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WHAT'S COMING IN 2012?
1 Feb 2012
WHAT'S COMING IN 2012?
2012 will herald significant changes to the Australian tax system. The carbon tax and a raft of other changes are set to come on stream, including new depreciation rules for small business and a new reporting regime for payments made to contractors in the building and construction industry. Through our email updates and our bi-monthly Business Solutions magazine, we will keep you informed throughout the year on how these important new measures impact you.
Carbon Tax
Following years of political 'to and fro' on climate policy, on 8 November 2011 the Federal Government passed its Clean Energy legislation through the Parliament, the main feature of which is a carbon tax which will commence on 1 July 2012. The carbon tax will impact the community in different ways:
Business
From 1 July 2012 a carbon price mechanism will commence. From this date affected businesses (estimated to be Australia's top 500 polluters) will be required to pay for each tonne of carbon pollution they emit into the atmosphere each year. This mechanism will be implemented in two stages:
1. From 1 July 2012 to 30 June 2015, the per tonne carbon price will be fixed by the Government (starting at $23 per tonne) and will
operate as a carbon tax.
2. From 1 July 2015, the mechanism will change to a 'cap and trade' emissions trading scheme where the top 500 polluting
companies will be required to buy permits to pollute, with the carbon price being set by the market.
Therefore, the carbon tax will only directly affect Australia's biggest 500 polluting businesses, with most businesses not required to pay the tax. However, it is anticipated that these top 500 companies will pass some of this tax impost onto their business customers and the general public. All told, the flow-through impact of carbon tax-related price rises is expected to contribute 0.7% to the Consumer Price Index (CPI) in the first year of the tax. For the sake of comparison, the GST contributed 2.5% to the CPI in its first year.
To help the economy adjust, the Government will use some of the proceeds raised from the carbon tax to compensate industry (including many of the companies that will be paying the tax) and households. Most small businesses though will not qualify for compensation and are expected to pass on any increase in costs to their customers.
Households/Consumers
To help cope with the price increases passed on by business, most householders will receive some form of compensation which will take two forms - tax cuts and increased Government payments. On the taxation front, from 1 July 2012:
- The tax-free threshold will increase from $6 000 to $18 200; and
- The low income tax offset will be reduced from a maximum of $1 500 to a maximum of $445.
Resident Individuals (not including Medicare levy or 2011/2012 Flood levy)
|
Current 2011/2012 Tax Rates |
From 1 July 2012 |
|
Income threshold ($) |
% |
Income threshold ($) |
% |
|
0 - 6 000 |
0 |
0 - 18 200 |
0 |
|
6 001 - 37 000 |
15 |
18 201 - 37 000 |
19 |
|
37 001 - 80 000 |
30 |
37 001 - 80 000 |
32.5 |
|
80 001 - 180 000 |
37 |
80 001 - 180 000 |
37 |
|
180 001 - above |
45 |
180 001 - above |
45 |
|
Low Income
Tax Offset |
Up to $1500 |
4%
withdrawal rate on
income over $30 000 |
Up to $445 |
Up to 1.5%
withdrawal rate on
income over $37 000 |
|
Effective tax-free threshold |
$16 000 |
$20 542 |
|
TAKE HOME MESSAGE
Despite the increases to the current 15% and 30% thresholds, the effect of increasing the tax-free threshold by more than $12 000 will result in every taxpayer earning up to $80 000 per year paying less tax than in 2011/2012, with most paying at least $300 less per year compared to current rates.
