Company Tax change still in Limbo
An issue that many Pty Ltd Contractors, business owners and investors will need to grapple with is uncertainty on the tax rate that applies to companies for the year ended 30 June 2018 and the maximum franking rate on dividends paid during the 2018 income year.
While the Government introduced a Bill to Parliament in October 2017, which seeks to change the rules in this area, the Bill is still not yet law. As a result, it looks like we will need to apply the existing provisions for determining company tax rates and maximum franking rates (which are based on whether the company carries on a business), but also to be aware that the position might change if and when the Bill passes through Parliament.
Under current rules, a company would be subject to a 27.5% tax rate if it carries on a business (which could include investment activities as long as there is a genuine expectation of making a profit) and the aggregated turnover of the company and certain related parties is less than $25m.
If the Bill passes in its current form, then the tax rate and maximum franking rate position will depend on whether more than 80% of the company’s income is passive in nature (e.g., interest, rent etc.). If more than 80% of the company’s income is passive in nature, then a 30% tax rate should apply. The $25m aggregated turnover test will also need to be applied.
Personal Income tax cuts from 1 July 2018
New personal income tax rates come into effect from 1 July 2018. The top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. Dovetailing into the tax bracket change is the introduction of the Low and Middle Income Tax Offset for those with taxable incomes up to $125,333. The offset is a non-refundable tax offset that you receive when you lodge your income tax return.
If your annual taxable income is $80,000 in 2018-19, then the personal income tax changes provide an annual tax reduction of $530 per year. If your annual taxable income is $120,000, then the changes give you an annual reduction of $215.
NEW minimum pay rates from 1 July 2018
New award wages and allowances come into effect from 1 July 2018. If you’re an employer, it’s important that you are aware of the new rates and apply them. The Fair Work Ombudsman’s online Pay Calculator can help you determine the right rates to apply.
$20k accelerated deductions for small business extended another year
The ability for small business entities to claim an immediate deduction for assets costing less than $20,000 has been extended for another 12 months until 30 June 2019.
From 1 July 2019, the immediate deduction threshold will reduce back to $1,000.
There are no limits to the number of times you can use the immediate deduction assuming your cashflow supports the purchases.
If your business is registered for GST, the cost of the asset needs to be less than $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
Second hand goods are also deductible. However, there are a number of assets that don’t qualify for the instant asset write-off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
If you purchase assets costing $20,000 or more, the immediate deduction does not apply but small businesses have the ability to allocate the purchase to a pool and depreciate the pool at a rate of 15% in the first year and 30% for each year thereafter.
If todays article has raised questions about your Pty Ltd entity, we are available to answer your questions
At CXC Financial Partners we are more than just Tax Agents, all our accountants are CA or CPA qualified and have experience maximising your allowable contractor deductions. Their sole job is to ensure you pay the minimum tax you’re required to, leaving more money in your pocket for some of life’s luxuries. Give the team a call to check whether you are getting the maximum return and don’t forget to ask if you’re entitled to a free or discounted return.
The tax team are on 1300 925 081 or firstname.lastname@example.org