Posted on September 17, 2020
At Hall Consulting Group we welcome the 2017-2018 Federal budget, handed down yesterday, as a positive step towards delivering the Government’s plan for stronger growth, more jobs, helping businesses expand, guaranteeing essential services, addressing cost of living pressures and living within its means. The centrepiece of the Government’s strategy is around housing affordability. We welcome the measures to increase tax system administration but the Government has not taken the opportunity to reduce rates or bring genuine simplification to the tax system. Overall, the Budget is a missed opportunity to achieve much needed tax reform for the benefit of all tax payers. It is a relief that the Government left the superannuation system relatively unscathed!
Please click on the link below for a summary of the Budget changes and new measures:
Posted on September 17, 2020
So, your business has a turnover under $2 million and you want to know how to use the $20,000 immediate tax deduction that’s been all over the news?
Before you start spending, there are a few things you need to know.
Does your business make a profit?
Deductions are only useful to offset against tax. If your business makes a loss then a tax deduction is of limited benefit because you’re not paying any tax. Losses can often be carried forward into future years but you lose the benefit of the immediate deduction.
Small businesses with a turnover of $2m or below make up 97.5% of all Australian businesses. The latest Australian Taxation Office (ATO) statistics show that well under half of these businesses paid net tax. That means that the $20,000 instant asset write-off is useful to less than half of the Australian small businesses targeted.
So, if your business makes a loss and you start spending to take advantage of the immediate deduction, all you are likely to do is to increase the size of your losses with no corresponding offset.
Immediate deduction not yet law
The $20,000 instant asset write-off is not yet law. The ATO only has the capacity to assess on current law not announcements. Don’t forget that many of last year’s Budget measures have not been enacted. While we think it is highly unlikely that the other political Parties will block this measure, there is always a small risk that things will change. So don’t spend more than your business can afford.
Cashflow is more important than an immediate deduction. Assuming your business qualifies for the deduction, the most important consideration is your cashflow. If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then go ahead and spend the money. The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases.
But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.
Let’s take the example of a small bakery. The bakery is in a company structure and has a taxable income for 2014/2015 of $49,545. The owner purchases a new $13,750 oven on 2 June 2015 and installs it straight away. The cost of the oven is claimed in the bakery’s 2014/2015 tax return resulting in a tax deduction of $13,750. So, for the $13,750 spent on the oven, $4,125 is returned as a reduction of the company’s tax liability (i.e., 30% company tax rate in the 2015 income year). For the bakery, they need the cashflow to support the $13,750 purchase until the businesses tax return is lodged after the end of the financial year. With the $4,125 reduction of the company’s tax liability, the business has fully funded the remaining $9,625.
From 1 July 2015, the bakery would also receive the small business company tax cut of 1.5%. If the business also had taxable income of $49,545 in the 2016 income year, the tax cut would provide a reduction of $743.
It’s important not to rely on the advice of the person you are purchasing from. There is a lot of misinformation out there in the market right now and it’s important to know how the concessions apply to you.
Is your business eligible
To use the instant asset write-off, your business needs to be eligible. The first test is that you have to be a business – not just holding assets for investment purposes.
The second is the aggregated turnover of your business needs to be below $2m. Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions. Another entity is connected with you if:
What has changed?
In general, a deduction is available for purchases your business makes. What has changed for small businesses under $2m turnover is the speed at which they can claim a deduction. Before the Budget announcement, small business could immediately deduct business assets costing less than $1,000. On Budget night, the Treasurer announced that the threshold for the immediate deduction will increase to $20,000 at 7.30pm, 12 May 2015 for small businesses with an aggregated turnover less than $2 million. The increased threshold is intended to apply until 30 June 2017.
For small business, assets above $20,000 can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.
If your business is registered for GST, the cost of the asset needs to be less $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
How do I make the most of the immediate deduction?
There are a few tricks to applying the instant asset-write off:
Second hand goods are ok
It does not matter if the asset you are buying for your business is new or second hand. So, you could still claim the deduction on say, second hand machinery you have bought.
What is not included
There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. For example, four big screen televisions are unlikely to be deductible for a plumbing business.
Assets must be ready to use
If you use the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use). This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.
Business and personal use
Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage. So, if you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 can be claimed.
How the rules work with trade-ins
If a new car costs $25,000 and the car yard offers to trade in your old car for $6,000, will that result in a vehicle that comes in under the $20,000 threshold for immediate write-off?
This is most likely not going to be the case. Based on the current law and how that operates, we don’t believe it would be possible to claim that $19,000 as an immediate write-off. The way the law is constructed at the moment tells us that the value of that vehicle is still $25,000, made up of $19,000 cash plus $6,000 as a non-cash value, in this case being the trade-in.
Posted on September 17, 2020
In many ways this budget lived up to the hype. Boring and dull with a few surprises.
If you operate a small business there is plenty to make you smile. Medium and large businesses will see little change.
Employee Share Scheme rules have been simplified, as have car expense claim deductions. Charities and other not-for-profit organisations however will feel a slight pinch due to a fringe benefits cap of $5,000 on meals and entertainment expenses.
Meanwhile, pension thresholds have been extended and part pension taper rates tightened.
You can read more detail in our budget update here.