In view of this overall reduction in personal tax for most taxpayers, you may like to consider the tax planning opportunities this creates such as deferring capital gains until after 30 June 2012 (by delaying the sale of the asset until after this date). |
A further round of tax cuts are also scheduled from 1 July 2015:
Resident Individuals (not including Medicare levy)
|
2012/2013 - 2014/2015 Tax Rates |
From 1 July 2015 |
|
Income threshold ($) |
% |
Income threshold ($) |
% |
|
0 - 18 200 |
0 |
0 - 19 400 |
0 |
|
18 201 - 37 000 |
19 |
19 401 - 37 000 |
19 |
|
37 001 - 80 000 |
32.5 |
37 001 - 80 000 |
33 |
|
80 001 - 180 000 |
37 |
80 001 - 180 000 |
37 |
|
180 001 - above |
45 |
180 001 - above |
45 |
|
Low Income
Tax Offset |
Up to $445 |
Up to 1.5%
withdrawal rate on
income over $37 000 |
Up to $300 |
Up to 1%
withdrawal rate on
income over $37 000 |
The second form of compensation, increased Government payments, will take the following form:
- Up to an extra $338 per year for single pensioners and self-funded retirees, and up to $510 for pensioner couples combined. This will be delivered as a new, permanent, and tax exempt Clean Energy Supplement which will be paid in line with regular pensioner payment cycles from 20 March 2013.
To ensure pensioners don't have to wait until this date to receive compensation, they will receive a Clean Energy Advance which will be paid as an upfront and tax exempt lump sum payment of up to $250 for singles and $190 for each eligible member of a couple. This payment will be made in May-June 2012. Pensioners eligible for this assistance include recipients of the Age Pension, Disability Support Pension, Carer Payment, Service Pension and Wife Pension.
- Commonwealth Seniors Health Care Card holders will receive assistance through the Seniors Supplement of $338 for singles, and $255 for each eligible member of a couple. This is the same amount of assistance pensioners will receive. Many self-funded retirees will benefit from this measure which will be paid similarly to the increase in the pension (i.e. an upfront payment in May-June 2012, followed by an annual payment from March 2013). Self-funded retirees on low incomes who do not receive adequate Clean Energy assistance may also be eligible for an annual, tax exempt low income supplement of $300.
- Up to $110 extra per child, per year, for a family that receives Family Tax Benefit Part A;
- Up to $69 extra per year for families that receive Family Tax Benefit Part B;
- For people on Government allowances (such as New Start, Austudy, etc) up to $218 extra per year for singles and $390 per year for couples combined; and
- Up to $234 per year for single parents in addition to increased family payments they receive.
To find out whether you will be better or worse off following the implementation of the carbon tax and associated compensation, the Government has designed an estimator which you can access at https://www.cleanenergyfuture.gov.au/helping-households/household-assistance-estimator/
Small Business Depreciation
Small business taxpayers will soon benefit from more generous depreciation rules which will ultimately improve cashflow by allowing bigger deductions in earlier years. These depreciation changes are however dependent on the passage of the Mining Resources Rent Tax which is set to be put before Parliament early in 2012.
Assuming the passage of the mining tax, commencing 1 July 2012 small business taxpayers (i.e. those with an annual turnover of less than $2 million, including the turnover of affiliates and associated entities) will benefit from the following three measures:
1. Increased instant asset write-off threshold;
2. Streamlined pooling provisions; and
3. Special rules for cars.
Instant Asset Write-Off Threshold
From 2012/2013, small businesses will be able to write-off depreciating assets costing less than $6 500 (up from $1 000) in the income year in which they start to use the asset or have it installed ready for use.
|
EXAMPLE
Barry's Mowing Pty Ltd is a small business entity (SBE). During the 2012/2013 income year it buys a new mower for $4 000. As the mower is a depreciable asset and costs less than $6 500, Barry's can claim an immediate deduction in 2012/2013. This means that Barry's enjoys a $3 400 cashflow benefit in 2012/2013 compared to the old law where the business would only have been able to claim a $600 deduction in that year.
In view of this measure, if you are thinking of purchasing a low value asset between $1 000 and $6 500 for your business, to get a cashflow advantage you may wish to delay the purchase until after 30 June 2012. |
Streamlined Pooling
Simplifying the depreciation rules for small business, from 1 July 2012 the small business long life pool will cease to exist. From this date, all assets costing $6 500 or more other than buildings will be depreciated in a general small business pool at 30% (with the rate of 15% applying in the first year). The abolition of the long-life pool again will provide a significant cashflow benefit to small businesses. The changes are summarised in the following table:
|
Current Law |
From 1 July 2012 |
|
Small businesses can allocate depreciating assets costing
$1 000 or more to either the long life business pool or the general small business pool, depending on the effective life of the asset.
