The end of the financial year is fast approaching and it’s time to start planning to prepare for your 2012 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider what should be done prior to 30 June 2012. Some suggested areas for review are:
See your tax agent in relation to any of the above and for any end-of year planning tips. Your tax agent knows your business and is the best person to help you plan for the end of the 2011-12 tax year and for the start of the 2012-13 tax year.
Small Business Benchmark Updates
Small business benchmarks are financial ratios developed to help a business compare its financial performance to similar businesses in the same industry. The benchmarks provide guidance on what figures, such as amounts of income, the ATO would normally expect a business in that particular industry to report. The ATO uses these benchmarks to work out which businesses in particular industries might be avoiding tax by not reporting some or all of their income.
The ATO has updated its small business benchmarks with information from the 2010 financial year and they have also published new activity statement ratios for a range of industries. Benchmarks are now based on the most recent data available. The number of benchmark ratios has increased so businesses can now check their performance and recordkeeping against a greater range of ratios.
An “instant write-off” amount of $6,500 (increased from $1,000) will apply to small businesses who acquire “low cost” assets from 1 July 2012. “Low cost” assets might include, for example, inexpensive items of equipment, such as office furniture. In addition, an instant write-off for the first $5,000 of the cost of a motor vehicle purchased by a small business will also be available (unless the vehicle can be written off immediately).
Other changes simplifying depreciation for small businesses include the creation of a “general small business pool”. This will be made up of depreciating assets that you might already have in separate pools of assets (that are being depreciated at a faster rate than if they were not in a pool) that will now be combined. Assets will be depreciated at a rate of 15% in the first year and at 30% in each subsequent year.
If you are currently considering some new asset purchases, your tax agent is the best person to help you decide when you should make those purchases.
See your tax agent for advice on new business asset purchases, including what and when you should purchase.
The entrepreneurs’ tax offset is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less.
The entrepreneurs’ tax offset ceases to be available on 30 June 2012. The new small business asset instant write-offs and depreciation pool in effect replace this tax offset.
If you are planning on claiming the entrepreneurs’ tax offset this year, talk to your tax agent soon!
As announced in the Federal Budget on 8 May 2012, starting in the 2012-13 income year, companies (and entities taxed like companies) will be able to carry back up to $1 million of tax losses incurred in the 2012-13 year to offset against tax paid in the 2011-12 income year. From the 2013-14 income year, tax losses will be able to be carried back and offset against tax paid up to two years earlier.
You should talk to your tax agent about how you might be able to take advantage of these rules and carry back any tax losses your business may have to offset against tax you have paid in prior years.
If you incur any tax losses in the 2012-13 income year, you might be able to carry them back to offset against tax paid in earlier years. Speak to your tax agent to ascertain whether you are able to do this.
In the 2012-13 Budget, the Federal Government announced several changes will occur to the CGT provisions, including:
If you think any of the CGT changes are likely to affect your business, see your tax agent for advice on what, if any, impact the changes might have to your business.
In prior income years, trustees who were required to make resolutions prior to distributing income to beneficiaries had until 31 August following the end of the income year to make the resolutions. This extension came out of two old income tax rulings which the ATO withdrew in September 2011. This means that all trustees affected by this change must issue their resolutions by 30 June. As this change applies to the current year (1 July 2011 to 30 June 2012), trustees will need to make their resolutions by 30 June 2012.
Check with your tax adviser how this change might affect you if you are a trustee.
The Budget edition of TaxWise referred to recently announced changes to the living-away-from-home allowance (LAFHA). The proposed changes:
These changes are due to apply from 1 July 2012. All employers who provide these types of benefits to their employees should consider reviewing their current arrangements and seeing how these proposed changes might affect those arrangements.
If you think the proposed LAFHA changes will impact arrangements you have in place with your employees, you should speak to your tax agent to discuss how these changes might affect you and your employees.
The legislation has not been finalised yet so the details of the changes could change. Your tax adviser is the best person to keep you up to date with these developments.
