Sorry about not blogging for a while. But nothing has happened… almost.
But now we have a parliament again, tax policy has started and I promise to keep up. So here are what the Government has provided in the last week…
Treasury Laws Amendment (Income Tax Relief) Bill 2016
Boring… In this Bill the threshold at which the 37% individual tax rates starts increases on 1 July 2016 from $80,001 to $87,000.
The Commissioner has also released new PAYG withholding tax schedules that employers must be using by 1 October 2016. But if the employers forget, employees who don’t understand the withholding system will be happy at tax return time as they get a larger refund. I have always wondered if a varied a taxpayer’s withholding to 100% if they would finally work out a tax refund when you lodge your return is because you made an interest free loan to the Government???
Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016
This is huge as it increases the turnover threshold for a small business entity from $2 million to $10 million (the SBCGT threshold stays at $2 million… Darn). This means more entities can use the small business Rollover or the $20,000 instant asset write off. Awesome!
This Bill also reduces the company tax rate over a series of years. from July 2016 the company tax rate for all small business entities is 27.5%. But note that it is not just a turnover test, the company needs to be carrying on a business.
And this is the mistake in the law. Each year going forward the turnover test for accessing the 27.5% rate increases. For example, the turnover test is under $1 billion in the 2022/23 year. BUT THE BUSINESS TEST IS RETAINED.
This means if your listed company has turnover of $900 million in 2022/23 your tax rate is 27.5% but if my small investing company with seven woolworth shares only that my Dad gave me is taxed at 30% as it is not carrying on a business. What were they thinking?
Franking is a bit weird as well. All franking is at 27.5% unless in the turnover in the prior year is greater than the current year threshold. If this is the case you can frank at 30%. Effectively, the operation of imputation system for corporate tax entities will be based on the company’s corporate tax rate for a particular income year, worked out having regard to the entity’s aggregated turnover for the previous income year.
The Bill also changes the rate of the small business income tax offset to take into account of the reduction in the company tax rate. From 1 July 2016 the rate of this offset increases to 8%. But by 2026/27 the rate of the offset is 16%. This is ridiculous when you realise the offset is capped at $1,000. So if I am a sole trader and I earn more than $6,250 from my business (a massive amount), 16% of this is more than $1,000 and the cap limited the benefit of the offset.
Budget Savings (Omnibus) Bill 2016
This Bill reduces the rate of the R&D Tax Incentive by 1.5%. As a result, for large companies (greater than $20m turnover) the benefit of the offset is only 8.5% of the R&D expenditure. At its worst the R&D Tax Concession was worth 7.5% (125% x 30%) but you could claim so much more then
The second change in the Bill is “Single Touch Payroll”. this will require you, from 2018, to tell the Commissioner:
- Withholding amounts on payments to these employees on or before the day by which the amount is required to be withheld;
- Salaries and ordinary time earnings amount on or before the day on which the amount is paid; and
- Superannuation contribution information on or before the day on which the contribution is paid.
When this information is provided the employer will not need to report these amounts, or summaries of these amount, at any other time of the year.
This Bill also will allow employees to make choice of superannuation fund or request a TFN on the ATO website, and the ATO will inform the employer – Excellent.