By Justin Inskip, Director, Westlawn Business Services 25 September 2014
In our September tax roundup, we take a look at some recent changes and rulings that could affect you in relation to your business. In particular, we look at how the repeal of the Mining tax affects small business, previous tax announcements that won’t become law, farm management deposits, depreciating assets, the capital gains improvement threshold, and changes to the PAYG intslalments threshold.
Repeal of measures affecting small businesses that were to be funded by the MRRT
Several tax measures introduced when the Minerals Resource Rent Tax (MRRT) was introduced in 2012 are set to be repealed. The measures directly relevant to small business are:
Loss-carry back rules, and
Capital allowances for small business entities ($6,500 instant asset write-off and accelerated depreciation for motor vehicles).
The repeal of the loss-carry back measure applies from the start of the 2013-14 income year. The changes to be made to the capital allowances for small business entities generally apply on and after 1 January 2014.
Have you relied on tax measures that are not going to become law?
Since late last year, the government has been trying to get on top of nearly 100 tax-related measures that had been announced over the last decade or so but had not made it into law. There are some measures that are not proceeding that taxpayers would have still relied on assuming they would be brought into the law at some stage.
A provision has been passed into law to protect taxpayers who might have made decisions affecting their business and prepared tax returns on the assumption particular measures would eventually become law. This provision ensures outcomes are preserved in relation to tax assessments where taxpayers have reasonably and in good faith anticipated the impact of identified announcements made by a previous government that the tax law would be amended with retrospective effect, and the current government has now decided that the announced proposal to change the law will not proceed. Note that only some announced measures that are not proceeding are covered by this provision, not all.
Some of the identified announcements affect the following areas:
Bad debts – consistent treatment in related party financing arrangements
Certain improvements to the loss recoupment rules
Some technical changes to the capital allowances (asset depreciation) regime, and
Changes to improve the operation of the farm management deposits (FMD) scheme have now passed into law.
These changes are:
Allowing FMD owners to consolidate their existing accounts that have been held for longer than 12 months, without triggering tax liabilities, and
Increasing the non-primary production threshold for FMDs from $65,000 to $100,000.
These changes apply to income years commencing on or after 1 July 2014.
In addition to the above changes, amendments were also made to the Banking Act 1959 (Cth) to exclude FMDs from the operation of the unclaimed moneys scheme from the date of Royal Assent (30 May 2014).
Effective life of depreciating assets from 1 July 2014
Taxpayers with depreciable assets should note that in June this year, the ATO issued Taxation Ruling TR 2014/4 “Income tax: effective life of depreciating assets (applicable from 1 July 2014)”.
The ruling discusses the methodology used by the Commissioner in making a determination of the effective life of depreciating assets under the relevant provisions of the tax law.
Taxpayers may choose to use the Commissioner’s determination of the effective life of a depreciating asset or may make their own estimates. The explanation provided in this ruling of the methodology used by the Commissioner in making a determination of effective life may assist taxpayers who choose to make their own estimate of the effective life of a depreciating asset.
This information is important for depreciating assets for the purpose of preparing your business income tax return.
Tax Tip In working out how much to depreciate assets in your business, make sure you refer to the right ruling for the right income year. TR 2013/4 has the rates that apply in your business 2014 tax return and TR 2014/4 has the rates that will apply in your business 2015 tax return.
Capital gains improvement threshold for 2014-15
The capital gains improvement threshold for the 2014-15 income year is $140,443.
The improvement threshold applies when a capital improvement to a pre-CGT asset is a separate asset as well as to capital improvements to CGT assets for which a rollover may be available.
Note that this threshold applies for the 2015 income year. The threshold that applies to the 2014 income year is $136,884.
PAYG instalments threshold increases
Recently, the Small Business Minister announced changes to the pay as you go (PAYG) instalments entry and exit thresholds. From 1 July 2014, PAYG instalment entry and exit thresholds will increase:
Business or investment income – from $2,000 to $4,000
Adjusted balance of assessment – from $500 to $1,000, and
Notional tax – from $250 to $500.
This may mean that you no longer need to pay instalments. However, you can voluntarily re-enter the PAYG instalment system.
Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.