An Overview of the Major Changes in Tax Time 2016

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Some of the changes that are worth noting are the tax benefits for small businesses, the new tax procedure for managed investment trusts, and strengthening access to company losses.

Depreciation for small businesses made simple

Small businesses are entitled to an immediate deduction to the business part of most assets of they are valued below $20,000 and were purchased between 7:30 pm on 12 May 2015 and 30 June 2017.

The deduction can be claimed through the tax return of the small business. They can also immediately deduct the remainder in the small business pool if the amount is below $20,000 at the conclusion of an income year that terminates on or subsequent to the same period stated above including a current pool.

Depreciation for primary producers accelerated

Starting 12 May 2015, immediate deductions for the following costs are allowed for primary producers:

  • Fencing: withheld before over a period of as many as 30 years
  • Water facilities: withheld before over 3 years

Instead of over a period of up to 50 years, the cost of fodder storage assets can now be deducted over 3 years.

Small business tax concessions

For income tax years starting on or after 1 July 2015, the small business company tax rate will be cut down from 30% to 28.5%. This change covers small businesses identified as corporates, unit trusts and public trading trusts.

For companies that are not small businesses, or those earning a yearly accumulated turnover over $2 million, the tax rate remains at 30%.

Start-up costs now immediately deductible

Certain start-up costs, including expenses related to raising capital, can be immediately deducted starting on 1 July 2015.

Phase out of the net medical expenses tax offset

Starting 1 July 2015, taxpayers can only claim the net medical expenses tax offset if they have net expenses for disability aids, attendant care or aged care. The offset, which is income tested, will be phased out commencing on 1 July 2019.

Phase out of first home savers accounts

On 1 July 2015, the first home saver accounts (FHSA) were phased out and converted into ordinary savings accounts. Account holders are required to put earnings in their tax returns.
Account providers will no longer need to pay tax on FHSA earnings for any period subsequent to 30 June 2015.

Creation of new tax system for managed investment trusts

The ATO has created a new tax system for managed investments trusts (MITs) designed to modernise the tax laws for qualified MITs and improves certainty for investors.

If ratified, the proposed laws will commence on 1 July 2016. Qualified MITs can decide to start applying the new rules on 1 July 2015. The trust income can be assigned to beneficiaries based on a “fair and reasonable” manner per their ownership shares in the MIT. A qualified MIT choosing the system is identified as an attribution managed investment trust (AMIT).

In addition, the new system establishes provisos regarding amounts that impact the cost base of a member’s share in the trust.

Business services wage assessment tool payment

A person getting a lump sum in arrears business services wage assessment tool (BSWAT) payment may claim a lump sum in arrears tax offset.

The BSWAT lump sum arrears payment is not wages and salary or the government pension or allowance.

The lump sum tax offset can be claimed by taxpayers by reporting the payment at label 14 (other Australian income).

Entity tax information reporting

Starting December 2015, the following will be published by the Commissioner of Taxation, per the income tax transparency requirements:

  • Public and foreign held corporate tax entities with an overall income of $100 million or higher
  • Australian-owned private entities with an overall income of $200 million or higher

The data will be derived from tax returns on 1 September in the year after the income year being reported. The ATO intends to publish the information around December. For instance, data from the income year of 2014-2015 will be derived on 1 September 2016 and made available around December 2016.

Improving access to company losses

On 7 December 2015, the government announced that the existing “same business test” for company losses will be eased to let businesses retrieve previous year losses when they have engaged into new business activities or transactions.

The government will introduce a new “predominantly similar business test.” The new text will give companies access to losses where their business is the same relating to:

  • The degree to which the business make assessable income from similar assets and sources
  • Whether any modifications to the business are modifications that would be realistically be projected to have been generated to a similarly placed business.

This law is anticipated to be introduced starting 1 July 2015.

See a qualified tax advisor, accountant or bookkeeper to keep you in compliance with tax rules and policies. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.