This article contains a summary of the key tax changes announced in the 2012 budget that impact on businesses and the various other tax and compliance measures announced over the past 12 months that also impact on all businesses and apply from 1 July 2012.
Federal Budget Tax Changes
(1) Income Tax
No reduction in company tax rate
The company tax rate cuts to 29 and 28% have been shelved, including the small business tax rate reduction to 29% that was due to start from 1 July 2012.
Company tax loss carry-back
Companies, and entities taxed like companies, will receive a tax loss carry-back concession. The concession is limited, however, to company tax losses incurred in the 2012-13 income year and thereafter. Tax losses in the 2012-13 year may be carried back one year only, and company tax losses in later years may be carried-back for up to two years.
The company carry-back loss concession is limited to $1.0m of company income (revenue) losses, incurred from the 2012-13 income year, and may be carried-back only to receive a refund of income tax paid, in the previous one or two years as the case may be, that is represented by franking credits remaining in the a company’s franking account. The tax benefit is limited up to $300,000 per year. The tax benefit will not be received by a company until it has lodged its income tax return for the year it incurs the tax loss.
Increase in the Contribution Tax Rate to 30% in Some Cases
Individuals involved in small business ownership, and other individual’s generally, earning annual income in excess of $300,000 pa, including concessionally super contributions and certain other adjustments, have their tax-deductible concessional contributions taxed in the recipient super fund at the increased rate of 30% to the extent that the $300,000 threshold is exceeded. Thus if a person’s salary is over $300,000, all the contributions will be taxed in the superfund at 30%. If salary and other adjustments add to $290,000, $10,000 of a $25,000 tax-deductible contribution will be taxed in the fund(s) at 15%, and $15,000 will be taxed at 30%.
Limit of Concessional Contributions to $25,000 in 2012-13 and 2013-14 Tax Years
In addition, annual concessionally taxed super contributions generally are to be limited to $25,000pa for the 2012-13 and 2013-14 years. The previously announced concession extending, from 1 July 2012, the current $50,000 tax-deductible superannuation cap for individuals aged over 50, but restricting the extension to individuals who have a fund balance of less than $500,000, is to be deferred until 1 July 2014.
Super Guarantee Increase Confirmed From 1 July 2013
The Government previous announcement to progressive increase of the super guarantee rate to 12% was confirmed in the budget. The increase is due to start from 1 July 2013, starting at 9.5%, and progresses to 20% from 1 July 2019.
(3) Other Changes Affecting Businesses
The previously announced amendments to the income taxed general anti-avoidance provision for certain matters is to proceed. The FBT Living-Away-From-Home Allowance is to be further restricted for Australian employees to those maintaining a home in Australia and will be limited to 12 months and the GST compliance program is to be extended for 2 years. However the Tax Commissioner is to be limited to a four year period generally for past year GST registrations . There are also a number of changes affecting certain industries and transactions, e.g. certain business restructure and roll-over transactions.
(4) Personal Tax Measures
There are a range of personal tax measures including, limiting a number of concessions based on income, e.g. the taxation of ETPs and the net medical expenses offset, changes to the tax rates and capital gains tax for non-residents, consolidating the dependency tax offsets, discontinuing the promised 50% discount for interest income and the $500 employee standard tax deduction and phasing-out the mature worker’s offset.
Other Compliance Changes for 2012-13
There are a number of income tax and other compliance changes announced during the past 12 months which impact on all businesses and include:
(1) Removal of Flood Levy from Tax Withholding Tables
The one-off flood levy applies to individual taxpayers with a taxable income of more than $50,000 during the 2011-12 year. Since 1 July 2011 employers have been required to withhold an additional amount from an employee’s wages for the levy unless an exemption applies.
Employers will be required to install new tax rates tables into their payroll software that apply from 1 July 2012 due to the flood levy being removed.
(2) Reporting of Contractor Payments in the Building & Construction Industry
In last year’s Federal Budget, the government announced the introduction of taxable payments reporting for businesses in the building and construction industry. This is yet another compliance burden placed on small businesses.
From 1 July 2012 businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year. These payments need to be reported on the Taxable Payments Annual Report.
To make it easier to complete the annual report, your business may need to change the way you currently record your contractor information.
The aim of this new reporting system is to improve compliance by certain contractors of their tax obligations. The information reported about payments made to contractors will be used for data matching to detect contractors who have not:
· lodged tax returns.
· included all their income in returns that have been lodged.
Who needs to report
From 1 July 2012 you need to report if all of the following apply:
· you are a business that is primarily in the building and construction industry;
· you make payments to contractors for building and construction services; and
· you have an Australian business number (ABN).
You are considered to be a business that is primarily in the building and construction industry if any of the following apply:
· in the current financial year, 50% or more of your business activity relates to building and construction services; or
· in the current financial year, 50% or more of your business income is derived from providing building and construction services; or
· in the financial year immediately before the current financial year, 50% or more of your business income was derived from providing building and construction services.
What needs to be reported
Businesses would be required to report actual payments made and include the following details:
· the contractor’s name;
· the contractor’s ABN;
· the contractor’s address (if known);
· the total amount paid or credited to the contractor over the income year;
· whether any GST has been charged; and
· any other information the Commissioner may require.
Businesses are only required to provide an aggregate report for each contractor they make payments to during the income year.
When the payments need to be reported
The first annual report is due 21 July 2013 for payments made in the 2012-13 financial year. If you lodge your business activity statement quarterly, in this first year you may lodge by 28 July 2013.
(3) Tax Changes to Compensate for the Carbon Tax
From 1 July 2012, the threshold for claiming an immediate deduction for depreciable assets (including cars) increases to less than $6,500 GST exclusive for small businesses and the depreciation rate for assets costing $6,500 or more GST exclusive included in the asset pool will be 30% (15% for the first year) even for assets with an effective life of 25 years or more. It may in some cases be better to acquire an asset in July 2012 rather than June 2012 to take advantage of this accelerated up-front deduction.
From 1 July 2012 and for cars only, where the cost is $6,500 or more GST exclusive, an immediate deduction can be claimed by small businesses for both the first $5,000 plus 15% of the cost less $5,000. The balance of the purchase price is depreciated as part of the asset pool at a rate of 30% in the second and subsequent years.
The income tax rates scale has been amended from 1 July 2012 to increase the tax-free income to $18,200. Note that the actual tax free threshold for the 2011/12 year is $16,000 due to the $1,500 low income tax offset (LITO) available to all taxpayers. The LITO has been reduced to $445 for the 2012/13 year lifting the actual tax free threshold to $20,542. Accordingly the effective tax free threshold has increased by $4,542 for the 2012/13 year.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.