Key changes for Tax Time 2016: An overview
The ATO has issued some brief guidance on the key changes and new measures to be aware of for Tax Time 2016. Some of the changes of note include the tax concessions for small business, changes to gender identifiers, the new tax system for managed investment trusts and increasing access to company losses.
Simplified depreciation for small business
Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 and were bought between 7:30pm on May 12 last year and June 30 next year.
Small businesses can claim the deduction through their tax return, and can also immediately deduct the balance in the small business pool if it is less than $20,000 at the end of an income year that ends on or after the same period mentioned above (including an existing pool). More here.
Accelerated depreciation for primary producers
From May 12, 2015, primary producers can immediately deduct the costs of:
– fencing – previously deducted over a period up to 30 years
– water facilities – previously deducted over three years.
They can also deduct the cost of fodder storage assets over three years, instead of over a period up to 50 years. More here.
Company tax cuts for small business
The small business company tax rate reduced from 30% to 28.5% for income years commencing on or after July 1, 2015. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts.
The company tax rate remains at 30% for all other companies that are not small business entities (defined as having an annual aggregated turnover of less than $2 million). More here.
Immediate deductions for start-up costs
From July 1, 2015, small businesses can immediately deduct certain start-up expenses, including costs associated with raising capital. More here.
Small business income tax offset
From the 2015-16 financial year, an individual is entitled to a tax offset on the tax payable on their share of net small business income earned by a sole trader, partnership or trust that is a small business entity.
Sole traders, partnerships and trusts that are small business entities need to work out their net small business income as well as the partner’s and beneficiary’s share of that income. More here.
Changes to gender identifiers
The Attorney General’s guidelines on the recognition of sex and gender recognise that individuals may identify and be recognised within the community as:
– a gender other than the sex (male or female) they were assigned at birth/infancy, or
– an indeterminate sex and/or gender.
The guidelines standardise the way the Australian government collects and uses sex/gender information. For instance, the ATO no longer asks for the taxpayer’s sex on page 1 of a tax return. The “spouse details” section now asks for gender and provides three options to select from. The ATO says this item has been retained for administrative purposes. More here.
Net medical expenses tax offset phase-out
From July 1, 2015, the net medical expenses tax offset can only be claimed by taxpayers with net expenses for disability aids, attendant care or aged care. The offset is income tested, and will be abolished from July 1, 2019. More here.
First home savers accounts abolished
First home saver accounts (FHSA) were abolished on July 1, 2015 and became ordinary savings accounts. Account holders must include earnings in their tax returns. Account providers don’t pay tax on FHSA earnings for any period after June 30, 2015. More here.
New tax system for managed investment trusts
Managed investment trusts (MITs) have access to a new tax system, which the ATO says “modernises the tax rules for eligible MITs and increases certainty for investors”.
If enacted, the proposed rules will apply from July 1, 2016. Eligible MITs can elect to apply the rules from July 1, 2015. They can attribute trust income to beneficiaries on a “fair and reasonable basis” according to their ownership interests in the MIT. An eligible MIT electing into the system is known as an attribution managed investment trust (AMIT).
Among other things, the new tax system introduces provisions relating to amounts that affect the cost base of a member’s interest in the trust. More here.
Exploration Development Incentive
The Exploration Development Incentive (EDI) encourages shareholder investment in small exploration companies undertaking greenfields mineral exploration in Australia.
The scheme enables eligible exploration companies to give up a portion of their tax losses from greenfields exploration to create and issue exploration credits to their shareholders.
Certain Australian resident investors are entitled to a refundable tax offset for the exploration credits that they receive. More here.
Business services wage assessment tool payment
If an individual received a lump sum in arrears business services wage assessment tool (BSWAT) payment, they may claim a lump sum in arrears tax offset.
The BSWAT lump sum in arrears payment is not salary and wages or an Australian government pension or allowance.
To claim the lump sum tax offset, taxpayers must report the payment at label 14 (“other Australian income”) on their tax return. More here.
Report of entity tax information
From December 2015, under the income tax transparency reporting requirements, the Commissioner of Taxation will publish an annual list of:
– public and foreign owned corporate tax entities with total income of $100 million or more
– Australian-owned resident private entities with total income of $200 million or more.
The information will be extracted from tax returns on September 1 in the year following the income year being reported, with the ATO saying it intends to publish this around December. For example, information from the 2014-15 income year will be extracted on September 1, 2016 and published around December of the same year. More here.
Increasing access to company losses
At the time of publishing, this had not become law. However on December 7, 2015, the government announced (as part of its “National Innovation and Science agenda”) that the current “same business test” for company losses will be relaxed to allow businesses to access past year losses when they have entered into new transactions or business activities.
To give effect to this, a new “predominately similar business test” will be introduced. Under this test companies will be able to access losses where their business is similar in regard to:
– the extent to which the company generates assessable income from the same assets and sources
– whether any changes to the business are changes that would reasonably be expected to have been made to a similarly placed business.
This measure is expected to take effect from July 1, 2015. More here.
