July/August - MTA

Changes ahead from the Budget
By Bruce Wigan, HLB Mann Judd
Not surprisingly in
an election year, the
Government’s third Federal
Budget, together with the
Government’s initial response to
the Henry Tax Report, contains
practically no bad news for
individuals, small businesses and
private companies.
In fact the two sets of fiscal
measures contain mainly good
news for these groups, although
much of the good news will not
be delivered until some time in
the future. For individuals, and
small and private businesses,
there are no new taxes, no
increases in existing taxes
and no new limitations on
tax deductions, including
deductions for superannuation
contributions. There is only
a minor adjustment to tax
offsets (ie tax credits) and there
is no additional taxation of
superannuation contributions,
earnings or benefits
Individuals
There are two main changes for
individual tax payers.
Tax discount on interest
From July 1 2011 a discount of
50 per cent of tax will apply on
up to $1,000 of interest income
earned by individuals. The
discount will apply to interest
income earned from a variety of
sources such as bank deposits
and bonds, both directly and
indirectly (eg through a trust).
There is no suggestion that the
amount of interest income to
which this measure will apply
is to be a net amount; that is,
after offset of interest expenses
incurred. This measure will
provide a tax incentive to earn at
least a certain amount of interest
income from approved sources.
If such interest is earned in a
family trust it should be possible
to ensure that a number of
family members benefit from the
50 per cent tax discount.
Standard tax deduction
From July 1 2012 individuals
will be able to elect to claim a
standard tax deduction of $500
(increasing to $1,000 from
July 1 2013) for work related
expenses and costs of managing
their tax affairs. If this election
is made there will be no need
to substantiate the deduction.
However, if one’s actual
deductions are greater than the
standard amount, the greater
amount can be claimed instead.
This will greatly simplify tax
return preparation for many
individuals and leads the way
towards a system where it may
not be necessary to lodge very
simple tax returns. Although the
Government is not suggesting
that this will be the case yet. The
budget also confirmed: personal
income tax rates previously
legislated for 2010 – 2011 will
not be changed; from July 1 2010
the low income tax offset is
increased to $1,500, effectively
increasing the personal tax free
threshold to $16,000; and from
July 1 2010 the medical
expenses rebate threshold will
increase to $2,000.
Small businesses
The main changes for small
business include:
Company tax rate reduction
It appears that the reduction
in the company tax rate from
30 per cent to 28 per cent from
July 1 2012 will apply to small
businesses as currently defined;
that is, companies with an
annual turnover (including the
turnover of associates) of less
than $2m. For other companies,
the tax rate reduction will be
phased in from July 1 2013
to July 1 2014. As there is no
suggestion that the maximum
personal rate will be reduced, it
will result in further planning
for privately owned businesses
to limit the effective tax rate
on business income to the 28
per cent rate. In the coming
financial year (2010 – 2011) it
will also result in such businesses
considering ways to optimise the
use of franking account balances
and means by which income can
be legitimately deferred to the
following year.
Asset write-offs
From July 1 2012 the proposed
simplification and acceleration
“Broadly, the proposal is to treat all
consideration on sale of a business,
including earn-outs, as attributable to
the business itself. ”
28 motor tradewww.mta-sa.asn.au
of capital expenditure write-offs
for small businesses will provide
administrative and tax benefits.
Small businesses will be able
to immediately write off assets
valued under $5,000 and will be
able to write off all other assets
(except buildings) in a single
depreciation pool at a 30 per
cent rate. This will do away with
the need for them to maintain
detailed depreciation schedules,
at least for tax purposes.
CGT on earn-outs
Clarification of the CGT
treatment of earn-out payments
on business sales is welcome as
it removes doubt surrounding
this area of tax law in a manner
favourable to business owners.
It means that business owners
can structure the sale of their
business in a commercially
realistic way without adverse
CGT consequences. Broadly,
the proposal is to treat all
consideration on sale of a
business, including earn-outs,
as attributable to the business
itself. This means that all of
the consideration, including
earnouts, may qualify for the
CGT 50 per cent discount and
also the small business CGT
concessions. As there will
be transitional provisions for
certain cases with effect from
October 17 2007, it will be
necessary to review any business
sales made from then, once the
provisions are released. Among
other measures that might affect
small businesses is an increase in
the GST threshold for financial
supplies to $150,000 of input tax
credits from July 1 2012.