Reward for work is a dominant theme in this year’s Budget. The seven year personal income tax plan initially targets low to middle income earners before making significant changes to the tax brackets.
While there’s much to be said about the complete budget, we’ve reviewed the key highlights that may affect your business.
$20k accelerated depreciation extended until 30 June 2019
The ability for small business entities to claim an immediate deduction for assets costing less than $20,000 has been extended until 30 June 2019.
From 1 July 2019, the immediate deduction threshold will reduce back to $1,000.
There are no limits to the number of times you can use the immediate deduction assuming your cashflow supports the purchases.
If your business is registered for GST, the cost of the asset needs to be less than $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
542 Tip: If you purchase assets costing $20,000 or more, the immediate deduction does not apply but small businesses have the ability to allocate the purchase to a pool and depreciate the pool at a rate of 15% in the first year and 30% for each year thereafter.
Research & development incentive shake-up
Applying to income years starting on or after 1 July 2018, the way the research and development (R&D) tax incentive applies will change to focus on ‘more intensive’ R&D activities, particularly in medical and clinical development.
For companies with an aggregated annual turnover less than $20 million:
- An annual $4 million cap will be introduced on cash refunds for R&D claimants. Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years;
- Clinical trials will be excluded from the $4 million cap on cash refunds, to encourage development in this area; and
- The refundable R&D tax offset will be amended and will become a premium of 13.5 percentage points above the company’s tax rate for that year.
542 Fact: The changes attempt to refocus the incentive on activities that go well beyond what companies would normally do to improve.
Black economy – new initiatives and more industries rolled into the taxable payments system
From 1 July 2019 the following industries will be required to lodge annual reports to the ATO:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
The building industry, cleaning and courier businesses are already required to provide this enhanced reporting to the ATO.
The first annual report for these industries is required by August 2020. Businesses in these industries will need to start collecting information on payments to contractors from 1 July 2019.
542 Tip: The taxable payments reporting system requires businesses in certain industries to report payments they make to contractors (individual and total for the year) to the ATO. ‘Payment’ means any form of consideration including non-cash benefits and constructive payments.
Introduction of a 3-year cycle for SMSF audits for compliant funds
The Government has flagged consultation with key stakeholders on this measure (with no further details available at present).
The key issue with this measure is how the three-year cycle will work – is it an audit for one year in three or three years once?
If the audit is only for the third year of the cycle, then there is a major risk of compliance issues going unnoticed. Having two years with no audits may present opportunities for ‘creative’ trustees to manipulate the superannuation system. It will be difficult for an auditor to sign-off on the third year without having a level of comfort as to what has transpired in previous years.
If the audit is for the prior three years, the benefit for members may be negligible as auditors will need to charge for three years of work. The measure is designed to reduce ‘red-tape’ for trustees but having three years of questions from auditors might just group three years into one.
542 Fact: SMSFs with a history of good record-keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.
To view the full business changes click here (PDF).
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