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Key tax takeaways for SMEs in this year's Budget

Jonathan Ortner, FTI

Senior Associate, Arnold Bloch Leibler

Member of The Tax Institute’s SME & Tax Practitioner Technical Committee

 

Transcript, 4 April 2019: Comments on the Federal Budget 2019-20 

What are the key tax takeaways for SMEs in this year’s Budget? 

While they didn’t get their entire wish list this year, small businesses are a winner in the Budget, with the Government describing them as the ‘engine room of the economy’. 

The three key tax takeaways are: 

  • an increase in the instant asset write off threshhold to $30,000;
  • an increase in the availability of the regime to businesses with annual turnover of less than $50 million. This brings in 22,000 more businesses; and
  • there’s a fast tracking of the corporate tax cut to 25% by 2022. This is 5 years earlier than previously proposed, and it benefits up to 1 million companies. 

So, what do we have? 

  • we’ve got an increase in tax cuts;
  • we’ve got less onerous depreciation reporting requirements; and
  • we’ve got an immediate tax deduction. 

This will put cash in the hands of SMEs and it will help with their expansion plans. 

Whilst the 2018 Budget initiative still has some measures that haven’t passed, and this makes people nervous – I fully expect these measures to have bipartisan support. 

Where are we at with Division 7A following the budget announcement? 

So where are we at with Division 7A?Well, we’re in a state of limbo. The proposed reforms have been pushed back yet again to 1 July 2020. 

How did we get here? Well Division 7A  is a bit of a complicated beast. It’s designed – and it has good intentions – but it is designed to prevent private companies from being able to distribute out profits in a tax-free form, whether it be by way of payment or loan to shareholders or their associates. And the problem can be for small businesses, particularly ones with groups that have trusts and private companies - that it’s very easy to fall foul of the rules. Whilst conceptually simple, it’s very difficult to apply in practice for advisers, and so as a result, there has been a strong push for reform. 

The Board of Tax in late 2014 made their recommendations. As a result, the then Government in 2017 announced the reforms in their Budget. Unfortunately, we’re still here at today’s date with nothing tangible being provided, and Treasury late last year also provided their recommendations. In relation to those proposals, some of them incorporated the Board of Tax’s suggestions, but they also made their own specific changes that were highly controversial, and this led to submissions from stakeholders, and as a result, the delay between now and 1 July 2020 is critical to try and iron out some of those problems. In particular, it’s hoped that sanity will prevail in relation to some of the more controversial aspects of Treasury’s proposal, particularly around the decision to do away with the distributable surplus concept, and also the decision not to grandfather 25-year loans. 

How is the Government proposing to assist small businesses resolve disputes with the ATO? 

We all know that tax disputes are difficult at the best of times. They’re time consuming. They’re costly, and they’re a distraction. Small businesses simply do not have the resources to handle disputes with the ATO, and this puts them at a significant disadvantage because as we all know, in our tax regime, the onus of proof sits with the taxpayer. 

So it’s positive to see the Government introduce four new measures to assist small businesses in disputes with the ATO. 

  1. This includes the introduction of the Small Business Concierge, and what that will do is allow small businesses to contact a lawyer for up to 1 hour at a cost of no more than $100, and that lawyer will advise on prospects of the case and assist with AAT proceedings. 
  1. There will also be the introduction of a Small Business line within the AAT, and what that will do is reduce application fees; it will provide a dedicated individual case manager; and hopefully, an expedited outcome. 
  1. We also have a review into the compensation scheme for members of the public in relation to decisions made by government agencies that were in error, and 
  1. We have a review into the ATO debt collection practices. 

With these last two measures coming on the back of the ABC Four Corners program last year, and the recommendations made by the former Inspector General of Taxation, Ali Noroozi. 

Given what we know about Labor’s proposed tax policies, do you think small businesses would fare better if the ALP were to win next month’s election? 

How does this compare with Labor’s proposals and under what government would businesses fair better? 

It’s difficult to say at this stage. Bill Shorten has the opportunity to provide his Budget reply speech tonight. So, there may yet be another twist in the plot. 

What we do know is that Labor has come out in support of the Government’s fast tracking of the corporate tax cuts, and they’ve also announced the introduction of an Australian Investment Guarantee. This is an accelerated depreciation regime, designed to provide all businesses with an upfront 20% deduction on eligible assets valued at over $20,000. 

The downside, if Labor do get in, is the proposal to tax trust distributions at a minimum rate of 30% and depending on how small businesses are structured, this may very well impact them significantly. 

So, they haven’t moved the yardstick too far away. Overall, Government and Labor – they’re fairly aligned when it comes to small business. So I’d say for small businesses, it’s positive news.

 

 

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