Key changes and new measures to be aware of when completing your clients’ returns include the tax concessions for small business, changes to gender identifiers, the new tax system for managed investment trusts and increasing access to company losses.
Simplified depreciation for small business
Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 and were purchased between 7:30pm on 12 May 2015 and 30 June 2017.
They can claim the deduction through their tax return.
They can also immediately deduct the balance in the small business pool if it is less than $20,000 at the end of an income year that ends on or after 12 May 2015 to 30 June 2017 (including an existing pool).
Accelerated depreciation for primary producers
From 12 May 2015, primary producers can immediately deduct the costs of:
- fencing – previously deducted over a period up to 30 years
- water facilities – previously deducted over three years.
They can also deduct the cost of fodder storage assets over three years, instead of over a period up to 50 years.
Company tax cuts for small business
The small business company tax rate reduced from 30% to 28.5% for income years commencing on or after 1 July 2015. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts.
The company tax rate remains at 30% for all other companies that are not small business entities.
Immediate deductions for start-up costs
From 1 July 2015, small businesses can immediately deduct certain start-up expenses, including costs associated with raising capital.
Small business income tax offset
From 2015–16, an individual is entitled to a tax offset on the tax payable on their share of net small business income earned by a sole trader, partnership or trust that is a small business entity.
Sole traders, partnerships and trusts that are small business entities need to work out their net small business income as well as the partner’s and beneficiary’s share of that income.
Changes to gender identifiers
The Attorney General’s guidelines on the recognition of sex and gender recognise that individuals may identify and be recognised within the community as:
- a gender other than the sex (male or female) they were assigned at birth/infancy, or
- an indeterminate sex and/or gender.
The guidelines standardise the way the Australian Government collects and uses sex/gender information. We no longer ask for the taxpayer’s sex on page 1 of the tax return. The Spouse Details section now asks for gender and provides three options to select from. This item has been retained for administrative purposes.
Net medical expenses tax offset phase-out
From 1 July 2015, the offset can only be claimed by taxpayers with net expenses for disability aids, attendant care or aged care. The offset is income tested.
The offset will be abolished from 1 July 2019.
First home savers accounts abolished
First home saver accounts (FHSA) were abolished on 1 July 2015 and became ordinary savings accounts.
Account holders must include earnings in their tax returns. Account providers don’t pay tax on FHSA earnings for any period after 30 June 2015.
New tax system for managed investment trusts
Managed investment trusts (MITs) have access to a new tax system, which modernises the tax rules for eligible MITs and increases certainty for investors.
If enacted, the proposed rules will apply from 1 July 2016. Eligible MITs can elect to apply the rules from 1 July 2015. They can attribute trust income to beneficiaries on a fair and reasonable basis according to their ownership interests in the MIT. An eligible MIT electing into the system is known as an attribution managed investment trust (AMIT).
Among other things, the new tax system introduces provisions relating to amounts that affect the cost base of a member’s interest in the trust.
Exploration Development Incentive
The Exploration Development Incentive (EDI) encourages shareholder investment in small exploration companies undertaking greenfields mineral exploration in Australia.
The scheme enables eligible exploration companies to give up a portion of their tax losses from greenfields exploration to create and issue exploration credits to their shareholders.
Certain Australian resident investors are entitled to a refundable tax offset for the exploration credits that they receive.
Business services wage assessment tool payment
If an individual received a lump sum in arrears business services wage assessment tool (BSWAT) payment, they may claim a lump sum in arrears tax offset.
The BSWAT lump sum in arrears payment is not salary and wages or an Australian government pension or allowance.
To claim the lump sum tax offset, they must report the payment at label 14 Other Australian income on their tax return.
Report of entity tax information
From December 2015, under the income tax transparency reporting requirements, the Commissioner of Taxation will publish an annual list of:
- public and foreign owned corporate tax entities with total income of $100 million or more
- Australian-owned resident private entities with total income of $200 million or more.
The information will be extracted from tax returns on 1 September in the year following the income year being reported and will be published around December. For example, information from the 2014–15 income year will be extracted on 1 September 2016 and published around December 2016.
Increasing access to company losses
At the time of publishing, this had not become law.
On 7 December 2015, the government announced, as part of its National Innovation and Science agenda, that the current ‘same business test’ for company losses will be relaxed to allow businesses to access past year losses when they have entered into new transactions or business activities.
To give effect to this, a new ‘predominately similar business test’ will be introduced. Under this test companies will be able to access losses where their business is similar in regard to:
- the extent to which the company generates assessable income from the same assets and sources
- whether any changes to the business are changes that would reasonably be expected to have been made to a similarly placed business.
This measure is expected to take effect from 1 July 2015.