rather than the current annual cap of $180,000. This new cap will be retrospective by taking into account all non-concessional contributions made on or after 1 July 2007. Contributions made before the commencement date of 3 May 2016 cannot result in an excess of the lifetime cap. However, excess non-concessional contributions made after 3 May 2016 will need to be removed or subject to penalty tax. Going forward, the lifetime cap will be indexed to average weekly ordinary time earnings.
 
  • From 1 July 2017, the annual cap on concessional contributions will be reduced to $25,000 for all taxpayers (down from $30 000 for taxpayers under 50, and $35,000 for older taxpayers). This change will limit the capacity to make deductible contributions to superannuation, as well as salary sacrificed contributions. Softening the blow however, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017. Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years. Only unused amounts accrued from 1 July 2017 will be available to be carried forward.
Deductions for All

From 1 July 2017, all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions. Currently, only those who receive little or no employer superannuation contributions can claim a deduction. This change is good news for the many employees who wish to make contributions to superannuation but whose employers do not offer salary sacrifice.

Cap on Retirement Accounts

A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. Currently there is no cap, and therefore taxpayers can enjoy unlimited tax-free pensions. Amounts above this cap will still be able to be maintained in superannuation however they will need to be in an accumulation phase account (where earnings are taxed at 15% rather than tax-free).

Transition to Retirement Crackdown

The tax exemption on earnings from assets supporting Transition to Retirement Income Streams (TRIS) will be removed from 1 July 2017. Currently earnings on assets supporting TRIS are tax exempt. Once this exemption is removed, earnings will be taxed at the usual concessional rate of 15%. This change will apply regardless of when the TRIS commenced.

Low Income Earner Relief

From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce the tax on super contributions for low income earners. The LISTO is a non-refundable tax offset to super funds, based on the tax paid on concessional contributions made on behalf of low income earners up to a cap of $500. The LISTO will apply to taxpayers with adjusted taxable income up to $37 000 that have had a concessional contribution made on their behalf. The proposed LISTO will replace the current Low Income Superannuation Contributions (LISC).

Work Test Abolished

The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. This is good news for older taxpayers who do not meet the current ‘work-test’ but who wish to inject money into the concessionally taxed superannuation environment.

GENERAL ECONOMIC CONDITIONS

In mixed news for business, the Government says the economy is forecast to grow by 2.5% in 2015/2016 and to remain at this rate in 2016/2017. Growth will then however accelerate to 3% in 2017/2018. To provide some historical context, average annual economic growth in Australia has been 3.47% from 1960 to 2014.Pleasingly for borrowers, inflation is expected to remain subdued at 2% in 2016/2017 meaning that interest rates will likely remain at record lows.The outlook for the other key economic indicator, employment, is strong. The current 5.8% unemployment rate is expected to fall to 5.5% in 2016/2017, and remain at this rate through to 2019/2020.