On 8 May 2018, the Treasurer, Scott Morrison, delivered his third Federal Budget. How does this budget affect you?
$20,000 immediate write-off is extended
The Government will extend the $20,000 immediate write-off for small business by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
This measure will ensure that small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Only a few assets are not eligible (such as horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
Phoenix companies under the spotlight
The Government will reform the corporations and tax laws and provide the regulators will additional tools to assist them to deter and disrupt illegal phoenix activity.
A phoenix company is where a new company is created or established to continue the business of a company that has been liquidated by its owners in an effort to avoid paying its debts such as payroll tax, income tax, employee entitlements, superannuation, creditors and other liabilities of the company.
The package includes reforms to:
- extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts;
- introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
- expand the ATO’s power to retain refunds where there are outstanding tax lodgments;
- prevent directors improperly backdating resignations to avoid liability or prosecution;
- limit the ability of directors to resign when this would leave the company with no directors; and
- restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator.
Black economy targeted
In order to create a further financial disincentive for businesses to engage in Black Economy behaviour and ensure greater compliance with tax obligations, the Treasurer announced that, from 1 July 2019, businesses will no longer be able to claim a deduction for the following payments:
- Payments to their employees (such as salary and wages) where they have not withheld any amount of PAYG withholding from these payments, despite the PAYG withholding requirements applying.
- Payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG withholding, despite the PAYG withholding requirements applying.
Furthermore, extra funding for the ATO will be provided for a new “enforcement strategy”, which will include mobile strike teams; more audits; a “Black Economy hotline” for members of the public to report black economy and illegal phoenix activity; better data analytics; and educational activities.
No deductions for vacant land
From 1 July 2019, the Government will deny deductions for expenses associated with holding vacant land that is being held for residential or commercial purposes. This is an integrity measure to address concerns that deductions are being improperly claimed for expenses, such as interest costs, related to holding vacant land, where the land is not genuinely held for the purpose of earning assessable income.
Deductions that are denied under this measure will not be able to be carried forward for use in later income years. Expenses for which deductions will be denied that:
- would ordinarily be a cost base element (such as borrowing expenses and council rates) may be included in the cost base of the asset for CGT purposes when the property is sold;
- would not ordinarily be a cost base element would not be able to be included in the cost base of the asset for CGT purposes.
This measure will not apply to expenses associated with holding land that are incurred after:
- a property has been constructed on the land, it has received approval to be occupied and is available for rent; or
- the land is being used by the owner to carry on a business, including a business of primary production.
The taxable payments reporting system extended
The taxable payments reporting system (TPRS) is a transparency measure which currently applies to the building and construction industry, and will extend to the cleaning and courier industries from 1 July 2018. This system requires businesses to report to the ATO in a Taxable Payments Annual Report (TPAR) all payments made to contractors. Based on the reported information, the ATO could use its data matching programs to identify contractors who have either not lodged tax returns, or not included all their income in returns they have lodged.
The Government has announced it will further expand the contractor payment reporting system from 1 July 2019 to the following industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
If you would like any further information on how the Federal Budget 2018-2019 will affect you contact us on 02 9223 9166, or fill out an online enquiry.