The Government handed down the 2017/18 Federal Budget on Tuesday 9th May 2017.
The Budget proposes (amongst several other changes) to increase the Medicare Levy by 0.5% to 2.5% from 1 July 2019 (and tax and withholding rates that are linked to the highest marginal income tax (e.g., FBT) will also increase from 1 July 2019).
One of the other more significant Budget announcements is that, from 9 May 2017, the Government proposes to limit plant and equipment depreciation deductions (e.g., for dishwashers and ceiling fans) to outlays actually incurred by investors in residential properties.
- Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into by 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
- Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property (acquisitions of existing plant and equipment items will instead be reflected in the cost base for CGT purposes).
More taxpayers can access the benefits of being an ‘SBE’
Recent changes to the law have expanded the eligibility criteria for a taxpayer to be considered a ‘Small Business Entity’ (or ‘SBE’), meaning more businesses will be able to utilise the tax concessions that are only available to SBEs.
Broadly speaking, for the year ending 30 June 2017, a business taxpayer will be an SBE if its ‘aggregated turnover’ is less than $10,000,000.
That is, where the business’ ‘aggregated turnover’ (taking into account the turnover of the entity carrying on the business and the turnover of its related parties) is less than $10,000,000, it will be able to access most of the concessions available to SBE taxpayers, including:
- Access to:
- the lower corporate tax rate of 27.5%;
- the SBE simplified depreciation rules, including the ability to claim an immediate deduction for assets costing less than $20,000;
- the simplified trading stock rules;
- the small business restructure rollover relief;
- deductions for certain prepaid business expenditure made in the 2017 income year;
- the simplified method for paying PAYG instalments calculated by the ATO; and
- the FBT car parking exemption;
- Expanded access to the FBT exemption for portable electronic devices;
- Ability to claim an immediate deduction for start-up expenses; and
- The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.
Note that the reduction in the SBE company tax rate to 27.5% for the 2017 income year was accompanied by a limitation on the maximum rate that such companies can frank their dividends also to 27.5%. Consequently, if an SBE company fully franked a distribution before the law changed on 19 May 2017, the amount of the franking credit on the distribution statement provided to shareholders may be incorrect (if the franked distribution was based on the 30% company tax rate).
The ATO has set out a practical compliance approach for such companies to recognise the change and to notify their shareholders. Please contact our office on 07 4151 8898 if you would like more information about this.