Instant asset write-off increased to $30k and expanded to businesses under $50m
|
Date of effect |
7:30pm (AEDT) on 2 April 2019 to 30 June 2020 |
The threshold for the popular $20,000 instant asset write-off will increase to $30,000* from Budget night until 30 June 2020 when it will potentially return to its original $1,000 level on 1 July 2020. We say ‘potentially’ because the threshold has been at or above $20,000 since 12 May 2015.
The Government had previously announced an increase to the threshold for the instant asset write-off to $25,000 from 29 January 2019 but this measure was not legislated prior to the release of the Budget. The Government however intends to honour the announced rate increase.
In addition, the number of businesses that can access the instant asset write-off will increase. Currently, to qualify for the write-off, only businesses with an aggregated turnover under $10 million qualify. From Budget night, businesses with an aggregated turnover under $50 million will also be able to access the write-off.
|
Instant asset write-off thresholds |
Small Business* |
Medium business** |
|
1 July 2019 – 28 January 2019 |
$20,000 |
– |
|
29 January – 2 April |
$25,000 |
– |
|
2 April – 30 June 2020 |
$30,000 |
$30,000 |
* aggregated turnover under $10 million
** aggregated turnover under $50 million
Assets will need to be used or installed ready for use from Budget night until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for the $20,000 or $25,000 threshold. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify.
The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify.
For assets costing $30,000 or more
For small businesses (aggregated turnover under $10m), assets costing $30,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (i.e., these are added back), is less than $30,000 at the end of the income year, then the remaining pool balance can be written off as well.
The ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out) will continue to be suspended until 30 June 2020.
Pooling is not available for medium sized businesses which means that the normal depreciation rules based on the effective life of the asset will apply to assets that don’t qualify for an immediate deduction.
This initiative is subject to the passage of legislation so don’t go out on a spending spree just yet!
* $30,000 exclusive of GST for GST registered businesses. $30,000 inclusive of GST for businesses not registered for GST.
Division 7A changes postponed
|
Date of effect |
1 July 2020 |
Division 7A captures situations where shareholders access company profits in the form of loans, payments or the forgiveness of debts. The rules are drafted broadly and have become more complex as amendments close perceived loopholes.
Division 7A treats certain events as triggering “deemed” dividends for tax purposes. Where a private company makes a payment or loan to a shareholder or associate, the amount may be treated as a dividend for tax purposes. Where a debt owed by a shareholder or associate to a private company is forgiven, these amounts may be subject to the same treatment.
Significant changes to the way Division 7A works were intended start taking effect from 1 July 2019. These reforms have now been pushed back to 1 July 2020.
These proposed reforms include:
- While the current rules allow Division 7A loans to be placed under a 7 year or 25 year loan agreement, the new rules would only allow provide for a maximum 10 year loan agreement. Annual repayments of principal and interest would be required to prevent a deemed dividend from arising.
- Transitional rules would be introduced to ensure that all existing Division 7A loans are brought into the 10 year loan model. 7 year loans would retain their existing outstanding term. Existing 25 year loans would be largely exempt from the new rules until 30 June 2021.
- Loans made before 4 December 1997 that have not been forgiven (or deemed to have been forgiven) will be refreshed and brought within the scope of Division 7A. They will be treated as financial accommodation as at 30 June 2021 and will need to be repaid or placed under a complying loan agreement by the company’s lodgement day for the 2021 tax return to avoid a deemed dividend.
- The concept of distributable surplus will be completely removed, which means that the entire value of the loan, payment or forgiven debt will be an assessable deemed dividend regardless of the financial position of the company.
- Unpaid present entitlements (UPEs) will trigger a deemed dividend unless they are paid out or placed under a complying loan agreement by the lodgement day of the company’s tax return. Existing UPEs that arose between 16 December 2009 and 30 June 2019 will be brought within the scope of these new rules as well. Treasury is still considering whether UPEs that arose before 16 December 2009 should be brought within the scope of Division 7A.
- A self-correction mechanism will be introduced which will enable taxpayers to fix Division 7A problems without having to ask for the Commissioner’s discretion to disregard a deemed dividend. A number of conditions would need to be met in order to be able to take advantage of this (e.g., appropriate steps must be taken to fix the problem within 6 months of identifying the error).
