Pittwater Life August 2017 Issue

travel costs that were for private
purposes. The amendments will
provide confidence in the tax
system by ensuring tax deductions
are better targeted.”
Tightening of rental deductions
2 – depreciation of plant
and equipment: Also abolished
but from budget night on 9
May 2017 is the ability to claim
deductions for the depreciation
of previously used plant and
equipment.
Again, quoting from the
exposure draft: “The intended
effect of these amendments is
that certain entities will only
be able to deduct the decline in
value of depreciating assets used
in gaining or producing assessable
income from residential
premises if the asset is acquired
new for that purpose. Broadly,
the amendments ensure that
entities cannot claim overstated
deductions relating to their
rental properties by ‘refreshing’
the values of previously used
depreciating assets used or installed
ready for use in relation
to those properties.”
The reference above to ‘certain
entities’ is that big business (specifically:
companies, public offer
superannuation funds and unit
trusts with 300+ unitholders) will
still be able to depreciate their
plant and equipment and continue
to claim for travel expenses.
In both cases it appears it was
the mums and dads who were
‘rorting’ the system and who presumably
will be happy enough
to retain negative gearing in its
general form despite the loss of
deductibility of these two items.
This is rubbish policy, as it runs
contrary to fundamental principles
of tax law and has its roots
in populism. What we don’t know
at this point is will the government
stop here or is this the start
of ‘a death by a thousand cuts’ to
negative gearing?
Retention of the 20k
instant asset write-off: There’s
nothing really new here, it
obviously keeps testing well in
focus groups and is back for
another year at least. From the
ATO website: “On 9 May 2017,
the Government announced an
extension to the 2015-16 Budget
measure providing an instant
asset write-off provision for
small business. Small businesses
can immediately deduct the
business portion of most assets
if they cost less than $20,000
and were purchased between
7:30PM on 12 May 2015 and
30 June 2018. This deduction
can be used for each asset that
costs less than $20,000, whether
new or second-hand. You can
claim the deduction through
your tax return, in the year the
asset was first used or installed
ready for use.”
The franking credit debacle:
You may have caught the headlines
about the reduction in
company taxes – currently 27.5%
(down from 30%) for businesses
turning over less than $10 million
in 2016/17. The government
is aiming for a 25% company tax
rate across the board; however,
this has not been legislated yet.
I’ve written about this before.
The thing with small business
is that most earnings are usually
taken out as wages or as
dividends and therefore taxed
at marginal personal rates, not
corporate rates. What people
are realising about these tax
cuts is that if you paid tax at
30% but only obtain dividend
imputation at 27.5%, there is
a net 2.5% give back to the
government of unused franking
credits. In other words, not really
a tax cut at all. The problem
is starting to be anticipated up
the chain, as bigger turnover
companies see the potential
for this franking credit wastage
and shareholders such as large
superannuation funds start lobbying
the government.
If you are in business and use
a corporate entity presumably
your accountant will be the one
grappling with this problem. Be
thankful it’s them and not you.
Business Life
Brian Hrnjak B Bus CPA (FPS) is a Director of GHR Accounting
Group Pty Ltd, Certified Practising Accountants. Offices at:
Suite 12, Ground Floor, 20 Bungan Street Mona Vale NSW 2103
and Shop 8, 9 – 15 Central Ave Manly NSW 2095,
Telephone: 02 9979-4300, Webs: www.ghr.com.au and
www.altre.com.au Email: brian@ghr.com.au
These comments are of a general nature only and are not
intended as a substitute for professional advice.
The Local Voice Since 1991
AUGUST 2017 51