Taken goods for private use? Here’s the latest values
The ATO knows that many business owners naturally help themselves to their trading stock and use it for their own purposes. This common practice can occur in businesses such as butchers, bakers, corner stores, cafes and more.
It regularly issues guidance for business owners on the value it expects will be allocated to goods taken from trading stock for private use. The table below shows these values for the 2015-16 income year.
| Type of business | Amount (excluding GST) for adult/child over 16 years $ |
Amount (excluding GST) for child 4-16 years $ |
| Bakery | 1,350 | 675 |
| Butcher | 800 | 400 |
| Restaurant/cafe (licensed) | 4,580 | 1,750 |
| Restaurant/cafe (unlicensed) | 3,500 | 1,750 |
| Caterer | 3,790 | 1,895 |
| Delicatessen | 3,500 | 1,750 |
| Fruiterer/greengrocer | 790 | 395 |
| Takeaway food shop | 3,410 | 1,705 |
| Mixed business (includes milk bar, general store and convenience store) | 4,230 | 2,115 |
The basis for determining values is the latest Household Expenditure Survey results issued by the Australian Bureau of Statistics, adjusted for CPI movements for each category. Note that the ATO recognises that greater or lesser values may be appropriate in particular cases, and where you are able to provide evidence of a lower value, this should be used.
ATO warns on franked distributions funded by raising capital to release franking credits
The ATO is concerned about arrangements being exploited by some companies for the purpose of releasing franking credits or streaming dividends to shareholders.
It says this may attract the operation of the anti-avoidance rule in section 177EA of the Income Tax Assessment Act 1936 or other anti-avoidance rules. One immediate purported effect of these arrangements is the release of franking credits that may otherwise have been retained by the company.
If anti-avoidance rules apply to an arrangement, the ATO says there may be adverse implications at the shareholder level and the corporate level.
It has therefore issued a taxpayer alert warning that it is reviewing arrangements that display all or most of the following features:
– a company with a significant franking credit balance raises new capital from existing or new shareholders. This may occur through issuing renounceable rights to shareholders (which may include large institutional superannuation funds)
– at a similar time to the capital raising, the company makes franked distributions to its shareholders, in a similar amount to the amount of capital raised. This may occur as a special dividend or through an off-market buy-back of shares, where the dividend forms part of the purchase price of the shares.
The ATO says that overall there will generally be:
– minimal net cash inflow to, or outflow from, the company
– the net asset position of the company remains essentially unchanged (in a buy-back variant, the number of shares on issue following the transaction may be marginally reduced due to the difference between the buy-back price and the issue price of the new shares) but their franking account is significantly reduced, and
– there is minimal impact on shareholders, except in some cases they may receive refunds of franking credits, and in the case of buy-backs they may also get improved capital gains tax outcomes.
The ATO warns that typically the resulting franked distributions (or franked component of a buy-back consideration) may be unusually large compared to ordinary dividends previously declared and paid by the company (as distinct from a typical dividend reinvestment plan applicable to an ordinary regular dividend).
The franked distribution may be receivable by all existing shareholders of the company, or shareholders may have a choice as to whether to participate (for example, in a buy-back scenario).
The ATO is currently reviewing these arrangements and says it will develop a technical position on the arrangements. In the meantime, it says if you or your clients have entered into, or are contemplating entering into, an arrangement of this type, it encourages you to discuss your situation by emailing [email protected].
GST on intangibles commencing July 2017
A new law applying GST to international sales of services and digital products will apply in Australia from July 1 next year.
The new tax rules will apply to international sales of digital products and services provided to Australian consumers. Under the new law, overseas businesses will be required to pay GST on these sales.
The changes will relate to a broad range of products, including streaming or downloading of movies, music, apps, games and e-books, as well as services such as architectural or legal services. The new law applies very broadly to sales of anything except non-digital goods or real property.
A company selling digital products or services to Australian consumers, that meets the registration turnover threshold of more than $A75,000 in annual sales, will be required to register for, report and pay GST on sales made from July 1, 2017.
For sales made through an electronic distribution platform, for example an app store, the platform operator is responsible for registering, reporting and paying the GST. The ATO says a simplified system will be implemented for businesses to register electronically, lodge and pay the GST. This will be available via the ATO website from April 1, 2017.
Under this system, the ATO says businesses:
– will be able to register electronically with minimal proof of identity
– can lodge and pay GST quarterly
– do not need to provide a tax invoice or adjustment note to your customers
– are not able to claim tax credits.
The ATO says that you can find further information on its international GST home page, and also says that guidance products will be provided closer to the commencement date. Alternatively, questions can be sent to [email protected].
GIC and SIC rate changes
The ATO has advised that the general interest charge (GIC) rate, shortfall interest charge (SIC) and related rates, for the first quarter of the 2016-17 income tax year (1 July 2016 to 30 September 2016) are as follows:
– GIC rate is 9.01% (90 day BAB rate 2.01% + 7% uplift factor)
– GIC daily compounding rate is 0.02461749%.
– SIC rate is 5.01% (90 day BAB rate 2.01% + 3% uplift factor)
– SIC daily compounding rate is 0.01368852%.
IOP, IEP and DRI rate is 2.01%.
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