Last week our Financial Advisor, Emma Brooke wrote a summary of how last week’s budget impacted individuals and families. This summary outlines how the announcements in the budget impact businesses and their owners.
Before outlining these changes it is important to remember that these announcements are not yet law. As we have seen with previous budgets a lot of negotiation is required before they are passed by the Parliament. In some cases this results in changes to or dropping of some the announcements.
With this in mind, please proceed with caution.
Tax Integrity Measures (Basically Tax Avoidance and Audit)
While many of the announcements relate to foreign owned businesses and organised crime there were items which do affect local small businesses.
One announcement that stood out is that the taxable payments reporting system is being extended to contractors in the courier and cleaning industries.
If you are impacted by this you will need to set up a system to capture the relevant information from the expected commencement date of 1 July 2018. Using a ‘Cloud Based’ accounting package such as MYOB or Xero will also help with your reporting.
$20,000 Instant Asset Write-off
The cut-off date of this concession has been extended by 12 months to 30 June 2018. It was also announced that these concessions would be extended to those businesses with a turn-over of less than $10.0m pa. Currently they can only be accessed by businesses with a turn-over of less than $2.0m pa.
If you are a business with an annual turn-over of less than $2.0m this means you do not need to rush out and purchase an asset before June 30 to take advantage of this concession.
If you are a business with a turn-over of between $2.0m and $10.0m if possible delay the purchase of assets valued at less than $20,000 until after 30 June 2017. What you lose in depreciation this year will be made up for with tax write-offs next year.
Self Managed Superannuation Funds (SMSFs)
As many of you would be aware the rules for borrowing arrangements between SMSFs and related parties were tightened and are now required on a ‘Commercial Basis’. A series of tests, the ‘Safe Harbour’ provisions are used to determine this.
From the announcement in the budget the Tax Office will be putting more related party transactions under the microscope to see if they are on a Commercial Basis.
From 1 July 2018 any expenses that would normally apply in a commercial transaction must be included in a related party transaction if that transaction is to be considered on a commercial basis.
No examples were given but things that spring to mind could include:
- outgoings in respect of commercial properties
- legal expenses associated with setting up leases
We will monitor this and advise the kind of transaction/s caught by these proposed changes.
Medicare Levy Increase
The Medicare rate will increase from 2.0% to 2.5%, this will also affect FBT as well. The commencement date is 1 July 2019.
HELP Repayment Thresholds and Rates
The minimum repayment threshold has been dropped from $55,874 to $42,000 from 1 July 2018. The minimum repayment has also decreased from 4% to 1%. The maximum repayment amount has increased from 8% to 10% and this applies from $119,882. Previously the 8% applied at $103,766.
The Medicare levy increase and changes to the HELP repayment thresholds will need to be considered when distributing income within family groups. This makes the use of Corporate Beneficiaries a valuable tool to manage these changes as they can delay their impact.
Furthermore, it means that distributing some income to adult children from a family trust is even more effective.
A final reminder, this budget is not law yet. We will keep you updated as news come to hand.
Should you have any queries in relation to the above matters please do not hesitate to contact our office.