Tax Breaks for Big Business

Every time I have a conversation about tax policy someone always tells me that before I make the changes I want I have to “stop all the tax breaks for big business”.

So what are these “tax breaks for big business” that I need to get rid of first?

Fortunately, each year the Government releases a list of all of its “Tax Expenditures”. And for all the normal people who have no idea what a tax expenditure is, the Government defines it as…

Tax expenditures typically involve tax exemptions, deductions or offsets, concessional tax rates and deferrals of tax liability.

So lets go through the top 25 of these exemptions, deductions or offsets, concessional tax rates and deferrals of tax liability and see what “tax breaks” those big businesses have. This list can be found at page 9 of this document.

  • By far the biggest is the CGT exemption for individuals on their main residence ($63 billion a year).
  • Next is the superannuation exemptions of just over $30 million, which again only apply to individuals as super belongs to individuals.
  • GST-Free food, education, aged care and health cost over $17.5 billion a year, which exists to help individuals with important costs.
  • The 50% CGT discount for individuals and trusts is next at just under $10 billion and again this  cannot be used by almost all big business.
  • Family Tax Benefit exemption, Child Care benefit exemptions, Medicare levy reductions combined cost $8.5 billion a year.
  • Tax concessions for charities, not for profits, and donations to these organisations costs $4.5 billion a year.

As yet, not a single “tax break” for big business. Actually, in the top 25 tax expenditures all big business gets is:

  1. Exemption from interest withholding tax on certain securities at $2.3 billion a year (but most of this relates to people buying Government debt);
  2. Concessional rate of excise levied on aviation gasoline and aviation turbine fuel at $1.2 billion a year; and
  3. Capital works expenditure deduction at $1.1 billion a year

I did not include lower company tax rate and simplified depreciation as they only apply to businesses with turnover less than $2 million – hardly big business.

So while the tax system is littered with tax breaks for individuals, you would be trying hard to find any substantive tax breaks for big business in our tax system. If you don’t borrow overseas, don’t own aircraft and lease your buildings there is nothing in this list for your big business at all.

 

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Fairfax journalist spinning a tax story again…

Why do Fairfax journalist have to exaggerate every tax story they have to push their ideology?

Peter Martin is at it again today when he writes…

 Revealed: how the Tax Commissioner was leant on to deliver high-end tax cuts
Mr Martin again is going to show us how the current Government is a friend of big business and wants to keep the workers down by offering only tax cuts to the “high-end”… 

But hang on. I don’t remember any “high-end” tax cuts recently. So what is he talking about?

He intensionally leaves it to the last paragraph, where he writes…

The tax cut, for Australians earning between $80,000 and $87,000 would be delivered on October 1…

“High-end”?!? Peter, let me show you what the Budget papers say about why this change has been made to the individual tax rates...

This measure will reduce the marginal rate of tax on incomes between $80,000 and $87,000 from 37 per cent to 32.5 per cent, preventing around 500,000 taxpayers facing the 37 per cent marginal tax rate. This will ensure that the average full‑time wage earner will not move into the second highest tax bracket in the next three years. In the absence of this action, they would move into the second highest tax bracket in 2016‑17.

This “high-end” tax cut is to stop average full time wage earners having to pay any tax at the 40% tax rate. Since when is the “average full time wage earner” “high-end”? Come on Peter.

But it would not have served Peter’s ideology if he had have written an accurate article that was titled “Government pushes for average worker not to be overtaxed.”

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What has happened to ATO Interpretative Decisions?

According to the Commissioner, an ATOID is a “summarised version of a decision we have made on the application of the law to a particular situation.” (See PSLA 2001/8)

These have been around since 2001 and have been an amazing insight into the types of private rulings that the Commissioner has been giving to specific taxpayers.

In 2003 the Commissioner made over 1,200 of these decisions. And you can understand how there can be so many ATOIDs in a year. As PSLA2001/8 states…

… an ATO ID may be prepared for each decision on an interpretative issue where:

· there is no precedential ATO view on the issue, or

· there is an existing precedential ATO view however an ATO ID will improve the clarity or certainty of the ATO’s interpretation of the particular area of the law.

But it appears that there are no areas left that the Commissioner has not ruled on. Also, all the areas he has ruled on are perfectly clear.

Why? In 2016 the Commissioner released one ATOID. And that one was on what is the GST registration threshold for body corporates (booorrring).

The reason for ATOIDs was so that taxpayers could see what the Commissioner is saying to other taxpayers. Is he giving favourable ruling to some (as was suggested back in the 1990’s)?

Simply, ATOIDs serve a purpose as a resourse for taxpayers that the register of private rulings will never be (given its size). Also, it creates confidence in the private ruling system.

So if the Commissioner has decided to end ATOIDs, then what is he going to replace it with so taxpayers have both the resources and the confidence in the private ruling system?

Lets see how many are issued in 2017?

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One of many or just one…

This one is for my Quantity Surveyor friends who love to put together depreciation schedules…

The Commissioner has released a draft Taxation Ruling that considers whether a composite item is itself a depreciating asset or whether its components are separate depreciating assets.

And this is a great question. How far down do we break something down before we start claiming depreciation on it? Part, compound, element, proton, quark?

The Commissioner states that for a component of a composite assets to be considered to be a separate depreciating asset, it is necessary that the component is capable of being separately identified as having commercial and economic value.