In March 2012, changes to super were announced. These changes include:
The following announcements were made in the 2012-13 Budget in relation to superannuation changes:
Self-Assessment for Indirect Taxes
With effect from 1 July 2012, a new system will apply to GST, the luxury car tax (LCT), the wine equalisation tax (WET) and fuel tax credits to harmonise the system under which these taxes are collected with the self-assessment system that applies to companies and certain other entities for income tax purposes. The amendments apply to tax periods for the GST, LCT and WET and the fuel tax return periods that commence on or after 1 July 2012.
This means that the current system that applies to indirect taxes will now be aligned with the self-assessment system that applies for income tax purposes. Under the new system, for example, the Commissioner will be able to make a determination that errors made on a previous Activity Statement can be corrected on a current Activity Statement.
See your tax adviser to find out how these changes may affect your compliance obligations, such as preparing your Business Activity Statements, for GST, LCT, WET and fuel tax credit purposes.
Anti-avoidance provisions contained in the tax law are aimed at trying to prevent taxpayers from structuring transactions and entering arrangements designed to avoid tax. Avoiding tax is different to evading tax which is a criminal offence.
Anti-avoidance provisions might apply in cases such as where a taxpayer tries, for example, to structure a transaction to gain a tax benefit that may not ordinarily arise if the transaction is carried out in another way and there aren’t necessarily sound commercial reasons why the transaction was structured in a particular way.
On 1 March 2012, the Federal Government announced that changes will be made to the existing general anti-avoidance provisions contained in the Federal Income Tax Act. The Government has not specified how it intends to change the general anti-avoidance provisions, though the amendments are intended to “clarify” how these provisions apply.
However it is important to be aware that the changes are intended to apply from 1 March 2012. So if you are currently considering entering into a transaction, you should seek advice from your tax adviser around the potential tax implications that may arise from the proposed transaction and guidance on what impact the general anti-avoidance provisions might have, if any.
Proposed amendments to the “director penalty regime” were announced by the Assistant Treasurer on 18 April 2012 to expand the tax law protections afforded to protect workers’ entitlements and impose greater obligations on directors. The amendments will:
Anyone who is a director of a company with employees should familiarise themselves with these proposed amendments as they directly impact a director’s obligations and responsibilities under the tax law in respect of employee entitlements.
The good news is there are some concessions under the proposed amendments:
The amendments are contained in an exposure draft. Directors concerned by these proposed changes should ask their tax agents to keep an eye out for when these changes might become law.
All developers of residential premises should take note that the GST provisions have been amended to ensure that sales of residential premises that have been constructed under certain arrangements known as “development lease arrangements” will be subject to GST (ie they will be treated as sales of new residential premises).
Even if there has previously been a “wholesale supply” of the newly built premises to the developer (ie the freehold or long-term leasehold interest in the land transferred to the developer upon completion of the development on the land), this will still be the case. This is something that developers who build residential properties under these types of arrangements should be aware of.
There are also some changes under the GST law confirming that subdividing or strata-titling newly built residential property won’t have the effect of stopping the new building from being new residential premises.
You should be aware that these changes will apply from 27 January 2011. If you are a builder who has constructed new residential premises since 27 January 2011, you should see your tax agent to see if these amendments affect the GST treatment you have applied to your project. You might need to consider amending your previously lodged Activity Statements if these amendments impact your business.
See your tax agent if you are concerned how these new GST provisions might affect the GST treatment of a residential development you have undertaken. You might need to amend your Activity Statements as well!
If you are in the Building and Construction industry and you have an Australian Business Number (ABN), you may need to report certain payments you make to contractors for certain building and construction services.
You need to report certain details in relation to the contractor to whom you make payments, including their ABN, name, address and amount you paid them (including GST). Generally, these amounts need to be reported to the ATO by 21 July, which is very soon after the financial year end.
As these rules apply from 1 July 2012, it might be a good time now to look at the kinds of records you keep in relation to payments you make to contractors and see if you need to change anything to help you comply with these new rules. Your tax agent can assist you with the types of records you might need to start keeping to help you meet this obligation, or it might turn out that you don’t need to change any of your record-keeping details and you will be able to meet this obligation.
You should take the opportunity now to consider the impact of this reporting obligation and make any necessary changes now so you are ready for 21 July 2013! See your tax agent if you need help with this.
Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.