What's New @ Dewings?

While there were, as always, a broad range of announcements across different sectors and interests made in the 2019-20 Federal Budget, we are of course primarily interested here in those measures that specifically impact the world of tax and business. From that point of view, there is very little in the Budget to get excited about or even mention. Add to that the fact that almost all of these announcements are contingent on the Coalition winning the upcoming election, and it makes for a very uneventful Budget update.

You can read the full version of our take on the Federal Budget here.

In this issue we take a look at one of Labor's more divisive proposals - abolishing refunds of dividend imputation credits for those with no tax to pay. We look at why it's yet another regrettable shift in the superannuation goalposts for those planning for retirement. We also look at how fast-tracking the company tax rate cuts may actually cost small business more in tax, and also detail our Christmas closing times for this year.

You can read the full version here.

We've recently received (very short) notice that the power to our street will be interrupted for planned maintenance between 8:00am and 3:00pm this coming Thursday, 13th December 2018.

Please note that this may mean that you could have trouble getting in contact with us during this time. To ensure that the disruption to you is minimised, we'll be redirecting our main phone line to a mobile service, and most of our staff will be working off-site to ensure they still have internet access. Hopefully you won't notice much difference, but even so, we recognise that it's not ideal and that there may still be some minor issues getting in contact with someone.

There may be times when you try to call the office but are unable to connect. This will most likely be where we are on another call, as we won't have our usual quota of lines available, or during a time where we're waiting for our redirection to activate. Please be patient and keep trying.

If you have the mobile number of the Dewings team member you usually work with, please feel free to call them directly. If you don't, and anticipate that you may need something on Thursday, please get in contact with someone soon to discuss how you can stay in touch.

Finally, if you happen call into the office on Thursday, we will only have a skeleton staff present, and the lights will probably be out. Other than that, we still hope to provide our usual high standard of service and will try to put you in contact with someone as soon as possible.

We apologise for the inconvenience and for the short notice. Unfortunately, this has only recently been brought to our attention.

In the meantime, if you have any questions or concerns, please feel free to contact us before Thursday to discuss them further.

State Budgets have a history of being a little less than interesting, especially from a tax and business point of view. In recent years however there has been a real effort to assist business and reduce compliance costs through bolder tax initiatives. The new Liberal State Government seems to be continuing that trend with its first Budget handed down last Tuesday 4th September.

In amongst the swipes at the previous administration, these days common to all incoming Governments ("cleaning up the enormous mess left to us by 16 years of Labor..." and so on) was some very real tax reform. Continuing on from Labor's efforts to abolish commercial Stamp Duty, the Marshall Government set its sights on Payroll Tax, another traditional revenue source for State Governments that counter-intuitively stifles business growth and innovation. From 1st July 2019, businesses with annual taxable payroll of less than $1.5 million will be exempt from Payroll Tax altogether, and those with payrolls between $1.5 million and $1.7 million will pay a lower rate.

The previous Labor Government had attempted a degree of Payroll Tax reform through an annual rebate system for certain businesses, however this was a temporary measure and still required ongoing Payroll Tax record-keeping and compliance. Raising the exemption threshold not only saves businesses from paying the tax, it also frees them of the compliance costs associated with managing it. It's a great step in the right direction, although the problem of disincentivising businesses that are close to the payroll threshold still exists. It's just been moved up a little. Hopefully a total removal of Payroll Tax is somewhere on the radar for the future.

As a further tax relief measure, the tax-free threshold for Land Tax will be increased from 1st July 2020, to $450,000 from the current level of $369,000. Further, a new rate of 2.9% will be introduced for properties valued at between the current top tier of $1.2 million and $5 million. It's estimated that up to 50,000 property ownerships will experience some benefit from this measure, with up to 8,000 more paying no Land Tax at all.

With a range of infrastructure investments, a reduction in the Emergency Services Levy and a very modest estimated surplus of $48 million, there is plenty of good news here for the future of business in South Australia. There's not a lot in the kit for State Governments to draw upon, and the bold willingness in recent years of State Governments to reduce or eliminate a couple of the big ticket items in Stamp Duty and Payroll Tax is to be applauded.

Late last month, opposition leader Bill Shorten announced that if elected, his Government would reverse the 2.5% company tax reduction for companies turning over between $10 million and $50 million per annum. After an uproar from the business community, the decision was quickly reversed, in the name of providing certainty over an issue that has been anything but in the last couple of years. But that's not the only proposal Labor has in the works.

Last year Labor announced that it would begin taxing distributions to trust beneficiaries at a minimum rate of 30%. That is, the first dollar of any trust distribution would be taxed at 30%, rather than being subject to lower personal rates, including the tax-free threshold. This is a dramatic shift from previous practice, and, despite the rhetoric of targeting the complex tax arrangements of high-wealth individuals, is likely to impact ordinary small-medium business owners the hardest.

Labor then doubled-down on this strategy by declaring earlier this year that it would move to prevent excess imputation credits being refunded to individuals and super funds.

When dividend imputation was first introduced in 1987, franking credits could be used to offset any tax payable, but anything excess to the total tax due was simply lost. In the early 2000s, the Coalition changed the rules so that these excess credits could be refunded. Not only could taxpayers have their tax bill reduced to zero by franking credits, but now if there was anything left over, a refund would be payable.

Whether or not this was prudent, one of the major concerns with this change is that we have lived with the refund system for almost two decades now. Retirement strategies have been planned years in advance, and commenced, based on certain assumptions as to how much a person will need to live on and what income will be available. Franking credit refunds have been factored into these calculations. To make such a dramatic change now potentially undermines the very objective of the superannuation system, which is to ensure that people are confidently self-sufficient in retirement, rather than dependent on Government welfare.

Not long after the announcement, there was an inevitable outcry from the Government about the impact it would have on retirees, and in response the opposition very quickly announced modifications to exempt anyone on a pension or currently receiving income from a Self-Managed Superannuation Fund. Still, this only removes the impact for current retirees. Those close to retirement age could still be affected.

Of course, this is just a proposal for future legislation. Not only is Labor in opposition, but even if, as current polls seem to indicate, it is elected to Government, recent history suggests it may have a difficult time getting any revenue measures unchanged through both houses of Parliament.

Nevertheless, on the issue of small business taxation and superannuation at least, Labor seems determined to provide real differentiation at the next election.