It’s May in Parliament; the autumn leaves are turning, the Antarctic wind has come north, and the Federal Budget has landed. Now the dust has settled on the release of the budget, we’ve outlined all the key points business owners need to know.
The $20,000 Instant Asset Write-Off Lives On
When the $20,000 Asset Write-Off was introduced in Federal Budget 2015, quite a few business owners were rubbing their hands in glee for all the upcoming shopping trips to Officeworks, Apple and Audi. While this was meant to last until 2016, the government has extended the $20,000 instant asset write-off once more.
The instant asset write-off plan allows companies with a turnover of less than $10M to claim an immediate tax deduction on all capital purchases up to $20,000 per item. It’s certainly a great way to buy new business toys and boost productivity in the office while giving a gratified push to the retail sector. This includes the purchase of
- Technology, such as computers, laptops, phones and printers
- Plant and equipment
- Motor vehicles
Previously, the costs of these items were depreciated over several years but now, we can claim all the tax back at once.
The instant asset write-off continues until June 30, 2019.
From a tax perspective, for assets costing more than $20,000 - which can’t immediately be deducted - the rules remain: assets go into a general small business pool and are depreciated at 15% in the first income year and 30% each income year following. Once the balance on the pool drops below $20,000, only then it can be immediately deducted.
Craft Beer Tax
There have been callouts across the years from craft beer brewers about unfair tax rates. Currently, beer sold in kegs of more than 48 litres are taxed 40% less than smaller kegs, putting craft brewers at a distinct disadvantage. The government is changing the laws so all beer kegs bigger than eight litres will be taxed at the same rate.
Alcohol manufacturers can also claim a refund of 60% of up to $30,000 a year. This will increase to $100,000 from July 1, 2019.
The Cutback Of Red Tape
The government continues to streamline reporting processes for GST. While 20 Questions has been a classic game for time immemorial, the 20 Questions Business Activity Statement GST was never a fun game to play. This has been replaced with businesses needing to only reply to three questions.
Tax Cuts For SMBs
The government first introduced the 10-Year Enterprise Tax Plan in May 2017 with a promise for lower taxes and more concessions for businesses. Eligibility for a 27.5% tax rate went from a turnover threshold of $25M to $50M. This means more businesses will benefit from a lower tax rate starting July 1, 2018.
The tax reform also includes an increase to the unincorporated small business tax discount rate, going from 5% to 8% to cap at $1,000. The government expects this to increase to 16% by 2026-27.
A greater number of small businesses can access more small business tax concessions, with the turnover threshold raised from $2M to $10M.
Promoting Aussie Exports
$20M has been allocated for small and medium businesses to enter and expand into exporting opportunities in international markets.
Protecting SMBs: The Death Of The Phoenix
The government is stepping up on the fight on phoenix companies, when directors of a company allows the business to collapse in order to avoid paying creditors by resigning or going into administration. This leads to customers not receiving goods or services when they’ve paid for it, lost payments for small businesses and lost wages and entitlements for affected employees. Treasurer Scott Morrison noted in his speech to parliament "We are making sure small businesses don't get ripped off by other businesses who deliberately go bust to avoid paying their bills, with tough new anti- phoenixing measures.” These new measures include:
- Preventing directors from improperly backdating resignations to avoid liability
- Preventing directors from resigning to leave a company without directors
- Giving the ATO extended powers to contain funds if there are outstanding tax lodgements
- Extending the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, so directors are personally liable for a company's debt
The government is also aiming to protect small businesses from illegal phoenixing by improving unfair contract terms and providing businesses with access to better dispute resolutions.
Black Economy Crackdown
The government will be cracking down on businesses failing to record cash sales and under report on income or deducting PAYG on payments to contractors and employees. Announcements were made specifically directed at small businesses breaking the rules.
- From July 1, 2019, small businesses will be banned from accepting cash payments for goods and services costing $10,000 or more. Payments will be paid electronically or by cheque
- Businesses will no longer be able to claim tax deductions for payments to their employees, such as wages where PAYG is withheld
- Deductions will be removed for payments made by businesses to contractors where the contractor does not provide an ABN and the business doesn’t withhold PAYG
- From July 1, 2018, cleaning or courier businesses will need to report to the ATO on any payments made to contractors during the year
- From July 1, 2019, this rule will apply to businesses in security providers and investigation services, road freight transport, computer system design and related services
This is a move expected to bring $5.3BN into the ATO coffers across the next four years. An indirect move however, will no doubt see more of a push within the cryptocurrency market.
Sponsoring Foreign Workers
Last year, businesses employing foreign workers on 457 Visas were required to pay an annual levy of up to $18,000 on temporary work visas, or a one-off levy of up to $5,000 for employees on a permanent skilled visa. On March 18, 457 Visas were replaced with the new Temporary Skill Shortage Visa Program. People can now work in Australia on either a two-year visa or a four-year visa.
This plan was designed for employers to access skilled foreign workers if they weren’t able to find the right employees with the right skills in Australia. The fallout from this means international students who were previously able to get employer sponsored visas after completing their studies are less likely to find sponsorship. This also allowed Australian employers to source skilled overseas workers, but only where there is a demonstrated need that cannot be met in the Australian labour market and standard visa programs not available.
Personal Tax Cuts
While personal tax cuts aren’t necessarily relevant to small business, this does mean that customers paying less tax are more likely to buy our goods and services. The budget presents a dramatic change to the tax system, by removing a tax bracket over the next seven years. Currently, we have a progressive tax system, where, as people earn more money, the more tax they pay increases. By 2024, earning $41,000 a year will be paying the same tax rate as someone earning $200,000. Business Insider offers a full run down on the new system for our personal taxes that's almost easy to understand >here<.
Computer Says No?
Even though we can always depend upon taxes popping up in life, this doesn’t make the budget any less confusing. It’s hard getting our head around what the government is doing with our money, so we've tracked down some great reading material to help you.
We love the ABC’s Cheat Sheet which nicely (and adultly) presents all the details where our money is going. And given the government's $88M transfer away from the network to pay for a statue of Captain Cook in Botany Bay, the ABC is going to need as much love from us as they can get
If you’re a millennial, or need to explain to a millennial how the new budget works, this handy guide written up by the Millennial tax team of South Australian William Buck Chartered Accountants & Advisors is excellent – or ‘totes lit’ even, in Milennium speak.
If you’re jaded about the government in general and would appreciate a laugh about something that’s not even vaguely hilarious, you’ll enjoy reading Junkee’s wrap up about everything Federal Budget 2018 >here<.
For the serious and studious adults among us, the full details of the 2018 Federal Budget according to the government can be found >here<.
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