What's New @ Dewings?

In this issue we take a look at the SA State Budget which contained some courageous tax reform measures that will yield genuine relief to business.

You can read the full version here.

The Federal Treasurer Joe Hockey has handed down his second Federal Budget. In recent years one of the least surprising days of the year has been Budget night, from a business and tax perspective at least. It's pretty much standard practice now that the most significant Budget measures are either announced as separate packages, or otherwise 'leaked' prior to the Budget announcement, presumably to manage expectations and test the waters a little. This year is no exception.

Read our full summary of the tax and business highlights here.

One of the big surprises in the recent Federal Budget was the announcement of an immediate increase to the limit below which an asset can be written off immediately for tax purposes. This applies only to small businesses (those with turnover below $2 million), and is effective from Budget night, 12th May 2015.

What does this mean? Assets such as equipment, motor vehicles and so on must normally be depreciated for accounting and tax purposes. This means that while you do ultimately get a deduction for the full cost of the asset, it is spread over a few years, based on the useful life of the asset.

This announcement means that assets with a value of less than $20,000 purchased by a small business can now be claimed as an immediate deduction in the year of purchase. The previous limit was $1,000; however this had recently been reduced from $6,500 so this announcement was a rare (but well-received) turnaround.

The advantage is purely one of timing, however being able to claim the full value of an asset in a single year can result in a significant cash flow injection by bringing forward a reduction in tax payable.

If you're a small business looking for a way to reduce the amount of tax you'll have to pay this year, and are in need of new equipment, buying it before 30th June will make a big dent in your tax bill. Note too that the limit is per asset, so multiple purchases will multiply the effect.

Don't get too excited though. It's really only good news for those who were planning on buying equipment anyway. The effect really is an immediate discount on the cost of an asset, not a direct inflow of cash. If (say) your average rate of tax is 30%, you're still up for 70% of the cost, so there's no point buying equipment you don't need just to get the discount.

In this issue we take a look at this year's target areas for Tax Office audit activity, we've also included a reminder that SuperStream is coming, and we look ahead to what the Government may have in mind for the generous tax concessions extended to super funds.

You can read the full version here.

Despite a pre-election promise to leave superannuation untouched, the Government has flagged changes to the concessions afforded to superannuation savings as a part of its discussions with the nation on tax reform.

This week the Government released a tax discussion paper to kick-start an ongoing conversation with stakeholders and other interested parties on the future of the Australian tax system. The 'Re:think' discussion paper calls for "lower, simpler and fairer taxes" and addresses the complexity of the current system, its high reliance on income tax, the GST and the imbalance in taxation treatments between different saving measures, including superannuation and dividend imputation.

In particular the discussion is aimed at dealing with the long-term sustainability of the system in light of an aging population. A natural implication of this looming issue is that many of those currently sustaining the income tax system will, in the coming decades, move to a position of paying no income tax at all through superannuation.

In view of this the Government has suggested, in conjunction with the launch of the paper, that some of the more generous superannuation concessions are something that may be looked at in the future, particularly if they are able to secure bipartisan support for any reforms. One aspect of the system that may be targeted is the tax-free status of all superannuation income in retirement.

The logic is that as a implement to encourage retirement savings and release pressure on the Aged Pension system, exempting all retirement income from tax provides a much greater benefit to the wealthy, who are the least likely to draw on the Aged Pension anyway. Others may argue of course that it is the wealthy who have paid a lot more tax during their working life.

Either way, it seems likely that change of some sort will eventually come, which will continue the ever-shifting nature, and uncertainty, of the superannuation landscape in Australia.