PJT Accountants

How the Budget affects Companies and Small Business

12 May 10
"The government released no new policies in the budget for companies and small business", said Wayne Patten.  "Sadly as per our thoughts on the Henry Review, the government had a chance to help struggling small business, however has continued to put on a bandaid fix. Unfortunately, the reduction in tax is primarily for companies which most small businesses are setup in either partnership or trust structures, therefore these tax measures miss many small business."

Company Tax
The Government has announced a reduction company tax rate from 30% to 28% by 2014/15.



Small Business Tax
Whilst company tax will not be reduced to 28% until 2014/15, small businesses with annual turnover of less than $2 million will have a company tax rate of 28% applied from 2012/13.


Small Business Instant Asset Write-Offs and Simplified Depreciation Pooling
The Government has announced additional measures relating to small business asset write‐offs
applying from 1 July 2012. These include:
  • Allowing small businesses to immediately write‐off assets valued at under $5,000 (this is up from $1,000 currently); and
  • Allowing small businesses to write‐off all other assets (except buildings) in a single depreciation pool at a rate of 30%. Currently, small businesses allocate assets to two different depreciation pools.

Wayne Patten mentions, "A concern with these changes is that small business could potentially receive upfront write-off or pooling of assets, however you could face higher tax implications on sale of these assets in future years, as this is merely a tax deferral mechanism. The government however can be applauded for moving the immediate write-off from $1000 to $5000 thus reducing compliance costs of maintaining asset registers for such items."

Increased funding to counter cash economy
The Government will provide $107.9m over 4 years to the Tax Office to address small business operators who use cash transactions to avoid tax. The Budget Papers state that this is expected to increase the “visibility of the Tax Office in the community”.

This measure is expected to result in:
  • an additional $491.8m in revenue in fiscal balance terms over 4 years; and
  • an increase of $39.9m in Tax Office administered expenses over the same period.
In underlying cash terms, the expected increase in revenue is $366.5m over 4 years, including $146.7m in GST collections that will be paid to the States and Territories.

GST compliance program: funding for ATO
The Government states that it will provide $337.5m over 4 years (ie 2010-11 to 2013-14 income years) to the Tax Office to fund additional activities that will promote voluntary GST compliance and will provide a level playing field for Australian businesses. The Government also states that the funding will address issues relating to fraudulent GST refunds, systematic under-reporting of GST liabilities, non-lodgment of GST returns and non-payment of GST debts.

"The increased funding by the government to the ATO will result in a dramatic increase in reviews and audits", Jodie Thompson added.  "It is recommended that you take out Audit Protection Insurance to ensure that you are not out of pocket for additional costs in meeting review and audit requirements. We have already found an increase in ATO reviews which are costing clients stress, time and thousands of dollars in accounting fees. Audit insurance will cover your accounting fees and help reduce your time and stress by enabling you to leave all discussions and negotations to us."

Reforms to GST
The Government has announced that it will amend the financial supply provisions of the GST law to clarify the operation of the legislation and reduce compliance and administrative costs, particularly for small businesses.

While the Government states that the current architecture of the financial supply provisions will be maintained, the following changes will be made:
  • Financial acquisition threshold - the financial acquisition threshold input tax credit will be increased from $50,000 to $100,000. According to the Government, the increase will enable more small businesses to avoid being caught up in the financial supply regime.
  • Hire purchase agreements - the treatment of hire purchase agreements will be simplified by removing the need to apply different GST treatments to different parts of a supply. The Government states that “by treating the whole supply as taxable”, taxpayers will not need to account for part of the supply as taxable and the other part as input taxed. It is also proposed that the attribution rules for hire purchase arrangements will be made the same for cash and non-cash taxpayers.

Registration of Business Names
The Government will establish a national system of registering business names.
Currently, businesses have had to register separately in each State and Territory and pay registration fees to each government. Under the proposed measures, businesses will need to register only once and pay only one fee. The administration of business names will be transferred from the States to ASIC.


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