There have been a number of tax changes recently announced that will affect businesses from 1 July 2014.
The first two changes apply if your business is considered to be a small business under the Tax Act.
In order to be a small business, the turnover of your business, including connected entities and affiliates, has to be less than $2 million GST exclusive per annum. The turnover for either the current financial year or the previous financial year can be used.
1. Instant asset write-reduced to $1,000 from 1 January 2014?
Under the current law, a small business can claim an immediate tax deduction for “individual” assets (including motor vehicles) costing less than $6,500 (GST exclusive), including individual assets that form part of a set.
This immediate write-off applies equally to the purchase of new and second hand assets which are used in the business.
As part of the changes contained in the “mining tax repeal Bill”, the Government has proposed that the instant asset write-off will be reduced from $6,500 to $1,000 for “individual” assets “first used or installed ready for use” on or after 1 January 2014.
This proposed change means that for the 2013/14 year, a small business can still claim a $6,500 instant asset-write-off for individual assets that meet the above “use or “installed” test up to 31 December 2013.
Therefore, where an asset was purchased prior to 1 January 2014, but was first used or installed ready for use after this date, the instant asset write-off threshold of $1,000 applies.
A business is not required to aggregate individual assets costing less than $1,000 which form part of a set, when applying the $1,000 threshold from 1 January 2014 or $6,500 threshold prior to this date. For example, if on 15 January 2014 you buy a boardroom table costing $950 and 5 matching chairs each costing $200, the business would still be entitled to claim an immediate deduction for the entire $1,950.
It is unlikely that the above bill will be passed by the Senate and made law prior to 1 July 2014. There is therefore uncertainty as to whether the $1,000 limit will apply from either 1 January 2014 or 1 July 2014 when this change is eventually made law.
The ATO has recently released administrative guidance to assist business taxpayers preparing their 2013-14 tax returns.
The ATO have stated that those business affected by the change can lodge their 2013-14 tax returns based on the existing law. Then when the law is finally enacted, businesses will need to seek an amendment to their tax returns to apply the new law. If the amendment is made within a reasonable time, the ATO will remit any shortfall interest attributable to the amendment to nil.
2. Accelerated depreciation for motor vehicles repealed from 1 January 2014?
Under the current law, a small business can claim an accelerated depreciation tax deduction of $5,000 (on a GST exclusive basis) for new or second hand motor vehicles acquired during the year.
Where the cost of the vehicle is $6,500 or more (GST exclusive), an immediate deduction can be claimed 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.
As part of the “mining tax repeal Bill”, the Government has proposed that the $5,000 threshold will be reduced to $1,000 for vehicles first used or installed ready for use” on or after 1 January 2014.
Where a vehicle was acquired prior to 1 January 2014, but was first used or installed ready for use after this date, the instant asset write-off threshold of $1,000 applies.
Note that where the purchase of a vehicle meets the “use or installed” test up to 31 December 2013, the current more favourable rules still apply as outlined above.
As mentioned above, the above bill has not been made law so businesses remain in limbo on whether this change will apply from either 1 January 2014 or 1 July 2014.
Taxpayers that are affected by this change can apply the above ATO administrative guidance when preparing their 2013-14 tax returns.
3. Temporary Budget Repair Levy from 1 July 2014
As announced by the Treasurer in the 2014 Federal Budget, high income earners are to pay a Temporary Budget Repair Levy that in effect increases the top marginal tax rate by two percentage points to 47%.
The Temporary Budget Repair Levy is to apply for three (3) years from 1 July 2014 for individuals with taxable incomes above $180,000.
4. Increase in the super guarantee rate to 9.5% from 1 July 2014
As announced in the Budget, the super guarantee (SG) rate is to rise to 9.5% on 1 July 2014.
The 9.5% rate is to remain until 30 June 2018. The SG charge percentage will then increase by 0.5% each year until it reaches 12% from 2022-23, a year later than previously proposed. As such, employers are required to increase their superannuation contributions on behalf of employees to 9.5% of ordinary time earnings from 1 July 2014.
5. Increase in medicare levy to 2% from 1 July 2014
The medicare levy for individual resident taxpayers will increase from 1.5% to 2% of taxable income from 1 July 2014.
Note that no change has been proposed to the medicare levy surcharge which is currently imposed at a rate of 1.5% to 2% (depending on the income levels and marital status of the individual resident taxpayer). The surcharge applies where the taxpayer does not have adequate private health insurance cover.
Employers will be required to install new tax rates tables into their payroll software that apply from 1 July 2014 to capture this increase to the medicare levy.
6. Increase in 2015 FBT rate & gross-up rates from 1 April 2014
Due to the above increase in the medicare levy, a new FBT rate and also new gross-up rates apply from 1 April 2014 (i.e. the 2015 FBT year and following). These are as follows:
2015 FBT rate:
47% (an increase of .5% from the 2014 FBT year)
2015 Gross-up rates:
Type 1 benefits grossed-up by 2.0802 (increased from 2.0647)
Type 2 benefits grossed-up by 1.8868 (increased from 1.8692)
Employers will need to ensure that they review and adjust employee salary packages to take into account these changes (if permitted under the employment contact).
In line with the increase in the top marginal tax rate for the temporary Budget Repair Levy, the FBT rate will further increase to 49% from 1 April 2015 to 31 March 2017. This change will have a flow on effect to the above Type 1 and Type 2 FBT gross up rates, which will change to 2.1463 and 1.9608 respectively.
7. Changes to age-based concessional superannuation caps from 1 July 2014
The concessional (tax deductible) superannuation contribution caps for the 2013/14 year based on an individual’s age are:
- age 60 and over on 30 June 2014 – $35,000 contribution cap
- age 59 and under on 30 June 2014 – $25,000 contribution cap
The concessional superannuation caps for the 2014/15 year based on a person’s age have changed as follows:
- age 49 and over on 30 June 2014 – $35,000 contribution cap
- age 48 and under on 30 June 2014 – $30,000 contribution cap
Note that employer super guarantee contributions and salary sacrifice contributions are included in these caps.
8. Repeal of company loss carry back rules effective from the 2014 income year
In the 2012 Budget, the Government announced rules, with effect from the 2013 income year, that allow companies and entitles taxed like companies, to carry tax losses incurred in the current year back to specified prior income years and receive a refund in that year.
For the 2013 income year, a transitional rule applies whereby companies are able to carry back up to $1M of tax losses incurred in the 2013 income year to recoup up to $300,000 ($1M * 30%) of tax paid during the 2012 income year. For the 2014 year, companies are similarly able to carry back unrecouped losses up to $1M incurred during the 2013 and 2012 years and claim up to $300,000 in tax previously paid.
The Government has introduced legislation which if enacted as proposed, will result in the repeal of the loss carry-back rules with effect from the 2014 income year. Accordingly companies will only be able to apply these rules for the 2013 income year.
It is unlikely that this legislation will be passed by the Senate and made law prior to 1 July 2014. However based on the above administrative guidance issued by the ATO, companies that are affected by this change can prepare their 2013-14 tax returns based on the existing law.
The ATO will then amend the company’s tax return when the law is finally enacted and fully remit any shortfall interest attributable to the amendment.