The main principles that need to be taken into account in determining whether a composite item is a single depreciating asset are:

  • Whether the depreciating asset will tend to be the item that performs a separate identifiable function;
  • Whether the asset is an item that performs a discrete function;
  • Whether there is a high degree of physical integration of the components;
  • Whether attaching the item to another asset, varies the performance of that asset; and
  • Whether the item is purchased as a system to function together as a whole and which are necessarily connected in their operation.

The draft ruling has a series of examples that use these factors. For example, the draft Ruling concludes that:

  • Connected warehouse storage racks are a single depreciable asset but unconnected racks are not;
  • A desktop computer package, including a monitor, keyboard and a mouse, is a single depreciable asset but an additional printer is not;
  • A mainframe and 50 slave terminals is a single depreciating asset;
  • A built-in GPS unit in a car is a part of the car but a portable GPS unit is not; and
  • A solar system is a single depreciable asset.

However, it is worth noting that in many cases adding a new component is a separate depreciable asset and not a modification to the existing asset. For example, adding additional solar panels to a current system will see the new panels treated as a separate depreciable asset.

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Excuses, excuses…

These are the best 10 excuses for not lodging an individual tax return given to the UK Revenue and Customs in 2016:

  1. My tax return was on my yacht, which caught fire.
  2. A wasp in my car caused me to have an accident and my tax return, which was inside, was destroyed.
  3. My wife helps me with my tax return, but she had a headache for ten days.
  4. My dog ate my tax return…and all of the reminders.
  5. I couldn’t complete my tax return, because my husband left me and took our accountant with him. I am currently trying to find a new accountant.
  6. My child scribbled all over the tax return, so I wasn’t able to send it back.
  7. I work for myself, but a colleague borrowed my tax return to photocopy it and lost it.
  8. My husband told me the deadline was the 31st March.
  9. My internet connection failed.
  10. The postman doesn’t deliver to my house.

So make sure in any divorce you get the accountant!

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The End of Salary Packaged Super

From 1 July 2017 I cannot understand why anyone would salary package super in addition to the 9.5% SG their employer is required to pay for them.

Now I am not saying that it is not worth using up an employee’s entire $25,000 concessional cap (2017/18 cap amount), but I am saying you are crazy if you attempt to get to $25,000 by salary packaging super… There is a much easier way.

From 1 July 2017 anyone, including employees, can make deductible contributions straight to super in addition to their employer’s SGC amounts. This means they need not enter into a valid salary sacrifice agreement with their employer to sacrifice salary into super anymore. They can just make the contribution any time during the year.

This is much easier than making sure the salary sacrifice agreement is”effective” as defined by the 145 paragraphs of  Taxation Ruling TR 2001/10. Especially, this Ruling states clearly that an employee must agree to receive part of their remuneration as superannuation before they have an entitlement to receive that part of their remuneration as salary or wages. This has caused problems for bonuses, leave, payouts…

But all these rules can easily be avoid. And you can avoid all the negotiating with your employer, completing forms with payroll to get the sacrifice set up, remembering to change the amount when circumstances change, and even finding that your employer may have LEGALLY stopped paying your 9.5% SG as your salary packaged super is greater than the required 9.5% and your have a dodgy salary sacrifice agreement!

For example, if an employee wants to salary sacrifice a bonus into super they need to agree with the employer before they have derived the bonus that, whatever the amount will be, will be salary sacrificed. They need to ensure the agreement states this super is in addition to the 9.5% the employer remitted before the salary package. They need to complete any forms needed by payroll and then ensure payroll actually execute the package correctly. So when did the employee derive the bonus? the Taxation Ruling states “it depends” (have a look at paragraphs 97 & 98)

Under the new rules from 1 July 2017, the employee can merely wait until they have received the bonus, contribute it to super, notify the fund on a very simple form and claim a deduction. Yes, the bonus will have tax withheld from it when it is paid but that tax will be returned when the employee lodges their tax return.

So is this the end of salary packaged super. I cannot see why not. But I am sure you will all tell me I have missed something.

PS. If you can convince your client to use the additional tax refund they get each year for topping their employer’s SG contributions up to $25,000 as additional super contribution you might find it easier to convince them that putting money away in super is a good idea…

 

 

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More rubbish about Evil Apple and Taxes

By now most of us have heard that the European Commission has ordered Apple to pay 13 billion Euros. But the money does not go to the EU, but rather the order is that Ireland has to collect the amount from Apple… But Ireland does not want to. Ireland has argued that Apple have paid the right amount of tax, at the right time, exactly as the Irish law states. The Irish Tax Commissioner has confirmed Apple has been totally transparent and met all its obligations

So what is going on here???

The European Commission does not like the Irish tax system as it encourages businesses to invest through Ireland (rather than the other European countries that have higher tax rates). Therefore it has stated that Ireland granted undue tax benefits to Apple which it claims is illegal under EU state aid rules. SO it is not Apple that has done anything wrong according to the EU (as shown by the fact that it clearly states there is no penalty on Apple), but rather the EU thinks Ireland has been naughty by having low tax rates.

So it appears that even though Apple complied with all of Ireland’s tax laws, and Ireland does not want the additional tax from Apple, the EU are requiring Ireland to get the additional tax from Apple.

That’s easy to understand?!?!?!

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