Commenting on the 2010/11 Federal Budget and the upcoming Queensland State Budget, Queensland Treasurer Andrew Fraser endorsed what he sees as the Federal Government's "steady as she goes" conservative approach, and suggested that when it comes to Government revenue matters, boring may be the new black.
Of course, whether the Government's Budget measures or their lacklustre response to the Henry Review are boring is in the eye of the beholder. Beneath the headline Budget measures, there are some detailed tax changes that will affect many businesses, including small businesses, in a number of ways. One thing is certain – Australia's system of tax regulation is not getting any simpler.
Individual tax changes
The key proposals put forward by the Government are as follows:
- Raising the effective tax-free threshold to $16,000
- Providing a 50 percent tax reduction on up to $1,000 of interest income
- Allowing a standard deduction for work-related expenses and the cost of managing simple tax affairs
Standard work related expenses
From 1 July 2012, individual taxpayers will have the option of claiming a standard deduction of $500 for work-related expenses and the cost of managing their tax affairs. This amount will increase to $1,000 from 1 July 2013. Taxpayers can currently claim expenses of up to $300 without providing receipts, so the initial increased limit is perhaps not as generous as it may first appear.
Where a person has expenses above these amounts, they can still claim them under the existing rules, but would be required to substantiate them with receipts.
Previously announced tax cuts taking effect from 1 July 2010
|Taxable Income||Marginal Rate||Tax on this Income|
|$0 – $6,000||Nil||Nil|
|$6,001 – $37,000||15%||15c for each $1 over $6,000|
|$37,001 – $80,000||30%||$4,650 plus 30c for each $1 over $37,000|
|$80,001 – $180,000||37%||$17,550 plus 37c for each $1 over $80,000|
|$180,001 and over||45%||$54,550 plus 45c for each $1 over $180,000|
Small business tax changes
Changes to the corporate tax rate
As part of the Government's response to the Henry Review, companies will pay a reduced tax rate of 29 percent from 2013/14 and 28 percent from 2014/15.
The 28 percent rate will apply to small businesses (as defined for tax purposes) from 2012/13. It is important to keep in mind that the benefits of lower corporate tax rates will generally only be available while profits are retained in the company. If a dividend is paid to shareholders, franking credits will reflect tax paid at the company level, with higher 'top up' tax payable.
Immediate write off
From 1 July 2012, small businesses will be able to immediately write off assets valued at under $5,000 and write off most other assets at a 30 percent rate in a single pool.
The Government has proposed raising the compulsory superannuation cover by employers from 9 to 12 percent, progressively phased in between 1 July 2013 and 30 June 2020. The Government is also proposing to provide matching superannuation contributions of up to $500 annually for people on adjusted taxable incomes of up to $37,000.
Those aged 50 and over with superannuation balances of less than $500,000 will still be able to make annual concessional contributions of $50,000 (indexed).
The increased contribution limit was due to be halved to $25,000 from 1 July 2012.
The proposed GST changes include amendments to the regime for working out the GST treatment of taxes, fees and charges, which will change the treatment of GST financial supplies. This will be relevant to many small businesses that may, for example, undertake a float or incur costs in dealing with share issues. There will be minor changes to the margin scheme effective from 1 July 2012.
GST and boats
Under the current rules, a boat needs to be exported from Australia within 60 days of the relevant supply to be GST free. That period will now be extended to 12 months.
Corporate tax changes
Corporate tax changes include amendments to the consolidations regime, taxation of managed investment trusts and the new R&D concession. Other changes will impact on demerger relief rules and fine tuning corporate capital gains tax rollovers.
Other changes to the tax landscape will include implementing the Board of Taxation's recommendations for GST, further Government responses to the Henry Review recommendations (although this may be later rather than sooner) and the outcomes of a number of external investigations into the implementation of the ATO's new computer systems, and changes to its audits of high wealth individuals.
In the immediate future, the resources super tax introduced by the Henry Review will need to be resolved, one way or the other.
Capital gains tax earn out arrangements
A particularly confusing area of tax law is earn out arrangements, where a business or business assets are sold, and depending on the subsequent performance of the business, the buyer or seller might be entitled to additional payments. The Government has now announced that it will clarify the law in this area, so that it is clear that an earn out right is no longer treated as a separate capital gains tax asset, and that amounts arising from the earn out arrangement will be treated as the proceeds of the relevant sale. One of the problems with the existing law is that the Commissioner's current view can prevent access to capital gains tax small business concessions.
The fine print
Hidden away in the detail of the Budget papers are a whole range of revenue measures that may impact on business operators.
An additional $108 million will be provided to the Australian Tax Office to target compliance in the cash economy. The Budget papers forecast that an additional $500 million in tax will be collected as a result of these additional ATO audit activities.
The Government will fund the ATO with an additional $340 million to "promote voluntary GST compliance". The target areas include under reporting of GST liabilities, non-lodgement of GST returns and nonpayment of GST debts. The Government expects to reap an additional $2.7 billion in GST over a four year period as a result.
Business as usual?
While the fierce debate over the resources super tax has taken centre stage, the changes to the tax landscape may not be as boring as the Government likes to paint them.
Complying with tax obligations has not become any simpler for business people, and the ATO will be looking to spend its additional audit allocations to do what it can do to fill the Treasury coffers.
As with most tax matters, advanced planning is better than being caught out.
For more information on the implications of the 2010/11 Federal Budget on your business, please contact HopgoodGanim's Taxation and Revenue team.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.