Expectation & Reality:
the budget & your business
There is a big gap between what politicians say and what is happening ‘on the ground.’ It’s like they’re playing with the map and we’re driving on the roads. We are the ones who experience the road blocks and the pot-holes, the redirection, and changing traffic conditions. While a new road might be announced to resolve some of the issues, you still have to wait for it to be built. So, it is with the Federal Budget.
Here’s what the road ahead looks like for business:
Since we’re flogging the road analogy, let’s call the ATO the police.
In the Budget speech, Treasurer Wayne Swan pointed out that tax receipts are down $150bn since the GFC. Tax as a proportion of GDP in 2011/2012 and the previous two years is the lowest it has been since 1993/1994. As accountants, we are already seeing the implications of this reduction in tax revenue in the approach and direction of the ATO. The ATO’s approach is much more aggressive – both in practical ways and in policy decisions - than previous years where industry insiders would joke about tax debt as being the “Rudd Bank.”
If you have outstanding tax debt that is not being managed, fail to lodge returns on time, receive large amounts of cash from overseas, have dealings with related overseas entities, claim large tax refunds, sell assets and claim the small business CGT concessions, or operate well outside of industry benchmarks, you are the equivalent of a P plater in a hotted up Nissan: a massive target for the police. You might be squeaky clean but from the ATO’s perspective, you’re worth a closer look.
In the Budget, the ATO received $378m in funding directed to compliance programs including the extension of Project Wikenby style inter agency investigations. What all this means is that the ATO presence, like the police on an Easter weekend, will be more visible than ever in your daily life.
Relieving cash congestion
Many of the upcoming reforms are designed to free up cash that would ordinarily be sitting with the ATO. They are the equivalent of someone suddenly opening a lane on a congested road. And with more cash, comes the incentive to spend it, thus stimulating business investment.
Loss carry back scheme
Just prior to the Budget the Government announced a company loss carry back scheme. If your company makes a tax loss next financial year, this scheme will enable you to carry back that loss (up to $1m) and claim it against tax you have paid this financial year.
Here’s an example:
ABC Pty Ltd has been operating for a number of years and paid tax of $75,000 in the 2012 income year (i.e., taxable income of $250,000). The company had no carried forward tax losses at the end of the 2012 year.
In the 2013 year the company makes a tax loss of $200,000 because of a significant investment in new plant and equipment and weaker trading conditions. The company has a franking account balance of $400,000.
The company’s refund under the loss carry back rules is limited to the lesser of the following (assuming a 30% tax rate):
- The tax value of the current year loss (i.e., 30% x $200,000 = $60,000)
- The tax value of the statutory cap (i.e., 30% x $1m =$300,000)
- The franking account balance (i.e., $400,000); and
- The tax paid in the carry back period (i.e., $75,000).
In this case, the company can carry back its full tax loss for the 2013 year against the tax paid in the prior year and will receive a cash refund of $60,000. This brings forward the cash flow benefit of the losses rather than having to wait until the company makes taxable profits in future years.
Last year, the Government announced two significant concessions for small business that will enable your business, assuming it qualifies, to claim an immediate deduction:
- Motor vehicles – you can claim an instant tax write-off for the first $5,000 for any motor vehicle that you buy in the upcoming financial year (2012/2013).
- Other assets – you can claim an immediate write-off of all assets under $6,500 from 1 July 2012.
Plus, the Government has simplified how other forms of write-offs are managed. The change will allow small business to write-off other assets (except buildings) at a single rate (normally multiple rates apply depending on the type of asset).
Talk to us today and let us help you navigate the road ahead!