Friday May 14, 2010

A no-frills Budget for SMEs

The Government’s third budget delivers an expectation to be back in surplus in three years supported by a fast-recovering economy and an increase in Government tax receipts boosted by the 40% Resource Super Profits Tax. It also announces changes arising from the Johnson Report designed to establish Australia as a financial services hub, and commits spending to various health, renewable energy and infrastructure projects.

For individuals, personal tax rates remain as planned for 2010/11, standard work-related expense deductions to be introduced and a 50% discount on the first $1,000 of interest income from 1 July 2011 are all welcome measures.

However sadly for SMEs, it was certainly a no-frills budget with no additional news beyond previously announced changes and reconfirmation of the adopted Henry Review recommendations announced last week.

Instead, we’ll have to wait for the output of the $65m Government has committed to assist Treasury develop and implement the Government’s response to the Henry recommendations.

Following are the tax highlights contained in the Budget.

For further information about these announcements or to discuss how they impact you specifically, please contact our office.
 

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Companies and Trusts

• From 1 July 2009, where a private company provides a dwelling to the shareholder of the private company or their associate, for use as their main residence, a payment will not arise under the non-commercial loan rules.
• Payments under a "qualifying earnout arrangement" will be treated as relating to the underlying business assets. This should result in equitable CGT outcomes for both the buying and selling parties to an earnout agreement on the purchase or sale of a business.
• Extension of CGT rollover and demerger relief provisions for specific business restructures.
• The Interest Withholding Tax (IWT) rate on borrowings of local subsidiaries from their overseas parents will be reduced from 10% to 7.5% in 2013/14 and to 5% in 2014/15. The IWT rate for borrowings by any bank branch from its overseas head office will be reduced from 5% to 2.5% in 2013/14 and to zero in 2014/15.
• The operation of the consolidation regime will be improved in various ways to correct technical deficiencies and to ensure that the operation is as intended.

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Superannuation

• The co-contribution matching rate will be permanently maintained at 100% and co-contribution thresholds will be non-indexed for the next two income years.
• The Superannuation Complaints Tribunal and the Tax Office will receive a funding boost.
• The income tax treatment of qualifying instalment warrants will be amended to provide certainty for investors by treating them as the owner of the underlying asset for income tax purposes, with effect from 1 July 2007. The measure will also ensure that the opportunity for non-recourse borrowing by trustees of superannuation funds permitted under prudential regulations is not undermined by its tax treatment.

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GST

• The financial supply provisions of the GST law will be amended to clarify the operation of the legislation and reduce compliance and administrative costs, particularly for many small businesses, with effect from 1 July 2012.
• The margin scheme provisions will be restructured to clarify and simplify the current provisions, with effect from 1 July 2012. The Government will also make a minor technical amendment to ensure that a valuation can be obtained for the purposes of using the margin scheme for subdivided land.
• All the recommendations of the Board of Taxation from its Review of the application of GST to cross-border transactions will be implemented, with effect from 1 July 2012.
• The GST law will be amended to replace the current mechanism for exempting Australian taxes, fees and charges with a principles-based legislative exemption, with effect from 1 July 2011.
• A number of minor revisions will reduce GST compliance costs for businesses involved in the domestic transport of exported and imported goods.
• $337.5m will be provided over four years to the ATO to fund additional activities that promote voluntary GST compliance and provide a level playing field for Australian businesses.
• Further minor revisions will be made to the legal framework for the administration of the GST.

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Individuals and Families

• From 1 July 2011, individuals will be entitled to a 50% discount on up to $1,000 of interest earned.
• From 1 July 2012, individual taxpayers will be entitled to an optional standard deduction of $500, increasing to $1,000 from 1 July 2013.
• The medical expenses tax offset threshold will be increased from $1,500 to $2,000 with effect from 1 July 2010. The threshold will also be indexed annually, with effect from 1 July 2011.
• The Medicare low-income thresholds will be increased to $18,488 for individuals and $31,196 for families, with effect from 1 July 2009.
• Money held in first home savers accounts will be able to be paid into approved mortgages where the account holder buys a home prior to the end of the four year period.
• The Senior Australians tax offset regulations will be amended, with effect from 1 July 2010, to take account of the low income tax offset threshold.
• The benchmark interest rate on capital protected borrowings entered into from 7:30 pm (AEST) 13 May 2008 is the Reserve Bank indicator rate for standard variable housing loans plus 100 basis points.

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