What happened to all of those Budget cutbacks?
If you’re confused about what happened to all of those announced Budget cutbacks then you’re not alone. Many of the Government’s initiatives are stalled in the Senate awaiting final negotiation. Here’s a quick summary of where everything is up to:
2% debt tax on high income earners from 1 July 2014 (and FBT rate increase from 1 April 2015)
- Superannuation guarantee rephased – now SG will remain at 9.5% until 1 July 2021
- Mining tax repealed
- The company loss carry back rules abolished
- The instant asset write off threshold of $6,500 for small business entities under the simplified depreciation rules has reduced back to $1,000 from 1 January 2014
- The accelerated deduction of $5,000 for motor vehicles has been removed from 1 January 2014
- Schoolkids bonus repeal – moved to 31 December 2016 and a means test applied until the repeal date
- Low income superannuation contribution repeal delayed until the 2017/2018 financial year onwards
- Income support bonus repeal delayed until 31 December 2016
What’s still up for debate?
- Co-payments for visiting a doctor
- Fuel excise increase
- Retirement age increase to 70
- Changes to pension indexation
- Tightening of access to family tax benefits
- Removal of add-on family tax benefit for additional children
- Cuts to R&D incentive
- 6 month wait for employment benefits
- Deregulation of University fees
The Treasurer has flagged that he will seek savings elsewhere – so watch this space.
TIP: The abolition of the loss carry-back, the reduction of the instant asset write- off threshold for small businesses and the discontinued accelerated depreciation for cars apply retrospectively.
Taxpayers who have made these claims for the 2013–2014 year are now required to amend their returns. The ATO has indicated that it will not impose penalties on those taxpayers who amend their returns if the amendments are lodged within “reasonable time”. Also, in light of the superannuation changes, individuals may want to consider reviewing their retirement savings strategy. Please contact our office for further information.
Professional firms and profit distribution under scrutiny
The ATO is investigating arrangements involving the allocation of profits from a professional firm carried on through a partnership, trust or company, where the income of the firm is not personal services income. Firms which could be affected include, but are not limited to, those that provide architectural, engineering, financial, legal, and medical services.
In particular, the ATO wants to take a closer look at arrangements where practice income is treated as being derived from a business structure, even though the source of that income remains, to a significant extent, from the provision of professional services by one or more individuals. The ATO said it was concerned that the general anti-avoidance rules under the tax law could apply to a scheme which is designed to ensure that the individual practitioner professional is not directly rewarded for the services they provide to the business, or receives a reward which is substantially less than the value of those services. The ATO further indicated that the lower the effective tax rate achieved by the scheme, the higher the risk of attracting the Commissioner’s attention.
Data-matching offshore bank accounts
The ATO is widening the breadth of data it obtains on individuals from financial institutions, possibly revealing hidden or undisclosed offshore income.
The ATO has recently announced a data-matching program targeting offshore bank accounts. Under the program, the ATO will collect account details of bank customers from various financial institutions to identify Australian resident taxpayers with offshore bank accounts which may indicate evidence of undeclared income and/or gains.
TIP: The Tax Commissioner earlier this year announced a tax “amnesty” called Project DO IT which aims to encourage individuals to disclose previously undeclared offshore income or assets. Under the program, individuals could be offered reduced penalties for disclosing their offshore income. The ATO has been warning individuals to come forward before 19 December 2014, which is when the project will end.
Got international connections? How to avoid problems
Whether you’re in business or an individual taxpayer, if you have funds flowing between countries, the tax office is going to be interested in you. For individuals, Project Do It provides an opportunity to voluntarily disclose unreported foreign income and assets before the tax office discovers them.
For business, trigger points include:
- Excessive debt levels in Australia – The thin capitalisation rules place a limit on the level of interest and other debt deductions that can be claimed in Australia when Australian operations are heavily funded by debt rather than by equity. Legislation recently passed by Parliament retrospectively tightens these rules further for entities with very large debt deductions ($2m and above).
- Excessive costs paid by local subsidiaries. The Government is particularly concerned with arrangements where Australian entities transfer intellectual property to a low tax jurisdiction for a relatively small amount of money and then pay considerable sums for the use of those assets on an ongoing basis. Large management fees paid by Australian entities are another trigger for the ATO.
Use of tax havens or low taxing jurisdictions.
Transfer Pricing changes & managing your risk
The Australian Taxation Office has released guidance on future changes to the handling of Transfer Pricing. These amendments will impact all overseas companies operating in Australia.
We have prepared a summary to assist you to ascertain the impact it will have on your organisation. Click here to view the summary.
Please feel free to contact Daniel at our office directly on +61 2 9247 2227