The depreciation rates of the pools are 5% and 30% respectively. |
Small businesses can allocate depreciating assets costing $6 500 or more to the general small business pool to be depreciated at a rate of 15% in the year of allocation, and 30% in subsequent years, irrespective of the effective life of the asset. |
The closing balance of your long life pool and general small business pool at 30 June 2012 will be added together in order to calculate the opening balance of the general small business pool for the beginning of the 2012/2013 income year.
|
EXAMPLE - CONSOLIDATION OF POOLS AT 30 JUNE 2012
Jake's Hardware is an SBE and at the end of the 2011/2012 income year the closing balance of its long life pool was $12 000 while the closing balance of its general pool was $8 000.
For the commencement of 2012/2013 income year, Jake's long life pool no longer exists - it will be folded into its general small business pool which will have an opening balance of $20 000 ($12 000 + $8 000). |
|
EXAMPLE - ASSETS ACQUIRED DURING THE YEAR
Following on from the previous example where the opening balance of the general pool was $20 000, during the 2012/2013 income year Jake purchased a piece of new equipment for $9 000. As the cost of the asset exceeds $6 500, Jake's can deduct 15% of the cost of the item in the 2012/2013 income year ($1 350). To calculate the deduction for the balance of the $20 000 general pool, Jake uses a 30% rate ($20 000 x 30% = $6 000).
In the following year of 2013/2014, the remaining value of the equipment ($9 000 - $1 350 = $7 650) will be added to the general pool and depreciated at 30%. |
Special Rules for Cars
From 1 July 2012, after allocating a car to the general small business pool, an SBE can write-off $5 000 of a car costing $6 500 or more in the income year in which they start to use the car (new or secondhand). The remaining value is depreciated through the general pool at a rate of 15% in the first year and 30% in later years.
|
Current Law |
From 1 July 2012 |
|
Small businesses can write off depreciating assets (including cars) costing less than $1 000 in the income year in which they start to use the car, and can depreciate assets costing $1 000 or more through the general small business pool at 15% in the year of allocation and 30% in later years. |
After allocating a car to the general small business pool, a small business can write-off $5 000 of a car costing $6 500 or more in the income year in which they start to use the car. The remaining value is depreciated through the general small business pool at 15% in the year of allocation and 30% in later years. |
Both under the new law and the old law, a car is defined as any motor road powered vehicle and includes second-hand vehicles as follows:
|
Eligible Vehicle |
Ineligible Vehicle |
|
Cars
Trucks
Vans
Utilities
Motorbikes
Scooters |
Road rollers
Graders
Tractors
Combine harvesters
Earthmoving equipment
Trailers |
|
EXAMPLE
Cameron's Couriers is an SBE and in the 2012/2013 income year it purchases a vehicle for $24 000 to use solely for its deliveries. Cameron can claim a deduction of $7 850 in 2012/2013 ($5 000 + (15% x $19 000)).
In the 2013/2014 income year the remaining value of the vehicle ($19 000 - $7 850) will form part of Cameron's general small business pool to be depreciated at a rate of 30%. |
New Reporting Regime for Contractors
The Tax Office is continuing its crackdown on independent contractors this time in the building and construction industry (BCI). From 1 July 2012 a mandatory reporting regime will be introduced requiring certain entities to lodge annual reports detailing any amounts paid to contractors and subcontractors in the BCI along with each contractor's ABN.
This reform aims to improve tax compliance in the BCI by providing the Tax Office with sufficient information to cross check and data match transactions. Under the regime, a transaction will be required to be reported where all of the following elements are present:
-
The payment is for the supply of building and construction services;
-
The business or contractor making the payment is required to report under the proposed regime (this will be the case where they are wholly or principally engaged in the BCI); and
-
The recipient of the payment is a contractor or subcontractor who is engaged in the BCI.
