2018 Federal Budget - What's relevant to your business?
- 7-year personal tax cut plan
- R&D shakeup
- Instant asset write off extension announced
- Increased compliance activities: individuals and their tax agents
- Do you owe money to your company or trust? Division 7A in focus
- Property - deductions disallowed for 'land banking'
- ATO collection of Super and Tax debts
- No deduction for unpaid PAYG
- $10,000 cash payment limit for business
- Craft beer should be cheaper (in theory!)
- Return the budget to surplus in four-years time
- Major tax reform missed out
7-year personal tax cut plan
Whilst 2017-18 tax rates and thresholds remain unchanged, there has been changes to the the tax thresholds from 2018-19 year onwards
R&D Shakeup - Changes to the R&D Tax Incentive
For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant's company tax rate. Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.
Refundable R&D tax offsets from R&D expenditure on clinical trials will not count towards the cap.
Extension of the $20,000 immediate deduction by 12 months
The Government will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2019. This applies to businesses with aggregated annual turnover less than $10 million.
The threshold amount was due to return to $1,000 on 1 July 2018. As a result of this announcement, SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off (or other simplified depreciation rules), eg horticultural plants and in-house software.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools)
Increased compliance activities: individuals and their tax agents
The government have announced increased funding to the ATO of $130.8m to fund increased compliance activities for both individual taxpayers and their tax agents. The extra funding will continue 4 income matching programs that would have been otherwise terminated from 1 July 2018 to allow the ATO to detect incorrect reporting of income such as foreign sourced income of high wealth individuals.
Do you owe money to your company or trust? Division 7A in focus
Division 7A requires benefits provided by private companies to related taxpayers to be taxed as dividends unless they are structured as Div 7A complying loans or another exception applies. This measure will ensure the UPE is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.
These measures will apply from 1 July 2019, including the measures announced in the 2016-17 Budget. As a result, all the Div 7A amendments will form part of a consolidated package.
The 2016-17 Budget measures included:
- a self-correction mechanism providing taxpayers whose arrangements have inadvertently triggered Div 7A with the opportunity to voluntarily correct their arrangements without penalty;
- new safe harbour rules, such as for use of assets, to provide certainty and simplify compliance for taxpayers; and amended rules, with appropriate transitional arrangements, regarding complying Div 7A loans, including having a single compliant loan duration of 10 years and better aligning calculation of the minimum interest rate with commercial transactions
Property - deductions disallowed for 'land banking'
The Government will disallow deductions for expenses associated with holding vacant land. Where the land is not genuinely held for the purpose of earning assessable income, expenses such as interest costs will be denied. It is hoped this measure will reduce the tax incentives for land banking which limit the use of land for housing or other development.
The measure will apply to both land held for residential and commercial purposes. However, the "carrying on a business" test would generally exclude land held for a commercial development. It will not apply to expenses associated with holding land that are incurred after:
- a property has been constructed on the land, it has received approval to be occupied and available for rent; or
- the land is being used by the owner to carry on a business, including a business of primary production.
Disallowed deductions will not be able to be carried forward for use in later income years.
Expenses for which deductions will be denied could be included in the cost base if it would ordinarily be a cost base element (ie borrowing costs and council rates) for CGT purposes. However, if the denied deductions are for expenses would not ordinarily be a cost base element, they cannot be included in the cost base
ATO collection of Super and Tax debts
The Government will provide $133.7 million to the ATO to continue to deliver on a range of strategies that sustain both an increase in debt collections and an improvement in the timeliness of debt collections.
No deduction for unpaid PAYG
In the same way you do not receive a tax deduction for unpaid superannuation, measures will be enacted to ensure that taxpayers will not be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying.
$10,000* cash payment limit for business
In another step towards addressing the 'Black Economy', the government will introduce a limit on the amounts that businesses can accept in cash for payments of goods and services.
This measure will require transactions over a threshold to be made through an electronic payment system or by cheque. Logically it would seem that this threshold amount should be $10,000, but this is not spelt out in the Budget papers or the media release.
Craft beer should be cheaper (in theory!)
In a win for small brewers, the government has raised the alcohol excise scheme refund from $30,000 to $100,000 per financial year, from 1 July 2019. Another 12 months of drinking VB I guess!