Posted on September 17, 2020
If you’re confused about what happened to all of those announced Budget cutbacks then you’re not alone. Many of the Government’s initiatives are stalled in the Senate awaiting final negotiation. Here’s a quick summary of where everything is up to:
2% debt tax on high income earners from 1 July 2014 (and FBT rate increase from 1 April 2015)
Superannuation guarantee rephased – now SG will remain at 9.5% until 1 July 2021
Mining tax repealed
The company loss carry back rules abolished
The instant asset write off threshold of $6,500 for small business entities under the simplified depreciation rules has reduced back to $1,000 from 1 January 2014
The accelerated deduction of $5,000 for motor vehicles has been removed from 1 January 2014
Schoolkids bonus repeal – moved to 31 December 2016 and a means test applied until the repeal date
Low income superannuation contribution repeal delayed until the 2017/2018 financial year onwards
Income support bonus repeal delayed until 31 December 2016
What’s still up for debate?
Co-payments for visiting a doctor
Fuel excise increase
Retirement age increase to 70
Changes to pension indexation
Tightening of access to family tax benefits
Removal of add-on family tax benefit for additional children
Cuts to R&D incentive
6 month wait for employment benefits
Deregulation of University fees
The Treasurer has flagged that he will seek savings elsewhere – so watch this space.
(Courtesy of KnowledgeShop)
Posted on September 17, 2020
On 13 May 2014, The Treasurer handed down the 2014-15 Federal Budget. We have highlighted below some of the measures that may directly impact you depending on your circumstances.
2% debt tax will be levied on individuals whose adjusted taxable income is more than $180,000 a year for the next 3 years from 1 July 2014 (that is, up to 30 June 2017). The debt tax will be imposed on taxable income in excess of $180,000.
For those affected, the debt tax proposed to apply from 1 July 2014 (on top of the already legislated increase in the Medicare levy to 2%) may result in people bringing forward revenue where possible so that they can be charged at a lower rate and deferring deductions which may be worth more after 1 July 2014. The chances of the debt levy passing Parliament will hinge on post July 1 support in the Senate – complicating tax planning for affected individuals.
From a superannuation perspective, it reinforces the attraction of salary sacrifice contributions for high income earners. The net benefit a high income earner will receive from increasing the amount that they contribute to superannuation is now 32% plus Medicare Levy whereas previously the benefit was 30% plus Medicare Levy. Likewise, fund members over the age of 60 will receive a further 2% benefit by replacing income that would have been taxed at the top marginal rate with a tax-free Transition to Retirement pension.
Dependent Spouse Tax Offset will be abolished for all taxpayers from 1 July 2014. Previously, it was limited to those whose dependent spouse was born before 1 July 1952, effective from 1 July 2012. Those eligible to receive the Zone Tax Offset, Overseas Civilians Tax Offset or Overseas Forces Tax Offset may still be eligible to receive the Dependent Spouse Tax Offset.
Company income tax rate will be cut from 30% to 28.5% from 1 July 2015. For large companies (those with taxable income of over $5 million), the reduction will offset the cost of the Government’s 1.5% Paid Parental Leave levy.
FBT rate will increase from 47% to 49% from 1 April 2015 until 31 March 2017 as a flow-on effect of the 2% debt tax to prevent the use of the FBT system to avoid the debt tax. This will be particularly relevant for businesses that tend to have FBT liabilities each year as the cost of providing non-cash benefits to employees will rise. This may also give high income earners liable to the debt tax an opportunity to salary package benefits at the lower FBT rate applying before 1 April 2015.
Research & Development Tax Incentive will be reduced by 1.5%. This means the refundable offset will be reduced to 43.5% while the non-refundable offset will be reduced to 38.5%.
Incentive of up to $10,000 will be available to employers who hire a mature age job seeker (aged 50 years or over) who has been receiving income support for at least six months. This is effective from 1 July 2014.
Individuals will be provided an option to withdraw excess non-concessional superannuation contributions made after 1 July 2013 and the associated earnings. If withdrawn, no excess contributions tax will be payable and any related earnings will be taxed at the individual’s marginal tax rate. If not withdrawn (left in the fund), the excess contributions will continue to be taxed at the top marginal rate plus Medicare Levy.
Final details of the proposal, including the calculation of the associated earnings, will be determined following consultation with the superannuation industry.
Health and Social Services
Access to Family Tax Benefit B will be tightened with the primary earner annual income limit reduced from $150,000 to $100,000, and provided only to families whose youngest child is younger than 6 years of age, with effect from 1 July 2015. Different set of rules apply to single parents.
Family Tax Benefit Part A Large Family Supplement available to families with 4 or more children will be cut from 1 July 2015. The supplement will only be paid on the fourth and subsequent child, instead of an annual payment per child.
New Family Tax Benefit Allowance will be provided for single parents satisfying the criteria from 1 July 2015.
The First Home Saver Accounts scheme has been scrapped. New accounts opened from 13 May 2014 will not be eligible for concessions. The government co-contribution will cease from 1 July 2014. Tax concessions, and the income and asset test exemptions for government benefits associated with these accounts, will cease from 1 July 2015. Account holders will be able to withdraw their account balances without restriction from 1 July 2015.
Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by 1 July 2025, to gradually reach a qualifying age of 70 years by 1 July 2035. This measure will not affect those born before 1 July 1958.
Unresolved (in limbo pending the carbon and mining tax repeal)
Repeal of the loss carry-back for small companies
Sources: Wilkinson Super/Taxpayers Australia/Knowledgeshop/CCH/Institute of Chartered Accountants in Australia