The new regime will operate within the existing payment, ABN and identification verification system (PAIVS) contained in Part 5-30 of the Tax Administration Act (TAA).
Which Payments?
Section 405 of the TAA determines that a payment will be subject to reporting where it is made, or liable to be made, for a supply under a contract that, in whole or in part, involves a supply of building and construction services. Therefore payments which are made only in relation to goods or materials, or payments of salary and wages for employees are not reportable. However a supply consisting partly of services and partly of goods/materials will be reportable.
|
EXAMPLE (ADAPTED FROM THE CONSULTATION PAPER)
Beatrice is a plumber who has been contracted by a builder to install several toilets in a housing estate. Her contract includes payment for her labour and payment for the toilet parts and fittings.
Beatrice's contract would constitute a reportable supply, as it is a contract in part for a supply of services in the BCI. The whole of the payment would need to be reported by the payer - not just the service component. |
BCI
Although the consultation paper does not provide a definition of 'building and construction services', the paper does state that the definition may borrow from GST concepts such as the definition provided in GST Ruling GSTR 2000/18:
Construction and building services include but are not limited to bricklaying, carpentry, plumbing, tiling,
electrical, painting, air conditioning installation, lift installation, or any combination of these.
Reporting On
The consultation paper states that the entities who will be reported on are any individual and non-individual contractor (therefore capturing businesses as well as individuals who operate through an interposed entity such as a company or trust) who:
- Is engaged to the BCI;
- Receives a Section 405 payment; and
- Quotes their ABN.
|
ALERT
Although these people and entities will be reported on, they themselves will not have any reporting obligations unless they satisfy the 'Reporters' criteria (see next section). |
Reporters
Entities and people who will be required to report are businesses or contractors (including sole traders) who make Section 405 payments and who are "wholly or principally" engaged in the BCI. According to the Consultation paper:
This measure is aimed at business-to-business transactions, targeting only those payments made by businesses
or contractors in the BCI, to contractors (or sub-contractors) in the BCI.
For that reason, purchasing entities required to report include any business, including a sole trader or a contractor
that is wholly or principally engaged in the BCI.
A business that is 'wholly or principally engaged in the BCI is a business that predominantly undertakes building and
construction activities as defined as a 'building and construction service'.
Therefore, under this measure 'a purchaser' would be a business whose core activity is the provision or procurement
of building and construction services.
It follows that a purchaser does not include an individual in a domestic capacity who engages a contractor to undertake work.
|
EXAMPLE
Big Bites Pty Ltd is a Sydney restaurant which is engaging contractors to build an extra kitchen on their premises. Although Big Bites is a business which is engaging a contractor in the BCI, Big Bites' core activity is making and selling food, and therefore it is not a purchaser under the new regime. It is not therefore required to report the payments it makes to the contractor. |
|
TAX TIP
According to the consultation paper, the information required to be reported under this regime is typically collected by businesses anyway as part of their normal record keeping requirements.
Nonetheless, the reporting of all of these payments will itself add an extra layer of paperwork for those affected. |
Standard Tax Deduction
The Government has released exposure draft legislation and explanatory materials which will provide individual taxpayers with a standard, automatic tax deduction.
From the 2013/2014 income year, taxpayers will be able to claim a standard tax deduction of $500 for work-related expenses and the cost of managing your tax affairs (e.g. engaging an accountant). The deduction will increase to $1 000 in 2014/2015 and later years. Taxpayers with deductions totally more than this standard amount will be able to claim the higher amount but will need to substantiate the entire amounts with receipts.
|
BENEFITS
The big benefit of this standard deduction is that taxpayers who claim it will no longer need to substantiate their work-related expenses or the expenses in managing their tax affairs up to $500 ($1 000 in 2014/2015 and later years).
Also in the draft legislation there appears to be no requirement the claimants are actually employed during the year. Therefore, taxpayers who were not in paid employment during the year, but who have taxable income (e.g. interest and other investment income) will also be able to take advantage of this measure. |