New Tax Changes For Businesses
While business owners may not have found too much to get excited about in this year’s Budget, there are a couple of notable new tax changes for businesses, and confirmation of some previously announced measures.
Company Tax Rate
The proposed cut to company tax has been abandoned, and the rate will stay at 30% for all companies for the foreseeable future.
Some of the tax planning those businesses were doing around the proposed changes, including in relation to their franking account balances, will now no longer be relevant.
Carry Back Rules
New rules will allow companies to “carry back” up to $1 million of tax losses to offset tax payable in an earlier year. The introduction of this measure is good news that businesses and follows the lead of many of our trading partners such as the UK and the US.
There are some limitations. For the 2012/13, the carry back is available only for a 12 month period, i.e. it applies only to companies that make a taxable profit in 2011/12 and a tax loss in 2012/13. From 2013/14 onwards, the carry back period increases to two years.
There are no limits on the size of the companies that can use this concession.
It is likely that the tax refund will be limited to the company’s available franking account balance.
For example, if a company made profits in 2011/12 and paid tax, but has since paid franked dividends to use the resulting franking credits, it will be unable to carry back tax losses from 2012/13.
The budget confirmed the previously announced changes to the Living Away From Home Allowance (LAFHA) concessions will proceed from 1 July 2012.
This will have significant implications for businesses bringing in skilled people on temporary visas, as the concessions had been an important tool in addressing skill shortages in a range of industries.
From 1 July 2012 it will no longer be possible to pay exempt accommodation and food allowances to employees working in Australia temporarily. These allowances will either become taxable to the employees or will be subject to FBT, depending on how they are paid.
The LAFHA concessions will still be available for periods of up to 12 months where employees transfer on temporary assignments within Australia.
Bad Debt Deductions
From 8 May 2012 businesses will no longer be able to claim a bad debt deduction on a written-off debt with a related party.
In these situations, the debtor will not be taxed on any gain that they may make on the debt written off, but the creditor will not be able to claim a bad debt deduction.
We will need to wait for the legislation to see how related party is defined in this situation, but it is reasonable to expect that it will be defined quite broadly.
SME Asset Write-Offs
In a measure previously introduced, from 1 July 2012 small businesses will receive an immediate tax deduction for depreciable assets costing $6500 or less. This is a significant increase over the old $1000, and has advantages in terms of cash flow and reducing compliance costs.
Source: HLB Mann Judd Newsletter Winter 2012
These new tax changes for businesses will have an impact on business decision making for the 2012/13 financial year and beyond.