Please Note: This article refers to the May 2009 Federal Australian Budget. This is not the most recent budget.
On Tuesday, May 12, 2009 the Australian Federal Budget was handed down by the Australian Treasurer, Mr. Wayne Swan. Here is my summary of the key tax changes that will affect many owner operated businesses.
Small Business and General Business Tax Break
This is a good one.
But it only applies to a small business which is, broadly, a business that has a turnover of $2 million or less.
For these businesses, the 30% tax deduction with regard to the acquisition of eligible assets will be increased to a 50% tax deduction. That is, you get a full and immediate tax deduction for 50% of the cost of an asset that you purchase that is eligible for the concession. Further, the asset can now be acquired up to 31 December 2009. Previously, the asset had to be acquired by 30 June 2009. Note that the asset must be installed or ready for use by 31 December 2010.
If your turnover is greater than $2 million, there is no change.
Reduced Superannuation Cap
This is a bad one.
First, some background. The previous government made some major changes to superannuation. One of the major changes was in relation to capping the level of superannuation contributions that can be made. A cap was placed on the amount of contributions that are “concessional” and “non-concessional”. Broadly, concessional contributions to a superannuation fund are deductible to person or business making the contribution and also taxable to the fund. Non-concessional contributions are not tax deductible for the contributor and are not taxable for the fund. The limits were $50,000 for concessional contributions and $150,000 for non-concessional contributions. There were also transitional arrangements for those aged 50 – 74. If the transitional arrangements applied, these people could have concessional contributions of $100,000.
In last night’s budget the concessional contribution levels were halved. So, for people that are not under the transitional arrangements, the concessional contribution amount will be capped at $25,000. The transitional cap amount will become $50,000. There is no change to the non-concessional contribution cap amount.
But note, this does not apply until the next financial year – that is from 1 July 2009. So, is there anything that you want to do in the current financial year with your superannuation strategy?
Use of assets owned by a private company.
This is a bad one.
There is a part of the Australian tax law called Division 7A. Very broadly, this is about taxing people that own private (not listed) companies where they are getting benefits from the private company. Typically, it applies to payments and loans to shareholders or their associates. The reach of these provisions is going to go even further.
These provisions are going to be extended to shareholders and their associates using real property and chattels that are owned by the private company (presumably for private use). The rules will apply where the shareholders or their associates don’t pay a market value rate for the use of the assets. If these provisions apply, the law will deem that a dividend has been paid to the shareholder.
These changes will apply from 1 July 2009. I can’t help wondering how these provisions are going to be policed by the ATO.
Research and Development Incentive
This is a good one.
Australia has had tax concessions in relation to research and development for many years. The existing regime will be repealed from 30 June 2010 and replaced with a new scheme.
From 1 July 2010 a research and development credit or offset will replace the existing system. If your business has a turnover of $20 million or less you will be able to obtain a 45% refundable tax credit. If your turnover is greater than $20 million, you can receive a 40% non-refundable tax credit.
The Australian government’s statement says that the 45 per cent R&D Tax Credit is equivalent to a 150 per cent tax concession. It doubles the base tax incentive for smaller firms, restoring support to the level that prevailed before 1996 – with the added advantage that companies can access the credit whether they are in tax profit or tax loss. Around 5,500 smaller firms will potentially be better off due to this, the government estimates.
A further piece of good news is that there will be no limit on the level of research and development expenditure that small companies can undertake and obtain the new tax concession. However, the definition of research and development that is used in the Australian taxation law will be “tightened” to ensure that the new concessions are not abused.