- The amendment period rules for Division 7A issues will be extended to cover 14 years after the end of the income year in which the loan, payment or debt forgiveness occurred.
- Safe harbour mechanisms will be introduced in relation to the use of company assets where the parties are trying to show that the shareholder has paid an arm’s length amount for the use of the asset.
The postponement is a welcome move to provide more time for the measures. In some cases, there will be quite a bit of work to be done to implement the reforms.
We will let affected clients know more when more information is released.
Luxury car tax refunds increased for primary producers and tourism operators
|
Date of effect |
Vehicles acquired on or after 1 July 2019 |
For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four wheel or all wheel drive cars, up to a maximum refund of $3,000. The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.
North Queensland flood grants to be tax-free
|
Date of effect |
Grants relating to flooding between 25 January 2019 and February 2019 |
The Government will ensure that qualifying grants paid to primary producers, small businesses and non-profit organisations affected by the North Queensland floods will be treated as non-assessable non-exempt income, which means that they should be tax-free.
Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, and grants provided under the On-Farm Restocking and Replanting Grants Program and the On-Farm Infrastructure Grants Program.
Queensland storm payments to be tax-free
|
Date of effect |
Payments relating to storm damage in October 2018 |
The Government will ensure that certain payments made to primary producers in the Fassifern Valley, Queensland who were affected by storm damage in October 2018 will be exempt from income tax.
Increased funding for Export Market Development Scheme
$61m over three years has been provided to support Australian businesses to export Australian goods and services to overseas markets. $60m of the funding will go towards boosting reimbursement levels of eligible export marketing expenditure for small and medium enterprise exporters.
Compliance
$1bn ATO ‘sugar hit’ to tackle large corporates and high net wealth individuals
|
Date of effect |
From 2019-20 |
The Government will provide $1bn over four years from 2019-20, including $6.5 million in capital funding, to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage. For this, the ATO is expected to produce a $3.6bn budget gain.
Tax avoidance schemes and strategies are the focus of this funding.
Recovering unpaid tax and superannuation liabilities
An additional $42m has been provided to the ATO to recover unpaid tax and superannuation liabilities focussed on larger businesses and high wealth individuals. The measure is expected to create a budget gain of $103.6m.
$607m to follow through on response to Banking Royal Commission
$606.7m will be spent over 5 years to follow through on the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This includes:
- An industry funded compensation scheme of last resort for consumers and small business
- Additional funding for the Australian Financial Complaints Authority to establish a historical redress scheme for financial complaints dating back to 1 January 2008.
- Paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations
- Additional funding for ASIC to implement its new enforcement strategy and expand its capabilities
- Additional funding for the APRA to strengthen its supervisory and enforcement activities and to fund a capability review of APRA
- Establishment of an independent financial regulator oversight authority
- Establishment of a Financial Services Reform Implementation Taskforce.
These measures are partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies.
ABN status stripped for non-compliance
|
Date of effect |
1 July 2021, and 1 July 2022 |
From 1 July 2021, Australian Business Number (ABN) holders will be stripped of their ABNs if they fail to lodge their income tax return. In addition, from 1 July 2022, ABN holders will be required to annually confirm the accuracy of their details on the Australian Business Register.
Currently, ABN holders are able to retain their ABN regardless of whether they are meeting their income tax return lodgement obligations or the obligation to update their ABN details.
Support for small business in tax disputes
This previously announced measure provides $57m in funding over 5 years to provide access to a fast, low cost, independent review mechanism for small businesses in dispute with the ATO. The funding is directed to the Department of Jobs and Small Business, the Administrative Appeals Tribunal (AAT) and the Australian Taxation Office (ATO).
More information
Sham contracting unit established
A new dedicated sham contracting unit will be created within the Fair Work Ombudsman. The unit’s role is to address sham contracting behaviour by some employers, particularly those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations and employment entitlement.
Registration scheme for Labour Hire operators
As previously announced, a National Labour Hire Registration Scheme will be established to protect vulnerable workers, including migrant workers. The Scheme will make it mandatory for labour hire operators in high risk sectors, such as horticulture, cleaning, meat processing and security sectors, to register with the Australian Government as a labour hire operator. Annual fees and charges to participate in the Scheme are anticipated to cover the cost.
More information
Director